How to Buy Your First House
by Andrew Pardun on June 24th, 2020 in Real Estate Law
For many, homeownership is an important part of the American Dream. It is a way of transitioning from paying someone else to live in their property (renting) to investing in your own home and building wealth by wisely allocating your resources toward an asset that will build equity. Purchasing your first home is something that you will never forget and it may well be one of the biggest and most important decisions that you make in your lifetime. This article is a step-by-step guide to purchasing your first home. This article is not a comprehensive guide. To ensure success, you should align yourself with a team of professionals that will provide you with counsel throughout the home buying process:
Step #1: Build Your Team
Before you begin, you should build your real estate acquisition team. Your initial team should include:
- a realtor who has great knowledge of the market and local area (this person should live locally);
- a real estate attorney who can review title, contracts, and closing documents,
- a lender representative.
This will be your initial team. We will need to add players to your team in later steps but these are the individuals you need to align yourself with before you begin. You may be asking yourself: how much is this going to cost? You may be surprised to learn that building this team is actually quite affordable. Your realtor gets paid by the Seller via commissions. Your lender representative gets paid from the loan which is usually a competitive rate. But what should you expect to pay your real estate attorney? This amount will vary greatly depending on the attorney. I can tell you that personally, I charge a flat rate of $750.00 for buyer representation in residential real estate transactions. Included with that fee, I will review everything you are expected to sign including: title, contracts, loan documents, closing documents, and the closing statement. I will also advise on difficult questions that you may have along the way and connect you to important team players that will be necessary in various steps.
Step #2: Find the Property/Get Pre-Approved
This is where a good realtor will really show his or her value. If your realtor knows the market well and lives locally they should be able to direct you to the most attractive areas within your budget. You may have heard it before: location, location, location. Buying a property in the right location can help you build wealth via home value faster than you ever would have thought possible. I know some excellent realtors in St. Petersburg who really excel in this area and I would be happy to share my contacts with you if you are interested.
While you are shopping for real estate you should also seek pre-approval from a lender that can offer you an excellent rate. Today is the time to capitalize on low interest rates. Within the past week I have closed loans with interest rates near 3% and even below 3%. You may not see rates this low again ever in your life so I would recommend taking advantage of this opportunity now.
Step #3: Make the Offer
Once you find a house, your realtor and your attorney will assist you in making your offer to Seller. Careful attention should be paid to the real estate contract. Your realtor can assist you in filling this out but it should be approved by your attorney before the offer is submitted. One very important area of the contract is the Inspection Clause. You will want to get at least a 15 day inspection period. In the standard FARBAR As Is Residential Real Estate contract, the inspection clause allows you to walk away from the sale and receive a return of your deposit for any reason so long as you are within the inspection period. For more information about completing the offer, please review my article on the FAR-BAR AS IS Contract.
Step #4: Inspections
CONGRATULATIONS, if you have made it to this point your offer has been accepted! Now it is time to get serious about inspections. This is the time to carefully examine your potential acquisition to determine what pitfalls may occur in the future. Without question, you will want to engage a general inspector to complete a comprehensive inspection of the entire property. Because this is Florida, I also highly recommend that you engage a mold inspector and a termite inspector. Please do not shy away from this because of the cost. These inspections may run you approximately $1,200.00 which may seem steep but please keep in mind that you are spending potentially hundreds of thousands of dollars to make an investment financed by a 30-year mortgage. I always tell my clients, in 10 years you will not regret spending $1,200.00 but you will regret purchasing a home that had a major termite problem, bad roof, old air conditioning unit, and black mold. Purchasing the wrong house with these types of issues is the kiss of death for financial well-being.
Step #5: Prepare for Closing
After the inspection period has passed you will be expected to move forward and purchase the house. Please get with your lender representative to make sure that your loan is on track to fund by the closing date. At this time, you will also want to get your attorney in touch with the lender and the title company handling the closing of the sale. The attorney will introduce him or herself to these parties and inform them that they are representing you in this sale. The attorney will then review the title and all of the closing documents to make sure everything is in order. Once you have your attorney’s seal of approval you are ready to go ahead and sign, pop the champagne and celebrate. Just like that you nailed purchasing your first home like a true professional!