First Time HomeBuyers Guide
Congratulations on taking the first step towards owning your own home! With historically low interest rates, reasonable prices, and Hawaii’s strong real estate market, you are making a wise decision.
First things first: I specialize in helping Buyers. I represent you, and not the seller and I am responsible for protecting your best interests. And my services are completely free to you.
Buying your first home can seem complicated and overwhelming. I’ll be by your side, making it easy for you and helping you every step of the way. Here’s how the process works.
1. Think about what you want to buy.
- Estimate what you can afford. At current interest rates, 4 times your combined annual income is a good rule of thumb. In addition to your price range, think about your desired criteria, especially location and whether you prefer a house or a condo.
- Set up a Property Alert on allmauiproperties.com so you can automatically see all matching properties and get notified when new matching properties come on the market. My website has every property from every company on Maui. Non-realtor sites like Zillow and Trulia are very inaccurate, missing lots of listings and showing you many properties that are no longer available. I can set up the Property Alerts for you if you want help.
2. Get pre-qualified by a lender.
- Pre-qualification by a lender is an informal assessment by a lender or mortgage broker that will estimate the amount of the mortgage you can afford. This usually takes just about 15 minutes and can even be done on the phone; the lender will need to ask you about your employment, income, and borrowing history. The information you provide is strictly confidential, and it won’t hurt your credit rating. Most lenders will provide a Pre-qualification letter, which helps to show sellers that you are a serious buyer. We have some great lenders we work with who make the pre-qualification process quick and easy.
- Your lender will also take this opportunity to discuss different types of loan programs to see what is the best fit for your situation. While some loans require a 20% down payment, there are special programs that allow for very low down payments, and in some cases, even no down payment at all.
3. Pick out your home.
- We’ll have an initial meeting somewhere convenient. A 20 minute meeting is the best way for us to make sure we want to work together and to get started. We’ll review your situation, establish your goals, and start looking at some current listings so I can get a better idea of what you’re looking for. In addition to location and price range, we’ll start to narrow down your criteria further, discussing such things as whether you want a turn-key property, or a fixer-upper; the size; the number of bedrooms and bathrooms; and any other desires, such as a yard, pool, and view. We’ll end up with a wish list for your perfect home, but then you’ll have to be flexible, as you’ll have to select from what’s on the market in your price range.
- We’ll need to get a Pre-Approval letter from your lender, and the time to do that is before you find a home you want to buy. A Pre-Approval letter is a guarantee in writing that the lender will make you a loan up to a certain loan size, subject to receiving full documentation. Getting a Pre-Approval letter will save you time, strengthen your negotiating position, and speed up the home purchase process. Today, most sellers won’t even consider an offer without a Pre-Approval letter. And because good properties go right away, you don’t want to delay making an offer when you find the right property, so you should get the Pre-Approval letter from your lender well ahead of time.
- We’ll work together to identify some properties to go see. I’ll set up the showings and take you to see the properties. We may look at only one home; more often it will be 3-7 homes that meet your criteria. Often we’ll find your new home on the first day of looking, and most people are able to find something they’d like to buy within a week or at most two weeks. You may want to go back to look at your top couple of choices to make a final decision.
- When you find one you are interested in, we have to act fast. It’s currently a seller’s market, with very little inventory and a lot of buyers. Buyers come out right away to look at every new listing, and if it is priced right, it will usually attract offers immediately. Sometimes there will even be multiple offers above asking price. I’ll be able to tell you if it looks like one of those situations.
- If possible, I’ll do what’s called a Comparative Market Analysis to determine what the Fair Market Value is. The CMA will identify similar nearby properties that have recently sold, and then make adjustments based on differences in size, quality, location, and land, to determine the Fair Market Value. Sometimes if we have to compete to get an offer in right away on a hot property, we won’t have time to do the full CMA and I’ll have to do a shortcut to determine fair market value.
4. Negotiate and sign a Purchase Contract
- I’ll advise you on the price and terms for making a purchase offer. Sometimes it will be possible to negotiate a price below the asking price; sometimes the seller will only accept full asking price; and other times we may have to make an offer above asking price. While everyone likes to get a good deal, your goal should be to buy the right property for you, at close to Fair Market Value.
