The Ultimate FIRST TIME HOME BUYERS GUIDE 2021 - Top Tips And Tricks For Making That Huge Commitment

Certified Mortgage Advisor
NMLS 1701021
Published 
May 3, 2021

Buying for the first time should easy

Welcome to your first-time homebuyers guide. I'm going to walk you through all the steps from the beginning to the end. So starting where you're at right now, likely renting, and then moving into your first home, I'm going to show you the steps so that home-buying, doesn't have to be filled with anxiety and frustration and overwhelm that can often come with.

Gain more!

The more that you know about buying a house, the more that you understand how it works, the more money you're going to save, the more fund you're going to have, and the easier it will be for you to place an offer on a home that you like, and then be able to get that offer accepted and move in with the most ease most joy possible.

Let's plan your money

So let's go ahead and start with step one, which is planning your money. So if you don't have a plan for how your money is going to work, how this whole thing is going to shake out, then what's going to end up happening to you is you're going to be feeling like you're just getting tossed in the wind and people will be able to sell you into programs or houses. And you're going to feel like you didn't have control of the process at the very end. So you need to have a solid plan coming in at the beginning.

Know what you want

So let's first figure out what you want to spend. Often people come in and they have no clue what they want to spend. They just let somebody else tell them what they're going to spend.

How many days is the contract date?

First, it's important to know the average contract date. So being under contracts into when you first get under contract to closing and moving your home, it's normally 30-days.

Your lender is not your financial planner

So planning is really important to make this a smooth process. Know that a lender is not a financial planner. They're not interested in setting up something that works for your budget so you have to determine that a lender will often give you more loans, a bigger loan than you probably should take on. This is what's called being house poor when your house payment is so expensive that you can't really do anything else with your money. So we want to make sure that it will not happen to us. This is why the plan is important.

Your budget, your say

Only you can decide your budget and what we need to figure out is what are we going to spend monthly, what are we going to spend as an upfront cost for a down payment and closing costs.

Maxprice

So one quick way that you can do this is I do have a tool you can text hashtag max price (#maxprice)to my phone number, which is (937) 358-6542, and what that's going to do is send you a link to a calculator where you can put in your income and your debts, and it's going to tell you an estimated max purchase price amount.

25% or less should be your monthly payment

So let's figure out monthly costs. A good rule of thumb is no more than 25% of your take-home pay going towards a housing payment. So for instance, if your gross monthly, I'm sorry if your take-home pay is $6,000. So this is net which is after taxes. If we can take that times 0.25, and that gives us $1,500. So we know that our max payment, made of principal interest taxes, insurance, and HOA costs. We don't want it to exceed that $1,500.

What you think is comfortable

Now you might be looking at $1,500. If this is your take-home pay and say, this is still too much for me. You ultimately have to figure out your budget and see what is comfortable. What can we spend per month right now?

A good rule of thumb

Right now you're probably spending a certain amount on your rent. How much can you spend on a mortgage payment and keep in mind, you also have utilities. You might have maintenance costs that go in there as well. The things that you need to be aware of but 25% of take-home pay is a good rule of thumb that a lot of people will use.

All the "costs" that you need to know

So we have the monthly cost, but then we also have an upfront cost as well. We have a down payment, we also have closing costs and some other upfront costs which we have to be aware of when we're purchasing a home.

Down payment is not always 20%

So we have the down payment first, which is the biggest thing most people think about. Well, the down payment is actually a lot less than you might think it is, right? Some people think it's 20%. It's really not the case.

Four main types of loans and their minimum down payment

For Conventional loans, these are normally good if you have a 680 credit score or higher, the minimum is 3% down for first-time buyers.

FHA is good if you have lower credit or some credit issues. It goes all the way down to a 500 score. You can do a 3.5% down payment. So FHA is a little weird, if you have a 500 to a 579 credit score, it's 10% down. If you have a five 80 plus credit score, it's 3.5.

Then, USDA and VA are both 0% but they have some restrictions. USDA is for rural areas and usually requires a moderate income. So there's an income limit. VA is only if you are a veteran.

How do we compute

So, off the bat, this might be lower than what you anticipated. So what you can do is you can take these numbers and multiply them times a purchase price. You can take 3% times, $200,000 as of the purchase price. So the down payment minimum is $6,000.

What  Closing Costs?

On top of the down payment, you have closing costs. Closing is the fees that are required to close on a home and they're charged by various people, not just one person. Often people think it's just the lender. There's actually a lot of people, in the transaction who are charging closing costs.

And so an example of this would be, the appraisal. That's going to cost money. The lender is also going to likely charge a fee. A title company is going to do a title search of your home, they're going to charge a fee. The county is also going to charge you to record your deed in your mortgage. You'll also have taxes that you are likely to pay to put into an escrow account, and also insurance. So all of the things, these things come together as closing costs, it's not just one fee. A lot of people think it's just this random fee that somebody charges to make more money. It's not the case. It's a bunch of people who are providing services during the transaction and that's how they get paid is through those closing costs.

How much is closing cost

And this is going to vary wildly based on the lender you choose and the service providers that you choose and what taxes look like in your area. But 2 to 4% of the purchase price is going to be a good rule of thumb here. Now, there are ways that you can have negotiated with the seller to pay some of these. We won't explore that right now, but this is a good rule of thumb.

Out-of-pocket cost

Then you also have your out-of-pocket costs. An out-of-pocket cost that you would have would be something like the home inspection. If you get a home inspection, technically it's not included in the closing cost but you'll probably run somewhere around $400 to $500 for a home inspection, and that's going to be paid after you get under contract upfront.

