Buyer Info

Question: I want to start looking for a home, but several people suggested agents won’t take me seriously without a pre-approval letter. I understand the pre-approval must be updated every 30 days, and a credit check hurts my credit score. How do I avoid being punished for planning ahead and beginning my search far in advance of the target move date?

Answer: A pre-approval from a mortgage lender has gained more importance in real estate transactions than ever before. There are many reasons that reward you, not punish you, for making the effort toward mortgage loan pre-approval.

It is a wise move to start your search early. You do not have to update your pre-approval status if your circumstances to not change, and the effects of a lender verifying your status while you shop for a mortgage will have little impact on your credit score.

A formal loan application for a loan on the property you ultimately chose, subject to financing, is the only other time you will have to circle back.

Lenders have different criteria in determining buying power, so that pre-qualifying will go a long way toward a positive experience. Here are the key benefits of pre-qualification:

• You know in advance what you can afford.
• You save time not looking in the wrong price range.
• You get the lender’s perspective of the local marketplace.
• Your agent will see your pre-approval as a positive sign you are serious.
• A source of financing can influence the seller’s reaction to an offer.
• It can lead to a more efficient and faster closing.
• You learn about the financial alternatives available to you and have time to consider them.

After you have been pre-qualified and found the right home, you will have to fill out an application and submit the information you initially collected, plus depending on when you buy, underwriting will most likely request updated and additional data.

 

Your Financing Source

There are many aspects to consider before you pick a lending source. Do an Internet search for reviews on the lenders. Changes in government oversight of lending rules and procedures have stiffen and in many cases created an atmosphere where obtaining a home mortgage is more difficult. For example, late payments may result in higher interest rates. When choosing a source you should consider how competitive their rates are; the types of mortgages they offer, specifics on each loan, the cost to borrow and how they service their loans. Seemingly tiny differences can have a big effect on the cost or convenience of a loan product. Here is a starter list of questions to ask.

• What different types of mortgages do you offer?

• Do you sell the mortgage after you have originated it? If so, who services the loan going forward?

• Do you provide a written estimate of the monthly payments and a breakdown of the closing costs?

The lending process can be confusing because loan officers will spend time and energy trying to convince you they are the best mortgage source. But when their underwriters spend even more time asking follow-up questions and challenging your application, it can be confusing.

Conflicting signals are due to the complementary roles the loan origination (sales), and underwriting (risk control) functions play within the organization. Just being aware of the conflicting positions may help in cutting down on the frustration it can cause.

 

What To Expect

Mortgage lending is an extremely competitive field, and it will pay dividends to shop for a loan. You want lenders to compete for your business.

There are many sources of loans that will reveal themselves when you use the tools available to seek them out. In addition to banks and credit unions, mortgage brokers have many loan products and specialize in mortgage loans only. They are strictly commission-based and work more like real estate agents.

Online mortgages are available and underwritten by some of the largest financial institutions in the country. VA mortgages are available for many veterans with no downpayment required.

A common error in lending happens after the pre-approval of a home loan. The buyers purchase a car before the closing! The lender rejects the closing because their circumstances have changed. This circumstance and others have killed many closings. Don’t let it happen to you.

1. Decide To Buy
Although there are many good reasons for you to buy a home, wealth building ranks among the top of the list. We call home ownership the best accidental investment most people ever make. But, we believe when it is done right, home ownership becomes an intentional investment that lays the foundation for a life of financial security and personal choice. There are solid financial reasons to support your decision to buy a home, and, among these, equity buildup, value appreciation, and tax benefits stand out.

• Base your decision to buy on facts, not fears.
• If you are paying rent, you very likely can afford to buy.
• There is never a wrong time to buy the right home. All you need to do in the short run is find a good buy and make sure you have the financial ability to hold it for the long run.
• The lack of a substantial down payment doesn’t prevent you from making your first home purchase.
• A less-than-perfect credit score won’t necessarily stop you from buying a home.
• The best way to get closer to buying your ultimate dream home is to buy your first home now.
• Buying a home doesn’t have to be complicated, there are many professionals who will help you along the way.

 

2. Hire Your Agent
The typical real estate transaction involves at least two dozen separate individuals, insurance assessors, mortgage brokers and underwriters, inspectors, appraisers, escrow officers, buyer’s agents, seller’s agents, bankers, title researchers, and a number of other individuals whose actions and decisions have to be orchestrated in order to perform in harmony and get a home sale closed. It is the responsibility of your real estate agent to expertly coordinate all the professionals involved in your home purchase and to act as the advocate for you and your interests throughout.

