First Time Home Buyer Guide
Buying your first home is a big deal, and the process can often seem overwhelming. It involves so much money and new financial terms, professionals, banks, realtors, lenders, title companies - it’s a lot! We want to make sure you have all the necessary information to make the process as easy as possible.
When you first start thinking about buying a home...
Step 1: Get Your Finances In Order
Buying a home is a huge investment and before you jump into the process you need to make sure that you are on solid financial footing. Evaluating your credit history, dealing with any current debts, determining your price range, and budgeting for the purchase process and all of the associated costs before you start will make the entire process easier. Here’s a few steps you should take:
Pay off as many existing debts as you can
Establish your emergency fund of 3-6 months of living expenses
Save for a downpayment - every little bit counts! Did you know? You may need as little as 0% down to buy a home
Work with a realtor, financial advisor, or mortgage lender to determine how much home you can realistically afford. Aim for the “25% rule” which says that your monthly housing costs shouldn’t exceed 25% of your monthly income. Keep in mind that your mortgage payment won’t just be your mortgage - it will include homeowner’s insurance, property taxes, and HOA fees. Oh and don’t forget utilities!
Step 2: Find The Right Realtor
Buying a home is a complicated process. Having a qualified and experienced professional helping you out can make the process a lot smoother.
Learn About Realtors vs. Real Estate Agents: Understand the difference between a Real Estate Agent and a Realtor. A Realtor is a member of the National Association of Realtors (NAR), while a real estate agent is simply someone licensed to help people buy and sell property. Realtors agree to adhere to NAR's strict code of ethics and standards of practice that reflects current issues in real estate practice and law and aim to “treat all parties honestly"
Are you looking for a realtor that specializes
in helping first time home buyers?
That’s us! Get in touch: firstname.lastname@example.org
Shop Around: Research and interview a number of realtors/agents before making your choice. You want the best realtor for your situation, and once you pick it’s usually an exclusive agreement at least for a certain period of time
Do Your Research: Look for realtors/agents with high customer ratings and lots of experience. Tools like realtor.com’s agent search provide client reviews, information about the number of homes an agent or realtor has sold, and the types of homes they usually deal with. It can also be helpful to ask on community forums like Facebook for suggestions of realtors that neighbors and friends have worked with successfully
Step 3: Get Financing
Navigating the mortgage process can be confusing. But it doesn’t have to be. Mortgage lenders are used to working with first time home buyers and they can guide you. However, it pays to be informed about your options.
Know your options: you can get a loan from a bank, credit union, or from a company that specializes in mortgage lending (sometimes called a “broker”). Some mortgage brokers are entirely online, like Rocket Mortgage
Know your loan types: conventional and government sponsored loans often have different interest rates, upfront costs, and rate terms
Conventional - Fixed Rate: Monthly payments will be the same over the life of the loan. Usually available in 10, 15, 20, 25, or 30 year terms.
Adjustable Rate Mortgage (ARM): The interest rate (and payment amount) changes over the life of the loan.
Federal Housing Administration (FHA) Loans: These come with lower downpayments and built in mortgage insurance.
VA Loans: These loans are for people who have served in the armed forces. They don’t require a downpayment.
Jumbo: These loan types are considered “too big” for the federal government to guarantee and thus have slightly higher interest rates. Jumbo loans are loans larger than $484,350 for most of the country but can get as high as $726,525 for more expensive counties.
Know who can help: many first-time homebuyer programs can help with saving, upfront costs, and with finding loans that are right for your situation
Get multiple rates: comparing mortgage rates from at least 3 different lenders has been found to save homebuyers more than $3,500 during the first five years of mortgage payments, according to the Consumer Financial Protection Bureau
Here’s some Philadelphia lenders we often work with who have delighted our clients:
Greg Roth | Approved Mortgage | https://www.approvedmortgagegroup.com/greg-roth
Jerry Trifonas | Movement Mortgage | https://movement.com/lo/jerry-trifonas/
Robert Plotnick | Meridian Banker | https://www.meridianbanker.com/loanexpert/robert-plotnick/
Step 4: Get Pre-Approved
Pre-approval allows you to go through the entire loan application process before you find the home you’re looking for. You’ll get all of the necessary information to make informed buying decisions.
Your chosen mortgage lender will “pre-approve” you for a specific loan amount
The lender may request financial information like proof of income and tax returns
Getting pre-approved by a mortgage lender shows that you are serious about buying a home. Your realtor will submit your pre-approval letter with any offers you make
Step 5: Reflect On What You’re Looking For
Buying a home is a big deal (have we said that enough?). Reflect and plan about all aspects of the home and research about your options.
