When anticipating the purchase of their first home, buyers may feel a bit apprehensive and overwhelmed as they balance the excitement of finally making this commitment with the risks and benefits of such a major undertaking. However, while it is a major decision, buying a home doesn’t need to be a scary experience, but rather a fun and exciting time full of good memories.
There are many resources available to first time buyers to help them through the process. To start, a wealth of information exists online and new buyers are often more knowledgeable about what to expect than their parents were when they made their first home purchase.
When it comes time to actually look at homes and make a purchase offer, buyers can rely on their professional real estate agents and lenders. These individuals will guide them, educate them on the process and help to facilitate every step of the way from the first showing, through all of the negotiations to that magical time when they finally receive a copy of their deed and their first set of keys.
Find the Right Real Estate Professionals
While a real estate transaction involves many different professionals, the two most critical ones are your agent and your lender. These are the people who will see you through the process from start to finish, and they are also the ones you will need to choose first.
There are over a thousand agents in our area and that means there are a lot of options to choose from, explained Inessa Telefus with Loring Woodriff Real Estate Associates. She added that “it is important to find one you like and trust.” Word of mouth is a good way to locate someone you like and Telefus suggests talking to family and friends to find out who they worked with and what they liked about that person.
Visiting open houses or calling on ads are two other ways to meet and talk to agents, as well as get an idea of the homes available for sale. However, in both of these instances you will be talking to the listing agent who represents the seller. If you have a genuine interest in one of those homes, it makes sense to get your own agent. Given the number of agents in our area, Telefus said, there is “no reason not to have someone working directly for you.”
You will also work closely with your lender, which means again finding someone you like and trust. Most agents have a list of lenders they can refer, however you can also “get advice from family and friends,” said Lee McAllister with Fulton Mortgage.
McAllister also suggests that once you decide whom to work with, it is important to rely on their advice as the home buying process proceeds. Most family and friends, while well meaning, don’t have the breadth of experience working in real estate as do your agent and lender, and are not likely to be up to date with what is current in this rapidly changing field.
Talk to Your Lender Before You Look at Homes
Before you start looking at homes, it is critical to talk to your lender to learn how much house you can afford. Your lender can also educate you about additional monthly costs such as taxes, insurance or home owners association and road maintenance fees.
“I always refer buyers to several lenders,” said Nikki Lewis with Roy Wheeler Realty Co. “Not only do we need to know what they can afford, but if they fall in love with a house, they will be heartbroken if they find out later they can’t afford it.”
“It’s important to talk to your lender face to face,” McAllister said. She added that you can do some of the preliminary work by phone and email, but a conversation in the office to discuss all of the pros and cons of available financing options is essential. Especially with first time buyers, she likes to cover what she calls “What if” scenarios, asking questions such as, “What if you buy a town home, or move into a neighborhood with a home owners association? What if you put five percent down instead of three percent? What if you live further out and need to budget extra money for gas? What if you buy a home that requires payments that are the maximum you qualify for? Can you live with that payment or would it be prudent to find a home with a lower one?” Answers to these kinds of questions help determine the type of financing that is most appropriate.
Buyers can get an idea about what to expect in the way of a monthly payment using mortgage calculators available online. However, McAllister explained that more often than not these estimates are not realistic. When buyers come in for a meeting and discuss real options, they are often “totally surprised about the payment.”
First timers also can access assistance at Piedmont Housing Alliance (PHA), explained Karen Reifenberger, Deputy Director. PHA offers counseling, homeowner education, funds for down payment and closing cost assistance and discounted mortgage financing. Until June 30, 2014 there is a special program of low-cost mortgage money for qualified buyers who complete the first time homebuyer class. Ask your lender to help you apply for these funds available through VHDA.
After you meet with your lender, they will generate a pre-qualification or pre-approval letter that your agent will use to demonstrate that you are a genuine buyer when you make an offer on a house. Pre-approval typically means the lender has run a credit report, McAllister said, and is crucial to the process. Not only does it help avoid surprises, but if something unexpected or negative turns up, your lender can advise you as to whether it can be fixed and what steps to take to make it right.
