While many buyers are aware that a mortgage pre-approval letter increases their buying confidence and power, most may not understand exactly why pre-approval is so important. Why should you jump through the application hoops before even beginning your home search?
First, you’ll know exactly how much loan you can afford, making your initial home search much easier. Why waste your time looking at homes either out of your reach or well below your financial grasp?
Second, pre-approved buyers stand on solid negotiating ground with sellers. Sellers working with well-qualified buyers are more likely to accept the offer and less likely to stall on terms and conditions.
Notice that the topic of this column is “pre-approval,” and not “pre-qualification.” What’s the difference? Pre-qualification is easy – you provide basic information to a lender, and in a few short minutes, you have an answer. Pre-approval requires strict verification of documentation relating to your employment, credit history, sources of income, etc. It takes more time, but is more accurate and carries more weight.
Understand that pre-approval is not binding, and is still subject to a satisfactory appraisal on the prospective purchase. If your financial situation changes, interest rates rise or fall, or the deadline passes, a recalculation will be necessary; but a little legwork now will pay off handsomely as you approach the finish line on your contract.
Note: This article was originally published on this site on May 5, 2016. It has been updated reflect the current home market.
Have you ever noticed clothing sales that advertise “seconds” at greatly reduced prices? The “second” quality merchandise may exhibit flaws like uneven seams and pulled stitches, and capitalizes on the slightly lower quality in exchange for a lower price.
Much like those “markdowns,” a home being offered for sale with obvious flaws also invites a lower price. Homebuyers, like other savvy shoppers, quickly become aware of needed repairs, and then begin scrutinizing the home for other defects.
If you plan to sell your home and expect to receive a reasonable offer, be certain that all needed repairs are completed before the “For Sale” sign appears out front. If you don’t, expect to receive about $2 less for each $1 in needed repairs.
Protect your investment by asking an agent for advice. They will walk through your home as a buyer would, making notes of all attention. This could range from a cracked windowpane to carpet in need of replacement. No matter what the flaw may be, if it attracts attention, it also becomes a point on which the buyer may negotiate a lower sale price.
Your real estate agent can guide you further by providing marketing tips to make your home more attractive to buyers. Remember that by offering a “first quality” home, you may expect to receive the best price.
Note: This article was originally published on this site on April 21, 2016. It has been updated reflect the current home market.
Property inspections are common in most real estate transactions, and are recommended even in the hottest markets. The question becomes what do you do when the inspector’s report comes back with items listed in need of repair. Whether you’re the buyer or the seller, just keep a cool head and approach the repairs logically.
Focus on the major defects. Minor repairs are not the ultimate goal of the inspection. Major repairs should be handled as soon as possible, in order to avoid any delays in closing.
Once the buyers have secured quotes for repairs, they should present their requests to the sellers either for the repairs or for a reduction in the selling price. The sellers may also choose to solicit quotes, and if there is a significant difference, the two parties may negotiate.
Either party may complete the repairs, but sellers who are busy preparing to move may offer a credit to the buyers so the buyers may have the repairs completed later to their satisfaction. Once agreed to, the final terms of the arrangement should be put into writing, and then signed and dated by both parties.
Whoever accepts responsibility for the repairs should have paid receipts for all of the work done. Proper documentation of each step in this process will protect each party and help ensure a smooth and successful closing.
Note: This article was originally published on this site on March 17, 2016. It has been updated reflect the current home market.
You’ve found the home of your dreams, and you’re preparing to make your offer. As you consider price and terms, be sure to include one of the most critical components of the offer – a home inspection contingency. The contract should clearly identify how any reported problems will be rectified.
By including a satisfactory inspection in the terms of the contract, you give yourself three valuable options if repairs are needed. You can either:
a.) Request that the sellers complete the repairs before closing
b.) Negotiate a price reduction if you expect to pay for the repairs yourself
c.) Withdraw your offer without penalty
That last option isn’t very appealing, especially if you really love the home. However, you must be prepared to walk away if the sellers are uncooperative or the numbers don’t add up.
While the selling market was so hot these last few years, many buyers would forgo the inspection, just so their offer looked better than others, or to get the home before prices increased again. These normal or cooler markets allow you to be more financially sensible and insist on the inspection.
If the inspection proves to be a deal breaker, don’t sweat it, because there will be other comparable homes for your consideration. Chances are, though, that repairs will be minor and the sellers will be happy to cooperate.
Here are two terms buyers should understand when making a home purchase: “down payment” and “earnest money deposit.” They both involve money, but represent two different aspects of a home purchase.
For simplicity, let’s say a home is priced at $750,000. By financing 80%, the down payment would be $150,000, payable at closing. When making such an offer, it is assumed that the buyer has funds on hand for at least the down payment.
The “earnest money deposit” is a different story. Earnest money is paid at the time a purchase contract is signed and is negotiable. The terms under which the buyer’s earnest money can be forfeited are specific to each individual contract.
If $150,000 is on hand for a down payment, the buyer could reinforce the purchase offer with a $15,000 deposit. Buyers who offer only $5,000 or $10,000 are unknowingly broadcasting a message that perhaps they are not totally committed to complete the transaction.
When buying your next home, let sellers know you mean business. The larger your earnest money deposit, the more credible your offer becomes to the property owners.
Your real estate agent may not write your home loan, but that’s who will probably be there when you begin discussing mortgage options. Knowing some of the nuts and bolts before you start your home search can help you find the right loan.
Factors affecting your terms are the amount, the length of the loan, and the loan-to-value ratio (how much of the home’s value you are financing). Larger loans carry more risk to the lender, so the interest rate may be higher.
Similarly, a smaller down payment represents more risk, possibly warranting a higher interest rate. Get the best rate by putting down as close to 20% as possible.
The difference between a 15- and 30-year loan is also critical. Payments for a shorter term will be larger, but you’ll build equity much faster, and enjoy a slightly lower interest rate.
Also understand the workings of an adjustable rate mortgage (ARM). You need to be fully prepared for what may happen to your payments after the first adjustment. However, something like a 5/1 ARM (a fixed rate for five years and an adjustment each year thereafter), could be a good idea if you’re buying your first home and don’t plan to stay longer than five years.
Discuss your hopes and objectives with an agent, who can help guide you down the road to homeownership.
An important early step in purchasing a home is to get a lender’s “pre-approval” for financing. Then you’ll know how much home you can afford before you start your search. You’ll also make a strong impression on sellers, because they’ll know that your offer is solid.
Another step to take before you talk to the lender about pre-approval is to get copies of your credit report and review them thoroughly. Smart consumers shop around for the best prices, and you want the best interest rate possible. If your credit report contains errors, you jeopardize your chances for the best rate.
Lenders review reports from The Big Three – Equifax, TransUnion and Experian – and you should, too. Interest rate tiers are based on your credit score – the higher your score, the lower the rate. The lower the rate, the more home you can afford!
Get a copy of your credit report a couple months before you start looking at homes. Creditors usually have thirty days to correct errors, but give yourself some wiggle room. Verify that the debts are correct and belong to YOU (not someone else at the same address or with the same name). Your realtor will work closely with the lender to take this important step to prepare you for the home buying process.
You’ll be amazed how many doors open for you with a clean credit report and low interest rates. Now you’re ready for some happy house hunting!
Don’t Pay for Their Mistake
Note:This article was originally published on this site on June 9, 2016. It has been updated reflect the current home market.