The Ultimate First Time Home Buyer’s Guide

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everything you need to know about buying your first home

The home buying process–like anything else–can be a little daunting and overwhelming when you think about the big picture. But as you go through it and break it down, it’s really not that bad at all. While it’s certainly much more complicated than renting, it was actually a lot easier and less stressful than I thought it would be. And I couldn’t be happier now that it’s all over. Here’s how it works and what I recommend to make the process as smooth as possible:

First Time Home Buyer’s Guide

1. Get pre-approved for your loan

I did things a little backwards and picked my place before getting pre-approval, but that’s just because I discovered this place before deciding to buy. It actually was the reason I decided to buy: I fell in love. The downside of not getting pre-approved is 1) no one takes you seriously, from your own agent to the seller and everyone in between and 2) you can’t make an offer right away if you find something you know you want. That could cause you to lose the place completely in competitive markets. In fact, I almost lost the place I ended up buying because of this. I had to act fast and luckily they let me put down a deposit to hold onto it. I got my loan from Jason Lowey at Loan Depot. He has been close friends with Ryan since they were 8 years old, so I knew I could trust him. The experience was phenomenal and I felt great about everything during the entire process. I knew Jason would get me the best deal possible and if you tell him I sent you, he will do the same for you!

Getting a home loan can be difficult, but most lenders will work with you to make it happen if at all possible. If you’ve been employed with a stable job for a few years, you’re golden, but if you switch jobs a lot or are self-employed, that’s when you start to run into trouble. When you’re self-employed, you have to show two years of tax returns. But self-employed people have much higher expenses than W2 employees, so you have to show that you make enough after expenses to pay for your mortgage. Most people try to write off as much as possible, which totally bites you in the ass when you’re trying to get a home loan.

woman sitting on chair smiling

One way around this is to get a salaried position. If you’ve been working with a company on a regular basis, even as a freelancer, it’d be worth the conversation to see if you could switch to salary. In that case, you would only need to show the offer letter and at least one month’s worth of pay – just make sure your new job is in the same field you’ve always worked in.

After pre-approval, and once you put an offer on a home and it is accepted, you will get your loan conditionally approved. This just means you need to provide certain documentation (proof of ID, proof of funds, etc.) in order to get final approval. There is about a two week period for collection of documents and processing of conditional approval. Once you have that, then you are officially under contract on your new home! If you gave a deposit and for some reason don’t get conditionally approved, then you will get that deposit back. Once you are conditionally approved, you are locked into the purchase.

One thing you’re not locked into is the interest rate. There are a few options here, but it’s important to know that your lender doesn’t 100% control the interest rate. Mortgage rates are set daily based on the economy. From there, your interest rate can increase based on your credit score, debt-to-income ratio, current loans, and other financial factors. If you have a long time between conditional approval and closing like I did, then it’s possible your interest rate could change. You could lock in the rate and pay a fee to do so, or you could “float” the rate, which is what we chose. This just means we kind of rode out the market. If it got lower, we would have gone ahead and locked it in for a fee, but it didn’t really change too much and our lender honored our original interest rate we got at the conditional approval.

2. Have some money saved for a deposit and downpayment

There are tons of options when getting a home loan as far as the deposit goes. In the community I went with, at least 5% of the home had to be paid as the downpayment, so I wouldn’t have been able to do the FHA loan. The old 20% down rule is not super common anymore either, so I met in the middle at 10%, leaving me some cash leftover to make sure I had a few months worth of mortgage payments ready to go. Of course, the more money you put down, the less you need to borrow, resulting in a lower total amount of interest paid. But for me, having that cash padding put my mind at ease more than a larger downpayment would. One thing to note is PMI – Private Mortgage Insurance. This is basically an extra fee you pay as insurance that protects the mortgage company in case you can’t pay the loan. It’s about $75-$100 a month and once you reach 20% of the purchase price, you can eliminate that payment. So if you pay a little extra on your principal each month, you can cancel the PMI early. This is what I plan to do.

