First Time Home Buyers Guide

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NOTE: This page is a daughter page of: Home Buying

This entire article is basically just notes I wrote from this incredible video:

Since the video is about an hour long, these notes are quick version for me to scan over.

Kyle Seagraves video, first slide.

What's really brilliant about this video is that Kyle tells you exactly how to get organized. It starts by creating a (free) Google Drive folder caption to add a Needs & Wants doc, all the other documents and sheets you'll collect and create as you look for a great loan and then a great home. I have some other articles about Home Buying and House hunting, but nothing seems as comprehensive at preparing you as this video. It's certainly giving me a little more confidence to move forwards without feeling lost.

First Time Home Buyers Guide

STEP 1) Plan Your Money

  • Don't be tossed into the window, know what you want to spent and why.
  • What do you want to spend
    • Avg contract is 30 days... the key is in planning to make it smooth
    • A lender is not a financial planer ... (they will always tell you to buy and might give you a bigger loan than you should take)
    • Only you can decide your budget ... (what will you pay MONTHLY and UP-FRONT)
  • Monthly
    • Good rule of thumb: no more than 25% of your take home pay on mortgage payments - ... so if you get paid 180k a year, that's 12k a month, but your take home (paychecks after tax deductions) might be just 8k... and so try not to exceed 2k a month in payments..... (although for me in SF, I feel like most places already have 4k rent, so I'd happily do 4-5k in monthly) > Max payment = Principle + Interest + Taxes + Insurance + HOA, and don't forget utilities
  • Up-front
    • Down payments ... not always as much as people think > not necessarily 3%
    • Closing costs
      • 2-4% of purchase price
    • Different loan types might be:
      • Conventional > 3% down .... but 20% with many places
      • FHA > 0% down
      • USDA/VA > 0% down
    • Out of pocket costs ... usually at least $500 for a home inspection, which you lose, even if you don't buy
  • Why
    • Get very clear why you are buying ... is this a want or a need
    • Clarity > wise decision.
    • Now create a Google Drive Folder and start a first document "Why" you are buying a home.... wherever you see a google drive icon caption , make or save documents to google drive.

STEP 2) Find a Lender

  • Do This First
    • Talk to a lender first:
      • We can get a loan
      • Approved for how much.
  • Who to Work With
  • ... there are three types of lending institutes... each a little different and works best if you get a referral
    1. Broker
    2. Local Bank or CU
    3. Big/Online Lender
  • Where to Find Them
    • Zillow/Google/Referral from real estate agent/Referral for a friend ... it's helpful to get real estate agent already know they work together well
  • Checking Rates
CFPB rate checker, using San Francisco May 2022 as an example.

STEP 3) Get Pre-Approved

  • What's the Point
      1. Loan type ... your [[[Mortgage|mortgage]]] loan officer will help you figure out what fits you... are you convention, jumbo, fixed rate, recasting options, etc.
      2. Max purchase price
      3. Interest rate
      4. Down payment
      5. Lender costs
      6. Estimated costs.
  • Getting Docs
    • Get together your documents before you talk to the lender & put into a Google Drive caption folder:
    • 30 day paystubs
    • 2 years W2s or 1099s
    • 2 year tax returns
    • 2 month banks statements ... (just the important ones / ones you will use)
    • Driver license
  • Keep it in One Place
    • Put it all into your "Buying a Home" google drive folder caption
  • What to Expect
    1. Now apply for applications... only 15 minutes each!
    2. Credit pull ... (they will do a hard credit inquiry - it will ding you only 0-5 points, despite warnings from Credit Karma)
      • 45 days ... (you have a 45 day window to get inquires a unlimited time and only counts as one ping)
    3. Send documents ... (from google drive) caption
    4. Receive full quote ... (assemble into a Google sheet) caption
    5. Receive pre-approval letter ... (assemble into a sheet) caption

STEP 4) Compare Loan Offers

Talking about TBD docs which is also explained in the loan estimate explainer tool.
  • Side by Side
    • Ask each lender for a "TBD Loan Estimate" (if they don't offer) ... (an official document you're allowed to see before you are under contract, and is easier to compare side by side)
    • Use "loan estimate explainer" to understand these docs.
  • Deciding
    • Now you need to decide, and you should use: Low-Cost + Gut = Best Option
  • Don'ts
    • Make major purchase - especially new credit ... (don't suddenly buy a new car)
    • Change/quit your job.
    • Move large amounts of money in/out of accounts.
    • Pay off debts suddenly ... (can also affect your credit)
    • Make late payments.

