8 Simple Steps to Help You Overcome Your Fears of First Time Home Buying!
by Karina Gafford
"I’ve been renting for over 25 years," Megan (not her real name), a new acquaintance from a holiday party, confided as we discussed the perks of living in various neighborhoods throughout the Northern Virginia area. "I’ve just always rented," Megan explained, "because I don’t know how to buy a house." Flummoxed by her statement, I nodded, sipped my drink, and pondered as to why an otherwise incredibly bright individual—one who had served a full career in the military, earned a degree, and now enjoyed a lucrative contractor position—could not manage to figure out how to purchase her own home. Yes, buying a home is more complicated than renting an apartment or house, but if Megan had figured out the process and bought a house on a thirty year mortgage note when she first began renting, she would only have five years left of payments remaining!
Then again, what military assignment permits a service member the luxury of setting roots in one home and one community in order to make the lengthy investment in a forever home? Given that Megan probably moved approximately ten times over the course of a twenty year career, buying a home likely seemed both unpractical and unwise. If Megan assumed that she would move every two years, perhaps learning how to buy a house simply did not seem worth investing the time and effort in her already hectic schedule.
Megan’s story is familiar to many military families. There are many reasons why career military folks and their families are unaware of the process of home buying, but that shouldn’t stop you from moving forward if homeownership is your dream. You have already made the right step by coming to MilitaryByOwner, the best resource for military families who wish to buy, sell, or rent a home, so now let us take a look at what steps you can take from here.
1. Review Your Financial Status
If you do not yet keep a monthly budget, now is the time to begin tracking your expenses to see what your budget can handle in terms of a mortgage payment and any additional expenses, such as Home Owner’s Association fees, lawn maintenance fees, and any additional expenses that may come along with your new home. In MilitaryByOwner’s article "Four Simple Steps to Organizing Your Financial Life," you can learn not only how to create a portable annual filing system that is compatible with the many moves of a military family, but also how to maintain that system over multiple years.
2. Get Qualified!
Once you have your finances in check, then it is time to contact financial institutions to see how much of a mortgage you can expect to receive. You will be thankful that you have all of your budgetary items in check, as some of the first questions any prospective lender will ask you include your monthly income and expenses. They will also inquire of any additional assets that you may have, so keep those Thrift Savings Plan and any IRA statements on hand. The lender will then provide you with a letter known as a pre-qualification statement that you can then take to your real estate agent. This statement will explain how much money that you should be able to receive as a mortgage.
3. Find a Good Real Estate Agent
Not all real estate agents are equal, and it is important to make sure that your agent has your best interests at heart. Though agents have an ethical obligation to keep a buyer’s best interests in mind throughout the home shopping and buying process, experience can create a huge difference. While "good" is a relative term, the internet fortunately provides us with the resources to find out more about a real estate agent’s experience through online reviews. To begin the process of finding a good, experience real estate agent, MilitaryByOwner’s Business Directory provides a list of agents who are experienced in dealing specifically with the home buying needs of military families; they understand the tight schedules of a brief 10-day home shopping leave as well as the challenges associated with beginning the home buying processing while deployed.
Before agreeing to work with an agent, ask for at least two references, and then actually contact them. The agent is not going to send you to a reference who will speak ill of her services, but the level of enthusiasm that a reference conveys about her home buying experience will provide you with a better indication of what you can expect during your own process. Do not hesitate to bring up any concerns with your agent. Remember, you are entrusting her with one of the biggest purchasing decisions of your life, so make sure she knows her business well.
4. Find the House!
Two of the first questions that a real estate agent will ask are for your pre-qualification amount and your pre-qualification statement from your lender. If you do not have these items, she will likely refer you immediately to one of her associates, and will expect that you contact that individual immediately so that she can begin to search for properties on your behalf. A real estate agent in today’s post-recession market will not begin searching for homes with you unless you can show evidence that you can successfully obtain a mortgage.
Once you have your pre-qualification amount determined, then the real estate agent will have a discussion with you about your housing needs. This is the fun part! You determine how many bedrooms you need, how much space your family needs, whether you want a garage or back yard, whether granite is a necessity, and whether you have the stomach for a fixer-upper. The real estate agent will then present you with a list of houses to review together; the more houses that you can quickly discard while at her office, the less houses that you have to look at, which is important if you are only on a brief home shopping leave.
5. Make an Offer!
Once you have identified the house that best fits your family’s needs, then it is time to make an offer on the home. The agent will write up a formal purchase offer to present to present to either the seller or the seller’s agent if they are working with one. If the offer is not accepted the first time, then there is no need to fret, as this is a pretty standard part of the real estate transaction process. In this case, the negotiations begin. Your agent may have a better understanding of what the seller is likely to accept, and will discuss this with you, but it is ultimately your decision as to whether to continue to negotiate. If you choose to either increase your purchase price or reduce any concessions for which you requested, such as having the seller cover all closing costs, then your agent will present a new formal purchase offer to the seller. If the offer is accepted, then you will sign a real estate contract and submit a good faith amount that the seller’s agent will hold in an account known as an escrow account. The average good faith escrow deposit is $1,000, but the seller can request a higher amount. This amount is refunded in the event that either the buyer does not receive funding for the mortgage or the home does not pass inspection.