While you won’t need to pay your downpayment until closing, you might be required to pay a deposit as mentioned above. Mine was $15k and it’s basically to hold the home so no one else buys it. As long as you go through with the purchase, it goes towards your downpayment. However, if you have to pull out for any reason, you lose it. This is more common in new construction, which is what I bought. I paid the deposit in March when I signed the contract, and then we didn’t close until late July since you can’t officially close until construction has been completed and the home is approved for occupancy.

woman standing in kitchen smiling

3. Get a realtor

While buying a home can certainly be done without a realtor, it’s a free service as a buyer, so there’s really no reason not to get one. Your realtor is a professional in the industry and can help guide you for your first home-buying experience. I picked out my purchase before I got a realtor, but I still got one to advocate for me as well as make sure I was getting the best place for me. I looked at 4-5 other options that he found me and it just became clearer and clearer that I had chosen the right home to begin with. During the negotiations, he was able to get all appliances included without any additional cost, something I never would have thought of. He also explained the process to me and answered any questions I had along the way. He also handled scheduling the inspector when it came time to close and I will definitely use him as a resource for anything I need post-closing, including recommendations on contractors and anything like that.

4. Don’t hold back on anything you’re concerned about

You hire people to be on your home-buying team for a reason and whether you’re paying them directly or not, they are being paid to work for you. So never hesitate to be in contact with your lender, your realtor, or even the seller’s realtor and builder (if applicable). I texted everyone like crazy and while I might have felt a little annoying, my slight pestering was definitely worth their 4 and 5 figure paydays they got from working with me. Make sure your team is doing their job and keep them on their toes!

When it came time for the final walkthroughs, the builder gave us blue tape to mark anything we wanted them to fix. From a scuff on the wall to replacing door frames and repainting, we did not hold back. I didn’t want to delay closing, but I also didn’t want to pay for a less-than-perfect home. It all worked out and everything was done before we moved in!

5. Closing

As far as closing goes, (I did it from my car because of COVID) it basically consists of signing a bunch of legal documents, getting the lender to wire the final funds, and receiving your keys. Before officially closing, you will have gotten final approval from your lender. I got my final approval on Wednesday and closed on Friday. I have to admit, I was pretty nervous as I waited for final approval, but in reality I had nothing to worry about. if you’re conditionally approved and provide all the documents requested, then you will get final approval.

Another thing required for final approval of a new build is a certificate of occupancy, which is granted by the local government stating that the home is up to code and meets all requirements for safe occupancy. I’m not 100% sure who scheduled this, but I do know that I didn’t have to deal with it.

Finally, you’ll need to get your new home appraised. This is done by an unbiased third party. This is a big concern for a lender because if the appraisal comes in at under your purchase price, then the lender may decide they don’t want to move forward with the loan anymore. You could have to renegotiate the purchase price or move onto a new home altogether. The lender scheduled my appraisal for me and luckily the value came in at about $15k over the purchase price, woohoo!

One thing that I did already know thanks to HGTV, is that there are costs associated with closing. This is something you might be able to negotiate if you’re not in a new build. Since in my case the seller was the builder, they didn’t really have too much incentive to sell to me. This floorplan sold like crazy, so I wasn’t able to get them to pay closing costs. But, the builder preferred lender actually did have a promo for $5k in closing credits. I didn’t want to use their lender because I wanted an unbiased third party, so I told Jason about this promotion and he was able to match it, bringing my total down to about $6-$7k in closing costs. Score!

Closing costs cover things like legal fees, loan costs, appraisal fees, filing all the paperwork with the government, HOA fees, etc. Your closing costs also include one year of taxes and insurance upfront. You have to provide this ahead of time because your lender is actually legally responsible for paying this until the loan is paid off, so this ensures that it’s all covered. When the time comes, the taxes and insurance are paid out from your escrow account. The taxes and insurance for the following year are lumped in with your monthly mortgage payment. You’re essentially always a year ahead until you pay off your loan, then you can pay it whenever you want.

I am so incredibly happy with my purchase and still pinch myself every day. I can’t believe this is real life! I got lots of questions about why I went with a new build instead of an older home or even a reno project, so I think I’ll write a post about that next. In the meantime…

What’s something you wish you knew about buying your first home?

Photos by Ryan Carpenter.