Forming Your Homebuying Team
Before you seriously start shopping for a home, you first need to know where you are going to get your loan and who is going to show you homes. In other words, you need to select a lender and a real estate agent.
Forming your team can be trickier than it sounds because nearly all the loan officers and real estate agents you will meet will say something like, ” I work with first-time buyers all the time.” Since some of them are experts and some are not, it can be tricky to tell the difference.
Once you have sorted out your lender and real estate agent, then you need to pick a closing agent, home inspector, insurance agent, and a title insurance company to be on your home team as well. Below and on the linked pages that follow, you will learn more about forming your homebuying team.
Mortgage Loan Officer or Mortgage Broker
For most homebuyers it makes sense to start by finding a loan officer and loan program that best meets your needs. If you can’t get or qualify for a loan that meets your needs, then most likely you won’t need to find anyone else on this list.
It also makes sense to start by selecting a mortgage lender because you need to get pre-approved for a loan before you go shopping for your first home. How else will you know how much you can afford to finance or how much cash you are going to need to close on the loan? In fact, many real estate agents won’t even show you properties until you have been pre-approved for a loan.
If you decide to start with a real estate agent, you should expect them to refer you to their preferred lenders. These lenders may or may not be able to offer you the best first-time homebuyer loan and assistance programs.
If you find yourself half way to closing and then learn you are not getting the best homeownership programs, it can be very difficult, uncomfortable, and may not even be possible to switch lenders this late in the game. So that is why we advise you to carefully select your mortgage lender first. To learn more about shopping for a mortgage loan officer or broker click here.
Real Estate Agent
Choosing the right real estate agent is one of the most important decisions you are going to make during the homebuying process. It is a good idea to narrow your search to real estate agents who are affiliated with the local chapter of the National Association of Realtors® and therefore refer to themselves as a Realtor®.
When shopping for a real estate agent you not only must be able to trust them, but you also need to be confident that they know their real estate market and have a proven track record of helping clients just like you. You will want to know about what types of homeownership programs they have worked with in the past and get to know their personality to make sure it is a good fit for you. To learn more about selecting a real estate agent click here.
Getting a licensed and experienced home inspector on your homebuying team is a must. A good home inspector is critical to helping you understand the quality and condition of the property you intend to buy before you buy and become responsible for its’ repair. As a homebuyer, unless you are purchasing a newly constructed home with a warranty, you are usually buying the home in an “as is” condition. Anything wrong with the property becomes your responsibility once you own it. For this reason it is strongly advised that you hire a home inspector even if it is not a requirement of your homeownership program. To learn more about selecting a home inspector click here.
As you approach the final steps of the homebuying process, if not sooner, your lender is going to need to know who your insurance agent is and what company will provide your homeowner’s or hazard insurance coverage on your home. Make sure to get a quote from the insurance agent who already provides your car insurance. Most insurance companies will provide you substantial discounts if you get both your car and homeowner’s insurance together.
Of course you can always change your car insurance company too if that means getting a better overall rate and comparable coverage on your home and your car. To learn more about selecting a home insurance agent click here.
Closing Agent or Escrow Officer
States differ on the specifics of who and how you will close your loan to finance and purchase your first home. Many states use escrow officers, while others use either a real estate attorney or other type of closing agents. The closing agent or escrow company helps facilitate the closing of your transaction once you, your lender and the seller are ready to complete the purchase and financing. While you can choose the closing agent, very often it is your real estate agent who selects the closing agent. This makes good sense as they have the mose experience working with the various companies and individuals who perform this important service. To learn more about selecting a closing agent and the closing process click here.
Title Insurance Company
Unless you want to get stuck paying off old debts the seller forgot to pay, you need to obtain a title insurance policy when you obtain a mortgage. The policy is provided by a title insurance company. In many states the title insurance company is affiliated with the closing agent, but in other states it is not. The seller is typically required to pay the cost of a title insurance policy that protects you and you are typically required to obtain a seperate title insurance policy for the benefit of the lender.
