Answers To Common Questions That First Time Home Buyers Have

By Vince Work · Feb 2, 2016 · Real Estate

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Image courtesy of Flickr, Colin Kinner

In this article we interview a real estate agent with questions that a first time home buyer might have. Read on to learn some critical things you should be aware of as a first time home buyer.

I’m going to buy a home soon. I don’t know anything about the home buying process. What are some of the things I need to be aware of before I commit to a sale?

The first thing to do for anyone who’s determined to buy a home is to go get pre-qualified with a bank or lender. Getting pre-qualified sets the boundary of what you can purchase. When you get pre-qualified, you’ll also find out about your credit score and other factors that may make buying a home difficult.

If you find out that your credit score isn’t as stellar as you would like it to be, don’t worry. A lot of first-time home buyers worry that having their credit score run will damage their credit. It’s better to work on improving your credit than to worry about the minuscule score drop you might get from having it run.

Here are a few things to make yourself a better borrower:

• Ask for a raise – It doesn’t hurt to ask. If it does, you’re probably working at the wrong place (see our next tip if that applies to you).
• Get a new job - If you’re confident in your skills, it might be wise to get a new job at another firm. All employers understand that if you’re seeking new employment a raise is usually part of the deal.
• Focus on increasing your down payment - Sometimes you don’t need get a new job, but you can focus on saving more, selling things you don’t need and even taking on extra work (say driving for Uber or Airbnb-ing your current place)
• Change your employment status - If you’re an independent contractor, it might be worth it to see if you can become a full-time employee. That way your income will be more transparent and trustworthy to a lender. Be sure to check with your lender first to see if this is a wise decision.

How much time do you need to get your credit in check?

Six months lead-time is a good amount of time before you buy to do this type of preemptive work. Improve your credit score, get a good loan officer or bank to work with you so that you have your financing arranged.

The pie chart above breaks down the areas you need to focus on in order to improve your FICO credit score.

Make sure that during this period, you pay all your bills on time, reduce any debts and try to get negative remarks on your credit score removed. It’s important to be diligent about improving your credit. Remember, once you make the commitment to buy, that loan will be stuck with you for up to 30 years. So it’s best to improve your lending status so that you can apply for lower rates. This will make your home loan affordable throughout the duration of your repayment.

Once you have your financing secured – meaning you have a pre-approval letter from the bank - then it’s like getting your first credit card at a department store. It gives you an idea of what your budget is.

What Home-Type Is Best For My Situation?

The next thing you do is to start to thinking about the other factors that would make your ideal purchase. A good real estate agent will help you with that. There are certain things you might come up with that you think would make the ideal home for you, but somebody with more experience will tell you:

• If you’re a first time homebuyer, maybe you don’t want the “mansion”. The headaches involved with owning and maintaining a large property can quickly put new homebuyers into debt and lots of stress.
• If you’re traveling a lot for business, maybe you want to live in a condominium. A home owners association (HOA) can be helpful in the sense that it can take care of all your maintenance issues. Of course, always check with current tenants to see how they like their HOA. Some HOAs can be poorly managed, resulting in LOTS of out-of-pocket costs that come from left field.

This is where a great real estate agent will come in handy. They’ve helped many home buyers in the past, all who come from different financial and life situations. They’re recommendations will be invaluable.

I always hear about escrow. As the homebuyer, how much do I have to worry about that process? Is that even an issue?

Escrow is a third party in the home buying transaction that is suppose to execute all documents between buyer and seller, without have any bias towards either buyer or seller. Their job is to execute the contracts properly so it’s done right. Ultimately, their function is to take funds from the buyer and transfer funds to the seller, and take the title from the seller and give it to the buyer.

When you buy a home there are up to 17 different entities that are involved in the transaction. All of them will become a sub-agent of the real estate agent (and you the buyer or seller). Most people are not aware of this fact. The truth is, these entities are compensated through your purchase – and in one way or another – the buyer ends up paying for their involvement.

