My wife and I closed on our first home last week. Time and time again, we kept returning to the same question:
How the hell does anyone but super-organized, tech savvy, very patient, not-very-busy people get through this?
Some of that sentiment stems from our age (both past 30) and seeing 22 and 23 year-olds somehow manage to pull off the complex and nerve-wracking process with little more than a grumble about prices and the pitfalls of being a new homeowner. I wanted to write this to share a bit of our experience and how we went through it, as well as what I wish somebody had told us beforehand.
Getting real about money (and credit)
It is a ridiculously expensive proposition to buy a house. Not simply in the purchase price, but in all the other things you have to keep cash on hand for in order to complete the transaction.
We waited almost 10 years to buy this house, prioritizing building an emergency fund and paying off our student loans and car notes before saving a down payment. Now, that leans towards the extreme end for how long you have to save in order to afford a down payment and other costs, but I’m glad we managed to do it.
A word of caution on the “I will use this gift as a down payment” plan many folks have: your lender is not going to like it. They care about how you received the money just as much as how much money you have in the bank. They can tell if it was not earned through your employer, and will specifically ask you to disclose where you got it. This is to protect them from folks who can get money from a friend or relative for a down payment, but are unable to make mortgage payments on their own.1
Getting pre-approved for a mortgage
This is is the first real step towards getting the process moving along. I should warn you that if you are still on the fence on where you want to buy or if now is the right time, do not go forward with getting pre-approved. Things move really fast after you are approved, and there is a time limit before you would have to go through the entire process again.
The Consumer Financial Protection Bureau has a collection of great resources for planning to buy your first home. Some of their rules are in place to protect consumers from predatory lending by explaining the process in detail (and maintaining regulatory oversight on lenders). They will suggest getting at least three offers, but our bank had several incentives for us as customers that made sense for us.
We scheduled a meeting with a loan officer at a local bank branch. The process took about an hour, sitting across the table from a nice guy who had a lot of questions.
What we brought:
- Copies of last two years of W2s and tax returns
- Two forms of government identification
- Written notes about various account balances
At this point, the loan officer did not need to take the copies. That would come later. But what he did want to confirm:
- Where we worked
- How long we had worked there
- Our annual salaries
- Our recent mailing address(es)
- Our job title and classifying the industry we were in
- Our bank account balances for all deposit accounts
- Contact information for our employers for verification
At that point, he ran our credit reports and gave us our scores. Because we were being pre-approved (meaning, we did not have a property selected), he needed to know for how much our loan would be written. This came out to a few factors:
- What kind of house, because condos and townhouses are handled differently than freestanding, single family homes
- Where we would looking to live
- How money we were expecting to spend on a house
- How much money we were expecting to put as a down payment
From there, he generated a couple of loan product options, each having a different estimated cost per month. We discussed the pros and cons of each, and he generated a pre-approval letter to take with us. The letter had an expiration date, so we needed to get started on the next phase.
Find a real estate agent
You should ask friends and family for agent recommendations. We already had a relationship with ours (he manages the property for our apartment), but you should consider a handful of factors.
- How fast does this person return my calls / texts / emails?
- Do they typically work in the market that I’m looking in?
- How much experience do they have as an agent?
- How reliable is their network of professionals?
That last point is an interesting one. We relied on our agent to recommend vendors for things like termite inspections, home inspections, etc. We followed on by asking our friends for recommendations, and then compared the list to see if anyone came up multiple times. Had it not been for our agent, we would not have had much to start with.
Search online and go see houses
As you can imagine, we had already started looking around the neighborhood. The home prices in our zip code have increased dramatically, with some doubling in the last five years. Our agent wanted to set up some automated searches for us, so we gave him a copy of the pre-approval letter and discussed our desired price range and neighborhood. He also had a few houses that he wanted to take us through the next day.
Samantha spent a bit more time looking at listings than I did, so she already knew of some of the places we would go. We met over at the agent’s office and rode with him to see four properties. When we arrived at each of them (all vacant), the agent would go up to a particular kind of key box that opened with a magstripe card or a code. Once inside, it was a lot of walking around, looking in closets, bonking my head on lower ceilings2, and talking about the house’s features. While none of those houses made our short list, it was a good first step.
