First time Home Buyer? 3 things you need to buy a home

Hank Bailey
Hank Bailey
Published on February 18, 2019

Most homeowners clearly recall that moment it became clear that they could, and would, buy a home. Ditching the landlord is a dream of many and when you can see that dream – grasp it – it’s intoxicating. Building equity for yourself instead of paying of your landlord’s mortgage for them is beyond thrilling!

It’s easy to jump right into the process and let the cards fall where they may, but it’s not wise. There’s a system to buying a home, and those that are successful follow the steps.

Before you jump online to look at homes for sale, start with the basics: the 3 basic things you need to buy a home.

You’ll more than likely need a mortgage

Unless you are among the close to 25 percent of homebuyers who will pay cash for a home, you’ll need to borrow the money to pay for it.

The loan you’ll use is called a “mortgage,” a word which traces its origins appropriately to the Old French “death pledge.” Ok, so 30 years may not put you on death’s door, but it will feel as if you’ve been repaying this loan forever.

But, look what you get in return. The freedom to have a pet, or two. The luxury of painting your living room any color you want and the liberation of knowing that a landlord will never be calling you to schedule an inspection of his or her property.

Shopping for a mortgage is something that shouldn’t be entered into lightly. There is a lot more to consider, for instance, than the interest rate. Additional considerations are covered in detail at Investopedia.com, WashingtonPost.com and, if you prefer video, Money Talks News.

You’ll need cash

You most likely know you’ll need cash for a down payment on the home you finally choose. If you’re using a Veterans Administration or U.S. Department of Agriculture loan (called a rural development loan) you may not have to pay anything in down payment funds.

FHA, on the other hand, bases the amount required, at least partially, on your credit score, but it is generally 3.5 percent.

Then, there are the Fannie Mae and Freddie Mac programs, which do “conventional financing” and require from 3 to 20 percent down, yet that’s not all the cash you’ll need.

While not the big chunk that the down payment represents as cash to be brought to closing, the earnest money deposit will need to be paid within some negotiated time frame, usually 3-4 days after binding when the seller accepts your offer to purchase. The amount of this deposit varies, but in our market in Georgia it’s typically around 1 percent of the purchase price. At closing, it will be credited toward your down payment or most of the time closing attorneys and lenders call it your “cash to close.”

Speaking of closing, there is a two-word phrase that few people warn first-time homebuyers about: “closing costs.”

This amount includes all the fees and expenses that are related to actually making the loan and the closing process. They might include transfer fees and taxes, attorney and notary fees, title fees and more.

While closing costs vary, expect to pay between 2 and 4 percent of the purchase price, unless the seller has agreed to pay all or a part of your closing costs as part of the contract you negotiated with them!

This money, along with your down payment, is due at closing so most homebuyers wire the funds to the title company (or whomever is acting as the closing agent) or bring a cashier’s check to closing.

The lender will let you know the total amount of cash you’ll need to close in advance of the actual closing.

You’ll need a real estate agent

Sure, this sounds like a no-brainer, but you’d be surprised how cavalierly many first-time homebuyers treat this part of the process.

In fact, studies by the National Association of Realtors finds a significant percentage of real estate consumers enlist the help of the first real estate agent they speak with.

Crazy, isn’t it? Americans spend hours on review sites such as Yelp.com in an effort to protect their dining dollars.

They read reviews at Amazon.com to ensure they’re buying the right dog leash for Fido. Yet they spend little, if any, time reviewing the qualifications of someone they’ll entrust to help them make what may just be the largest investment of their lifetime.

Don’t be like ill informed! Real estate agents are not all alike. Check out sources like Zillow, where you can learn about an agent’s sales history by viewing closed home sales they’ve been involved with as either a seller’s agent or a buyer’s agent. Once again, read their reviews! Zillow for example proofs each and every review to make sure they are real! No matter what a consumer says about an agent, they get published to add value to what Zillow is offering from a consumer research point of view.  See my Zillow reviews here where I have had to-date 285 past clients tell YOU what they though of my services! Learn about that agent’s experience, their negotiating successes, their availability, and exactly what they’ll do to help you find a home.

Now, the fun part begins – looking at homes for sale.

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