Other than possibly investing in a business, purchasing a home is the largest investment most of us will make in our lifetime. It is the largest commitment of money over the longest period of time and involves where you and your family will live, the place where your children will be raised and go to school and the neighbors with whom you will interact on a frequent basis.
Consequently, buying a home is a serious decision and should not be taken lightly.
Why Use a Buyer's Agent?
It is important to use an agent with whom you have a good rapport, one who understands the type of home you are seeking. Whether it is a single family home, a townhouse, a condo, new construction, a duplex or a high rise - you need to be honest with your agent and let him or her know exactly what will make you happy.
Working with an agent who represents you instead of the seller is important to help you get the best deal possible. The responsibility of a buyer's agent is to get you, the buyer, the best possible price and terms. The agent is required to inform you of any and all problems that exist with the property, such as bad roof, plumbing problems, air conditioning problems, etc. The agent must also advise you of any facts that might cause the sellers to accept a reduction in their price - such as impending divorce, foreclosure, loss of job, etc.
"Today, many states have enacted laws to help protect and educate buyers. Most real estate agents are required to disclose whom they work for. This disclosure may take place at your first face to face meeting, during a phone call, or by email, but it should always be made before a real estate agent asks for specific information about your needs."
Get yourself Pre-Qualified and Pre-Approved
There is a definite and distinct difference between these two terms. Getting pre-qualified is not a time consuming task and can be done over the telephone. You can be pre-qualified by giving specific information to a loan officer that will help to determine how much mortgage you will be able to qualify for: income, assets, credit history, long term debt. Pre-qualification is not a commitment by a lender. It merely informs you of the amount of money you can likely pay each month but you will have to be pre-approved in order to get a definite figure that states the maximum amount a lender will approve for your mortgage loan.
Prior to filling out your mortgage application and applying for pre-approval, it is important to review your credit reports with all three agencies to determine that there is no negative information contained therein. If there are any credit problems, you will have time to fix them before making application for your loan and pre-approval.
In order to be pre-approved, you must see the loan officer in person and provide specific papers:
- Weekly pay stubs for the past month as proof of income and current employment.
- If you are self employed, profit and loss statements for one year.
- W-2 forms - usually for the past two years - to verify income and job history as well as employment history.
- Three months of bank statements as proof that the amount of money the buyer will provide for a down payment along with monthly mortgage payments is readily available.
- Income tax returns for the past two years.
When you are pre-approved by a bank, mortgage broker, mortgage banker or other lending institution, you will receive written verification that you can show to the seller in the form of a card or letter.
It is important to realize that even though you are pre-approved for a specific amount of mortgage loan, you should not purchase a home up to that maximum amount. For example, if you are approved for a $200,000 mortgage, consider buying a home for $180,000 to allow yourself some leeway for other purchases such as money for new furniture, home upgrades or repairs, landscaping, etc. Having a home you love can be satisfying but being "house poor" can be frustrating when there is no money left after the mortgage payment for other forms of enjoyment.
Know the market conditions
There are three types of housing markets: Hot, Normal and Cold. To buyers, a hot market is the least advantageous because homes sell within a very short period of time after being listed. This is a result of either low interest rates or the desirability of a new area. Sellers can pretty much name their price and frantic buyers may offer more than the asking price for the property. In this type of market, a seller may receive several bids on his or her home. If you insist upon buying a home in a hot market, your pre-approval will give you an advantage over others who have not gone through the approval process.
In a normal real estate market, neither the buyer nor the seller is favored. There is usually an average number of buyers and a good inventory of homes from which to choose. Sellers are not desperate but there is likely some room for buyers to negotiate and get a somewhat lower than the original asking price. Pre-approved buyers are often favored because they have already done the necessary ground work once a price is agreed upon by both parties.
In a cold market, buyers have the advantage. There are more houses for sale and less competition. Interest rates are high. Homes will remain on the market for at least six months and sellers are eager to make a deal. In this type of market, property that is listed for several months may even drop in price and will usually be sold for less than the original asking price. Again, those buyers who are pre-approved have even more of an edge to get the house they want.
Get a Home Inspection
It is important to have a licensed home inspector check out the home before you commit to purchase. You will receive a written report detailing the inspector's findings. A buyer should be sure that the property is in good condition and that there are no major problems with the roof, the plumbing, the heating and/or air conditioning system, etc. so that there are no unpleasant "surprises" after moving into the house.
In some states, the seller is required by law to reveal any material problems that exist in the house. In those states, if the seller does not comply with the law, he or she can be held legally responsible even after the home has been sold and the buyer has taken possession of the property.