Demystifying the Process of Buying a Home for the First Time
The thought of buying a home may feel daunting, especially if this is your first time.
And if you’re like most people, you’ve already Googled the heck out of it. You’ve got a laundry list of questions to consider and a ton of steps to the process.
But what does working with a real estate agent actually look like?
Hi there. I’m Jessica Anderson, a real estate agent in Colorado. I’m here to demystify the process of what working with an agent looks like.
But First Things First: Work with a Lender Before a Real Estate Agent
Working with a lender will help you decide if now is the right time to buy a home.
There can be a number of factors that affect your ability to qualify for a loan, such as student loan debt, being self-employed, or your credit score.
Your credit score impacts how low of an interest rate you qualify for, how high your monthly payment is, and the odds of getting approved for a loan.
In some cases, the lender may recommend improving your credit score first before buying a home.
Starting with a lender will also help you have a more informed conversation with your realtor about your budget and needs. Together, you and your realtor can think outside the box to ensure you’ll find that dream home while still being in-budget.
If you’re moving to (or within) Colorado and don’t have a good lender, shoot me an email. I’m happy to send you my shortlist of recommended lenders.
And if you decide now is the perfect time to jump into the housing market, I’d love to be with you every step of the way!
Here’s what the homebuying process looks like when we work together.
Step 1: Nailing Down Your Wants and Needs
To help first-time home buyers find their dream homes, I need a clear understanding of their vision. So my first conversations are all about information gathering.
I ask A LOT of questions, such as:
What location(s) are you looking at?
Do you have a school district in mind?
What price range are you comfortable with?
Are you planning to pay with cash or take out a mortgage?
When do you want or need to move in?
How many bedrooms and bathrooms are you wanting?
Having a dream home checklist for this conversation is such an asset. It’ll guide our discussion of your must-haves and help us get crystal clear on what to look for.
Don’t have a dream home checklist? No problem. I’ll ask you pre-made questions that’ll get to the heart of your vision.
Buyer Agreement
I’ll also ask if you’ve signed a buyer agreement with another real estate agent.
If you have, I cannot work with you unless you end the agreement with the other agent.
The process in Colorado to get out of a buyer agreement is fairly straightforward:
You’ll send your real estate agent a written notice stating you’d like to end the agreement.
The agent will then file an amendment to the Buyer Agreement.
You’ll both sign the amendment.
Pro Tip: In the email to end the agreement, insist that the agent send you the amendment right away so you don’t fall behind your timeline.
Step 2: Searching for Your Dream Home
Once we’ve nailed down your vision, we’ll be ready to scope out your dream home.
I’ll set you up on an MLS search – a fancy system that’ll send you emails about homes for sale within your parameters. Then you’ll be free to scroll through all the possibilities.
After you’ve found a few homes that tickle your fancy, we’ll go to the first few showings together.
You may be wondering: but wait, don’t we have to be in a buyer agreement for you to do showings?
Honestly, no, we don’t.
And it doesn’t sit right with me to lock you into an agreement until you’ve decided we’re a good fit because a forced commitment doesn’t serve either of us.
. After a few showings, we'll sign a buyer agreement if you've decided we're a great fit.
Then we’ll continue to shop together until you’ve found the *right* home.
Pro Tip: Don’t let the commitment to a mortgage scare you away. If you find an amazing home in your budget with a mortgage equivalent to your rent payment, then it’s hands down the right decision.
Step 3: Create a Contract to Buy the Home
You’ve searched high and low for just the right fit. And in true Goldilocks fashion, you’ve found the house that’s just right.
But before you plop that welcome mat outside the front door, there’s a bit of paperwork and a few tasks we’ll tackle together to make it official.
The first piece of paperwork is drafting a contract.
This contract includes your offer price, earnest money deposit, and concessions (e.g., appliances, the swing set in the backyard, or an interest rate buydown).
I’ll present this contract to the sellers through their listing agent. And they’ll decide to accept or counter it.
If it’s countered, we’ll discuss the seller’s terms and can accept or counter it again.
The process continues until an agreement is reached, and you can move to the next step. It typically takes between 21 to 30 days from an offer to close on a home, so as you can imagine, these negotiations go quickly!
Locking in Your Interest Rate
Buyers usually lock in their interest rates when the home is under contract.
There are different time periods for an interest rate lock. While a 30-day rate is standard, other options include:
15-days (if it’s a quick turnaround)
45-days
60-days (if it’s a longer contract and your lender anticipates interest rates will rise over the next month)
Home buyers in Colorado can also opt to “lock and shop,” which means they can lock in their interest rate before they’re under contract. However, this option depends on the market and isn’t typically encouraged because it puts buyers on a tight timeline.
Step 4: The Home Goes Into Escrow
Once the contract is agreed to, we let the title company know you’re going to have a transaction.
The title company opens an escrow account, and the home goes into escrow.
What’s an Escrow Account?
An escrow is an account that holds the earnest money deposit and other forms of payment (e.g., property taxes, down payment, closing costs, etc.) on a home or property.
It’s created by a 3rd party to protect all stakeholders of the real estate transaction. The money doesn’t change hands until specific conditions are met (e.g., fulfilling a purchase agreement).
