This story is part of money movingCNET’s coverage of smart money decisions for today’s changing world.
During my time as a real estate agent, I’ve been struck by the amount of basic misconceptions that plague first-time homebuyers—sometimes preventing them from buying a home.
But I was also on the other side, as I am a first time home buyer not too long ago. And all my professional experience did not protect me from crying tears of frustration and almost gave up. Buying a home can be challenging – financially, emotionally, and psychologically. But the right preparation, strategy and knowledge will make it easier.
With Mortgage interest rates in height and housing prices Strategic decision making and diligence have become vital to potential homebuyers.
Here’s my hard-earned advice on how to buy a home in 2022, based on what I’ve learned from being on both sides of the process—plus a cautionary tale of a buyer’s plight.
Interview agents and lenders before making a commitment
The real estate agent and lender you choose are very important to maximizing your home buying experience. You depend on them to complete your purchase, and your choice of representation can have a huge impact on your budget and stress levels.
Your real estate agent must prove their expertise before signing anything. There should be an initial meeting where your needs and goals are discussed. You’ll be guided through the home buying process and review some potential home options so the agent can gauge your preferences. Remember that you are not obligated to work with them until you have signed an agreement. Although your relationship with your lender may not be personal, you’ll want to have a conversation and check it out as well before formally agreeing to work together.
Interview different real estate agents and lenders to gauge their experience and make sure you are compatible with it. Your agent should explain things accurately, be aware of your desired location and respond to you in a prompt and professional manner. Above all, you must trust them. Once the contract is in place—that is, you sign the paperwork to buy a home—you are legally bound by the agent and lender, and switching can be difficult, time-consuming, and costly.
How to find a good agent – and what can happen if you don’t
Moving too quickly can have devastating results, as Stuart Jones discovered on his way to purchase his first home in Philadelphia (Jones asked CNET not to use his real name while holding his deal). Jones had been looking forward to building a three-bedroom house in the 1930s – a lofted fixer with a facade made of local stone. Eager to sign, Jones got a recommendation to the lender from an acquaintance and signed a contract without asking any questions.
Looking back, Jones says that red flags started to appear almost immediately: “The first thing that went wrong was the lender said they wouldn’t work with me on a loan unless I used their realtor.”
The real estate agent failed to provide the papers necessary for Jones to make an informed decision. He never signed off on the seller’s disclosure – a legally required move – which would certainly have affected his bid.
Jones also says that his agent failed to make a particular order from the seller, in violation of his fiduciary duty to Jones. In the end, his agent stopped responding to him completely.
Jones eventually revealed his ordeal to another real estate agent, whose story astonished him. “Seeing the absolute contradiction between what a good agent could do and what my agent was doing — it was time to look and see what else was there,” he said.
To find the right realtor, ask local homeowners for the real estate agent’s recommendations and contact a local realtor to request interviews with potential agents. The appropriate agent should provide you with a Buyer Agency Agreement, which commits you and your agent in a way that protects your financial interests.
When it comes to choosing a lender, Jesus Cruz, vice president of community lending at LoanDepot, says honesty is the most important characteristic. “You need to find someone who is willing to take the time — and guide you through every step of the process,” Cruz said. “Above all else, the loan officer needs to follow through and do what they say they will.” .
It took Stewart weeks to legally waive his contract with the agent, and he did a lot of damage. Jones was already locked up, having waived his right to a house search and no room for negotiation.
Be flexible in your search for your home
With a good agent insured, search with an open mind – it will be easier than adjusting your expectations later. I’ve seen first-time homebuyers paint themselves in a corner by immersing themselves in their idea of a dream home.
The vast majority of first-time home buyers are unlikely to get their best option. The more flexible you are, the higher your chance of success. It can be helpful to rank the features you want most before you start your search – this will help you weigh your options once you start visiting potential homes.
if I were Priced from one market, you may need to think of an alternate language. This is where you can become more proactive, and outpace other buyers by looking for new construction in the suburbs of a hot market, or learning about upcoming local infrastructure projects along public transport routes.
Open and closed permits for residential work can give you insight into a commercial development. If you’re willing to wait for plans for a few years, you may be able to get a discount on the home. This approach can also help increase your balance within a short period of time. This information is usually available through your city or county website. Your agent should be able to help you find this information as well.