Work Closely with Your Agent
“The key role of the real estate agent is to keep first time buyers informed and educated,” said John Updike with Roy Wheeler Realty Co. “Often first time buyers are well educated,” he said, but “we can’t make any assumptions, so it’s like teaching an intro course, Real Estate 101.” He explained the importance of buyers understanding the teamwork between all of the professionals involved in the process especially their agent, their lender and the attorney or title company. His goal is to keep first time buyers in their comfort zone and help rid them of misconceptions.
A common misconception is that agents show homes and facilitate a purchase contract, and then wait for closing. The reality is that a big part of their work begins with the signing of the contract. A crucial part of the process is the home inspection. Lewis often warns her buyers, especially first timers, not to fall in love with the house before the inspection. She reminds them that it is a material possession and they need to be ready to walk away from it if there are big repairs that the seller is unwilling to fix.
Updike counsels his buyers to look at the inspection as another negotiation. He advises them to go into it with the understanding that they may not get all that they ask for, but he reminds buyers not to get “nit picky” about it. Instead he prepares them to ask for help with the bigger items, such as problems with the heat pump or the plumbing.
Agents also help first time buyers with other kinds of misconceptions about the home buying process. A common one is the fear that they can’t actually qualify for a mortgage, Updike said. He described a client from a few years ago when first time buyers could benefit from a special tax credit. The client told him it was the credit that gave him the confidence to seek out a lender and move forward with buying a home after he learned he could indeed qualify.
The tax credit is now history, but the Virginia General Assembly just passed legislation that permits first time buyers to put money into a special savings account (state income tax free) to accumulate funds for down payment and closing costs. “This is another attempt to keep first time buyers in the market,” Updike said, and of course, this may also help give them the confidence they need to move forward.
First time buyers may also not have a clear picture of the kind of house their money will buy. Telefus described a young couple she worked with recently who looked at a home and were not interested. She showed them several others in their price range and then suggested that the first one actually was a good match on location and price. They took another look and decided it was the right house after all and bought it. Telefus explained that agents have to be patient when working with first timers as they learn about what are realistic options for them.
Today, although the inventory is shrinking, there are still homes available in the under $200,000 range that are suitable for first time buyers.
Lewis said that most of her first time clients buy single family homes, although she estimated that about 25 percent buy town homes or condos. While condo financing is sometimes challenging, she has sold several recently finding sources of funds for two first time buyers.
Some recent clients of Updike purchased a town home in Pavilions of Pantops. He counsels town home buyers like them to plan on living there long enough to develop some equity, and then move on to a single family detached home. One of the benefits of getting into the market, he said, is that it gives young buyers a “vision for the future.”
A home purchase also makes sense financially for buyers with good credit. “Today’s interest rates are so low,” Updike said, “that it often makes more sense to buy than to rent, especially with lower price range homes. Often these buyers can buy a home for a monthly payment that is equivalent to what they pay in rent, and sometimes it is even less,” he continued.
HUD homes and foreclosures are other options that may appeal to first time buyers, Lewis explained. The buyers have to do their inspections with care and be willing to do repairs themselves as the HUD homes come “as is,” she explained. Also buyers pay closing costs like termite inspections which are normally paid by the seller. On the other hand, the price may be 20 to 25 percent less than market which means first timers can “walk into their home and already have equity,” she continued. She recently assisted a couple to buy just such a home in Lake Monticello.
It’s a Great Time to be a First Time Buyer
If you are a first time buyer with good credit and want to buy a home, don’t wait. There is still inventory available and interest rates are low, but this could change, especially as we get into this year’s spring market. Contact your REALTOR® and talk to your lender about pre-qualification. They will help assure that you have a fun and smooth transition into home ownership.
Celeste Smucker is a writer, blogger and author. She lives near Charlottesville.