Being a first-time home buyer can be daunting, heck even scary. It may be the largest purchase most people make in their life. In this guide, I will help you get the lay of the land for a first time buyer so you know what to ask, when to ask it, and how to determine if you found team, the right place and the right house!
Lets start with the overall list of what you will need to do before I break each item down one by one:
Alright, now that we have a basic understanding of what questions to ask lets go through them together as we walk through the house buying process
The first aspect of this is stability, make sure you will be stable in the area you are looking to move. If you are looking to move in the next year or two it may be best to wait. Next look at where your career is at, are your finances about to take a hit or a gain from your job or any external reasons? Are you in a stable place with your relationship? If you are doing long distance someone must move, unless you know it isn’t you it may not be best to put roots down yet.
If everything looks stable here it is time to check your back account and credit score. Make sure you have a good or great score (you may need to work on it to get a good interest rate on a loan) in the end this score could save you a lot of money! A score of 720 is considered good, 750-850 is excellent. You should have at least 20% of the purchase price in your bank for down payment. Make sure you also know what the home owner’s association fees might be as well as the property tax. If you are here in Portland, OR the property tax may be high compared to other markets. Find what your monthly payments will be with your mortgage, property tax and any other fees associated with the house. Then make sure that number is something you can do without putting yourself in a financial hole.
Most retail home buyers will be looking to realtors to help them find a place to live. In most cases this makes sense as they find finished homes ready to be sold off and match buyers and sellers. Make sure it is someone you trust, build a rapport with your agent as you are trusting them to help with a very important decision. Things you may want to ask them, where do you find properties? (most will say the Multiple Listing Service or MLS), others may also buy from investors and developers. What is your commission? Most will be around 3% of the purchase price, if it is much higher than that it may be time to find someone who can do it for cheaper. Ask them what area they usually operate in, make sure it aligns with where you want to look for property.
Make sure you have done all the calculations to understand what your house will cost month by month with a mortgage as well as the down payment costs. After that make sure when you are looking that you understand there might be some fixes to make in the house (new appliances, countertops, cabinets, shower, ect) and factor this into your final purchase price.
It is ALWAYS a good idea to have a trusted realtor or investor help you with this part as they have been through the process many times and can help. They also have insight where a friend who has only bought a single house may not, such as additional expenses with a certain area or more accurate estimates on repair values. A general overview of the costs of a house are this: Down payment costs (about 20% of the purchase price), mortgage cost, realtor fees (about 3% of purchase price), repair costs (ask for help getting an assessment of this or ask a trustworthy contractor), Escrow costs (opening and closing escrow of a house to pass title although your realtor will handle this part), homeowner’s insurance costs, property tax, utilities for that area, maintenance costs of the house.
This reserve is for repairs you may have after the purchase as well as any renovations you want to make or finishes you want. This cost includes those nice wood cabinets and granite you have had your eye on!
You need to establish what you want in a house? What layout do you like? What can you live without and what can’t you? Does the house have any major repairs it needs and are those something that is factored into the sale price? A good realtor can negotiate down the price of a home if you find there are repairs needed. However, you need to know if you are willing to wait while those repairs are being done. The same can be said for renovations that may be needed. I suggest never overlooking a great deal just because it needs some minor work done. This could save you money in the end but make sure you don’t get in over your head taking on a huge fixer upper house.
Most neighborhoods are quiet and peaceful in the middle of the week on a school day. Make sure you check it out on a Saturday night as well, as the neighbors about the area. Check online as well and look at schools in the area, crime and city violations. Google will usually be able to pull up these maps with the right search criteria. Good keywords for these include “Crime levels in XYZ neighborhood, Portland, OR” or replace crime levels with schools or city violations.
The neighbors can tell you if sparky, the dog down the road, barks at 3 AM every night or what else may be going on. They may also know about structural problems or if the Homeowner’s association is strict or not.
For the most part this will be done by your realtor. There will be some contingencies on closing. In other words, things that must happen for the deal to work. Most commonly this list includes, a good home inspection, approval of your mortgage and any extra clauses you need. In a competitive market, however to get a house it may require waving some of the extra contingencies. I would almost never wave the first two mentioned as they are vital to making sure you can complete the deal.
As you can see I love lists. I suggest making a list of things you NEED in your new house and thinks you want. After that give them a priority numbering system (most important being 1 and least being the largest number). When evaluating a house have this list in your mind or with you and see if you are missing any major items and if you can accept that.
My last piece of advice is NEVER being afraid to walk away from a deal, even if the price seems amazing if it doesn’t meet your criteria then it won’t work for you. If the inspection uncovers work that you are not willing to do or the seller is not willing to move forward from a piece of the contract. This will make the process longer but with a purchase this large it is better to wait an extra month or two to make sure you get what you are looking for in a home. This last advice only applies before you sign a contract, after you have signed make sure you talk to your realtor if you feel you need to back out of it as there are legal implications