First-Time Home Buyer Guide

Step 1: Research and determine the type of property that you would like to purchase

There are several options including detached single-family homes, townhomes, condos, and multi-family homes.

Detached single-family homes are your standard houses, which are detached structures on separate lots. These are the most maintenance-intensive, but also have the most privacy and yard space. Some people also prefer a detached home so they can control the maintenance schedule versus relying on a homeowners association (HOA).

Townhomes are attached dwellings which usually have some maintenance provided by the HOA. For example, the homeowners association is usually responsible for yard maintenance and siding repair. There is some cost associated with this maintenance, and the average dues on a townhome in the Triangle is around $180/month. Also, in North Carolina you typically own the land directly underneath your townhome.

With a condo you actually don't own the building or the land in most circumstances. You own from the 'paint in' as it is commonly described. With condos the lowest amount of maintenance is required, since all exterior maintenance on the siding and roof is covered by the HOA. However, most condo HOAs still require you to maintain your heating and air systems.

The last option is a multi-family home, such as a duplex or triplex. With these options, first time homebuyers could rent out the other unit or two to help pay for the mortgage on the property. Though initially this may sound like a great idea, there are many pitfalls with this option. A few examples are the extremely low inventory for this type of property (and associated premium price that they command), the extra work that multi-family properties require, and the fact that by being so close to your renters you are typically 'always on the clock' when there is a repair or problem.

Step 2: Put a list together of the features you want your new home to have

When it comes to your 'must-have' list, buyers will write out and rank the items they would like to have. It's possible that an amazing home will come on the market which doesn't have a few of these features, but either way it's a good thing to do while planning on your first home.

A few examples are number of beds/baths, yard size, move-in ready, and wanting to be in a certain area or areas. Though these are the basics, you can write down as much as you want to help brainstorm what your first home may look like.

The starter home option

If your must-have criteria puts you over budget, consider a starter home. Many buyers will plan to live in this home for 3-5 years, and then keep it as an investment property afterwards (or sell it). A starter home can be a great way to protect you financially if things are just a little bit tight as well. Nobody wants to be house poor, and by purchasing a smaller home at first you can continue to save and invest effectively.

Step 3: Get your pre-qualification letter for your mortgage

After reviewing the features you would like to have, it's time to get your pre-qualification letter for your mortgage. This is done by going to your bank (or several banks if you are shopping around), and talking to a loan officer. The loan officer will go over how much you can afford, as well as the various payments that you can expect at different price points. One important note is to make sure to talk to all of the lenders within a day or two. This is because mortgage rates fluctuate each day and you want to make sure you are comparing apples to apples. The second mortgage lender could seem more expensive, but it could just be that the mortgage rates went up since you met with the first lender.

As far as the downpayment goes, there are many options in the marketplace today. The most common are the 3.5%, 5%, 10%, and 20% down options, but there are a few options for 0% down (always with requirements - talk to your loan officer). Also, if you are putting less than 20% down, you may have to pay private mortgage insurance. This is an additional charge of around $100 or $200/month (it depends on your loan amount). This fee will go away once you pay enough of your mortgage to hit the 20% equity requirement, but is still something to consider when weighing your options.

Step 4: Meet with your realtor in person

Once you have your list of wants and pre-qualification letter together, it's time to meet with your real estate agent. Your agent will help set up an auto-search for you, which will automatically email you new listings that fit your criteria. They'll also provide guidance based on your criteria, such as which items will be difficult in the current market. For example, if you want to be in an area where the homes all get 5-10 offers your agent will let you know what it takes to win an offer there. There are many different strategies for various real estate situations, so make sure you have a knowledgeable realtor to help guide you.

A common question from first time home buyers to their agents is if they need to pay them a commission. Luckily, in North Carolina buyers usually do not have to pay a commission. This is because the buyer's realtor is paid through the listing agreement the seller signed with the listing realtor. Please note that in rare circumstances, such as a for sale by owner, this may not be the case. Be sure to talk to your realtor about the circumstances where payment of services would be owed.

Step 5: Get out and tour homes!

Now is the time to get out there and start touring homes! Get a list together with your realtor, and plan a day and time. Your realtors knowledge of homes and the area will be extremely valuable while you are touring, as many know what to look out for. Your realtor should point out both the positive and negative aspects of a home to help you make an informed choice.