Buying a Home? Here s how to get started. Volume 1

Transcription

1 Buying a Home? Here s how to get started Volume 1

2 Table of Contents 01 How to Know if You re Ready 4 to Buy a Home 02 How Much Home Can You Afford? 9 03 What Credit Score Do You Need 12 to Buy a Home? 04 How to Get Pre-Approved to 16 Buy a Home 05 How to Choose a Real Estate Agent 20

3 Introduction You re thinking of buying a home? Congratulations -- it s an exciting process. And it can be a lot of fun. You get to envision the type of lifestyle you want for yourself (and your family). Do you want a beautiful two-story home close to your work? Do you want a modern, stylish condo in the heart of downtown? Are you yearning to live near the beach, the mountains, restaurants, good schools, museums, or family? One of the greatest things about purchasing your own home is that you get to make it yours. Even before you move in, you re in charge of making the decisions about which home you will buy. It s a powerful feeling -- having total control. But it can also be a bit overwhelming, especially when you re doing it for the first time. That s why we wrote this guide. We want to make purchasing a home less scary and give you the confidence to move forward through each step of the process -- from beginning to end, when you move into your new home! In Chapter 1, we ll begin by helping you determine if you re ready to buy a home right now or if you need to wait a little while to begin your home search. In the following chapters, we ll discuss the most important things you need to know as you take the first steps in your home-buying journey.

4 01 4 How to Know if You re Ready to Buy a Home When you start any journey, whether it s a weekend getaway or an around-the- In many areas of the country, owning is cheaper than renting. world trip, you want to be prepared before you begin -- and buying a home is no different. It could take anywhere from one month to one year to get the home you want. And there will no doubt be a few challenges to overcome along the way. Before you dive head first into the home-buying process, you want to make sure that you re ready to buy a home. So in this chapter we ll explore how you can ensure that you are starting your journey on the right foot.

5 CHAPTER 01 How to Know If You re Ready to Buy a Home 5 Begin With the End in Mind It s important to start with an idea of the type of home you are looking for. Here are a few questions you should try to answer as you begin your journey: START 1 How big of a home do you want? 2 Do you have a particular style of home in mind? What neighborhood do you want to live in? 3 Is it important to live in a certain school district? 4 5 How far from work do you want to live? You ve probably already arrived at answers to many of these questions. If so, then you ll want to start getting answers regarding your financial picture. Get an Overview of Your Financial Situation Obviously, a big part of the picture is your expected monthly mortgage payment which consists of your principal and interest payment plus taxes, property insurance and, in some cases, mortgage insurance. You can get a quick read on whether you can afford the monthly mortgage payment from an online calculator like this one. Qualifying for a monthly mortgage payment based on income is a great first step, but it s just one small piece of the overall homeownership puzzle. Here are other things for you to consider: Income stability: A mortgage is a longer term commitment than a lease agreement and carries greater financial implications. For example, if a job loss prevents you from making the payments, you could lose your home and any As a general rule, experts recommend keeping your housing payments to about 30% of your gross (pre-tax) income. equity in it. Therefore, if your income isn t stable or you are already concerned about your job stability, locking yourself into a mortgage might not be the best option. Credit health: Have you checked into your credit lately? The items on your credit report and your resulting score could have a big impact on both loan approval and loan terms. While this is something lenders will look at on your behalf, taking a look for yourself beforehand will allow you to correct any misreported information and take steps to improve your score now. If your credit health is less

