First Time Home Buyers Tool Kit (PART 1)

I love working with first time home buyers. More often than not, they are clueless, take the wrong advice and suspicious of all the people they have to deal with in a real estate transaction, which includes the bank, real estate agent, home inspector, city inspector, roof inspector, termite inspector, appraiser, the seller, basically everybody. Maybe because of the horror stories they have heard from a friend or family member’s home buying experience, these apprehensions have some bearing. But this should not be the case for you if you do due diligence. It starts with finding the right agent. I know, I am a real estate agent, and you are probably thinking that I am marketing myself to service you, but take this as professional advice so you’ll know what and who to look for when it’s time for you to buy your first house. Familiarizing yourself with the home buying process can make your experience smoother and minimize the “gotchas” you may encounter. So pay attention and get ready to take down notes.

1.     Look for a competent Real Estate Agent

Aha!  Of course, this tops the list after all, I’m a real estate agent, right?  Before you hold any judgments, here this out.  According to NAR, home buyers save an average of $5,000 when using the services of a competent real estate agent.  The selling agent, real estate agent representing the home seller, fiduciary responsibility is with the home seller and her primary job is to get the most money for her client.  You need a buying agent to represent your interests.  It also helps to keep your emotions away from the negotiation process. 

A competent Real Estate agent is knowledgeable in real estate transactions, so you should look at them as your mentors who will guide you in making the right decisions.  Again, I should stress: she has to be “COMPETENT”, so interview a few Realtors and check out the ones who have good recommendations from your friends or family.  Some real estate agents share their commissions in return for your business.  May I remind you that this practice is illegal in California, and if an agent has to go so low to solicit something she knows is illegal, then she is not a competent real estate agent and you may end up losing more than what you think you’ve gained in terms of “shared” commissions.  A competent real estate agent will always look after your best interest and save you the most money, most of the time without the conscious knowledge of the homebuyer.  A competent realtor troubleshoots and does a lot of behind the scene stuff, be it in the loan side or inspection side, to assure that  your interests are being protected.   Its just part of the work ethic, no need to brag!

Remember, you hire the Realtor but you don’t pay them, they get commissions from the seller.  Choose the Realtor whom you are most comfortable with because that will make your home buying experience so much easier.  Even if you are buying a property 6 months down the road, you will need good advice that fits your scenario.  Realtors do a lot of important stuff to make your home buying easy, but in the end, getting your home is still your decision. 

2.     Get Pre-Qualified

Now that you have a Realtor, the first thing your Realtor will ask you is if you‘ve already been pre-qualified.  Pre-qualified is when a bank has looked at your financial documents and approves you for the maximum home loan you can get.  Most Realtors will not show you any property until you get Pre-qualified.  Now, why did I put this as your second step and not the first?  Again, your Realtor is your representative looking for your best interest.  A competent Realtor must also be knowledgeable with loan programs.  Some properties will not qualify for certain loan types, so depending in your scenario, your realtor will educate you on different loans you should look for.  

Your Realtor may have suggestions on mortgage companies that you can consider and will help you prepare your documents to present to the bank so you can get the best rate and the maximum home loan approval.  Basically, your Realtor opens these options, and if in the end your bank gives you the best rate, by all means you should go with your bank.  Getting the maximum home loan approval does not mean you have to use the maximum loan amount.  It is always your choice if you want to go for a big mortgage.  What the maximum loan amount gives you is flexibility if your choices become too limited at your bottom price range.

3.     Look for Properties

Hurrah!  You are now pre-qualified and hired a competent Realtor, now the fun begins.  Whether you are looking for a fixer or move-in ready property, checking out houses is the most exciting part in the home buying process!  Typically, first time homebuyers involve a lot of emotions when buying their first property.  They are also typically attracted to move-in ready homes.  I have homebuyers find their dream home on the first house, on the first day of showing, but others could take months.  So be patient, you’ll find your dream home!  But my advice is to be open to suggestions and get ready for some compromise.  Properties don’t usually present themselves having everything you wanted at the spot you wanted it to be.  On rare occasions this had happened, but in most cases adding your personal touch after you have moved-in transforms your house just the way you envision it. 

4.     Making An Offer

In the Southern California market, the bottom had passed.  Gone are the days when I show 10 different properties every weekend, and after 5 weeks, make an offer to a property we saw 5 weeks ago.  This was just 18 months ago.  If you find a property you like, it will not be in the market after 1 week.  There are still good deals out there, but you need to understand what your current market is like and the type of properties you will encounter.

Type of properties you will encounter:

a.   Standard Sale – A standard sale is when the homeowner sells their own property.  The home buying process is simple; you find the house, submit the offer and if they sign it, you open escrow. 

b.     Short Sales – A short sale is when a property is being sold below the amount it’s owed.  When you submit your offer, the homeowner will sign the contract then passes the offer to the bank who owns the loan.  The decision whether to sell the property to you is not decided by the homeowner, but by the bank.  So even if the homeowner signs the contract, it is not guaranteed that you will get the house.  The homeowner’s bank has the final say if it will sell the property to you.   The short sale process can take anywhere between 45 days to 6 months to close.  The worst I had was 18 months to sell a listing!  But the banks have improved their short sale process and should not take more than 6 months. 

c.     REO – stands for Real Estate Owned.  REOs are properties that the bank was not successful in selling thru pre-foreclosure, and now left with owning the real estate.  When you make an offer, the bank/asset manager signs it.   In REOs, when the bank signs your offer, you have an approved offer and open escrow.  The home buying process in REOs are usually faster than a short sale, but typically the properties are in poorer condition and sold in an  as-is basis.  But recently, I’ve seen banks fix their REOs in order to command a higher price.   

This is all for now!  In Part 2, I’ll be talking about the Escrow process.  Stay tuned!