5 Things First-Time Homebuyers Need to Know to Before Signing a Contract
On January 31, 2018, I closed on my very first house. And given that I waited until my mid-20s to make that purchase so I could afford something a little nicer, I’m hoping it was also my very last house — or at least one that sees me through to retirement.
The whole process of searching for a home, getting approved for a loan, making an offer and actually closing has been a stressful one, not helped by my high levels of anxiety. My partner and I were fortunate enough to have a stellar real estate agent and, eventually, a stellar lending professional to make the process smoother.
Here are a few lessons I learned along the way, many of which will end up saving me money — a lot of it — in the long term.
1. You aren’t locked into a financial lender right away
I initially applied for a loan with a lender based on a recommendation from a family member. I was quickly preapproved, and my house-hunting adventure began.
However, I started to have severe communication problems with the lender (slow to return calls and emails) and eventually made an offer on my home based on misinformation the lender had provided. (I offered to pay closing costs after the lender told me they would be $4,000 instead of the $10,000 they ended up being.)
After hearing about that experience, my real estate agent and I discussed my credit score and the rate the lender had offered. Her take: “You can get better.”
So my real estate agent put me in touch with one of her friends, a lending professional who was happy to review my situation. That person was able to shave half a percent off my interest rate and lower my closing costs, and consistently offered me solid communication.
I am very fortunate to have had that real estate agent because, until she told me to shop for better deals, I did not realize I even could. But in fact, I learned that borrowers have the right to drop their lender in favor of another without having to rescind their offer on a house. Doing so will have saved me thousands by the end of my mortgage.
2. Customer service truly makes a difference
My second lesson goes hand-in-hand with the first. As someone who battles anxiety, this process was nothing but torment. I lost sleep; I was prone to mood swings; I even got physically sick.
One thing that was majorly helpful? My real estate agent went above the call of duty to make the experience easy and fun for my partner and me. (It didn’t hurt that she is my partner’s mother.)
But it wasn’t just her customer service that made the stress more manageable. Switching to a lender who was willing to take the time to talk me through my options, explain funny words like “escrow” to me (more on that in a bit) and actually ask how I was doing every time I spoke to her made a world of difference. Plus, I found out she loves The Penny Hoarder, so I knew I was in good company.
My advice to first-time homebuyers is to go with a real estate agent with whom you feel like you can be honest — and who you know will be honest with you. Also look for a lender who isn’t only itching to get you to sign on the dotted line but is willing to hold your hand at times, weigh pros and cons and just ask how your day is going. It will make the process more digestible and memorable, in a good way.
3. You need to nurture your relationship during this process
If you are buying this house with a partner or spouse, things might get tense. At least, they did for my partner, Nick, and me.
Nick and I prided ourselves on the strength of our relationship and our quality communication going into the house-buying process, but little did we know how much we had to grow together. Everything we could disagree on — price, style, location, age of the house, you name it — we did.
It took some shouting matches, multiple occasions of saying we would abandon the pursuit altogether and some very passive-aggressive texts and conversations before we finally agreed that we needed to fix some things.
Our first mission, before airing our grievances and talking through them, was spending more positive time together. We had put so much of ourselves and our time toward the house hunt that we had forgotten how to have fun with each other.
So, we planned a few cheap date nights, started playing some Lego video games together and got back in the habit of technology-free hikes with the dogs three times a week. It felt so much better.
After a couple weeks of getting back into the groove of just being in love (rather than being in love but very mad at each other), we sat down and expressed why certain qualities of this huge financial decision were important to us. We really listened to one another.
Then we talked about creative solutions (or compromises) to some of our biggest disagreements. I budged on location when Nick showed me how much more affordable houses could be if we moved an extra five to 10 minutes outside my desired radius, and Nick gave up certain items from his wish list when we developed our own renovation budget.
And, like magic, we toured, fell in love with and made an offer on a house a week later — the very house we closed on earlier this year.
4. Escrow is actually pretty handy
The term “escrow” sounds like some disease that the U.S. all but eradicated back in the 50s. However, it’s actually a very common and helpful concept that makes the management of money related to the house much easier.
The first time you’ll likely hear about escrow is when you have to set aside earnest money for a house. I offered the sellers of my home $1,000 in earnest money well before we actually closed. But rather than go straight to the sellers, that money went to a magical place called “escrow,” overseen by a third party.
Escrow came up again when my lender and I were discussing property taxes and homeowners insurance. I was confused when she told me that those would be included in my mortgage payment, because I was used to paying my own income taxes and renters insurance bills.
But because the lender has a vested interested in you paying the taxes and insurance premiums on time, it will actually hold that money from your monthly mortgage payments in this magical escrow location and pay those bills for you.
That meant fewer bills for me to keep track of each month, so I was definitely on board with escrow.
5. Quality isn’t always marked by shiny new floors and fresh paint
My partner, Nick, has been in the home-remodel game his whole life. His parents, older siblings and even his grandfather, who built his own house, have all worked in some capacity in the industry. Nick now runs a furniture-restoration and home-design business.
However, I am a know-it-all perfectionist who, despite knowing nothing about houses, thought he knew everything about houses. So when I saw houses for sale with bright, colorful paint and new laminate floors, I was sold.
Luckily, Nick was much more discerning. When I wowed at laminate floors, he reminded me that they did not last long compared to hardwood floors and were easily damaged. Or when I fell in love with a bright orange accent wall, he pointed out signs of foundation problems, dated appliances and more — then reminded me that we could cheaply paint whatever new house we bought.
In essence, Nick kept us mindful of what really indicated quality: solid construction, good insulation and windows, a newer or good-condition roof and a new or well-maintained HVAC system. The rest, as Nick says, is all cosmetic.
I sometimes looked past glaring issues because I liked that the house came with a hot tub. If you’re like me, it’s good to bring someone with you who has an eye for quality, can point out hidden flaws and will remind you of what really matters in a new home. (Hint: It’s not a hot tub.)
The process of buying a new home was stressful, overwhelming but entirely life-changing. Nick and I have a few renovations ahead of us, but at the end of the day, we own something together in which we will build our life. That knowledge alone is truly rewarding.
Timothy Moore is a brand-new homeowner and probably in way over his head as he and his partner tackle renovations. If you see him looking stressed and holding a hammer upside down, please offer him a beer.