Greater Indianapolis Real Estate
Jennifer Wolfe

First Time Buyer

Home Buying Process for the

First-Time Buyer

Are You Ready to Become a HomeOwner?
Congratulations! You’ve made it through one huge hurdle — knowing you are ready is the first step!  With terrific interest rates at your fingertips and more housing selection than ever, it is a great time.  However, even in this market it still pays to be prepared and to do your homework.  As a seasoned real estate agent, below are the steps I recommend to beginning the housing search! 

1) Get Pre-Approved -know your credit. Find out what mortgage programs are available.
2) Determine your cash  – how much can you contribute towards closing costs and down payment.
3) Determine location  -take into account your commute, school needs, traffic, buying power, etc.
4) Determine your Needs vs. Wish list for amenities in your home.
5) Seek a professional Realtor -align yourself with an experienced Real Estate Professional.
5) Begin online searching – ask your realtor to set you up with online search tools.
6) Drive by some of your favorite homes, do a reality check by comparing the home with your hopes for the neighborhood.  How is the yard? How is the neighborhood? Can you see yourself living there?
7) See properties  -set an appointment with your realtor to see homes! A typical day might involve 6-10 homes.  Most buyers can’t recall details on most after seeing more than 4-5.  So, if you have time, definitely try to weed your list down by driving by the home and screening the neighborhood before you use your precious time to look inside homes you know instantly you will not be interested in…
9) Narrow your list -find the “right” house!

Once you’ve found the “one”….
1) Have your agent run a comparable sales report.
2) Verify property taxes.
3) Determine what personal property items you want included in the offer.
4) Work with your agent on writing an offer which will include all terms such as a right to inspection, sales amount, items included, tax pro-ration, closing cost assistance if needed and many other important items.
5) Write Earnest Money Check to be submitted with offer – typical 1% of offer price (will not be cashed until accepted and is credited to you at closing).
6) Submit Offer
7) Possible Counters

Your Offer has been Accepted!

Here’s what we do now!
1) Your earnest money will be cashed and deposited.
2) Time to order inspections.
3) Time to review covenants.
4) Time to work on removing any contingencies.
5) Make formal mortgage application with lender.
6) Contact home owner’s insurance provider for quote and policy for closing.

In-depth Explanation of the Negotiation Process
Now that you have found a home that meets your needs and is within your budget – now all you have to do is prepare your offer and obtain the financing to close the deal. This is where it’s critical to align yourself with a real estate agent. The buyer’s agent acts as the buyer’s representative in negotiations with the sellers and their agent, and is trained to handle the paperwork and legalities of the exchanging of properties. Best of all, the buyers agent’s fees are paid by the selling party at the time the house closes. So, to you, the buyer, this person’s services are absolutely free, and can save you a ton of stress. It’s important that you choose an agent who you’re comfortable with, and whom you have faith in. This is the person who’s going to — worst case — have to do battle with the selling party to get you your new home. While most real estate transactions are smooth, amicable deals where the buying and selling parties emerge as friends after the home sale, it is possible for things to get ugly or for disaster to strike — and that’s when you want a good buyers agent on your side.

So, once you’ve chosen your buyers’ agent, he or she will help you prepare an offer on the home of your choice. Your agent will have copies of all of the necessary paperwork, and should be able to explain each and every line item to you in plain English. While it may take awhile (up to a couple of hours) to go through the paperwork involved with preparing an offer, getting answers to your questions at this point will make the rest of the process much easier.

Some of the decisions you’ll make at this point — with the help of your buyers’ agent — include how much you should offer, what contingencies to include, how much earnest money to deposit, and how much of a loan you are eligible for. Let’s go through those issues one by one. First, how much you should offer depends on many things. It’s rare to offer the seller’s asking price unless you’re buying in a very hot market — where it’s possible to be outbid by other buyers willing to even pay more than the seller’s asking price. On the other hand, making a full-price offer can give you more negotiating power in certain cases. Take the case where you don’t have a whole lot of cash on hand for the down payment and closing costs. Occasionally buyers in this situation will make a full price offer, and ask the sellers to pay a percentage of their closing costs — freeing up some cash to put toward a larger down payment, or toward home improvements after you’ve gotten the house. Many sellers, especially if they’re motivated to deal, will accept such an offer. Or, if you know that there are already offers in on the home that the sellers are considering, making a full price offer may make yours rise to the top.

