Answers for Home Buyers
- The 5 Buying Strategies I Always Recommend to My Clients
- Home Buying in Texas: Homestead Laws
- Advantages of Buying Vs. Renting
- What Will My Closing Costs Be?
- 6 Ways To Beat The Stress Of Buying
- List Of Documents Needed For The Mortgage Application
- First-Time Home Buyers Top 10 Mistakes
- Buyers Beware - Seven Potential Pitfalls to Avoid
Don't Get "Pre-Qualified!"
Do you want to get the best house you can for the least amount of money? Then make sure you are in the strongest negotiating position possible. You see, the price is only one bargaining chip in the negotiations, and not necessarily the most important one. Often other terms, such as the strength of the buyer or the length of escrow, are critical to a seller.
In years past, I always recommended that buyers get "pre-qualified" by a lender. This means that you spend a few minutes on the phone with a lender who asks you a few questions. Based on the answers, the lender pronounces you "prequalified" and issues a certificate that you can show to a seller.
Sellers are aware that such certificates are WORTHLESS, and here's why! None of the information has been verified! Oftentimes unknown problems surface! Some of the problems I've seen include recorded judgments, child support payments due, glitches on the credit report due to any number of reasons both accurately and inaccurately, down payments that have not been in the clients' bank account long enough, etc.
So the way to make a strong offer today is to get "pre-approved". This happens AFTER all information has been checked and verified. You are actually APPROVED for the loan, the only loose end is the appraisal on the property you want to buy. This process takes anywhere from a few days to a few weeks depending on your situation. It's VERY POWERFUL and a weapon I recommend all my clients have in their negotiating arsenal.
Sell First, Then Buy
If you have a house to sell, sell it before selecting a house to buy! I haven't seen a contingent sale work in the last few years unless it's a new home builder who has other houses to sell and can afford to put one on a contingency.
Let's pretend that we go out looking for the perfect house for you. We find it and you love it! Now you have to go make an offer to the seller. You want the seller to reduce the price and wait until you sell your house. The seller figures that's a risky deal, since he might pass up a buyer who DOESN'T have to sell a house while he's waiting for you. So he says OK, he'll do the contingency but it has to be a full price offer! So you see, you paid more for the house than you could have because of the contingency.
Now you have to sell your existing house and in a hurry! Otherwise, you lose the dream house! So to sell quickly you might take an offer that's lower than if you had more time. The bottom line is that buying before you sell might cost you TENS OF THOUSANDS of dollars. I always recommend that you sell first, then buy.
If you're concerned that there's not a house out there for you, then go on a window shopping trip. You can identify possible houses and locations without falling in love with a specific house. If you feel confident after that, then put your house on the market.
Another tactic is to make the sale "subject to seller finding suitable housing". Adding this phrase to the listing means that WHEN YOU DO FIND A BUYER, you will have some time to find the new place. If you don't find anything to your liking, you don't have to sell your present home.
Play the Game of Nines
Before house hunting, make a list of nine things you want in the new place. Then make a list of the nine things you don't want. I call this "NINE OF THIS AND NONE OF THAT". You can use this list as a scorecard to rate each property that you see. The one with the biggest score wins! This helps avoid confusion and keeps things in perspective when you're comparing dozens of homes.
When house hunting, keep in mind the difference between "SKIN AND BONES". The BONES are things that cannot be changed such as the location, view, size of the lot, noise in the area, school district, and floor plan. The SKIN represents easily changed surface finishes like carpet, wallpaper, color, and window coverings. Buy the house with good BONES, because the SKIN can always be changed to match your tastes. I always recommend that you imagine each house as if it were vacant. Consider each house on its underlying merits, not the seller's decorating skills.
Don't Be Pushed Into Any House
Your agent should show you everything available that meets your requirements. Don't make a decision on a house until you feel that you've seen enough to pick the best one. Go to the Multiple Listing Service website with your agent to make sure that you are getting a COMPLETE list.
In the late 1980's, homes were selling quickly, usually a few days after listing. In that kind of market, agents advised their clients to make an offer ON THE SPOT if they liked the house. That was good advice at the time. Today there isn't always this urgency unless a home is drastically underpriced, and you'll know if it is.
Don't forget to check into the SCHOOL DISTRICTS of the area you're considering. Information is available for every school, such as class sizes, % of students that go on to college, SAT scores, etc. You can get this information from your agent or directly from the school.
Stop Calling Ads!
A word of caution - agents create ads solely to make the phone ring! Many of the homes have some drawback that's not mentioned in the ad, such as traffic noise, power lines, or litigation in the community. What's not mentioned in the ad is usually more important than what is.
