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Monday, November 4, 2013

First Time Homeowner: Where to Start?


Guess what? It is time. Time to buy our first home!

Owning a home has been my dream ever since I was a little girl. Dreams of a big wedding? Forget about it! This little girl wants to be a homeowner!

I've got visions of DIY home improvements dancing through my head. Thanks, Pinterest, for the bedtime stories.

So where does a first time homeowner start? Besides drooling over pictures on real estate search engine sites? {I use Trulia.com and their android app.}

Check Your Employee Benefits

Right when we were thinking about starting our search, my work had a lunch and learn about employee benefits through [HomeStreet] Bank. What perfect timing! It turns out that getting a loan through [HomeStreet] bank and using their Affinity partners will land me several benefits that will reduce costs of buying a home.

Employee benefits through [HomeStreet] Bank:

  • 1/2% Origination Fee (typical lenders charge 1%)
  • Home Inspectors have reduced fees
  • Escrow can be up to 50% off
  • Real Estate Agent gives 1% of sales price to closing costs
  • Free classes and assistance through the process
[HomeStreet] Bank home loans started when the City of Seattle realized their police, firefighters and city employees could no longer afford to live within the city limits. They started an employee benefit program to help get their employees into homes within the city. It has since been extended to county and university employees as well as various businesses throughout the area.

I am fortunate that my employer decided to team up with [HomeStreet] Bank to offer these competitive benefits. Definitely check with your employer and see if they offer similar benefits through one of your local lenders.

Check Out Local/State/Federal First Time Homeowner Programs

In Washington, a first time homeowner that makes less than $97,000 qualifies for downpayment assistance. This program works as a zero interest loan for the downpayment and closing costs. After you pay off or sell your home, you then pay off the down payment loan.

These programs typically require a first time homeowner training session, so this was my next stop. Even if you aren't interested or qualify for the First Time Homeowner programs, these classes are still very helpful for getting up to speed on the process for buying a home. Even if this is your umpteenth home, you may still want a refresher before jumping back into the process.

Oh, and make sure to check what the definition is for a “first time homeowner.” In WA, I believe it is someone who hasn't owned a home in the past three years. This means that even if you owned a home in the past, but don't currently own a home, you may qualify for First Time Homeowner benefits/programs.

Resources for Washington State Home Buyers:

Take a First Time Homeowner Class

I enrolled with a class through [HomeStreet] Bank, but there are tons of classes offered throughout the state by different folks. These sessions are free and work to everyone’s benefit. You get all the tips and info from professionals and they get potential clients. Everyone wants to work with someone that they have met versus a stranger.

If you are interested in the First Time Homeowner programs in your area, make sure the session you attend provides a certificate of completion afterwards. This certificate is required to qualify and is valid for two years.

Image Courtesy of Trulia.com

First Time Homeowner Class Topics

The class covered a wide range of topics and lasted 8 hours. I took mine over two nights after work. It was exhausting!

Here are some of the topics covered by the class:
  • Steps to homeownership
  • Credit scores and what affects it
  • Pre-approval and pre-qualify on loans
  • Comparison on types of loans (upfront and monthly costs)
  • Purchase Sales Agreements
  • Inspections and Appraisals
  • Title
  • Escrow
  • Closing - costs and process
  • Shortsale and Foreclosure - what this means for a buyer
  • Tips from professionals
One of the things I learned is to not do anything financial until you talk to your lender about it. Anything from buying a car or paying off creditors could affect your credit score and make it more challenging for buying a home. Your lender should be your personal financial advisor during the home buying process.

You will want to keep a folder of your bank statements and pay stubs for the past 60 days prior to pre-approval AND prior to buying a home. If you get any untypical deposits (selling a vehicle, expense reimbursement, gift from a family member, etc.), you will need to be able to explain where the money is coming from. Because of how shaky the lending business is from our economic collapse, lenders have to be sure that you can afford what they lend you.

Three Critical Steps

The real estate agent who covered the home buying process boiled it down to these three critical steps to take away from the class:
  1. Meet with your lender
  2. Meet with your real estate agent
  3. Look at homes
It’s important to understand your finances BEFORE looking at homes. Nothing is worse then falling in love with a home and then finding out that you can't a.

Also, when you make an offer on a home, the turn around time is incredibly tight. Not having pre-approval on a loan will make this much harder.

Random Tips

Here are some of the random tips I gathered from the class:
  • Don't close existing accounts - this will negatively impact your debt to credit ratio and affect your credit score.
  • Don't pay off old debts in collections - this will bring old stuff current and will negatively impact your credit score. Just wait to pay them off until after you purchase your home.
  • annualcreditreport.com - this is the official site for getting one free credit report per year. You should ALWAYS check your credit report annually. This will help make sure there aren't mistakes or you haven’t been the victim of identity theft.
  • See homes you don't want. This will help solidify what you do want.
  • You can borrow against your 401k for up to $10,000.
  • During negotiations, you can ask that the seller pays a portion or all of the closing costs. For instance, if the house is listed for $200,000, you can offer $205,000 and ask that they pay $5,000 of the closing costs.
  • Buy sooner rather than later - prices and lending rates are just going to go up.
  • If you don't plan on staying in the house you buy for at least 10-15 years, then don't buy. You won't make money from the purchase. Buying a home is a long term investment.