6 CHAPTER 01 How to Know If You re Ready to Buy a Home 6 The plan you create should be based on fact, not assumptions and not wishful thinking. than ideal, you may need to wait until financial changes you make can be reflected in your score. (You are entitled to one free credit report annually from each of the three credit reporting bureaus Equifax, TransUnion, and Experian at AnnualCreditReport.com.) Savings: While some loans make it possible to purchase a home with less than 20% down, your monthly payment will be higher and you ll likely have to pay mortgage insurance. On the other hand, you might not want to lock up all your savings in the house just to get to a 20% down payment. Instead, you should consider programs like the Unison HomeBuyer program offered by Unison, which allows you to reap the benefits of a large down payment without putting all your cash into the home. The company invests alongside you in your home so that you can put down 20%. Emergency fund: The need for a stable emergency fund (3-12 months worth of expenses, depending on your situation), becomes even more of a necessity when you have the responsibility of a mortgage. In addition, you ll have to remember that repairs that used to be paid for by a landlord will now fall squarely on your shoulders. So having an emergency fund is a necessity. Get pre-approved for a loan: It doesn t cost anything to talk to a loan officer and it is the surest way to find out what kind of home prices you can consider. When you talk to a loan officer, they will ask you about your income, current debts, cash available for a down payment and credit history. From this information, they will be able to tell you the amount of a loan and hence the home price you can consider. If you forward documents such as copies of tax returns to verify your income, the loan officer will be able to give you a pre-approval. A pre-approval is a formal estimate of how much money you can borrow to buy a home.

7 CHAPTER 01 How to Know If You re Ready to Buy a Home 7 Think About Your Long-Term Plan Your decision-making process should include taking a careful look at how long you plan to be in the home you purchase. The plan you create should be based on fact, not assumptions and not wishful thinking. A down payment is the biggest upfront cost. Assembling that amount of cash can be a challenge. But the money you put down you essentially recoup in the form of home equity. It is stored in the value of your home. As long as your home retains its value or appreciates, the cash you invest as your down payment will eventually come back to you when you sell (less selling expenses). In the meantime, it s locked away in your home. There are other costs like real estate agent fees and closing costs that you won t be able to get back. That s one reason why many suggest being prepared to stay in a home for 5-7 years, which should be long enough to build equity in the home to offset these costs. The right amount of time, however, depends on your situation. Evaluate Your Rent Costs vs. Mortgage Costs It s also helpful to look at the hard numbers associated with renting vs. buying. Renter s monthly costs: Homeowner s monthly costs: There may be some additional costs as well, including: Rent Mortgage Mortgage Insurance* Water/sewage Water/sewage Homeowner s Association dues Utilities Television/Internet Utilities Television/Internet Home repairs and maintenance Property tax Homeowner s insurance * Mortgage insurance expenses (in the form of PMI or MIP) typically kick in when you have less than 20% for a down payment. Programs like Unison HomeBuyer can eliminate the need for paying mortgage insurance altogether. PMI-Private mortgage insurance MIP-Mortgage insurance premium (exclusive to FHA loans)

8 CHAPTER 01 How to Know If You re Ready to Buy a Home 8 To understand the full cost implications between renting and buying, evaluate: Rental prices in your area (based on the size of home or apartment) Home prices in your area (based on the size of home) Current interest rates on a mortgage Property taxes in your area (Here s a resource to help.) The average cost of homeowner s insurance for your area This comprehensive rent vs. buy calculator can shed some light on what these numbers might mean for you. After reviewing your finances and deciding what type of home you re looking for, you can make your decision with confidence and know exactly what type of home to look for and end up with a new home that you love.

9 02 9 How Much Home Can You Afford? It s the most important question when thinking about buying a home: how much home can I afford? Fortunately, the answer is easy is not too difficult to find. Below, we ll walk you through how to get your answer. How Much Income Do You Have? If you re like the majority of home buyers, you will need a mortgage to purchase a home. Your income is one of the most important factors in determining how large of a mortgage you can be approved for. As a general rule, experts recommend keeping your housing payments to about 30% of your gross (pre-tax) income. As an example, if your salary is $60,000 per year, then your monthly gross income would be $5,000, meaning you should aim to spend $1,500 or less on your housing in a given month. Salary Monthly income $60,000 $5, months = 1 month Recommended maximum housing expense 30% of $5,000 = Monthly housing payment $1,500

