First-Time Home Buyers

Are you a first-time home buyer looking to get into the market now that things have leveled out a bit?  There is so much information, advice, and scary statistics out there that the entire process can seem overwhelming.  I have some tips to help you get started in the right direction and hopefully help you to ask the right questions.

Getting Started

So, you have decided that you no longer enjoy paying your landlord’s mortgage.  Congratulations!  Now it is time to become independent and put your money into something that will benefit you in so many ways.  Lets go over our first steps:

region map
Where to?.

1. Figure out your needs – There are many things to consider when purchasing a home: How large of a home do you need?  How many bedrooms or bathrooms do you want?  What about a garage?  How big of a parcel of land?  Are you able to save money by getting a fixer and doing some work yourself?  After you have answered these questions you can come to the next one.  WHERE do you want to live?  Do you want to be out of the city with a larger lot in Meyers or Christmas Valley, or do you want to be in the thick of it in the Tahoe Keys or Al Tahoe area?  Remember that tiresome old adage, “Location, location, location” will help to determine the answers to the preceding questions, and most importantly, the price.

2. Price – The first rule of purchasing anything is to know what you are paying for it.  Currently in 2014 the median home price here in South Lake Tahoe is $325,000.  You are going to want to check the sales prices of comparable homes in the area you want to purchase.  As a first-time home buyer, sites like Realtor.com, Zillow, and Homegain can help you to see what some recent homes sold for, and can even provide estimates for homes in neighborhoods you like.  These are of course not totally accurate, and some neighborhoods have much better estimates than others but it is not a bad place to start.  If you want more accurate pricing in an area then talking to a real estate agent is the way to go.

3. What can you afford? – As you begin the home shopping process you need to find out how much a lender will be willing to give you to purchase your first home.  There are many great lenders out there, and they have access to first-time home buyer programs for those with and without great credit.

One thing many first-time home buyers can forget to factor in to what they can afford are the added costs of taxes, insurance, and in many cases the extra utility bills of water and trash.  If you’re interested in a currently listed home an agent can get you the most recent tax assessment information to give you an idea about that cost.  For insurance rates you can call an insurance agent in the area to get estimates in the various Tahoe neighborhoods.  This may also be a good time to get acquainted with your potential insurer to help make your future escrow go more smoothly.

As an additional note here: Fannie Mae recommends that people spend no more than 28% of their income on housing costs.  Going much over that can cause you to become house poor.

Buying Your Home

Alrighty then, you have a freshly printed copy of your pre-approval letter from your lender, you know what you can afford, and what you are looking for.  If you haven’t used a real estate agent at all up to this point, now is when I would recommend using one.  There is going to be a ton of paperwork, negotiation, and legal snags to work through going forward.
1. Finding the right place – This is likely going to be the most time-consuming part of the process.  This step entails searching online, through real estate magazines, driving around neighborhoods, and working with your agent.  You should also let people know that you are looking for a place.  Telling your friends on Facebook, Twitter, etc. can actually turn up leads to places you might not otherwise have seen or even considered.

2. Making the offer – You and your agent need to discuss how much you want to offer for the home, along with any conditions that need to be included as part of the purchase.  Once the contract has been written your agent will present the offer to the seller’s agent.  The offer can be accepted as written (this is not the norm) or present a counter-offer.  At this point you as the buyer can accept it or counter back.  Counters can occur until both parties accept or flat out decline to pursue the deal any further.  I personally have participated in a transaction where there were a total of 39 counter-offers!  Once an agreement is reached, a “good-faith” deposit will be made by you and escrow is opened.  Escrows up here in Tahoe are generally written to last 45-60 days and are the time-period in which you conduct your inspections and verify that the house has no serious problems so that you can finalize the purchase.

3. Inspections – A termite inspection is almost always required by your lender, and some work may need to be performed to meet their standards so that they will loan you the money for your purchase.  I also always recommend that a buyer gets a home inspection so that they can find ANY flaws there are in the house they are purchasing.  These inspections could potentially reveal defects of the property that weren’t apparent before.  If something is seriously wrong then you can back out, write addendums as necessary to accommodate potential expenditures that may be incurred to fix issues, or simply close.

4. Closing – Closing occurs when the house has been appraised, the title search has been performed, and inspections have been completed.  At the time of closing, tons of forms will need to be signed by you.  I hope you’ve been working on training your hand strength, if not Amazon has some tools to get you started.

Being a Homeowner

Monopoly Man
If only I could own the utilities.

1. Save your money – There will be unexpected expenses.  No matter how great and comprehensive your inspections were, something will happen that is going to cost money.  Maybe your sewer line will be clogged because of a tree root, or your water heater will go out.  (If you buy home warranties they cover many of these costs.  Also if you purchase a house with me, I will actually buy you your warranty.)  Open an account that you put money into every month so that when the time does come, you can hopefully have the funds to cover it.

2. Your home is an investment – As such expect it to make money for you over time.  If 6 months after you purchase your home it suddenly is only worth half of what you bought it for, that is ok!  Shifts happen, and according to the historical housing census, even in our slowest decade (the 1980’s) median home values rose 8.2%.

That being said, your home is only an investment.  Don’t count on it to fund your retirement.  You’ll still need your 401(k), or whatever your retirement account may be.  That account could be based on other houses you have as well though.  Real estate investment can be very lucrative and many use it to fuel their retirements.  As a first-time home buyer you’ve taken a step in the right direction.

3. Maintain your home – Take care of it.  Keeping up with repairs will reduce the overall cost of them over time, and stop them before they become unmanageable.

Ask Questions, Become Informed

That is my mantra.  This overview is only the beginning and should be the first step in home ownership.  The more that you know and learn, the easier the process will be, and the more likely it will be for you to get what you want.