In most cases, however, the buyer will offer less than the seller’s asking price. When considering what to offer, your agent can help you quantify just how much less than the asking price to offer. Items to keep in mind include: how much you have to spend; how badly you want the house; how many other buyers are interested; how motivated you think the seller is; how much work might need to be done on the house; and how the property compares with similar properties in the area.

Contingencies are another important part of your offer. These conditions must be satisfied, or you will not be required to go through with the purchase even after your offer is accepted. The first contingency included in most offers is that the buyer must be able to obtain satisfactory mortgage financing. If you don’t include that contingency, you could risk losing your earnest money, or being locked into a home you have no way to afford if you can’t get a mortgage loan. Additionally, while not required, it is strongly recommended that you include a home inspection contingency. By making your offer contingent on an acceptable home inspection, you have the option to withdraw the offer to purchase if the inspection reveals major problems that neither you or the seller is willing to correct. It is your responsibility as a buyer to pay for the home inspection — but it is money well spent. A professional home inspection usually takes about two or three hours, and results in a package of information about the condition of your prospective home. The inspector will make recommendations about repairs that need to be made, and potential problems with the home. You can then adjust your offer to take into account the repairs — either by asking the selling party to complete the repairs, or to reduce the purchase price of the home by the amount it will take you to have the repairs made. Then, once you’ve got the house, you know exactly what needs doing to keep the home in good shape — and you’ll have a detailed list of all of the areas you may need to watch.

Depending on the situation, other contingencies may be appropriate — talk to your agent for more information. The contingencies in your offer protect you, so be thorough.

When you submit an offer, be prepared to make a deposit — often referred to as “earnest money.” Earnest money is put toward the amount you owe the seller at closing in the event your offer is accepted and the sale goes through. Otherwise, if the offer is rejected, or the sale falls through because one of your contingencies isn’t met, your earnest money will be returned.

Sellers don’t want to rush to take their homes off the market, so anything you can do to convince them that you’re a serious buyer is going to help get your offer accepted. A good way to communicate to the seller that you’re financially able to proceed with the sale process is to obtain a preapproval from your lender of choice. You’ve already got an idea of how much of a loan you’re qualified for, because you’ve evaluated your buying power, and possibly even had a prequalification done by your lender. The pre-qualification gives you an idea of what your purchasing cap is, according to your lender. But, you don’t necessarily want the seller to know, say, that you’re pre-qualified at $250,000 when you’re making a $169,000 offer on a home listed at $180,000. Once you decide what you’re going to offer, you may obtain a pre-approval from your lender on the amount of money you want to borrow. That letter, stating that you can realistically expect to borrow X dollars from that lender toward the purchase of your home, shows the seller that they’re not wasting their time on your offer — but doesn’t give them too much information.

Once you’ve gotten your offer together, and submitted it to the sellers, they’ll have a set amount of time in which to respond with counteroffers, or to accept your offer. In most transactions there is a bit of back-and-forth negotiating before acceptance of an offer with terms that both parties agree upon. This is a time that listening to your agent is critical — you may need to weigh the importance of certain contingencies or be flexible on your offering price. You maintain the right to reject the seller’s counteroffer if you can’t agree to the terms. You may have to compromise, but don’t agree because you feel you don’t have a choice. You can always walk away from the deal and continue with the home search if you can’t reach an agreement with the selling party.

Hopefully, though, after some negotiating, your offer will be accepted, and will be mutually agreeable for both the buyer and seller. At that point, it’s time to actually obtain your financing.

So remember to have fun!

And be ready for the ride of your life!

There is nothing quite like the excitement of negotiating your first home!