And once the conditions are met, the money is automatically paid in a timely manner, so the buyer avoids fees or penalties.
Title Insurance
In addition to creating an escrow account, the title company ensures there are no liens on the property and writes a title insurance policy for the buyer.
This policy covers you as long as you own the home. It covers liens or issues that come up as a result of actions (or inactions) of previous owners.
For example, if the sellers didn’t pay a contractor $20,000 five years ago and that contractor files a lien on the property after you’re the new owner, this insurance will cover you.
Pro Tip: Although a standard Title Insurance Policy is required by lenders, many first-time home buyers in Colorado choose to go with an Owner’s Extended Coverage (OEC). This provides more coverage beyond the standard policy. It’s definitely my recommendation too!
Step 5: Inspection
While the title company is doing its work, you’ll pay an inspector to inspect the whole home and ensure it’s in good working condition.
A home inspector will assess everything from the foundation to the roof, flag concerns, and make recommendations.
For example, while assessing electrical systems in the kitchen, an inspector may point out an outlet that’s not grounded the way it should be for safety reasons.
Once the inspector is finished assessing the home, they’ll write a report of their findings.
We’ll go through the report together. And if you decide there are things the seller should fix, we’ll ask for those repairs in an inspection objection.
The sellers will review the inspection objection and decide what they’re willing and/or unwilling to fix. Then they’ll send us a response.
At this point, you can decide to agree with their decisions or walk away from the purchase.
If an agreement is reached, then the inspection period is over, and we move to the appraisal.
Pro Tip: Don’t forego inspections! In a hot housing market, it could be tempting to forego inspections to make your offer more competitive. But doing so could cost you big time in the future. You never know if there’s a foundation issue, for example, which could end up costing you $100,000 to fix.
Step 6: Appraisal
During this step, your lender will send out an appraiser to assess the value of your dream home.
This value determines your loan amount.
Gap Coverage
The difference between the appraisal amount and your offer in the contract is a gap that you’d be responsible for.
For example, if you’ve agreed to buy a home for $500,000 and an appraiser says the home is only worth $400,000, then there’s a gap of $100,000.
Gap coverage is usually included in the contract.
You can specify whether you will cover the full gap or only a part of it.
But be aware if you present a contract where you only cover a small amount, say $10,000 or $20,000, then your offer won’t look as appealing to the seller.
Step 7: Finalize Your Loan With Your Lender
After the appraisal, you’ll discuss your mortgage loan terms with your lender to finalize the loan.
If the terms are exactly what you thought they’d be (e.g., no surprises with interest rates, monthly payments, etc.), this step is done! You can sit back and wait for your closing date.
But if your interest rate wasn’t locked in, it could affect your comfort with the loan terms.
For example, the interest rate can go up 1%, which sounds small but could equal tens of thousands of dollars that you hadn’t budgeted for. If it pushes your monthly payments out of your means, it’s ok to walk away.
Pro Tips:
Be wary of variable rep loans with rate changes. It can easily balloon depending on the market and do you more harm than good.
Make sure you’re living within your means. It may be tempting to think, “things will be tight this year, but that’s ok because we’ll be able to afford the payment next year.” The harsh reality is you can’t control the future. If your anticipated work promotion falls through, will you still be able to afford the home?
Step 8: Closing & Keys
Once the closing date is here, we’ll meet for final signatures, and the keys will be yours.
Take pictures and pop the champagne because you, my friend, have made it through the whirlwind process of homebuying.
Congratulations on owning your dream home!
Final Tips for a Seamless Process
Because the process of buying a home moves so fast, it can feel overwhelming at times. Having a savvy realtor like me on your side will alleviate your stress and take much of the legwork off your plate.
But there are things you have to take care of. So here are a few tips to prepare you for a seamless process:
Tip 1: When considering working with a lender, get a list of the documents the lender needs and ensure the paperwork is in one place, so it’s ready to go when you find your dream home.
These documents can include:
W2s & 1099s
Tax Returns
Asset Statements (bank & retirement accounts)
Records of Rent Payments
Divorce paperwork
Tip 2: Whether this is your first or twenty-first offer, trust your gut and be willing to walk away if the home doesn’t feel right. You’ll rest easier!
When my husband and I were first-time home buyers back in Portland, we were young and trying to scrape by. So our focus was on getting the cheapest house we could find.
We found one in an iffy neighborhood and did our due diligence by asking our network about it. Through a connection, we learned a previous owner died of a heroin overdose in the house. (Yikes!)
We didn’t want to walk into that kind of energy. So we stepped away and continued our search.
Tip 3: Take your time finding the *right* fit and resist the urge to bite off more than you can chew.
Foregoing inspections, taking out a mortgage beyond your means, and offering unrealistic gap coverage to appease a seller can put you in hot water in the future.
Buying a home can seem like a long, scary process. But don’t be discouraged by the number of steps involved or things like being outbid or finding homes in your price range. A dedicated realtor will be by your side helping along the way.
So instead, stay strong in your resolve and have patience. You’ll be amazed at how things seem to work out exactly how they’re supposed to.
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