Being Houston first time home buyer can be a scary thought. Contracts, inspections, financing and choosing the right home can be very tough decisions. This is precisely why we have composed this online guide for the first time buyer. We cover all of the important topics for buying your first home in Houston and the surrounding areas. While this Houston First Time Home Buyer guide will help make this process much more comfortable, having an experienced Houston Realtor represent you is a must. In almost 99% of transactions, this service is absolutely free to buyers. Imagine that, getting top a highly rated professional to help and protect you and getting it absolutely free. If you are moving to the area, I also specialize in Houston relocation. I bring Value-Added services to the table few other Houston realtors provide. As a result, your first time home buying process will be a sound and rewarding one!
What a Houston First Time Home Buyer Should Know
Step 1 – Figure out what you can afford and what you qualify for
Most people see these to terms, affordability and qualification as the same yet they are quite different. Affordability is the most important guideline. This is the number that fits your budget and you are comfortable paying for your mortgage payment. The next step, qualification, is making sure you can qualify for that payment based on your credit, debts and income. Please be careful of online mortgage calculators as they often only show the principle and interest payments. Your actual payment will be principle, interest, taxes and insurance – commonly referred to as PITI. Below is a video with one of my preferred lenders that talks in depth about financing.Being a first time buyer, this is a crucial step in the process.
Step 2 – Hire a Realtor to represent you
As we stated earlier, in most transactions, the fee is paid by the seller or builder although some conditions might apply. The normal exceptions to this are For Sale By Owner and builders where the buyer has already registered and not indicated they were represented. There are many things to consider when hiring a Realtor other than who is the face on the most amount of signs in the area. Please be careful in signing a Buyer Representation Agreement until you are comfortable using them. Once this agreement is signed, it is very difficult to get out of. Click here for a good story about being wary of signing them too quickly. Here is a video that discusses what you should look for in hiring a Houston Realtor as first time buyers.
Step 3 – Begin the Search
The search can be accomplished in many ways. While most first time buyers like to search on their own, Realtors can set up an online gateway with all of your criteria and set it to notify you instantly when a new home comes onto the market. They can also set it up to share between multiple parties (i.e. husband, wife, partner, parents, etc..) where you can share notes and suggestions about the homes. For first time buyers in Houston and surrounding areas, I suggest using HAR.com for the search. This website is the most up to date and accurate and can alleviate a lot of frustration and false information that is contained on other sites. For more information on the accuracy, please read this blog post. When looking on HAR.com, please note the different property status indicators in this article.
Step 4- Understanding the Offer and Contract Process
This is often the most confusing part of the transaction as it is very detailed and covers items completely unknown to a first time buyer. When submitting an offer, just know it is exactly that – an offer. Until it is signed by all parties it is not a binding agreement. Regardless of any oral statements made, the agreement must be in writing to be officially binding. It is very important to look at the various dates and clauses in the contract to fully understand your rights. In this video, we will look at some basic parts of the contract, third party finance addendum and the sellers disclosure. Please understand that there are many more forms and addendum you will be required to sign. This video does not constitute legal advice, something Realtors are not allowed to give. This video is primarily for you to understand some of the major parts/questions that first time buyers usually have.
Step 5 – Home Inspection
It could be argued that having a qualified home inspection could be the single most important step to protect your investment. While Houston is home to some of the best inspectors in the business, they are only able to evaluate components of the home that they can see. They can’t look into walls, foundations or dismantle appliances. In addition, their scope is limited to exactly what they are hired for. Depending on the age and location of the home can effect what type of inspection you might have. Please read this article on buying an older home. In this next video we will cover some of the common questions about home inspection. As first time buyers, please make sure you hire an inspector that can clearly explain his findings to you.
Step 5 – Home Appraisal
The home appraisal is the process where the mortgage company determines the true value of the home. While most agree that the true value is the contract price which is set by the seller and buyer, mortgage companies/banks realize that sometimes homes can be overpriced, especially in this housing market. To protect their investment, you pay for a professional appraiser to visit and measure the property in addition to comparing to similar comparable properties. In the very long and detailed report, they will give the bank their opinion of value. The bank/mortgage company then uses that number to set your loan amount. If the appraisers value meets or exceeds the contract price, there is nothing to worry about. If the appraisal comes in low, the lower number will be what your loan is based off of. For example, if you are buying a $200,000 home and putting down 10% or $20,000, your loan amount would be $180,000 ($200,000 – $20,000). So essentially the bank is loaning you 90%. If the appraisal came in a $190,000, they would only loan you 90% of that number which would be $171,000 which would mean you would have a shortage of $9,000. When the appraisal comes in low, there are 3 options. First, the buyer can cancel the contract and receive their earnest money back. Second, the seller and buyer can negotiate to lower the price to an acceptable amount. Finally, in strong markets we sometimes see sellers refuse to negotiate in which the buyer would have to supply funds for the shortage in appraisal amount. While this is a burden on most first time buyers, all it means is that you are putting more money (equity) into your investment.
Step 6 – Closing
Closing marks the end of the transaction. As a first time buyer, it is imperative to know the steps and what to expect. Closings in Texas take place at a title company. The title company is responsible for recieving the paperwork from the lender and supply the title documents and title comittment. In addition, they serve as a repository to escrow the funds and pay the appropriate parties such as the seller, lender and more. The main job of the title company is to make sure the porperty has a clear title that is not encumbered, or contains items such as leins, unpaid debts, survey violations and more. Most of this information is on the title comittment or other documents. Itis important that this document is read and that you understand what is on it. Title insurance fees are regulated by theState of Texass so one of the most important factors in chosing a title company is the service they provide. At closing, you will be presented with a large stack of documents to sign. The main documents of a closing will be the deed of trust, promissory note, closing statement (referred to as the HUD), Truth in Lending, survey and seveal others. It is imperative that you know exactly what you are signing.
If you are a first time buyer and interested in having a professional Realtor represent you at no charge, please contact us.