Buying a Home
Thing No 6
All agents are not created equal.
By law, companies that list homes for sale represent the seller's interest. But you''re buying, right? Do not buy from the seller’s agent. This is what’s called the old conflict of interest. Find an exclusive buyer’s agent, whose duty it is to get you the best possible price and terms, disclose all pertinent facts about a property, and offer advice every step of the way. And best of all, their cut will come out of the seller’s commission at closing. Make sure this is specified in your buyer agency agreement. Don’t be breezing in there like you’re, buying a classic pair of Chuck Taylor’s on zappos.com. This is a frigging house. And, don’t commit to a long-term exclusive relationship with the agent until you’re sure he or she is the right person for you. In fact, you really don’t have to do so ever. Truth be told, you can work with as many buyer’s agents as you want, letting the one who brings you the right house get the check. Just be careful to NOT let two agents actually show you the same house or it gets messy. Also, unless you are in a small town, no agent can be an expert in every sub-market. If your search area is broad, with many neighborhoods, use multiple agents. Trust the people who focus on a neighborhood to know it best. What can we say? We’re commitment phobes.
Thing No 7
Get your own house in order.
We know you've completely forgotten about that bill from Neiman Marcus that got lost and took 60 days to pay last year but it’s coming back to haunt you. Check your credit report with the three national bureaus 90 to 120 days before you plan to start your search and look for any mistakes or “dings” that might affect your credit score and, in turn, the terms of your mortgage loan. Something small like this can cost you thousands of dollars in the form of a higher interest rate. And some are just plain mistakes. (Statistics say 70% of all credit reports have at least one error.) This is one of the biggest headaches of all time. You’ve got to get on this pronto. You would be very sad if we told you how many bureaucrats and meanies you’re going to have to talk to in order to get these corrected and how long it will take. On top of that, start your search with more than your shiny perfect credit – come armed with a pre-approval letter from a reputable lender. It will put you at the top of the offer list and its even required by many sellers to consider your offer. Finally, you have to demonstrate that the amount of the deposit is “seasoned” meaning it has to have been sitting in your account for at least 3 months. We suppose this weeds out the “I can’t really afford this house but Mummy gave me the deposit for my birthday’ crowd. (Of course, it doesn’t really do any such thing.)
Thing No 8
Determine how much you can really afford.
Rule of thumb is 2 ½ times your annual gross income. But check an online calculator to be sure: quickenloans.com/loan_programs. Don’t assume what they tell you can afford is a good idea. You may qualify for a really big loan, maybe even more than you can actually afford. Make a realistic budget, factoring in the down payment, closing costs and, of course, monthly payments. And don’t forget to leave room for the little things, like savings, food and Yogalates classes.
Thing No 9
Sometimes too good to be true, is.
As houses have gotten more expensive, lenders have come up with exotic loans like interest only and 40+ year loans, as well as short-term fixed rates (1-5 years). When the market is going like gangbusters, these work well. Your appreciation every year gives you equity and a safety net. In a declining market, you don’t want to end up owing more than the house is worth, or having to sell in a soft market when your rate goes up and your payment jumps. That’s not to say these options are never right. There is also the option of a double loan – two different lenders. Speak with your accountant or banker about your 5-10 year goals, fiscal situation and the market, and then make the smart choice for you.
Thing No 10
Shop around for the best mortgage and get pre-approved.
After finding an agent, you'll need to start looking for a mortgage lender. Take your time, since you could be paying this loan for 30 years. Start on the Internet at places like LendingTree.com and E-loan.com. You may also want to check out the rates at CNNMoney, Bankrate or HSH Associates. These sites carry nationwide listings of mortgage interest rates and other related information. Don’t sweat the 20% too much. If you can afford the monthly mortgage then you should be able to get a mortgage at a lower down payment although, the rate will go up. For more info on the mortgage check 5things for mortgages.
Thing No 11
It''s hard to make up for the closing costs in a short timeframe.
Presumably you wouldn't be here if you wanted to rent but let''s run through the logic for grins. If you’re only going to live there for a few years or less then you may want to stay out and rent. Closing costs at purchase cost you 1-2%. If you sell in two years, its roughly a 5% sales commission and another 1-2% Closing. So, if you don’t think the house will go up 7-9% in that time frame, you’ll lose money. On top of that, if you sell in less than 2 years, you’ll have to pay capital gains on profits. If it’s more than 2 years, you get up to $250,000 tax free profit as a single and $500,000 as a married couple. The last wild card is the interest income deduction you get if you buy. In essence, it offsets the cost of ownership and means that a $3,000 mortgage “costs” you less per month than a $3,000 rent. Again, talk to your accountant and figure out what the “net” cost is to you at your income level, then use “apples to apples” to see what you can buy and what you can rent at those figures.
Thing No 12
Buy with an eye toward selling.
People keep a house an average of seven years. You''d like to create some wealth in that time, right? Then don’t buy a house that’s overpriced to begin with. Ask your agent for “comps.” These are comparable properties in the neighborhood with their asking prices. You don’t want to pay for the most expensive house in neighborhood. You and your agent should be able to figure out what an average, comparable house in the neighborhood is worth, (compare your info with data from sites like zillow.com and realestateabc.com, and then don’t pay more than that. Make sure to double-check the trends and the amount houses are selling above or below the asking. That should also be factored in to the offer.
Thing No 13
Know the stakes of the game.
Try to line up data on at least three houses that have sold recently in the neighborhood. Calculate the difference between the original list price and the final price of the homes sold. If the average difference is, say, 5 percent below the asking price, then you know you can make an offer 8 to 10 percent below, leaving yourself a little room to negotiate. If you really want the house, don't lowball. The seller may give up in disgust. Another factor to consider in determining your bid is whether the trend in recent home sales is up or down over the past year. For instance, if a year ago houses were selling for 10 percent below list, and recent ones are going at 3 percent below, then you might want to tighten your opening bid to just 5 percent below list.
Thing No 14
Don''t try to catch a falling knife.
Buying a house is like buying a stock. Buying a home in an area where prices are moving up or remaining stable in a down-market historically continue to perform well if things get bad or worse. Those going down tend to stay sour.
Thing No 15
All home inspectors are not created equal either.
Find yourself a professional home inspector, whose job it is to find and identify any problems or potential problems with the home you’re looking to buy. Ask about any tests or special inspections that are recommended for homes in the area. And while your buyer’s agent is required to disclose everything to you, it’s also a good idea to hire your own inspector, not necessarily the one your agent recommends. You want an inspector with no agenda other than to tell you the truth about the house, and not one that might be inclined to facilitate a deal for the agent that recommended him.
BONUS INFO FOR SHOPPING IN A BUYER’S MARKET:
• In a buyer’s market, when there are a lot of homes for sale and not so many buyers, you have a lot more leverage. Use it.
• Your deposit should be contingent on inspections, etc. so that you can back out if you see anything you don’t like. Make sure you include additional contingencies for anything that might change your mind like appraisals.
• Ask for a credit against the closing costs or an allowance to cover the cost of certain repairs, upgrades or changes you’d like to make.
• Ask the seller to pay certain closing fees that are normally paid by the buyer, including title insurance, recording fees and more.
• Ask for a shorter than normal period, say 24 hours, for the seller to decide on your offer.
There you go. See you in fat cat heaven. Say hello to William Randolph Hearst for us. Or was he a newspaper baron not a land baron? But he had that castle. Oh whatever.