10 CHAPTER 02 How much can I afford? 10 But that s not the only factor to consider. Monthly Debt Monthly Income = DTI What is Your DTI? A lender will also look at your Debt-To-Income ratio (or DTI). This is a calculation that tells the lender how much of your income goes to debt payments each month. Here s how you can calculate your own DTI: Add up all your monthly debt payments (mortgage, student loan, auto loan, credit card, etc.) and divide the total by your income. Going back to our example above, if you have a monthly income of $5,000 and a mortgage payment of $1,500, plus a $300 car payment and a $200 credit card payment, then your total debt payments would be $2,000. Since $2,000 divided by $5,000 is 40%, your DTI ratio in that example would be 40%. Lenders generally prefer a DTI of 43% or lower when evaluating your mortgage application. + $1,500 $300 $200 Mortgage Car payment Credit card Monthly Debt $2,000 = 40% DTI $2,000 Monthly Debt $5,000 Monthly Income How Much of a Down Payment Do You Have? The second most important factor after your income in determining how much home you can afford is your down payment. In other words, how much money do you have saved up to put into the home? If you have saved up $40,000 and are ready to invest it in your new home, then you have a $40,000 down payment. In general, it s best to have at least a 20% down payment, although you can buy a home with less. The size of your down payment, along with your income and DTI ratio, will determine how big of a loan you qualify for. If you don t have enough of a down payment to qualify for the loan you need, you should consider using a home ownership investment from a company like Unison. With the Unison HomeBuyer program, the company matches your down payment funding, contributing up to half of the down payment. That means if you have $40,000 then you can get an additional $40,000 for a total down payment of $80,000. There are no monthly payments or interest on the money Unison

11 CHAPTER 02 How much can I afford? 11 It s always a good idea to use a mortgage calculator to better understand how much you can afford to pay for a home. provides. Instead, Unison receives a portion of any future change in the value of your home when you sell. The additional down payment funds can come in handy if you want to afford more home, reduce your monthly payments, or keep some of your money for other purposes. Calculate How Much Home You Can Afford It s always a good idea to use a mortgage calculator to better understand how much you can afford to pay for a home. Here are a few calculators we recommend: Mortgage Calculator Monthly Payment Calculator Interest Rate Tool These calculators will help you see how much your total monthly payment will be, including principal and interest payments, property taxes, and mortgage insurance (if applicable). Other Costs You should also keep in mind that there will be other costs in addition to your mortgage: Closing costs: You will usually need to pay between 2-5% of the price of the home in closing costs. Repairs and remodeling: Many home buyers choose to do some remodeling on their new home to make it fit their needs and tastes. In addition, the home may need various repairs in the first year and beyond you may want to purchase a home warranty as well.. You will definitely want to account for these costs when deciding how much you can afford to spend on a new home. Anticipating all of these costs will help you avoid coming up short or feeling that your finances are too squeezed after purchasing the home.

12 03 12 What Credit Score Do You Need to Buy a Home? Every lender will evaluate your credit score before deciding whether to approve you for a loan and determining the interest rate they will offer you. Here s what they want to see and what kind of score will likely get you the mortgage you want -- along with tips for improving your score if it s too low right now. Know Your Credit Score Before You Buy Do you know your credit score right now? You don t want to do all the legwork required to find the home you want only to realize the lender won t qualify you. Check your credit before you head to the lender. Here is a short checklist to help you accomplish this: Get an estimate of your score with a service like Credit Karma, Credit Sesame, or Credit.com. All of these sites pull scores from one or more of the three major credit bureaus (Experian, TransUnion, and Equifax).

