First Time Buyers Guide Step by Step
Youíve decided to buy a house, townhouse or condo. Itís time to dump the roommates and become a real adult, or maybe youíre just plain tired of ponying up rent every month never to see that hard earned cash again. Youíre forty-six and you feel you need to get settled? Someone died leaving you a fortune? Whatever your situation, here is a guide that will help you get the keys to your new home while navigating the real estate minefield unharmed.
GET THE CASH
You will need some cash. Make sure you have at least five percent of the price of what you want to buy in the bank. Yes, your mom can give you some of it, or that secret admirer, but luckily for you, it must be a gift, not a loan.
HIRE AN AGENT
Yes, of course you can buy a house without the help of a real estate agent. You can also build one from the ground up without a contractor if you have the time, expertise and desire, but your boss may wonder where you have been all year. Do yourself a huge favor. Hire your own real estate agent, an agent who works for you, not the seller. This is one of the few times in your life that you can actually hire someone to do a huge amount of work for you and not have to pay them a dime. Donít be fooled by agents who gloat they sold a gazillion dollars worth of real estate in the last fifteen minutes. Slap yourself. Would you pick a mechanic because he lives in an oceanfront mansion, or because they are honest and fix your car at a fair price? This is about you remember?
Communicate with your Agent Find an agent who you can talk to, and who listens well. If you feel anything you say to your agent can and will be used against you, adjust your medication or get a new agent. A good real estate agent should be artful in juggling your housing expectations with your budget and the reality of the market, but they are not psychics. The more you communicate with your agent, the easier it will be for both of you to find your new home.
GET A MORTGAGE
If you are loaded or had the good fortune to cash out of a fat stock portfolio while the NASDEQ was high, skip this paragraph. If you are like the rest of us poor slobs, you will need other peopleís money. Donít just get pre-qualified get pre-approved for a mortgage. Whatís the difference? Pre-qualification means you have talked to a lender and based on what you say about your debts and income, the lender tells you how much they are willing to lend you. If you forgot to mention that new car payment, those student loans, or that credit card you refuse to pay, the lenders pre-qualification is worthless.
A pre-approval is much better because the lender has confirmed that what you told them is the whole truth and nothing but the truth, and they are willing to make a firm commitment to lend to you. Pre-approval is fairly easy, assuming you havenít defaulted on previous loans, pay your bills on time, and donít have a long, fraud-ridden criminal record. It also tells you and the seller that your mortgage is a done deal. Thatís a very good thing in a tight market where multiple offers are not uncommon.
Get Your Credit Report Order a copy of your credit report and give a copy of it to any lenders you are considering. Do not allow numerous lenders to pull your credit. That makes lenders nervous, and affects your overall credit score. Once you have chosen a lender or two, you can let them obtain your credit record.
Apply With Two Lenders Mortgage lenders sell money. If your prospective lenders know they arenít the only shop on the block you are talking to, it can help you get the best deal on your mortgage. Most lenders ask for an application fee to cover the cost of the credit report and appraisal up front. They figure you wonít walk away from four hundred bucks or so. Ask if they will hold off on the appraisal until you make your final decision on a lender. This tells them they better treat you well if they ultimately want your business. If they arenít willing to do this, you may want to move on.
Bad Credit? Lenders measure how much risk they are taking when they lend money, and they charge interest and fees based on that level of risk. A good credit history means you will get the lowest interest rate and fees in the market, if you play your cards right. If your credit rating is not something you proudly share with your mom, there still may be a lender for you with terms you can swallow. Be prepared for a higher interest rate and up front costs. Many lenders love people with weak credit. Making you sweat and squirm and pay more for the borrowing privilege means more money for them. Get a copy of your credit report and dispute any errors. A good credit counselor can sometimes make a deadbeat look like a good credit risk.
Too Much Debt? Even if you're way ahead of the repo man, if you're carrying high debts you may need to reduce them. Contact creditors and establish realistic payment schedules. Start paying new bills on time. If it takes a year to chisel your debts down, put off house hunting, find the bliss of discipline, and know it will be a year well spent.
