This is the probably the largest purchase you’ve ever made…gear up with some real world knowledge before starting the hunt.
First off, most first-time homebuyers are so excited to walk through homes that they skip a step. Go get pre-approved for a loan, before even looking at one home. What tends to happen is that the homebuyer does the math and thinks they can afford a $150,000 home, and they go start looking at $150,000 homes. They find one they love and then try to get pre-approved. Come to find out, the most comfortable payment for the buyer is actually a $120,000 home. Then, all the $120,000 homes are nowhere near as nice as the $150,000 home and the buyer and real estate agent both start getting frustrated. The buyer decides to keep renting and what started as a really fun experience becomes a bad memory.
Second, take stock. Take a good look at your furniture, your current residence, and the money you have in reserves. Your furniture is important, if you like it, because it’s going to need to fit in your new home. Your current residence; are you comfortable? Do you need a fence? Need an office? Make a list of your needs, must haves and things you’d like to have…and share that list with your real estate agent. Save the list to your cell phone to remind yourself of the things that are really important to you. Next, cash reserve. Since you’ve met with a lender, you’re going to have an idea of how much money you need to have for closing costs and/or a down payment. But, a few things you might not be thinking about are: earnest money and money for inspections.
Earnest money is just that, money that shows the seller of the home how ‘earnest’ you are about buying the home. The most misunderstood thing about earnest money is what happens to it. When you decide it’s time to submit an offer, discuss an appropriate amount of earnest money with your real estate agent. $250, $500, $1000 and up. The amount of earnest money and down payment help show that you’re serious and your offer is strong. You will write a check (usually to a title or real estate company) and give it to your real estate agent when you’re writing up the offer. Your agent will take a copy of the check and send the copy to the listing agent with your offer. If your offer is accepted, the earnest money will be deposited and held in an escrow account until closing. At close, it will be applied towards your new home.
Next blog: Buying your first home, how to hunt
Disclaimer: We sell real estate in Missouri and Kansas. Laws and contracts will vary from state to state.