13 CHAPTER 03 What Credit Score Do You Need to Buy a Home? is considered a perfect credit score -- but thankfully, you don t need to be perfect to buy a home. You also want to check your credit report to fully understand what a lender will see. Yes, your credit report is different from your credit score! You can get a free copy of your credit report from each of the three bureaus once per year at AnnualCreditReport.com. While the credit score is a single number, the credit report acts as a summary of your credit history and the factors present on your report help determine your score. You ll see all your lines of credit and open accounts on your report. You can also see judgments, liens, collections and bankruptcies filed against you over the last seven years. Make sure all the information presented is accurate. Mistakes on your report can drag down your credit score. If you find an error, contact the three credit bureaus and file a dispute. What Do Lenders Look for In Your Credit Score? Credit scores exist on a scale from 300 on the low end to 850 on the high side. 850 is considered a perfect credit score -- but thankfully, you don t need to be perfect to buy a home. On the high end, any score of 740 or higher will allow you to not only qualify for a mortgage but also the best interest rates offered by lenders. The exact rate you get will depend on a variety of other factors in your financial situation, like how much cash you put down on the home and your debt-to-income ratio. For a jumbo mortgage loan, you will typically need a score of 720 or higher. Jumbo loans are those above a certain amount ($400,000 $650,000) depending on the area. If your score falls into the 620 to 740 range, you ll probably still qualify for a mortgage loan. The lower your score, the more difficult it will be to qualify for a conventional loan from a lender. If your score falls below 620, it s possible that you may not qualify for a loan at all. You could, however, get an FHA loan. The minimum credit score required for this government-backed loan is 580. And if you fall below this range? It may be time to take a step back and look at what you can do to improve your credit before you buy. Gauge your credit score 800+ (Excellent) (Very Good) (Good) (Fair) 579 or lower (Poor)

14 CHAPTER 03 What Credit Score Do You Need to Buy a Home? A better credit score makes you seem more financially responsible -- and therefore less risky to the lender, since they see you as less likely to stop paying your loan. 14 Why Your Credit Score Matters So Much Let s say your credit score is in the mid-600s. That s probably good enough to get an FHA loan -- and with the minimum required score for conventional loans set at 620, you have a good chance of being approved for a regular mortgage as well. So why worry about your score if you meet this minimum? While you may be able to get a loan, it might not be the one you want. Lenders can still deny you for a conventional loan depending on other factors like your income and debt ratio. More importantly, the loan could come with a much higher interest rate. With a lower credit score, you might only qualify for an interest rate that is 1or 2 percentage points higher than the lowest rates advertised. A better credit score tells the lender you are more financially responsible -- and therefore less risky to the lender, since they see you as less likely to stop paying your loan. And lenders reward that financial responsibility and lower risk by offering lower interest rates to borrowers with better credit scores. When you talk about a loan as big as a mortgage, even 1 or 2 percentage points on your interest rate makes a significant difference. The average person borrows $222,261 when they buy a home. Let s use that as our example and say you borrow that much on a 30-year mortgage. If you can secure an interest rate of 4%, over the life of the loan, you ll pay $159,737 in interest (that s on top of the amount you borrowed that you need to repay). But if your credit score is on the lower end, you might have to pay 5% instead of 4%. That s just one percentage point difference. But with a 5% interest rate, you d pay $207,271 in interest over 30 years.

15 CHAPTER 03 What Credit Score Do You Need to Buy a Home? 15 That means you d pay $47,000 more! That s why your credit score matters so much, and why it s worth doing what you can to raise it before buying a home (even if you could technically qualify for a mortgage with a lower score). To better see how interest rates affect the cost of the loan, take a look at the chart below. 400K $373,023 Total Interest Paid Over 30 Year Term 300K 200K 100K $207,109 $246,624 $287,478 $329,626 * Remember, your credit score directly affects your interest rate - see how small increments in your interest rate will dramatically cost you in the long run Interest Rate How to Improve Your Credit Score Before Buying a Home The better your score, the more options you ll have when choosing a mortgage. And of course, you ll be in a better position to get that lower interest rate you re after. Whatever your reason, know that you have the power to improve your score. You can take specific actions over time to get your credit score into a range that provides more benefits and flexibility when it comes to buying a home. The fastest credit score fix will likely come from lowering your credit utilization ratio. Credit utilization refers to the amount of credit you use out of what s available to you. If you have two credit cards with limits of $2,000 and $4,000, for example, your total credit limit is $6,000. And if you carry a balance of $3,000 across both cards, then your credit utilization ratio is 50%. So how do you lower that percentage? By paying down existing debts, like credit card balances. Aim to keep your credit utilization on revolving credit to 30% or lower. You can also improve your score by making all your payments on bills, balances, and other debts on time and in full. Payment history makes up a big chunk of how your score gets calculated. Getting payments in before they re due is so simple, but it has a big impact. (See this article for more tips).