- Price is just one element of the offer. There are dozens of different terms in the contract, and I’ll explain them all and what your choices are.
- I’ll prepare a Purchase Contract for you to sign. We usually do this electronically, through a system called Docusign. Once you sign, I’ll submit the Purchase Contract to the seller’s agent. In Hawaii, we use a standard form Purchase Contract for the offer. No attorney is necessary, although of course if you want to, you can have an attorney review the Purchase Contract.
- The seller will probably give us a counter offer in writing, and you may accept that or you may give your own counter offer. I’ll advise you on the negotiations along the way. Generally there are only one or at most two rounds of counter-offers.
- A lot happens during Escrow, and some of it can be pretty confusing. But my team and I will be there to help you through the whole process.
- Once you and the seller have agreed on the price and all of the terms, we will open escrow. We will need a check for the Earnest Money (usually between $1000 and $10,000), which will be held by the Escrow company. The Escrow company, which is almost always also a Title Insurance company, is a neutral third party that helps facilitate the transaction by holding all funds in an escrow account, doing title research, receiving all bills from various entities involved in the transaction, calculating pro rated taxes, assessments, etc., preparing the deed, handling recordation of the deed, preparing an accounting of the entire transaction, and disbursing funds. Because in Hawaii we use standard contracts and an Escrow company for our transactions, real estate attorneys are rarely involved, saving everyone money.
- Next is finalizing your loan. You will have to work very closely with your loan officer to provide them with all of the documentation they require to issue your loan. This may include pay stubs, W-2 forms, tax returns, bank statements, and more.
- While your lender is working on your loan, we will usually schedule a Home Inspection. Most home purchases include an inspection contingency, so you have a specified period of time to have a professional inspect the property, and if you are not satisfied with the results, you can cancel the purchase. They’ll do a thorough inspection to identify any problems, and give you a written report. Almost every home, even brand new ones, has some issues that the home inspection will uncover. Most of the time they are minor or expected due to the age or condition of the home. Sometimes, a major unexpected issue is found. In Hawaii, most purchases include an “As Is Addendum”, which states that you are buying the property in its present condition, and will not ask the seller to make any repairs. However, if there is something major and unexpected, you have the right to cancel the purchase or request that the seller make repairs or give you a credit so you can make the repairs. I will advise you on what is appropriate in your situation, and document any necessary negotiations, which will become a part of your Purchase Contract.
- You will receive additional documents and reports during the escrow period, including a seller’s disclosure report, a preliminary title report, a survey, and any homeowner association-related documents. I will help you review each of these and advise you on any issues you need to be aware of. Sometimes there are easements that impact what you can do with your property, or encroachments that may need to be resolved by an encroachment agreement. Generally, if the title company is satisfied with the situation and willing to issue title insurance, then there is not a problem.
- The last inspection is usually the Termite Inspection. This generally happens shortly before closing. If active termites are found, the seller must provide treatment.
- You get a chance to do a final walk-through of the property before closing, just to make sure it is in the same condition as when you signed the contract, it is clean, and any required repairs have been made.
- At least 4 business days prior to the Closing date specified in the contract, you will go to the escrow company’s office to sign all of the documents. You will need to bring the down payment at that time, in the form of a cashier’s check from a Hawaii bank, or a bank wire. A day or two before that, the escrow company will have sent a standard HUD form that identifies all of the various costs involved in the transaction, including the purchase price, the various inspections, pro rated taxes and homeowner’s association dues, lender fees, title and escrow fees, and even copying and delivery fees. It also specifies where all of the money is coming from (loan or cash) and where it is going (the seller’s lender, to pay off taxes, or to the seller). I’ll also review the HUD form to make sure everything is correct.
- After you sign the closing documents, your lender will fund the loan and wire the proceeds to the escrow company. That has to happen at least two days before the official recordation of the deed and transfer of ownership can occur.
- As long as all of the funds are in on time, on the closing date, the escrow company will deliver the deed to the State of Hawaii Bureau of Conveyances for Recordation, and you officially own your new home.
- Once the recordation is verified by the escrow company, I will call you with the good news, and arrange to deliver the keys to your new home.