Buying a home, in many ways, is part of the quintessential American dream. However, there are a ton of Millennial, Gen Y, and Gen X first-time buyers out there, and if you’ve never navigated the process before, it can be intimidating.
I myself am a Millennial hoping to buy my first home in the next 3-5 years, so I was extra excited to sit down with my friend Stacia Oberweis, a rockstar real estate agent with Keller Williams in Atlanta, GA. She let me pick her brain on all aspects of the process, plus she was so patient with my ignorance about escrow!
Michelle: Okay, let’s start at the beginning. How do you even know it’s time to buy a house? What are the factors to consider between renting versus buying?
Stacia: Right now is actually a great time to buy, because rents are rising and interest rates are really low—money you borrow will go further when rates are low. When you’re renting, you’re paying for someone else’s investment, making money for them. But when you have a bit of money saved up, you’re in a stable job, ready to live in the in same location for 3-5 years, or maybe 5-7 years, and you want to start building some equity and paying yourself, that’s when you’re ready to start buying.
Usually the people who are considering buying a home have graduated, started their first “real job”, and stayed there for a year or two. You also see people who just got married, are in a relationship that’s going to the “next level”, or you’re looking to start a family, adopt more dogs, or whatever. The key parts are you’ve got the money saved, a steady job, and you’re wanting to be a little more permanent for at least five years.
There are some other considerations, though. When you are renting, your landlord takes care of all the maintenance, but when you buy, you have to do all the maintenance yourself. If that sounds daunting, you have a couple of options: you can buy a condo, or you can find something with an HOA (Homeowners Association) that does all the exterior maintenance. So the stability and having a job and choosing a location is important, but then you also need to consider whether you’re able to put a few hours a week into keeping the house in good shape, or whether you’re willing to pay someone to do those things. If you don’t keep up with it, it will cost you more in the long run.
The ongoing maintenance aspect definitely scares some people away. Make sure you can put some money aside for an emergency fund. Know that something will break at some point, the AC or water heater, so you need to be prepared for maintenance or to pay someone to do maintenance items. For example, I have a yard guy, a handyman… I don’t get on my roof to get the leaves off, but I do pay a guy to do that.
Michelle: Okay, so let’s say you’ve done some soul searching, you think you might be ready… How do you know how much house you can afford?
Stacia: People think you need all this money to buy a house, but most people don’t know that there are down payment programs that require as little as 3% down. FHA loans—that stands for Federal Housing Authority, a.k.a. Fannie Mae—those require a 3.5% down payment. Then, there are conventional loan programs starting at 5% down. I just bought a new house that cost was $335,000 and only needed $18,000 for my down payment.
In addition to the down payment, at least in the state of in Georgia, all the closing costs on a loan are the responsibility of the buyer. Closing costs include the costs to get the loan, the origination fee, assessment costs, a credit report fee, and flood certification fee, as well as the costs associated with your attorney: title search, title binder, title insurance, recording fee. You’re also required to set up an escrow account. That’s where your mortgage company pays your first years’ homeowners insurance up front, along with property taxes at closing, plus puts aside some additional money aside for future insurance and taxes. There are like 50 things that add up to closing costs, but in total, closing costs represent an additional 3-4% of the price of your home.
Back in the day, you could roll closing costs into the loan, but you can’t do that anymore. The 2008 financial crisis changed that, because it meant that the value of the loan was higher than house was worth, and that became a problem when the market collapsed.
So overall, you’ll need anywhere between $6,000-10,000 for every $100,000 you want to borrow. You might end up getting some of this back in the closing process, because sometimes sellers will help you with that. They might give you some money back towards your closing costs. For example, if you ask for $3,000 back on the closing costs, that comes out of their bottom line.
But back to my recent purchase… I only needed $18,000 for the down payment and $7,000 for the closing costs. Lots of people think you need a full 20% down to begin with, but that’s just a rumor. See, the bank is taking a big risk on you by giving you so much money. The financial world figured out that once you have 20% of your own money in the deal, that you’re going to really try and keep that house; you’ve got skin in the game.