Even if you don't close on the house if something falls through and you still had that cost that you paid. So it's important to keep that in mind and make sure you know about all these things like the down payment closing costs and out-of-pocket costs before you get started.

Don't just dip into the unknown

Next, we wanna transition into "why". Why is one of the most important pieces in this planning puzzle because what I'd like to think about home buying is it's almost like you see this river and you take a foot in, you dip a toe in to see what the temperature is like and we didn't realize that there was a huge current right beneath and it sweeps you away. And so for a lot of people, that's what happens with the home buying it's where like, "I'll dip a toe in the water" and they don't realize they get caught up in it.

And if you're not extremely clear on why you're purchasing a home, it's so easy to end up downstream and you're not able to come up, right? So if you're clear on why are you buying a home? Is this a necessity? Do you have to buy within a certain time period? Great. That's your "why". Or is this something I want to do? I want to stop renting, I want to get into buying a home, but it's not a necessity, I don't need to do it and I don't have as much urgency. This is going to help make sure that you don't get caught in deals that you're not comfortable with. And you can recognize, that your "why" was more of a preference, so I can step out of the housing market if I need to.

Let me help you get organized

So, what I want you to do is I want you to create a Google drive account. All you have to do is go to drive.google.com. It's free. And I want you to set up a little note, like a little word document, and put it in your google drive folder.

I'll just call mine "Buying a home". You can call it whatever you want, but just start typing it out in a little Google drive. Why are you buying a home? And so you're gonna recognize in these slides, this little Google drive logo, anytime you see that that's something that I want you to put in your Google drive because you're going to be assembling all these documents. It's going to help you have clarity.

Clarity helps you enjoy your buying process

Clarity helps you make wise decisions moving forward. If you don't have this plan, if you don't have this preparation, if you don't have the clarity, everything's going to feel disheveled. You're going to be frustrated, stressed, and anxious through the process and that's what we don't want.

We don't want you to have that. I want you to feel joy. I want you to feel the momentum as you're moving through this and feeling like this is exactly where I want it to be, and you won't get there unless you have that clarity.

Lender, we need to find one

So now let's move on to finding a lender. So we need to find a lender first before we start searching for homes before we talk with a realtor.

Can we get a loan?

We need to do this because, number one, we need to know what we can get. There's no point in us going to see homes, writing offers, getting attached to something, and then figuring out actually, there's this thing, keeping us from buying a house. That's why we need to talk to a lender first.

How much can we be approved for?

Also, we need to figure out a maximum amount of how much we're approved for, what is our max purchase price? We don't want to go looking for $400,000 houses if we're only approved for houses that are $350,000 or less. So we need to know exactly what those numbers look like first.

What shoe do you fit?

So, this is who you can work with. There are three main types of lenders that you can work with. Number one would be a mortgage broker. Then you can look at a local bank or credit union or a big lender or an online lender. So I'll explain these three. What I want you to do is I want, actually want you to apply with all three of these lenders because these will give you different types of lending institutions to see which one is going to be a better fit for you moving forward. So they all have different cost structures. They both will have different rates and different costs as well in different styles of running a business that might change who you enjoy working with.

Where to find lenders and real estate agents?

So you can come through me like I do referrals across the nation for, both lenders and real estate agents. You can check my website https://www.winthehouseyoulove.com/apply if you want good options. Also, Zillow is an option. Zillow has a place you can search for lenders. You can search for lenders on Google, that's also an option and see what their reviews look like. You can get a referral from your real estate agent.

Lender and agent should mesh well

Often real estate agents like working with certain lenders. It's illegal for them to have kickbacks of any kind where there's an exchange of value, but often it's really helpful when your agent and your lender, work together well.

Get referrals from friends

And you could also get a referral from a friend or ask a friend who just bought a home, "Hey, who did you work with? Did you like him? Did you not like him? Let me know what their contact info is."

What's my rate?

At this point, you're probably wondering, like, "What's my rate? What rate can I get?" a really easy way for you to figure this out before you talk with a lender, that way you can just set up your expectations properly is Googling CFPB rate checker. It's going to take you to this website: https://www.consumerfinance.gov/owning-a-home/explore-rates/ where you can put in your credit score, your state estimated price, estimated down payment. You can guess on all this stuff, put in your estimated loan, and see what kind of rates are being offered most in your area. I think it's really good to have this before you talk with a lender because a lot of people talk with the lender just to get the rate. And it's kind of bad use of both people's time.

It's easy to figure out an idea of a ballpark of what your rate would be. When we talk with the lender, we want to get down into some details more about what we can qualify for, what are some ways that we can save money with our mortgage. Those are more interesting conversations, just, you know, more so than just what is the rate.

Get pre-approved with flying colors

So now let's move on to getting pre-approved. At this point, we would have found a lender through one of those sources. Ideally, we would have found three. We would've found a broker, a credit union, and a direct lender. And now we actually want to get pre-approved with these lenders.

Why do we need to be pre-approved?

So what's the point? What is the point in getting pre-approved? Number one, we can see what type of loan we're going to be able to get approved for. Again, I talked about conventional FHA, VA USDA. There's also a portfolio, there's a non-QM, there are Jumbo loans. There are all different kinds of loans and you don't have to figure out what loan you can get, but your lender, your loan officer is going to help you figure that out.

What type of loan to use?

