When you buy your first home, it will be one of the most important life steps you’ll ever take! It’s a major financial decision that should be taken very seriously. Take the time to fully prepare yourself so you know what to expect as you walk through this process. It can be nerve-racking but Team Sno-King can assist you on your journey.
If you reside in Washington State or are looking here, feel free to use the search tool on our home page to help you find your next property. If you’d like to see any of the selected properties in person, contact us to setup a showing. Feel free to send us your criteria as well if you’d like a more tailored search with exact matches and price ranges. We’re here to serve you.
Are you really ready to buy your first home?
The first step is determining whether or not you’re ready and able to buy a house. It can in some cases be a lot more expensive than paying rent since there will be additional costs to consider; think mortgage principal and interest, property taxes, maintenance and utilities (garbage, water, electricity), remodeling and renovation, landscaping, insurance (homeowners, PMI) and more. Not to mention you’ll need to come up with a downpayment, moving expenses, furniture and still have some living expenses and an emergency fund after you move in.
If possible, before you buy your first home you should drastically reduce or eliminate any existing debts like student loans, credit card debt, car notes, medical debt, etc. You may feel like you need to purchase a home in the immediate future; pressure from friends and family can drive you to make drastic decisions. Don’t pay attention to the Jonses! This is your life and you can make the decision when you’re financially and emotionally ready. Talking to your lender can help you to ascertain your current financial position and help you determine what adjustments you may need to make.
If you don’t take the above into consideration, you may end up overextended and trapped in a precarious position. Be patient, do your homework and make sure your finances are in order first! We can’t stress enough to have a household budget and check your affordability first.
See the sample expense sheet below to aid you in your income/expense calculations. In the context of affordability your total housing expenses should not exceed 36% of your gross income. more info below.
Household Budget Sheet
|Utilities and Other Household Operational Costs||$550.00|
|Apparel and Services||$150.00|
You may also find the below home affordability calculator helpful before you start talking to a lender.
Picking a Lender & Qualifying for a Loan
Another factor to consider when you buy your first home is obtaining financing. Before you do any shopping whatsoever, you’ll need a pre-qualification letter from a lender showing you what you qualify for; you’ll need this to be considered as a serious buyer when putting any offers on a property. You can utilize mortgage brokers to evaluate multiple lenders to help find the best one for you. It’s also worth looking at credit unions and local banks to see who can give you the best rates and save you the most money during the loan process.
Once you settle on a lender, make sure you get a fixed interest rate and good terms (avoid adjustable rate mortgages (ARMS). With the pre-qualification letter in hand, you can start your home buying process. We’d love to work with you on this part! Contact Us!
Selecting a lender and loan type can be a daunting process; with conventional, FHA, ARMS, and PMI, your head can quickly start to spin!
A fixed-rate 15 or 30 year loan is usually your best option. These loans can usually get you locked into a decent low rate.
One of the first things, the lender will look into for pre-qualification is your credit score. The minimum score for a conventional loan is usually around 620 but check with your lender to be sure. Some loan officers may require a higher minimum score. Keep in mind that above average credit scores will allow you to secure favorable interest rates and a lower monthly private mortgage insurance (PMI)
Another factor lenders consider when buying your first home is proof of steady income; they’ll reference your employment history and earnings over a two year period. Have some recent pay-stubs handy to send them.
The other major determinant they’ll look at is debt-to-income ratio (DTI). Some lenders will allow for DTI up to to 50% in select cases. This doesn’t mean it is a good idea to take on the loan if it digs too much into your income.
Downpayment Assistance & Alternate Financing
There are other financing options like owner financing and smaller loans to cover down payment but tread lightly with these alternatives as they can quickly leave you upside-down. Under an emergency situation where you need to sell quickly in a market downturn you could end up owning more than your home is worth, putting you underwater (see our King and Snohomish county market data blog posts).
There are “soft” secondary and tertiary loan programs available for down payment assistance. These programs provide interest free, deferred loans that are typically paid when you sell the property later. Talk to your lender about these programs if you need down payment help.
If you need help navigating financing options and would like a lender recommendation, we’d be happy to refer you to some good contacts.
Before you buy your first home, it’s a good idea to figure out how much house you can actually afford; A good rule of thumb is to keep your mortgage principal, interest, and taxes between 25-36% of your gross income.
You don’t want to end up house poor and not be able to afford other living expenses or contribute to retirement savings. It’s ok to start small and build equity that can be used toward future properties!