STEP 5) Finding a Real Estate Agent

  • Guidelines
    • Don't use a dual agent ... (someone who is selling the property you want to buy - conflict of interests)
    • Explain your scenario to an agent to see how they respond ... (find one with the heart of a teacher)
    • Helpful vs sales
    • Experience isn't everything ... (how helpful are they?)
    • Trust your gut
  • Where to find real estate agents
    • Zillow/Google/Referral > your agent is usually paid by they seller (so no upfront cost to you).

STEP 6) Shopping for Homes

  • Dos
    • Follow your agent MLS updates ... (often more up to date than Zillow etc)
    • Stick to your lender's max price limit + your monthly budge
    • User you "why's" to set a timeline and urgency ... (be patient)
    • Make a needs vs wants list ... (google drive) caption
  • Dont's
    • Get emotionally attached ... (don't fantasize about yourself living there until it's done)
    • Move too fast or too slow to schedule showing (depending on your market and why)
    • Fell like you need to see every home

STEP 7) Writing an Offer

  • How it Works
    • You negation what you want... more than price! ... (ask for you terms, how quickly to close, credit toward closing cost, inspection period, repairs if below eval, personal items, etc)
    • The seller can accept or counter your offer
    • If accepted > the contract becomes binding and it is the map of the transition ... (there is no "practice offer", you are obligated to follow through)
  • Tips
    • Write an offer that helps you win ... (assert that you want it)
    • Ask your agent how you can make your offer more competitive ... (shortening contingency dates, inspection, may help)
    • Consider a compliant offer letter ... (talk to agent first, saying you want it - the "love letter" - no personal details)
    • Ask your lender to call the listing agent ... (seller will be confident on your pre-approval and that you are solid)

STEP 8) Getting a Home Inspection

  • How it Works
    • Certified home inspector examines the home to identify any issues to bring to your attention
    • Receive inspection report caption
    • Your contractor will detain if/when you can negotiate repairs to be fixed by the seller ... (don't get scared by many small things, focus on what might cost thousands like roof problems, and react accordingly)
  • Changes
    • Often a big moment of change
    • Buyers can back out, request repairs/concessions, renegotiate terms, etc.

STEP 9) The Underwriting Process

  • How it Works
    • Lender will take the pre-approval and work on finalizing a full approval
    • They want to make sure you can pay back the loan by examining and documenting risk ... (give your personal info quickly)
    • You may talk to your loan officer or a loan processor
  • Conditional Approval
    • You'll get a letter: "Your loan is approved. Please send us the following ...." ... (they might want extra bank statement pages, home owner insurance etc, hr contact for employment verification)
  • Insurance
    • At this stage, you'll want to get home owner's insurance to cover: fire, natural disaster, etc ... ()
    • You get to shop for instance coverage that works for you ... (maybe use the same one as your car insurance)
    • Monthly included in payments ... (will charge monthly, but pay insurance company annually in one account)
    • Fully year up-front secured ... (included in closing cost, 12 months home owner insurance)

STEP 10) Appraisal - The Home's Value

  • How it Works
    • The appraisal is mainly for and ordered by the lender ... ()
    • Ideally, the appraisal value will be at or above the purchase price ... ()
    • Lender uses lesser of purchase price or appraised value ... ()
    • The appraisal inspection is scheduled > report is send to you caption
  • Scenario One
    • Purchase price: $250k. Appraisal: $257k... transaction price $250k ... great, kind of a $7 discount on house.
  • Scenario Two
    • Purchase price: $250k. Appraisal: $245k... transaction price $245k ... where does the extra $5k come from? Maybe renegotiate.

STEP 11) Just Before Closing

  • Clear to Close
    • "You load is clear to close! ... Please review the attached Closing Discolor and send a wire/check to ... by ..." ... (this means you can take a breath it s locked down)
  • Reviewing
    • Final walkthrough 24 hours before ... (part of contract)
    • Review your Closing Disclosure and compare it to your Loan Estimate caption

STEP 12) At Closing

  • Final Steps
    • "Closing table" --> scheduled ... (most people show up to sign)
    • Review all documents and ask questions ... (big stack of documents, hopefully you'll be sent it before hand so you are comfortable signing)
    • You'll get a copy of all closing documents caption
    • Keys/occupancy will be exchanged according to your contact ... (often you can drive there straight away)
  • First Payment and Beyond
    • 1st payment is usually due in over 30 days
    • P&I payment won't change if fixed rate loan
    • Pay attention to your escrow account (taxes and insurance)

And then you are done! Lots of steps, but if you haven't watched the video already I highly recommend it.

See Also

Acknowledgements: Kyle Seagraves for making an incredible video.