What You Need to Know As a First Time Homebuyer
Are you ready to purchase a home? This can be incredibly daunting for first time homebuyers or even those that have not purchased a home in some time. Questions are endless:
- Where do I start my home search?
- When I find a home I like, what is the next step?
- How do I know what I can afford?
- How important is credit when purchasing a home?
- What are the questions I should ask when buying a home?
- What is negotiable in fees?
- How much will it cost me?
This is just the tip of the iceberg when it comes to questions from first time home buyers. There are hundreds of questions that one could ask so we've compiled a list of ongoing questions that buyers have so that we can focus on EDUCATING buyers BEFORE they make one of the largest purchases of their life.
This is why it's important to choose a real estate team that knows real estate and can help you navigate the process of purchasing a new home.
Commonly Asked Questions
Who qualifies as a 1st time home buyer? The answer might surprise you...
A FIRST-TIME HOME BUYER IS DEFINED AS AN INDIVIDUAL WHO HAS NOT OWNED AND OCCUPIED A PRIMARY RESIDENCE WITHIN THE PAST THREE YEARS.
What programs are available for first time home buyers?
There are different programs available to homebuyers depending on annual income, credit score and other factors. Some programs available throughout the year are the Down Payment Assistance program (available by county), State Housing Initiatives Partnership program (SHIP), which provides funds to local governments as an incentive to create partnerships that produce and preserve affordable homeownership and multifamily housing, Florida Bond Program and other programs we have available through our lenders that help with closing costs. Each program has limitations but can be an option for new homeowners.
What is the first thing I should do when I'm ready to start my home search?
Throughout this process, we recommend lenders for the buyers to choose from in order to get pre-approved to see what they can afford.
Can I just start looking at home and then apply for a loan?
Yes, as long as you get pre-approved from a qualified lender so you have a good idea what you can afford. You don’t have to apply for a loan until you go under contract on a property.
What are the steps to buying a house?
We offer free buyer consultations to all of our buyers to go over the details of the home buying process, but the main steps to buying a house are:
- Find a Realtor
- Get pre-approved by a qualified lender
- Start the home search
- Find the right home
- Submit an offer (negotiate terms and any counteroffer)
- Conduct inspection
- Order appraisal and survey
- Title search and underwriting process
How long does it take to buy a home?
That depends entirely on the buyer. We’ve worked across the spectrum of time with buyers from finding a home and closing within 25 days to over 2 years. If a buyer has the motivation and means to close soon and finds exactly what they want, we can close as soon as 14 days, but typically 30 days. If a buyer wants to take their time and is not in a rush, it can take much longer. In general it takes an average of 30 to 60 days to shop for a house, and 14 to 60 days to go from contract to closing. However, this number varies widely from area to area, and it’s crucial that you have a handle on how long it’ll take you.
How much can I afford?
How much a home buyer can afford is based upon income, credit score and debt to income ratio. Once you get that number from a lender through the pre-approval process, the only way to move the house budget higher is by asking the lender if you’ll qualify. We don’t want to have our buyers become house poor. Buying a house over your pre-approved amount can put a strain on your budget and remove the joy of homeownership. Costs to consider above and beyond the downpayment is the closing costs involved.
What’s the difference between a conventional and FHA loan?
The main difference between FHA and conventional loans is the government insurance backing. Conventional loans are not insured or guaranteed by the federal government, while the FHA program does receive federal backing. FHA has lower limits for credit scores and PMI is automatically added. The only way to remove that private mortgage insurance fee is by refinancing, while in a conventional loan it will automatically be removed once the 20% equity has been reached. Note: A conventional mortgage loan can also be insured.
What is PMI and why do I have to pay it?
PMI (private mortgage insurance) is a type of mortgage insurance you might be required to pay for if you have an FHA loan (3.5% down payment) or a conventional loan with less than 20% down. The traditional way to avoid paying PMI on a mortgage is to take out a piggyback loan. In that event, if you can only put up 5 percent down for your mortgage, you take out a second “piggyback” mortgage for 15 percent of the loan balance, and combine them for your 20 percent down payment. Most people will just end up paying the PMI in their loan and drop it when they are able to refinance their home.
How do I find the right Realtor?
It’s important to interview who you want to help you make the most important purchase of your life. We interview our buyers through our Buyer Consultations to make sure we’re a good fit for the customer. Here are some questions to ask:
- How long have you been working in real estate?
- What is your schedule and availability? Make sure they are full-time agents and are available for you without the distraction of another job.
- Ask how many sales they’ve closed in the last 12 months (The average agent sells 2 per year. Those are NOT full time agents)
- Do they work exclusively with buyers, or what percentage of their business comes from working with buyers?
- How many clients are you currently working with? (You want to make sure they have time for you. Over 10 clients is too much)
- Do they work independently or in a team? (Agents that work in a team have more benefits for the buyers as there will always be someone available to serve them if their agent is on vacation or unable to show property)
Who pays for the inspection?
The inspection is the buyer’s piece of mind. It is not required, but highly recommended. A buyer pays for the buyer’s inspection and no one else needs to see the report unless authorized by the buyer. The only reason that would be requested is if we negotiate any repairs on the property based on the inspection report.
