Step 5 Shopping for a Home

Step # 5: Shopping for your home:

Your Realtor® should be able to tell you what price range you can look at based upon what you want to spend. For example, if you want to spend no more than $300,000 – depending on the current housing market, you may want to look at properties priced as high as $315,000 to $320,000. However, if you’re in a heavy seller’s market – you may want to stop the price range at $285,000 in the event that bidding wars are possible or even probable.

Next, you need to determine what type of home you want. Do you want a single family, condo, townhouse, or multi-family? Are there any types of homes that you do or don’t want? You can narrow your search as little or as much as you want. Also, how long do you plan on being in your house? These things are all important – but they are important on an individual basis. What is important to you may not be what another family needs or wants. Feel free to tailor your search to YOUR individual needs, wants and desires.

What I suggest is that you look at several homes of several types in your price range to determine what type of home you like the most (you may find, for example, that you don’t like capes). If you haven’t been in all different types of homes, you won’t know whether or not you like that type of home.

If you’ve never been to open houses before, this is a good time to start. It’s also a great way to see several different types of homes (regardless of whether or not they are in your price range) without feeling pressured about a set appointment.

There are pro’s and con’s to all different types of homes. In a condo situation – you pay for the master/outside work to be done but you don’t necessarily have to do it yourself. In a multifamily situation – you can sometimes afford to buy more home than you would otherwise be able to but you have to be someone’s landlord. In a single family home – you have all the privacy in the world you want – but it’s all up to you to maintain.

How much house do I need? Again – this is an individual answer.

What you may know of what you need/want:

• Number of bedrooms;


• Number of bathrooms


• Number of full baths; and


• Number of half baths;


• Types of Extra Rooms:


• Family Room?


• Den/Home Office?


• Guest Room?


• Formal Dining Room?


• Formal Living Room?


• Eat in Kitchen?


• Type of parking situation:


• On Street?


• Off Street?


• Paved or dirt driveway?


• Garage?


• Attached?


• Detached?


• Carport?

What you may not know of what you want or need:

1. Square footage;


2. Acreage;


3. City/Town Water/Sewer vs. Well Water and Septic

Neither of these lists are meant to be complete – only enough to get you thinking.

When you’re looking – remember to think “outside the box.” For example – if you think, “I only want to see homes with basements,” then the question becomes – why? Well, if you wanted a basement for storage, you won’t necessarily want to exclude homes without basements. Lots of homes without basements may have walk-up or “easy access” attics to serve the same purpose. When you begin your search, it’s always better to be over-inclusive rather than under-inclusive (or in the converse over-exclusive) – you may miss out on the home of your dreams.

Otherwise – there are no hard and fast rules for shopping.

I would, however, recommend the following:

1. Unless you’re looking at multiple geographic locations – work with only one agent. An agent who knows that you’re committed to working with them is more likely than not going to move heaven and earth for you.

2. Work with your Realtor® in an agent capacity. In Massachusetts now, a Realtor® working with a buyer can work in one of three capacities:

• Facilitator – you’re a customer


• Agent – you’re a client


• Disclosed dual agent – This only is for someone who is also the listing agent for the home. There needs to be full disclosure regarding this immediately and both the buyer and the seller must sign off on this possibility. However, this occurrence does not happen that often.

If you work with the Realtor® as a facilitator the Realtor® doesn’t owe you the duty of loyalty or confidentiality. This person has to treat you with honesty and fairness, but this person cannot advise you about how much to offer, value of the property, etc. Thus, you are merely a customer. If you choose to work with an Realtor® in this capacity – don’t share information like that you’re willing to pay more than you’re offering – there is no duty to maintain the confidentiality of this information in the role of a facilitator.

When you work with a Realtor® as an agent, then this person can provide you with advice on a property’s value (for example). They owe you a fiduciary duty and you are that person’s client.

