LAMON Assoc.

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Home Buyer
Homework

Buying a home is one of the largest financial commitments a person can make, so its critical for first-time buyers to make informed decisions about their investment. Here are some tips to first-time buyers to make the process easier:

1:   Define your wants versus your needs before beginning your home search. It will make the process less overwhelming.

2:   Check your credit rating, especially if you will be applying for a mortgage. Straighten out errors that could hold up loan approval, and postpone large credit purchases.

3:   Investigate the neighborhood to find schools, places of worship and other services you may require.

4:   Be an informed buyer and check with your real estate agent about restrictions specific to your neighborhood; deed restrictions, including exterior maintenance, lawn care or fencing may be specified.

5:   Insist on a home inspection. Attend property inspections, be aware of environmental concerns and ask questions.

6:    Look for a property with a home warranty to cover   unexpected surprises during the transaction.

7:   Get help with the details. Choose a REALTOR who can coordinate related services and details for your home transaction.

8:   Dont rush. You might overlook property flaws in the excitement of buying a home, or in the rush to lock in a good interest rate. Think through the process to avoid making choices you will regret in the future. 

The sellers accepted your offer to purchase. The home is officially under contract and you're counting down the days to closing. Don't worry. All will be well if you keep your cool and follow a few important guidelines.

1. Don't Make Another Major Purchase
You've just found out your credit is A+. So you've decided a new car would look fantastic in the driveway of your new home. If you're paying cash for the home go right ahead. But if you are depending on a mortgage to move in you'd best wait until after closing.

An increase in your debt/income ratio reduces the amount of monthly income available for your mortgage payment. The bank may decide you cannot afford the home. Keep in mind that using cash for a purchase can be a problem too, since banks consider cash reserves when approving a loan.

If you must make a major purchase before closing, talk to your loan officer before you do it.

2. Don't Change Jobs
Guidelines vary, but banks like to see a consistent job history. They aren't usually as nervous if you change jobs within the same field, but it's better to stay put until the keys to the house are in your hand.

3. Don't Give an Earnest Money Deposit Directly to a FSBO Seller
It should go into a trust account. Some FSBO sellers believe the money is theirs to use as they please. They don't understand that it's a good faith deposit to be applied to your expenses at closing. I've heard many stories about sellers who spent the buyer's deposit prior to closing. The transactions didn't take place for valid reasons (such as financing or repair problems) and the buyers had to fight to retrieve their deposit. Find an attorney who will hold the funds for you until closing day.

4. Don't Let Your Emotions Take Over
There are many areas where that statement applies, but one of the most important involves the home inspection. Be realistic. No home is perfect, especially older homes. Don't let the seller's refusal to do a small repair kill the deal on a home you truly love. It's not at all unusual for new owners to take care of some things themselves. On the other hand, don't fall so much in love with the house that you'll buy it no matter what needs to be done (unless you're absolutely sure you can handle it emotionally and financially). You are the only one who can decide what type of repairs you can realistically deal with.

5. Don't Forget to Switch Utilities
That sounds simple, but you'd be surprised how many people forget to apply for utility service at their new home. Call the companies involved as soon as you have a contract. Find out how many days lead time they need to turn on the new service, then get back with them when you have a firm closing date.

6. Don't Forget About Hazard Insurance
A no-brainer, right? But it's another often-forgotten task that buyers scramble to take care of at the last minute. Your lender will require an insurance binder for the new home at or prior to closing. Take care of it right away.

7. Don't Become Best Friends with the Seller
I'll get some flack on this one. It's great to be friendly, but don't get into too many long discussions with the sellers. Personality conflicts can cloud judgments. I've had selling clients refuse to make even small repairs because something about the buyers turned them off.

And remember, this is their home. You're no doubt excited about moving in, and if you didn't like the house you wouldn't have offered to buy it. But you'll make changes--everyone does. A casual statement about "ripping up that ugly carpet" might just mean the seller won't do anything to correct real problems.

Keep it to yourself.

8. Don't Panic if the Appraisal Comes in Low
At least not at first. There are some things you (or your agent) can do to correct the problem. Take a look at this article on low appraisals.

9. Don't Go It Alone
If you're working with an agent it's the agent's duty to help you make it to closing. Don't let them slack off. Here's a article written for real estate pros that might help you understand how your agent should be helping you.

Dealing With a Low Appraisal

Your client has a contract.

The buyers felt it was safe to go ahead with inspections, and the results were acceptable. The closing date is on target; you're just waiting for the appraisal results so that a loan commitment letter can be issued. You're not too worried, because you think the house sold for an appropriate price, and appraisals have a magical way of coming in just where they need to be.

You get a call from the lender or the other agent. The appraisal is $10,000 less than the sales price. Panic sets in for everyone involved. Is there anything you can do?

It happens sometimes, and there are often ways to 'fix' the problem. The first thing to do is stay calm. That might be hard, no matter which side you represent. One or both parties may have another contract that hinges on a successful completion of this one, and getting bad news can make everyone a basket case, especially when it's close to closing day.

Your involvement in the remedy will vary, depending on whether your client is the buyer or the seller, but you'll need to work closely with the other agent to get it handled.