With anything less than 20% down, they consider you to be risky. This means they charge you a mortgage insurance premium (also called MI or PMI), which depends on your credit score, the purchase price, the size of the down payment, etc. All these inputs go into a formula to figure out the premium, but it’s usually only it’s an extra 100-150 bucks a month, plus once you get to 20% equity in the home, you can you can refinance and drop your PMI.
With 20% down, you don’t have to pay mortgage insurance, and it’s not mandatory that you have an escrow account.
Michelle: I’ll be honest, that’s a lot less money than I thought. I definitely thought the 20% down was a hard and fast rule, rather than a guideline. So okay, you’ve decided to buy, you’ve got the money saved up, and now you’re ready to actually start the search. I know you’re biased here, but how can Millennial, Gen X, and Gen Y clients benefit from working with a professional realtor vs. scouting out places yourself?
Stacia: A lot. So first of all, it’s kind of a myth that realtors exist to screw you over or that you’ll save money by buying on your own. The selling agent has a fiduciary duty to the seller, and the buying agent has a fiduciary duty to the buyer. The brokerage engagements require agents to protect the best interests of the buyers and sellers they work with.
In addition, when the seller signs a listing agreement with the agent or broker, they agree to pay the listing broker a commission. 6% is pretty standard. The Listing agent typically agrees to share the commission that the seller pays them with the Selling agent. If you go on your own without representation, you’re not gonna get 3% off the price, because the seller is still required to get that 6% commission for their agent. It’s just that the Listing agent would be keeping the whole commission, rather than splitting it with a Selling agent.
Then you have to consider all the steps in the home buying process. The average person does this two, maybe three times in their entire life. An agent does this process many times a year, I do it about 50 times a year. This is all they do, full-time. This means they’ve built relationships with vendors, mortgage people, inspectors, termite guys, attorneys, all the handyman contacts you’ll ever need… you name it. A realtor can also help you find both listed and unlisted properties, get into the properties with an electronic key, all that good stuff.
I look at a thousand houses per year, so I also can advise on the condition of the home. I see things that other people miss. Also, we know the market very well, so we can tell you what’s overpriced and underpriced. A full-time realtor will research the property for you, do a comparative market analysis to check pricing, fill out all the forms, including the 20-25 pages of contract papers for every offer you make, and negotiate on your behalf with the other side. Once you go under contract, we then help you through the whole contract-to-close process and represent you at closing.
There’s just a lot of stuff to know about. The financing, inspection, negotiation, repairs, what is and isn’t normal with a house. So yeah, I’m biased, but I’d always recommend people bring in a professional for this kind of huge investment.
Michelle: It seems just like with any type of professional relationship, it’s important to find the right realtor for your situation. How can you make sure in advance that you’re working with a good realtor?
Stacia: It’s always a good idea to ask around to friends: who they used, did they like them, etc. You should also ask an agent whether they are full- or part-time. Some part-time agents do deals occasionally, but they’re not going to be as responsive as someone who’s doing it full time.
Some agents also specialize in various audiences. Some work with both buyers and sellers, others only handle the buy or sell side of the transaction. Then there’s price point to consider. Some agents only work at certain price points, like $550,000 and above, or won’t work with first time buyers. Me, I love working with first time buyers. I feel like they’re my babies, I just want to metaphorically cuddle them through the whole process.
You also want someone with your communication style: phone vs. text vs. Facebook messenger vs. email. Make sure they communicate the way you communicate, understand the market you’re looking in, and will be responsive to your needs. For example, I wouldn’t feel comfortable helping someone find a house in Acworth, GA, but I would work with someone in Marietta, GA. I also market myself to the LGBTQ+ community, so people feel comfortable explaining what they need in a house and why. It just makes for a much smoother experience when you can be open with your realtor.
Michelle: If you’ve got a realtor in mind, what research or planning should prospective buyers do before meeting with them?
Stacia: My personal experience has been that most people generally know what they want coming into the first meeting with me, and then have to adjust their expectations from there. People usually have location-based desires, whether it’s a specific school district or they’re looking for a certain commute, they want to be near MARTA, etc. I would say that 85% of people know what they want at the consultation, even if they don’t know every single detail.
