Buying real estate can be a daunting experience, but in today's confusing market, you really need a good team to back you up and take the burden off your shoulders. Here are some tips to help guide you in the right direction of purchasing the home of your dreams.
1. Your Realtor is the key and a valuable resource in finding the home you want in the price range you want. Sit down with them and discuss your plan of action. Your wants and must haves all come into play. The area you're looking in is information your agent will use to narrow down your search and make the process a little bit easier. Knowing this before you head out and start to look can increase your chances of finding the right home in a short period of time.
2. Your lender plays an important role in not just lending you money, but pre-qualifying you before you start your search. Having a written pre-approval letter will let sellers know you're a serious buyer and have thought about your purchase. Pick a lender you feel comfortable with and someone who will work closely with your agent to get the deal closed.
3. Once you make an offer, you'll need to have the home inspected. This is a "must" that can save you a lot of money and headaches down the road. Talk to a few inspection companies before making a decision. Once the inspection process is done, you will be on the way to moving into your DREAM home.
There are many unforeseen obstacles in purchasing a new home, but when you have the right people on your team, you can rest easy and know that you're in good hands. Taking the time to talk to your agent and lender beforehand will give you the information and knowledge you'll need to make the right decision. Taking the stress out of the situation is their job and one a good team doesn't take lightly.
The time to prepare for a move is the day you offer your home for sale. Most homes are overflowing with "stuff" that can be a distraction to home buyers who view your home. Go to the local moving and storage company, purchase a variety of boxes and begin to pack the clutter to make your home look bigger and show better.
A method for organizing this process is to categorize all of your possessions as a one, two or three priority. The boxes with a number one on them are the most urgent and necessary. These are the things you use daily and must have at your disposal. These will not be packed until just before the move.
The number two boxes are somewhat important but can be sacrificed. The "low twos" will get packed, along with the number ones, which are the things you can nearly live without. Strip counters, furniture, closets and cupboards of anything you can do without for the next 3-6 months. Mark each box with its appropriate number and identify the room of the house where the box should be placed in the new home.
Packed boxes can be stored in garage attics, a corner of the basement or rent a storage unit. Your home will not only look larger and show better -the job of packing and moving will be half-finished before the home ever sells!
The recent "hot" real estate market has inspired many to become real estate investors. If you are thinking about investing in real estate, you will need to establish your goals first. Do you want to buy fixer-uppers and then sell them after you have improved them or do you want to buy homes that can be turned into rental properties?
Everyone is familiar with the idea of buying property that is in need of repair, fixing it and selling it for a profit. What most fail to calculate is the cost of the materials, repairs, holding expense (monthly payments, utilities and insurance for a vacant home) and closing costs associated with the future sale. If a property is not purchased at a price far below its potential market value for the neighborhood - it will result in a loss once the project is complete.
To avoid losing money, the down payment, closing costs and mortgage must be added to the cost of repairs and labor as well as to the fees for selling the home to determine basis. If the market will not exceed the total of those expenses, you will not make any money. If the market does exceed the total; you can evaluate if it exceeds the total by enough of a profit to make the project worth doing.
The second form of investing is to purchase homes that you will convert to long-term investments or rentals. In this instance, you are collecting monthly rental that should equal or exceed your principal, interest, taxes and insurance for the property. In stable markets, the appreciation for the property should be in the range of 3-5% (higher in some markets) and the tenant's rent will make the payment. The challenge to owning rental property is in finding good tenants who are rent-worthy and the role of becoming a landlord who is subject to constant repairs.
When buying a home, it is important to understand the process even if you are enlisting the assistance of a real estate professional. Of course the process starts by speaking with a lender or two and having them "pre-qualify" your purchase. This is done by calculating your monthly debt and income to determine the amount you are qualified to spend for a home.
The second step is to find a real estate agent who is a full-time agent working in the area and price range that you will be searching. The agent should arrange showings for the homes that meet your search criteria. If you find that the agent is only showing you homes that are listed with the agent's company - instruct them that you want to see all the homes that fit your criteria.
Of course, it is not realistic to expect a home to meet all of your criteria, but once you have found a home that you like, it is important to inform the agent of such. Many a buyer loses his first choice by waiting too long to make his offer. If the home is not listed and you are purchasing "by owner" you will want to hire an attorney to prepare your offer.
When making an offer on a property, the agent will advise you of property values for the subject property's neighborhood and any considerations needed for determining your offer. Unless it is a "hot" market, you will want to make an initial offer that is less than the asking price. The agent should advise you on what a reasonable offer would be. Trying to "low-ball" a seller can backfire. Use good judgement.
Once the offer is negotiated it is time to have a home inspection done on the property. The home inspection is designed to uncover latent defects in the property. Do not use the report as a "work list" for the seller. Asking for too many incidental repairs can kill the deal.
At the same time as the home inspection process, you will be also exploring and applying for your financing. If you used a real estate agent, request 2-3 references that you can evaluate or revert back to one of the lenders who performed your initial pre-qualification.
Loan processing requires 2-3 weeks. The lender will order an appraisal for the home, verify your income and credit and prepare the lending package. The lender works with the title company to assure a clear title and once everything is prepared, you will either close at the title company or at a "round table closing" depending upon the state where you reside. Once the transaction is closed, either by title company or round table - you are the owner of a new home!
Lenders have embraced liberal lending practices for folks who desire to borrow from the equity that has accumulated in their home. Equity is determined by taking the home's current market value, subtracting the outstanding mortgage(s) and the remainder is equity. If your home is worth $250,000 and you owe $200,00 - you have $50,000 in equity.
The risk evolves in borrowing the property's full value, or as in some second mortgages, banks are even lending up to 110% of its value. While it may be useful to pull the available cash from the property, you are in a position that will cripple you in the event you find yourself having to sell the home within the near future. Homes cannot be sold for more than their value which causes sellers to have to "bring cash to the closing table" in order to clear the first and second mortgages. In the event of a job loss or transfer, sellers are financially strapped.
When using the equity from your home you must keep in mind that you are spending the resources that could be necessary to purchase a replacement home should you decide to move.
The fear of over-paying for a piece of property is eliminated by having a professional appraisal performed. If the buyer of real estate is mortgaging the property (not paying cash) the bank that mortgages the property will automatically order an appraisal from one of the lender's list of approved appraisers. The bank is interested in protecting their investment and want to guarantee that in the event of a default by the purchaser, the property's worth must equal or exceed the mortgage.
If you are purchasing real estate for cash, appraisers can be referred to you from real estate agents, lenders or a yellow page directory. Standards for appraising are universal and most appraisers will estimate a property's value within a small percentage difference, if any, from eachother.
If you are selling a home, you can usually get away with avoiding the appraisal fee by having a market analysis performed by 1-3 real estate agents. Once the home is on the market, the only time a seller might consult an appraiser is if the home is not selling and market conditions are unstable.
|Jennifer Mathes, Ph.D.|