Seller Reduces Price
Would the seller be willing to reduce the price of the home? Hold on, that's not the only solution, but it is a common one, especially if you feel the price may have possibly been out of line. If the buyers are seeking a mortgage, they can probably back out of the contract due to the financing contingency, since the low appraisal will affect the way the lender views the home. The seller may be willing to deal.

(Note: Hopefully you've protected your cash buyer by adding a contingency to the contract, stating the buyer can back out of the deal if the home doesn't appraise at or above the sales price.)

Buyer Pays More Down
The buyer may want the home badly enough to make a larger down payment, but don't assume that will correct the problem. I know of an instance recently where the buyer was prepared to pay an additional $15,000 down to make a deal work. It was a special type of property that was hard to appraise, and the appraisal came in low. Even though the buyer could have paid more down, the lender would not allow it. Talking with a few more local lenders at the time verified that others felt the same way. They did not want to finance a property that the buyer went into with a negative equity, even if the buyer was willing to take the risk.

Blend the Two
Seller and buyer come to an agreement, both giving a little.

Dispute the Appraisal
Ask the lender for another appraisal. They may even pay for it. Find your own comps, and share them with the lender. They may ask you to fill out a form that resembles the one appraisers use to make the comp information more readable.

The lender may send out a new appraiser or ask the original appraiser to reevaluate the property. When working with the original appraiser, try to be helpful, not belligerent. Find out which houses were used as comps, and keep in mind that most appraisers base their opinions on paperwork. They often haven't seen the comps up close and personal the way we do. It could be they used houses you know needed a lot of work, even though it wasn't stated in the MLS. When you explain their condition in a professional manner, appraisers are more likely to investigate the comps to see if adjustments should have been made.

Does the Contract Include Personal Property?
Appraisers only put a value on real property, the land and the improvements to the land. If the contract includes furniture and other types of personal property, it won't be a part of the appraisal.

Is the Seller Paying Funds to the Buyer at Closing?
This often works, but it can be killed by a low appraisal. Always talk with the lender about their policies and the proper wording for this type of agreement. Then be prepared to deal with it if the appraisal comes in low.

The Basics

If you're working with an agent it's the agent's duty to help you make it to closing. Don't let them slack off. Here's something written for real estate pros that might help you understand how your agent should be helping you.

What about getting the sale to closing? Most closings don't just happen, they take place because at least one agent involved in the transaction makes the effort to ensure everything is progressing as it should.

I've seen many contracts fall apart simply because the agents weren't staying in touch with their clients and other parties involved in the sale. They sent their clients off with a few names, waved good-bye, and said see you at closing. Does that sound crazy? It sure is, but it happens.

The bottom line: no closing, no commission--and probably no referrals, either. With today's atmosphere of FSBO and discount brokers who typically do not provide full services, those of us who plan to be around for the long term must show that we are the people clients can look to for advice and action. True professionals know how to get the job done, and get it done right.

Agents Working with Buyers

• Ask the lender for a list of items required for closing, and find out if they provide online or faxed loan status updates. If not, talk to the lender as often as necessary to make sure all work is being done--on your part and theirs.
• If you're working with a VA or FHA loan, make sure you're up-to-date on all the current requirements.
• Be sure deadlines are met, such as promised dates for all inspections and loan commitments. Convey all information to the seller's agent on time.
• Although you shouldn't steer a client to specific individuals, you should provide a list of service professionals who have good track records: surveyors, home inspectors, pest control companies, attorneys, etc.
• Go to all inspections. Unguided clients are more likely to be stressed if repairs are required, even if they are minor. If you absolutely cannot be present, talk with inspectors about their findings. Don't rely on a written report to learn about issues that may be critical to the sale. A thorough understanding makes it easier for you to counsel your clients--and negotiate with the other agent if necessary.
• Don't forget to give your clients a list of all utility companies that service the new home. They'll need to arrange for services to begin on the day of closing.
• Make sure clients are talking with someone about home insurance. That sounds pretty elementary, but you might be surprised how many people wait until the last day to obtain an insurance rider.
• In my state, most closings are held by attorneys, and an attorney performs the title search. In many other states title companies perform the title searches. Make sure arrangements are made for the type of work required in your area.
• In short, make yourself available and stay informed.

Agents Working with Sellers

• If a commitment date passes with no confirmation, call the other agent to find out why it's late, and when it can be expected.
• The first major hurdle is the appraisal. If more than a few weeks go by with no appraisal, get on the phone to find out why. After the appraisal is complete, verify that the results meet the lender's expectations.
• Your office staff should tell you when inspections are scheduled. Call the buyer's agent the next day to ask for feedback. If there's a problem, you want to know now, not in two weeks.
• Check-in with the other agent occasionally, to make sure things are progressing as they should.
• Remind your clients about utility shutoffs or transfers.
• If your clients are selling one house to move to another, you may be handling both sides of these issues. That means double-duty in making sure both deals are progressing towards synchronized closings.

Every transaction is different, and over time you'll have problems that are deal killers. It happens. But it shouldn't happen with the easy stuff.