16 04 16 How to Get Pre-Approved to Buy a Home Most people searching for a home will tell you the most exciting part of the Getting pre-approved before shopping for a home is a smart idea. process is getting to look at all the homes you might buy. It s fun to explore the options, see the different features available, and narrow down your choices to a few properties you really like. But if you re shopping around without having been pre-approved for a loan, you could be making a major mistake. While it may not be as fun as wandering from one open house to another, the process of working with lenders, dealing with paperwork, and digging deep into the realities of what you can actually afford is a critical step. You should take the time to get pre-approved before you start your home search. Keep reading to learn how. Why Get Pre-Approved? A pre-approval letter is a document that verifies the lender s determination that you will qualify for a specific amount of a mortgage loan to buy a home, based on the information you provide them.

17 CHAPTER 04 How to Get Pre-Approved to Buy a Home 17 Getting pre-approved can help your home search in the following ways: It means you already located a lender to work with and you know what to expect when it comes to getting your mortgage. You re clear on how much you can borrow -- and that helps define the properties you can include in your search. Without this step, you could go through the work of looking for a home and even putting in an offer, only to find that you don t qualify for the necessary loan amount and you can t actually purchase the home. If that happens, the sale would fall through and everyone involved, including your real estate agent and the home seller, would have wasted their time. For obvious reasons, home sellers want to avoid this situation, which is why most sellers will only consider your offer if you ve been pre-approved. Some real estate agents might ask to see your pre-approval letter before working with you to ensure you are a serious buyer. Pre-approval provides everyone -- especially you -- with a little more peace of mind as you begin your home search. How to Get Pre-Approved (Not Just Pre-Qualified) It s important to know that getting pre-qualified is not the same as pre-approved. When you get pre-qualified, the lender asks you to tell them about your financial life and collects information about your income, debts, assets, and the down payment you plan to use. But there s no formal check or investigation into the information you supply -- the lender takes you at your word. Pre-approval, on the other hand, is more stringent and formal. You fill out a loan application and the lender will run a credit check. You need to supply information on your income, assets, debt, employment history, down payment, requested loan amount, and more. More importantly, you ll need to back it all up with verified documents and proof. If you do get pre-approved, you ll get a letter certifying that the lender will underwrite your mortgage for the amount you requested and at the interest rate they quote you. That letter shows both agents and sellers that you re capable of buying the home you put an offer on. Pre-qualified Quick process. You submit information about your debts, income and down payment cash. Loan Officer takes you at your word. The Pre-qualification commitment doesn t mean much. vs Pre-approved Formal process. Requires application and credit check. Submit the information you needed to be pre-qualified - AND Submit documents supporting your financial information such as pay stubs, tax filings, credit account and bank statements.

18 CHAPTER 04 How to Get Pre-Approved to Buy a Home 18 What You Need to Get Pre-Approved After you submit all of your information, the lender could accept your request or deny it -- or they could pre-approve you for a different amount than you asked for. This decision will be based on a review of your financial statements. Here is what the lender will look at: Assets Current job, salary, and employment history Income Debts Credit history/ credit score Be prepared to submit: Statements from investment accounts Credit card bills Documentation on existing loans Pay stubs Tax returns And more You should be prepared to submit statements from investment accounts, credit card bills or documentation on existing loans, pay stubs, tax returns, and more. The lender needs this information to determine your debt-to-income ratio, how stable your employment is, and what financial resources you have to fall back on in case of an unexpected life event. These factors indicate whether you can reasonably afford to repay the loan. Lenders also want to see your credit score to determine how much of a risk you may pose. The lower your credit score, the riskier you look to a lender. A low score could indicate current or prior late payments, high credit utilization, or limited credit history, all of which increase the likelihood that you may not make all your mortgage payments on time. The greater this likelihood of default, the higher the interest rate a lender will offer you. On the other hand, a high credit score tells the lender you pose less of a risk and are more likely to make all your loan payments. A high score may qualify you for a lower interest rate (which can save you tens of thousands of dollars over the life of your mortgage).

