Tips Buying Your First Home

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Over the last few years, home buyers have been struggling with low inventory and high demand, often having to compete with other buyers for the same properties. While sellers often find a buyer in just a matter of days or weeks. Here we discuss tips buying your first home.

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Today, it’s more common for home buyers to place bids three to four times until they finally secure a contract. Below, we’ll examine some strategies commonly used today by home buyers.  Read, “He Lost The Bid But Won The House” for some eye opening realizations.

Rein In Your Emotions

The competition is often so fierce that some home buyers are willing to go way beyond the asking list price in order to win the bid.  This is often played out again and again in my area for waterfront cottages and homes.

Home buyers who easily get caught up in the moment, offering upwards of $10K-$20K over asking price. I’ve seen this first hand even for small 900 square foot waterfront cottages here in Michigan.

Most experienced listing agents will recognize this tactic and encourage their sellers to steer clear. What typically happens in this scenario is that the home buyer offers up a ridiculously high number to secure the winning bid knowing that the house will likely not appraise for that amount.

When the house fails to appraise and the lender will not finance the deal and the home buyer goes back to the seller to pressure him/her to lower the purchase price. Very bad idea!

It seems this type of buyer is far more concerned with “winning” and hasn’t taken into consideration the long-term consequences of paying far more for the property than it’s actually worth. A buyer like this may “win the house but lose the farm”.

Lender appraisals are conducted well after the home inspection has been completed and paid for. If the deal falls through, you’re still out of pocket $600+ at this point ($300 for home inspection + $300 for appraisal).

For a seller who received multiple offers, it is very conceivable that he/she will insist on the original purchase price regardless of the appraisal. This is a calculated risk.

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If the first buyer walks away from the deal, a good listing agent will simply start to contact any one of the other buyers who bid on the property and negotiate another deal.

Boost Your Buying Power

Earnest money (EMD) is also referred to as “Good Faith” money. It’s money a home buyer is willing to put up front after a purchase agreement has been signed by all parties. It’s held by the Realtor’s brokerage representing the home buyer, in an escrow account. EMD’s are in addition to your loan down payment.  At closing, that money credited to the home buyer towards the purchase price.

Save Up To $6,000 in Lender Fees Through KW ZeroPlus Loans Seriously, why agree to pay out that much money on top of your mortgage loan when you don’t have to?  This is a great way to boost your buying power. ZeroPlus covers all loan types (FHA, Conventional, VA, Government Loans, etc) and can provide $1,000 towards your closing costs for loans greater than $150,000.

If your lender requires a 3% downpayment and your willing and able to put down more, then consider setting aside some of that for your EMD on the perfect house. The effect is that it significantly boosts your buying power and still lowers your cost at closing just like a downpayment does. 

How much earnest money you are willing to put down is a good indication to the seller of your commitment to the purchase and your ability to pay. 

When you’re in a multiple offer situation, you’ll want to make a better impression, so consider including a $3,000 to $5,000 EMD in your purchase offer. Read “Cat Fight! Buyers Forced To Bid On Multiple Homes” for true home buyer stories.

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Typically, all or most of those funds are returned to you. But as an added measure, you can request that your Realtor includes a stipulation in the purchase agreement that 100% of the EMD money is returned to you if the deal falls through for whatever reason.

Skip The Contingencies

Although the purchase price is the most prevailing factor for a seller, is not always the most compelling. Have your Realtor call the seller’s agent and find out what details are important to the seller. Do they need more time to move? Maybe they haven’t even found a house yet or need to close on this house first before they can secure the purchase of their next home. In this case, you could offer the seller up to 30-day occupancy after closing during which time they agree to pay you a daily rate.

TIP: Find ways to show the seller that you’re flexible and willing to work with them.

Shore Up Your Financing With A Local Lender

Get all of your preliminary due diligence with a lender completed ahead of time. There are so many internet lenders out there ready and willing to spit out a pre-approval to almost anyone and then wait until you’re under contract to then complete their “due diligence”. Essentially, this can set you up for failure at the worst possible moment.

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This is the biggest mistake home buyers make when working with lenders and it often results in a lost deal.  When you’ve chosen a lender, make sure they complete their investigation into your finances from the start. This will require that you share your tax and income information with them early on. You have to do it anyway, so better to just get it over with at the beginning.

The bonus is the peace of mind you’ll have knowing that when you’ve got a house under contract, your lender won’t pull the rug out from under you! The absolute best way to avoid that is to use a local lender who is well known in the industry.