In Massachusetts, except in very limited circumstances, a Realtor® is compensated by the seller’s proceeds. So, from the buyer’s perspective the Realtor® gets paid the same amount regardless if that person is a facilitator or an agent. Why not get the best “bang for your buck?” – chose the option that your Realtor® will be working with you in an agent capacity.

By signing the Agency Disclosure Agreement as an agent as opposed to facilitator mode – as the buyer you will truly have someone working for you.

3. When you go to an open house, if your Realtor® isn’t present, leave your Realtor’s® name and number with your name. This way, if the seller’s Realtor® wishes to follow-up, they’ll call the Realtor® not you.

When you’re looking for a home, the last thing you need to do is field calls from other Realtors® regarding feedback on the house. Just be sure to let your Realtor® know that you went to the house that they’re aware of it too.

4. Ask for and review the seller’s disclosure statement

The seller’s disclosure statement can be a very important document. For example, when I purchased my home, the Realtor® put in the listing that the home was certified treated for lead paint. He did this because the seller put this on the disclosure statement. When we put in the offer on the house, I asked for a copy of the certification. The seller’s Realtor® went to the seller and the seller didn’t have it. After much research on the seller’s Realtor’s® part, it was later determined that the seller had checked off this option because he didn’t feel that there was any lead paint in the house.

Well, by checking off this option, both the Realtor® and the seller became liable for deleading the house if it turned out that there was lead in the house. The seller’s Realtor® agreed to pay for the lead paint inspection. Luckily, it was determined that there was no lead present – however, we would not have known any of this unless we had read and reviewed the disclosure statement.

5. Wait until the house “speaks” to you.

Unless you’re custom building a home, its rare to find a “perfect” home with “everything” you want. But, you should find a house that makes you feel at home the moment you walk inside. This is when “house hunting” becomes “home buying.”

Purchasing a home is the most expensive purchase you’ll ever make (even more than paying for your or an individual child’s education – at least at today’s prices). You want to make sure that you are completely secure in the purchase (or as secure as anyone can be).

Now, I’m not talking about things that can easily be changed. If you don’t like a particular wall color or wall paper – that can be changed very easily (and depending on the market – you may even be able to get the seller to change this for you prior to closing) and something like this shouldn’t deter you from the home.

However, if you don’t like the feel of the house for example – this is probably not your home.

Once you’ve found your home – you’re ready for the next step – making an offer.

Proceed to Step # 6: Offer and Acceptance (Hopefully)

Step #4: Getting Pre-approved for a Mortgage

Step # 4:  Getting Pre-approved for a Mortgage

Talk to a mortgage broker or a mortgage banker.  Although the term mortgage broker is commonly used, there is a difference between the two and the types of services they offer you as the consumer.

Many mortgage bankers have full service banks that they are apart of, however that is not always the case.  What does this mean for you?

• Underwriting is located within their facility/institution which means they can grant you the loan faster because its all “in-house”;


• Some of these institutions don’t sell the loan at all – or if they sell the loan, its sold after the underwriting process has been completed;


• A banker can lock a rate prior to the underwriting process has been completed;


• A banker closes on their own funds so there is no slowdown on closing due to lack of funds; and


• A banker’s closing fees can be less because all of the process is kept “in-house.”

A mortgage broker on the other hand collects all of the paperwork and then sends the loan out for underwriting (in other words – someone else writes the loan before its granted).  

• A broker can not lock a rate on the loan until it has gone through the underwriting process and is approved;


• A broker’s closing fees can be more expensive because the process is determined by the company that writes the loans; however,


• Sometimes, a broker can offer programs with lower interest rates depending on whether or not you fall into some of their particular programs.

Remember, whether you go with a mortgage broker or a mortgage banker – this person works for you and is supposed to help you find the best possible fit for your needs.  Talk to several of these people, but don’t have all of them pull your credit report.  Each time your credit report is pulled it’s called an inquiry.  Too many inquiries can have a negative impact on your credit score.