The title insurance policy makes sure that you don’t have to pay any past debts left by previous homeowners. In additon, the policy ensures the lender is getting free and clear title to the property they are investing in. To learn more about selecting selecting a title insurance company and obtaining title insurance click here.
Mortgage Loan Officer or Broker
When you select a mortgage loan officer or broker you are making a huge decision. After all, the type of loan, your interest rate, the fees and your approval for a loan may be at stake. Before you make this decision you need to do a lot of research and ask a lot of questions. Learning from neutral sources like FirstHomeAdvisor.com is a smart move.
For starters, it helps to know the difference between a mortgage lender and a mortgage broker. A mortgage lender directly makes you a loan, while a mortgage broker packages your loan for a mortgage lender to make.
One of the advantages of a mortgage broker is that they generally have more lenders to shop your loan to if you are having a hard time getting approval. The disadvantage is that many brokers do not offer some of the best first-time homebuyer loan programs like your local State Bond Loan program. One is not better than the other because it depends on your specific situation and needs.
It is also important to know that even within a mortgage company or office there are individual loan officers and brokers who have their own specialties and levels of experience. Some of these loan officers are first-time homebuyer experts and some are not. Others may be loan officers who don’t offer the special programs for one reason or another. It is wise to work with a loan officer who has five or more years experience delivering first-time homebuyer programs like the State Bond Loan, Mortgage Credit Certficate programs and similar programs.
Finding a Good Loan Officer or Broker
Your State or local Housing Finance Agency is a good place to search for a loan officer. If the individual is a top performing loan officer with their state bond program, they are clearly a first-time homebuyer expert. Another good place to find a loan officer who specializes in offering first-time homebuyer loan programs is through your local non-profit homebuyer training and counseling provider. Many of the volunteers who help teach their classes are worthy of your consideration.
Interviewing Loan Officers or Brokers
There are thousands of loan officer to choose from and even ones with lots of experience who “work with first-time homebuyers all the time.” It is a good idea to speak with at least three or more different loan officers from different companies before you make your final selection. Here are some great questions to ask them to see if they are right for you:
How long have you been a lender/broker?
Do you offer the State Bond Loan?
Do you offer the Mortgage Credit Ceritificate program?
Do you offer any down payment assistance programs?
What other first-time homebuyer loan programs do you offer?
How many loans for first-time homebuyers did you close in the past year?
Does your company offer any special programs that others don’t offer?
Why should I choose you as my loan officer?
Do you volunteer to teach homebuyer classes? If so, where?
What programs do you like right now over others and why?
What upfront or nonrefundable fees do you charge?
In additon to these questions, you will likely come up with a bunch of your own. The more you know about the loan officer, the better choice you will make. If you are interested in a particular loan program like USDA, VA, State VA, FHA, FHA 203k, ask them if they offer it. If you have a special need for a low down payment, alternative credit, or need a home loan program that is compatible with a lower credit score ask them about that too.
Selecting Your Loan Officer or Broker
Once you have interviewed three or more loan officers, it is time to make a final selection. At this stage it is a good idea to ask your finalists to provide you a cost estimate of the type of loans they would recommend for you. To be fair to each of them keep the loan amount and purchase price the same with each loan officer so you can make a fair comparison. Politely let each of them know you are only shopping around right now, but that you will be making a final selection very soon. It is best that you obtain all the cost estimates on the same day as interest rates can and do vary daily. The cost estimate should include a current interest rate, an Annual Percentage Rate (APR), the type of loan, up-front fees, other fees, closing costs, down payment and your total cash-to-close. I am not a fan of playing one loan officer off another. If their interest rates are the same and the difference between their costl estimates is a matter of a few hundred dollars they are basically in the same ball park. In a case like that you should feel confident that you are getting good and fair offers. If one loan officer over the others has an offer that is much better than the others make sure you know why and what they can offer you that others can’t. Be careful if is sounds too good to be true!
Once you have made your final selection of a loan officer, it is time to take the next step and get pre-approved with them! Once you have gathered and submitted your required documentation and forms, you are only a few days away from being pre-approved. Once you are issued a pre-approval letter, it is then time to select your real estate agent so you can start shopping for a home. Click here to learn about selecting a real estate agent.
