Guide to Buying Your First Home

Any first time home buyer can purchase the home of her dreams using this easy to follow, step-by-step guide to buying your first home. The home buying process can be quite challenging and complex, even for those who have been through it several times. For the first time home buyer, the process can seem impossible. This guide breaks down the home buying process into easy to follow steps, with ample information and resources provided to make each step easily achievable.

Guide to Buying Your First CT Home
  1. Establish good credit. The first step in the home buying process is establishing good credit. As a first time home buyer, you are likely going to need to borrow the money to purchase your first home. Banks and mortgage lenders will not lend to potential borrowers unless the borrower has a provable history of borrowing money and paying it back in a timely manner. If you have absolutely no credit references, you will need to get some. The most basic way to do this is to visit a local bank and deposit a small amount, let’s say $500. You would then apply for a $500 loan, using the money that you deposited as security for the loan. This is the simplest, quickest way to establish a good credit report.

    If the loan term is for 6 months, make payments for the first 3 months, then pay the entire loan off. Repeat the process with larger and larger amounts. This will build up an excellent track record. Do this repeatedly, and you’ll progress to a point where you don’t need to deposit any money as security, your track record will be strong enough to be able to borrow with just your signature.

    Unless you are independently wealthy, or come from a wealthy family, the process of becoming a first time home buyer starts with establishing a good credit history. At the same time that you are building your credit with bank loans as just described, you should also be using credit cards responsibly as well. In the beginning, you’ll likely have to start with a pre paid credit card or a secured credit card. It is important to use the credit card, but it is also just as important to keep the outstanding balances at zero or at a minimum very low. You’ll learn why in the next step. One credit card that we like because you get cash back on all your purchases made with the card is Discover.

  2. Raise your credit score. A high credit score is one of the most important elements to the first time home buyer. Home buyers with high credit scores are able to get the lowest interest rates on home mortgages. As a first time home buyer, it is doubly important to have a high credit score. Not having a high credit score will not only mean you don’t get low interest rates, you likely won’t get any interest rate at all.

    Here are the basic tactics for getting a high credit score. For more in-depth details, go to www.creditscore.com.

    1. Always pay your bills on time.
    2. Keep your credit card balances at zero, or at least very low.
    3. Make more than the minimum monthly payments.
    4. Negotiate to remove negative items from your credit report.
    5. Borrow great credit from a relative or close friend.
  3. Save for a down payment and closing costs. When buying your first home, you’ll need some money for a down payment as well as closing costs. This applies to previous home owners as well as first time home buyers. Lenders want to see that borrowers have a vested interest in the property. If you’ve put your own money into the property, you will be less likely to walk away from the property leaving the lender to clean up the financial mess. Additionally, if the lender does have to repossess the property, even though the property will be selling at a discount due to distressed circumstances, the lender should still recoup its losses. Your down payment is a safety cushion for the lender between what the house would sell for at auction and what is owed on the property.

    It is very important to start saving immediately. Set aside a certain amount every pay period and stick to it. Learn to live on what remains.

  4. Keep detailed records of money spent. First time home buyers (and everyone else for that matter!) should develop a sound budget. To gain control of your money and how you spend it we recommend that you keep track of every single purchase, no matter how small, for a period of one month. At the end of this period, categorize this information to see the exact breakdown of where your money is spent. With this information you’ll be able to easily see where there is room for improvement in your budget. The important point to stress here is to live within your means. Live frugally. The more frivolous spending that you eliminate from your budget, the more you’ll be able to save. And the more you save, the quicker you’ll reach your goal of becoming a first time home buyer.
  5. Develop a financial plan. When constructing a house, builders use a set of blueprints as a detailed plan they follow to accomplish the goal. In like manner, first time home buyers need a financial plan to follow in order to achieve the goal: buying your first house and moving in. To buy that first house you should set a goal of saving 20% of the purchase price to use as the down payment. There are programs that will allow you to put less than 20% down, including mortgage insurance where you can purchase a home with a down payment of 5% or less.

    We cannot stress enough that the first time home buyer need to develop a financial plan and stick to it.