If you are unsure who might be a good fit for you, talk to your Realtor® -- he or she should know several people to refer you to.  Additionally, you can go to the Mortgage Banker/Mortgage Broker page of my website of http://mysite.verizon.net/pjturtle for my personal recommendations of people I’ve worked with that I feel comfortable referring to you.  Always be aware however, that as the consumer, you have the right to work with anyone you feel comfortable working with – you don’t have to work with a mortgage broker/banker because your Realtor® suggested that person – a suggestion or recommendation is just a form of guidance.

Once you’ve chosen one or two people you feel comfortable with, then have that person pull your credit to see exactly what program(s) they will be able to pre-qualify you for.

A few things about pre-qualification letters:

1. They are not a guarantee that you will still get a mortgage;


2. You should never get a blanket pre-qualification letter; and


3. There are enough lenders out there – don’t pay for a pre-qualification letter.

Question:  Why shouldn’t you get a blanket pre-qualification letter?

Answer:  It puts you in a negative bargaining position.  Lets say you’re looking at a home that is listed for $300,000 and you want to start the bargaining process at $275,000 but you’re willing to go as high as $290,000 – if when you present your initial offer you provide a pre-qualification letter with any amount over $275,000 the seller – knowing you qualify for more (although he may have been willing to sell it to you for the $275,000) might reject your offer purely on the basis that he knows you can afford to pay more.  A customer-oriented broker/banker will be willing to provide you with a letter for each offer you put forth.

Once you’re pre-qualified – remember to ask how much per month the payment will be.  You may be able to be pre-qualified for a $400,000 mortgage for a total payment of $3,000/month – however, if you’re only comfortable with a total payment of $2,000/month, you need to find out how much house that will buy you.  Remember, you need to feel comfortable with the payment – you have to pay it – no one else.

Also, make sure you understand exactly what program the broker/banker has given you is what you feel comfortable with.  Is this a fixed mortgage for the life of the loan?  If not, what is the adjustment and how often can the rate adjust?  Is this a full principle and interest mortgage – or, if interest only:

1. For how long is it interest only; and


2. What will be the payment when the payment steps up?

There are a myriad of programs available – too numerous to mention – however here are a couple of definitions to get you started:

Fixed Rate:  This was typically a 30-year mortgage.  The principle and interest portion of the note remains the same throughout the term of the note (in this case 30 years).  However, 30-years is not the only term length – its just the most typical.  But, with the price of housing becoming more and more expensive – some institutions are offering longer than 30 year notes.  You may want to look into this as an option – you may be able to afford more house if the payoff term is longer.

ARM or Adjustable Rate Mortgage:  This mortgage usually has a fixed rate for a period of time and the rate adjusts during certain intervals.  The length of the fixed rate can vary depending on which program you pick.  The program you pick also determines how often the rate can adjust.  You also need to find out at the onset what is the highest interest rate that the note can adjust to (for example – will it cap out at 10% or can it go as high as the market will bear?)  What this means is that the principle and interest portion of your note can vary from year to year.

PMI or Private Mortgage of Insurance:  This is usually added onto any mortgage in which a buyer puts less than twenty percent down on the home.  Once there is twenty percent equity in the home (be the equity there from payments made, down payment, appreciation on the property or a combination thereof) you can either refinance to remove PMI or in some cases you can petition the bank to remove the PMI requirement.

Interest Only Mortgage:  This is exactly what it sounds like – that for a period of time, you only pay the interest on the mortgage and none of the principle.  During the time that you don’t pay any principle of the note, you aren’t building any of your own equity through direct payment on the house – you are relying entirely on appreciation of your home.

When my family and I were looking for our first home, I came to the conclusion that although I may have been able to purchase a more expensive home if I took an ARM or an interest only mortgage, that a fixed rate mortgage was my best bet as a first time homebuyer because otherwise I would not be able to afford TODAY the full payment if I had to.