Our agent explained that we could call or text him with any listing we found online or saw in the automated emails. If he could not show it that day, another agent from his office would help out.
As far as searching online, we kept our research to a handful of sites:
- Zillow, while popular, does not typically have the latest information. They rely on agents to update their data directly instead of subscribing to the MLS feed. This was the site I had thought would be a staple of the home search, but it turned out to be more for idle browsing than anything else.
- Realtor.com has solid information and is updated frequently. It has a few quirks (sometimes the description is truncated and the “Active” listings may be “Active - Contingent”), but it can generally be relied upon for accurate data about the property and a good collection of pictures. We used this as our definitive source for information.
- Redfin has some of the most extensive information about a property – including the current status if it is already or had previously been under contract. Because they are also a broker, they also have the latest data from MLS. We generally used this site to deep-dive a particular property once we had used another site to identify it.
What to look for while touring a house
We walked through about a half dozen houses. The first two or three did not get the same scrutiny as the others because we were still adjusting to the idea of being in the market. We made a spreadsheet take a few notes on things so we could make better comparisons.
- Roof age and condition
- HVAC age and condition
- Washer and dryer connections
- Dishwasher connections
- Labeling and type of electrical panel
- Flooring materials
- Window types and condition
- Location of the crawl space access, if present
- Attic access door, if present
There were a few other factors we considered. Most of these we either knew beforehand, or would look up on our phones.
- The property may be in an area affected by flooding, particularly if you are searching in Nashville
- What kind of and how many crimes have been reported in the area
- Proximity to train tracks, airports, interstates and other noise considerations
- Potential public transit routes should you routinely use or need them
- Search public records for the address, including the property assessor and codes department
- A simple Google search of the address to see if it turns up anything other than real estate listings
Making an offer on the house
We would drive around after leaving a particular property to decide if we wanted to move forward with it. For the first offer, we went back to our agent’s office that afternoon. He asked what all we liked about it and went over the next steps.
Basically, an offer to buy a house is drafting a contract to purchase it and talking the seller into signing it. It outlines a handful of important details and we needed to refer back to often.
- The address of the property
- The name of the listing agent for the Seller
- The offered price
- The closing date
- The length of time for an inspection contingency
- The amount of closing costs the Seller will pay
- The terms of your financing, including down payment percentage
- The amount of earnest money you are offering to put in escrow immediately
- The contact information for your title company
- The length of time for the offer to be considered by the Seller
Negotiating on the offer
As I mentioned before, the market in our area is a witnessing a lot of growth. We have friends who had to bid over the listing price to get their offer accepted. Some Sellers are only accepting “as-is” offers, meaning that the home inspection is not part of the agreement.
For the first offer, it was accepted right away with no changes.3 For the second, the Seller split the difference between our lower offered price and the listing and asked for less time on the inspection contingency. We countered that with restoring the inspection contingency window.
After the offer is accepted
In both cases, the next actions were the same. We wrote a check to the listing agent’s company for the earnest money and had our agent send over the purchase agreement to our lender. The “binding date” is the day the Seller agrees to the negotiated terms. It is an important one to remember, because we now had to get the home inspection scheduled within our contingency period. We also called the insurance company to talk over options and have them send a quote on to the lender as well.
Having lived in apartments for the last decade, we are not particularly up to speed on home maintenance topics. So we picked a home inspector that preferred to walk around the property with us and explain things rather than one that preferred that we not bother him or her while they work.
This was way more stressful than I had expected. For the first house, the inspector was booked until day nine of our 12-day inspection window. We also paid for a radon test, so he needed to be in the house a few days prior to the inspection to set up the monitor. Our agent took care of the logistics there. There is also a feeling of dread when the inspector points out something that you did not know prior to the making the offer. The inspector’s job is not to say how much everything will cost to fix, only that it might be broken and should be reviewed by a qualified professional.