  6. Establish a relationship with an agent. Any potential first time home buyer would benefit greatly by early on establishing a relationship with a real estate broker that specializes in working with first time home buyers. As with any profession, the range of expertise will vary from agent to agent. Shop around until you find one that you are satisfied with. Remember to inform each prospective agent that you are a first time home buyer, as many agents have their specialties. Some agents like to work only with real estate investors, while some prefer to specialize in waterfront property. By declaring up front that you are a first time home buyer, you won’t be wasting time trying to develop a working relationship with an agent that specializes in commercial property.

    Your agent will be your link to all the property in your area that is currently for sale. Agents can provide a treasure trove of information on the entire buying and selling process, including local sources of down payment assistance. As a first time home buyer, you definitely want the help of a professional agent

  7. Study market values. When buying your first home, you will not want to pay more for a house than the house is worth. Along the same line, you will likely want to find a great deal. The only way to find a great deal is to study the market values in your area. Over time you’ll development a mental database of comparable properties and get a sense for which properties are overpriced and which ones are underpriced. Your first home will likely not be your last. The average American sells her home and moves into another every 7 years. As a first time home buyer, you will benefit greatly when it is time to sell if you purchased a home for less than what it is worth. This instant equity that you received upon the purchase will boost the profit and cash to you when it is time to sell.
  8. Get Pre-approved for a mortgage. Not all lenders are created equal: some will be very efficient and helpful in dealing with the first time home buyer, and some will not. However, getting pre-approved for a mortgage is an important step in the first time home buyer process. With a pre¬approval, your offer will carry more clout with the seller, and you’ll be in a position to close on the purchase more quickly. This is important to many sellers. Offering a quick closing is also a powerful tactic in negotiating a discount off the purchase price.
  9. Shop for the right home. With the exception of moving in, shopping for the right home will likely be the most exciting step for first time home buyers. By this time you should have already established a working relationship with a real estate agent that specializes in working with the first time home buyer. You should already know your budget and how much you can afford to spend on your first home. At this point you’ll need to narrow all this information into a specific format for your agent to use to suggest certain homes to visit. Start with the price range. Let your agent know how much you are qualified to spend. Then list amenities that you desire such as number of bedrooms, and additional items such as a deck, fireplace, whirlpool tub, etc. If you are hoping to purchase your first home in a certain area, or within a certain distance from work, let you agent know that too.

    The more information that you give to your agent, the more time can be saved by everyone. Your first home may not have everything included that you could possibly want, so decide which items are negotiable, and which aren’t. Let your agent know. The more homes that you visit, the more knowledge you’ll develop regarding property values in your area, and which homes you like and which homes you don’t in your price range. However, being a first time home buyer, you’ll need to understand that your agent gets paid on commission (usually paid for by the seller). Therefore, your agent will not want to spend the next 3 years showing you 500 different properties without you actually making a purchase. Likewise, you would not want the agent simply showing you one home in your price range then pressuring you to make an offer.

    An ideal world for the agent would be one sale for each time she shows a home. On the other side of that same coin, an ideal world for the first time home buyer would be the opportunity to look at several hundred homes or more before ever making an offer. The ideal world doesn’t exist for either the agent or the first time home buyer. Reality will be somewhere in between. You’ll want to look at a reasonable selection of homes in your price range. That will be a good compromise for both the agent and the first time home buyer.

  10. Learn about the elements and terms of a sales contract. As a first time home buyer, by definition you’ve never been a party to a real estate purchase and sale agreement. You’ll need to do some studying to learn the elements and terms of a sales contract. Here is a short list of the basic elements of a real estate contract:
    Acceptance: How much time the seller has to either accept the offer or to provide a counter-offer.
    Closing: A future date by which time the closing will take place.
    Description: A legal description of the property as well as the street address.
    Deposit: How much initial money is included with the contract and who will hold it.
    Financing Contingency: A clause that states the entire contract is subject to the purchaser being able to obtain a mortgage loan of X amount, by a certain date.
    First time home buyers should make sure their agent includes this clause in the contract.
    Home Inspection: The contract should be contingent upon a satisfactory home inspection to be done by a qualified professional within X number of days.
    Inclusions and Exclusions: Some items in a home are not considered part of the real estate, but are instead personal property. Refrigerators and washing machines fit this category. This clause should state exactly what is included in the sale, and what isn’t.
    Insurance: Who will insure the property until closing.
    Price: The amount of money the buyer will be paying to the seller.
    Possession Date: The date on which the buyer will receive possession of the property.
  11. Choose the right neighborhood. It seems quite ironic that you should be thinking of selling your house before you even buy your first home. But that is exactly what every first time home buyer should do! There will come a time when you’ll want or need to sell your home. This may come out of a desire to upgrade your home, or maybe due to a job relocation to another city. If you choose the right neighborhood when you purchase your first home, you’ll be rewarded with a higher value home that will be easier to sell.