19 CHAPTER 04 How to Get Pre-Approved to Buy a Home 19 You also need to tell the lender the price of the home you want to buy and how much you plan to finance. In other words, how much cash you have for a down payment. The difference between your down payment and the price of the home is the amount you ask the lender to lend you with a mortgage loan. Lenders generally require you to make a down payment of 20% of the purchase price of the home. If you put down less than 20%, you may be charged a higher interest rate and be required to pay a monthly premium for mortgage insurance on top of the principal, interest, taxes and homeowner s insurance that make up your monthly housing payment. The additional interest expense and the mortgage insurance premium can limit the amount of the loan for which you can qualify based on your income, and this can reduce your purchasing power. What Are the Next Steps? If your pre-approval request is declined, you can talk to the lender about your options. You may simply need to request a smaller loan amount. Or you might need to take a step back and focus on coming up with a larger down payment. If you have at least a 10% down payment, you should consider partnering with Unison, a company that invests alongside home buyers to allow them to get the home they want. Unison can contribute up to half of the down payment as an investment alongside your 10% down payment, allowing you to make a full 20% down payment, and get the benefits of doing so. In return, the company hopes to earn a profit from a portion of any appreciation in the home s value at the time it s sold. If your home declines in value, Unison will also typically share a portion of the loss. If you do get pre-approved, you re ready to find a real estate agent and start looking at properties. With pre-approval letter in hand, both agents and home sellers will be more eager to work with you and help you get the home you want.

20 05 20 How to Choose a Real Estate Agent The right real estate agent can make or break your home buying experience. Buying a home is complicated. And if you re starting the process, that sentence can feel like a huge understatement. There s a lot of legwork involved, from all the preliminary research and sea of paperwork to get through to crisscrossing town to look at potential properties to buy. Then there s the financial side of things. Buying a home is the largest transaction you re likely to make in your life. You ll need careful focus and deliberation to make sense of all the terms and obligations involved. At the same time, buying a home is an emotional experience, a rite of passage and will serve as a foundation of your lifestyle and community. You need to understand and pay attention to your feelings about the homes, neighborhoods, and community in which you are looking. It is critical to keep a balance between your ability to make rational decisions and choose the house that is going to bring you joy and enrich your life. Needless to say, it s a lot to think about, manage, and do. That makes it all the more important to make sure you have the right people on your side when you start looking for a new home. The right real estate agent can make or break your home buying experience. You need to work with someone who is knowledgeable, professional, and accessible -- and the experience is a lot more fun if you like the person too.