The first house had been a “flip”, meaning that the Seller had purchased it to perform a remodel and to resell it for a significant markup over the costs he had put into it. The inspector found several areas where he had taken shortcuts or had neglected areas of concern in favor of mostly cosmetic updates. We were not feeling great after this one.
Our eventual house had been a rental for a number of years, so he similarly found several issues, but they were less severe. That said, they were significant enough that we called in another multi-disciplinary company to get estimates for repairs. I spent a day with a plumber, electrician and HVAC technician discussing what needed to be done. They sent out a project manager to bundle some of the repairs for a lower cost and to simplify communication with the company.
Negotiating on the repairs
For the first house, I really thought we could work through the repair list and make some very expensive requests to see what would happen. However, Samantha found some evidence online that the Seller may have improperly handled asbestos siding. Confronted with this, we decided to terminate the agreement and receive back our earnest money.
We were much more comfortable going in on the second house’s repairs. We asked for more money on closing costs and for a check to our vendor to cover a portion of the repairs. We also asked for some remaining personal property in the storage units to be removed. By this point, we knew we still wanted the house and that we would be able to pay for whatever else needed to be done regardless of the repair negotiations.
We provided the home inspection report and quotes we had received from the vendor as backing evidence for our request. The Seller declined our request for additional closing costs, but agreed to the money to be paid to our vendor. She likely figured that was any easy trade-off because it wouldn’t be an out of pocket expense until she had already received the proceeds from the sale.
Getting through the loan application and underwriting
Underwriting is a mysterious place where it seems that the more documents go in, the more requests for documents comes out. We had been sending along requested information before the home inspection was complete, but really had no idea what was going on. It is far more complex than any auto or student loan I had ever encountered. A few of the things that they requested
- A signed copy of the loan application
- Copies of our two most recent W2s
- Copies of 30 days worth of paystubs
- IRS 4506-T form to release copies of our tax returns
- At least two tradelines for both of us
- A handful of letters explaining discrepancies or gaps in employment
Shortly after getting the application submitted, we received a Loan Estimate. This document was the first concrete numbers we had for how much to expect paying at closing and each month. Had we gone through the application process with more than one lender4, we would have been able to compare these.
Our underwriting process ended up being a bit more complex than most. Because we haven’t had a car or student loan in several years and do not have any other debt, they needed more tradeline documentation. I spent about a half hour on the phone with a credit verification agency as they called my phone and television provider to request the age of the account and verify that I had not missed any payments.
If all of this seems intrusive and burdensome – it is. Lenders have become much more diligent in recent years about evaluating credit worthiness, and underwriters are periodically reviewed on how many “bad” loans they write. Doing so too often could cost them their job and certification to do that kind of work. I can only urge patience and responding to requests as quickly as possible. As always, ask questions early and often.
The big detail on this form was the “Cash to Close” line. It had been higher than expected, but we determined that the lender had not factored in the Seller’s contribution or the deposited earnest money. It is a good idea to look over this document carefully.
Getting the appraisal
As I mentioned before, the housing market around here is a bit crazy. The appraisal values tend to reflect that, because it is based off of similar recent home sales. We had to pay the fee for the appraisal out of pocket around the time that we gave a verbal confirmation of our intent to proceed with our lender. That was a key moment, because legally they could not collect any money from us to determine whether we were eligible for the loan. I messed this up for the first house because I agreed to move forward with the loan before the inspections were complete. It ended up costing us the $500 fee for a house we did not end up purchasing.
The appraisal order happens behind the scenes. After a week or so, a packet arrived detailing the property and what comparable sales they cited to determine the appraised value. In both cases, our number came back higher than the selling price. It would have been a disaster had it come back lower.
Moving towards closing date
Once the appraisal and repair negotiation was out of the way, we spent most of our time waiting or frantically responding to the underwriter. When we were not doing that, we were tentatively scheduling things like repairs, movers and service transfers.
Email is a great way to communicate with your lender, but often doesn’t seem urgent enough. Because we went with a larger bank, there were two or three people we would need to talk to at various points to get through the underwriting. The good news is that there was an online portal to track the application and underwriting process, so at least we could see (roughly) where things stood at any given time.
