Life is busy we understand– if you’re looking for a few tips and tricks skip ahead to the TLDR. We’d highly recommend reading the whole article when you have time.
So you’re ready to buy your first house? If you are financially prepared and ready for the joys of homeownership, then read on to learn how you can ace the home buying process the first time. We’ve been through the home buying process multiple times and have made plenty of mistakes along the way. We’ll set you up with a framework for success because when you buy a house, it’s yours for better or worse.
Do the Boring Part First
Unfortunately, this is a lesson I didn’t learn until well after applying for my first mortgage. Before you reach out to a bank or hop onto Zillow to start checking out places, get all the documents together that you will ultimately need for a mortgage. Though it may vary by bank here are some common ones:
- Previous year W2- military can find this on mypay
- LES or paystub from previous two months
- Bank account statements for past 60 days
- TSP or retirement account statement -good luck with this one if you forgot to write down the login info when they mailed it to you. You will need to call them and it can take a month or more to get an account reset.
- Statement of Service -For VA Loans, talk to your admin office. A template is provided below that we have successfully used before.
- Certificate of Eligibility for VA Loan -Steps to download are in the Ultimate Guide to the VA Loan.
- Drivers license scanned
- Any and all brokerage statements
- Tax returns for previous two years
These documents will allow you to demonstrate to the bank that you are a viable lender. You want to show as many assets and as much income as you can. Along with credit score, this will allow you get the best rates on your mortgage. Finding login information can be a pain, but it will translate into more money in your pocket.
There are two primary reasons for getting these documents together before you apply for a mortgage or look for a place:
- This will allow you to easily shop multiple mortgages. Having everything organized and ready to go makes applying to multiple lenders a breeze.
- It allows you to get pre approved within a few hours -when you do start looking at places. This is an absolute must in fast moving markets where the place you want may not be available tomorrow.
Outline The Place You Want
If you have a spouse this is the point where you are going to want to discuss with them what needs you have (or will have) that this house will need to support. If you don’t have a spouse, talk to a friend or family member to explain what you are looking for and they can help fill in any gaps that you might have missed. Some things to consider are:
- Animals- is a townhouse or condo going to work for your pets?
- Kids? If you have or are planning to have kids then schools and house size matter.
- Location: this is super important and is explained in more detail below
- HOA- what extent are you willing to let an HOA govern your life? How much are the HOA fees?
- House age- depending on how the home has been maintained it might need more work and will require a more thorough home inspection.
Location– many single people want a place that is either close to work or close to the bars. There is nothing wrong with this, but it is important to consider the tradeoffs. Directly outside of military bases is usually not the nicest part of town. This makes your property less desirable compared to ones in nicer neighborhoods that may be five minutes further from work. Also, being close to a downtown area will almost always costs more. Do you really go to the bars so much that it’s worth a larger mortgage payment for potentially less house? I’d swipe left on that financial decision.
In my experience, these factors affect your ability to get the best bang for your buck. Potential locations should be:
- Just outside a major city or downtown area
- Easily accessible from a highway
- Close to parks
- Straddled in the middle of major work centers
These factors are what most people care about. By checking off the boxes that matter most to potential future buyers or renters, you are setting yourself up for success down the road.
Outline your desired house before you reach out to a realtor or hop on Zillow. Don’t be too specific, just come up with a paragraph or bullet points that capture the main points. The reason you are doing this is to defend against your future self. Home buying is fun, but emotions can be dangerous with such a large financial decision. This will keep you from buying a house that has an amazing kitchen or really nice garden but is not really the house that fits your needs. It also helps your realtor narrow the search and expedite the process.
I am looking for a three bedroom, two bath single family home between 250 and 300K that is no more than 10 years old. The home does not need to be larger than 2000 sq feet. I am interested in a house with a fence for my dogs and that is easily accessible to 95 North for my work commute. Ideally, the area would have places for me to walk my dogs (safe large neighborhood or parks). I do not need an amenities center in my neighborhood and HOA costs are important to me.
The best part? You can copy and paste that into an email to a potential realtor. Now you are on the same page from the start.
Your taste or preferences might change once you start looking. This is totally okay! The whole point of an outline is to filter the large amount of places that will be thrown at you.
Home price is an important part of your outline. Use this mortgage calculator to get a rough estimate of your home price and the corresponding mortgage payment. You should have two categories: Your goal price and your absolute max that you are willing to pay. These should act as another filter point and help bracket a price range that you feel comfortable with.
Find A Great Realtor
In a competitive market we recommend that you get preapproved for a mortgage prior to finding a realtor (next section).
The realtor market is incredibly competitive. This is a good thing for you as long as you put in the effort to find a good realtor. The best can often be found by word of mouth or affiliate programs. If you have a friend that bought a house in the place you are looking, reach out to them. Another way to find an awesome realtor is through the Navy Federal Realty Plus program. They also give you between $400 and $8k back at closing if you go with their chosen realtor and a mortgage through them. Yeah, it’s really that good.