The other 15% of people that I work with are just thinking of buying a house, looking for an initial consult to help establish needs and wants, but when it comes time for mortgage approval, they need to save more or bring up their credit score, or are waiting to time everything with when a lease ends.
Part of the consultation involves discussing that the home buying process is just that: it’s a process. And for the majority of buyers, it takes 6-9 months from the time we initially meet to going to closing. Usually we do a consultation, the buyer starts to save up money, think about their needs in home. Then once we start actually looking, some people look at five houses and close the deal, but others look every weekend for months and months or months.
But whatever your process is, we’re going on the journey together. Some people have areas of town where they don’t want to look, but then they warm up to those areas. It might take 2-3 trips around an area to figure things out. Or, a client will say they hate ranches, but then they realize that they’re a much more efficient floorplan, which is true. They’re a better use of square footage. Plus, the way things look on the internet is different than in person because of those magic cameras we realtors use. Basically what I’m saying is, you can do a bunch of research as a buyer before meeting with me, and you might come in with certain expectations, but those get adjusted as we go out together.
I will say though that the biggest thing is location, so important we say it three times: location, location, location! Narrowing down a location is the beginning and the end, figuring out where you want to live. There are a few factors to think about as you consider issues of location: your office commute, whether you’re still in school and need access to classes, you want your kids in a certain school, whether you want to be near friends or family, etc.
There’s also price point. If you’re in Atlanta and you want a nice move-in-ready home under $300,000, you’re gonna be south of I-20. DeKalb county and southeast DeKalb, all day long. There are so many renovated brick ranches in the $150k-250k range, perfect for first time buyers. But if you’re not willing to budge on location and you need a good school district, you might need to be willing to start looking at condos.
Michelle: So I know this isn’t exactly your area of expertise, but what can you tell me about the mortgage process? You have to get pre-approved, right?
Stacia: Yes, it’s important to get pre-approved so that you know how much you can afford to spend. With the approval process, there are a few ways to approach it. You can dictate a certain monthly payment, you can offer a certain down payment, or you can prioritize the interest rate over everything. A mortgage person can tell you whether to get an adjustable rate or 15-30 year fixed rate, all that good stuff. Whereas I know a little about mortgage stuff, to really figure out your situation, you’ll want to talk to a real mortgage lender.
A note about mortgage lenders: don’t go to a regular bank like Chase or Bank of America. It’s terrible. They have limited number of products and work normal business hours. Go to someone who is only a mortgage lender, who can shop from all the banks and real estate investors in the country. They’ve got hundreds of loan programs to pick from, they’re highly specialized, they answer their phone at weird hours, work on weekends, etc. That responsiveness is super crucial when dealing with very time sensitive issues.
Again, I can’t say this enough: don’t go to Wells Fargo. They are terrible. Wells Fargo is the #1 servicer of loans, so you may end up writing them the check every month, but don’t go to their mortgage department to do it. Go to someone who has a desk you can sit down at, someone who will answer their cell phone. It’s a very intimate process, and it’s very paperwork-heavy, and you’re exposing your entire financial life to that person. So make sure it’s someone you trust and can talk to. I always recommend 3-4 lenders to my buyers, so that they can see who they like best, and go from there.
It’s also important to know that when you apply for a mortgage, you must have a steady job history for two years. By steady, I mean either in the same industry for two years, or self-employed for two years. You can change employers, but it has to be the same type of work. So for example if you’re a stylist, and you change salons in the two years, that’s fine.
Finally, when you’re going through the pre-approval process, they’re looking at a few different factors. They want to see your last 2 year’s tax return, recent paystubs, last 2 month’s bank statements, W2 and 1099 forms, plus they’re looking at your existing debt payments and debt ratio—or what percent of income does your outstanding debt represent. Interestingly, Fannie Mae just raised the debt ratio requirement from 42% to 50%, since student debt is such a thing now. So now up to 50% of your income, in most cases, can go to debt payments.
