First time homebuyer?
Are you ready to make the leap from renting to homeownership but don't know where to begin? We're here to help! This step-by-step guide will show you what to do first, and what to expect, during the entire homebuying process. Check out our Lenders and Loan FAQ page for more information on mortgages.
Before you do anything else, get pre-qualified through a lender. They will tell you where you stand, if you need to clean up some things to improve your credit score, or if you are ready to purchase a home and for how much, and also what type of loan you qualify for. Also ask them about any up-front fees, down payment, and how much closing costs are anticipated to be. Closing costs for first-time homebuyers can be anywhere from $5,000 to $10,000! (Sometimes sellers are willing to pay for closing costs. Ask your Realtor for more info.) Getting pre-qualified is crucial. Most homeowners and agents will not show properties to buyers without a pre-qualification letter. Ask your bank or check out our Lenders and Loan FAQ page for help.
Talk to a Realtor.
After you have your pre-qualification letter from a lender and know how much you can afford on a home, the next step is to choose a Realtor to help you. Their knowledge and experience is extensive and will make the entire process smoother. You'll be glad to know that in most situations, buyers do not pay Realtors. Tell your Realtor what you're looking for and he/she will help locate the perfect property, and the house hunting can begin!
Contract & deposit.
So your Realtor has shown you several houses and you find one you're in love with and want to make an offer. Your Realtor will advise you on your offer and get some information from you to write the contract. You will need to give an Earnest Money Deposit (EMD) that shows the seller you are serious about purchasing their home. It can be any amount, but most are $500-$1000. Remember, the higher your deposit, the more serious you look to the seller. In most cases, the EMD is refundable if the sale falls through and certainly if your offer is not accepted. The EMD stays in the Realtor's broker trust account until closing time when it is applied to the cost of the house. If your offer is not accepted, it's returned to you.
Offer accepted! Now what?
Congratulations! Your offer has been accepted. So now what happens? LOTS.
First, let your lender know. Your Realtor can send your lender a copy of the contract and deposit. Time to start the actual mortgage application! It's extremely important that during this time, from contract to closing, you do not utilize your credit unnecessarily. Do not go out and buy a new car, ATV, or new furniture. Try not to use your credit cards as much as possible. Do not quit or change jobs during this time. Doing so will have a major impact on your qualification and can affect the sale or even make it fall through.
Second, hire a Vermont attorney. The attorney will be writing the deed, doing the title search, and taking care of all the legal aspects of the sale. You cannot have the same attorney as the seller. If you don't know any Vermont attorneys, ask your Realtor to recommend one. The attorney's fees are part of your closing costs so don't worry about paying for them up front.
Your Realtor, attorney, and lender are all now working in the background on the purchase. They will be in touch with you periodically throughout the process to tell you the status and if anything is needed.
Do I need a home inspection?
Home inspections are optional for most loans, however, USDA/RD home loans require it. If you are unsure what type loan you have, ask your lender. Inspections average $500 and it's up to you to hire an inspector and pay him/her at the time of the inspection. Your Realtor can recommend some inspectors. You'll receive a comprehensive report on the home that points out safety issues and needed maintenance or repair. It's a good idea to know what you're getting into, especially if you're purchasing an older home. You have the option to back out of the sale after an unsatisfactory home inspection, negotiate with the seller to fix items noted in the report, or to sign off on it as satisfactory and continue with the purchase.
Your lender will order an appraisal to find out the true value of the home. The appraiser visits the property, takes notes, and uses similar properties to compare and come up with a value and provides it to the lender. The value must be at least what your purchase price is. If the value comes in higher, great! If it comes in lower than your offer, you will either need to come up with more money for the purchase OR the seller will need to come down on their price to meet the value. This is another time where your Realtor can negotiate for you.
The appraiser will also note any safety issues that the lender will require be fixed before closing. Commonly flagged safety issues include peeling paint, lack of GFI outlets in kitchen/bathroom, missing hand rails on stairs, breaker box issues, roof integrity, and more. The seller will need to agree to fix the issues or you will have to come up with money to put in a bank escrow (holding account) so the repairs can be completed after closing. The bank will release the funds directly to the contractor who fixed the issues. Again, this is where your Realtor can negotiate with the seller's agent on your behalf.
Set up your utilities
About a week before closing, it's a good idea to set up your new utilities. Find out who the seller used for their oil/propane and contact that company and set up a new account, or contact the provider of your choice. The same goes for electric, water/sewer (if applicable), cable, phone, internet, etc.
Once the lender has the appraised value and flagged issues are fixed, it goes to underwriting. This is where your file is looked at carefully by the lender's underwriters to make sure you're still qualified and the purchase is a good investment. Once they give the okay, you're officially "clear to close!" Your attorney will issue a CD (Closing Disclosure) that has all the numbers of the sale broken down. The closing will be scheduled then it's time to sign! Because of COVID-19, some closings are done "remotely," meaning you sign everything ahead of time and then the attorney closes the file. In-person closings are making a comeback though, so you may need to go to your attorney's office and sign the paperwork. Once everything is signed...... congratulations! You're officially a homeowner!