Why Use a Buyers Agent Advice for First Time Home Buyers Have a Plan of Action How to Negotiate with Sellers Credit Card Purchases Looking for a Legitimate Lender Types of Mortgages You Have Opened Escrow, Now What? Why Use a Buyers Agent   It’s really important that you choose an experienced Realtor that will go that extra mile for you.  Your Realtor should assess your needs and wants which will be key to finding your dream home.  You should also be informed every step of the way and any questions that you may have should be answered with competence and speed.   First, look for an agent that will represent you and not the seller. If you are working with a buyer’s agent, he or she is “required” to keep all of your information confidential which is extremely beneficial to you during the negotiation process. Also, if you have not committed your agent to solely represent YOU as your buyer’s agent, information that should be kept confidential to protect you can be disclosed to anyone. Your buyer’s agent will also be focused on getting you the lowest asking price possible.   Furthermore, when you use a buyer’s agent, you will most definitely be previewing more properties.  They will be utilizing more avenues to seek out your desired home. Not only will your buyers agent access the Multiple Listing Service, but they will go that extra mile and utilize their contact base, FSBO’s and even seek out homes that are about to go on the market so that you can be first in the door!   In conclusion, a buyer’s agent is mainly to protect you!  There is no fee involved whatsoever when being represented by a buyer’s agent. (Click Here to Go Back To The Top Of This Page) Advice for First-Time Buyers     Pre-Qualification:  Get together with a Mortgage lender and find out exactly how much you can afford to pay for a home.   Pre-Approval:  While knowing how much you can afford is the 1st step, sellers will be much more receptive to potential buyers who have been “pre-approved”.  When you have been pre-approved, you actually receive a commitment letter which shows that you have actually applied for the mortgage loan. This gives you much more of an edge when presenting your offer to the seller of the home in which you will purchase. Fees for pre-approval are usually nominal and in most cases the lender allows you to pay for them when your loan closes.   Representation by a Professional:  You will want to hire your own real estate agent, one who is working for you….the buyer!   List of Wants & Needs:  It’s best to make 2 lists. The 1st should include items that you “must” have such as: numbers of bedrooms, minimum square footage, neighborhood etc…). The 2nd list will contain your wishes & dreams. Things such as a swimming pool, bonus room, the sort of things that would be nice to have but not absolutely must have’s.  Realistically, as a first time home buyer, you may not get “everything” on your wish list, but it will keep you on track during your home search.   Focus & Organization:  In a convenient location, keep handy items that will assist you in getting the most out of your home search.  These items may include:   1.      An organized file folder where you can keep properties that your agent has shown you as well as others that you have found on your own. 2.      A few detailed maps that outline areas of interest in the neighborhoods which you like. 3.      Pad of paper and pen, for taking notes along your search.  Also great for making quick notes just after previewing a home. When you are looking at 6-8 homes in one day, the small details can escape your mind. Notes are always a great way to capture those details. 4.      A digital camera is also great to have along the journey. 5.      Location:  See the potential property as if “you” were the seller. Re-sell is always something to keep in the back of your mind when purchasing a property. Would a prospective buyer find the area attractive based on the school district, crime rate, accessibility to shopping and highways? Focus on the positive as well as the negative.  Is this house situated alongside a busy highway?  All of these things are important issues when it comes time to sell.   Try to Visualize the house empty & with your style:  Is the layout conducive to your needs?  Are the bedrooms big enough? Is there enough light in the house or is it a very dark house?   Be Objective: Many of us have a tendency to think with our hearts and NOT our heads.  Do you think this house really meets your needs?  With so many homes on the market, you don’t want to make a decision based on feelings vs. what your true needs are… would you?  However, in some instances, if it is your “dream home” and you feel you don’t need to look at any more homes…then GO FOR IT!!  Only you will know when it is the right house.   Once you have decided that “this is the one”….have your agent write up the contract and be prepared to submit your pre-approval letter along with a deposit upon submitting your offer to the seller.  The deposit usually ranges from 1-3% of the total offering price.   If your offer is accepted, your deposit check will get deposited usually within 24-48 hours of the binding date of your contract. If your offer is declined then the deposit check will be returned to you.   