Whether you’ve been waiting for the perfect home to arrive in your price range or you are ready to buy and make your move as soon as possible, there are a few things you need to do before heading into the market as a first-time home buyer. To tackle this list, we sat down with Greene Realty agent John Stormans, who talked about the different things that first-time home buyers should be aware of before taking the big leap into home ownership.
Get into the Right Mindset
I think one of the first things is getting into the mentality of being a homeowner, which is very different from the mentality of someone renting a home.
A lot of that has to do with the fact that you become responsible for this thing and financially responsible in terms of just how you spend your time and how you care for the thing.
I don't want to sell a house to somebody and then drive by two years later, and it just looks awful. That might have been an indication that we weren't ready to make that decision. Beyond that financial responsibility, learning to treat money differently in incredibly important. Sometimes when you're renting, you might have a rainy-day fund in case your car breaks down, or you might be saving a couple of extra dollars for it.
When you own a home, if your roof leaks or if your furnace goes out, these are massive expenses, and they're unavoidable if it happens…and things are going to happen. And they're on you, too.
So, I think the first step is taking responsibility for my living situation, getting into that mentality, and practicing what that feels like. I think that is a huge first step because it’s impossible to know what it feels like.
It's hard to prepare for what it's going to feel like to own a home and have bills and expenses. Things happen monetarily that are out of your control and are far larger than you're used to. So, getting in that zone, I think, is a big deal. It's important to be very excited and think about the possibilities.
It's also important to understand, hey, there's another side to this, too, where I am now responsible for a piece of real estate, and I don't control the weather. I don't control things that happen. I don't make furnaces. Stuff is going to happen here. I got to be ready for this.
Get Your Down Payment Ready
My job in that regard is to direct you to a professional to help analyze how you are going to find the best deal. What works for you? How much money do you have? Are we going to need to ask the seller for closing costs? But even taking a further step back and saving what we can.
What people can and can't save is totally subjective. It's different for everybody, and you can buy homes with state bond down payment assistance. The beautiful thing for first-time home buyers and people wanting to enter this market now compared to the last three years is that this crazy competitive situation has, in large part, died off as a result of interest rates going up.
Make Sure You Know What You Want
Sometimes people go out just kind of haphazardly looking around, and then they find themselves overwhelmed. You have to sit down, take time, and decide what you want. I think that's huge in decision-making in life. Learning how to make difficult decisions and move forward is a really high-level skill, and people that are able to do that are able to move forward in things in life with so much more ease, and they can make these big steps forward, big leaps forward, just in life in general.
I've had this conversation with many people in the last couple of months. So, we'll just run through it and decide on things that are important to them. We find about ten pieces of criteria - location, bedrooms, bathrooms, price, how big the yard is, how much work the house needs, and what updates are done. These are the things that we care about the most.
When we list out those ten, three or four of them are non-negotiable. We have to live in this certain location. Price is relatively negotiable. We cannot buy a million-dollar house, so it has to fit our price.
So, we have a couple that must fall into these buckets. Otherwise, there's nothing we can do. And then the rest are more subjective, and it's going to depend on someone's preferences. Understanding that there's essentially no scenario, or we certainly can't hold out for the scenario, that we're going to get ten out of ten.
That's not realistic. It's not going to happen. And let's say it does. Do you think you're the only person that's going to recognize that that one was a ten out of ten?
Don't let perfect be the enemy of good. When we find something that's an eight out of ten, it's in good condition, in a good location, it's got a good price, has the right number of bedrooms, but doesn't quite have the square footage we want, and maybe the kitchen is not as updated as we want, we need to be aware that we still get a lot of what we’re looking for, and that we can work on updating the other items.
Home Inspections Are Your Friend
We never waive inspections, but certainly not with a first-time home buyer. If someone has a million dollars of cash and they want to waive an inspection, I guess they're making the gamble that if the roof is bad, they have the money to fix it anyways, and they'll just figure it out later.