Cash Poor? There are ways you can buy a home without much cash on hand without having to join the Army or hitting your poor mother up again. A lot depends on you, your agent, the lender and how creative everyone is willing to be. If you can scratch up about five percent of a homes selling price, you can probably buy it.
Mortgage Insurance If you canít put twenty percent down, you will most likely have to pay mortgage insurance (MI). This protects the lender in case you default on the loan. The cost varies depending on the insurer and the type of loan, but it can effectively add .5 to 1 percent to the cost of your loan.
DETERMINE A PRICE RANGE
Add what the lender says they will lend (or less if you are the conservative sort) to the amount of cash you have available (less closing costs and pre-payments of about three percent of the selling price), and that is about the max you can afford in a house. What the lender says you can afford and what you are comfortable paying may be different. Your mortgage payment will include payment toward the amount borrowed, real estate taxes and property insurance, plus interest on the loan, or P.I.T.I. in lender jargon. Look at that closely, and remember you may still want to eat or travel, before deciding how much you want to commit toward your housing costs. Don't be afraid to think small. Once you establish equity in your first home you can always trade up. Coming up with enough cash for a down payment and closing costs can be a hurdle for many first-time homebuyers. Your lavish free-spending lifestyle may have to be reeled in for a while as you recover from the homebuyer cash hemorrhage
FIND A HOUSE
While house hunting can be a rude awakening given your excellent taste and modest budget, it is still the really fun part of the whole thing. Remember this is one of the few times in your life when you can look in other peoples closets and have a damn good reason for doing it. How do you find houses to look at? You can search the internet, drive around, read ads, go to open houses, talk to people and be a the eager real estate sleuth you always wanted to be, or not. When you find things, be sure to tell your agent what you find. Your agent is not your competition. If your agent is on the ball they will provide you with the most up-to-date information available on any houses that may be for you. Buyers looking on their own often find that savvy buyers have bought houses with the aid of quick-footed buyerís agents before they even appear online or in an ad. Most agents have access to the MLS. You donít. If you stop at an open house, tell the sellerís agent that you have your own agent or they may track you down like a bounty hunter. Remember, they work for the seller and they get the whole pie if you fall into their clutches. Have your agent schedule appointments for you to look at whatever you both have found. Be candid with your agent about what you like and dislike in the houses you see. It will help both of you find your new home.
Make Two Lists. The first should include items you must have. Be conservative, youíll want to be pleasantly surprised. The second list is your wish list, things you would like to have but that aren't absolutely necessary. You may not get a lot on your wish list, but it will keep you on track for what you're looking for.
Keep Notes. Even the best minds can get confused about what they have seen after a while. You may want to reconsider a house you eliminated early on, once you have seen the competition. Writing your notes on the flyers themselves can be helpful.
Take Pics. You or your agent should have a digital camera so you can make pics of what you see. A picture is worth a thousand words.
Update Your Agent. Tell your agent what you like and donít like. Ask questions. If your parameters change during the process (and they will) let your agent know.
Get the Low Down. When you see something that really interests you, have your agent provide you with as much information as possible on it, on recent sales in the area, and on factors that may affect the area and itís future desirability.
MAKE AN OFFER
How much should you offer? The amateur approach is to bid somewhere under the asking price no matter what. In reality a fair offer (or one likely to get accepted) depends on a mountain of things. Did the seller price it reasonably? How much demand is there for the house you want? What is the motivation of the seller? Is the listing agent realistic or ill-advising the seller? Your agent should provide you with detailed information on recent sales in the area so that you can make an educated offer, backed with concrete facts. Ask for your agentsí advice; remember this is not their first rodeo. You may think your agent is a lame negotiator if they advise you to offer full price, but how will you feel if you donít get the house because someone else steps up to the plate? Donít blame your agent; theyíve seen this happen before and hate it as much as you do. Recent sales may even be higher than the asking price if what you want is a hot commodity.
Typically the seller wonít take your first offer. They may not like your terms, or your offer price; they might not even like your looks. If the seller counters your offer, (preferably in writing) decide whether you are willing to haggle. This step is like an auction in that you should decide how high you are willing to go; knowing someone else may get it if they are willing to go higher. Remember, people tend to want what someone else wants. There is nothing like an offer in the air to awaken the interest of other prospective buyers. Try to negotiate quickly. In spite of what listing agents may imply, phones reach around the world, and most sellers can be reached most of the time.