Real Estate Agent
Selecting your real estate agent is a very important step in the homebuying process. A real estate agent who is affiliated with the trade group National Association of Realtors® is called a Realtor® and most agents are Realtors®. The real estate agent’s role on your homebuying team is to help you make informed decisions about the neighborhood and home you want to buy. They have exclusive acess to real estate listings and can get you in the homes you want to see. They are also your primary negotiator representing your interests throughout the sale. They are experts in structuring your offer and completing the legal agreements that you need to prepare to submit an offer. Your agent works tirelessly to submit your offer, negotiate it’s acceptance and serves as your trusted advisor throughout the entire transaction.
Buyer’s vs Seller’s Agent
It is important to remember that there are Buyer’s Agents and there are Seller’s Agents. It is also legal with proper disclosure for a real estate agent to represent both the Buyer and the Seller in a transaction, but this is not recommended! You really want an agent who exclusively represents the interests of you, the Buyer. It is also important to remember that the Seller pays all the Buyer and the Seller Agents’ fees, so it costs you nothing to have your very own Buyer’s Agent.
Finding a Good Real Estate Agent
There are lots of real estate agents who are eager to get your business. Like any decision you make it should be based on the qualifications, experience, and the customer service offered by the agent. You likely know someone who is an agent and will be tempted or may feel obligated to work with them. That is perfectly understandable, but not all agents have equal expertise in understanding their real estate market, helping first-time homebuyers access the best programs or partner with the best lenders. So if you decide to go with a less experienced real estate agent, you may be teaching them about these programs instead of the other way around.
There are, however, a lot of real estate agents who really do specialize in helping first-time homebuyers and partner with those lenders that do as well. One great place to search for qualified real estate agents is your local homebuyer education and counseling program. Many of these programs have real estate agents who volunteer their time to teach the home buyer education classes. Another good way to select an agent is to ask your lender for a few referrals. Your lender will have a few agents to recommend that they have had a good experience with in recent transactions. Asking your freinds who recently purchased a home is another great way of finding agents to interview.
Selecting your Real Estate Agent
As you narrow your list of agents to consider it is a good idea to talk with a few of your finalists and ask them some questions before you make a final decision. Here are a few questions to get that conversation going:
How long have your been a real estate agent?
What makes you a better choice than the other agents I am considering?
Which real estate markets do you specialize in selling homes?
Which lenders do you work with and why?
Do you have any mortgage lenders you are expected to work with?
Which first-time homebuyer programs have you helped your clients recently access?
What would your last first-time homebuyer client say about working with you?
May I talk with them about their experience?
What else would you like me to know about working with you?
Once you have selected an agent they may or may not ask you to sign an agreement with them to confirm that they will represent you as your buyer’s agent. However, Many real estate agents do not require any type of formal agreement to be signed. Different areas of the country have different standards so ask around if you have any questions before you sign any documents. You should never have to pay any fees directly to your real estate agent for their services. A good place to ask questions is your local home buyer education provider or your state agency that oversees real estate agents.
A home inspector is a key member of your homebuying team. They are responsible for providing you a complete assessment of the home’s condition before you buy it. They will inspect the house from top to bottom including all the major systems. Shortly after they complete the inspection they will provide you a detailed written report about the current condition of the home. It is a great idea to tag along during the inspection so you can see first hand the condition of the home and learn all about the home you are intending to buy. Depending on what your learn from the report, you may need it to negotiate repairs with the seller or to back out of the sale agreement altogether if you determine the property is not in acceptable condition.
Finding a Good Home Inspector
Your real estate agent, loan officer and homebuyer education provider can provide you reccommendations for good home inspectors. Prior to picking a home inspector, you need to make sure they are licensed with the state. Different states have different licensing requirements. Clearly you will want to hire only home inspectors that meet your state’s licensing requirements.
Another stamp of approval to look for is whether or not the home inspector is a member of the American Society of Home Inspectors (ASHI). ASHI Home inspectors have adopted professional standards and a code of conduct which set them apart from other home inspectors. You should also look for home inspectors that are members of their state chapter of home inspectors.