21 CHAPTER 05 How to Choose a Real Estate Agent 21 Here s what to look for in a real estate agent, along with what to ask and other factors to consider before you make your final choice Start Your Search with Professionals Know the Qualities Your Ideal Real Estate Agent Should Possess Know What to Ask Before the Final Decision Watch Out for Red Flags and Go with Your Gut 1. Start Your Search with Professionals Before you start interviewing individual agents, familiarize yourself with the standards in this industry. Each state licenses real estate agents, so you can look up an agent s information to see if they have a past history of complaints filed against them. You might want to search for an agent who is a certified Realtor, meaning they re a member of the National Association of Realtors (NAR). And some agents will have additional certifications, like those awarded by the Council of Residential Specialists or NAR. These extra designations aren t necessary, but your agent should definitely be licensed. You can also tap your own network to gather an initial pool of agents to choose from. Ask family members, friends, coworkers, and others in your social circles who recently bought a home and enjoyed the experience. From here, you can narrow down your options to a few people you may want to work with. Then, you can choose among that group of professional, experienced agents. 2. Know the Qualities Your Ideal Real Estate Agent Should Possess Let s say you have about five or six different agents on your short list. How do you choose the right one? Look for these three critical qualities: Experience: This doesn t just mean experience in real estate or with selling homes, although that s important, too. Ideally, you want to work with someone with at least five years in the industry. Your agent also needs to be an expert in the specific neighborhoods and areas you are interested in buying. They need to know the particular ins and outs of the local markets. On top of that, they should have experience and knowledge with buyers like you, in your price range, looking at the kind of properties that you re interested in. They need to know what it s like in your world, so they can lead you to the right homes at the right prices. Relationships: Your agent isn t the only professional you need to work with when you look for and buy a home. You may need access to mortgage lenders, insurance agents, home inspectors, contractors, and more. A great real estate agent will maintain relationships with other individuals and businesses that can help their clients every step of the way. Personality: Yes, this matters! How well you click and get along with your agent can have a major impact on your entire experience. You ll be communicating with this person a lot. They ll represent you in negotiations when you put in offers and help guide you through some difficult decisions.

22 CHAPTER 05 How to Choose a Real Estate Agent Know what to Ask Before the Final Decision The last step before making a final decision? Choose a handful of real estate agents to interview. Don t hold back: home buying is a complicated and involved process and agents you interview have a significant incentive to earn your business. You re entitled to get your questions answered and to understand the full picture before entering into any contracts or agreements. If an agent doesn t satisfactorily answer your questions -- or refuses to discuss something with you -- keep looking. You ll want to ask questions specific to your situation and needs, but these general queries will help you get the interview started: 1. What s your experience? 2. What type of buyers do you typically work with? 3. How do you get paid? 4. How much will it cost me to sell my current home (if this applies to you)? 5. How will we communicate? How often will you be in touch? 6. What s your process for helping your clients look for a property to buy? 7. Can you provide references or connect me with past clients of yours? 8. What is your strategy for negotiating offers and counteroffers? Make sure you understand what the entire process of working together looks like, from start to finish. Know what the agent will take responsibility for, and what you ll need to handle on your own. 4. Watch Out for Red Flags and Go with Your Gut Maybe you found an agent that checks most of the boxes -- but there are a few things that leave you feeling uncertain. Look into these areas! If an agent you talk to raises any of these red flags, you might want to continue your search before choosing someone to work with: They re family or a close friend: While it makes sense to support those you love; you should find another way than tangling your existing relationship into the hard process of buying a home. There s a lot of emotion -- and even more money -- involved, so it might be better to keep your personal life out of this major decision and investment. They don t usually work with people like you, who want the kind of property you do: Again, you need an expert with experience in situations like yours that has the knowledge to help you make the best decisions at the best price. Red Flags They re family or a close friend They don t usually work with people like you, who want the type of property you do At the end of the day, do a gut check before you choose a real estate agent. Someone might look great on paper, but your intuition says it s a bad match. Trust your instincts and continue looking if an agent leaves you with a bad vibe. There are enough agents out there who deserve your business, so don t feel stuck with limited options. Buying a home is a big deal. You have the right to be a little picky and keep searching until you find the perfect real estate agent for you.