Inspections can range from $200-500 based on the square footage and add-on inspections (4-Point Inspection, Wind Mitigation, WDO Inspection, Septic, Water Testing). Some inspections will give you a discount on homeowners insurance.
What are closing costs and how much is it?
Many times buyers think the downpayment is the only expense when it comes to purchasing a home, however, closing costs are a big expense that is part of the home buying process.
Now this can be negotiated from the seller but it’s not always guaranteed or even an option if there are multiple offers on the table.
Closing costs to the buyers are fees related to closing on the house such as your mortgage fees and title. For a more comprehensive list, we have created a blog specifically outlining closing costs for a buyer.
Closing costs are typically about 3% of the total purchase price, but your lender will be able to verify the exact amount based on the home.
Can I have the seller pay for my closing costs?
When we represent our buyers, we always try to negotiate closing costs into the purchase price when possible, except when it can cost the buyer the deal. We never want to risk losing out on an offer by asking for closing costs, but we still try to make sure we are competitive, but aggressive in our offers.
How much money should I factor in for property taxes and insurance?
The property taxes and insurance are based on the property. Each county has different tax millage which in turn affects the property tax amounts. You also cannot base the taxes from the current property owner because different exemptions, including the longevity of their ownership plays a role in the total price.
For any property you are interested in, make sure to submit it to your mortgage lender to get an idea of your monthly expenses which will include an estimation of your property taxes and insurance.
What credit score do I need to purchase a home?
Some lenders can work with credit scores as low as 580, but the lower the credit score, the higher the interest rate. Individuals with lower credit scores are higher risks for lenders which can cost a homeowner a little more but still give the opportunity for homeownership.
How do I know if it's a good time to buy?
The simple answer is that if you’re ready to buy, it’s a perfect time to buy. For an actual market update to see what is going on in real estate, contact us to get a quick market report.
What should I ask before making an offer?
There are several things to ask before submitting an offer but we’ve compiled 10 of the most important questions.
A knowledgeable real estate agent is well versed in asking and verifying these questions before submitting an offer and even before going to see the home.
What’s a short sale and are those properties worth looking into purchasing?
Short sale and bank owned properties can be a great opportunity for a good deal, but may not be exactly what first time homebuyers are looking for. Many short sale properties need some repair and TLC as they are considered distressed. Here we have provided more information on short sales properties.
Aside from aesthetics, what other factors should I consider when buying a home?
It’s easy to get caught up in the aesthetics and beauty of a home, but there’s much more to a house than just the paint and trimmings.
One of the most important things is can you afford it? Does the total monthly payment (taxes and insurance included) fit your budget?
Second most important thing to consider are the mechanics of a home:
- How old is the AC?
- How old is the roof?
- How old is the electrical (check the electrical panel and make sure it’s insurable)?
- What type of plumbing does it have?
- If it has a septic tank, when was the last time it was drained/cleaned/replaced?
- If it has a pool, how old is the pump? What condition is it in?
What is a buyer’s market versus seller’s market?
In a buyer’s market, the buyer has the advantage and great opportunity. More supply and less demand allows you to negotiate better deals if you’re the BUYER.
In a seller’s market, the seller has the advantage. More demand and less supply allows you to negotiate better deals, if you’re the SELLER
If I find a house prior to the lease ending, what happens? What do I do?
We work with buyers all the time that are in a lease and work with the timing to make sure they are not carrying a mortgage and lease payments. If you do happen to find a house before your lease ends, if we are able, we can extend the closing to be close enough to the lease ending so that you’re not stuck with two payments. If that’s not the case, the other option is to break your lease.
What if I filed for bankruptcy, can I still qualify for a loan?
Lenders who check your credit report will learn about a Chapter 7 bankruptcy for up to 10 years after the filing, while a Chapter 13 bankruptcy will stay on your credit report for up to seven years. Still, filing for bankruptcy doesn’t mean you can’t ever get approved for a loan. Depending on where your bankruptcy is filed, you may not be able to get credit during the bankruptcy without permission from the court. But once your bankruptcy is completed, your ability to get credit depends on your credit score and other factors.
What if I find a “for sale by owner” on my own?
We help buyers find properties regardless how they are sold. We negotiate with “for sale by owners” all the time to make sure that we still get the best deal for our buyers. We are not limited to properties only available on the MLS.
What does a title company do?
The title company is responsible for providing a clean title on the home being purchased. They conduct lien and title searches as well as process all the closing fees and disclosures for all parties. They handle the escrow aspects of the transaction and coordinate and act as the center point for the closing for buyers, sellers, lenders, realtors and third parties such as surveyors and insurance companies.
What is a split plan home?
A split floor plan is a format where the master bedroom suite is separated from the other bedrooms in the offer, offering more privacy and typically found in Florida homes and new construction.
Is there going to be another housing market crash?
Analysts are always trying to predict when the next recession is, but the real estate cycle is tried and true. It affects and is affected by the financial market. A typical real estate cycle is four-parts: Recovery (seller’s market), Expansion (seller’s market), Oversupply (buyer’s market), Recession (buyer’s market)