So, you’re thinking about buying your first home in the Bay Area? I bet you have a ton of questions. You aren’t alone. After working with many of people just like you, I’ve realized that the same questions come up over and over again. Here are the answers to your first time home buyer questions.
1. How Long Is This Going To take?
The most common of the first time home buyer questions is related to time. Specifically, how long will it take before I can move into my dream home?
If you are looking for a very specific floor plan or lot size in a specific neighborhood, your search may take longer than if you are looking in a general zip code for anything that meets your loose criteria so you have somewhere to land when you relocate.
Ill answer this by saying my clients usually search for an average of 5-6 weeks. Usually, I find a property off market/coming soon or we see the property hit the market and are notified. We then set out to set up tours, read disclosures and do other due diligence. If we catch the property at the beginning of the marketing cycle, we then have roughly two weeks to get all that done.
Typically, offers are due between Tuesday and Thursday and all bidders are asked to submit their paperwork for the Sellers to review. Then you spend roughly 24-48 hours negotiating. In the event of a multiple bid situation, this could be a bit longer. Either way, the winner of that bidding situation will then enter escrow.
The escrow process usually lasts 21-25 days assuming you are not paying cash. It is often longer in other parts of the country but we move a bit waters here. So, roughly three weeks after you officially open escrow, you are going to be signing your closing paperwork and grabbing the keys!
In all, from the time you officially start, you can expect this process to take a minimum of 2-3 months.
2. Whats next? - Get underwritten!
What you need to do is get fully underwritten ahead of time so you know your budget and your expenses with supreme confidence.
I wrote about this point in another post I did about the 9 Mistakes of First Time Home Buyers. You can read the fill article here.
In short, getting fully under written shows the Seller you are qualified and serious. Plus it allows you to potentially remove a loan contingency which makes you more competitive. More on contingencies later.
3. How Do The Buyers Agents Get Paid?
This is easily one of the most common first time home buyer questions. I did an entire video/post about this topic and you can read it here.
In short, the Seller pays the Listing Broker and the Listing Broker takes a portion of that to pay the Buyers Broker.
4. What Is An Earnest Money Deposit?
Also referred to as EMD, think of this as a good faith move on your part to show the Seller you are serious and have some skin in the game. This give both parties something to leverage in the event the other side fails to perform.
In the Bay Area, you should expect this number to be 3% of your purchase price. Why 3%?
The standard CA Purchase Agreement puts a limit on Liquidated Damages of 3% of the purchase price or whatever is in escrow. Technically the EMD amount is negotiable but it is standard that 3% goes in. Mostly due to the fact that we have had such a strong Seller’s market recently. Naturally, a Seller would want the most money on the line as possible.
One additional thing to know is that your EMD is due within 72 BANKING HOURS after you ratify your contract. This is the one timeline in the contract that uses banking days vs calendar days.
So, you should make sure to have at least 3% of your budget liquid and ready to deposit. This is the first major timeline in the contract and really sets the tone for the entire escrow. If you fail to hit this timeline, the Seller can give you a Notice To Perform and, after that expires, move to cancel the contract.
In short, have 3% liquid and ready to go and you won’t have any issue with this one.
5. Is My Down Payment Part Of My Closing Costs?
Another of the common first time home buyer questions has to do with money. The answer to this one is both yes and no. Heres how you should think about closing costs.
Most people use the term closing costs to mean the money they have to bring in to close the transaction. That makes sense, right?
It does to most people but there is a distinction that should be drawn here. Your downpayment is the money you are brining in to add to your loan to get to the purchase price. Think of your EMD as the first 3% of that down payment.
On top of your down payment, you will be responsible for some or all of the escrow fees, transfer taxes, loan origination fees, notary fees, etc. These are what your lender and escrow officer are talking about when they say closing costs. Note that most of these are negotiable, though there are typical allocations based on the geography you are in. Talk to your agent about this.
In short, it’s money you owe in addition to your down payment to close the transaction. Your lender and escrow officer will give you a break down of all of these fees. Make sure you review that prior to closing.
So, technically your down payment is part of the money you need to close the deal but it is not part of your actual closing costs.
6. Do I Have To Remove My Contingencies To Be Competitive?
No. You never have to remove contingencies. In fact, if anyone tells you to, run. These are your “get out of jail free” cards. More on that in the next point.
There are times when it is irresponsible to remove contingencies. For example: if a test hole or roof report was called for in the original inspections but was never done. Or you are at the top of your budget and your lender says it’s possible you may have to find more cash to close.
In both of those examples it would be completely irresponsible to remove contingencies. This is why it is critical to do due diligence up front and get pre approved. If you do, you can responsibly remove contingencies and make yourself more competitive.
With this much money and risk on the line, you should never let yourself be talked into doing this without a full conversation of the risks.
7. How Do I Get Out Of The Contract?
As a first time home buyer, you always want to know you have a way out in case something goes wrong. The first and only predictable way is to use your contingencies. That is why I said you have to remove the responsibly. If you are not solid in your upfront diligence, you could find yourself and your EMD in jeopardy.
Now, if you do keep a contingency, you can use it to get out fo the deal. However, you are bound by the contract to use good faith (see this post about that topic). That means you cannot use the loan contingency to get out of the contract if you suddenly get cold feet about replacing the roof.
One other way you could end up getting out of the contract is if a new disclosure comes up. That means either the Seller turns over some documentation that discloses something that alters the desirability or value of the property. It could also be cause by a leak that occurs and causes substantial damage.
Now, you as the buyer cannot go and create a new disclosure. An example would be going to the city and telling them that the Seller has converted the basement into an apartment without a permit. This technically creates a new disclosure that devalues the property. However, since you created it, you have also damaged the Seller and they can move to seek damages (your EMD).
Lastly, if the Seller fails to perform, you can use that as a way to get out. However, you would have to deliver them a Notice To Perform first. This gives them 48 hours to do what they agreed to do. If they fail to do so, you can then move to cancel the deal and get your EMD back.
Market influences aside, your friends, parents or agent can add to the pressure.
I hope this list has helped you. If I can give you more context on the process of buying your first home, please do not hesitate to reach out. My information is below.
Heres to all your success!