23 CHAPTER 05 How to Choose a Real Estate Agent Really understand the finances See the potential in each home Extra: Tips for First-Time Home Buyers Buying your first home is likely one of the most memorable events of your adult life. You have scrimped and saved and now it s finally time to buy. But what should you expect when you actually go through the process? Like many other rites of passage, your expectations of what may happen could be a little different than the reality. To prepare you for your first-time home buying experience, here are some tips to keep in mind Pick an agent who will teach and guide you Hire a good home inspector Do your research and get organized Living in a large city often means sacrificing space Make sure you have enough of a down payment 1. Really understand the finances First-time buyers are excited about looking for homes and don t often take enough time to understand all the financial aspects of buying a home. You should understand exactly how much you can afford before you fall in love with a home. According to Ross Armstrong, a real estate agent in Newport Beach, buyers will start the process at the viewing property stage instead of first getting the financials in place. A dream home can be found in the perfect location after weeks/ months of searching, only to find out that home on that street is way out of your price range. I try to get all my clients to have the financial discussion ASAP. 2. See the potential in each home Everyone wants their dream home, but let s be honest not all of us can afford each and every item on our wish lists. It s crucial to be flexible when looking for a home for the first time. Chances are that it s not going to tick every item on your box, but you can try to get as close as possible. This is why it s important to be able to see the true potential in a space. Do you detest those bright orange walls? While the walls may be eyesores now, it s nothing that a couple of coats of paint won t fix. Do you hate the wood paneling? Figure out how to tear it down, paint over it or just embrace it by decorating in a cabin-like style. The point is to not write off a home because of little flaws that can be easily fixed especially if it s in your price range. 3. Pick an agent who will teach and guide you As a buyer, one of your most valuable tools in your toolbox is your real estate agent. This is the person you will go to for advice and the person that you will be ing online listings to nonstop. Your real estate agent is someone you will be relying on for expert knowledge, which is why you should be sure to pick someone who can guide you through this experience in a way that educates you. Most first time buyers think the process will take a few weeks and their buying power is considerably more than it actually is. I always stress the importance of a great agent who adds value and explains the process rather than merely opening doors and collecting a commission check. In my experience, the agent is key to making sure the buyers move through the entire process as smoothly as possible, Armstrong says. 4. Hire a good home inspector In addition to your real estate agent, your home inspector is one of the biggest assets throughout the home-buying process. This is especially true if you are

24 CHAPTER 05 How to Choose a Real Estate Agent 24 interested in buying a fixer-upper, which is a lower-priced home that needs a lot of high-cost repairs or remodeling to fix it up. A home inspector is going to give you an unbiased opinion on how much deferred maintenance repair work (if any) the home requires and what it might cost to address. You can use this information to decrease your bid on a home or simply to prepare for how much you may need to spend once the house is yours. 5. Do your research and get organized Though your real estate agent will undoubtedly be crucial in guiding you through the home purchase process, be sure that you are also doing your homework. Before you go to meet with the agent, familiarize yourself with basic knowledge about common real estate terms, how a mortgage works, what a lender looks for, etc. and have all of your financial documents in order. You don t want to walk in completely unprepared when you talk to the real estate agent. Do as much home research as possible prior to engaging an agent. Use the agent for referrals. Have your credit organized and your financials on hand so the lender can review them quickly, Armstrong says. I work closely with the lender on all my deals and there has to be good communication between both agents and lender to make sure loan contingency removal does not become an issue. 6. Living in a large city often means sacrificing space It s no secret that living in a metropolitan area can get expensive. Everything from food to real estate can be priced significantly higher than in the suburbs or rural areas. When you are purchasing in a large city, you will most likely not have the amount of space that you envisioned in your first home. However, city living has its advantages. While you may not have guest rooms or a spacious kitchen, you will probably be close to high quality entertainment and dining options. Some people even view a smaller living space as a positive because it prevents them from accumulating a lot of things they don t need. Of course, if you find that you need more space for your kids (or yourself), then you might consider moving outside the city to get a little more bang for your buck. 7. Make sure you have enough of a down payment Whether you are buying a house for the first time or not, the amount of your down payment will be a big determinant of how much home you can afford. If you find that many of the homes in your area are out of reach without a higher down payment, or if you want to reserve cash for other purposes, you should check out the Unison HomeBuyer program from Unison. Conclusion Buying a home for the first time is a challenging and exciting time. Just be sure to do your research and learn as much about the process as you can, so you can tackle everything proactively and feel confident throughout your home search. Before you know, it you ll be moving into your new home.

25 Vol 1 Thanks for reading the first volume of Unison s guide to home buying. You can find more content like this on our blog: If you have any questions or would like to speak with a specialist about Unison or any of our programs, contact ps@unison.com or call unison.com 2017