This Article Is About First Time Home Buyer Common Questions On Home Purchases
The housing market is booming in the United States.
- Many renters are looking to purchase homes due to the hot economy
- The unemployment rate is 3.5% which is the lowest number since 1969
- Mortgage rates have been the lowest since the 2008 Great Recession
- Both HUD and the FHFA has been increasing loan limits for the past four years due to increasing home values
What Are The Steps In The Home Buying Process?
Many realtors get the same first time home buyer common questions from their clients.
- The first step in the home buying process is to get pre-approved by a mortgage loan officer
- A pre-approval, unlike a pre-qualification, will allow you to put an offer on a home right away
- Most home sellers want the pre-approval letter or proof of funds (if paying cash) submitted along with your offer to know you can get funding from the lender
- A pre-qualification is more like an algorithim that uses your yearly income you verbally provide to determine how much you can afford to pay but isn’t verified by paystubs, W2’s or other means
- A pre-authorization is generated based on verifiable financial data, is more accurate, and sellers take more seriously when accepting an offer
- This is usually just a ball park and not an absolute for they don’t take into account other factors such as debt, child support, etc. and there is no verification
- The pre-approval is more in-depth and verifies income, debt, and other factors that effect the ability to obtain a loan
Importance Of A Solid Pre-Approval Letter
One of the most first time home buyer common questions is about the pre-approval letter.
- I strongly advise buyers to get pre-approved before shopping
- If you find a home you absolutely fall in love with and later find out you can’t get the loan you will have wasted your time and be very disappointed
After I get pre-approved and I find a house I like, what happens next?
Finding The Right Home
After you find a home you like, you can put an offer on it.
- There are strong offers and not so strong offers
- In order to have a strong offer you want to put earnest money down
- Earnest money is like a security deposit and essentially holds the property for you
- It also lets the seller know you are serious about purchasing and have skin in the game
- This also holds the seller accountable to complete the transaction
Other factors that can strengthen an offer are the following:
- less concession requests
- no contingencies (the offer is contingent upon the sale of your current property)
- type of financing, and a quick close date are a few
First Time Home Buyer Common Questions On Property Values
What price do I offer or what price do I list at?
- Your real estate agent should show you a CMA (Comparative Market Analysis) for the property which gives you an estimated value based on similar homes that have sold in the area
- If you are a buyer, you’ll want to make a fair offer and not a low ball offer
- By giving a low ball offer you could offend the seller and they may not think you are a serious buyer
Make an offer you are comfortable with based on estimated monthly mortgage payments, similar recent home sales and asking prices, and work that may need to be completed.
If you are a home seller, you will base your asking price on several factors:
- recent home sales for similar properties in the area
- current asking prices for similar homes in the area
- how quickly you’d like to sell and concessions you may be willing to give in order to attract a buyer and make your home stand out from the crowd
I use a three prong strategy in helping sellers appropriately price their properties. Sellers choose which one is best for them based on their goals, motivations, timing, and comfort level.
Can I Submit Multiple Offers?
What if I like two properties equally, can I submit two offers at the same time?
Do not submit two simultaneous offers unless you are prepared to buy two properties.
- Once a seller accepts your offer, the offer becomes a legally binding contract
- If both offers are accepted, you will ultimately end up breaching a contract and potentially paying thousands of dollars in legal fees, damages and penalties
- So choose the property you like best and most closely fits your requirements
- If for some reason it doesn’t work out, maybe wasn’t meant to be
- I promise you there will be another one right around the corner that will work for you
I’ve had this happen to several buyers and the second property ends up ultimately being their favorite!
My husband and I put an offer on a property we loved but weren’t too sure about the area.
- When things didn’t work out with the property, we were initially upset but we found one we liked that was just as nice yet not as big
- The area was closer to work, were in a better community, and development in the area really took off so we built a lot of equity in a short amount of time
- Although the first property was bigger, it was in an up and coming area and the up and coming area never took off due to the market crash of 2008
- In the end, things worked out for the best and we were thankful
We said to ourselves:
- “Thank God we didn’t end up getting that other house. After the market crashed and no one wanted or could afford to develop around there we wouldn’t have been able to sell it. Can you imagine?”!
Selling Current Property To Purchase New Home
What if I need to sell my current property first in order to buy the next property? Do I sell first or find a property I want to buy first?
- It depends on your comfort level
- Depending on what your contact says, your home may need to be listed within 5 days of contract acceptance
- I recommend listing the current property and searching for the new property simultaneously
- Sellers that are also buyers need to familiarize themselves with the current market and should they find a home they like
- If they’d like to put an offer on it they should be prepared to list their home as soon as possible upon acceptance
There are risks to both approaches.
