Todays buyers have the knowledge and tools to easily search for homes on their own. But, if you've never purchased a home before, the idea of taking on hundreds of thousands of dollars in debt can be a scary thought. And what about all the unknowns, like earnest money deposits, property insurance, inspection fees, agent commissions, and the infamous closing costs?
Fortunately, you don't have to do this on your own. Many people have gone before you, and there are many professionals who can help you. Did you know that hiring an experienced realtor to help you buy a home doesn't cost you a thing?* That's why I've put together this First-time Home Buyers Guide, to help demystify the buying process and give you an idea of how much money you'll need to bring to the table.
1. Choose a Real Estate Agent
Yes, you need a licensed real estate agent, and preferably a Realtor®. I won’t list all the reasons why, but here’s a few:
- Knowledge and experience - you’ve got questions, your agent has the answers. Your agent can provide you with information from market insights to service providers they’ve worked with.
- Access to properties - agents have access to the MLS, the most accurate listing of available properties on the market, and the codes for each lock box to get you inside.
- Seller pays agent commissions - buyer agents work for you, but commissions are paid by the seller.
2. Get Prequalified with a Lender
Most agents won’t show you any properties until they know you’ve been pre-approved for a loan. The good news is that your real estate agent can help you get connected with a lender and start the process. Your lender will help you determine a budget and what your down payment will need to be. For example an FHA loan may require 3.5% down while a conventional is 5%.
3. Looking at Properties
This is the fun part! Have your agent set you up with an auto email from the MLS so you can receive a list of properties that meet your criteria. Work with your agent to schedule showings on the properties you like best. Be aware of up-front costs, such as earnest money and inspections. You’ll need to cover these costs once you get a property under contract.
4. Making an Offer
Your agent will write the contract, but you’ll need to include an Earnest Money Deposit (EMD) which is typically 1% of the purchase price. E.g. a $200,000 home requires a $2,000 EMD. This is negotiable. Putting more skin in the game can sometimes be more attractive to a seller if you're dealing with multiple offers.
7-10 Days following Contract Acceptance
Home Inspection - $400+/-Although optional, it’s recommended that everyone get a home inspection. Here are some other optional inspections:
- Mold - $225+/-
- Radon - $225+/-
- Termite - $85+/-
Appraisal - $400+/- Your lender will require an appraisal to make sure the value of the home is not less than the loan amount.
Within 14 Days of Settlement
Homeowners Insurance - $900+/- You will pay a one year premium to your insurance company.
Day of Settlement
State & County Transfer Taxes - 1.5% ( 0.5% State 1% County) of purchase price** State transfer tax is split between the buyer and seller. 1st time buyers get a 0.25% discount on MD state transfer tax.
Recording Taxes or Stamps - $7 (per thousand) of purchase price*
Down Payment - This depends on your loan and how much you’re willing to put down. You’ll need initiate a wire transfer with your bank prior to closing. The final amount for all closing costs will come from the Title company 3 days prior in your Closing Disclosure (CD) or ALTA.
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*Most brokers charge a transaction fee of $400+/-
**Based on Anne Arundel County