Tips for First Time Home Buyers

Nearly a decade after the subprime-mortgage fueled financial crises, the housing market seems to be recovering – distressed sales are down, home prices are up, and less is needed for down payments.

Are you a first-time homebuyer eager to get into the market?  For most of us, buying our first home is a dream come true.  However, it can be a confusing process where potential – and sometimes very costly – pitfalls trap the unprepared first-time homebuyer.  You are going into what could potentially be the biggest purchase of your life with no experience to fall back on.  This guide will help you assess your current situation and better prepare you for the home buying process.

Is the timing right? 

Make sure you are ready to buy – both emotionally and financially. Look at your life, your career, your finances and your future expectations, and determine whether buying a house is the right move for you at this time.  Have you reached the point where you feel confident about staying in one place for a while and are established in your job and/or career with a dependable income?  Are your current debt obligations (i.e., car loans, student loans and credit card payments) manageable?  How is your credit score?

Have you sought pre-approval from a lender for a loan?

As a first-time homebuyer, you are likely going to need to borrow funds from a mortgage lender for the purchase.  While shopping for a home may be fun, you need to start the process in a lender’s office – not an open house.  Consulting with a lender and obtaining a pre-approval letter benefits first-time homebuyers in several ways.  First, you will have an opportunity to discuss loan options and budgeting with the lender.  Second, the lender will check your credit and alert you of any potential problems.  Third, you will learn the maximum you can borrow and therefore will have a better idea of your price range.  Lastly, home sellers expect all buyers to have a pre-approval letter and are more willing to negotiate with buyers who have proof that they can obtain financing.

Who will help you find a home and guide you through the purchase?

If you are a buyer, there is no reason not to use a real estate agent.  It costs you nothing1, and the agent’s job goes far beyond finding the house.  For first-time homebuyers, real estate agents can be invaluable in helping you understand all of the added costs of owning a home, such as: taxes, insurance, maintenance, and the like.  A real estate agent who knows the market can save you time, money and heartache by helping you make the right offer and staying on top of the process.

In addition to helping you understand the numbers, real estate agents are great resources for insights into neighborhood specific information and trends.  Although anyone can search the Internet for houses for sale, there is no substitution for an experienced professional. The most up-to-date and reliable data is always going to come from real estate agents.  They will be your best resource for information on how long a home has been on the market, whether it has been listed multiple times, how it compares to neighboring properties, and any additional insight from previous inspections.

When choosing a real estate agent, do not just call the agent on a listing you like.  That agent is working for the seller, who (naturally) is trying to get top dollar for the sale.  You need a “buyer’s agent” – an agent who represents you exclusively.  In return for such exclusivity, you will likely have to sign an agreement agreeing not to work with any other agent for a specific time period – typically six (6) months.  You may also encounter what is referred to as “dual agency”.  Dual agency is where the agents representing both sides of the transaction work for the same brokerage company.  Although not illegal in New York, this does potentially raise a conflict of interest issue.  Agents in a dual agency scenario must disclose the situation in writing to both buyer and seller and get written approval.

Has your attorney reviewed the purchase contract?

The purchase contract is the most important document in the entire transaction. The purchase contract sets forth the rights and obligations of the buyer and the seller.  The purchase contract must include the essential terms, such as the identity of the buyer and seller, the purchase price, approximate closing date, the type of deed the seller must provide, and what appliances and fixtures are included in the sale. Other terms include the rights of the buyer to perform inspections, the seller’s obligation to make repairs, the quality of title the seller must provide, as well as the many other terms that define how the transaction must proceed.

It is for this reason it is important for each party to have an attorney to review the contract to make sure that the party’s legal rights are protected and to advise them of their duties and obligations. Once the contract is finalized, the buyer and seller are bound by its terms and may later regret if they did not understand all of the terms or if the terms are not what they intended.

1 Generally the real estate commission is paid by the Seller, with a portion going to the listing agent and a portion going to the selling agent, but understand that the home may be priced to account for the buyer’s agents cut.

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