So we first want to see what type of loan we're going to be using, because that's going to be critical to the offer that we place in the home. We have to tell the seller, are we using conventional financing? Are we using FHA? It's also going to tell us our max purchases. So what is the limit that we can go forward when we're shopping for home? That way we're not searching again for a $500,000 house, I'm going to only approve for 400. It's going to tell us what our interest rate is. It'll tell us our down payment, what costs the lender will charge. And then the lender will also estimate the other fees. Those things like taxes, title, insurance, recording, appraisal, they'll help us estimate those fees. So ultimately we could see what the bottom line number might be for.

Prepare your document beforehand

Now at this point, what I want you to do again, we haven't talked to any of these people yet. We've just researched them. We have a list of people we want to talk to. Now I want you to get together your documents. A lot of people mess this up. They talk to the lender, then the lender is like, okay, send me documents. It just extends the process too long. Get your documents together. Now, before we talk with the lender, you're going to come in as like this golden borrower, whoever wants, wants to work with because you're prepared. And the process again is going to be so much easier for you if you follow the steps this way.

Documents that you need to prepare

So the documents I want you to get together, this is going to work for most people, likely there's going to be other documents. Your lender will request a view, but this is going to be a good place to get started. So again, in your Google Drive, create a folder that just says here, my mortgage docs or whatever.

Collect your 30 days of pay stubs, two years of your W2's or your 1099 and you can ask your HR for this if you're not sure where they're at or ask, whoever has been paying you for contract work for your 1099 past two years of tax returns past two months of the bank statements you'll be using for your down payment and closing costs.

They don't need to see all your bank accounts, just whatever has the money in there for your down payment and closing cost. Then also your driver's license put those all together in one Google drive. Then you can share that with each lender. It makes it just so much easier. There'll be able to give you accurate pre-approval accurate quotes and go through the process a lot smoother.

What you can expect

You're going to apply with each lender. Now, some of them you might have to call to get the link. Some of them might have a link on their website where you can directly apply. It just is going to change, but it's probably going to take you around 15 minutes each to be able to go through these applications. It shouldn't take too long.

So I would carve out 45 minutes, carve out an hour, just knock through those applications. It really is not too difficult. It's just like general information. Like, where do you work? What's your employer's name? What's the address? Where have you lived over the past two years? How much money do you make? How much money is in your bank accounts? Have you had bankruptcies? Have you had foreclosures? It's general questions like that, it's really not too difficult. I promise you.

Credit pull

Also, they're also going to do a credit pull which is important to get an accurate score. If a lender does not do a credit pull and they give you an interest rate, it's not accurate.

You need to have a credit pull, a hard credit inquiry. So it's important to remember a credit inquiry is only going to change your score anywhere from zero to five points. It's not going to tank your credit score. Also, you have a 45-day window where you can get your mortgage credit pull.

Your mortgage credit pulls an unlimited amount of times, and it will only count as one inquiry. So I promise you, if you have three people do a hard pull on your credit score, it will only change your score from zero to five points. It's not going to tank your credit score. You might have something from Credit Karma that acts like the sky is falling apart, but just know that that's not actually tied to your real credit score, that a mortgage lender is going to pull.

Quick transaction, quicker loan process

So after they do that, you're going to send them the documents that you had from your Google drive. Right? Super easy. Hey, share it, with their email. Now they have that Google drive. They have all your documents ready to go. Then after that, they should be giving you a full quote. What I mean by the full quote is it needs to tell us that the rate, the monthly payment, and all costs, I want their closing costs.

And I want all estimated closing costs to give me a bottom-line number that we can see exactly what it's going to cost estimated with the lender A, lender B, and lender C take all those quotes, put them into your Google drive that way you have them to be able to look back again. We're assembling this little, this little folder together.

Clarity helps you make wise decisions moving forward. They're also going to send you a pre-approval letter. The preapproval letter is something that you'll end up giving to your agent. They'll put it in with your offer and that's going to help you stand out to say like, Hey, I actually have the ability to purchase this home. I have the funds to purchase this home because I have this, pre-approval put it into your Google drive. So you have that as well.

Let's compare the offers

So we have these three loan offers. Now, we need to actually compare them and see which is going to be the best lender to work with. So, what I would do is I would ask each lender for what is called a TBD (to be determined) loan estimate.

A loan estimate is an official document that every single lender across the nation is legally required to give you within three days of you being under contract. However, you can ask for this before you're under contract just say, can I have a TBD loan estimate? And the reason you want this is because when these lenders give you these three quotes, they're going to be on different documents. It's going to be hard for you to see side by side what are you comparing. Side-by-side, cause all their documents are going to look different from each other, having them on a loan estimate, standardizes exactly where those fees are. So you can compare them a lot easier.

Move on, don't deal with people like that

And so sometimes I hear people talk about like, ask my lender for a loan or a loan estimate. And they said they wouldn't give it to me. At that point, I'm just saying let's move on to somebody else. Let's move on to somebody who can because all it is is a document. It doesn't take some big, fancy thing to put a loan estimate together, especially one that just says TBD lowness meant. TBD just means you don't have a property address, you don't have a contract.

I would just move on to another loan officer because likely somebody who's not presenting you with a loan estimate, who says they can't probably is trying to hide things from you. They don't want you to see the full picture because they're afraid you're going to go with somebody else.