6. The Least Amount of Fun Part
The point of the buying process that comes between the anxiety-ridden high of an accepted offer and the moment of delight when those precious keys securely rest in your hand for the first time is simply the least amount of fun that you will experience during your first home buying adventure. A good real estate agent will capably guide you through this portion of the process, helping you understand the disclosures, appraisal, inspections, and the final approval from your lending institution.
The first least fun part are the disclosure documents. Though analyzing flood maps, geological surveys, and any known property ordinance violations or damages may not seem appealing at first, they can save a considerable amount of pain, time, and cost in the future if properly analyzed. If a seller is aware of any problems with the property, for instance, then he must note this on his disclosure statement. If the statement clearly shows that the property has electrical issues, structural issues, that the HVAC system far exceeds its life span, the roof and windows have sprung leaks over the past year, or any other similar big ticket item, then it is better to have this information prior to closing. If the disclosure statement does show some substantial problems, then you the buyer have the option to cancel the deal and receive your escrow deposit back, renegotiate the terms to have the seller either correct explicitly stated issues or reduce the sales price, or continue with the deal and purchase the property on an "as is" basis. A good real estate agent, however, will suggest that you select one of the first two options though.
If, however, the disclosure did not show any issues, but the property inspection does, then this provides a prospective buyer with yet another opportunity to either renegotiate the terms of the sale or cancel the deal entirely. The property inspection is something that a buyer pays for up-front to avoid any conflict of interest should the seller offer to pay for the inspection. An inspection is essentially a buyer’s due diligence prior to making a huge investment. For just a few hundred dollars, an inspector will review all aspects of the property. Make sure to request photos of any prospective issues to keep on record in case some items do not correlate with the disclosure statements. You can find an inspector either through MilitaryByOwner’s Business Directory, or ask your trusted real estate agent for a referral.
While the disclosure and inspection provide buyers with opt outs for the deal, the lending institution has the final say in whether it will agree to release funds for a mortgage. The lender must confirm two items, the appraisal value of the property and the seller’s ability to make timely payments. For the first, the appraisal, the lender will send out an individual to inspect the property. He will compare the value of the home to comparable properties on the market to determine if the sale price meets the value of the property. A buyer or seller can contest the appraisal value, but it is incumbent upon the real estate agent to show considerable evidence as to why the appraiser’s value proved incorrect.
Finally, during this entire process, the lender has been diligently (hopefully!) working to approve your financial status, a process which can take several weeks or more. Though the pre-qualification statement showed the amount that the lender perceived that you could reasonably afford, the pre-approval amount was only based on self-reporting, and the lender may have uncovered some credit items in the process that may negatively impact your debt to income ratio, which in turns may limit the amount that you may borrow. Understanding your financial status serves as the first step in this process for this very reason; you do not want to go through this entire process only to learn at the end that you cannot borrow enough money to cover the mortgage for the property.
7. Final Back-Out Option!
Just in case the options to opt out of a sale during the least fun part of the process did not provide you with enough warm and fuzzies to help you make that initial escrow commitment, one final option permits a prospective buyer the option to back-out, the final walk through. The final walk through usually takes place a day or two before closing where a buyer walks through the property with his real estate agent. The walk through provides buyers with an opportunity to inventory the appliances and systems in the property, as well as a chance to inspect that the condition of the interior and exterior of the property, including the yard, meets the terms of the contract. If any item does not meet the terms of the contract, then the agent will contact the seller’s agent to discuss overlooked items and ensure that the contract terms are met as agreed upon. Once the buyer approves the walk through, then the process moves directly to the closing.
8. Closing the Deal!
Buyers will receive a copy of the HUD-1 Settlement Statement outlining the final terms and costs of the purchase prior to entering the closing office; most HUD statements are now sent virtually via email, providing quick access to the information, and thus a more efficient turnaround time for closing. This statement will also outline any funds that buyers will need to bring to the closing to cover closing costs.
The closing can either take place at an office in the presence of a notary, such as an attorney, or it can now also take place remotely where buyers and sellers meet with notaries in their respective homes. In addition to reviewing the HUD statement and remembering to bring a cashier’s check to cover closing costs, it is also important to remember to bring to closing photo IDs and, ideally, a strong coffee to help prepare you for approximately two hours of signing to complete the stack load of requisite paperwork.
And that’s it!
Once the notary signs and seals the final paperwork, the keys to the house belong to you. Welcome to the world of homeownership!
If you are interested in becoming a homeowner, contact one of MilitaryByOwner’s partners to find a real estate agent experienced in working with military families who can help you navigate your own eight simple steps to overcoming your fears of first time home buying.