Though the steps to purchasing a home have not changed, Montanio said the process of putting in offers has been accelerated by high demand and low supply. It is important that buyers are prepared to adjust their timelines or their goals for the property, Montanio said. She offers tips for first-time homebuyers.
1. MAKE A PLAN AND SAVE
Before buying a home, homebuyers should understand what they can afford and where they want to live. Here are a few things homebuyers should know:
- How much are you willing and able to pay for a down payment and closing costs?
- Where will you look for a home? Are you willing to be flexible?
- What price range will you be able to afford based on your income, credit health and existing debt?
- What is your timeline?
A: The greatest issue facing buyers is a two-part problem:
- Severe lack of inventory and an influx of out-of-state buyers is creating bidding wars on what little inventory is out there.
- Due to the increased demand and out-of-state money coming in, many properties are going far above both asking price, and what they will appraise for, which means buyers either must be able to purchase using cash, or be prepared to pay additional money out of pocket to make up the difference between sales price and appraised value. This effectively knocks many FHA and VA [loan] buyers out of contention.
Next, a buyer will need to research loan and financing options and provide documentation such as proof of employment, pay stubs, bank statements, tax returns and credit history. Here are a few types of loans available:
- Conventional loans are backed by Fannie Mae or Freddie Mac and offer buyers the option to pay as little as 3% for a down payment.
- FHA loans are backed by the Federal Housing Administration and have lower credit score requirements. Buyers can pay as little as 3.5% in a down payment.
- VA loans are loans for veterans, active- duty members of the armed forces and qualifying spouses. No down payment is required, and these loans are insured by the Department of Veterans Affairs.
- USDA loans help people in certain rural and suburban areas buy a home with 0% down provided they meet income eligibility rules.
Q: What do buyers need to have prepared before beginning the home search?
A: A great agent will make sure that a buyer is properly prepared to have the best shot at being the winning offer. Oftentimes this means making sure that a buyer has not only spoken to a reputable lender, but has provided all of the documents ... to the lender to make sure there will be no snags during underwriting. There are also times when traditional mortgages are not the way to go in this market. A real expert will have multiple other programs and options ... [to give buyers] a competitive edge.
3. BEGIN THE SEARCH
After setting a budget and getting preapproved, buyers can begin to look for a home that fits their needs and wants. Here are several criteria to consider:
- Price Home size
- Local school district rankings
- Property taxes
- Home condition or need for repairs
Buyers must submit offer letters to the seller in writing, including an earnest money deposit of 1%-2% of the offer price. The seller can accept, reject or counter the offer. If an offer is accepted, the home will be inspected and appraised.
Q: How can buyers be most effective in finding and buying a home?
A: The days of being able to take your time are gone. If a property comes on market on a Tuesday, you cannot wait until Saturday to see it; you need to see it as soon as humanly possible. Likewise, if a buyer looks at a property, they need to be prepared to act quickly if it fits their needs. Oftentimes properties are under contract on the same day or within 24 hours of listing.
5. SEAL THE DEAL
Once the inspection and appraisal are completed and any necessary repairs are made, buyers are allowed a final walk-through. They will need to provide the following at closing:
- Official ID
- Copy of closing disclosure
- Proof of funds for closing costs and down payment
A: Best advice for this is be patient, and be realistic, and be flexible! Be patient if you have to go through multiple offers until you are able to get an accepted contract. Be realistic when making offers. In this market, you cannot go in with a low offer and expect to win. Also, you may not be able to get everything you want for the price you want to pay. ... Be flexible with your expectations for the property and area.
