Before You Buy

Ten Tips to Take You Forward

#1: Map out a budget

It’s in your best interest to calculate your own budget as banks can over-estimate: begin with the idea of the smallest property that you can comfortably purchase in the desired neighborhood. There are six areas that need to be taken into account:

  • your household’s net pay (the sum you receive after paying taxes);
  • your present monthly expenses (necessary, necessary but flexible, and optional);
  • what remains after monthly expenses;
  • calculate the down payment you’ll be able to make; and
  • list the expenses you will likely have as a homeowner.
#2: Choose the right realtor

When choosing a realtor, investigate and meet with a range of professionals to get a sense of their personalities and learn their specialties. Key information to uncover during this process includes:

  • referrals;
  • the agent’s availability;
  • who your point person will be (the agent or a member of their staff);
  • how many clients the agent is currently guiding; and
  • specifics of the contract between you and an agent, especially pertaining to exclusivity.

“I can work for you in as either as your Buyer’s agent (I work as a REMAX agent on your behalf) and help negotiate the best price and terms for you, or your Seller’s sub-agent (I work as a REMAX agent to represent you with a Selling agent from another realty agency), acting as a liaison between you and the seller to present offers and counteroffers until an agreement is reached.”

#3: Select the right type of mortgage

Which type of loan fits your particular needs? Should you choose a fixed-rate mortgage (FRM) or an adjustable rate mortgage (ARM)?

  • If this will be your first home or a transitional home (one you plan to own for a short time), an ARM may be the best type of loan. If you choose an ARM, the index should be based on the Cost of Funds Index (COFI) if rates are increasing and Treasury Bills if they are decreasing. The COFI’s are less volatile over time than T-Bills. Make sure you understand the teaser rate and what the real rate would be.
  • If it’s going to be your dream home or one you plan to raise a family in, then choose the stability of a fixed-rate mortgage (FRM).
  • Whichever loan you choose, make sure to scrutinize all closing costs.
  • If you are required to have a mortgage escrow account and private mortgage insurance, make sure to understand the terms and cancellation procedures.
  • Ensure there are no prepayment penalties so that you can utilize an accelerated mortgage plan.
  • A good mortgage reduction plan can save tens of thousands in interest costs, and shorten loan terms, with only small extra principal payments. If you experience negative changes in your job, health, or marital status, you can revert to the standard payments in your mortgage contract.
#4: Pick a lender and secure financing

After choosing what your top criteria are for choosing a lender, it’s time to begin exploring the possibilities. Interview at least three mortgage companies to make sure you are getting the best deal possible for your circumstances:

  • get referrals;
  • check the lender’s reviews;
  • interview their representatives; and
  • consider their level of customer service and how they talk to you about their product.

It’s best to have a range of lenders from which to choose your partner in this transaction. Each lender should provide you with a detailed list of costs, called a Good Faith Estimate, as required by law.

Loan pre-qualifying helps you determine the price spread you can afford and helps you eliminate neighborhoods and houses or apartments out of your budget. Planning and getting pre-qualified will keep you out of the panic mode and allow you to take advantage of any opportunities that present themselves. A thoughtful approach will save both time and money.

“I can introduce you to my preferred lender and arrange to have you pre-approved for a mortgage, which vastly improves your negotiating position and will lessen the sense of stress you may be feeling about closing.”

#5: Research is the key to discovering your new home

Research house types, floorplans, cities, and neighborhoods through the following resources:

  • real estate market summaries on and off-line;
  • regional papers, local papers, neighborhood and city publications;
  • websites (city, neighborhood, school district, maps, HOA);
  • social media; and
  • chambers of commerce.

Another helpful parameter is testing drives from your desired neighborhood to work during morning and evening rush hours, and other places frequented on a regular basis.

#6: Create a home buying plan

Purchase a binder and download an online information organizer (Evernote, OneNote, etc.) and set them up to capture and hold all information you’ll be amassing during this process. Begin with the following sections:

  • budget;
  • criteria;
  • financing;
  • legal;
  • cities & neighborhoods;
  • house types;
  • top 10 amenities;
  • inspections;
  • appraisals; and
  • decisions.

“I can help you work out an idea of the home best suited to your needs: Financial, size, style, features, location, accessibility to schools, transportation, shopping, and other personal preferences. We’ll eliminate homes that don’t meet your requirements so that you can concentrate on the homes that do meet them.”

#7: Recognize value

Buy with an eye towards improvement. Purchasing a smaller house with a good yard in a desired neighborhood will offer you a clean slate upon which you can create the home to fit your needs. The saying, “make money buying a home, not selling one,” should keep you focused on the long-term importance of the purchase price.

#8: Walk in the seller’s shoes

You are about to make one of the most important decisions of your life. Keep in mind this purchase not only affects you, but also the seller. Take time to understand why they bought the home, their reasons for selling, and the home improvements they have or have not made. Getting a closer look puts you in a better position to evaluate the home and negotiate a fair deal. In the end, the home buying process comes down to the individuals buying and selling a home.

#9: Found your home? Get it inspected and appraised

Most banks and mortgage lenders ask that the house they’re being asked to underwrite is appraised to establish it’s market value. You, as the buyer, must get it inspected for structural integrity. Be sure to meet the inspector and appraiser before they visit the house and make it clear that you expect to be educated on their findings and documentation. Here are things to consider when contracting an appraiser and inspector:

  • Does their company have a website? Are there testimonials?
  • Are they and their company bonded?
  • Do they belong to one of the national associations of inspectors or appraisers?
  • From which organization did they receive their certification?
  • How long have they been inspecting and/or appraising houses?
  • What kind of equipment do they use?
  • Can they provide an example of their documentation?
  • How soon will you be sent your copy of the inspection/appraisal?
#10: Understand all contracts and agreements

Two important legal documents you will sign at the end of the buying process are the Purchase and Sale Agreement and the Home Warranty/Home Protection Plan.

The Purchase and Sale Agreement is one of the final documents you will sign at the closing ceremony: it is the culmination of your negotiation with the seller. The PSA lays out the final selling price and a detailed account of the terms of sale. Make sure the agreement allows you to arrange financing, inspect the home, and negotiate the repair of any problems that are uncovered during inspections. This can be handled, depending upon the state, by the buyer’s agent or a real estate lawyer.

The Home Warranty/Home Protection Plan is a one-year service contract which protects new homeowners against the cost of unexpected repairs and the replacement of major home systems and appliances that break down due to normal wear and tear soon after the sale of the home. This is a negotiable contract between the buyer and seller that does not overlap with or replace the new homeowner’s insurance policy.

“I’ll help you obtain closing figures with the help of your preferred escrow company in advance of closing for your review. With those negotiations complete, we’ll meet with the seller and you’ll sign for your new home.”

Want a realtor with 30 years of experience to help you find the home of your dreams? Contact Gene Northrop for a consultation.