I would add that things like roofs, major systems, furnaces, and water heaters are cheaper, but if there are major issues with those things and the seller is unwilling to repair them, that is a little bit. It raises more red flags for a first-time home buyer because you just saved up all this money to get a down payment, but now you have two or three repairs hanging over your head that you know are coming. So, it's like you're immediately back to being behind the eight ball, trying to save money for this repair. So, for first-time home buyers, I tend to lump those big-ticket items kind of in with the cost of the home.
If we like the house enough, we want to try and move forward with it. It makes me very nervous if we can't get the seller to fix this for us. That is why a home inspection is so important for first-time buyers.
Establish a Good Credit Score
I think this is very important. I think as we're younger, whether it's getting out of high school and getting a job, maybe you were able to go to college, maybe you took on some loans, student loans, in order to do that, maybe you didn't, whatever the situation is. And it matters because you're using somebody else's money to make an enormous financial decision.
That bank or that credit union or whatever, they're looking at you. They're analyzing your health. It's like if you were going to get a life insurance policy and they make you go run the mile, what kind of shape are you in? They're figuring out what kind of financial shape you’re in.
And that doesn't necessarily have to do with income. Someone can make enormous amounts of income, and a bank or the other person that's going to give the money is going to go well. But how much debt do you have?
Be aware of the kinds of debt you're taking on and whether you're taking on debt at all. Please don't go into credit card debt if you can avoid it at all costs because those interest rates are so high, and it's going to eat you alive.
Somebody else has to give you the money, and you're not entitled to that money. You have to earn the right to be given that money, and that happens through good financial health. So, these things also affect credit scores too. So, they're going to look at your debt-to-income ratio, and then they're going to go, okay, you're good on the debt-to-income ratio. You make a good income.
So, you have to prove to them that you're a worthwhile investment and you're going to honor your end of the deal.
Get Yourself Pre-Approved if You Can
The only way to get accurate numbers for preapproval on loan is to talk to somebody. They don't necessarily have to pull your credit report, but you're going to either tell them or show them, hey, here's how much money you make, what your debt is, and what all this looks like. Through that process, they're going to preapprove you for this loan.
Making some assumptions it's never going to work out perfectly, but that is far more concrete and probably accounts for 90% of what you'll see when you purchase the house. And the final thing on pre-approval is when you're buying a house, you are buying a purchase price.
But I find it healthier or better to think about the fact that you're buying a new monthly payment because your day-to-day life will not be how much your house costs. Yeah, that’s not how this works. Your day-to-day life is going to be how much do we owe on the first of the month when we have to pay our mortgage?
That's why getting preapproval is so important. Now, in terms of how to get a pre-approval, obviously, we have relationships with lenders, but it happens in different ways. Oftentimes there’s an attitude that you meet your real estate agent, and then they're going to send you to the lender. They're a lender, and it's going to be this kind of control process. And while that does happen very often, at the same time for us, it's important to ask who you bank with. Who are you comfortable with?
Do you know any lenders? And working in kind of a holistic way, what kinds of organizations are you comfortable with? Do you like Bank of America, and are you comfortable working with someone there or a loan officer that's going to give you a loan and it will be sold off? Or do you like how things are done at your credit union? Or a place like Olympia Federal Savings, where they give you the loan but keep it as their own investment; they're not selling it off.
So, having a healthy conversation there and then us as a team, whether it's myself as the real estate broker, are you getting plugged in with someone that you work really well with?
Remember that home buying is a marathon and not a sprint. There’s no timeline for your happiness when it comes to finding a property that fits your needs. Buying a home is one of the most important financial decisions you will ever make in your life, so having a good head on your shoulders, a positive attitude about the process, and a good real estate agent to help represent your needs can make the difference between finding you forever home and getting stuck with something you don’t love.
No matter what type of market you find yourself in, you can prepare yourself for finding you're forever home. It just takes planning, establishing priorities, and setting a new mentality that will help you in your journey to buy a home.