The Escape Home: Everything you need to know as a first-time homebuyer

The Escape Home: Is there any type of checklist that someone who is thinking of purchasing a home in the next six to 12 months should have? 

Kebalo Hughes: Totally. So first and foremost, you  want to speak to a lender. Even if you have the cash, you’re better off financing because of how bad the interest rates are, even though they’re going up, they’re still historically low, and your cash is better off being invested elsewhere. When you’re interviewing lenders, you want to speak to a few different options. There’s a difference between a lender like a Bank of America versus a broker.

The Escape Home: What are the pros and cons of a bank versus a broker? 

Kebalo Hughes: A lot of times people love to go to their traditional bank because they feel like it’s easier, because they’re already banking with them. So yeah, maybe they don’t have to pull up as many of their bank statements because they already have internal access and maybe they already have a friendly face at the bank that they know and trust. The con is that your traditional bank may not offer as many options as a broker does. The pro of using a broker is that the broker actually has tons of different lenders that they are able to underwrite, whereas if you go to a Bank of America, they’re only underwriting Bank of America products. So a lot of times brokers are able to have more flexibility. They may have 15 different banks that they underwrite for, and can figure out which one works best for you. So you really get a custom tailored experience. Another pro of using a traditional broker is that it’s usually a mom and pop business in town. If they live in your area they have a reputation to uphold. They also know the nuances of the area and understand things specific to your location. 

The Escape Home: Next on the checklist?

Kebalo Hughes: Next on the checklist is finding your realtor. You need to interview the realtor to make sure that you’re comfortable with them and that the realtor is well established and knowledgeable and really understands the local market trends. Homebuyers should be asking the realtor what the process is and the realtor should be able to go through it with them soup to nuts. They also need to make sure they ask the realtor how they’re being compensated. A good realtor will share that right off the bat and convey they’re representing them in their best interest. It’s important that the realtor is able to eloquently explain that. You also want to know how the realtor communicates. Most agents are extremely open to how they communicate with the clients. Is it texting? Phone calls? The next question they want to ask is what the realtor’s availability is for showings. The other thing they need to ask is when it comes to the contract, do they do electronic signatures. I can’t tell you how important it is to have electronic signatures. In today’s day and age, you need to be able to seamlessly and efficiently get out an offer. If an agent does not have electronic signatures and you have to meet them at the office or your home, it can be hard to coordinate timing, and in this fast-paced market, the house can be gone. 

And then the last item on the checklist, depending on if you’re in a title state or an attorney state, is you’ll want to have an attorney representing you and your best interest. 

It’s good to have an attorney review the verbiage of the contract and also do due diligence and checks with the town to confirm who really owns the property and that the title is free and clear of any liens. The worst thing that happens is that as a buyer you purchase the house and then you find out two weeks later that there’s some lien from someone that had trees cleared on the property 25 years ago, or some cousin three times removed says they actually own the property.

The Escape Home: Is it true that you need to put 20% down when you purchase a home?

Kebalo Hughes: That is absolutely a myth. Depending on you and your unique scenario, the lender or the broker can look at your situation and determine that maybe you can put down 3.5% with government financing, or in Connecticut for example, if you are purchasing in a rural area they have a special program and it can be 0% down. Or let’s say, you’re a teacher,  firefighter or a police officer, depending on your specific profession, there may be some really great financing options. For veterans as well. People need to not assume that it’s always 20% down; they need to talk to the lender. 

The Escape Home: Are there grants available for first-time buyers? 

Kebalo Hughes: So it’s very specific to each different state and sometimes city. But there are absolutely things available. A local broker would be able to help guide you. 

The Escape Home: And what about inspections? 

Kebalo Hughes: The inspector is a very important piece that comes when you’re under contract. So once you’re under contract, based on how the contract is written by your agent, you will have a certain window of time to conduct inspections, which are almost always paid for by the buyer.  Generally speaking, a general home inspection checks all the mechanicals, the plumbing, the structural elements, the electrical elements, the roof, the siding, all those really fundamental items of a home. Some inspectors check appliances, some of them don’t. But they want to look for health and safety items as well. I also recommend that my clients do a radon inspection. Radon is a naturally forming gas that comes from the earth and high levels of exposure can result in lung cancer. Similarly, if you have well water you’re going to want to test that. You may also want to test for mold and lead if the inspector sees cause for concern. I also recommend that my clients do a termite inspection.

The Escape Home: What are some common expenses that people should budget for when purchasing a home that they might not think about?

Kebalo Hughes: So number one, they need to budget for the appraisal, which in Connecticut is between $600 and $800. There’s also the cost of the inspection, usually about $1000 for a general. 

The Escape Home: While mortgage rates are still historically low, they’re a lot higher than they were two years ago. If people are thinking of purchasing, should they wait until they drop again?

Kebalo Hughes: Honestly, inventory is so low right now, if someone finds something that they really like, and they’re able to afford it and they’re able to actually get the offer accepted, go for it. Because honestly, at the end of the day, if you’re renting, would you rather pay down your own mortgage or your landlord’s? Also purchasing is a hedge against inflation because you have a fixed interest. And lastly, the average net worth of a homeowner versus a renter is more than 40 times greater, because you’re building equity into your own home.

Plus, if mortgage rates go back down you can refinance. My husband and I purchased in 2016 with a fixed rate of around  5% and guess what, when it went down to the two percents, you better believe we refinanced. So you can always get better, but you can’t get worse once you have a fixed interest rate.

This article is reprinted by permission from The Escape Home, a newsletter for second homeowners and those who want to be. Subscribe here. © 2022. All rights reserved.