GET IT INSPECTED
Hire a competent and thorough property inspector to look at the house with a fine-toothed comb. They will be looking for functional defects such as roof leaks, termites, plumbing and electrical problems, and will provide you a detailed written report of their findings with estimates for repair. Itís like a complete physical for a house. The contract may obligate the seller to make certain repairs or credit you at the closing to correct problems with the house. You may have a contract that says if you donít like the results of the inspection you can cancel the contract. This depends on what was negotiated in the purchase contract. Often the seller is unaware of the problems an inspector finds. More than a few sellers have even attempted to disguise problems they know exist. If the light of a thorough inspection has revealed significant problems that are not the sellerís responsibility to correct per the contract, you need to consider whether to proceed with the purchase, attempt to negotiate a repair settlement, or walk away. Itís all negotiable.
IS IT WORTH IT?
Your lender will hire an appraiser to determine the market value of the house. The lender wants to know that the house is worth more than what they are lending you to buy it, should you decide to skip town and they have to foreclose. Be sure to get a copy of the appraisal at the closing. You paid for it.
HIRE A CLOSING AGENT
Your closing agent will make sure that you get clear title to the property unencumbered by liens or encroachments. They will sell you title insurance to protect you in the event a title problem rears its ugly head in the future. You can hire a title insurance company or a real estate attorney for this service. Attorneys charge more than title companies, but if problems arise, you have an attorney representing you. If the seller has an attorney, it is often advisable to have one yourself. Remember scissors, rock, and paper? Keep the playing field even. That nice guy at the title company wonít be much help if the seller refuses to honor the contract terms.
Schedule a walk-through before the closing, after the seller has moved out. In the best circumstance this is ceremonial. But what if the seller has taken the sub-zero refrigerator and knocked the front door down getting it out? You want to see that no changes have been made that weren't agreed on, that everything is in working order, and that the chandelier you assumed came with the sale hasnít been replaced by a two dollar fixture. The seller is obligated to deliver the house in the condition you first saw it in. If itís not, donít sign a thing until the seller makes it right, which usually means a credit to you at the closing. Typically listing agents will ask buyers to sign off after the walk-through, saying you accept the property as-is. What do they know that you donít? Politely refuse and watch them squirm. Their broker may not be happy when they get back to the office, but you havenít lessened any recourse you may have if the seller successfully concealed a defect from you.
CLOSE THE DEAL
This normally takes place at your closing agents office. If the agents have done their jobs well, itís a breeze. You and the seller will be at a table with your closing agent and various hangers-on looking for checks. You will exchange cash for the keys. The closing agent collects money from you and the lender, and pays everyone involved but you. Prepare to sign more papers than a 4th grade teacher. Have a donut and some coffee, itís almost over.
Move in then head directly to Home Depot. It may not be as fun as all those pre-mortgage dinners out and frivolous weekend getaways, but money spent on home improvement is an investment in your house, not your expanding waistline.
R.L. Rose & Co., Realtors
217 N.E. 2 Street
Fort Lauderdale, Florida 33301
Toll-Free: (800) Rob-Rose
Direct Line: (954) 467-3305 Ext 201
Facsimile: (954) 467-0507
Executive Assistant Michael Dillon, Ext 202
Sales Assistant John Cotter, Ext. 205
Please visit www.southfloridahome.com
where you can search the area MLS
for any property currently listed by any agent by clicking on MLS
SEARCH. You will automatically be notified when a new listing comes on
the market meeting your criteria. If you prefer (and to get more
specific properties) I can set up more specific searching based on your
criteria and my knowledge of the area.
I have been in real estate in the area for 25 years and know all of
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My website has a wealth of information about how I work for buyers and
sellers, Condominium and neighborhood profiles, and tips, information
and articles I have written related to real estate in southeast Florida.
Please let me know if I can help you with your real estate needs.
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The following article has been written by Rob Rose, a Gay Realtor in Fort Lauderdale, Florida. Rob Rose can be reached online at†http://www.gayrealtynet.com/Florida.htm