Loan Estimate Explainer Tool

So, if you go to this link: https://consumerfinance.gov/owning-a-home/loan-estimate/. There's a little Loan Estimate Explainer tool it's kind of interactive and you can explore a loan estimate. There are three pages of importance that you want to look at. So page one of the loan estimate is going to tell you just some important highlight information.

So it's going to show you things like the purchase price, the loan amount, the interest rate, the monthly principal and interest payment. It's also going to show you, is this a 30 year loan? Is it a fixed rate or an ARM (Adjustable-rate mortgage)?

What type of financing is it conventional, FHA, VA or is it USDA. This is also going to show you things like, what are considered dangerous features? Prepayment penalty. Does it have a balloon payment? Ideally we want these both to say no. It's also going to show us, is there mortgage insurance? If so, what year does it fall off? I can see in this loan at year eight mortgage insurance of $82 a month drops off. It's also going to show me an estimate of property taxes and homeowners insurance. It'll show me a total of closing costs. And an estimated Castro close estimated cash to close is theoretically, what's going to be due from you that you would bring as a cashier's check or a wire to the closing table.

So right off the bat, if we could see three lenders page ones, we have a good idea of the different types of loans that we're working with without having to try to figure out their interest rates over here and their interest rates over there and their interest rates over here. Like that gets too difficult. If they're on the same document, I can see the interest rate side by side.

Page two is where you into the closing cost details. So in section A, this is what the lender charges, so this won't change everything from section B all the way down to section J, these are all going to be estimated by the lender. So don't choose the lender based on these costs because of their estimates, these costs will change depending on the property that you purchase, not the lender that you work with. Section A will change based on the lender that you work with and not the property that you purchase.

For calculating cash to close, this is where they're going to add everything up. So your total closing costs, plus your down payment minus any credits that you might be getting from the seller to give you your bottom-line cash to close.

Then page three shows you some interesting things about comparing that loan. So it shows you, for instance, in five years, what's the amount that you paid in principal interest, mortgage insurance, and loan costs. What's the amount and principle that you paid off. What's the APR of this loan as well.

So, again, we can see all these numbers side by side when they're all on loan estimates. To request the loan estimates, put those bad boys in your Google drive that we have them to be able to look at in the future.

Deciding for a lender

So now when you're deciding at this point, we probably going to get an inclination of what lender is going to be best to work with that way. We're when we're under contract, you kind of already have an idea of what lender you do want to work with. What I would do is I'd put together these two pieces of figuring out who has the lowest cost offer? And when we're figuring out the lowest costs, we're trying to figure out this trade-off between rates and the cost as well. I might have one lender that gives me a 3% rate and costs me $1,000 in lender fees and another one that charges a 3.5% interest rate but there are no fees. Which one is better? Which one do you want? So a combination of low costs and gut feeling as well. Because we might have a lender who gives you this crazy low quote, but they don't respond to you. They're not helpful. They're kind of rude if they're difficult to work with right now if you don't have a good feeling about working with the lender right now. It's going to not be a good time when you're under contract. Some same thing if you're like shopping for clothes, if you don't love it in the store, you will hate it everywhere else. I promise you.

Good traits of a lender

So make sure that you're working with somebody that you really enjoy. Somebody who has the heart of a teacher. Who's willing to explain things to you who is able to respond to you in a timely manner and has low cost as well. That's going to give you your best.

Big Don'ts

Something to keep in mind here at this point, you've been, pre-approved some big don'ts that you don't want to do. Don't make any big movements with your money. So don't make any major purchases, especially with new credit. Don't go, don't go buy a new car. Don't go finance furniture. Don't do any of that. If you have to do anything like that, talk to your loan officer first don't change or quit your job.

One time I had somebody who was like, I just got a new job and I got a pay raise. No, we have to start the whole thing over again, and we have to redo the pre-approval, even if it's a new job that pays more money. Talk to your loan officer, if you're going to do something like that because it can change if you're pre-approved or not.

Don't move large amounts of money in or out of accounts that can be really difficult for now. The lenders have to attract don't pay off debts or collections that can actually lower your credit score. If you do it incorrectly and don't make late payments still pay everything on time.

Sometimes I hear realtors or other people saying like, you can skip a payment on something. No, make the payment, don't miss a payment. Don't make late payments that can completely derail you from being able to get a home.

Finding a Real Estate Agent

Now let's move on to finding a real estate agent. So here are some guidelines you want to keep in mind.

Don't use a dual agent. Don't use the agent who is listing the property, because if they represent the seller, how are they going to represent you well at the same time? Explain your scenario to an agent and see how they respond. We're looking for somebody who has the heart of a teacher. Who's willing to explain things to us, and there's a difference that you'll pick up between being helpful or being salesy. You'll be able to pick it up super quick, to see which agent you want to work with.

Experience isn't everything. Agents often will do this thing. I've been in the industry for 30 years and who cares if you're not helpful, if you're not good at your job, it doesn't matter how long you've been in the industry length that doesn't determine how helpful you are and how much you succeed at helping home buyers get what they want. So experience isn't everything.

Ultimately trust your gut. Again, as you're talking with some different agents, you're going to find somebody who likes working with maybe the first person you talked to, you really enjoy great. You don't have to go shop with a bunch of different agents and interview a bunch of agents you can if you'd like to, but if you find somebody who you really click with great, let's work with them.