All of these entities are directed by the real estate agent. You should feel safe that your real estate agent is looking after your best interest. But it’s a good idea to do research before you buy on who these entities are – including the escrow company.

I’ve also heard about something called title insurance. What is that all about?

When the escrow process is happening – the title insurance company insures the title they handed to you is “free and clear” - and that the seller had the legal right to sell you the property.

What can be some of the hang-ups with the property title?

A classic hang-up is: Take for instance you buy a condominium. You receive the title of the property. Then after you buy it, a contractor that helped build the condominium project put a lien on the building for the payment. Every owner in the condominium project would be co-responsible for that payment.

What about other things like termite inspection and other nuances?

In the purchase contract there is usually a section called “Buyer’s Investigation”. It’s a contingency, which means if everything doesn’t check out, the buyer may cancel the agreement without any penalty. The standard deal is the buyer will have 17 days to inspect the property (this is specific to California, it may vary in other states) - all on their own dime. All inspections are contingencies that are done at the buyer’s expense. Including the termite report.

What things should I look for in those 17 days? What due diligence should I do as the buyer?

Your real estate agent should give you a list of inspectors and contractors for you to choose from. There is an industry that has popped up out of this – which is the Professional Building Inspection Industry. These inspectors are general contractors that have changed their profession from building homes to inspecting homes. They’re sort of reverse engineering a house. They go through every component ideally and inspect it to see if it’s done properly and/or to see if it’s working properly.

For example, if we go back to the termite inspection question - if the inspector himself sees evidence of termites, then you have the right to say, “I request further inspection of termites.” Then you can hire a state license pest control operator to go out and inspect the house – again at your expense.

So if I see a house is full of termites, is it up to the seller to take care of it?

Since it’s a contingency - yes. This is how contingency works: If the buyer find something that is unsatisfactory, he or she can request that either the sellers fixes it or gives him or her some form of compensation, or the buyer can cancel the contract.

What other pitfalls should I look out for?

The buyer should do their due diligence on the neighborhood. If they don’t know the neighborhood already – they should get acquainted with the neighborhood they’re going to buy in. I would really suggest this: I would knock on the surrounding 5 neighbors doors and ask them a set of questions:

• How do you like the neighborhood?
• Are there any specific problems?
• Any strange noises or nuisances?

So you sign on the dotted line, you go through escrow, everything goes great, you move in and then you find something weird.

In the purchase contract, along with your right to investigate, is another major provision. It’s called the seller disclosure (again, this is specific to California). There is a document (a form) in the California Association of Realtors called the Transfer Disclosure Statement (TDS). It’s a very thorough statement that the seller has to fill out and has very specific questions about the property, the neighborhood, etc.

The seller signs it, as if it’s an affidavit saying “I swear to the best of my knowledge these things are true and correct”. If you move in later and you find something that adversely affects the property and it was something that was listed on that statement and the seller lied about it, you can sue the seller for fraud and get recourse.

If the seller didn’t know about it, then it’s an omission. In that case, there isn’t a whole lot of fault in that case. An argument can be made that the seller should have known of certain issues. There is always recourse even after you close an escrow for the condition of the property and or the neighborhood. A lot of that hinges on that document – the transfer disclosure statement.

Last Question – What About Crime Statistics and Schools?

A lot of the time the title companies that do your title insurance, also run all the general population reports on crime and other statistics. Most real estate agents have access to it. They can give you a report on each neighborhood exactly in regards to every factor that relates to general happiness with a neighborhood:

• Security
• Air pollution
• Lead
• Radon

If you have any questions regarding the home buying process in California, feel free to reach out to Mike Work on Twitter: @mikenetworker.

About the Author: Mike “Net” Work, Founder and CEO of United Estate Consulting. Securing the American right of life, liberty, and the pursuit of happiness, one estate at a time.

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