Seven Main Roles Of Your Real Estate Agent

A Buyer’s Real Estate Agent:

1. Educates you about your market.
2. Analyzes your wants and needs.
3. Guides you to homes that fit your criteria.
4. Coordinates the work of other needed professionals.
5. Negotiates on your behalf.
6. Checks and double-checks paperwork and deadlines.
7. Solves any problems that may arise.

Eight Important Questions To Ask Your Agent
Qualifications are important. However, finding a solid, professional agent means getting beyond the resume, and into what makes an agent effective.

Use the following questions as your starting point in hiring your licensed, professional real estate agent:

1. Why did you become a real estate agent?
2. Why should I work with you?
3. What do you do better than other real estate agents?
4. What process will you use to help me find the right home for my particular wants and needs?
5. What are the most common things that go wrong in a transaction and how would you handle them?
6. What are some mistakes that you think people make when buying their first home?
7. What other professionals do you suggest we work with and what are their credentials?
8. Can you provide me with references or testimonials from past clients?

 

3. Secure Financing
While you may find the thought of home ownership thrilling, the thought of taking on a mortgage may be downright chilling. Many first-time buyers start out confused about the process or nervous about making such a large financial commitment.

From start to finish, you will follow a six-step, easy-to-understand process to securing the financing for your first home.

Six Steps To Financing A Home

1. Choose a loan officer (or mortgage specialist).
2. Make a loan application and get preapproved.
3. Determine what you want to pay and select a loan option.
4. Submit to the lender an accepted purchase offer contract.
5. Get an appraisal and title commitment.
6. Obtain funding at closing.

 

4. Find Your Home
You may think that shopping for homes starts with jumping in the car and driving all over town. And it’s true that hopping in the car to go look is probably the most exciting part of the home-buying process. However, driving around is fun for only so long, if weeks go by without finding what you’re looking for, the fun can fade pretty fast. That’s why we say that looking for your home begins with carefully assessing your values, wants, and needs, both for the short and long terms.

Questions To Ask Yourself

• What do I want my home to be close to?
• How much space do I need and why?
• Which is more critical: location or size?
• Would I be interested in a fixer-upper?
• How important is home value appreciation?
• Is neighborhood stability and priority?
• Would I be interested in a condo?
• Would I be interested in new home construction?
• What features and amenities do I want? Which do I really need?

 

5. Make An Offer
When searching for your dream home, you were just that, a dreamer. Now that you’re writing an offer, you need to be a businessperson. You need to approach this process with a cool head and a realistic perspective of your market. The three basic components of an offer are price, terms, and contingencies.

Price – The right price to offer must fairly reflect the true market value of the home you want to buy. Your agent’s market research will guide this decision.

Terms – the other financial and timing factors that will be included in the offer.

Terms Fall Under Six Basic Categories In A Real Estate Offer

1. Schedule – a schedule of events that has to happen before closing.
2. Conveyances – the items that stay with the house when the sellers leave.
3. Commission – the real estate commission or fee, for both the agent who works with the seller and the agents who works with the buyer.
4. Closing Costs – it’s standard for buyers to pay their closing costs, but if you want to roll the costs into the loan, you need to write that into the contract.
5. Home Warranty – this covers repairs or replacement of appliances and major systems. You may ask the seller to pay for this.
6. Earnest Money – this protects the sellers from the possibility of your unexpectedly pulling of the deal and makes a statement about the seriousness of your offer.

 

6. Perform Due Diligence
Unlike most major purchases, once you buy a home, you can’t return it if something breaks or doesn’t quite work like it’s supposed to. That’s why home owner’s insurance and property inspections are so important.

A Home Owner’s Insurance Policy Protects You In Two Ways

1. Against loss or damage to the property itself.
2. Liability in case someone sustains an injury while on your property.

The property inspection show expose the secret issues a home might hide so you know exactly what you’re getting into before you sign your closing papers.

• Your major concern is structural damage.
• Don’t sweat the small stuff. Things that are easily fixed can be overlooked.
• If you have a big problem show up in your inspection report, you should bring in a specialist.
• If the worst-case scenario turns out to be true, you might want to walk away from the purchase.

 

7. Close
The final stage of the home buying process is the lender’s confirmation of the home’s value and legal statue, and your continued credit-worthiness. This entails a survey, appraisal, title search, and a final check of your credit and finance. Your agent will keep you posted on how each if progressing, but your work is pretty much done.

You Just Have A Few Preclosing Responsibilities

• Stay in control of your finances.
• Return all phone calls and paperwork promptly.
• Communicate with your agent at least once a week.
• Several days before closing, confirm with your agent that all your documentation is in place and in order.
• Obtain certified funds for closing.
• Conduct a final walk-through.

