Preparing to buy your first home can an exciting and somewhat scary time. The excitement of home ownership but the fear of “how do we start?”, “will we be approved?”, “where do we start?”, “what kind of house can we buy?”, and “how much are we qualified for?” Are all questions first time home buyers have when starting their home buying process. It may seem daunting, but this guide and our team are here to help you every step of the way.
You’re probably asking yourself, is now the right time to buy? You’ve probably heard stories of the current real estate market and how expensive homes are getting. While the Bellingham real estate market has continued to increase so have the prices to rent. In reality there’s a really good chance your mortgage payment will be lower than your rent payment. On top of that you’re going to be building equity in your own home and no longer paying someone else’s mortgage.
Some things you need to consider when taking the step to home ownership are the responsibilities of being a home owner. You don’t get to call the landlord to fix or repair something when it breaks down. You’re responsible for maintaining, repairing, and replacing the things that break down or wear over time in your home. But with that responsibility comes the freedom to do what you want as a home buyer. You can paint, design, landscape, add-on, tear down, and make your new home truly your own home. There’s nothing more rewarding than home ownership and the rewards of making something your own and building equity over time are one of the best feelings you can have.
Before you fall in love with your new home, you’ll want to do ask yourself some very important questions.
This may sound like a loaded question but we promise it isn’t. But you need to have a serious discussion with yourself or your significant other and answer this all important question.
One of the first things we ALWAYS recommend is connecting with a lender and getting pre-approved to buy a home. There’s nothing worse than skipping this important step, finding and falling in love with a home, only to find out you need to include a pre-approval letter with your offer to buy the home. Then watching the home go under contract while you wait to be pre-approved.
The good news is that getting pre-approved is not difficult at all. Our team is here to help connect you with a lender and get you approved so when the right home comes on the market you can confidently put an offer in right away.
There are a whole bunch of excellent purchasing options for first time home buyers in Whatcom County. Your lender will go through all of your options and let you know which ones will work best for your specific financial situation. Depending on your financial situation there are a multitude of loans available. There are conventional loans, USDA loans, VA loans, and FHA loans to name a few. FHA loans are government backed mortgage loans that can help you buy a home with as little as 3.5% down. Because they are backed by the federal government it gives the lenders more leniency in offering you a loan. These are excellent programs for those who have less than perfect credit or previous credit problems.
One of the best first time home buyer programs available is down payment assistance which will help pay your down payment so you can get into your own home. We’ve helped a lot of people who, without the help of down payment assistance, would not qualify to buy a home. It’s an excellent option and can be used with both conventional and FHA loans. contact us to find out more about a down payment assistance program and what first time home buyer programs are available to you.
One of the most important numbers you’ll hear throughout the home buying process is your debt to income ratio. This golden number will essentially tell you how much of a home you can afford. Your lender will go through all of your income documents, liabilities (debts), and determine your debt to income ratio and from that number be able to figure out how much of a home you can afford. Depending on the type of loan you get the debt to income ratio will vary. For conventional loans you can borrow up to 49% of your debt to income ratio. FHA loans allow you to go up to 54%, and VA loans can go up to the low 60%.
Now that your pre-approval is done and you know what you qualify for, it’s time to start looking at the areas you want to live in. There are a lot of unique communities, neighborhoods, and cities here in Whatcom County. One of the most important things to consider when deciding where you want live will be how long your commute to work will be? Luckily we don’t run into too much bad traffic here in Whatcom County, but the county is large, so you’ll want to know what areas to search in.
Our website is an extremely powerful home search tool. We’ll be able to setup custom searches based off of your specific search criteria so you only see the homes in the areas you want to see within your budget. Our website is directly connected to the MLS and will update you as soon as a new home fitting your search criteria comes on the market.
Schools are another important part of determining where you want to buy a home. If you have kids or are planning on having kids you’ll want to become familiar with the local schools and school districts in the area. Here’s a link to the school districts in Whatcom County.
These are usually the two most important questions you need to consider as a first time home buyer when considering where you want to buy a home. Other things to consider are location to hospitals, recreation, and local businesses you enjoy.
Having a great buyer’s agent to represent you is the key to success when shopping for a home. The Bellingham area real estate market can be very competitive, with low inventory and first time home buyers doing whatever they can to get into a home, it’s often expected to have multiple offers on a home. You need a buyer’s agent that has the experience and negotiation expertise to structure your offer so it looks the most appealing to the sellers. Our team has the expertise and proven track record of successfully structuring offers for our clients to help their offers to be accepted in this busy market. 96% off all of our offers are accepted for our clients.
