BUYER BEWARE
15 Things You Must Know
Before You Buy Real Estate
An information article for buyers
courtesy of:
Jeffrey J. Meola, ABR
RE/MAX
The seller will have professional representation…will you? A real estate agent may represent the buyer, the seller or both in the transaction. Make sure your real estate agent is working for you.
"More than one million people in the United States are licensed to sell real estate. Of those licensees, fewer than one in five is an Accredited Buyer Representative."
Put an Accredited Buyer Representative (ABR) to Work for You! "The benchmark of excellence in buyer representation."
Know the difference between pre-qualified and pre-approval. Typically, getting pre-qualified means you pick up the phone and call a lender. They take your information by phone and pull what’s referred to as an "in file" credit report. Based on the UN-VERIFIED information you provide, they’ll give you a pre-qualification verbally or provide a letter of pre-qualification, subject to many conditions.
A pre-approval is more of an actual commitment from the lender after you fill out an application for a residential mortgage loan and they verify all the information contained on the application, to include a "tri-merge" credit report from the big three credit reporting agencies; Equifax, Experian (Formerly TRW) and Trans Union Corp.
Pre-approval is easy and gives you the competitive edge when shopping for a home. It helps you identify what price range you should be shopping in and makes it easy for a seller to accept your offer in competitive bidding over a non pre-approved buyer. Think about it, if you were the seller, which offer would you accept or counter; the pre-approved one or the one subject to financing with no pre-approval certificate? Pre-approval also helps you know what monthly dollar amount you feel comfortable committing to, giving you greater peace of mind.
Ask your lender what pre-payment privileges and payment frequency options are available and work with an agent who is well versed in real estate finance.
Lastly, understand that pre-approval DOES NOT mean loan commitment. Your application, credit report, appraisal and entire loan file must be reviewed by the lenders "underwriter" and then must be approved by a loan committee. A pre-approval letter is critical when negotiating with a seller, but the lender is not committed until after your loan file goes through underwriting and loan committee.
A pre-approval letter demonstrates to the seller that you’re a serious buyer.
There are a myriad of finance options available today. Make sure you understand what they are before committing to the standard, conventional 30 year fixed rate mortgage. Ask your lender about adjustable rate mortgages with 1, 3, 5 and 7 yr terms and compare the advantages and disadvantages to the standard 15 and 30 year fixed rate products.
In addition, FHA loans offer competitive rates and are becoming a smart choice today vs. a last resort solution from years gone by. As of this writing, new FHA loan limits in Cuyahoga, Lake, Geauga and Medina Counties are up to $221,000! Summit and Portage Counties are $154,800.
Advantages for FHA buyers include lower down payment requirements, favorable interest rates and no pre-payment penalties.
One of the most underused and misunderstood loan programs available today is the VA Loan. This is one of the best loan programs available in the entire world! A qualified veteran can obtain 100% loans up to $240,000 (Including the 2 ½% funding fee) with absolutely ZERO DOWN payment and the seller or builder can pay all of the veteran’s closing costs, making it possible to be a true nothing down deal for the qualified veteran.
The Veterans Administration (VA) does not actually make the loan to the veteran, they guarantee up to 60% of it to the lender, in case of default.
Both VA and FHA underwriting guidelines and appraisals have been streamlined today and can close as fast as conventional mortgages in most instances. The key is getting pre-approved first.
Seller financing was popular in the 80’s, when mortgage rates were in the high teens and sellers would carry mortgages in order to creatively sell their home. Although not used very often today, structuring a transaction with the seller carrying a second mortgage with a balloon payment could be the caveat that the carries the day. Knowing it’s an option and how to present it to the seller in a way they can accept it is what counts.
Talk to your Realtor® and lender about how to avoid PMI costs, which are generally NOT tax deductible.
Working with a knowledgeable Realtor® and mortgage loan officer, well versed in real estate finance, can often make or break a deal and can literally save you tens of thousands of dollars. Choose wisely!
If you ask the average homebuyer, where does the money for a down payment and/or closing costs come from? They would probably answer "personal savings or checking accounts."
Without getting into specifics, the following are the "8 Most Overlooked Sources For Down Payment and Closing Cost Money:"
This may sound quite simple, but many buyers don’t have a clue as to what type of home they will end up with mainly because they do not clearly articulate, on paper, what their needs are in comparison to their wants. Often, the home that meets their needs and the one that fulfills their desires are two different types of homes.
Is it better to buy the 4 bedroom because of anticipated growing needs or does that huge country kitchen you’ve always craved for cloud your decision? What’s more important, driving distance to schools or the large, landscaped lot with pool? Many times, homebuyers purchase based on emotional factors and end up sacrificing the things that are a necessity now, which creates regret later. The goal is to try to find a home that meets both your needs and your desires. The reality is that you typically have to compromise.
Satisfy your needs first and don’t shop blind. Chances are, there’s something on the market now or in the near future, which will satisfy your needs and most of your wants. Work closely with an agent who will provide daily information on new listings that meets your homebuying criteria.
Develop a good strategy, separating needs from wants and list your priorities BEFORE you start your search and get caught up in the excitement of looking.
Write down the things you absolutely NEED in your next home:
1.
2.
3.
4.
and the things you would LOVE to have in your next home:
1.
2.
3.
4.
Listing your priorities and separating needs from wants will help you make the best decision for you and your family right now. At the very least, you’ll go into it with 20/20 vision and regret less down the road.
Knowing how much to offer a seller and the way the offer is communicated is critical. Is the list price too high? Has it been recently reduced? How long has it been on the market? If you fail to research the answers to these questions, you might as well go in bidding blind.