Role of the Home Inspector
The home inspector will carefully examine all parts and major systems in the house that they can visibly observe without causing any damage. For this reason they are not going to be able to inspect elements of the house that are not accessible. For example, they will not pull back insulation or siding to see inside a wall or other hiden components. They are very good though at observing and noting any visible signs of damage to the house without needing to tear it apart.
It is advised that you make sure your home inspection includes a Pest and Dry Rot inspection. A Pest and Dry Rot report is usually a part of a full home inspection, but double check to make sure. A Pest and Dry Rot inspection involves a careful examination of the home to check it for wood-destroying insects and any structural deterioration. Many special first-time homebuyer loan and grant programs require that you obtain and provide a clean Pest and Dry Rot inspection in order to receive funding.
Hiring a Home Inspector
Once you have selected a home inspector, schedule the appointment with them right away and plan on attending the inspection. Remember your sales contract probably states that you must have the home inspection done within the first 7 to 10 days after your offer is accepted, so you probably do not have much time before you need to get the home inspection completed.
The cost of a home inspection is typically between $300 to $450. While the cost is not refundable, it is money well spent even if you end up backing out of the sale. It is better to spend a few hundred dollars on a home inspection, then to buy the house and find you have thousands of dollars of unexpected repairs after you own the home.
You should also consider getting additional inspections depending on the age, quality, and location of the home. Additional inspections you should consider are:
- Sewer Scope (if you have concerns about the age or quality of the sewer line)
- Radon Testing (if Radon is common in your area)
- Underground Oil Tank (if the home may have an underground oil tank)
While these inspections each cost a few hundered dollars more, it is much better to get them before you buy the home, then to find out after you buy the home and are stuck with repair and clean up bills.
Both you and your lender have a lot invested in your first home and you need to have homeowner’s insurance, also know as hazard insurance, coverage for the home. It will be your responsiblity to research and select an Insuance Agent and policy a few weeks prior to purchasing your home.
Comparing Insurance Agents
It is a good idea to speak with a few different insuance agents to compare their quotes and coverage. To make sure you are doing a fair comparison you will need to make sure the deductibles and the coverage type are the same.
You will need to make sure that you are shopping for a policy that will be acceptable to your lender. Mortgage lenders have limits on the maximum deductibles you can get and and the minimum amounta of coverage that is required.
When shopping for insurance on your first home you should speak with the insurance agent who currently provides your car insuance as there are often discounts provided to you if you have multiple policies with the same insurance company. Don’t stop there though, as rates do vary, as well as, the quality and strength and services offered by each insurance company.
Obtaining an Insurance Policy
Once you have settled on an insurance agent and policy, you will need to provide your lender the agent’s contact information. The lender will work directly with the insurance agent to obtain an insurance binder. As a part of closing the loan, the lender will collect the annual premium for the policy and pay the insurance company directly from loan closing. For this reason you do not and should not pay the insurance agent seperately prior to closing your loan.
Once you begin making your house payments most lenders will start collecting 1/12th of your annual insurance premium. They save these funds in an escrow account, also known as an impound account, so that when it comes time to pay your annual insurance premium, they have enough money to renew the policy and pay the annual premium. Some lenders and loan program will allow you to pay the insurance on your own if you prefer to do so, but many will not.
If for any reason your homeowner’s insurance expires, your lender or mortgage investor will obtain a policy for you and charge you for it. These types of lender-initiated insurance policy are very expensive and should be avoided at all costs.
The closing agent is a neutral party that assists the buyer, the seller and the lender as they complete the home purchase transaction. The closing agent facilitates the transaction by coordinating with the seller who signs documents to sell the home, the buyer who signs documents to buy and finance the home and the lender who provides the buyer financing.
The type of closing agent you will use depends on the standard practices in your state. The closing agent may be an escrow officer, real estate attorney, or another type of closing agent. Your lender, real estate agent or homebuyer education provider will be able to explain in detail who performs the closing function in your state.