Resource Packet

In addition to the valuable information discussed in the class, a folder with helpful resources and worksheets was provided. Here is what was included in my resource packet:
  • Resource Guide for Credit Scores
  • Example Credit Report
  • Home Advantage Program overview (WA State specific program)
  • DFI Guide to Home Loans Workbook - covers all the basics for buying a home
  • Advantages/Disadvantages of Renting vs. Owning
  • Monthly Budget Worksheet
  • Loan Pre-Qualification Example
  • 5 Costs that Await New Homeowners - review of Real Estate Taxes, Utilities, Home Insurance, Furnishings, and Repairs/Maintenance costs and what the local average is
  • Loan Documents Checklist
  • Resource List for First-Time Buyers
  • Example of a Good Faith Estimate
  • Example Loans - comparing monthly payments, downpayment requirements and closing costs for three types of loans: Conventional, FHA and VA loans.
  • Example Homeowner Insurance Policy
  • Purchase and Sale Agreement Example
  • Inspection Addendum to Purchase and Sale Agreement Example
  • Financing Addendum to Purchase and Sale Agreement Example
  • Business Cards for the Lender and Real Estate Agent who taught the class
As you can tell, there was a ton of information provided in our resource packets in addition to the class. Most of the items were reviewed in class.

Next Steps

So that’s what I have so far. It is always great to blog about what I have learned. It really helps solidify everything in my head. Reviewing all the information in my packet has helped me prep for the next step.

My next step in the process is applying for pre-approval on a home loan. I have started the application online, but ran into some hiccups. I have sent my lender an email requesting help.

If nothing else, attending this class gave me great contacts to go to for assistance and questions. It's great to have contacts for someone that you have already met and interacted with. It just makes the process more comfortable.

Once I get pre-approval on a home loan, I will set up an appointment with my real estate agent and start the home search process. We already have a list of homes we are interested in looking at.

Yay! Here we go!

Are you a homeowner or are you in the process of homeownership? What are some tips you can offer me as I start my journey towards homeownership?

Linking to: Freedom Fridays | Weekend Wonders | Fun in Functional

5 comments:

  1. exciting! looking forward to reading about the house hunt (house hunts are my favorite :))....I still remember the first time homebuyers' class we took before getting our first house (14 years ago--eek!). They brought in a hilarious home inspector to talk about that part of things. I can still quote him verbatim: "People will have these 60 year old furnaces and tell me, 'it's been real good to us.' And I say, 'yeah, I'm sure it has, but you're wearing three sweaters.'" Sometimes I miss Boston....

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    1. Boston is awesome! I visited my brother for two months while he lived there. I have great memories of Boston. I am very excited about owning a home. It has been my dream forever. :)

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  2. Yay! I'm excited about following along with you on this journey because we're taking steps forward to buy our own place, too! In fact, we started seriously looking this August...and we're now working with a buyer's agent to hopefully find something that is a good match for us. We have verrrry particular hopes and dreams, and we realize we might need to compromise on a few things in order to find a place in our price range that actually EXISTS, but we're learning a lot just by getting out there and seeing things. Also, we got pre-approved for a loan, and now we're going to finalize that approval process to see some cold hard numbers on what we can reasonably afford. Anyway, wish we could chat it up over coffee (as always), but thanks so much for sharing what you're learning! I'm going to pass this post onto Mark, so he can glean some of your wisdom, too!

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    1. Oh, that is so cool! We're doing this at the same time! I just got the first paper work for my pre-approval. I have a few more papers to submit, but my lender feels confident that what she has given me is what I have to expect. I decided to go with the lender and real estate agent that taught the first time homeowner class. A coworker of mine took the class a couple months before me and she is closing on a house this month. She worked with the same bank and real estate agent. I am so excited!

      We definitely have some things in mind, but I am definitely planning on settling. Housing in Seattle is expensive. I'm hoping we can find something in the area we want, otherwise we might have to choose a different part of Seattle or go just outside of city limits. We'll see!

      Can't wait to get real serious about looking at actual houses. I have a whole list to give my realtor for houses I am interested in looking at. :)

      Wish we could sit down together over coffee and chat all about this!

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  3. These are all helpful tips, Bethany! Getting a loan can be daunting. And in fact, a lot of people have been declined when they applied for one. But with enoiugh persistence, and most of all, knowledge on what to do, securing a loan is attainable. Cheers!
    Ralph S @ Loans for Less

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