A bad realtor story usually starts something like this: Hey so and so’s spouse just got their real estate license and is helping out so and so with their home. You want me to give you their number?
By no means am I slamming peoples spouses. The point here is that this is not the time to be the guinea pig just because you are afraid of telling someone thanks but no thanks. Always ask a realtor how long they’ve been at it and steer clear of the new ones. You need to respect the gravity of a home purchase. When you miss something on the contract or home inspection it’ll become a massive headache later on.
It’s also worth reaching out to multiple realtors. You can tell very quickly whose worth working with when someone returns your call right away and others don’t.
A good realtor makes this process amazingly smooth and (yes for real) fun. A bad realtor will leave you confused and anxious about the questions you have or issues that arise. The biggest danger of buying a place is the unknown unknowns. That leak in the roof that the home inspector missed because it wasn’t raining that day? Guess whose problem that is now? A good realtor is thorough and will help you reach a contract that both buyer and seller feel good about. If a real estate agent ever says you shouldn’t ask for more that’s a red flag. Always ask and the worst you get is no.
If you are considering a new construction it is still worth getting a realtor. Construction companies are infamous for luring in unsuspecting buyers with impossible timelines or prices that magically went up since last time you were there. Bring the realtor with you the first time you go to speak with them. They will not let you bring one in after the fact.
If you’re in the Jacksonville, FL market use Chris Vining. He’s done wonders for us, our family and our friends. He delivers every time and specializes in military clients. In case our word isn’t enough he’s also featured in NFCU RealtyPlus program. Our network is your network.
Find A Mortgage and Get Pre Approved
It’s important to understand the different types of mortgages before you start this process. If you’d like to brush up on them read our guide Everything You need to Know About Mortgages.
Basically, the mortgage process works like this: You enter a bunch of preliminary information to see if you’re eligible. If you are, you will get a preapproval letter. Use the preapproval letter to put the house you want under contract and take it off the market. This does not fully commit you to buy the house, but is enough that other offers are no longer considered and you can move the process forward with the seller. The preapproval letter allows the home to be taken off the market. The seller must agree to your offer and the property will be considered “active under contract.” At this point the seller cannot accept other offers unless some later part of the process falls through.
Often, lenders will run your credit score at the end of the preapproval to finalize the process. For 14 days after your first credit pull additional pulls will not affect your credit. This allows you to shop around with other lenders in that period. One of the best tools available to shop different rates is nerdwallet.
That’s the easy part. Once you’re preapproved you will need to go through the process again in more depth and submit the paperwork that proves you actually have the assets and income that you claimed. There is a lot of paperwork! Fortunately, if you followed the steps in this guide you’ve done a lot of the heavy lifting and can spend your time looking at furniture on wayfair instead of trying to remember where your tax returns are. In all seriousness, it’s better to be focused on the other parts of the home buying process at this point such as the home inspection.
You should have a good idea at preapproval of what your mortgage will be and the terms it will be on. If you don’t, find that out before you put the place under contract.
If you are buying a new construction the builder’s lender may be the best financial choice. Often they will cover closing costs and have competitive rates. Sometimes your realtor has a similar hook up with a broker they recommend. If none of these apply, you are almost always the best off going with Navy Federal. They are extremely easy to work with and have insanely good rates. USAA’s are competitive too.
Two Inspections are Better Than One
Get two home inspections done. It sounds hardcore, but it is absolutely worth the extra money to be confident that you are getting the place you pay for without hidden landmines. Home inspectors are usually affiliates of real estate agencies. This means the real estate agency will always recommend their home inspector because they get a kickback. These incentives are not aligned with providing you the best inspection. It is absolutely worth it to have a second look done by someone you hire separately. The picture you get by piecing together two home inspections is far more trustworthy than what one person tells you.
It is not necessary to do this for new construction properties if you are the first owner!
Certain regions require additional inspections (such as radon gas in Pennsylvania). Your real estate agent should be on top of this but it doesn’t hurt to ask because you’ll be paying for any and all inspections.
For new construction homes there are a slew of permitting inspections that occur while building is happening. Stop by the property often and ensure that the layout and other parts of the property are being built as expected. This a common problem area. Following up on the inspection’s schedule with your salesperson is also a must to see whether the home will be completed on time.
This where a good realtor shines.
Ask for closing costs. It never hurts to ask and most sellers will help you with at least some of the closing costs. There are also going to be things that you want fixed from the home inspection. Make sure they are actually fixed and there is evidence of the work. Talking to the contractors who did the work is a great way to gauge the situation and whether they truly fixed it.
If a seller is low on cash they may ask you to accept a price on the house vice making the repair. Ultimately, you will still need to make the repair so your cash position will determine whether this can work. If it is an ascetic repair or you can fix it yourself than this can be a great move. Another common way sellers will get out of paying for every fix is by buying a one year home warranty. Companies that offer these will fix almost any issues with the home except for storm damage or insurance claim related cost.