Ask your agent to do a Comparable Market Analysis (CMA) to help determine if the seller is out of line or if his offering represents a good deal or not. At a minimum, your CMA should include comparable sales within the last three months and pending properties that are similar to the home you’re interested in. If the area has a slow turnover, research comparable sales six months back.
Remember, recent "closed" sales represent transactions consummated up to several months back and are very important in determine fair market value, but pending sales represent the most current market conditions in any given area.
Knowledge is power. Structure your offer with confidence and present it quickly.
Make sure you have the opportunity to get a home inspection by an ASHI Certified Home Inspector and include a contingency that the transaction is subject to you approving the home inspection(s).
There are many pitfalls to avoid when purchasing a home, including defective plumbing, damp or wet basements, inadequate wiring or electrical, poor heating and cooling systems, roof problems, damp attic spaces, rotting wood, masonry work, structural problems and many more.
A good inspection by an ASHI certified professional can help with unwanted surprises after you move in or at least identify items that you should address in the future. The inspection should be objective and performed by an individual who does inspections for a living, full time. Trying to save money on your home inspection could cost you more than you save.
Probably the most common type of inspection is a general home inspection. In addition, there are radon, pest and lead based paint inspections for properties built before 1978.
For country properties, you can write in a septic and well inspection and separate well water tests. This list is not inclusive, but the idea is to make sure you discuss home inspections with your real estate professional prior to making the offer.
A home inspection does not guarantee there are no pre-existing defects on the property, but it does give you an objective opinion from a trained professional who is not looking through rose-colored glasses. Make sure you leverage yourself with a home inspection or have the opportunity to waive it. Your agent can provide you with a list of ASHI certified inspectors.
Home warranties are smart business for greater peace of mind. Unexpected home repairs can put a strain on your budget and a home warranty limits unplanned expenditures. Typically, you pay a standard deductible per service call, per trade agent on covered components.
Be aware of what’s covered and what’s not and what the proper procedure is to call in a claim. Most warranty companies only deal with approved service providers.
Always contact the warranty company prior to contracting with a service provider on your own. Failure to do so may void the warranty for that claim or component. Items must not be a pre-existing defect and make sure you refer to the Home Warranty Agreement and Contract Coverage Summary for complete information on Service, General Exclusions, Terms and Conditions and all other pertinent information regarding coverage.
It cannot be emphasized enough that you understand the terms of the Home Warranty Agreement and Contract Coverage and what the proper procedures are when making a claim. Don’t let a good thing go bad.
* Remember, home warranties don’t cover everything.
All transactions are unique, but typically, the buyer pays the following costs through escrow: (1) recording of the deed; (2) one-half the escrow fee; (3) one-half the premium for the Title Policy; (4) location survey; (5) all costs incidental to BUYER'S financing.
FHA and VA transactions are different and the costs are shared differently. Please consult a licensed Realtor® for the differences between FHA, VA and Conventional type transactions.
In addition, an Accredited Buyer Representative (ABR) will prepare a buyers cost sheet when structuring your offer to purchase. Insist on one before you make an offer.
The work really begins when the offer is accepted. Pay close attention to the details and meet all deadlines with your lender and title companies on time. Work closely with your agent and insure that your home inspection is scheduled and performed within the time frame indicated in the agreement.
If you have two transactions going at the same time, avoid miscommunication and logistical errors by working closely with your team of experts. Your team will include lenders, appraisers, inspectors, title companies and especially your Realtor®.
If a successful claim is made against your property because of title defects, the results can be financially crippling. Without title insurance, you risk losing probably the largest investment in your life; your home!
Forms of Title Evidence:
For in-depth information on the different types of title insurance and what’s best for you, please consult a title service professional or talk to your Realtor®. The bottom line is to make sure you have title insurance as part of your offer to purchase.
Did you know Abe Lincoln lost his home twice because of title defects?? He did.
"As is" means that the seller does not guarantee the condition of the property after title transfer. Therefore, you should exercise your right to a thorough examination of the property with the professionals of your choice to avoid any "as is" headaches after title transfers.
"As is" also means that what you see and what you don’t see, is what you get. As previously mentioned, think about getting a home inspection subject to your approval as a condition of the purchase.
Is your agent accountable to you? Ask them how? Choose wisely.
OK, you’ve made the decision to move and you have a house to sell. What should you do? The big question has always been, should you buy first or should you sell first?
If you buy first, you may get stuck owning two homes.
Therefore, selling first is probably a better way to go. But what if the home you want to buy is on the market now, priced right and you want it? Most sellers today won’t consider a home sale contingency and if they do, you better believe you’ll pay top dollar for the house.
There is a way to eliminate this "Catch 22." Some agents offer a Guaranteed Sale or "Trade-Up" program whereby they actually guarantee the sale of your present home before you take possession of your next home.
Ask your agent if he or she will guarantee the sale of your home.
which simply means - Buyer beware.
REMEMBER: There is no deal until the agreement is signed and delivered. Don’t get your hopes up until you get it in writing.
The information contained herein does not represent legal or tax advice and was prepared as a general information article only. Please consult your attorney or tax professional for specific information relating to your situation and your mortgage lender for specific lending requirements.
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Please feel free to contact the author with any questions regarding buying or selling real estate in today’s marketplace: Website: www.JeffMeola.com / Email: Jeff@Jeffmeola.com / Phone: 440-779-2026.
Jeffrey J. Meola…A Passion for Real Estate Excellence! SM
Copyright© 2003, Jeffrey J. Meola, ABR RE/MAX