Gaps In Selling Your Home And Purchasing New Home
If you list first and receive an offer but have no place to go and don’t find something you like, you could end up living in something you may not like or temporary housing.
- If you decide to buy first and cannot sell, you may lose your first choice and be house hunting again
- Whatever you decide be sure to take a look at the market first and know what homes are selling for in the areas you like as well as the value of your current home
- You want to base your decisions on facts not hope as well as realistic expectations
- This will make everything go a lot smoother
You can do everything right and there still may be an issue or two but planning in advance will help you prepare.
First Time Home Buyer Common Questions On Submitting A Real Estate Purchase Offer
After I submit an offer, what happens next?
- The seller will then either accept, reject, or counter the offer
- Sometimes this process will go back a forth a several times until both parties come to terms
- Once both parties accept and the contract is signed, depending on what your contract says, there is usually an attorney review period
- In my particular market this period is 5 business days
- During this time, buyers have 5 days to conduct an inspection
- After the inspection report comes back, the buyer, agent and attorney work together to arrange for repairs or credits to be made
If the buyer and seller cannot come to terms on this, the contract may become null and void.
Second Thoughts After Submitting Real Estate Purchase Offer
Can I change my mind on the contract and decide not to purchase the property?
- You can but there may be penalties depending on what the contract says
- The contract is usually contingent on certain parameters to be met, such as financing
- If these parameters are not met, the contract can be cancelled without penalty
- If a buyer or seller meets all the contingencies but decides not to proceed with the sale they will be in breach of contract
In this case, the breaching party may be liable for damages, costing them their earnest money and penalties.
After The Inspection Is Completed, What Happens Next?
After the inspection is complete, if you are financing, the bank will order an appraisal.
- Once the appraisal is done on the property and the value comes back, the loan will go to processing and then underwriting
- If the value comes back higher than the loan amount, the bank can decide to issue the loan for up to the value and the buyer may have to come out of pocket to cover the difference
First Time Home Buyer Common Questions On Overbidding Property And Bidding Wars
This is why you need to be careful and not overbid for a property.
- If you decide to offer more than it’s worth, you may be stuck with the difference and if unable to pay, you will lose the house
- Once the loan has completed the process, a HUD will be issued prior to closing
- This document will be supplied by the lender and will show all costs for closing
Your attorney will then schedule the closing date and time within several days after the lender has clear to close.
First Time Home Buyer Common Questions On What Happens If The Property Does Not Appraise
I just bought new construction and was hoping the value would come back higher. The developer told me that with the upgrades the house is worth $350,000 but the appraisal came back at $299,000. Should I be worried?
- No, an appraisal and Comparative Market Analysis are ways to determine value
- They are similar but differ in the aspect of what the market will bear
- Appraisals use formulas that include algorithms for replacement cost, whereas CMA’s look at similar homes and asking and sold prices
- An appraisal isn’t always indicative of what a home can and does sell for
- They are generally within 25% of each other
Your Home As An Investment
Depending on how long you want to live in the home, historically real estate values maintain a steady increase over time.
- The housing crisis created concern regarding the long-term value of real estate
- But even in the last decade, overall values still increased by 7.0 percent
So chances are good, when you do the next appraisal you’ll get the numbers you were hoping for weather you stay or move.
First Time Home Buyer Common Questions On Where Do I Go For Closing
Closing will usually take place at the title company’s office.
- During this time you should transfer utilities, forward mail, and arrange movers
- A day prior to closing or the day of closing you should conduct a final walk-through with your agent
- The purpose is to make sure the property is in the same condition it was when you first made the offer
- Closing usually only takes a few hours and you will sign several documents to consummate the deal
Then you get the keys!
Checklist Prior To Closing Your Home
What should I do and look for in the final walk-through?
- Here is a brief checklist for some things you should look for and do:
Make sure all windows and doors (including garage) open & close
- Look up (ceiling) and down (flooring)
- Look for any cracks, scratches, potential issues
- Turn on all faucets, and flush toilets
- Turn on appliances if possible (electric may not be turned on yet)
- Take any measurements for fridge, furniture, window treatments, tv, etc.
Schedule utilities to be turned on for day of closing or move-in.
About The Author Of First Time Home Buyer Common Questions
Julie Hayward, the owner broker of Edge Realty LLC based in Chicago, is the author of this article on First Time Home Buyer Common Questions. Julie Hayward is an expert in all areas of real estate and lending and have helped countless of home buyers in the Chicago Land Area. Julie is an expert in working with first time home buyers and most top producing mortgage loan officers in the Chicagoland area refer their pre-approved borrowers to Julie Hayward and Edge Realty LLC. Julie Hayward can be reached at 312-504-9228. Julie’s email address is email@example.com and the link to Edge Realty LLC is www.edgerealtypro.com.
December 7, 2020 - 8 min read