Your credit score is also super important for getting approval. Federal Housing Authority loans go down to 580, but I believe that most conventional loans require a credit score of 640 or better. I’m a big fan of US Mortgage, because they have a credit repair department. If you want to buy a home and you can’t get pre-approved for anything, you can work with their credit repair people for a year and then come back and try again.
Michelle: Another part of the home buying process that has always scared me personally is getting a “lemon,” so to speak. What tips do you have for finding a good home inspector?
Stacia: Honestly, listen to your realtor’s recommendations. A lot of times, people say they don’t want to use the realtor’s recommended inspector. They’ll worried that we’ll trick you into buying a crappy house, or something. But here’s what you have to remember: the home inspector works for the buyer, not for the seller or the real estate agents, period. Also, my entire business is built on repeats and referrals. If you get screwed, you will drive business away, which means that it’s in my best interest to give you the best service I can so that you have a great experience and you tell your friends about me. So in my experience, it’s a good idea to take a realtor’s suggestion, and then cross-reference it by asking around, seeing who your friends used, and read reviews online. Do your own due diligence, but keep in mind that your real estate agent will have some experience with this.
Michelle: Okay, so I have to ask, now that we’ve covered a lot of the big topics: WTF is escrow?
Stacia: Escrow is confusing because it’s one word that can mean a couple different things. In other states: North Carolina, California, and others, once you’ve gone under contract, you’re “in escrow” until closing. In Georgia, we just call that under contract. Then there’s another usage called “closing in escrow”. That’s when we’ve signed all the paperwork, but the money just hasn’t happened yet for whatever reason: the wire isn’t here, a computer is down, someone went to lunch etc. The escrow agreement is the agreement to close, sign paperwork without the money, and if the money isn’t here by whatever date, we unwind the deal. Then finally, we talked about this earlier, but the escrow account is where your mortgage lender has an account for you to pay out your insurance and taxes, if you put less than 20% down on a home.
Michelle: One final question before I let you go about your merry way: what happens at closing?
Stacia: Well, you should be prepared to sign about 100 pieces of paper… all the fun stuff happens at the beginning of the process, but at closing, you’re mostly going to work with the attorney to go through all the loan documents, which is a huge stack of papers. A lot of it is repetitive and full of disclosures.
The first thing is you go over the settlement statement that lists all the money stuff: purchase price, the deposit, credits from the seller, property taxes or utilities bills to settle up, and the amount in cash required at the closing. On the seller’s side, there’s the purchase price, any concessions to the buyer, closing costs they’ve agreed to cover, etc. You’ll review that with the attorney, make sure everyone understands it, and then sign a paper of paper to attest.
Then, the seller signs the paperwork to transfer deed to you. The buyer also signs a security deed that’s about pages long—basically, it says that if you don’t pay, you don’t stay, and that you agree to pay the mortgage payments on time. It’s the document that ties you, the property, and the mortgage all together. Then you’ve got paperwork to keep insurance on the property, agree not to burn it down, pay your HOA dues and property taxes.
Georgia is a non-judicial foreclosure state, which means they can take the property away from you without going to court, in the event that you don’t pay your mortgage. So you sign what’s called a Waiver of Borrower’s’ Rights, which explains that they won’t take you to court to take your house.
All in all, you’re just reviewing and signing paperwork for at least 20-30 minutes at closing. The attorney scans and faxes everything to the lender, someone at the bank gets that fax, makes sure they have everything, they release the money, send the funding number, and officially wire the money. The attorney confirms that everything has been taken care of, then they come back with a folder with copies of all your docs and sometimes a digital copy as well. You’ll need this executed settlement statement to hook up all your utilities in the new place.
Then you get your keys, garage door openers, all that fun stuff, and that’s it! You own a house!
Michelle: Thank you so much. This has been exceedingly helpful. I can’t tell you how much I appreciate this information.
Stacia: You’re so welcome. And if you or any of the readers have any questions, you can let me know anytime. All of my information can be found on www.staciasells.com, or on my Facebook page, Stacia Oberweis, Realtor.