The homebuying process doesn’t slow down to accommodate the learning curve of first-time buyers. The competitive Austin market pits newbies against veteran buyers, who have more leverage and experience. But with a reliable mortgage lender and seasoned agent, plus your own arsenal of knowledge gleaned from our 10 tips, first-timers are equipped for the journey ahead.
Here are 10 tips for first-time buyers, from the experts: red
It would be a detriment to the entire process to start looking for a property before getting your financing in place. Compare mortgage rates from at least three lenders.
There are numerous advantages to working with a local lender as opposed to a national bank. Shawn Andrew, local lending expert for Vista Austin, is not only happy to educate first-time homebuyers who “need more hand-holding to understand the process,” he touts his team as “nimble and quick.” That’s critical in the time-sensitive Austin market, where contracts generally close in 30 days or less.
In the heavy buying season, April to August, national banks are often bombarded with loan requests. “You could have a loan officer in Austin, processing in Michigan, underwriting in Fort Lauderdale” — essentially, a conveyor belt where any snag leads to delay. With a local, independent mortgage banker, communication is streamlined, thanks to a small staff in the same office.
Do your due diligence
Among other things, your credit will affect your interest rate and possibly your loan terms. Check your credit score and dispute anything that could be weighing it down. Pay down debt to boost your score, if possible.
Don’t underestimate the amount of paperwork required to get a mortgage loan. It’s not as simple as filling out a loan application and closing. “We have to document everything as the guidelines require us to: several months of bank statements, possibly tax returns, W2s, explanations of large deposits into their bank statements that can’t easily be tied to anything. A lot of times, you’re required to have reserves — extra funds after closing — to show you have future house-paying ability in the event you lose your job,” Andrew said.
Know your buying power
“Ninety percent of the time, I can qualify someone for more than they want and probably more than they need,” said Andrew, who helps clients “reverse-engineer the approval.”
An approval limit is essentially a “debt ratio.” How much monthly debt can you afford? Add up your monthly housing payment, plus everything on your credit report: auto loans, student loans, minimums on credit cards, etc. Take taxes, insurance, and mortgage insurance, if applicable, into account. “That number needs to be 45 percent of their gross monthly income,” Andrew said. “We back into a price range that fits their monthly payments goals and how much [money] they have to close.”
Go with a seasoned agent
This is probably the biggest financial decision of your life up to this point. Don’t take it lightly; shop full-time agents. “They say that 10 percent of the agents in this town do 90 percent of the work,” said Mary Daniels, lead buyer specialist at Papasan and a “guru” to first-time home buyers. Look at the agent's production, particularly within your preferred neighborhoods. “You want a specialist.”
A good agent will walk you through the homebuying process linearly, before taking you to visit houses. They’ll help you understand what you can afford in what neighborhoods. “Because if you’re just throwing a dart on a map, saying, ‘That neighborhood looks good, and that house looks good,’ the process is going to take you months and months and months,” Daniels stressed.
Raise your expectations
You also want someone in-the-know about off-market properties going for sale soon. If they’re simply sending you listings that you can readily find on Redfin, Trulia, or Zillow, search for someone else. “Look for someone bringing more value to the process,” Daniels said.
Think outside the (downtown) box
Buyers usually budge on one of three hinge points during the house hunting process: price, condition of the home, or location. If you can afford $500,000 and you want to live in the center of town, you’re looking at a two-bedroom, one-bathroom house that needs some work. But in Circle C, you can get a four-bedroom new house for that price. “Moving a little outside of the heart of Austin, or buying a condo, are the compromises most people make,” Daniels said.
“We’re constantly having to educate people on what they can afford, and how quickly the market moves here,” she added.
“It’s a seller’s market here. Once you place a bid on a house, you need loan approval within 30 days. Any longer, you’re going to lose out on that house,” Daniels said.
That’s why people pounce when they find a home they like in Austin. “On average, we usually show six to eight homes before they jump at something. It’s that quick,” Daniels said. By the time she’s showing homes to clients, Daniels has a solid grasp of what they want. It generally takes Daniels’ clients 15 to 30 days to bid on a home, and then 30 days to close.
When you go under contract, make haste
Notify your lender immediately when you place a bid. There’s significant financial risk for a buyer if their lender encounters a surprise issue while trying to close. “You’ve got earnest money at risk. If you don’t meet the financing deadline, or close on time, there’s the possibility that the seller could take a backup offer, and keep your earnest money, which runs about 1 percent of the sales price,” Andrew said.
The closing documents need to be delivered to the buyer three business days before closing — Saturdays included. “When a client of mine goes under contract, I have to have everything on them. It leaves no wiggle room for issues with underwriting or an appraisal to be addressed,” said Andrew. He tells his clients: “We need to proceed from day one as if this closing is going to happen to stay on track and make sure it’s smooth.”
Pay attention to inspection
Once you’re under contract, you go under the option period, called the inspection period outside of Texas. It generally lasts anywhere from five to 10 days. “Your general inspector should give you a good snapshot of what everything looks like as far as the foundation, electrical, plumbing, even down to whether or not your dishwasher or oven works,” Daniels said. Afterward, analyze everything with your agent. “Before you go out of your option period, and your earnest money is on the line, you need to know fully what you’re getting into,” she underscored.
If incidental payments are of concern, ask the seller for their bills during high months, like August and December, Daniels suggested.
Seal the deal
You’ve compared and contrasted homes; now the seller is likely comparing and contrasting you. While you can always increase your asking price to stay competitive, there are other ways to win over the seller. Consider increasing your earnest money, or letting the seller stay longer after closing for free.
“There are different incentives for the seller that sometimes speak more to them than just, say, a cash investor,” Daniels said.