For this reason, I want you to be very careful when reading ads. Remember that the person writing the ad is representing the seller and not you! The most important thing you can do is have someone on your side looking out for your best interests. Your own agent will critique the property with an eye towards how well it meets your needs and will point out any drawbacks you should know about.
So whether you decide to work with me or not, pick an agent you feel comfortable with and enlist the services of that agent as a buyer's broker. Then you become a client with all the rights, benefits, and privileges created by this agency relationship, and you're no longer just a shopper.
Did you know that many homes are sold WITHOUT A SIGN ever going up or an AD EVER BEING PUT IN THE PAPER? These "great deals" go to those people who are committed to working with one agent. When an agent hears of a great buy, who do you think he's going to call? His client, who he has a legal obligation to work hard for, or someone who just called on the phone and said: "keep your eyes open"? So to get the best buy on a property, I always recommend that you hire your own agent and stick with him.
Did you know that Texas is a Homestead State?
What exactly is a homestead?
DEFINITION: (House, Condominium, Townhouse, Permanently installed Mobile Home)
URBAN: The Homestead of a family or a single, adult person, not otherwise entitled to a homestead shall consist of not more than ONE ACRE of land which may be in one or more lots, together with any improvements thereon.
RURAL: FOR A FAMILY - not more than 200 acres which may be in one or more parcels, -with the improvements thereon.
FOR A SINGLE ADULT PERSON - not otherwise entitled to a homestead, not more than 100 acres, which may be in one or more parcels, with the improvements thereon.
IF A HOMESTEAD IS CONSIDERED TO BE RURAL - at the time of designation, the property is not served by municipal utilities and fire and police protection
Why was the Homestead law passed?
PURPOSE: The Texas Homestead Law was created for the primary purpose of securing for a family or a single adult person, not otherwise entitled to a homestead, a place for home, shelter and the earning of a livelihood from the claims of all creditors EXCEPT THE HOLDERS OF LIENS FOR PURCHASE MONEY, TAXES AND HOME IMPROVEMENT LOANS.
How do you declare a Homestead?
Upon the purchase of a new home, you must call the APPRAISAL DISTRICT of the County in which you reside and request that they mail you the necessary forms for 'Declaring Your Homestead':
DALLAS COUNTY APPRAISAL DISTRICT
COLLIN COUNTY APPRAISAL DISTRICT
TARRANT COUNTY APPRAISAL DISTRICT
DENTON COUNTY APPRAISAL DISTRICT
ABANDONMENT OF A HOMESTEAD: If a homestead claimant is married, a homestead cannot be abandoned without the consent of the claimant's spouse. When the parties purchase a new homestead, it is generally clear that an abandonment has occurred.
SALE AND LEASE OF HOMESTEAD PROPERTY: Any sale of homestead property that is less than the appraised fair market value wherein the buyer of the property executes a lease of the property to the seller at lease payments exceeding fair rental value of property is considered to be a loan with all payments made from the seller to the buyer in excess of the sales price considered to be interest subject to the usury stature as found in Article 5069.01 et seq.
Such a transaction is also considered a deceptive trade practice. An exception to this rule applies to the sale of a family homestead to a parent, step-parent, grandparent, child, step-child, brother, half-brother, sister, half-sister, or Grandchild of an adult member of the family.
Title Insurance is not available on any sale and leaseback of homestead property.
You've probably seen lots of financial arguments about why you should own your own home rather than rent. These include being able to budget (no rent increases) and the tax savings you'll most likely have. Now I'm going to give you some reasons you probably haven't heard.
Freedom to pursue other goals in life once the major goal of homeownership is achieved
Strange as it sounds, many of my first-time buyers have told me that once they bought the house, other things in their life started to fall into place. It's as if not owning took so much of their mental energy that other goals were not worked on until that big goal was reached. So buy a home and get on with your life!
A greater sense of belonging to the community
Once you own a home, you feel more attached to the city in which you live. You're more interested in what happens in town, to the roads, schools, and shopping areas. Some people even become involved in local politics, which you seldom see a renter do.
A commitment to something, a sense of stability
Home ownership is an anchor, something that cannot be pulled out from under you. You'll never get a notice that you have to move. Your kids will never have to change schools. It gives you the freedom to plan years ahead.
You can change things, a feeling of being in control
It's your home. You can add to it, remodel it, change the landscaping, do whatever projects you want. You have a feeling of being in control of something in your life. At work, we don't always have control of what happens, but your home is your castle that you have dominion over. You can see what you're building take shape before your eyes.
