Now that I’m out of school and I have a (seemingly) stable job in an area where I’d like to live long-term, I’ve decided that I want to buy a house. I have enough money saved for a decent down payment in my local market, though I probably can’t pay 20% up front.
I know some of the basics, but other parts are kind of stumping me. How do I go about getting a realtor? Is it really as simple as calling the nearest agency and asking for one? Is it weird if they expect me to sign a contract with them? How do I know whether a realtor or seller is trustworthy?
The way we found a good realtor was going to various open houses and talking to realtors and seeing which ones we thought really knew what they were talking about and were honest about the pros and cons of the house and neighborhood. We hired one of those we really liked, as the relative of a relative didn’t work out.
Are there any open houses in your area? Look on Redfin or another RE website to locate a few in your target price range. I recommend spending a few weekends going to these open houses. You can chat with the realtors in person and find out who you like personality wise. That would be a good start. This is how we found our current realtor.
If you don’t have 20% down, you will have to buy PMI (mortgage insurance). It’s an extra expense, so if you are close to having a 20% down payment, it is best to wait.
You can call any realtor, or you can look around an area you like and call one of the realtors on the signs. Those are the ones who know the area. You can ask a friend for recommendations. Buyers can sign a contract or can go on their own. Some depends on state law.
You can also look to see if you will get bonus points or a discount through an association you already have. Costco? A credit card? if you have a family or friend in another area, you can ask for a referral and they may get credit for a referral. I have a friend who lives states away, but if she refers me to an associate in the area, she gets a small commission and hopefully I get a good agent.
As a buyer, you don’t sign a contract with them. Not until you firmly commit to buy a property. At least this is how it works in my area. You sort of adhere to the honors system - if you like a realtor, you just keep working with him or her until you are ready to make an offer - then the contract is signed that the XYZ realtor is representing you in that transaction. If you go to a random open house on your own after beginning working with an agent, and the listing realtor asks who you are working with, you then tell them it is XYZ.
I am looking for a realtor currently and have been doing the same as HImom said. There are two houses in our neighborhood for sale and I have gone to both open houses and met her. I also met another at an open house who has already done a walk through with me to advise us what our house might sell for. I was able to gather that her life is too busy and will not be using her.
The area I am looking for our next place–I have been going to open house there and met a realtor who I think knows that market.
Go online and do a bit of research and there in probably a “Buying a house for Dummies” which could be helpful (Amazon would know).
Much simpler to be the buyer rather than the seller. No contracts. Follow suggestions above. Feel free to change realtors if one doesn’t seem to click. Be prepared to refine your goals as you view houses. Remember- no house is perfect. Make lists of your priorities.
Useful in your search will be getting preapproval for a mortgage so you realistically know what is in your budget. When you apply for a loan part of the process will be costs for an appraisal of the place you make an offer on. This costs you money but assures the bank you are not overpaying. You also will need a home inspection which you most likely pay for. Do not eliminate this expense. You can negotiate to have repairs made or get a price reduction to pay for them yourself.
Public libraries have books on the subject. You also should be going online to educate yourself. Don’t forget the various expenses of home ownership. Again, do some research. Many little things to consider. Going to open houses is good for seeing what is common in your city. You need to not only have money for a mortgage but many upfront costs plus funds for maintenance.
My daughter got her real estate agent (“Sara”) by referral from another agent (former neighbor) who took Sara’s classes in real estate.
After seeing how efficient and knowledgeable Sara was, we were both impressed. Sara walked my daughter through everything: Resale values, Homeowners fees, mortgage differences, how to check for quick and poor fixes on cabinets, lighting, plumbing, flooring inconsistencies. She even had to correct an agent’s listing whereby the listing agent hadn’t checked an old litigation on the condo property, so my daughter immediately pulled out of a nightmare waiting to happen.
See if you have a professional in your area who teaches other agents.
In most housing markets, it’s easy to meet a realtor who will show you houses. You can find a variety of reviews and ratings of different realtors online, get recommendations on sites like NextDoor, go to an open house or agency, or simply call the listing agent for the property you are interested in. However, it may not be as easy to find a realtor that is a good match. This may be particularly true for a new college grad. It may take a few tries to meet one that you work well with.
For example, I wanted someone who would give me access to all information possible about the properties including non-public realtor search engine/listings, take me to the properties I selected each weekend for months on end, be a knowledgeable reference about any questions I had, be a quality advisor when needed, and be located conveniently… I had no problem finding multiple realtors that met this criteria for my current home, but had more issues as recent grad out of college. Most didn’t appear to take me seriously, or maybe they were looking for bigger fish. I expect the OP has a very different list of things he is looking for and might do better with a different type of realtor than I was looking for.
You probably should start with reviewing your financial situation and whether a home purchase is appropriate. Just because you can get someone to give you a loan and make a purchase doesn’t mean that you should. Most people make a net loss on home investments after mortgage interest and other expenses, and that expected loss will be even higher with PMI for less than 20% down. Having a large mortgage debt, and a large portion of your income going to mortgage interest and PMI at a young age can have negative financial consequences that take decades to overcome.
The cost of owning a house can be counterbalanced by it replacing paying rental housing costs.
However, because a mortgaged house is highly leveraged, small changes in house prices can cause large changes (either gains or losses) in your home equity (large losses can put you in a negative equity situation). In addition, the transaction cost of selling a house is fairly high. For these reasons, buying may be much more costly than renting if you only live there for a short time.
