Two years ago, I saw a huge investment opportunity in the real estate market and jumped on my first property at the age of 23. I couldn’t be happier with the price I paid and what I got. The low sales price and mortgage rate have allowed me to max out my retirement accounts and save a healthy amount every month for my next real estate purchase. If you’ve made the decision to start looking for a house, I commend you! In my opinion, this is one of the best times to buy a house. Housing prices are still low and mortgage rates are at rock bottom, even Warren Buffet says it’s a great time to invest in real estate.
Buying your first real estate property is one of the biggest financial decisions you will ever make. And although the process may be time consuming, these tips should get you on the right track.
1. Get Pre-Approved for a Loan.
This step is vital to the entire process. It will give you an idea of how much house the bank will let you buy; how much you can afford though is a different story. With 20% down, I think the number the banks will pre-approve you for is still a little too high, so make sure to do your own calculations and see what you think you can afford. Don’t forget about property taxes, HOA fees and homeowner’s insurance; the actual mortgage is only part of the equation.
Getting pre-approved is usually a fairly simple process. You’ll want to compare rates from 2-3(or more) mortgage companies. Remember, all credit inquiries(from mortgage companies) within a 14 day period count only as one inquiry to the credit bureaus. Ask around and see what companies have a good track record in your area. I tend to shy away from using the mortgage company my realtor recommends because they may have a symbiotic relationship with them. You are not obligated in any way to use their recommended company.
2. Finding a Realtor
Most realtors’ number one source of clients is referrals. You should look for someone who is honest, punctual and attentive to details. Everyone will tell you they have the “best guy,” but be sure to do your own research. Talk to your friends and do research online to find someone who will suit your needs.
It’s important to remember however, that you are under no obligation to your realtor. You can visit 20 houses and never make a single offer. Most realtors are hard working and looking out for your best interests, but should you get a bad one, don’t be afraid to drop them and find someone better.
3. Be Patient
Don’t let your realtor pressure you into anything you’re not comfortable with. Have them clearly explain any unfamiliar situation and remember there will always be another perfect house. As long as you have reasonable search parameters, use time as your friend. Don’t be afraid to put in lowball offers because the worse that can happen is they reject it or counter with something higher. If you’re currently renting, try to get on a month to month lease. This will give you the flexibility you need to be patient and wait for the perfect place at the perfect price.
4. Use Redfin & Zillow
The Association of Realtors has realized one thing: realtors are becoming less and less vital to the home buying process. Every year, they lobby to keep the process as convoluted as possible so that the public thinks we need them. Sites like Redfin and Zillow have severely cut into the MLS monopoly on housing data. You can research the areas you’re interested in, set daily alerts for new properties and compare similar properties.
5. Check Comp’s and Research the Area
The only way to really know the value of a property is to check the comp’s. Believe it or not, it’s really not that difficult. Look at comparative sized properties that have sold in the past 3 months. But be careful when comparing to active listings. A house or condo is only worth what someone will pay. Appraisals will only give you a rough idea of the price so comp’s are probably the best source of comparative data.
Make sure you are familiar with the area’s traffic patterns, noise levels and schools. You may not have kids now, but some day this could become an issue. When you try to sell your house in 5 or 10 years, schools will be very important to prospective buyers.
6. Make an Offer
When the time comes, don’t be afraid to make an offer. After your offer is accepted, you generally have to put up earnest money(sometimes as little as $500 or $1,000) to show you’re serious about buying the property. But this money is completely refundable for any reason up until a certain point(17 days is standard). Now you need to hire an inspector to take a look at the house(~$400) and get your loan documents in order. You still have the option to cancel the deal at this point. Your earnest money is only locked in once your last contingency is removed.
Sellers don’t want their house to fall out of escrow. Not only will this reflect poorly on the property, but the seller may also be losing money every day the property sits on the market. Don’t be afraid to ask for concessions for any minor problems found during the inspection.
8. Find the Best Rate For Your Loan
Banks and mortgage companies are competing for your loan. In fact, they stand to make tens or hundreds of thousands of dollars off your mortgage. So don’t be afraid to pin companies against each other so that you can get the best terms and lowest rate on your loan. I used this strategy during my first refinance and got my appraisal paid for for free 🙂
9. Push Your Loan Processor
I have no idea what goes on at these loan companies but this is never a smooth process. There are always delays in processing, waiting on forms, etc. Make sure you are in constant contact with your loan processor. You need to push them and annoy them up to the point that they move your loan right to the top of their priority list.
Once you’ve met with the notary and signed all the required documents, the long and arduous home buying process is complete. Sit back and relax 🙂
Readers, have you bought a home recently or are any of you getting ready to make your first real estate purchase? Was it a smooth process or did you hit some speed bumps along the way?
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.