If you're like most people, purchasing a home is the biggest investment you'll
ever make. If you're considering buying a home, you're likely aware of the complexity
of the endeavor. Because of the numerous factors to consider when purchasing a
home, it's important to prepare as best you can. Some common home-buying principals
and caveats are presented here for your consideration. By keeping them in mind,
you'll help create a successful and more enjoyable experience. This list is by
no means exhaustive. Since your home could cost you 25 to 40 percent of your gross
income, it's important to conduct research, ask questions and study the process
carefully.
1. Not using a Realtor
When buying property, it is in your best
interest to select a Realtor who will enter into a buyer brokerage
agreement with you. This means the Realtor must represent your interests in
all instances and negotiate on your behalf.
A buyer representative can help advise you
in writing the contract and selecting an appropriate price to begin
negotiations, evaluating the properties you view, and should be more than
willing to do a market study of the property to determine its value in the
market place. Assess Your Personal Comfort Level Probably the most
important thing you need to consider when selecting a Realtor is how
comfortable you feel with that individual and if he or she seems to have a
quick grasp of your needs. It is imperative that you work with a Realtor who
listens to what you say and responds accordingly.
The Realtor who you are working with can
save you time by selecting properties that meet your criteria. It is not
necessary to view every property on the market in a given price range. Many
properties can be ruled out by evaluating the individual property
characteristics and amenities as they relate to your specific needs. A good
Realtor will navigate you through this process easily.
2. Looking for a home without being pre-approved.
As a potential buyer competing for a
property, you'll have a better chance of getting your offer accepted by
being as prepared as possible. Consider this hierarchy of preparedness:
Neither pre-qualified nor pre-approved
Pre-qualified
Pre-approved
The benefits available at each level can
be easily understood when viewed from the seller's perspective. Imagine
you're a seller in receipt of multiple offers to purchase your property. A
complete stranger (buyer) is asking you to take your property off the
market for at least the next two to three weeks while they apply for a
loan. As the seller, lets consider the type of buyer you'd prefer to deal
with.
Neither pre-qualified nor
pre-approved - This buyer provides no evidence that they can afford to
purchase your property. You may wonder how serious they are since they're
not at least pre-qualified.
Pre-qualified - This buyer has
met with a mortgage broker (or lender) and discussed their situation. The
buyer has informed the broker regarding their income, expenses, assets and
liabilities. The broker may also have seen their credit report. The buyer
provided you with a letter from the broker stating an opinion of what the
buyer can afford.
Pre-approved - This buyer has
provided a broker written evidence of income, expenses, assets, liabilities
and credit. A lender has verified all information. As a result, much of the
paperwork for this buyer's loan has been completed. This buyer will
probably be able to close quickly. They provide you with a letter (pre-approval
certificate) from the lender. You're as certain as possible that this buyer
can close.
As a potential buyer, you can see that
being pre-approved will give you the best chance of getting your offer
accepted. This is critical in a competitive situation.
3. Making verbal agreements.
If you're asked to sign a document
containing instructions contrary to your verbal agreements--don't! For
example, the seller verbally agrees to include the washing machine in the
sale, but the written purchase contract excludes it. The written contract
will override the verbal contract. More importantly, your state may require
that contracts for the sale of real property be in writing. Do not expect
oral agreements to be enforceable.
4. Choosing a lender just because they have the lowest rate.
While the rate is important, consider the
total cost of your loan including the APR, loan fees, discount and
origination points. When receiving a quote from a lender or broker, insist
that the discount points (charged by the lender to reduce the interest
rate) be distinguished from origination points (charged for services
rendered in originating the loan).
The
cost of the mortgage, however, shouldn't be your only criterion. Have confidence
that the company you select is reputable and will deliver the loan with the terms
and costs they promised. If in the final hours of the transaction you determine
that the lender has suddenly increased their profit margin at your expense, you
won't have time to start again with a different lender. Ask family and friends
for referrals. Interview prospective mortgage companies.
5. Not receiving a Good Faith Estimate.
Within three business days after the
broker or lender receives your loan application, you must receive a written
statement of fees associated with the transaction. This is both the law and
the best way to determine what you'll pay for your loan. Bring the Good
Faith Estimate (GFE) with you when you sign loan documents. You should not
be expected to pay fees that are substantially different from those
contained in your GFE.
6. Not getting a rate lock in writing.
When a mortgage company tells you they
have locked your rate, get a written statement detailing the interest rate,
the length of the rate lock, and program details.
7. Buying a home without professional inspections.
Unless you're buying a new home with
warranties on most equipment, it's highly recommended that you get
property, roof and termite inspections. This way you'll know what you are
buying. Inspection reports are great negotiating tools when asking the
seller to make needed repairs. When a professional inspector recommends
that certain repairs be done, the seller is more likely to agree to do
them.
If the seller agrees to make repairs, have
your inspector verify that they are done prior to close of escrow. Do not
assume that everything was done as promised.
8. Not shopping for home insurance until you are ready to close.
Start shopping for insurance as soon as
you have an accepted offer. Many buyers wait until the last minute to get
insurance and do not have time to shop around.
9. Signing documents without reading them.
Whenever possible, review in advance the
documents you'll be signing. (Even though some specifics of your
transaction may not be known early in the transaction, the documents you'll
sign are standard forms and are available for review.) It's unlikely that
you'll have sufficient time to read all the documents during the closing
appointment.
10. Not allowing for delays in the transaction.
In a perfect world, all real estate
transactions close on time. In the world we live in, transactions are often
delayed a week or more. Suppose you asked your landlord to terminate your
lease the day your purchase transaction was scheduled to close. A day or
two before your scheduled closing date, you discover your transaction is
delayed a week. In a perfect world, no one is inconvenienced and your
landlord is willing to work with you.
More likely, however, your landlord is
inconvenienced and angry. Will you be thrown out? Will you have to find
interim housing for a week or more? The eviction process takes a little
time, so the Sheriff won't immediately remove you, but this type of
stress-producing episode can be avoided. How? Terminate your lease one week
after your real estate transaction is scheduled to close. That way, if
there is a delay in closing your transaction, you have some leeway. This
approach might cost a little more, then again, it might not.