Where to find them

And then where to find them very similar to on the loan officer side, I can help you with that. You can look at Zillow, a Google referral, from maybe a real estate agent friend. If you're not wanting to, sometimes people don't want to work with friends or family who are real estate agents. I totally get that, maybe you can ask them for a referral, a referral from a friend, in support to keep in mind that your agent is usually going to be paid by the seller. So there's usually there's no cost or no upfront costs that a buyer has and working with a real estate agent.

The Housing Market

So you have your agent, you've been preapproved now it's time to actually start shopping for some homes. So here are some big dues to keep in mind. Number one is to follow your agents, MLS updates.

I know the apps are really nice to use. Zillow has a fantastic app. There's realtor.com has a great app. They look nice, but their data can be old and not upstate your real estate agent is going to be connected to a database called the MLS. That's going to have updated information as accurate as it possibly can be on new listings that hit the market. And so when you're competing for homes with other people. You want to be the first person to hear about a new home that gets listed that way you can ideally go see the home first and put in an offer first. So follow those updates.

Stick to your price limit

Also, stick to your lender's max price limit. If the lender says, Hey, you're approved up to $350,000, don't look at $400,000 houses. You're not going to be able to get it unless you'd go back to your lender and say, is there any way we can raise this? Don't look above what you approved for, it's just going to set you up for emotional disappointment moving forward. Also, stick to your monthly budget. You can talk with your lender and say, Hey, I want to stay under a $ 2,000-month payment of $1,500 a month payment. Where do I need to be in my price range? Where do I need to look within that range? That way you can stick to it again, don't go find this home fall in love with it, and then realize that there's no way that I'm actually going to be able to afford this monthly.

Timeline and urgency

And then use your "whys" to set a timeline and urgency. If you have to purchase a home for whatever logistic reason, that means the home doesn't have everything that I want in it, I still might need to make a move on it. On the opposite side, though, if the home is more of a want at this time, something that I want to do, but it's not urgent, don't go make huge, drastic, urgent moves when you don't have to. Don't commit to a home, take some patience, wait for the right thing to come along.

List down you wants and needs

Then also make a needs versus wants list. Open up a file in your google drive, call it "Needs vs. Wants" then write down what is an absolute need? Things that I absolutely need to live in this home vs. what is a want. Make sure you're very clear on what those are that way when you're shopping for a home. Again, you don't get pulled down the stream just because the current was fast in the housing market, because I'm telling you when you start searching for homes, it's going to move quickly.

You're all of a sudden going to hear someone place an offer. There are multiple offers, and you're going to feel like you have to make a move on it. If you're not clear, you're going to make a decision that you may regret in the future. If you move too fast, if you move outside of your "why", you move outside of your budget.

Don't be too excited yet

Some don'ts, don't get emotionally attached. I know you see this home and part of figuring out if the home is right for you are picturing, do I want to live here? But in that, we get a little bit too emotionally attached and we can't get emotionally attached until we close on that home because things can fall apart and we just need to make sure that we prepare ourselves for this. We can have an excitement about the house, but at the same time, say, you know what, I'm going to wait a little bit longer before I get, the emotional weight of this all land on me.

Have the right timing

Also, don't move too fast or too slow to schedule showing depending on the market. Go back to your "whys", don't make urgent moves. If you don't have to be urgent. If you have the ability to wait and something's like 50% of what you want, great let's hold out a little bit longer. You don't have to go write an offer on this home and then potentially regret it in the future.

Save time, don't visit every home

Don't feel like you need to see every home. I know in the beginning it can be tempting to be like, sure. Let's just go line up a list of 20 homes to go see, I talk with agents sometimes and they'll be like, I went and showed, I've shown this person over 50 homes. Like we don't have to see that. People who see that many homes are not clear on their "whys" don't have a "needs vs. wants" list and they don't have a budget they're not clear and it's a waste of time.

Think of all the time that you're wasting, seeing these homes that, you know, I can look online to see generally most if I'm going to be interested in a home or not. So make sure you're very clear on that to save yourself time.

Writing an offer

Now into writing an offer. So you found a home that you like now, you actually want to write an offer on it to say, Hey, seller, we'd love to purchase this home on these terms and see if they accept it or not.

So you can negotiate what you want and this is more than the price. It's not just, Hey, you offered it for 300, I'll give you 290. What you can also negotiate is how long is the contract? How quickly do you want to close on that home? What type of financing do you use is going to be included in your contract?

If the seller is going to give you any credit towards your closing costs, that's something you can negotiate. You can negotiate things like inspection periods, how long you have to inspect the home. And if you can for repairs, if you are willing to pay above the appraised cost, above the appraised value if it comes in low.
There are all these things that you can negotiate. Sometimes you can even include personal items. Talk with your realtor about the logistics of that as well.

Putting an offer and how to win it

So you'll put in an offer to the seller and the seller often will accept or counter your offer. So if they accept it, great, you move forward with that offer that you presented. If they counter, they might come back and say, actually we'll do this contract, but we're instead of doing the $3,000 closing cost credit, we want to do zero closing cost credit, and then you can come back and choose to accept that or not.

So if accepted that contract then becomes binding, it's the map of the transaction. And sometimes it's people can forget, like this is a legally binding contract that you have to follow. We use the contract as a map to determine the dates when things get done and how they get done. So keep in mind that when you're putting in an offer, it's a serious thing. I hear people talking about like practice offers, "Put into practice, offer", No! It's a real offer. Somebody can accept and then we're legally bound to those terms. Be very careful about what you're doing and what you're actually committing yourself to in these contracts.

So some tips write an offer that helps you win. In other words, put your best foot forward. If you really, really want to win this house, especially in a competitive market, don't act like you don't want the house.