Choosing a Real Estate Broker Who Understands Your Needs
This is where team Sno-King comes in. After you’ve settled on what you can afford, have contacted a lender and have your pre-approval in hand, it’s time for the fun part – shopping! A good broker will understand your needs, keep you honest, play devil’s advocate if required and make recommendations when you buy your first home. They should also have their finger on the pulse of the real estate market and be able to provide data to help you make an educated decision on your purchase.
A broker also walks you through all the procedures of writing offers, addendums, contingencies; they’ll also work with you during the negotiation process to make sure you don’t overpay for a property.
You may be way far out of your element when it comes to reviewing and understanding the multiple documents involved in a real estate deal. Purchase agreements can be 10+ page legal documents, not to mention federal, state, and local document requirements.
We can be your trusted advisor in this process. Contact us, and let’s grab a coffee to talk about your goals.
Home Inspection Process
The Seattle real estate market can be tough sometimes but no matter what market you’re in, if possible you should always request a home inspection! You never know what hidden issues may be lurking when you buy your first home; think black mold, lead based paint, leaking roofs, pests and structural issues (eek!).
The home inspection will bring any issues to light and help you make an educated decision on whether or not to proceed with the deal. This can be a way for you to walk from the transaction if you’re unsatisfied and also prevent gotchas in the future.
If any issues arise from the inspection, you may be able to use them as leverage to put in a lower offer on the home and save thousands.
The Sno-King team is here to help provide quality inspectors and assist you through this sometimes turbulent process. It is worth hiring a quality inspector to save you from future headaches after your purchase.
Ok, you’ve figured out your expenses, selected a lender, have a pre-approval in hand, put in an offer on a house and passed the inspection stage. The end is in sight! Another step to be aware of is the appraisal. An appraisal is an expert opinion on the worth of a particular piece of property. The lender requires an appraisal to make sure the property is worth what it is listed at and can be sold for that amount or more in default. This protects the bank from getting stuck with property that’s worth less than they’ve invested; it also protects you from overpaying for a property!
For example, if your first home is priced at $400,000 but appraises at $335,000, it is way overpriced and you’ll likely not be able to obtain financing. It is possible in some cases to get multiple appraisals to further solidify a price opinion.
The appraisal report generally includes:
- an explanation of how the appraiser determined the value of the property
- the size and condition of the house and other permanent fixtures, along with a description of any improvements that have been made and the materials used
- statements regarding serious structural problems, such as wet basements and cracked foundations
- notes about the surrounding area, such as new or established development, rural acreage, and so on
- an evaluation of recent market trends of the area that may affect the value
- a comparative market analysis that supports the appraisal
- maps, photographs and sketches
An appraisal is more than just another cost to the transaction, it is a protection for both the buyer and the lender to ensure the property is priced correctly.
Escrow & Closing
Once the offer is accepted, and the inspection & appraisal complete, it’s time to move into escrow. Escrow is when an impartial third party holds on to something of value during a transaction.
When the offer is made, you’ll write an earnest money check that will be placed in escrow. This will be held until closing by the third party escrow company. Once the transaction has closed, the earnest money will go toward closing costs.
A closing agent will oversee all the final paperwork and handle the exchange of funds and recording of deeds. This person will make sure that all the money is disbursed properly and that all documents are signed and recorded.
Closing & Moving In
After all the documents are signed and recorded with escrow, your agent will deliver the keys from the listing agent; it’s time to move into your new home! You can start on all the honey-do projects you’ve likely already have lined up. Don’t forget to change your address with the post office, and in all your major accounts. Make sure you are all transferred over with the utility companies in the area as well.
Wheew, time for your favorite drink of choice. You’ve earned it.
Buy your first home – Steps
- Make sure your monthly budget and finances are in order
- Document your monthly income and expenses to help determine affordability
- Eliminate or minimize debt, save for down payment and emergency fund (a lender can help determine needed debt reduction and savings requirements)
- Select a mortgage lender/loan officer and get pre-qualified for a loan
- Calculate what you can actually afford (Principal + Interest + Taxes < 36% income)
- Select a reliable real estate broker and start searching (Contact Sno-King Team!)
- Order a Home Inspection (we don’t recommend skipping this step)
- Make sure appraisal is completed
- Make sure all documents are signed and recorded with escrow
- Do your happy dance and move in!
When you go to buy your first home, we hope you find this information helpful; If you’re in the greater Seattle area (Snohomish or King Counties) we’re here to represent you on these endeavors; don’t hesitate to ask us any questions you may have on this process.
Look to our blog for Seattle housing market info, community events, restaurants, buyer & seller advice and general home ownership information. The Kelly – Right Sno-King team brings over 15 years real estate brokerage experience in the Seattle housing market. Let’s talk about your real estate goals.