The closing agent is responsible for ensuring the buyer and seller sign the necessary documents, that the accounting for the transaction is correct, and that ownership to the property is properly recorded and transferred.
Selecting Your Closing Agent
Your lender or real estate agent will be able to provide you a referral for a closing agent if needed. Often the closing agent or escrow company is identified in the sale agreement and you may not even be involved in their selection. If you have a preference for a particular closing agent, you should let your real estate agent know of before you submit an offer on your first home. The closing agent or escrow company is typically the holder of the earnest money deposit you make when the seller accepts your offer to purchase a home.
Closing on Your Home
Closing on your first home is one of the most exciting steps in the whole process. This is the point when you sign the required forms and legal documents necessary to purchase the property and obtain a loan.
Signing all the documents can take an hour or more depending on the layers and complexity of your financing, how long you take to review the documents and how many questions you ask during the process. It is good to ask questions and take as long as you need to feel comfortable with what you are signing. Assuming you are working with a reputable lender there should be no surprises at that closing table and you should feel comfortable with what you are signing before you sign any documents.
The amount of paperwork during the closing can seem overwhelming and if you are uncomfortable signing loan documents without first reading them you should speak to your lender, real estate agent and the closing agent about getting the document a few days ahead of time to ensure you have adequate time to review them before you are asked to sign them.
Your closing agent will be able to provide a general overview of the legal documents your are signing, but they are not going to be able to provide you legal advice about them. If you are uncomfortable signing any of the documents or if the terms of the transaction have changed, you should not sign the documents until you have acceptable answers to your questions.
After closing, your lender will review the documents, fund your loan, and approve the recording of the deed to your home in your name. Once the deed is recorded with your local county, you are the official owner of your first home and then you will be able to get the keys from you real estate agent and can begin moving into your first home!
Title Insurance Company
When you buy a home you also need to make sure that you are not buying a lot of extra baggage. Suppose that the previous homeowners had some work done on the house, but for some reason they did not pay the contractor who performed the work. The contractor can file and record a construction lien on the property in order to collect the payment from the current or future owners of the property. The construction lien allows the contractor a legal right to be paid for work they performed on the house. If the lien remains unpaid it can “cloud” the title to the house and stay with the property even after it is sold! If you buy a house without title insurance, you could get stuck paying for the previous owner’s bills. Since you don’t want this to happen, you need to get a title insurance policy in place when you buy your first and subsequent homes.
If you are financing a home through a more traditional lender, which is strongly advised, they will require that you obtain title insurance and a clear title to the property. Prior to issuing the required title insurance policies, all previous debts clouding the title to the property will have to be paid off. If somehow a past lien snuck through and the title company did not discover it, the title insurance policies you purchase at closing should cover the costs of paying off the lien.
Selecting a Title Insurance Company
There are a number of reputable title insurance companies to consider. Your lender or real estate agent probably will have recomendations for you to help select which company you use for these services. Since each state has different rules regarding regulation of title insurance companies, you can learn more about this from your homebuyer education provider, local lender or real estate agent. In the states that use Escrow Companies as the closing agent, these companies also offer Title Insurance, so many first-time homebuyers will use the same company for both Title Insurance and Escrow services. This company is typically identified in your accepted purchase and sale agreement. If you have a strong preference of which title insurance company you want to use, let your real estate agent know about your preferences so they can negotiate this item for you.
Obtaining Title Insurance
The bottom line is, don’t buy a home until you are sure you are being provided a title insurance policy on the property you are buying. Since your lender also has a lot invested in your home they will make sure of this as well.
Within less than a few weeks after your offer is accepted, you will most likely get a document called a “Preliminary Title Report.” This report will show you what, if any, liens, easements, or other encumbrances are recorded against the property. Some of these items are acceptable such as utility easements, but anything out of the ordinary will need to be resolved by the seller prior to the issuance of the Title Insurance Policy.
One last thing you need to know is that the title insurance policy will not protect you from paying any debts you take on while owning the home. Title Insurance only covers activity prior to you purchasing the home.