More control over the children than in an apartment complex
In a neighborhood, kids usually play in the yards or go to friend's houses a few doors away. My clients have told me that in an apartment complex they never knew where the kids were. They could be in any of hundreds of apartments, doing who knows what. In a home, you get to know the neighbors and watch out for each other's kids.
Children do better in school and feel more secure
This one surprised me, but buyers have reported to me that their kids calmed down in school after they bought a house. I don't know why, but it seems to work that way. I remember a single mom watching her son play in the yard, making steps in the slope and building things. She didn't have to tell him to leave everything alone like she did at the apartment complex. I guess kids feel the same need for control we adults do.
Time and money saved by not going to the laundromat
A small point, but if you have kids, you know the value of this one. You gain a whole evening a week when you buy a house! The wash gets done in between other things, or while you're at work. What would you do with the extra evening you'll have? How about going out for dessert with your spouse with all those quarters?
We've been in a home of our own for so long, we take these benefits for granted. We forgot what it's like to be renters! If you have anything you can add to the list, please let me know via email. I'd love to hear from you!
In the simplest all-cash purchase, the only fees are Title Company, your first year's
FIRE INSURANCE, a fee to the County to record the GRANT DEED and reimbursing PROPERTY TAXES the seller has paid in advance.
If you want a Title policy (highly recommended), normally the seller will pay for the mortgagee portion with is about 1% of the contract price, and you will pay for the mortgagor (Mortgage Company) part.
For purchases involving a loan, a good rule of thumb is 2 1/2% of the purchase price plus any points on the loan. Here's a breakdown of the costs:
A TITLE INSURANCE policy will be required by the lender.
The are various LENDER FEES that go by various names such as "Funding fee", "Document prep fee", "Origination fee", "Courier Fee" etc. Your lender will provide you with a Good Faith Estimate.
POINTS may be charged on your loan if you are going after a better interest rate.
If you have an IMPOUND (Escrow) ACCOUNT that allows the lender to pay your taxes and Homeowners fire insurance, the account will need some money to start it off. This will vary depending on where we are in the tax year so that TAXES can be paid. Most of the mortgages company required 2-3 month of taxes and insurance in Escrow, in addition to one-year prepaid homeowners insurance. Also if you have PMI coverage the required amount is about 2 month also.
If you purchased in a community with a HOMEOWNER'S FEE, these would also be paid ahead of time.
The FIRST MONTH'S MORTGAGE PAYMENT is also made in escrow or at least a portion of a month. This is so your first payment is not a partial payment which messes up the bank's bookkeeping. For example, if you close March 15th, you will pay interest until March 31st in escrow. Your first mortgage payment will be due May 1st which pays for April because mortgage payments are always made in arrears.
If you purchase with less than 20% down, expect to pay PRIVATE MORTGAGE INSURANCE, or PMI for short. The portion of the loan over 80% loan to value is the riskiest part for the lender. With low-down government loans like VA and FHA, the government insures this part for the lender. For conventional loans, private insurance companies provide the same service, for a fee. A typical charge is .5 - .75% of the loan amount per year, so divide by 12 to get the monthly figure. You start off the impound account with 2 months up-front, and then a monthly fee until the loan-to-value reaches 80%. This can happen through appreciation, or from just paying down the mortgage over time. You have to request the insurance be removed on your own when you feel you have 20% equity. The insurance company is happy to collect from you forever unless you challenge it.
Your out-of-pocket expenses will be an APPRAISAL FEE ($325) and a CREDIT REPORT fee($70). Expect around $395 for these services that the mortgage broker will need to provide for you prior to getting the loan.
Another out-of-pocket is the PHYSICAL INSPECTION. When you purchase a resale home, you have the right to hire whatever professional inspectors that you want to look the place over and give you recommendations. This will run from $150 - $300, but I always advise that you do it to avoid surprises later. Also, the inspection report gives us third-party documentation when we ask the seller for repairs.
The numbers used in this article are approximations and used for educational purposes only.
DEATH, DIVORCE, & MOVING are the three most stressful experiences in life.
My 20 plus years in the business, plus moving my own family couple of times, has taught me some important lessons. I learned that there are two very different kinds of needs that people have while moving.
First, there are the transactional needs, like finding the home that is just right for you, finding a seller who is realistic, negotiating the price, filling out the paperwork, handling the escrow, and arranging for the move.
But there are also emotional needs that are involved when moving, and this is where the biggest stress comes in. Any competent agent will handle the transactional needs for you, but if your emotional needs are unfulfilled, you'll be frustrated and may not act in your own best interests.
The ideal real estate agent is one who is competent with paperwork and numbers, but can also guide, direct, and counsel you through the emotional ups and downs of moving.
Here are the six best ways we've found to beat the stress.