Important: Understand your real estate contract
Real estate contracts are dry and long, but they aren’t written in stone until you sign. You can negotiate any parameter when you bid. If something doesn’t make sense, ask for an explanation. Keep in mind that if any part of it does not fit your needs, you can request modifications before sending the contract to the seller. When in doubt – or for a reality check – you should consider the advice of your knowledgeable and experienced agent.
Learn about “emergency elections”. These outline the types of inspections and negotiations that can take place and in what time frame, such as standard home inspections, pest inspections, whether you can qualify for a mortgage, and more.
Jones’ agent failed to fully explain his emergency election, preventing Jones from engaging in negotiations. It is critical to be aware of the contingencies in the contract before signing, because even if something goes wrong, as in Jones’ case, it will still be Subject to its terms.
A home inspection won’t reveal everything
After the contract is signed by both parties, home buyers usually have 10 to 14 days to get home inspection. Depending on the results of the inspection, your real estate agent (or attorney, depending on the state) can request financial waivers or request that repairs be added to the contract to offset any potential concerns or problems.
A comprehensive inspection report can be confusing, especially if it is an older home. There is no perfect home and most problems can be addressed. But if you come across something you don’t want to deal with, you can always negotiate or walk away – as long as you are in the emergency period.
On the other hand, inspectors are not foolproof. They will not be able to stand behind walls or transport the current occupant’s belongings for examination. Nor will they be responsible for any errors made or problems absent in their evaluation.
If you’re looking at a hot market – where homes sell out fast and competition is fierce – you may feel pressure to give up on inspection. If you’re thinking about it, enlist some help: Bring someone familiar with buildings and systems to the show. It may give you more information about the condition of the home and highlight major red flags.
You don’t have to discount 20% to buy a house
while conventional 20% The first batch It has its benefits—like lower monthly mortgage payments and the waiver of private mortgage insurance costs—and its drawbacks, too. “There is definitely a misconception, especially among first-time home buyers, that a 20% discount is needed to buy a home,” Cruz said. “I hear this from new customers all the time.” “But for some homebuyers, this is a major hurdle.”
And Private Mortgage Insurance Not always a big expense. Generally, the PMI costs 0.5% to 1.5% of the mortgage balance annually, which is less than $125 per month on a $300,000 mortgage. And that rate is determined in part by your credit score, so if you have good credit, it could turn out to be a negligible amount. “You will also have the opportunity to stop the PMI down the road once your equity reaches 20%,” Cruz said.
In my time as a real estate agent, clients were constantly surprised at the actual cost of PMI versus their impression. Most people think their payments will be much higher than what has been quoted.
There is a risk in waiting to save for a larger down payment, too. if Home price increases Exceeding your savings rates—not to mention inflation in other areas of life—may do you a disservice by waiting. Even if home prices remain stagnant, mortgage interest rates are rising. with the The Fed is likely to raise interest rates until 2022 in response to high inflationThis trend is expected to continue for the time being.
A smaller down payment may also allow you to keep a healthy pile of savings accessible for unexpected repairs in your new home.
Finance is not one-size-fits-all
There is, too Various loan products Designed for different types of mortgage applicants tailored to specific financial circumstances. for example, FHA Loans Allow smaller down payments and allow people with lower credit scores to qualify for a mortgage. Doctor loans allow doctors and pharmacists to qualify for mortgages as low as 0% to take into account their often non-existent savings, large school loan balances and high earning power. VA LoansMeanwhile, it’s there for service members and veterans to get a home with no down payment and other benefits. Even conventional loans allow you to reduce the amount of less than 3%.
But you should never make a purchase that you cannot afford. Keep in mind what you feel comfortable spending both on In advance and on a monthly basis, because this is a much more important metric than any pre-approved purchase price. paying off “How many homes can I afford?To evaluate your budget.
The path forward to a new home should be much clearer now. Start with knowledge How to budget for your home ahead of time so you don’t get bogged down by the logistics when you find the right home. and remember, Home ownership is not necessarily for everyone There are pros and cons to both owning and leasing. Confirm that you want to be a homeowner before you make this commitment.