Think that buying is like dating

If you're dating somebody or you're in a relationship and you like the person. You're not going to benefit if you sit back and be like, yeah, I kind of like you, how is that going to progress a relationship for it? You tell somebody, you communicate with them. Hey, I like you. I like spending time with you. That's what progresses a relationship forward. Same thing when you're writing an offer, if you're interested in it, communicate your interest through the offer.

So often I see people who are like, "I really, really, really want that house. I'm going to low ball 'em by 25,000,", and then they don't get the house. And then they're really upset. There's a disconnect here. If you want the house, communicate that with your offer because you want the seller to accept your offer. That's how you get the house. So make sure that you do that, communicate your interest with your offer. Ask your agent how you can make your offer more competitive because there might be little things that you can do in your contract. Things like shortening contingency dates, shortening how long you have for your inspection, shortening, how long the contract is. Changing things like your home warranty to be able to make your offer just a little bit more attractive than the other offers the seller might be seeing.

Love Letter

Also, consider a compliant offer letter and put it into your Google drive. So an offer letter is basically where you're writing the seller. Some people call these like a love letter or something like that. You're writing a letter to the seller, letting communicating why you want to purchase the home, how much you want to purchase the home. It's important with fair housing regulations to talk to your agent about this first and make sure that there are no fair housing violations in there. Likely you're going to have to stay away from anything that involves any personal attributes about you? Mostly, you're going to have to stick with details about the home itself. So talk with your agent about compliance with that.

Ask the lender to call the listing agent

Then here's a big one. Ask your lender to call the listing agent. Sellers listing agents will get multiple offers coming in. And a big question the seller has is if we go with one of these offers, we really want to make sure the financing doesn't fall through because that's the thing that can happen.

If your lender then calls a listing agent or the seller if it's for sale by the owner and can communicate, obviously they're not sharing personal details about your finances, but they can communicate, "We have all their documents. We have a full pre-approval and we've checked that everything is good to go". This person is solid on their financing. Your offer is going to stand out way more than all the other offers that didn't have their lender call at all.

Don't skip home inspection

Now we want to get a home inspection. So we, we got under contract, the seller accepted our offer. Now we need to make sure that the home is stable and in good condition for us moving forward. So it will happen as a certified home inspector is going to examine the home to identify any issues to bring to your attention. They'll blend prepare an inspection report. And again, I want you to take that inspection report, put it into your Google Drive. So on that inspection report, it's going to detail things that need improvement on the home.

Often a good inspector is going to produce a report that almost makes it feel like the sky's falling. And it's going to seem like there's a lot of issues. And often there's a lot of small things. Keep in mind, new homes have just a bunch of things that need work. Homes always are going to have some little bits of work done. Don't get scared by small things. What you're looking for are these big issues that could cost you thousands of dollars in the future little things that only take a drive down to Home Depot and 30 bucks to fix are not things that we're willing to kill a deal over the things that we're willing to kill a deal over are maybe huge roof problems that we don't have the money of the capacity for right now.

When and how to negotiate repairs

So your contract will determine, if or when you can negotiate repairs to be fixed by the seller. So you get this inspection report back and likely in your contract. You have an inspection contingency period, or basically, if you find issues, you may be able to ask the seller to fix those things. You may also be fine with them moving forward, or you may walk out of the deal at that point.

A home inspection, is a big moment of change because buyers can back out, they can request repairs or concessions, you know, money instead of in lieu of repairs, they can renegotiate the terms of the contract. This is a big point where deals can kind of die or change based on how the inspection report came back.

Underwriting process

So then we move into the underwriting process and see how the process works. So your lender and your loan officer are going to take your pre-approval and they're going to work on finalizing it into a full approval. So likely they had most of the documents that they needed most of the information, but they'll probably need to button it up, which is just a little bit more information.

So they want to make sure that you can pay back the loan by examining and documenting the risk of the loan. That's the whole point of the underwriting process is the lender is about to give you probably several hundred thousand dollars. Put yourself in their shoes. If you're giving your friend, like, would you loan your friend 50 bucks? I know some of my friends, I definitely wouldn't.

So if you're lending somebody hundreds of thousands of dollars, wouldn't you want to check to make sure they have the ability to pay you back that way they don't go off with your several hundred thousand dollars and default on it. That's what the lender is doing.

They will have a legal obligation to make sure that they're giving you a loan. That's nonpredatory based on government regulations. So that's what they're doing here. They're going to ask for a lot of information. Just expect it, just roll with it. It's not fun. They're not picking on you. It's just part of the guidelines.

So through this process, you're probably going to be either talking to your loan officer, or they may have a processor who's helping you navigate and collect those documents as well. So when they ask you for information and support and to give it to them as quickly as you possibly can. So what they're going to do is they're going to take your pre-approval of all the information, send it to an underwriter.

Conditional Approval

The underwriter will then come back with conditional approval. The conditional approval that likely to kind of say, "Hey, congratulations! Your loan has been approved!". And then they'll probably say, "please send us the following documents". And it's all going to be situation-based, perhaps some examples of what may come back and conditional approval.

And again, this is where, you had most information in the pre-approval, but the conditional approval is basically saying, "to close the loan, to get a final clear to close, we still need a couple of other things". For some people, they don't need to send in anything. For others, they might be quite a few documents. Depending on how complex your loan is.

