Buyers August 11, 2022

First-Time Home Buyers: Pre-Approval, Making an Offer, Escrow

Buying your first home is a big decision. But learning more about the process will help you feel prepared and increase your confidence moving forward. Below is a list of first-time home buyers’ frequently asked questions. Read on to find out about the pre-approval process, making an offer, and escrow.

Pre-Approval Process

What is pre-approval?
Pre-approval is a way for you to establish your creditworthiness before buying a home. This is an important initial step for first-time home buyers. It helps you learn how much you can borrow. With this number, you’ll be empowered to start house hunting by knowing your price range. To receive pre-approval, you must consult with a lender to begin the process. This is a great opportunity to discuss loan options, and budgeting needs, and identify potential credit issues.

When should I start the pre-approval process?
If you have good credit and are confident in your ability to qualify for a loan, it’s best to consult with a lender when you are ready to start house hunting. Pre-approval letters are typically valid for 60 to 90 days, so it’s best to take this into consideration as you search for a home. Once the pre-approval expires, you’ll have to fill out updated paperwork as part of a new mortgage application.

If you have doubts about your credit and ability to get a loan, consider consulting with a lender approximately a year before you start house shopping. This will give you time to identify any potential credit issues and take action to address them. Also, you’ll have more time to save for a bigger down payment, which can improve your chances of qualifying for a loan.

What information is required during the pre-approval process?
The answer to this question varies slightly depending on the lender and each loan seeker’s situation. Typically, first-time home buyers need to provide an overall financial picture with proof of employment, credit information, income, assets, existing loans, and other standard identification documents. Consult this helpful pre-approval list for more information on what you’ll need to get started.

After going through the pre-approval process, Windermere Kingston Broker/Realtor, Michelle Cook recommends home buyers come in “fully underwritten.” She explains, “You will be almost as competitive as a full cash offer, which is essential in today’s fast-moving seller’s market.” Watch her full video below to learn more.


Lenders and Home Loans

How do I find a lender?
When it comes to finding a lender, it’s best to do your research. There are many options including online lenders, mortgage brokers, and local banks. At Windermere, we recommend working with a local lender to better set yourself up for success. There are several benefits of using a local lender that you just can’t find elsewhere such as a personalized experience and deep local community knowledge.

What type of home loan should I get?
Conventional loans are the most common type of loan issued to home buyers by private lenders. The two most common conventional loans are 15-year and 30-year fixed-rate mortgages. A 15-year loan means you’ll pay less interest on the loan overall. However, it requires a higher monthly payment. A 30-year loan has the advantage of a lower monthly payment, but will ultimately cost a home buyer more over a longer time period. For those who don’t qualify for conventional loans, government-backed loans might be a good option. Learn more about all the home loan options available to better understand the best option for you.

Making an Offer

How do I make an offer?
This is where having a great real estate agent is essential. Your agent will work with you to strategically craft an offer that takes into account a variety of factors including your budget and the local market to ensure it’s competitive. Also, you’ll need to have your pre-approval letter ready to ensure the seller knows your offer is backed by a lender. If your offer is under the maximum loan amount you’re approved for, it’s smart to work with your lender to get a customized letter for the offer amount. Otherwise, a seller could see the bigger number on your letter and ask for more. Lastly, make sure your down payment is ready. If everything goes smoothly, you’ll want this in place to seal the deal.

What if the seller rejects my offer?
If you’ve found the perfect home, this can be disheartening news. Sellers reject offers for a variety of reasons. It’s often part of the process. Typically, they received a higher offer. Your agent may be able to find out more from the listing agent, which can help you craft a better future offer. Regardless, don’t give up and try to learn from the experience. Your dream home is still waiting for you!

What if the seller makes a counteroffer?
A counter offer means the seller is engaged, but there are details to be ironed out. Typically, sellers request adjustments such as a higher price, a modification to your contingencies, or a change in closing dates. It’s up to you to decide whether you accept or reject the counteroffer or submit a new counteroffer. Sometimes there are multiple counteroffers until the seller and buyer reach an agreement. It’s good to discuss your price limit and flexibility on contingencies and closing dates with your agent in advance. This will help you prepare for potential counteroffers and reduce surprises.

What if the seller accepts my offer?
This is great news! While the deal isn’t yet official, you’re getting close. Once the seller formally accepts your offer, you’ll be “under contract.” This means both you and the seller have agreed to move forward with the deal. Before closing, any contingencies attached to the offer must be met by both parties. After the purchase agreement is officially signed, the purchase becomes legally binding.


What is escrow?
Escrow is a legal arrangement where a third party holds the funds in a real estate transaction until the terms of the agreement are met. The escrow account protects the buyer’s “good faith deposit” or “earnest money.” This ensures that the deposit goes to the seller once all items in the real estate contract are met. Placing money in escrow shows the seller that you are serious about following through with the deal.

How do I begin the escrow process?
Once a seller accepts your offer, it’s time to open an escrow account. Typically, the amount deposited into the account is 3% of the purchase price or a rounded number close to that amount. After the deal is finalized and the seller has held up their side of the bargain, the funds being held in escrow will go towards your down payment and closing costs.

What is an escrow holdback?
This happens when money in an escrow account is held there after a home sale is final. Usually, this situation occurs when a buyer finds an issue with the house during a final walkthrough that wasn’t there during a previous inspection. If something unexpected happens to cause the house to be in worse condition than outlined in the contract, then the money being held in escrow is returned to the buyer, and they are released from the contract.

How does escrow work?
Once you and the seller have fulfilled all the contingencies and requirements within the contract, an escrow officer will issue you a property deed listing you as the owner. Then you’ll order a wire transfer requesting the funds to be distributed to the seller. After closing is complete, the third party managing the escrow account releases the funds. The deal is done. To learn how escrow evolves after you become a homeowner, check out this guide to escrow.

As a first-time buyer, you don’t have to navigate all these things alone. A Windermere real estate agent will help you get started, serving as your advocate and guide.