The next phase will be to schedule a home and termite inspection. Once these things are done, you should just be waiting for the loan to close. You will have your real estate agent schedule your “final walk through” inspection.  At this time, you should make sure that the property is exactly as the contract says it should be. For example, if the seller agreed to leave you all drapery and chandeliers, then you need to check that they are on the walls and not replaced with something other than promised.   Now that your final walk through is complete, you are almost at the finish line.  Once your loan closes, you are now a proud “home owner”.   CONGRATULATIONS!!   (Click Here to Go Back To The Top Of This Page)   Have a Plan of Action   Buying a home is said to be one of life’s biggest investments.  It also ranks up there with being one of the most stressful things one can encounter if not planned correctly. It’s important to know and follow the steps required to successfully meet your housing goal and to have a plan of action that will get you there with the least amount of stress possible.   One of the first questions you should ask yourself is:  How much can I afford to pay for a home? Easier said than done!  This is when the pre-approval process comes in to play. Once you get with your lender and get pre-approved, you will know exactly what you can afford.  You will also know what your monthly mortgage payment will be and how much you will need for a down payment.   The last thing you want to do is fall in love with a home that you just can’t afford.  Once you are pre-approved you will know what price range to stay within and not be disappointed by something you can’t afford.   Next, figure out where you want to live based on what your needs and wants are. Think about the communities in your area and decide which ones you like and why. It’s important to know where you want to live from the start ~ otherwise, it’s too easy to get excited over a house in the wrong location.  Remember to consider price range when narrowing down your choice of locations.   Some things you may want to consider when choosing the neighborhood that you like best should include:   Accessible to highways Proximity to work Schools & Community Shopping Areas Crime rate of neighborhood Appreciation rate of neighborhood   All of the above are going to be important for you. After all, this is going to be YOUR neighborhood and you will want to be sure that it suits your needs.  (Click Here to Go Back To The Top Of This Page) How to Negotiate with Sellers   Buying a home is one of the most important purchases most people will make. In order to Make the right decisions the first time, potential buyers need to be prepared. Consider the following before starting to negotiate: Be Prepared Research the housing market in the target area. Once you have information about the general area, focus on the particular property and seller. Look for answers to questions such as:  1.         Why is the homeowner selling? (If they’re moving because they find the area un-desirable, you might as well) 2.         How long has the home been on the market? (If it looks like it’s been on the market for a long time, perhaps there are negative facts about the property that you need to know.) 3.                 How much did the seller pay for the home compared to the current asking price? (If the seller paid more, find out why. Was it a general real estate trend, or did property values in that particular neighborhood go down?) 4.         What is the seller’s time frame for selling and moving?  Does it fit within your needs? 5.         Are there any defects in the home or problems with the surrounding neighborhood? (For instance, is there a new construction project in the area that will lead to major traffic congestion?) As the potential buyer, YOU want the advantage.  While you want answers to all of your questions to the seller, reveal very little about your circumstances. Do not give the seller personal information such as your income, the maximum you are willing to pay for a down payment or the home, or when you want to move. Make sure that your agent knows not to reveal any such information to the seller or his/her agent.   Establish a Timeline Find out if the seller needs to have the sale closed sooner rather than later. If the seller is feeling pressured to sell, use that to your advantage in negotiating. Even if you, the buyer, are the one with the deadline for purchasing a home, don’t let yourself be rushed into making concessions or a purchase you may regret later.   (Click Here to Go Back To The Top Of This Page) Why Shouldn’t I Make Any Major Credit Card Purchases? If you are thinking of buying a home or are  in the process of getting a loan for your new home, think twice before making any large purchases such as a car or any other major purchases.  Your mortgage “pre-approval” is subject to a final evaluation of your financial situation.   Think about it….For every $100 you pay on a credit card payment could cost you about $10,000 in home eligibility.  For example, a car payment of $400/month would mean that you qualify for $40,000 less in a home mortgage.   Even if you have amazing credit and tons of money set aside, these types of purchases can be the deciding factor of whether or not you will be able to purchase your home of choice.  This is one of the biggest mistakes that people make prior to applying for a home loan!  