So for instance, they might say something like, "Hey, we need page three of the bank statement". Maybe that was missing when you send it. They need evidence of homeowner's insurance. So they need to see that you have a homeowners insurance, declaration page that you went out and caught. Maybe they want a letter of explanation for it like they saw 123 Main Street came upon our report. Maybe that was a past address you lived at. So keep it in this letter of explanation. Inform them that, "I used to live this property, but I no longer live at this property". Then sign it.

Maybe the most recent pay stub cause your old one to expire because the lenders have an expiration on these documents. Then maybe they will also ask for the contact for your HR or your manager so they can do a verification of employment. So it will be things like that, sometimes a conditional approval can come back and you can be like, " I didn't know my loan was going to fall apart." And it's not the case.

We are all entitled for a conditional approval

Everyone's going to have conditional approval, so it's okay. It's the most normal thing, just expect it. All you need to do is collect those documents and send them back to the lender.

Home owners insurance

You also want to get homeowners insurance at this stage and homeowners insurance is going to cover things like fire, natural disaster, and things that.

Take your homeowner's insurance declaration page. Put it into your Google drive folder again, assemble it all together. Clarity helps you make wise decisions moving forward.

Yes, you can shop for insurance

You can shop for your insurance coverage to find what works for you. So again, you can look online, I guess that's Google, you can ask friends, you can go with whoever has your current car insurance or things like that. You can go ahead and shop for multiple quotes for insurance.

Insurance quote

Most of the time is going to be included monthly in your mortgage payment. So insurance is normally given as an annual amount and the lender will then pay that for you, but they'll charge monthly and then they'll pay your insurance company annually. They'll kind of put it all together in one account for you, and then they'll pay the insurance company.

Full year up-front secured

Also, a lot of people don't realize is your first full year of homeowner's insurance is paid upfront. And so this is included in your closing costs. It should be included in your loan estimates, 12 months of homeowners insurance inside of the prepaid section. And, it can be a little confusing because there can the collecting 12 months. Prepaying the first full year. And then they're also going to collect monthly in an escrow account.

Money back from escrow

And so if you sell the home within that period of time, you get the escrow account money back. Any money that's sitting inside of an escrow account, if you sell or refinance, you will get it back.

But an escrow account is basically where the lenders taking these bigger payments, like annual homeowner's insurance or semi-annual taxes. Instead of you paying those once a year, the lender will collect it monthly, stored it in an account, and then they'll pay it for you.

Appraisal - Home's Value

So now at this point, the lender's going to order an appraisal and an appraisal helps the lender see how much is the home worth based on what should be an unopinionated party's value. Because the seller obviously wants the most amount of money. You want the lowest amount of money. We want to get a third party in there to see what the value is. That way the lender can see, "are they willing to loan you this much money?"

Because this is what happened in the housing crashes. You know, people were getting loans for homes. Like the loans were way more than the home is actually worth. And so if you're purchasing a $300,000 house, the lender doesn't want to give you a $400,000 loan because the home is not worth that. So that's what the appraisal does.

The appraisal is mainly for and ordered by the lender. Now it kind of has the other benefit of like, it also can help out the buyer, see what the value is, but the appraisal is for the lender. That's the whole point. So the lender can make sure that they're not giving out too much money.

Ideal purchase price

So ideally the appraisal value will be at or above the purchase price. If it comes in lower than the purchase price is we're often run into issues or contracts either die, or they need to be renegotiated.

So the lender is going to use the lesser of the purchase price or the appraised value to determine your loan amount. So if we're going back to like 3% down conventional, it's going to be based on either the purchase price, or if the appraised value is lower, it's going to be based on the lower value.

So we'll have it as the appraisal inspection is scheduled and then once the appraisal's done, the report is going to be given to you likely by your lender. And again, throw that in Google drive. So you have it all in one place.

Scenario One

So let's run through an example of what an appraisal would look like. So let's say we have a home and we go under contract to purchase it for $250,000. We get an appraisal done and it actually comes in at $257,000 which is $7,000 higher than what we expected.

So theoretically, we're purchasing this home at a $7,000 discount. Now the purchase price doesn't raise up to the additional seven. We got to purchase the home kind of at a discount, according to the appraiser. So the transaction price is 250,000 and we continue with that. We signed a contract at 250, the seller signed at 250 and the loan amount is going to be based on this.

Scenario Two

Now let's run into scenario two, the same thing. We go under contract to purchase a home at 250,000, but the appraised value comes in at 245. It's actually $5,000 lower. We ran into an issue here because we agreed to purchase it at 250. However, the lender is not going to give us more than or they're not going to allow us to have a technical purchase price above 245.

Now we have to figure out how do we make up the other 5,000? Because again, the loan amount is based on the lower amount, 245. So we did 3% down on 245 and now the other $5,000 has to come from somewhere. So what happens at this point is the appraisal contingency in the contract may kick in and we could get a chance to renegotiate the contract.

So, we signed a contract to buy it for 250. The lender is only going to give us a loan based on the 245. So either we have to come up with 5,000, the seller has to come down 5,000 or we split it in the middle. So this is where it can be renegotiated if that's allowed in your contract.

Before we close

So now just before closing, we did the pre-approval, we got the conditional approval, we did the home inspection, we did the appraisal that all have come back fine. We send in all those documents and now we're clear to close. So when we're clear to close, everything is finalized with the loan.

The inspection came back fine, we negotiated that the way we want to. That appraisal came back fine. In this instance, we sent all the documents that we needed to, and the lenders basically saying, "you're done! You're done with the loan." No more stress about the loan. So what they'll do is we'll send you a closing disclosure. 