One of the major costs associated with purchasing a home that can be a surprise for first time home buyers are closing costs. Depending on the cost of your home, the closing costs can range anywhere from $5,000 - $7,500 and are the buyers responsibility to be paid at closing. These fees are all of the lenders fees, origination costs, title fees, and escrow fees involved in your transaction.
The good news is that these fees are negotiable. We are very successful at negotiating these fees to be paid by the sellers at close. Freeing this money up for your down payment, to buy down points, or to keep. We always look into saving our clients as much money as possible and by negotiating your closing costs to be paid by the sellers is a great way to save some cash!
Once we’ve found you the home you like, it’s time to put in an offer! This is an exciting but sometimes nerve racking experience. Don’t worry, we’ll be here every step of the way to make sure the process goes smoothly. Together we’ll put together a purchase and sale agreement, along with a copy of your pre-approval letter to submit to the sellers. The purchase and sale agreement will have all of the pertinent information regarding your offer including the purchase price, closing date (typically about 30 days), loan information, all of the details about the home, your contingencies, and your earnest money amount.
Earnest money is typically submitted with your offer to show the sellers how serious you are with your intentions to buy their home. If your offer is accepted the earnest money needs to be given to the escrow company within 2 days of mutual acceptance. In Washington State there are no laws requiring earnest money or how much earnest money you need to deposit. But most people offer up to 1% of the homes value. If you aren't in a position to offer that much it's certainly ok to offer less. We submit offers for clients with $1,000 or $500 all the time. The earnest money sits in the escrow account and at closing can be applied to any remaining closing costs, or returned to you at close if your closing costs were covered by the sellers. If you back out of the contract the earnest money typically goes to the sellers. But the good news is there are typically contingencies in place to protect your money if you back out of the contract through no fault of your own or if something comes up that causes a red flag and you decide to back out.
Prior to submitting your offer we'll go through all of the potential contingencies that can and should be included with your home purchase so you are protected and can legally back out of the purchase of the home should something come up. Finance contingencies are put in place to protect you in case something happens with your loan and the bank can no longer loan you the funds to purchase the home. An inspection contingency is to protect you in case an inspection report comes back on the home and you find underlying problems that were previously unknown, giving you the opportunity to back out of the purchase. There are also title contingencies, neighborhood review contingencies, to name a few of the contingencies we'll go over together prior to making your offer. If you use a contingency to back out of a contract your earnest money is returned to you.
After your offer is accepted you typically have 10 days to have an inspection performed on the house. The inspector will perform a thorough interior and exterior inspection of the home for you to determine if there are any safety issues, maintenance issues, or unseen damage to the home that would otherwise go unnoticed. Inspections typically cost $350 - $500 depending on the square footage of the home. The inspector will then put together a detailed inspection report for us to go through together. We'll then have the opportunity to drop our inspection contingency and move forward with the purchase, request for the sellers to make repairs, or back out of the contract and start looking for another home.
After the inspection has been finished, now is the time for you to start preparing for your big move. Your lender will be working on your loan and likely will be reaching out during this time to confirm some financial information and prepare your loan for a final underwriter to review the loan before closing. The hardest part during this time is the wait. It's exciting to know your dream of becoming a home owner is about to become a reality, but there are a few important things to consider.
Don't make any major purchases or financial decisions during this time without getting permission from your mortgage lender. Don't apply for any new credit cards, car loans, or any types of other loans that could change the outcome of your approval. The underwriter will be checking for all of this prior to giving final approval for the loan.
Take this time to pack and prepare for your move in day. Your realtor team will be working in the background with all parties to make sure everything is going smoothly and preparing for the big day. It helps to stay busy during this time. Your inspection will typically be done and out of the way in the first 10 days, so you'll still usually have about 3 weeks until you get the keys.
The escrow office will reach out to you to schedule a signing appointment a few days before closing. Once the underwriter has given the final OK, documents will be sent to the escrow office to prep for signing. You'll then meet with the escrow agent to sign. You may want to prep your hand because it's going to get a work out when you sign! There will be a lot of pages to sign and initial! The escrow office will also schedule the sellers to come in and sign around the same time as well.
Once you've signed it will be a matter of crossing the T's and dotting the I's. Your lender will authorize the funds to be transferred to escrow and on the morning of your closing date the funds will be transferred to the appropriate parties. You won't legally own the home until the deed has been recorded with the court house. It will happen sometime in the afternoon on closing day. Once that happens your realtor will get a call with the recording numbers. Congratulations! You are now officially homeowners!
Your realtor will schedule a time to take possession of the keys and once the sale is finalized will meet you with the keys at your new home. We know the process may seem daunting but trust us, with the right team and right realtor by your side the process will seem smooth and be over before you know it!
If you're ready to take the first step towards home ownership give us a call at 360-305-4201 or contact us here.