Be wise and think twice before any major credit card purchases. It’s always best to wait until escrow closes before buying that new car or any other significant purchases.   (Click Here to Go Back To The Top Of This Page) Looking for a Legitimate Lender and Getting Pre-Approved   Most lenders can pre-qualify you for a mortgage over the phone based on a few simple questions to do with your income, assets, and credit history.  However, being pre-qualified and pre-approved have two different meanings    Pre-approval means that you have applied for a mortgage by physically filling out the application, received your credit report, employment has been verified as well as any other assets/debts etc...  When you are pre-approved, you know exactly what the maximum amount of your loan will be.  This will now enable you to seek out a home that fits your budget and will speed up the home search process.   Almost anyone can get a pre-qualified letter if they have decent credit.  Also, if you are competing for a home and another buyer presents a “pre-approval” letter along with their contract, chances are the sellers will choose the one who is 100% “pre-approved”. This tells the seller that they have a sound deal and they will know instantly that you will qualify for a loan to buy their property.   In addition to being pre-approved, it’s important that your pre-approval is with a legitimate lender.  These will include mortgage brokers, banks, credit unions and on-line lenders. Be on the lookout for lenders who don’t seem informed on current interest rates/points or who seem disorganized. The lender that you choose will be “key” to your escrow closing on time.  Most Realtors will have a list of legitimate referrals for you.  (Click Here to Go Back To The Top Of This Page)  Types of Mortgages Luckily for buyers, there are a variety of mortgages to choose from.  It is in your best interest to investigate each of them and decide which makes sense for your particular situation.  You probably won’t qualify for all of them. In fact, you may only qualify for one.  However, if it looks like you qualify for more than one, you may save yourself money and grief in the long run if you do your homework before signing on the dotted line.  Fixed-Rate Mortgages Adjustable-Rate Mortgages The Convertible ARM FHA and VA Loan   Fixed Rate Mortgages   Consider a fixed rate mortgage if either of the following describes you:   You plan on living in your new home for many years and/or you are not a risk-taker and prefer stability of knowing how much your payment will be each month. Since most home loans are for a period of 30 years, if you are looking for a payment you can count on for that long of a period of time, a fixed rate mortgage will be what will work best for you. Once your loan amount and interest rate are calculated and locked in, a fixed rate mortgage will guarantee that you will have the same payment over the life of the loan. Making extra payments to principal allow you to pay your loan off sooner.  This may not always be the best choice, however.  If interest rates are very high at the time you take out your loan, with a fixed rate mortgage you’ll be stuck with that high interest for the life of the loan (unless you choose to refinance).  Conversely, if interest rates are very low, you’ll come out the winner with interest rates that will stay low no matter how high interest rates go in the future.   15-Year Fixed Rate:   ·         Requires you to pay off the loan in half the time of a 30-year loan. ·         Payments are higher (which may be a problem if you lose your job or become unable to work.   20-Year Fixed-Rate:   ·         Requires you to pay off the loan in 2/3 the time of a 30-year loan. ·         The overall interest paid is considerably less than a 30-year loan.   30-Year Fixed Rate:  The most common choice, especially for first –time homebuyers, as it’s the easiest of the fixed-rate loans to qualify for. Monthly payments are lower than for 15-year and 20-year loans. This can prove especially helpful if you don’t have a lot of “padding” between the amount you can afford to spend and the monthly payment for you desired property. More desirable if you plan on staying in the home for years, since equity builds more slowly than for shorter-term loans. For income tax purposes, this term provides the maximum interest. (Back to Top of This Section) Adjustable-Rate Mortgages (ARMs)  If you are more comfortable in taking a risk with your money or if interest rates are very high at the time you take out your loan, an adjustable-rate mortgage (ARM) is the way to go.  You might also choose this type of loan if you expect your income to increase to cover any potential rise in the interest rate.  Generally, the interest rate when you take out your loan will be lower than a fixed-rate mortgage.  Remember that this is true initially, not necessarily long-term.   Since an ARM rate rises and falls depending on the prevailing interest rate, your mortgage payment will rise and fall accordingly.  If your income isn’t sufficient enough to cover the highest possible payments, then this option isn’t for you.  On the positive side, the lower initial payments allow you to qualify for a larger loan than if you choose a fixed-rate.  The downside is that your payments will increase if/when the rates go up.   