For this reason, I would suggest taking the “worst case” scenario of the payment that is suggested to you (note this only applies if you aren’t taking a typical 30 year fixed rate mortgage) and determine if you could afford that payment TODAY.  If you can’t – unless you know that you are getting an influx of money during a certain amount of time, set your sites on a home that you could afford the full payment today (even if you choose not to pay for it that way).  After going through the entire process, the last thing you want to do is loose your home to foreclosure for an inability to pay the note.

Now, with your pre-qualification information at hand talk to your realtor about the fun part – shopping for your home.

Always remember however, the longer you are looking the more likely that the mortgage program that your broker/banker has suggested to you will change (as the interest rate goes up and down the monthly price of the home also changes).  Even a small change in the interest rate i.e. ¼ of a percent can – depending on the price of the home – may mean the difference between affording the home on a monthly basis or not.  Constantly keep in contact with your broker/banker to make sure that you constantly have the most current information available to you.

Next is Step 5 – Shopping for Your Home.

Step #3

Step #3

3. Before you actually talk to a mortgage representative know your budget.

Being a property owner is a very different from being a renter. Generally, renters do not pay for water, sewer and real estate taxes (although as to water and sewer this has recently changed under some circumstances in Massachusetts) and some tenants do not pay for heat – and let’s not forget the money for emergency home repairs. Know how much you will feel comfortable paying a month for everything – not just the principal and interest of your payment.

A typical mortgage payment is made up of the following:

1. Principle;


2. Interest;


3. 1/12th of your yearly real estate taxes;


4. 1/12th of your yearly homeowners insurance;


5. Private Mortgage Insurance (if you put down less than 20%).

Also determine how much money you have to put down. Remember, a portion of this money needs to cover prepaids and closing costs too. Even if you obtain a 100% financing or a “no money down” mortgage, you will still need to put some money down for closing costs and prepaids.

Some examples of closing costs that you may need to prepay (the amount varies from institution to institution) are:

1. Mortgage Application Fee;


2. Rate Lock Fee;


3. Attorney Fees (you are paying for the bank’s attorney to draw up the necessary papers – this is not your attorney however. I will discuss this further later on); and


4. Lien Certificate fees.

Some examples of closing costs that you may need to pay for at closing are:

1. Filing fees;


2. Lien Holder Title Insurance; and


3. Reimbursements to sellers.

Then there are prepaids.

Most banks will require you to pay:

1. A full year’s worth of home owner’s insurance prior to closing;


2. Three (3) additional months of home owner’s insurance to set up an escrow account; and


3. Three (3) months of real estate taxes to set up an escrow account.

You may also owe the seller additional monies for:

1. Oil left in the oil tank;


2. Overpayment on real estate taxes (if the current bill has already been paid – you will need to reimburse the seller for your per diem share of the property taxes for that period); and


3. A per diem share of that month’s condo fees (assuming you have purchased a condo).

Additionally, depending on the time of month you close, you may either make a full mortgage payment at closing or pay per diem interest.

Plus, then you have the optional Owner’s Title Insurance Policy (again, more about this later) – and you usually won’t know how much that costs until a few days before closing.

Finally, there are all of your own moving expenses:

1. Moving or setting up the new phone;


2. Moving or setting up the new television services (cable/satellite); and


3. Renting a truck; or


4. Hiring movers.

All of these types of expenses will need to come from the money you have available for a down payment.

In addition to the above costs of ownership, when determining your budget, remember to also keep disposable income in your budget – you will still want to go to the movies every so often.

Continue to Step #4.

Step #2

Step # 2

2. Carefully review the reports and if you find any discrepancies, report them in writing back to the appropriate credit-reporting agency. If you have any documents to back-up your correction send copies of these documents as well. The credit reporting agencies must resolve your dispute within a reasonable amount of time.

If you’re not sure what to look for on the credit report, a trusted friend, advisor or your realtor can assist you in looking for discrepancies.

Be aware that not everything is correctable. Here are some examples to explain this.

I have had a client who didn’t realize that unpaid medial bills could be reported on your credit report, and that it didn’t matter (in terms of getting a mortgage) that the bills were for ill children and not for her individually. She had the responsibility according to the hospital so it affected her report.