Buy With The Future In Mind: Plan for the future! It’s tempting to get a house that meets your current needs, but you’ll likely own this house over the long-term and you need to anticipate changes in your lifestyle, family size, and career trajectory
Do Your Research: When you find a neighborhood of interest, research the nearby schools, the neighborhoods safety and crime records, nearby hospitals/grocery stores, and other amenities
Take A Drive: Drive through any neighborhoods of interest to get a feel for the area
Learn About Taxes: Understand Philadelphia property taxes. If your home has had recent renovations or improvements or if it is new construction, you may be entitled to a 10 year full or partial tax abatement
Related Article | All About The Philadelphia Tax Abatement
Related Article | How To Appeal Your Philadelphia Property Taxes
Step 6: Find The Right House
Finding the right house is complicated. There’s a lot of moving parts that play a role and the search can quickly become discouraging. Knowing the right information will help make the process easier.
Work with government offices like the Philadelphia’s Division of Housing and Community Development (DHCD). They have tons of resources that can help in your home search and can connect you to helpful public programs
Take advantage of open houses! Nothing beats understanding a house like actually going inside, looking around, and having the opportunity to ask any and all questions that you may have
Try to imagine what it would be like living in the house and the neighborhood. Does it feel right? Could you see yourself living in this area?
Drive through any neighborhoods of interest to get a feel for the area. Be sure to visit at multiple times of day to get the full vibe
Step 7: Make An Offer!
Once you’ve identified the house that you want, it’s time to make an offer. This will involve very serious documentation of all aspects of the sale and a bit of determination in negotiating the best deal possible.
Work with your realtor to make a competitive offer
Your realtor will send you paperwork which will include an Agreement of Sale to sign. It will also include an address or a legal description of the house, the terms of the deal being made, the final sale price, provisions about payments yet to be made like title insurance, closing costs, and prorated utility bills/property taxes, financial and property disclosures required by the state, and contingencies about the deal. If that seems like a lot, don’t worry - your realtor will walk you through it all
Keep in mind that the Agreement of Sale is a contract and you are required to uphold your end of the contract
Don’t be afraid to negotiate! Your realtor can help you bargain with sellers to save on closing costs and other associated costs.
“The Agreement of sale is meant to protect the buyer and his/her rights throughout the transaction.”
-Brittany Nettles, She Moves Philly Team Leader
Step 8: Get The Home Inspected
Neglecting to get a home of interest inspected can lead to investing a lot of money into a property with tons of hidden issues. A home inspection, even on brand new homes, helps to uncover any unforeseen issues that can be dealt with before you close on the house.
Get Any Disclosures: Before you have an inspection done, get any required disclosures from the seller to give to your inspector. They’re helpful to follow-up on known issues
Do Your Own Cursory Inspection: Look around for issues like signs of water damage, chipped paint, damaged roofing, and other signs of wear and tear. Any information/issues that you can find will be helpful to the inspector
Find a Professional: Find a trusted general contractor or a professional home inspector to do a thorough inspection of the property. These can take up to three hours and will cost you anywhere from $300-$500, but that’s a small price to pay compared to the possibility of massive repair bills in the future. Ask around for recommendations or find an inspector from the American Society of Home Inspectors. Get a written report of the inspection
(Optional) Get a Pest Report: It might be wise to get a local pest control inspector to check out the property. This will reveal any hard to find infestations from things like termites and will reveal evidence of any fungal conditions. Sometimes home inspectors are also licensed pest control inspectors. Get a written report of the inspection
After the Inspection: If the house is in good shape, no further work is needed besides the closing of the deal. If problems were identified, you can negotiate with the seller about getting the necessary repairs done before you close or about lowering the purchase price. If the problems identified are really bad, you might consider backing out of the deal (assuming your contract allows you to)
Here’s some Philadelphia home owners inspectors we often recommend to clients:
US Inspect | https://www.usinspect.com/
Smart Moves Home Inspections | Brad Lang | https://www.smartmoveshomeinspections.com/
Step 9: Purchase Homeowners Insurance
Homeowners insurance provides important financial protection, both for yourself and for the house that you are buying, covering everything from property damage to theft to legal costs if someone is injured in your home.
Find out your home’s replacement value, do an inventory of everything in the house, and try to determine how much coverage you think you’ll need for liability and medical expenses
Find and evaluate all of your options. Talk to people who offer policies in your area, determine if you’ll need extra coverage for things like floods and earthquakes, and try to find the best deal possible
Ask around for recommendations! People around you might have the inside scoop about the best companies and policies
Step 10: Close
Closing, also called “settlement”, is the grand finale of this entire process. Make sure everything is in order before your finish everything up.
Review all of the key documents and make sure that everything looks right before signing with your realtor. Some of the documents may need to be signed in the presence of a notary
Bring all of the required “proof of [blank]” documents necessary for the closing process. This may include proof of homeowners insurance and your HOA membership
Make sure the transfer of ownership goes smoothly: Get the keys and make sure the relevant documents end up where they need to be (and get copies!!)
This closing checklist from the Consumer Financial Protection Bureau (CFPB) can be super helpful.