Five Things First Time Home Buyers Don’t Know
Being in our industry for so long, we forget that clients new to the home buying process really don’t know how things work. That is why Realtors and lenders working with first time home buyers must be willing and able to provide patient and generous education to these home dreamers along the way. I have found that by providing trusted guidance to first time home buyers, I create a lifelong client as their home needs change over the years.
Here are five things that, surprisingly, first time home buyers don’t know when they start the process. It’s up to us to prepare them…
1) Who Pays the Realtor?
When a new first time home buyer comes to see me, and they don’t already have a Realtor, they are reluctant to take the first step in calling one because they don’t understand how and when a Realtor gets paid. In my first meeting with first time home buyers I let them know that the Realtor’s services are paid for by the seller and the Realtor’s job is to represent and protect the buyer. After hearing this, they are much more willing to make that first call to a Realtor. I also let them know that I, as a lender, get paid at close of a transaction and receive no payment prior to that.
2) When Do I Own the House?
First time home buyers are often confused as to when they actually own the home. I always review the whole escrow process with them when they sign their application package. They get the keys upon confirmation of the transaction being recorded at the county. This usually occurs the day after funding which happens 2-4 days after the escrow signing takes place. I counsel my clients not to give departure notice at their rental homes until conditional loan approval and appraisal review is complete.
3) What Needs to Be Paid For Now?
An earnest money deposit check will have to be written to make and offer and first time home buyers generally don't know this. Then when escrow is open, they will have to pay for appraisal and inspections from their pocket. Even if there is a seller concession covering all closing costs, buyers will still have to come up with $1,200 to $2,000 in inspections/appraisal fees. At closing, these can be reimbursed to buyer from seller concessions. But buyers need to know that even if they had 100% financing and seller concessions for closing costs, they would still need some cash to conduct the home buying transaction.
4) Closing Costs?
Often first time home buyers set a goal of amassing their down payment but forget that there will be closing costs that have to be paid. These can be from zero (a “no-cost” loan with higher rate) to $15,000 or more if buying down the rate. Buyers have the option of paying them out of pocket, asking for seller concessions to pay them, taking a higher interest rate for a “no-cost” loan, or a combination of all these options. Seller concessions are limited to 6% of the sale price for first time home buyers who will occupy the property. How closing costs are paid is an individualized decision is based on the home buyers’ assets, the offer price/concession and current rates. The Realtor and lender should communicate about the buyers’ needs in covering closing costs as it affects the strategy of the offer price.
5) Why Do I Have to Provide This Document?
Lenders are scrutinizing loan files and demanding full details of divorce agreements, bank statements and deposits found on those statements, source of down payment, and verification of employment and forms of income among other demands. The investors that will buy these loans are the source of the demands since a loan file not fully documented may be rejected for loan purchase by an investor after the loan closes. Home buyers, and not just first timers, are surprised to learn that prior to funding their credit and mortgage history will be rechecked for any changes. And every sizeable (over $100) deposit to their bank accounts that is not regular income will have to be documented. Updated bank statements and paystubs will be required as the process progresses.
The home buying process has gotten daunting with increased regulation and lender paranoia. First time home buyers need education, direction and hand holding throughout the process to ensure a closed transaction with satisfied clients.
For more information on the home buying process visit www.SonomaCountyHomeLoans.info.