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This can be an intimidating time to be a first-time homebuyer. Interest rates are high, and it’s hard to compete when multiple offers rule the day and cash is king. But don’t count yourself out, says James Fairchild, founder of The Fairchild Group at Ebby Halliday.
He suggests looking at buying this way: Every day you own is a day you’re gaining equity, no matter what the market is like. Fairchild recalls two separate first-time buyers searching at the same time a couple of years ago. “One of them got the first home she made an offer on. Two years later, she’s selling that home and is going to clear about $100,000 in profit after improvements she made to the home,” he says. “For the other, nothing we looked at was ever quite right, and she was making lowball offers in a competitive market. And two years later, she’s out $50,000 in rent.”
Sure, there are cons to being a buyer in a seller’s market. But “I can’t think of bigger pros than building equity and having the experience and confidence [that you can buy a home],” Fairchild says.
Ready to find your first house? We asked Fairchild and other D-FW real estate agents the do’s and don’ts for each step of the home-buying process.
Step 1: Get pre-approved for a mortgage.
In today’s market, most agents won’t show a home to an individual who isn’t pre-approved for a mortgage. Once you know how much you’re approved for, decide if the mortgage payment is realistic for you. This brings us to our first don’t: Don’t overcommit your finances just because you’re approved for a certain amount.
“Yes, you want to get pre-approved, but you don’t necessarily need to go all the way to that loan limit to be happy,” says Fairchild. “You could create more stress down the road than you want, especially if you have a change in income or job loss or something like that.”
Fairchild adds the do here: “I encourage [buyers] to set a reasonable budget that will suit them down the road.”
Don’t have a lender in mind? A good agent often has lenders they work with frequently and can probably recommend someone who is great for working with first-time buyers.
Step 2: Interview and choose an agent.
Not sure where to begin? Here’s our do about finding an agent: Get recommendations from neighbors and friends (or at least ask for references from any agents you cold-call) and have a conversation before you set up showings.
When you speak to the agent, ask for a buyer consultation to figure out if that individual is a good fit for you. It’s the perfect time to ask questions, so you can determine if your personalities align, they have the experience you desire and they’re familiar with areas that interest you. Although agents licensed in Texas can buy or sell anywhere in the state, it helps to use someone who does a lot of business in the place you want to be. And even if you have a particular neighborhood in mind, an agent familiar with the community may know similar areas you could end up liking.
A good agent will make sure a first-time buyer (and any buyer) understands everything buying entails. “We go through step by step what the showing process looks like, submitting an offer, negotiating terms, then the option period, the inspection process, negotiating repairs and what the appraisal process looks like,” notes Brad Maddern, principal of The Maddern Group at Keller Williams Plano.
As you get to know a potential agent, you may encounter a don’t — the yes man. “My job is to be transparent and tell you what you need to hear, which sometimes isn’t necessarily what you want to hear,” explains Maddern. If your agent doesn’t give pushback or counterpoints to anything you say, it may be a red flag. You want someone who prioritizes your best interests, and sometimes that may be contrary to a first-time buyer’s assumptions.
Step 3: Start your home search.
Once you know how much you can afford and you have someone to represent you, it’s time to start looking at houses. But this part isn’t as fun as it looks on TV. Fairchild says many buyers get caught up in the trap of looking for a home that seems straight out of an Instagram post, and homes aren’t always what they seem in photos. “Most people see all of the glamour shots of homes on social media, and they have this image in their mind of what their perfect home’s going to be, and they overlook some ugly ducklings that actually in three or four months of their ownership, they could probably make just as pretty as the homes that they’re dreaming about.”
So keep this don’t in mind: Don’t be overly swayed by the cosmetics of a house. As Fairchild shares, you could overlook some homes that actually have everything you need — and if the house has been flipped poorly, pretty features could conceal serious problems.
Another pitfall, says Maddern, is skipping straight to scheduled showings. Open houses can be a non-committal way to get a reality check before you start formally shopping. “I recommend buyers go to open houses, figure out where you want to be, figure out what you like,” he says.
When you start making appointments to see a home, it’s time to remember our do for a home search: Prioritize what really matters to you, and be willing to budge on the other things.
“In this market, we recommend our buyers to be flexible, especially if they are hoping to buy in a competitive area,” explains Loretta Calhoun, owner of Loretta Calhoun Realty Group at Keller Williams Dallas Midtown. “If location is the client’s dealbreaker, then they may need to be flexible on the amenities in the home.”
Your long-term plans also come into play here. If you think you’ll be in the home for a relatively short time, you may decide some of your must-haves aren’t quite as critical as you thought. “If you’re looking for a long-term home, it’s important to prioritize features that will meet your needs for years to come,” Calhoun says. “It’s crucial to strike a balance between prioritizing must-have features and being open to compromise when necessary.”
Fairchild offers this advice: “Area and price are the two big non-negotiables. The buyer needs to be comfortable in the area where the home is, and they need to be comfortable with their budget.”
He sees a first home a literal starting point. “You’re going to save money over the years” you live in your first house, Fairchild says. “A mortgage is like a forced savings account. You’re really paying yourself to live there and building equity along the way. So go for the starter home. Go for the one that’s maybe a little rough around the edges and enjoy the savings and the benefits that you get from that.”