Conversely, I have also had a client who had declared bankruptcy six (6) years prior to purchasing a home. A credit card, which was discharged in the bankruptcy, was still being reported late each and every month (some six plus years later). The credit card company cannot continue to report as late a debt that has been discharged in bankruptcy (but they can report the discharge). By cleaning up this and similar errors, my client went from a credit score of about 450 to just shy of 600 within a month – what a difference that correction alone made!

Once you receive confirmation of the corrections (the credit reporting agencies will send you corrected copies of your credit reports) wait approximately thirty (30) days – then meet with your mortgage representative to pull your credit.

Your realtor should be able to suggest one or two mortgage representatives to talk to. When choosing a mortgage representative, you should also ask family friends or your realtor for representatives with a known history of working with first time homebuyers. The process of purchasing your first home can be very long, and you want a representative who will stick with you for as long as you need them. There may be several false starts and you will want a representative who will work with you through the false starts as well. Finally, consider the difference between using a mortgage broker and a mortgage banker. A good representative should be able to explain the difference to you so you can make an appropriate choice.

However, having your credit report pulled by multiple mortgage representatives may not be the best way of determining whether or not you want to work with a particular representative. Having your credit report pulled too many times could adversely affect your credit score.

Proceed to Step # 3.

Step #1

Step #1

1. Unless you know with absolute certainty that you have no negative issues that could be corrected on your credit report, order free copies (by mail) of your credit report from all major credit reporting agencies.

As a Massachusetts resident, state law has allowed us to order our credit report free of charge once a year from each of the major credit reporting agencies for several years.

In order to order your credit report, send a letter (via regular postal service mail) and provide the following:

1. Your complete legal name (including middle name);


2. Date of birth;


3. Social Security Number; and


4. Current and correct address.

You should send this letter to the following:

Experian
National Consumer Assistance Center
P.O. Box 949
Allen, Texas 75013

Transunion LLC
Consumer Disclosure Center
P.O. Box 1000
Chester, Pennsylvania 19022

Equifax Credit Information Services, Inc.
P.O. Box 740241
Atlanta, Georgia 30374

You and your spouse need to send separate letters unless one has granted the other Power of Attorney -- each person must sign their own letter.

Next go to Step # 2.

Timeline Introduction

SO . . . I THINK I MAY BE READY TO OWN MY OWN HOME . . . WHAT DO I DO NOW?

The following series is a timeline (which I learned the hard way in my own home search) which could make the experience less daunting.

Please note that this timeline is from my personal experiences. The advice contained in this timeline does not constitute legal advice.

Additionally, please note that this timeline does not constitute every possible permutation of what can happen when attempting to purchase your first home.

Every person’s experiences are different and as such you should understand that this is just one possible set of circumstances.

If you have individual questions regarding each step of the process, you have the right to seek independent legal advice as well as independent real estate advice.

I hope you find this information informative as well as helpful.

Your next step should be step #1.

~Phyllis~

Welcome

Hello,

Thank you for visiting my blog. If after reading my blog, you are interested in working with me to serve your real estate needs in Essex County Massachusetts, please contact me.

I have created this page to work with first time home buyers in the North Shore and Merrimack Valley north of Boston, Massachusetts.

I am a licensed attorney and licensed real estate broker.

I focus my practice primarily on buyers and I want to work with first time home buyers.

My family and I were looking for our first home for over three years before we finally purchased one earlier this year.

I obtained my realtor's license because I was unhappy with the brokers I was working with.

First time home buyers need special attention to help them through the process and understanding that they need to be on their schedule not on anyone else's.

If you are a first time home buyer and you need assistance, please feel free to contact me.

Thank you for reading my blog.

I look forward to hearing from you soon.

~Phyllis~
Phyllis A. Jones
Attorney, Broker, Realtor
Ralph Leonard Associates
118 Bridge Street
Beverly, Massachusetts 01915
978-922-0252 x116
pjturtle@verizon.net