There are additional considerations. With less than 20% down, it’s likely that there will be PMI. Depending on things like DTI and FICO score, the loan may also have a higher associated risk and corresponding higher interest rate. Waiting until a larger down payment is possible with money left over for unexpected home owner expenses, would improve this. That doesn’t necessarily mean buying is a bad idea, but I think it would be helpful to start with a financial review, rather than start with shopping for houses with a realtor.
It’s more than just likely, it’s required by Dodd-Frank. I don’t think there are exceptions.
Also, you might look for a first time buyer program in your area. Sometimes these are run by a government agencies, sort of a class on how mortgages work, how to set budgets, even how to arrange for repairs and upkeep. There might be some affordable housing programs you qualify for.
I was referring to things like loans where the lender covers a form of mortgage insurance in exchange for a higher interest rate, or combining two loans. There are several options, but in all cases there are additional premium loan expenses associated with having less than 20% down.
Start by regularly reading and looking at listings of homes and their photos on Ziillow. Simply Google, “Homes for sale in Chicago” (obviously for the area you are looking at). Look at the prices and the photos. This will start to give you an idea of what is available in your area as well as the asking prices. You really can’t be a smart buyer until you become an educated buyer.
I would also suggest you start going to open houses in your desired location. Go to see a variety of homes for sale including what you can’t afford or wouldn’t want to buy in addition to those in your framework of need/want. Again, this will help educate you as a buyer. You will start to notice finishes, neighborhoods, and perhaps most of all you will begin to understand what square footage looks like. Once again, do this to educate yourself. Be sure to read the listing’s property tax cost. This will help you understand the various costs in your location. Although you don’t have children, check out the ratings of the school district in your area. This is very important for resale or possibly for you in the future. Something as buying a home in the top public school system can guarantee resale and often a profit as well.
As you go to open houses you will meet realtors. Talk to them. Give them an informal interview. This might be the perfect way to find a realtor you would actually want to work with. A relator can let you know what comparable (comps) are once you find a house you might actually want to buy. Be sure to pay attention to the listing prices v.s. the actual sale price. This will help you place a smart offer when you are ready to purchase.
Start watching “House Hunters” on HGTV. Believe it or not you can learn a lot from this show.
Go to your bank and meet with them about getting a pre-approval for a mortgage. This will help you understand how much you can afford to buy a house and will give you more negotiating power when you are ready to put in an offer. The housing market in most areas is good right now and many homes will have multiple offers. Having your financing secured could be the difference between getting a house and losing out.
As you journey through the process and educate yourself you will feel more secure and more confident in a home purchase.
My number one advice to buyers is to keep your emotions in check. Try to go through the process thinking with your head. Never, ever fall deeply in love with a home until you are under contract and you are past the first week of that contract.
Good luck! This can be a challenging process. Try to take it in stride and enjoy it.
Just to add a note on the mortgage pre-approval. There are a lot of factors involved in the actual price and monthly costs you pay. Work on understanding the interaction between financing methods and those factors helps. Also, don’t automatically look for places at the top end of what you are approved for. You could fall in love with too much house and end up house poor with no money to do other things.
Also agree with going to open houses in your desired areas and meeting the agents on site. You will get a feel for price and the neighborhoods. When we bought our current house we had been to a lot of open houses in several neighborhoods and when we saw this one we knew it was a steal that I coudl finance in a way to get us in to it. Good luck!
In addition to all the good suggestions listed above: Take someone with you who knows houses. By that I mean, someone who can look at the house dispassionately and advise you on whether it is well built or whether there are potential problems. Maybe your mom or dad or a friend who has built a house before. People who have built or done extensive remodeling or who know construction and building trades could look for things like cheap windows, signs of settling, signs of water damage, etc. Was the house flipped with shoddy methods to hide problems, for example.
There are exceptions to PMI. S and his wife bought a house earlier this year and were able to get a special loan for buying a house in our city (not suburbs) that actually required no downpayment and no PMI - it was to encourage in-city home sales - we’re in Ohio. And FYI, they bought in a very nice older neighborhood - not the slums!
Depending on what city/area you are in there may be special opportunities. The trick is to find them.
It was called a “community mortgage”.
Re: a realtor - if you don’t mesh with one you trial, don’t be afraid to move onto another. The relationship is important.
Unless you sign a "Buyers Agent" contract, the realtor works for the seller and is primarily interested in selling the house quickly for as much as possible (nothing wrong with that as some day you'll be on that side of the transaction and want a good realtor).
Most important thing ---- Don't be "married" to any house. There's always another one. Very easy for experienced realtors to pressure first time buyers into making decisions. Don't do anything until you're comfortable. This isn't buying a pair of shoes, it's a house. Someone mentioned making priority lists, nothing's perfect, etc. 100% correct. Lots of trade offs between new and used.
Once you contract on a house, get a legit inspection and assess the issues logically (tied to not being married to a house). You are not annoying anyone by doing this. It's your right (if written in to the contract). Be strong!
Hold off until you can afford the 20% down. You;ll get a better rate and save tens of thousands of dollars in the long run. Imagine what those dollars could become if invested for you instead of the bank (that's why the biggest buildings in every major city are banks- we pay for that)
Congrats!!!! Owning a home at your age is a great accomplishment and will be a major step toward your long term stability and wealth creation.
When assessing which house to buy, try not to focus on the negative things that can be changed one day – eg, wallpaper and paint, lighting fixures, bathroom fixtures, or even kitchen layout. Do keep at the top of the list things that can’t be changed – location, the piece of property, the neighborhood, your neighbors.