10 TIPS FOR FIRST TIME HOME BUYERS
1. Know Your Price Range
Before diving into which neighborhood, or how many bedrooms you are looking for, determine what price range you can afford by speaking with a mortgage professional. A bank loan officer or branch manager can look over your finances and help you determine what you can afford based on your income, savings, and other sources such as gifts from parents or money from a trust. Using this financial information as well as other factors such as your credit score, they can determine how much of a mortgage you will qualify for, what the current mortgage rates are, and what they are likely to be for the next several months. This “pre-approval” process can help you determine what houses to look at and what your maximum offer could be when you find the right house. Another option is to meet with a mortgage broker or banker. Unlike a bank, a mortgage broker is not obligated to work with one financial institution and can help you look for the best financing options, such as a conventional mortgage, or one through FHA (Federal Housing Administration), VA (Veterans Administration), or USDA (United States Department of Agriculture).
2. Use a Buyer’s Agent
Using a real estate agent to represent you as the buyer could help you to save money, as well as help you to find houses you may not have found on your own. Most first time home buyers don’t realize that it doesn’t cost you anything to use a buyer’s agent. Buyer’s agents are a paid a portion of the seller’s agent’s commission at closing, which comes out of the seller’s proceeds. Many first time buyers may start by attending an open house or may be tempted to call the agent listed on the for sale sign in front of a house they are interested in. While these agents will be more than happy to show you the house, answer your questions, and even help you to make an offer, they represent the seller and are obligated to try and get the highest price they can for their client. A buyer’s agent will be able to assess each house and help you determine how much to offer, and any problems or potential points of conern that a seller’s agent will neglect to tell you
3. Review the Listing Information and Sellers Disclosures
Pennsylvania requires a person selling their home to disclose any known problems or defects, including latent defects (defects hidden by walls or otherwise obstructed from view). If a house is listed for sale with a brokerage, they will have filled out a Seller’s Disclosure Form which lists any known problems or defects. While this information can be very useful during a house showing, it should NOT be relied on exclusively if you are making an offer. Homes in Pennsylvania are generally sold AS IS, and a seller can only be held liable for defects for which the seller had actual knowledge AND failed to disclose. Houses which are listed will also have information available, such as how long the house has been on the market and if the sellers have lowered the price.
4. Keep in Mind All Monthly Expenses
Buyers, when determining what they can afford, will often look at the asking price and interest rates to determine what their monthly payment will look like. It is important to remember the other factors that go into that monthly payment. In Pennsylvania, homeowners receive two real estate tax bills, one at the beginning of the year for Municipal and County taxes, and one in the spring for school taxes. Most lenders require their borrowers to pay their taxes to the lender in 12 monthly installments. These “escrowed” taxes will increase your monthly payment by 1/12 of your yearly taxes, and may also significantly impact your closing costs. If you are interested in a condo, or a property that is part of an HOA, there are usually monthly HOA fees or Association fees which are non-negotiable and tend to go up over time. Both HOAs and Associations can charge homeowners “Special Assessments” for maintenance or repairs to common areas. These charges are typically infrequent and unscheduled, however they can range from the hundreds to the thousands of dollars.
5. Making an Offer
Once buyers have found a property they want to make an offer on they will need to sit down with their agent to decide how to formulate their offer. This is the best time to involve a real estate attorney, if you haven’t already contacted one. There are dozens of decisions to be made during the process of formulating an offer. Agents, who deal with these documents on a daily basis, do not always slow down and explain each section thoroughly, and buyers are often excited and anxious get the offer to the seller as soon as possible. Everything from the price, to the closing date, to inspection contingencies, must be stipulated before transmitting an offer to a seller. Checking with an experienced real estate attorney can help buyers avoid pitfalls or mistakes that may not be renegotiated after an offer has been accepted.
Most real estate sold in Pennsylvania is sold AS IS. This means that any defects or problems are your responsibility once you own the property, even if something was broken or otherwise defective before you bought it. The only way for buyers to protect themselves from potential problems is to have the home inspected. After the Buyer’s offer has been accepted and the parties are “under contract” (A sales agreement has been signed), there is a period of time when the buyer can have professionals inspect the property for defects or problems. Should a home inspector find a problem, the buyer will have the option of (i) having the seller fix the problem, (ii) having the price of the property reduced, (iii) accepting the defect as is, or walking away from the deal. There are many different types of inspections a buyer can elect to have performed, and the property will dictate which inspections to have done. A general home inspection will cover the building, electrical, and plumbing that is visible to the inspector (they are not permitted to cause any damage to the property such as drilling holes). More specialized inspections such as a septic inspection, radon tests, HVAC inspection, PERC test, and well water test may be required depending on the location and amenities servicing the property.
7. Closing Costs
The costs associated with purchasing a house are commonly referred to as closing costs, or settlement costs. These range from the realty transfer tax collected by the state, to the fees collected by the lender and title company, to the shipping or overnight fees for documents between the offices and parties involved. It is difficult to predict what the closing costs will be for a particular house, and buyers need to be aware of the potential costs and have the money available for closing. To avoid surprises, lenders are required to give buyers an estimate of the potential closing costs. Buyers should use these estimates only as a guide and make sure they have more than enough available for the settlement date. The form which breaks down the closing costs can be complicated and confusing to buyers. Make sure to have your lender, or attorney go through it with you to make sure there is nothing incorrect or unexpected. Having an experienced attorney who knows what to look for can help you avoid errors or surprises.
8. Get it in Writing
Did the advertisement say all appliances were included? Did the seller’s agent assure you the pool table was staying? Often buyers will make the assumption about items in a house, but neglect to include them in the sales agreement, only to find them missing after closing. Anything bolted or secured to the house is considered a fixture and is assumed to be included with the house (this isn’t always the case), but things like refrigerators, washers, dryers, curtains, hot tubs, pool tables, and microwaves may not be part of the deal. If you want something to stay with the house, make sure it is included in your offer, and be aware that the seller may ask for more money if they weren’t planning on leaving something behind.
9. Read Your Homeowner’s Insurance Policy
Your lender will require you to obtain insurance on your new home to cover a loss due to fire or other accidents. Most first time home buyers obtain this insurance based on the price or through an agent they have already worked with in the past. Rarely do new homeowners review or understand their policies and what is covered. As soon as you receive your insurance policy, go through the policy with your agent or your attorney and understand what types of losses are covered. Many times a loss will not be covered unless a “rider” or additional coverage is purchased; common types are flood, hurricane, and sinkhole. Talk to your agent or attorney to determine what extra coverage may be advisable.
10. HOAs, Deed Restrictions, Easements, and Covenants
One of the most common times for a home owner to find out about a deed restriction, is after they are in violation of the covenant and rule, which could be months or years after you purchased the property. Before you make an offer, talk to your title company, or your attorney, and determine if there are any legal restrictions which could affect the use of your property. Often, deeds which are a part of a planned development or Homer Owner’s Association include restrictions on how the property may be used. These can range from restricting the property to residential uses to limiting the color you can paint your house and how many cars you can park in your driveway. Make sure you understand any limitations before you are committed to owning the property.