Top Ten Mistakes

If you’re like most people, purchasing a home is the biggest investment you’ll ever make. If you’re considering buying a home, you probably have some idea of the complexity of the endeavor. Because of the numerous factors to consider when purchasing a home, it’s important to prepare as best you can. The following is a list of some of the common home-buying principals and pitfalls to think about. By keeping them in mind, you’ll help create a successful and more enjoyable experience. These potential mistakes are by no means comprehensive. Since your home could cost you 25% to 40% of your gross income, it’s imperative to conduct research, ask questions and study the process carefully.

Buying a Home

1. Looking for a home without being pre-approved. As a potential buyer competing for a property, you’ll have a better chance of getting your offer accepted by being as prepared as possible. Consider these 3 types of buyers:

· Neither pre-qualified nor pre-approved

· Pre-qualified

· Pre-approved

The benefits available at each level can be easily understood when viewed from the seller’s perspective. Imagine you’re a seller in receipt of multiple offers to purchase your property. A complete stranger (the buyer) is asking you to take your property off the market for at least the next two to three weeks while they apply for a loan. As the seller, let’s consider the type of buyer you’d prefer to deal with.

Neither pre-qualified nor pre-approved

This buyer provides no evidence that they can afford to purchase your property. You may wonder how serious they are since they’re not at least pre-qualified.

Pre-Qualified

This buyer has met with a Loan Officer and discussed their situation. The buyer has informed the loan officer regarding their income, assets, employment and credit. The loan officer might have even seen their credit report. This buyer provides you a letter from the lender stating an opinion of what they can afford to spend.

Pre-Approved

This buyer has provided a loan officer specific information regarding their income, assets and employment in the form of an application and has authorized his credit report to be pulled. All of this information has been submitted electronically to an automated underwriting system that analyzes it and then issues an automated pre-approval pending documentation and verification of the information provided. This buyer will probably be able to close quickly because much of the paperwork is already done. They provide you a letter (pre-approval certificate) from their lender and now you’re as certain as you can be that this buyer will be able to close the deal.

As a potential buyer, you should be able to see that being pre-approved will give you the best chance of getting your offer accepted. This is critical in a competitive situation.

2. Making verbal agreements. If you’re asked to sign a document containing instructions contrary to your verbal agreements---don’t! For example, the seller verbally agrees to include the washing machine in the sale, but the written purchase contract does not mention it. The written contract will override the verbal agreement. More importantly, your state may require that contracts for the sale of real property be in writing. DO NOT expect oral agreements to be enforceable.

3. Choosing a lender just because they have the lowest rate. While the rate is important, consider the total cost of your loan including the APR, loan fees and points. (1 point is equal to 1% of the loan amount…i.e. 1 point on a $100,000 loan = $1,000.) When receiving a quote from a lender, insist that the discount points (charged by the lender to reduce the interest rate) be distinguished from origination points (charged for services rendered in originating the loan).

The cost of the mortgage, however, shouldn’t be your only criterion. Have confidence that the company you select is reputable and will deliver the loan with the terms and costs they promised. If, in the final hours of the transaction, you determine that the lender has suddenly increased their profit margin at your expense, you won’t have time to start all over again with a different lender. Ask your family and friends for referrals. Additionally, see if the loan officer will be attending your settlement. If they usually do not, consider another mortgage provider that will! Problems can arise and it’s nice to have your lender there to assist.

4. Not receiving a Good Faith Estimate. Within three business days after the lender receives your loan application, you must receive a written statement of fees associated with the transaction. This is both the law and the best way to determine what you’ll pay for your loan. Bring the Good Faith Estimate (GFE) with you when you sign the loan documents at closing. You should not be expected to pay fees which are substantially different from those contained in your GFE.

5. Not getting a rate-lock in writing. When a mortgage company tells you they have locked your rate, make sure you get a written statement detailing the interest rate, the number of days your rate is locked and the loan program details.

6. Not shopping for home insurance until you are ready to close. Start shopping for home owners insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and then don’t have sufficient time to shop around. Believe it or not, this is one of the major reasons that closings are delayed. Your lender cannot issue the closing documents to your attorney until proof of insurance has been received.

7. Buying a home without professional inspections. Unless you’re buying a new home with warranties on most equipment, it’s highly recommended that you get property, roof and termite inspections. This way you’ll know what you are buying. Inspection reports are great negotiating tools when asking the seller to make needed repairs. When a professional inspector recommends that certain repairs be done, the seller is more likely to agree to do them. If the seller agrees to make repairs, have your inspector verify that they are done prior to closing. Never assume that everything was done as promised.

8. Signing documents without reading them. Whenever possible, review in advance the documents you’ll be signing. (Even though some specifics of your transaction may not be known early in the transaction, the documents you’ll sign are standard forms and are available for review.) It’s unlikely that you’ll have sufficient time to read all the documents during the closing appointment.

9. Not allowing for delays in the transaction. In a perfect world, all real estate transactions close on time. In the world we live in, transactions can sometimes be delayed a week or more. Suppose you ask your landlord to terminate your lease the day your purchase transaction is scheduled to close. A day or two before your scheduled closing date, you discover your transaction is delayed a week. In a perfect world, no one is inconvenienced and your landlord is willing to work with you. More likely, however, your landlord is inconvenienced and angry. Will you be thrown out? Will you have to find interim housing for a week or more? The eviction process takes a little time so the Sheriff won’t immediately remove you, but this type of stress-producing episode can be avoided. How? Terminate your lease one week AFTER your real estate transaction is scheduled to close. That way, if there is a delay in closing, you have some leeway. This approach might cost a little more, but then again, it might not!

10. Be an educated consumer. Attorneys, insurance companies, inspection companies and mortgage providers all have different fees for the services they provide. This is a major investment you are about to make so obtaining the very best services at a competitive price is crucial. (Notice we said “competitive”, not necessarily the “cheapest”.) Ask the people you know that have been down this road before who they would recommend. And your real estate agent can be a valuable source of this information as well. You’ll need to have some idea of the price range of the home you can afford so obtain a pre-approval from a lender you trust. Then make some calls to two or three attorneys, insurance companies and inspectors. And ask a lot of questions! No one will expect you to be an expert so don’t hesitate to ask any question that comes to mind. A good Loan Officer will even sit down with you and help you compile a list of the things you need to know if you ask them to.

Purchasing your home should be an exciting and enjoyable experience. You can eliminate much of the stress and anxiety simply by doing your homework in advance. And always remember, a great price does not necessarily mean it’s a great deal. Work with people you trust!

We wish you all the best in your new endeavor!