Preparing for the homebuying process
I remember when I bought my first home nearly 20 years ago. I had so many questions and did not know where to turn. The mortgage industry has changed many times in the 20 years since then and will continue to evolve. If you have ever thought about buying a home and are wondering where to start, you are not alone.
The good news is that there are a few basics that will remain the same when it comes to the mortgage process. We are dedicating this blog post to the things that you can do BEFORE you start the home buying process to prepare yourself for the best possible experience.
#1 Arm yourself with knowledge of the Home Buying Process by attending a HUD approved First-Time Homebuyer Education course.
When you are buying a home, you will have to make a lot of decisions that will have long-term financial implications. You will be reading and signing many financial and legal documents throughout the entire process. You will start to pay fees for things like credit applications, option periods, inspections, appraisals, and surveys before you close on your home.
And have to pay for your down payment and closing costs.
Attending a HUD approved First-Time Homebuyer Education course is the best way to prepare yourself in advance of starting the home buying process (Spanish first-time homebuyer education courses are also available). That way, you will know what to expect.
Knowing what to expect gives you an edge because you’ll have an opportunity to set aside the money for the fees you’ll have to pay. When it comes time to pay them, you won’t feel the stress. You will also be able to understand the importance of choosing certain options, like choosing to do an option period and choosing to do an inspection (but only after you have the home under contract).
By having this knowledge upfront, you will not be faced with having to make decisions on the spot. You will not feel rushed or surprised. You will have more knowledge in your home buying experience, leading to a smoother, more pleasant experience for our clients. Also, that freedom from stress gives you more headspace to devote to shopping for the best loan product for you, for a great inspector, a great realtor, and the right home.
Even if you are not a first-time homebuyer, we strongly recommend attending a course before buying your next home so you can utilize the most up-to-date information to navigate your next purchase.
There are multiple ways to access a First-Time Homebuyer’s Course. Avenue offers these courses in-person in Houston on Saturdays, several times a month and 24/7 through an online course.
- The in-person classes are taught by HUD Certified Housing Counselors who work with clients every day to help them navigate the home buying process. They have up-to-date information on mortgage and housing trends as well as down payment assistance options in the Greater Houston area. This is an excellent way to get the big picture of the process and get your questions answered on the spot. Check our class calendar to find a date that works for you!
- The online class through EHome provides mostly the same content (does not include information on down payment assistance options) through a self-paced online platform. If you prefer online learning and still want to learn about down payment options, you can schedule a one-on-one individualized counseling session with our counselors to review your finances and see which programs could be a fit for you.
#2 Hire the right professionals to help you with your home purchase
Buying a home will probably be the single biggest financial transaction that you will ever make. It makes sense to hire professionals that you feel comfortable with and can establish a level of trust, but who also have experience with your specific type of transaction.
If you are seeking down payment assistance, we strongly recommend finding a realtor and a lender who are experienced with these transactions to avoid costly delays and to minimize frustration. If you are considering a condominium or a town-home, you will need a realtor and an inspector familiar with these structures to ensure you know what you are getting into and avoid costly mistakes.
In the process of buying a home, you will be responsible for selecting:
- A Realtor
- A Lender (a mortgage company and a loan officer)
- An Inspector
- An Insurance Company & Agent
Often times, we see clients start by picking a realtor and then letting the realtor guide them on selecting the other professionals. While this can be an easy strategy it is not one we recommend to do blindly because you could end up leaving money on the table or paying more than you could have if you had shopped around.
To help with your search, we recommend a few tips to get started and a few additional resources. We also cover this in greater depth in our HUD approved First-Time Homebuyer Education course.
TIPS for hiring the right professionals:
- Interview 2-3 professionals per category to get of sense of “fit” for how this person will work with you through your home buying process
- Make sure the professional you’re considering is familiar with transactions like yours
- Make sure the professional is licensed
- Make sure the professional does not have any complaints against them
- Know what the norms are for hiring these professionals and think twice if someone is asking you to do something outside of the norm (for example, we’ve heard of realtor who charge a fee each time a client wants to see a house – that’s not the norm and we recommend against getting into such an arrangement).
Resources to help with your search to hire the right professionals
- Realtors – We have an entire blog post on our website dedicated to this topic (read it here). In short, you can search the TREC licensing website to see if a realtor has an active license or if they have any complaints/disciplinary actions against them.
You can also find realtors who have the “Texas Affordable Housing Specialist” Certification and filter by city or zip code – these realtors will have more experience working with buyers in the $70,000 - $200,000 purchase price range and are likely to be familiar with down payment programs.
Lastly, Avenue has a “Realtor Referral Program” and a licensed realtor on staff who can help match you to a qualified agent. Our realtor works year-round with a network of agents by providing training to them to ensure they are well equipped to help our clients navigate the home buying process. Email or call us at 713-864-9099 to inquire about the Realtor Referral program.
- Lenders – Finding the right lender is the most critical part of the home buying process. Mortgage companies will offer different products, rates and options based on their company policies, investors and mortgage experience and approvals. As important as finding the right lender is, it is also sometimes the hardest part of the process for our clients because there are so many lenders to choose from.
If you are interested in down payment assistance, you should start by looking at the specific program to see if they have a listed of approved lenders. Even if you do not qualify for a down payment program, these lists of lenders are still a good way to filter your list of possible candidates because they are more likely to offer competitive loan products. Avenue has a down payment program currently called LIFT and we have compiled a list of approved lenders into a matrix of which down payment programs they can layer with. This list could be a great starting point for you.
- Inspectors – An inspector is a professional who will utilize a standardized checklist to check your home for its condition. An inspection is helpful for understanding what issues the home you are considering buying has so that you can either negotiate for the repairs or consider if you can handle the financial/time burden of taking on the repairs yourself. Realtors are a good referral source for inspectors but as a consumer, you should double check the inspector’s qualifications before hiring them. We recommend hiring an inspector at the “Real Estate Inspector” or “Professional Inspector” level – you can check licensing on TREC’s Real Estate Inspector Website. Inspectors in good standing with TREC will have liability insurance, which is good for you as a recourse for financial assistance in case the inspector misses a major issue with the house that should have been caught.
#3 Understand what you can afford to purchase
Buying a home should be a step forward in growing your net-wealth and in increasing your financial stability. Buying too much home with a mortgage that is too expensive (including taxes, insurance, HOA fees, maintenance, utilities, transportation costs, etc) can quickly become a headache and put your financial health at risk. Lenders will often Pre-Approve you for a loan amount that is at the high end of your affordability because they do not usually include your daily living expenses like day care, or commuting costs – they only look at your debt.
We recommend completing a one-on-one individualized homebuyer counseling session with one of our HUD Certified Housing Counselors to determine a realistic, affordable housing budget (your all in cost) and then determining what loan amount and purchase price that translates to. We find that when you take this more fiscally conservative approach, you will go into the home purchase with more confidence and you will be more likely to avoid financial hardships in the future.
It is important to remember that even if you choose a more affordable home budget, compromising on some aspects of the home, this first home purchase does not have to be your last. Overtime, you can expect that your income will increase, your debts will decrease and your home value will likely appreciate. When the time is right, you can upgrade to your next home and do so on steady financial footing.
For our next blog post we will provide an overview of the steps in the home buying process once you are ready to get started.