Closing Disclosure

Closing disclosure is very similar to a loan estimate. It just ends up being the final version. The loan estimate in the word it's an estimate or in the title and estimate. It can fluctuate depending on what's changing in the transaction. The closing disclosure should be locked down and finalized for you.

How to pay the closing cost

And they'll also send you, how to actually send the money to the title company most of the time. So, either it's a wire, cashier's check, they'll help you navigate how you're sending the money and who you're sending it to, and then when the closing is scheduled.

Before Closing

Just before closing, what you're going to be doing is likely a final walkthrough. And this is going to be negotiated in your contract in the very beginning. Again, we talked about the contract is the map and the contract you can see has been guiding a lot of these things about the inspection, about the appraisal, about the walkthrough. And so that contract is very important to understand what you're signing up for because it will determine the course of the transaction as you go through.

Final walkthrough

So likely you're doing the walkthrough to see the condition of the home. I'm likely to see if the seller is still living there. Cause you know, maybe that's negotiated as well.

Review your closing disclosure

Also, you want to review your closing disclosure and compare it to your loan estimate. Again, put that in Google Drive. That's why I want you to put your loan estimate in Google Drive is because now it's easy for you to go look at it. Compare those two side-by-side and see what changed, but likely there will be some change because the loan estimate was an estimate, but it should be very, very close to your closing disclosure. There shouldn't be this huge discrepancy. And so if you see these changes, maybe they quoted my homeowners insurance at a thousand dollars a year, but it came in at $1,200 a year. Well, it's not the lender's fault. That's your homeowner's insurance quote. It came up to $200, that makes sense.

So that helps you understand what's changing between those two documents. So you're not caught off guard.

At closing

Then at closing. So, what will happen is closing will be scheduled. So kind of in post COVID world, things have changed a little bit, but often this is referred to as a closing table. This is all going to depend on kind of what's customary in your area.

For instance, in my area, it's very common for one closing to get scheduled, and everyone kind of comes around a closing table. So, the buyers there, the sellers there, both agents are there. There's usually a title company representative, working on helping you actually sign closing documents, and everyone comes together.

Putting the money that's needed, actually change keys and occupancy, and signed final documents. But this may be done differently depending on what your lender does or what's customary in your area.

Check all the details, ask questions

So review all the documents and ask questions. Don't feel like you're being a pain. Like it's probably, you know, it's probably frustrating to see that stack of documents and be like, "oh my gosh, I'm going to read through the whole thing."

Your lender likely will send you a copy beforehand so you can kind of review it. But if you're looking at a document, you're like, I have no idea what this. Don't go signing documents that you don't know, and you're not comfortable with. Make sure you understand, ask questions if you need to, don't sign a bunch of things, and then afterward, you'd be like, "I really, really wish I understood what I just signed to." You're going to get a copy of all your closing documents. Throw it in the Google drive that we have to reference if you need to later.

And then keys and the occupancy of the home will be exchanged according to your contract. Again, this is why the contract is important. Sometimes at closing, they'll hand you the keys and you're able to go, you can go drive to the home and move in right then and there, if you want to, sometimes maybe you negotiate it for the seller to, they have the weekend to move out, or they have a week to move out that can all be negotiated inside of your contract.

First Payment and Beyond

So your closing is done. The first payment and beyond the first payment is usually due in over 30-days. Normally it's going to be the end of the month plus an additional month before your first payment is due in your closing package, all those documents that you signed are going to spell out how you're making that first payment. Either likely who you're sending a check to, or there'll be instructions for how to set up an online account.

P&I for fixed-rate loan

If you want to do that, your principal and interest payment is not going to change if this is a fixed-rate loan. So it's always going to remain the same and that number was on page one of the loan estimate.

However, what will change, again this was on page one of the loan estimate as well is your escrow, taxes, and insurance. If taxes changed your taxes, go up, your mortgage payment will go up as well. If your insurance goes up, your mortgage payment will go up as well because taxes and insurance are included in your mortgage payment.

So if you see fluctuation, that's likely what's changing principal and interest will not change, over the entire duration of the loan. As long as it's a fixed-rate loan. Pay attention to your escrow account. Your lender is going to be sending you details about what's in your escrow account. What's changing with taxes and insurance, so you can be aware and up-to-date of those.

Wishing you all the best!

Hopefully, this process wasn't super overwhelming at this point or, just learning about it. And maybe it was, and if so, that's okay when you're kind of getting into something new, something that feels new, it can feel overwhelming at first. But I hope this helped give you some more clarity and understanding a little bit more about what's going on because I promise you, just by reading this blog you're more prepared than like 90% of other home buyers. And the more prepared you are, the easier it is to actually win a bid. When you put in multiple offers, it's easier for you to figure out ways that you can stand out. So you can find a home that you like and actually be able to move into it.

You can also make sure that you're comfortable with the loan that you're getting. You're comfortable with the budget that you're setting aside, buying a home should be an enjoyable process. It's a tough process, but it should be an enjoyable process. There should be an element of fun, lightness, and joy in it as well.

And the more that you know, the more that you're prepared for, the more that you understand how to navigate some of the hurdles by reading blogs like this, the easier it's going to be moving forward. So I wish you the best in moving into your new home.

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Only for educational usage. All calculations should be verified independently. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This is not an offer to lend and should not be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate and/or financial advice. Read the full disclaimer here.