Buying Your First Home

Winter 2017

by Ryan Brasch, CPA

There comes a time in most people’s lives when they decide to transition from renting to buying their home.  Every individual’s home-buying experience is different as it depends on a multitude of variables.   From your budget to your lender, to your own personal preferences on what you are looking for in a home, there are a lot of factors to think about before you start the process.  This article gives some tips and insight into the home buying process and hopefully help to make the experience as painless and efficient as possible.
Finances: The first thing you should do is determine how much you can afford and how much you want to spend on a home.  These amounts will not necessarily be the same.  Before you start the home search, it is a good idea to get preapproved for a mortgage by a lending institution.  This will involve a mortgage banker who will look into your past tax returns, wage statements, investments, etc. to determine how much you can actually afford to spend on a home.  Having your finances preapproved will help streamline the buying process as many sellers would like to see proof that you can afford the home before negotiating the deal.
Real Estate Agent: The next step is to find a real estate agent whom you feel comfortable with as you will likely be spending quite a bit of time together throughout the process.  Ask your family and friends if they have used anyone recently and whether or not they would recommend that person to you.  You will also want to make sure this person you hire is acting as a “buyer’s agent”.  Buyer’s agents are legally bound to help buyers and will work on your behalf during the negotiation phase.  Buyer’s agents differ from listing agents as the listing agent has an obligation to the seller and may not look out for your best interests during the buying process.
Look at Houses:  This step is usually the most time consuming as your real estate agent will lineup various homes for you to view.  The biggest thing to remember is to focus on the right things when touring a house.  For instance, you may not like the paint color in a particular room but with a $30 can of paint and a couple hours of work, that problem can be easily fixed.  Instead, focus on more important things like the foundation (are there any visible cracks?), the grading in the yard (does is slope away from the house?), and the neighborhood in general.  Finally, when you come across the home you would like to put an offer on, work with your real estate agent to submit an offer to purchase.  Do not be discouraged if the seller responds with a counteroffer.  Personally, we went through three counteroffers before we came to an agreement with the seller.  It is important to make sure you are comfortable with the counteroffer and to not spend more than you had determined you could afford. 
Home Inspection: After the offer has been accepted by the seller, you’ll need a home inspection.  This can be one of the most important steps in the home buying process.  The offer to purchase is usually contingent on a home inspection by a licensed inspector.  The home inspection will generally take place within a few days after the seller accepts your offer.  The inspection will consist of the inspector going through the home, top to bottom, and noting any structural or minor issues with the home.  He or she will then provide you with a complete report detailing the findings.  If a significant defect is noted by the inspector, you generally have the right to either back out of the deal (if it is serious enough), renegotiate with the seller to have them fix the issues at their own expense, or reduce the selling price.  For the issues that are not considered to be significant, you can come to an agreement with the seller to fix these problems before closing on the home.  Keep in mind that the seller is not legally obligated to pay for any issues that are not deemed to be significant by the inspector.  Prior to closing, you will have the opportunity to do a final walkthrough of the home to confirm that any repairs were completed.
Lending Institution: The next step is to look around at various lending institutions to find your best interest rates for the loan term you are seeking.  If you use the same lending institution where you were preapproved, they should have your income information on file to help streamline the process and get you approved for a mortgage.
Appraisal: Lenders will require that the home be appraised by a third-party to determine if the price that the home was purchased for was fair and reasonable.  Generally, the lender will only approve a loan up to the appraised value.  Any difference between the sale price and appraised value must be negotiated between the buyer and seller.
Closing: At closing, you will sign all of the final paperwork to complete the purchase as well as your loan documents with the lender.  Although the lender will likely do this for you, make sure you obtain copies of everything you and the seller sign and keep these in your file cabinet.  At this point, you will likely receive the keys and can call yourself a homeowner!