Q&A Between a First-Time Homebuyer and a Buyers' Agent
As a first-time homebuyer, I've had many questions. And by "many," I mean A LOT of questions. The homebuying process involves a lot of steps and a lot of terms that you might not be aware of, so questions are inevitable.
I interviewed one of our experienced buyers' agents and our Director of Operations, Robert Garcia, to get his input on several of the questions I've had throughout my own homebuying process. Check out all of Robert's advice below!
FIRST-TIME HOMEBUYER: How early should I get pre-approved?
ROBERT GARCIA, REALTOR®: A pre-approval letter should be obtained prior to starting to look for a home. We normally suggest that you obtain your pre-approval the moment you have decided to purchase a house so in this way you’ll know how much you qualify for, how much money you’re going to need to put down and put towards closing costs, and what your monthly payment is going to be.
FIRST-TIME HOMEBUYER: Where do I find a lender? And how do I choose which one is best for me?
ROBERT GARCIA, REALTOR®: There are many ways to find a lender. We suggest you start a casual search online but definitely always get referrals from friends, family members, or the Realtor you choose to work with. Be aware that there are some lenders online that will probably want to charge you several points upfront and this can make the cost of the house more expensive.
FIRST-TIME HOMEBUYER: I was pre-approved for a certain amount. Should that be my budget? Or should my budget come in under that?
ROBERT GARCIA, REALTOR®: Most lenders will give you a pre-approval to the highest point you can afford every month. This does not mean that you have to buy a house with a monthly payment that makes you feel uncomfortable. Depending on the type of market we are in sometimes you may have to increase your pre-approval so that you can be more competitive, and in other cases you can stay under your budget. We always tell our purchasers that the most important thing is your comfort level.
FIRST-TIME HOMEBUYER: What questions should I ask while touring a house?
ROBERT GARCIA, REALTOR®: Definitely this is one of the most asked questions from a lot of our purchasers. In our opinion, here are the top three you should always ask no matter what. You need to find out how old the big mechanical items and the roof are. Another good question is are there any other additional fees that you need to be responsible for on top of the mortgage payment. And the last question is if the price of this particular property supports what other homes have sold in the neighborhood for in the last three months.
FIRST-TIME HOMEBUYER: When I’m ready to put an offer in, how do I decide on an offer price? In a competitive market, should I automatically put in a competitive offer?
ROBERT GARCIA, REALTOR®: Assuming that you already are working with a real estate professional, your Realtor should be able to guide you on this step. Your Realtor should produce something that is called a comparative market analysis. This is research that has been done in a neighborhood for the last six months and compares properties that have sold, are under contract, and are active (if any) so that you can either match the current price or you come under or above the current price. This can be a very tricky step because if you are working with a real estate professional who is not familiar with the area or does not have the experience necessary to identify comparables in the neighborhood, than you most likely will not get the ideal price.
In a very competitive market you have two options. The first option is to offer the asking price or even go higher immediately so you can be seen as a competitive offer. The second option is to use an instrument called an escalation clause form. This is an instrument that allows you to compete with other offers in a given amount of increments and to also establish a maximum price, also called a cap. You need to check with your Realtor if this escalation clause form is allowed in the area in which you are buying the property or if the seller will consider offers with this document. There are some sellers that would only work with the highest and best offers up front so the first step will work in this case.
FIRST-TIME HOMEBUYER: Can I get closing cost help?
ROBERT GARCIA, REALTOR®: Yes, you can always ask for closing help from the seller, but you need to take into consideration the type of market you are in. In a seller’s market (more buyers wanting to buy a house and less inventory available), the seller may receive multiple offers, and your offer may be less appealing because of the closing costs help you are asking for from them. In a buyer’s market you can ask for help and most likely get it. Remember that no seller is obligated to give you closing costs help.
FIRST-TIME HOMEBUYER: What do I do if there are big issues found during the home inspection? (I.e. roof needs to be replaced)
ROBERT GARCIA, REALTOR®: Good question! You can either ask the seller to replace it before settlement or to give you a credit for you to take care of it after you have purchased the house. I do not recommend the credit for first-time home buyers because of the unknown factors that may arise while doing the roof replacement work. If the seller is able to replace the roof, then the unknown factors will be something the current owner will have to deal with.
FIRST-TIME HOMEBUYER: What type of insurance coverage will I need?
ROBERT GARCIA, REALTOR®: You will need your typical hazard insurance (this is mandatory) coverage and flood insurance (only in some areas). The type of insurance will be something you and your insurance agent will discuss while looking at the different policies and companies.
FIRST-TIME HOMEBUYER: What costs other than closing costs can I expect to have during the process?
ROBERT GARCIA, REALTOR®: Additional costs are the pulling of your credit report, appraisal inspection report, all the home inspections you want to do, and other recurrent fees that are paid once a year like the FFB (front foot benefit).
FIRST-TIME HOMEBUYER: Are there any first-time homebuyer programs available to me?
ROBERT GARCIA, REALTOR®: Yes, there are some, and your lender should be able to assist you with it.
FIRST-TIME HOMEBUYER: I don’t have any furniture yet. Can I buy them before the settlement process is completed?
ROBERT GARCIA, REALTOR®: No no no. Adding more debt or making purchases above $500 while buying a home can either disqualify you (debt-to-income ratio) or delay the process of going to settlement because your file may be audited by the lender.