Note: This is a chapter in my new ebook called The Ultimate Guide to Buying (and then Selling) Your First Home. I will post a chapter a week. If you like what you read, you can pick up a copy here for the price of a candy bar! Buy a candy bar or be a real estate guru!
I met with Steve and Sally, one afternoon in my office. One of the first things I asked Steve and Sally was this. “Did you know that buying a home can be one of the most stressful things you can do? It ranks up there with starting a new job or having a child. Because of the amount of stress involved in the process, it is always a good idea to do some preparation before officially launching your home search. Sure, you can lurk online through various sites checking out the homes, dreaming about getting into the one that you love the most. However, when you decide it is time to get serious about buying your first home, please make sure to do these three things.”
1. Get preapproved for financing – Did Steve and Sally talk to a mortgage professional before coming to me. It is great to make the giant mental leap to decide to buy your first home. It is a very brave to decide to commit a large chunk of your time and resources for the next several weeks to finding your dream home. Your first step is to discuss your finances with a mortgage professional. Why? In order to truly understand your options in purchasing a home, you need to know what your budget will be, or even if you qualify for a mortgage. Nothing is more frustrating, and heart breaking to find the home of your dreams and then discover that you can’t get a large enough mortgage to buy it. It also helps to know what areas of your target area to search. If you can only afford $150,000 homes, it does not make sense to search in communities where the average price is $200,000. You do want to make sure you get preapproved for a loan and not prequalified. What is the difference? With prequalification, a mortgage professional will take a very cursory look at your finances and tell you that you will probably be able to get a mortgage for a certain amount. For most mortgage professionals, preapproval takes you to the next step where they delve more deeply into your life to determine that you do qualify for that mortgage. Be sure to ask your mortgage professional for more details. Happily, Steve had already been approved for a mortgage of $175,000, which was the top of their budget for their new home.
2. Interview at least three real estate agents – I then asked the young couple if they knew that most people go with the first real estate agent they meet. I do not advise this approach at all to the Smiths. It might seem strange advice coming from a real estate agent to interview two other agents. However, I feel people need to find the right fit for them when it comes to getting help with purchasing the first home. Here are some things to keep in mind when interviewing the agent. How successful have they been as an agent? What is their communication plan? What is their availability? How many active clients are they currently assisting? What areas do they specialize? What geographic areas do they cover? Who is their broker? Ask them about their typical day. One thing to realize about working with an agent is that you are actually in a fiduciary relationship with the agent’s broker. The agent acts on behalf of the broker. You might also not realize that you don’t typically pay the broker (agent) anything to help you buy a home. The seller’s broker pays your broker for bringing you to the table. Sally said she had done some extensive research on agents and talked to one other one. They were sold on me helping them.
3. Make a list of Your Must Haves – Sally then handed me a long list of her must haves in their first home. I was impressed because I was just about to tell them that they should make that said list. I then asked them if they had another copy of the list. Sally said yes. I handed the list back to her and told her to tear it up. I stopped her before she did it. I told her I as just attempting to make a point. Most first-time home buyers will go into the process with very unrealistic expectations of their first home. For one thing, most of the features you want in a home will most likely not exist in your price range, at least not all the desired features. You might want a large Master Suite and granite counter tops in the kitchen, but if you can only afford a home from the 1980s, you won’t’ get this unless upgrades were made to the home. As a first-time home buyer, it is important to realize that your first home is going to be where you live for five to eight years. When the times comes to upgrade your home, you will be in a better position to find a home that more closely matches your must-have list. Dream homes are realized by very few first-time home buyers. It is good to go into the process with this right frame of mind.
Luckily, the young couple did not end our relationship right then and there. Instead, they seemed excited to get started. I told them that they had a great start with the preapproval letter and have a list of must haves. However, we still needed to go over a few things that they might have been told by their mortgage professional about buying their first home.