We wanted to get the repairs done before we scheduled the movers. Of course, that all depended on when we closed. We had known the date for more than a month, but were warned repeatedly that that date could change. So it was playing a bit of a guessing game on how confident we were that things would happen on time.
We received our Closing Disclosure about a week before. The “cash to close” number had come down, but it was still missing the reference to the earnest money deposit. Upon closer inspection, there were several other issues with it. Getting a revised copy was a challenge because the underwriter on our file was out sick. After some back and forth, we received a call with our final amount, but still did not have the form.
The timing of this was what made it stressful. Our title company needed the funds wired that day, and we still did not have a final document to go off of. I went to the local bank branch downtown to set up the transfer, and the banker there was able to get a copy of it. Amusingly, that version said we would pay zero percent interest and had a monthly payment around $300 a month (which would be for hazard insurance and property taxes). It would be corrected later that day.
We went over to the house with our agent that afternoon for a final walkthrough. I was mainly looking to see if they had removed their stuff (they had) and that there was not any other damage to the house from recent storms.
We received a message the night before closing that the “package” of documents had not yet been received by the title company. It ended up being a software glitch, and they were able to be generated and sent over the next morning.
We met with our agent at his office to go through the closing. Our mortgage loan officer arrived shortly thereafter, followed by the representative from the title company. In years past, we might have met the Seller as well. She had opted to perform her closing at another office with a different title company. We may never meet her.
Samantha and I had to either sign or initial between 60-70 pages. It takes quite a bit to close such a big transaction. The woman for the title company verified that all of our signatures matched what was on the form, meaning if we had a middle initial listed, our signature needed to include it. We spotted only one case where there was an error – Samantha’s name was misspelled on one of the title company’s internal documents.
After that, our agent gave us the pair of keys collected the day before and a bag of some housewarming gifts (smoke detectors, a safety light and a fire extinguisher), we all shook hands and went back to our car.
The two of us let out a slight scream of excitement. We drove over to the house and walked around in it with a completely different perspective.
Other than the first house falling through because of inspections, I do not think we could have had an easier time in the homebuying process. I say that, given the number of horror stories I have heard about missed closing dates, rejected offers and expensive repairs. I wish the underwriting process had been smoother, but we had started the process right as they were implementing a new software system. Given what we both do for a living, I have a bit more sympathy than most. The two of us being tech savvy also saved us a lot of time, particularly when it came to completing forms and signing documents.
Here are a handful of other tips I wish I had known going into it, or learned along the way:
- In every interaction with your lender, ask “When can I expect to hear from you next?” This keeps you from pestering them, while having them commit to working on a reasonable timeline.
- Use Trello or some other project management tool to make a list of what next. We used this extensively throughout the process to select a house, keep up with what the lender needed, and what was going to happen next. It also helps keep you sane when feeling overwhelmed with information and requests.
- Our Doxie Go has been indispensable in dealing with the lender. Make sure you have access to a document scanner.
- A printer is also helpful if you are not skilled with adding a signature to a document. It may be easier to go ahead and print several pages to sign them anyway so you can have them on file later. Have an extra ink or toner cartridge on hand.
- Keep everything in hard copy or digital for easier reference. We had to look up a detail at least a half dozen times in our Purchase Agreement or on the Loan Estimate.
- Ask around for recommendations for everything you can. Ask friends, your agent and even the mortgage loan officer for who to potentially use for your home inspection, termite inspection, etc. We generally asked our circle of friends and went with whoever the most people spoke well of.
- If you have the time and money available, it is worth it to have an electrician, plumber and HVAC technician come to the property during the inspection contingency period. You will get better estimates, and may be warned off a house that would cost too much to repair and maintain.
- Make a reminder to thank everyone who helped you.
I hear so many people say they got their down payment as a wedding gift, and now I wonder if they also committed mortgage fraud to hide it. ↩
What is it with the 1960s cottages and their short ceilings in the basement and bonus room? ↩
I should have taken this as a sign that there would be trouble ahead. ↩
We went with our bank because of incentives they offered, but you should really ask for more than one quote. ↩