1. Begin with the end in mind.
Have an ultimate scenario of where you're trying to be. What will life be like when you get there? How will it be better than where you are now? Dwell on that picture and write it out, fill up at least a page about how it feels in the new place. This is imperative. Having the goal in front of you at all times energizes you to achieve it, in spite of setbacks and frustrations. Emotions will run high and you need an anchor. In childbirth, the Lamaze method teaches you to focus on one spot when enduring labor pains. In the Bible, it says that Jesus willingly went to the cross by focusing on the joy He would have when it was over. In the same way, you too must focus on that future goal when anxiety threatens to get the better of you.
2. Be flexible.
In your monetary calculations, overestimate by a thousand dollars. In this market, anything can happen between contract acceptance and closing. It could be the inspections reveal areas of concern that the seller is unwilling to fix or the repair costs are higher than the amount limited in the contract. Or the interest rate changes and that affects the necessary down payment and closing costs you will need to come up with. As your real estate team, we will strive to tie up loose ends as quickly as possible, but remember there is no perfect world.
Most buyers feel a bit overwhelmed when taking on a new mortgage and the responsibilities of a new home and we've seen many buyers get angry when it seems like the cost just keeps going up. Anger is caused when reality doesn't match up with the expectations you had in your mind. So if you anticipate this happening in advance, you won't get angry. In fact, it'll probably go better than you expected.
3. Trust in the process.
There's just so much to do, it's easy to panic. You wonder if it will ever work out. In fact, when we bought our house, we couldn't eat for a day, we felt sick to our stomachs! You think you're taking a big chance, but the truth is you're giving yourself a big chance. Even though you can't see every step of the way, as you move towards your goals, the way opens up. We know that you haven't moved in a long time and it's a major upheaval in your life. But we've been there many many times before, and we'll be looking out for you. Trust that we know the way to get you there.
4. Get knowledge.
One thing you'll probably feel during this transition time is being out of control. It feels like everyone else has taken over your life. The seller, your lender, the appraiser, the inspectors, they all have the power to say yes or no to your moving plans.
We'll try our best to let you know ahead of time what your expenses will be, and what the unknowns are. We'll tie down the loose ends as soon as possible. We'll try to get your loan approved within a reasonable time frame. We'll educate you as best we can and let you in "behind the scenes" so you won't ever feel stupid or out of control.
5. What is your option?
When things don't go as smoothly as you had hoped, don't let emotions take over. Always ask yourself "What is my option?" because there are always options. Let's pretend the lender takes longer than agreed upon to get your loan. He keeps asking you for more and more documentation until if feels like he also needs to know how many gold fillings you have in your mouth! You'll feel upset because you wanted to feel certain about the move and now you still have to live with the uncertainty. You want to say "Forget it, I'm fed up with this!" But what is your option? Find a new lender and start the process over again? That may take weeks, plus you will have to provide all the paperwork over again. If the lender is trying his best, it may be better to give him a few more days. Each case is unique, but when setbacks occur we've found that asking yourself this question helps to defuse the situation and restore clear-headed thinking.
6. Seek entertainment.
When there's nothing you can do about the situation, take your mind off of it altogether. Maybe you expected loan approval on Friday, but now it won't come until Monday. You hate being in limbo and feeling powerless. So do something else entirely, maybe something where you aren't powerless. Take a hike, play tennis, get out of town for the day. Watch a movie, pray, or pour yourself into your work. Whatever diversion works best for you, now would be a good time to engage in it. Just forget the situation and refuse to listen to those irritating thoughts when they come into your head. Think about something else instead, and just do it one day at a time.
To keep stress to a minimum, here's how I'll serve you when you work with me to buy your new home:
- Give my best-reasoned expert counsel and advice with your best interests in mind.
- Clarify your goals and motivation, and decide if moving is the wisest choice at this time.
- Provide recommendations and information to help your kids with the changes.
- Negotiate effectively for you to get the lowest possible price for your new home.
- Treat your money like it was my own, shaving every expense possible.
- Protect your interests during escrow, keeping a detailed record of the transaction.
- Be your level-headed sounding board or relief valve when the stress is overwhelming.
- Counsel you through the feelings of "buyer's remorse".
- Alert you ahead of time to every possibility so you feel more in control.
- Contact you daily during the last 10 days of the transaction to serve your needs.
- Provide guidance and help with movers, change of address, utilities shut off, cleaning, etc.
- Deliver your closing paperwork.
- Continue to give you information of value after the transaction... for life!
This is a two-year history of employment, residence, assets and liabilities.