As you grapple with whether to put in an offer on a home, especially one that may need some work, rely on your agent’s expertise. “A smart Realtor can help a buyer draw the line on what work they could do and what work they might not be able to afford do or manage,” Fairchild says. “I wouldn’t encourage a buyer to put an offer in that was going to not result in a successful experience for them down the road.”
If you want to keep your updates to beautifying the home to fit your style, look to make an offer on a home that is structurally sound and has big-ticket items covered: a new air conditioning unit, for example, or a recently replaced roof. Those kind of features will save money and headaches down the road, and they’re the same things you want to focus on in an inspection. (More on that later.)
Step 4: Make an offer.
Once you decide you’re ready to make an offer, do review the comps — comparisons the agent will pull that shows recent sales prices of similar homes in the area — and market data. Even if you’re very excited about a home, let the comps and the expertise of your agent be your guide.
Just like you shouldn’t overbid, you don’t want to go too low. “If a home has been on the market an extended period of time, that could justify a lower offer. But don’t lowball on a brand new listing,” advises Maddern. “You most likely end up helping the listing agent and sellers, who can say they have an offer in hand, which creates more urgency that results in a multiple-offer deadline and higher offers at the end.”
Step 5: Get the home inspected.
Once you’re under contract, you come to one of the most important parts of this process: the home inspection. The main do here: “Go into the inspection with an open mind,” Maddern shares. “The inspector will find things they have to call out with the house. It’s their job.”
Johnny Gorden, president of Burgess Inspection Group, says the most important thing for first-time homeowners to understand is what a home inspection involves. Inspectors flag issues or possible concerns in areas they can see and access. They don’t fix things, and they can’t give an estimate. They also can’t tell you if you should go through with the purchase.
“We’re not doing a pass-fail inspection, we’re doing a property condition inspection,” says Gorden. “It’s not an environmental inspection. We’re not inspecting for mold or anything like that. It’s not an appraisal that determines the value of the home.”
He recommends that homebuyers attend the inspection to make sure it’s thorough and to ask questions. “If you have questions, write those down. The worst thing to do is to interrupt the inspector during the course of the inspection.” And don’t expect the report to include anything cosmetic. “If there are stains on the carpet or there are scratches on the floor, stuff like that, it doesn’t affect the structure of the property whatsoever. So those are things we’re not looking at.”
Plan to be there for a while. “There’s probably 2,000 different items of things we’re looking for in a home. You can’t do that in 30 minutes,” Gorden says. “We tell buyers to gauge about an hour per thousand square feet.” Afterward, ask the inspector all the questions you wrote down during the time you were there.
When you receive the report, don’t panic. Reading the inspectors’ findings can feel disheartening; suddenly a home you loved seems to have a laundry list of problems. But “no house is perfect,” assures Maddern. “Even new construction inspections have issues that need to be fixed.”
So what inspection findings should you really be concerned about? “What we like to focus on is what we call our big five: roof, electrical, plumbing, HVAC and the foundation,” Fairchild says. For other areas, “I tell my clients — first-time home buyers and all buyers — that everything’s fixable.”
Step 6: Finish up negotiations.
Even as a first-time buyer, you can negotiate. “The key upfront is to present an offer that the seller’s going to accept in light of competing against other buyers,” says Fairchild. “But once you’re under contract, you typically are going to have an option period to do due diligence on the house with your inspections, and that’s where buyers often can find better negotiating grounds.”
When you’re past the home inspection, sellers usually don’t want to lose the buyer and start over again. So they may have motivation to negotiate for repairs resulting from the inspection. Of course, they know you’re invested at that point as well.
The do here is to “make sure it’s a win for you at the end of the day,” Maddern says. “Negotiation is all about compromise.”
There are many ways to negotiate with the seller. You can find out their ideal move-out and closing dates and work around those. You can also shorten decision-making and waiting periods, says Calhoun. “There are a number of strategies to negotiate with sellers other than price. You can offer a shorter option period with an increased option money fee and offer more earnest money than the traditional 1% of the sales price. We aim to have our clients all the way through underwriting with a full pre-approval by the time we submit our offer. In addition, we order the appraisal early in the process and provide the sellers with a generous leaseback post-closing.”
When everything is drawn up, don’t sign without reading the terms and conditions. “Make sure you are aware and comfortable with what you are about to sign,” Maddern says. “Ask your Realtor questions; don’t just assume.”
Buying a home is building wealth
The most important thing about buying a home for the first time is thinking beyond your current situation. A home, unlike most other purchases you make, is an investment. “I always encourage my buyers to look beyond the cosmetic-type repairs and figure out, Is this going to work for me? Does it meet my needs? Is it in the area that’s desirable enough that if I chose to move in two, three, five or 10 years, I could keep it and rent it out to somebody?”
It’s a lot to take in, notes Calhoun. “For a first-time buyer, searching for a forever home might be an overwhelming task, since the client is unfamiliar with home ownership. One of our team goals is to reframe the mindset around a ‘starter home’ as a first step to building generational wealth.”