On Closing Day, With The Guidance Of A Settlement Agent And Your Agent, You’ll Sign Documents That Do The Following:

• Finalize your mortgage.
• Pay the seller.
• Pay your closing costs.
• Transfer the title from the seller to you.
• Make arrangements to legally record the transaction as a public record.

As long as you have clear expectations and follow directions, closing should be a momentous conclusion to your home-searching process and commencement of your home-owning experience.

 

8. Protect Your Investment
Throughout the course of your home-buying experience, you’ve probably spent a lot of time with your real estate agent and you’ve gotten to know each other fairly well. There’s no reason to throw all that trust and rapport out the window just because the deal has closed. In fact, your agent wants you to keep in touch.

Even after you close on your house, you agent can still help you:

• Handle your first tax return as a home owner.
• Find contractors to help with home maintenance or remodeling.
• Help your friends find homes.
• Keep track of your home’s current market value.

Attention to you home’s maintenance needs is essential to protecting the long-term value of your investment.

Home Maintenance Falls Into Two Categories

1. Keeping it clean – Perform routine maintenance on your home’s systems, depending on their age and style.
2. Keeping an eye on it – Watch for signs of leaks, damage, and wear. Fixing small problems early can save you big money later.

Before the home search begins, your real estate agent will want to know as much as possible about the features and amenities you desire. To help your agent better serve you, analyze what you want and what you need in a home’s features and amenities.

Features:

• Age – Do you prefer historic properties, or newer ones?
• Style – Do you have a special preference for ranches, bungalows, or another style of construction?
• Bedrooms – How many?
• Bathrooms – How many? Are they updated?
• Living and Dining Areas – A traditional, formal layout, or a more open, contemporary plan?
• Stories – How many?
• Square feet – How much space?
• Ceilings – How high?
• Kitchen – How big? Recently updated? Open to other living areas?
• Storage – Big closets, a shed, an extra-large garage?
• Parking – A garage or carport? Room for how many cars?
• Extras – Attic or basement?

Amenities:

• Office
• Play/Exercise Room
• Security System
• Sprinkler System
• Workshop/Studio
• In-Law Suite
• Fireplace
• Pool
• Hot Tub
• Sidewalk
• Wooded Lot
• Patio, Deck, or Porch
• Laundry Room

Where you buy not only affects the home’s current and future value, but it also affects your lifestyle. Your agent will be able to conduct a more targeted home search if you outline your preferences in neighborhoods and nearby amenities. Here’s a checklist of items you should consider and communicate to your chosen real estate agent.

• Urban, Suburban or Rural
• Commute Time
• School Districts
• Desirable Neighborhoods
• Proximity to the Airport
• Proximity to Restaurants and Retail
• Access to Major Highways and Thoroughfares
• Access to Public Transportation
• Health Care Facilities
• Parks and Recreation
• Length of time you plan to live in the home (Your agent should be knowledgeable about growth trends and projections that could affect your investment.)

Whether to buy an existing home or have one built is yet another decision to make during the home-buying process. If you decide to go with new construction, a real estate agent can be a powerful advocate in your corner as you negotiate upgrades, a move-in date and other terms with the home builder.

Below are some basic pointers to prepare you for the journey ahead:

Selecting A Builder
Shopping for a large production or custom home builder can be a daunting task. Start by defining what architectural styles appeal to you and then seek out the builders in your area who offer those styles. Due diligence is essential. Ask friends for referrals to get firsthand accounts; verify the builder’s state license status, if applicable; and check whether they’re certified by the National Association of Home Builders.

The Builder Representative And Your Real Estate Agent
A builder representative’s ultimate goal is to sell you a home. His or her role is to provide a wide range of information to help you in your decision-making, from building restrictions, roads and easements to inspections, warranties, rebates and upgrades. A real estate agent knowledgeable in new-home construction will be able to help you wade through all the data and point out the downsides and upsides of each line item. Your agent also can look out for your interests in reviewing the builder’s contract, which often contains more legal jargon than consumer-friendly language.

It’s All About Timing
Market conditions greatly dictate a builder’s incentive to make a deal you cannot refuse. When a builder has inventory on his hands, his carrying costs start adding up. When this happens, a builder might be more amenable to strike a favorable deal, whether it’s throwing in upgrades or taking a bit off the asking price. A real estate agent can help you know when market conditions are right for these benefits. Also, watch for builder close-out sales. Builders promote these special events when a new subdivision is near completion but empty inventory still remains.

A Word About Paying Up
While there are always exceptions, most builders require a deposit when a purchase agreement is signed. They also require that the buyer pay for any upgrades prior to closing. If you back out prior to closing, unless the agreement states otherwise, you will lose that money. Make sure you understand every detail in the builder’s contract before signing it.