Your Realtor can offer up some recommendations for you and tell you who to avoid. In case your wondering, real estate professionals are prohibited from receiving kickbacks for their recommendations. So, rest assured, their advice is worth considering.

TIP: Have your Realtor share your lender’s contact information with the listing agent. Many listing agents prefer to speak with lenders directly to confirm the home buyer’s eligibility and determine the chances of completing the sale. If the lender tells them that you completed all preliminary investigation and have a locked-in a rate, then that places you on solid ground as a serious home buyer.

Tips Buying Your First Home |Michigan first Home

Conclusion

With all the new federal and state regulations and changes, home buying is getting more complicated every year. Don’t think for a second that skipping a Realtor somehow empowers you.

The reality of the situation is actually the complete opposite. Going it alone places you in a very compromising situation because frankly, “you don’t know, what you should know”. 

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Entering into 2019, there are strong indicators within the industry (interest rates, inventory, new housing construction) that a market shift is on the horizon. Click to read about it here.

The best way to protect yourself and your finances is to find a good Realtor who will make sure all the T’s are crossed and I’s are dotted. By law, a Realtor is committed to protecting your personal interests every step of the way. The best part is, buyer’s agents are paid by the home seller not the buyer. Where else can you obtain professional service for free?

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Leave A Comment

I hope we’ve given you some valuable tips for buying your first home here. Feel free to leave a comment. Have a question? We’re pretty good at responding to your questions and feedback.

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13 Responses

  1. I wanted to thank you for this advice for buying a home. I’m really glad that you mentioned you should try to set aside some of your EMD if you’re willing to put down more than a 3% down payment. I’m kind of interested to learn if the down payment you have would be dependent on the type of house property you are considering buying.

    • Anne says:

      Hi Taylor,
      Thanks for your question.Typically, EMD or “earnest money” reflects 1% of the purchase price you are offering at a minimum. When competing with other buyers, however, the higher EMD number will help strengthen your hand. If the seller chooses another buyer, there’s no harm to you since the EMD funds are placed in escrow in only AFTER both buyer and seller have signed a purchase contract.

  2. HOMEiA says:

    Great informative article! Thanks you!

  3. My husband and I want to move into our first home together, and your article had great tips to help us buy a house like this. I liked how you said to to put up earnest money in addition to our loan down payment. Thanks; we’ll keep this in mind when buying our first home.

    • admin says:

      Hi Jocelyn, When you’re competing against another buyer, offering a higher EMD can strengthen your hand. Let me know if you need some help finding a good Realtor. As a Keller Williams agent myself, I have access to a database of every KW agent throughout the USA and their stats. I’d be happy to put you in contact with someone in your neighborhood. Happy house hunting!

  4. My husband and I want to move into our first home together, and your article had some great tips we could use to help us with this process. I liked how you said to consider put down more earnest money than the seller is asking for one a down payment to make the offer more appealing. Thanks; we’ll keep this in mind when buying our first home.

  5. Hello Annette, this is indeed a great piece of information and I would like to take some time and thank you for sharing the same. I just the married to the one I love and we are in plane to buy a perfect for us. However since it our first time we are seeking fort the advice and in that process I came across your informative article. I am glad I found it and will definitely follow these tips. Cheers!!

  6. Steele Honda says:

    I like that your tip to have your Realtor call the seller’s agent and find out what details are important to the seller. My husband and I are thinking about buying a house after he finishes school so that we can start the next chapter of our lives and have a place to start a family. I think it would be smart to have our real estate agent call the seller to find out what’s important to them or what else we can do to help our chances of getting the house that we want so that we can get the house of our dreams. Thanks for the tips on buying a home.

  7. It’s interesting that you talked about how people become want a house so badly that they become competitive and go way above the listing price to be able to win. My sister is looking to buy waterfront property and I know those can be pretty expensive. I will be sure to let her know to contact a professional to help her get the best price.

    • Annette says:

      Waterfront properties within the $200 – $250K range here in my area of Michigan are still very competitive. I would advise that she have her pre-approval available when she is ready to make an offer. Also, patience often wins the day. If competition is just too much during warmer months, she may have more luck in the winter months, especially in January when a lot of new listings start to appear.

  8. That’s a good idea to get a realtor to help you buy a house. I would think that would make it a lot easier. I’ll have to consider doing that.

  9. Fay says:

    I like that you said that you should find ways to show you are flexible. We have decided to buy a home to raise our family. We should find a real estate professional that can help us.

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