    Some items that a first time home buyer should look for when searching for a great neighborhood are: 1. Located in a good school district. Is there a particular school in your area that is a recognized favorite? If so, you’ll want to buy a home in that district. If this school appeals to you as a first time home buyer, it will also appeal to the next first time home buyer who comes along and wants to purchase your home from you in the future. 2. Is the area improving or in decline? You’ll want to consider that point carefully. While an area may be acceptable to you now, if it is in a state of decline, by the time you are ready to sell, the next first time home buyer may not find the area acceptable. 3. Is the area close to many popular attractions? Being located next to parks, beaches, lakes, mountains, and wilderness is important to both the first time home buyer as well as the seasoned homeowner. Choose an area that is convenient to popular locations. 4. Choose your neighbors carefully. If there is an obnoxious neighbor right next door to the first home you plan to purchase, think twice about it. Nobody wants to live next to an eyesore, nor do they want to be kept up all night by loud, uncontrolled behavior from their neighbor. Do your homework. Knock on doors if you have to. Find out what the neighbors are like. If you follow these steps, you’ll be a happy first time home buyer instead of a disappointed one.

  12. Submit your offer. If you’ve followed these steps up to this point, you are well-armed with the necessary info to purchase your first home. Making your offer is an art, not a science. Dozens of books have been written explaining techniques and methods of successful negotiation. Here are some basic negotiation guidelines:
    1. Know the seller. It goes without saying that you want to purchase the house for as little as possible, and the seller wants to sell the house for as much as possible. Somewhere in between is the settlement range. Try to find out what the seller wants besides a high price? A quick closing, or a delayed one? Does the home need some work like new carpet, new siding or windows? Does the seller want to get this work done, or would she rather not deal with the hassle? The more info you can gather, the better position you are in to negotiate a win/win situation.
    2. Determine what would be the best case and worst case scenarios. Once you’ve done this, decide how much risk is involved. How bad do you want this house? Are you willing to lose the deal to try to get your best case scenario? Only you can answer that question.
    3. Be professional at all times. The best negotiators remain emotionally neutral throughout the negotiation process. By doing so, it is much easier to remain professional. If you are insulted or upset during the negotiation process, you’ll likely make decisions based upon your elevated emotions, rather than logic. Rarely will emotional decisions be correct. Try your best to remain unemotional. This is particularly difficult for a first time home buyer, as buying your first home is a very, very emotional event. However, the more professional you are, the more likely you are to succeed in your negotiations.
  13. Arrange for a home inspection. Even experienced real estate investors will depend on a qualified home inspector. This should be doubly true for the first time home buyer. Qualified home inspectors will examine in detail such items as roofing, heating and air conditioning systems, structural integrity, siding, windows, plumbing and electrical systems. Deficiencies in any of these components will be brought to your attention in a detailed written report. We highly recommend that every first time home buyer consult with a qualified home inspector. You should make your offer contingent upon a satisfactory report.
  14. Arrange for homeowners insurance. All homeowners should have insurance to protect them against loss. Many different levels of coverage are available. An insurance agent will ensure you are insured as required by law, and recommend additional coverages to minimize your financial exposure to loss.
  15. Make your moving plans. Congratulations! You are about to become a first time home buyer! Questions? Please call Annette at 203-903-9488.

“…we were guided confidently....Annette gracefully and skillfully navigated us through the entire offer/ counter-offer stages and all the way to closing.”

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