Sometimes you want to be careful asking for too much from the sellers. Selling a house can be incredibly expensive and people selling may not have the money or want to fix every little thing. There is a real risk of cutting corners here so thoroughly check all work and ask for only the most important stuff not “wants.” Painting the walls can wait but a leaky roof can’t.
Fun story about how a good real estate agent makes all the difference. My mother-in-law was viewing a house with her realtor (Chris Vining) that she ultimately ended up buying. The person they were buying it from was into woodworking and we really liked a desk that they had. Somewhere deep in the contract, Chris slipped a line that the desk was included with the sale of the house. I guess the other real estate agent didn’t feel like reading the whole contract. They signed without bringing it up!
Their reaction was very surprised when we politely reminded them at closing. It ended up working out for both sides since they weren’t sure where it would fit in their new place. I love this desk, I’m writing on it right now. In this case it was just a desk, but if you sign it you agree to it so you need to read the whole contract. It also helps to have a guy like Chris on your team.
Hopefully at this point everything should be finalized. The mortgage rate and terms that you were offered during pre approval should be locked in. Your focus should be on the closing and how much money you must bring to the table. Closing costs are the biggest expense related to buying a house so it is important to understand what goes into them.
What Goes Into Closing Costs:
- The first mortgage payment
- Property Taxes (You pay the first year here)
- Closing or Escrow Costs
- Homeowners insurance
- Mortgage Points
- Loan Origination Fees
- Appraisal Fee
- Title Fee
The most accurate source of closing costs is going to come from your lender. They will present you with the preliminary and then final numbers.
If you want to estimate these costs early on in the process one of our favorite calculators is this one at nerdwallet.
Some closing cost are within your control. Costs you can control include mortgage points and loan origination fees.
If you shopped online for a loan you might have found one with a great interest rate but the lender is still making you pay for that. The typical origination fee is .5-1% of the loan. If it’s more than that, you’re being overcharged. Lenders will often offer a lower rate on the loan but have a higher origination fee. You will need to determine if you are comfortable with this tradeoff. Example: if the seller has agreed to cover closing costs than this might actually make sense.
An in depth explanation of origination fees can be found here.
There’s nothing wrong with shopping with multiple lenders but this is another reason we recommend Navy Federal or USAA if they’re available to you. They’re trustworthy lenders and you will not have to deal with hidden fees.
Mortgage Points: Did you know you can pay upfront to have your mortgage rate lowered? Changing your mortgage rate by .25% will save you $4K over the life of a thirty year loan. Each point costs 1% of the loan and will lower the rate by .25%. Points may make sense for a buyer who is having closing costs covered and spending an extra few thousand to lower the loan amount is not a reach for them
If you want to play around with this more, check out this calculator to see the pros and cons.
The closing timeline. This is especially important if you are moving into a new area and don’t plan on being homeless for a few weeks until your house closes. Closing timeline needs to be mentioned early in the process. This will keep you from committing to a house and then learning it won’t be available when you need it. A good realtor should bring this up once you start the contracting process.
New construction homes are notorious for not being completed on time. I have experienced this personally and watched it happen to many friends. The company will tell you a timeline that is usually 2-3 weeks earlier than possible. You need to have a contingency plan if you are buying a new construction home.
Do the Boring Part First: Gather all the paperwork you will need for the homebuying process before the fun begins. This allows you to move fast and shop around multiple mortgage lenders more easily.
Outline the Place You Want: Another prerequisite before the fun begins. Be broad but focus on a house that provides for what you need. Email this outline to your realtor when you reach out.
Find A Great Realtor: Word of mouth can be powerful. If there are not many people you know where you are moving it’s best to stick to affiliate programs such as Navy Fed Realty Plus (they only recommend the best, and do all the heavy lifting for you) Also, you can get $400-$8,000 back at closing by going with them.
Find A Mortgage and Get Preapproved: It’s much easier to go with a brand you trust such as Navy Federal here. Most new construction companies will pay closing costs if you go with their lenders. If you feel motivated to shop around use this mortgage shopping tool. You can still make out really well but will need to do more homework to make sure an online lender is genuine and not luring you in with low interest rates and high origination or service fees.
Two Inspections Are Better Than One: Paying the extra hundred dollars for a second home inspection goes a long way. You get a much better picture of the home condition by cross examining two reports than blindly following one. Hidden issues with the home are the most risky part of buying the most expensive thing you’ll own. This is not the place to cut corners.
Contract: The negotiations part of the home buying process. Be upfront with your needs. A good realtor should express all you needs to the other party understanding that they may push back in some places. Have realistic expectations but communicate everything.
Closing: Understand what makes up closing costs and what you can and can’t control. If the closing date is part of a larger timeline you will need to communicate its importance early and keep an eye on it often throughout the process.
Buying your first home is a major milestone in your financial life. It is also a lot of fun to go shop for different houses. Being a homeowner means there are no security deposits or landlords to deal with. Using the guidelines in this article will allow you to have fun and mitigate the headaches that can arise during the homebuying process. You may have also unknowingly stepped foot into the other side of the rental market. Our real estate section has advice for being a landlord while balancing a busy professional career.