Normally, ARM interest rates are tied to a specific financial index (such as Certificate of Deposit index, Treasury or T-Bill rate, Cost of Funds indexed ARMS or COFi, or LIBOR (London Interbank Offered Rate) and your payment will be based on the index your lender uses plus a margin, generally of two to three points.  Get the formula used by your lender in writing and make sure you understand what it means.  Fortunately, the amount am ARM can increase is not unlimited.  There are “caps” on how much your lender can increase your rate, both for a period of one year and for the life of the loan.  Plan ahead, and have your lender calculate what the maximum payment would be if your rate went to the highest amount allowed by the cap for your particular mortgage.  If you’re not confident you’ll be bale to pay that amount on a monthly basis, maybe you should reconsider this type of loan.   (Back to Top of This Section)   Convertible ARMS   If neither the fixed-rate nor the adjustable-rate mortgage seems the best option for you, maybe the convertible ARM will be the one. This alternative combines the initial advantage of an ARM with a fixed rate after a predetermined number of years.  Obviously, this type of mortgage has more advantages when the initial interest rate is low and the future rate is not guaranteed.   (Back to Top of This Section)   Government Loans   Another mortgage option available to some people is a government loan, providing that you meet the qualifications for these loans.   ·         VA Loans:  Veterans may qualify for a loan from the Veterans Administration. There is a limit on the amount you can borrow, so this option works best for those buying a lower priced home.   ·         FHA Loans: The Federal Housing Association offers loans to lower-income Americans. Look for the phrase “FHA approved” when looking at ads for homes. (Back to Top of This Section) (Click Here to Go Back To The Top Of This Page) You’ve Opened Escrow, Now What? Panic? Well, maybe a little. Besides doing that, follow these suggestions (and your realtor's advice) and you'll soon be the proud owner of your new home! After you've signed on the dotted line, you'll be asked to provide a check for the "earnest money", showing that you are a serious buyer. In Middle Tennessee, the standard of practice is that a deposit in the amount of 1-3% of the purchase price is deposited into escrow. This deposit check may also be held by an attorney or in the broker's trust account. Make sure that there are sufficient funds in your account to cover this check. The deposit check will be cashed. Assuming the sale goes through, this money will be applied to the purchase price of the home. If for any reason the sale is not consummated, you may be entitled to receive all of your deposit back, less standard cancellation fees. In certain instances the seller may be able to retain this money as liquidated damages. Prior to executing a purchase contract, it would be wise to speak with your counsel regarding whether or not it is your best interest to have a liquidated damages clause as part of the contract. The period that you are "in escrow" is often 30 days, but may be longer or shorter. During this time, each item specified in the contract must be completed satisfactorily. By the time you have opened escrow, you have come to an agreement with the seller on the closing date and contingencies. Each contract is different, but most include the following: 1. Inspection contingency. This should be completed as soon as possible after the contract to purchase is signed; as unsatisfactory results of the inspection may mean that you will cancel the contract. 2. Financing contingency. Once the contract is signed, you have a period of time to secure funding. If, for any reason, you are unable to secure funding during the period of time granted to you by the contract (and the seller will not provide a written extension of time), you must decide whether you want to remove the contingency and take your chances on getting a loan. You may choose to cancel the purchase contract. 3. A requirement that the seller must provide marketable title. With an attorney or title officer, review the title report. The title must be "clear" to ensure that you don't have legal issues regarding your ownership on down the line.  Check into local and state ordinances regarding property transfer and make sure that you/and or the seller have complied with them. Secure homeowner's Insurance. This will probably be required before you can close the sale. It would be in your best interest to apply for insurance as soon as possible after the contract is signed. Be Thorough: A few extra dollars well spent now may save you big expenses in the long run. Don't forget such essentials as: 1. Include inspection & mortgage contingencies in your written offer. 2. Have the property inspected by a licensed inspector. 3. Request a second walk-through to take place within 24 hours of closing. 4. You want to see that no changes have been made that weren't agreed on (i.e., a nice chandelier that you assumed cam with the sale having been replaced by a cheap ceiling light). The house should be in the same or better condition than when you saw it last. All of the above can be so overwhelming. That's why it's important to be represented by a Realtor®. Let me guide you and offer advice along the way.  After all, that's what I'm here for!   (Click Here to Go Back To The Top Of This Page)