- Copies of W-2s for last two years
- Copies of paycheck stubs for last 30 days (most current)
- Copies of checking and savings account statements for last three months (all pages)
- Copies of quarterly or semi-annual statements for checking, savings, IRAs, CDs, money market funds, stock, 401K, Profit Sharing, etc.
- Copy of sales contract when ratified
- Employment history last two years (address any gaps in employment)
- Residency history last two years, with name, phone number, address and account number of Landlord or Mortgage Company. Rental property copies of leases plus mortgage information
- Canceled earnest money check when it clears or corresponding bank statement, if applicable
- Commissioned or bonused income - if 25% or more of base, must have tax returns
- Check for the expense of appraisal & credit report
- Refinance Copy of Note, Deed of Trust, Settlement, Survey
- Any assets used for down payment, closing cost and cash reserves must be documented by a paper trail
- If paid off mortgage in the last 2 years, need copies of HUD1
- Copies of most recent 2 years tax returns (with all schedules)
- Copy of current profit & loss statement and balance sheet
- Copy of corporate/partnership tax returns for most recent 2 year period if owning 25% or more of company - copies of W-2s and/or 1099 forms
Documents which may be required:
- Relocation Agreement if move is financed by employer, i.e. buyout agreement plus documentation outlining company paid closing costs benefits
- Previous bankruptcy, need copies of petition for bankruptcy and discharge, including supporting schedule
- Divorce Decree if applicable
- Documentation supporting monies received from social security/retirement trust income, i.e. copies of direct deposit bank statements, awards letter, evidence income will continue
Documents Needed For FHA/VA Loans:
- FHA: Copy of social security card and drivers license for each applicant and co-applicant
- VA: Original Certificate of Eligibility and copy of DD214 Discharge Paper
- VA: Name and address of nearest living relative
Not planning the move to coincide with the end of their lease often creates a big dent in the budget. Check with your landlord about an early release clause from your lease if you are considering buying a home.
Looking at Homes You Can't Afford.
You might find that when you do a reality check and start looking at your price range that the houses are rather disappointing. Get pre-approved and then stick to your budget.
Buying the Wrong Sized Home.
Consider how long you plan on living at the property and plan for any lifestyle changes that could possibly happen.
Buying in a Neighborhood You Know Nothing About.
Think about whether or not this neighborhood will make you as happy as the house does. Do your homework.
Operating on a First-House-is-Best Theory.
Season your eyes by inspecting different types of homes. This will help establish your objectivity after coming from a renting situation.
Buying a Property That's Difficult to Resell.
Walk yourself through all the negatives to the property. Most first-time home buyers sell within five to seven years. Think long and hard about how you would sell the home prior to buying.
Overextending Your Budget.
Avoid feeling pinched - just because you have been pre-qualified to a certain level doesn't mean that is where your comfort zone is for payments. Write down everything you spend for two months, that will give you a real picture of what you spend. Then plan for emergencies, vacations, savings, and upkeep of the new home. You'll have a much better picture of what kind of payments you can really afford.
Take all the time you need, but don't be afraid to make a commitment when you've found your dream home. Everyone gets cold feet at some time during the process.
Choosing the Wrong Mortgage.
The thirty-year fixed rate is not the only or necessarily the best answer. Have your lender show you on paper how much each program will cost you and how they compare with each other.
Under-insuring the Property.
Forgetting to increase insurance coverage as the home appreciates in value or neglecting to properly insure the replacement value of the contents.
Don't do the following, please pay particular attention to the word Don't:
Don't Buy an outmoded house or ill-fitting house, unless you are certain it can be tailored to suit your needs, and you know exactly how much that will cost.
Don't Let spur-of-the-moment impulse override sound judgment. Take your time and tour the house at least twice at different times of the day. Drive around the neighborhood and find out what you're really getting into. Make sure the family is in agreement.
Don't Buy a house just because it's a bargain. Or you might end up with something you didn't bargain for, a less than ideal housing situation. Stick to your criteria and find a home that meets your needs, wants and budget.
Don't Buy a new house in a new subdivision if you expect to move in less than seven years. If you try to sell any sooner, you will find yourself competing with brand new homes being built around the corner and offering better financing.
Don't Try to work personal property into the real estate deal. Take care of the house first, then worry about the washer and dryer. Otherwise, you will just end up confusing the seller.
Don't Buy a house without getting to know the neighborhood first. You need to find out about emergency services, zoning restrictions, street lighting, parks, shopping centers, churches, medical facilities, etc.
Don't Call the agent/company from the yard sign (For Sale), they are working for the seller and their job is to get the most money for the seller. You need to get yourself an Accredited Buyer Representative (a qualified agent) who will work for you and negotiate for you to get the best deal for you and not the seller.