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The Allen Team of Michigan

Realtor

Becoming a Home Owner



 
 

Buying a Home

Buying a home is probably the biggest investment you will make, with long-term financial ramifications. It calls for many informed decisions and for good advice from a real estate professional. When buying a home, you can learn from the knowledge and skill of a Real Estate Agent.

What can a Real Estate Agent do to help you buy the right home for you?

 

  • They will help you determine how much home you can actually afford. Often, they can suggest additional ways to accrue the down payment and explain alternative financing methods. They can also introduce you to a mortgage counselor and arrange to have you "pre-approved" which can improve your negotiating position and enable you to achieve your home-buying objectives faster and with less stress.
  • Providing client level services, they can work for you as a buyer's agent and help negotiate the best price and terms for you. Or, they can serve as a seller's sub-agent (or disclosed dual agent), acting as a liaison between you and the seller to present offers and counteroffers until an agreement is reached.
  • They will help you work out a realistic idea of the home best suited to your needs - size, style, features, location, accessibility to schools, transportation, shopping, and other personal preferences.
  • They have access to a listing of all available homes in the multi-list system, can evaluate them in terms of your needs and affordability, and will not waste your time showing you unsuitable homes.
  • They can often suggest simple, imaginative changes that could make a home more suitable for you and improve its utility and value.
  • They can supply information on real estate values, taxes, utility costs, municipal services and facilities, and may be aware of proposed zoning changes that could affect your decision to buy.
  • Although the law does not normally require an attorney to review documents or oversee real estate closings, they can provide you with a list of law practitioners to choose from if you would like to use the services of an attorney.
  • They can help familiarize you with the closing process and they will obtain closing figures in advance of closing for your review.
  • They can provide you with a list of qualified home inspectors, pest inspectors, surveyors, and help to coordinate inspection appointments.

 

Top 10 Tips to Successful Home Buying

Tip #1: Research Is The Key To Discovery

Home sellers won't call you with an offer to buy a maintenance-free home with a wonderful mortgage. You have to find the gems yourself! Only by reading available materials, talking to friends and experts, and spending time looking at different homes, schools, and neighborhoods will you end up with your American dream. Avoid the nightmares by learning how best to buy and maintain a home.

Tip #2: Make A Plan And Get Pre-Qualified

Every important decision needs to be clearly thought out. Developing a home buying plan can help you focus on the important factors and organize the entire process. You may even want to use a binder with sections on house hunting, home financing, service providers, etc. Loan pre-qualifying helps you determine the home price you can afford and presents you as a genuine prospect to the seller. A lender typically uses the 28% formula (your monthly mortgage can't exceed 28% of your monthly income) in approving your loan. Planning your actions and getting pre-qualified will keep you out of the panic mode and allow you to take advantage of opportunities. A thorough plan will save both time and money!

Tip #3: Value, Value, Value

The days of 10-30% annual appreciation have passed. Homebuyers in the 1970's benefited tremendously from what seemed like ever appreciating home prices. Nowadays, you're looking at slow growth while guarding against the possibilities of falling prices, skyrocketing ARM rates and corporate layoffs that can dramatically affect your home values. The classic rule of buying the worst house in the best neighborhood still applies. If you buy with an eye towards improvement, you can customize the home to fit your needs. The saying, "make money buying a home, not selling one," should keep you focused on the long-term importance of the purchasing price.

Tip #4: Create A Top 10 List Of Amenities

When shopping for a home, list the features (fireplace, fenced-in yard, new appliances, etc.) that are most important to you in deciding on which home to buy. Establishing "your criteria" early on will save time shopping for inappropriate homes and may keep you from buying a home on a whim. As detailed in Tip #3, your top reason for buying a home should be the value you are getting. Some of your top 10 amenities should logically be sacrificed if an incredible value is available.

Tip #5: Mortgages

Whichever loan you choose; make sure that you scrutinize all the closing costs. If you are required to have a mortgage escrow account and private mortgage insurance, make sure you understand the terms and cancellation procedures (your Real Estate Agent has publications to assist you). Also, make sure there are no prepayment penalties so that you can utilize an accelerated mortgage plan. A good mortgage reduction plan can save you tens of thousands in interest costs, and shorten your loan term, with only small extra principal payments. If you experience negative changes in your job, health, or marital status, you can revert to the standard payments in your mortgage contract.

Tip #6: Sign A Contract That Protects You

Make sure that the contract you put on a house allows you to arrange financing, inspect the home and negotiate any problems that you uncover. Ensuring that the contract you sign will minimize potential legal battles will let you swim in your new pool with your family and neighbors instead of with the sharks.

Tip #7: Put Yourself In The Seller's Shoes

You are about to make one of the most important decisions that will affect both your life and the life of the seller. If you take time to understand the reasons the seller bought the home, their reasons for selling, and the home improvements they have or have not made, you'll be in a better position to evaluate the home and negotiate a better deal. In the end, the home buying process excludes the professionals and comes down to the individuals buying and selling the home. A closer look at the seller may help you in deciding whether and for how much to buy a particular home.

Tip #8: Develop A Mortgage Shopping Chart

One of the biggest decisions to make before putting a contract on a home is how to finance the purchase. There are 10,000 lenders competing for your mortgage business. The days of simply walking into the community bank and negotiating with the loan department manager are over. Today, you can apply for a loan over the Internet or even use a mortgage broker to shop for your loan with hundreds of lenders. When choosing a lender, you want to avoid apples to oranges. Create a chart that lists different types of loans, fees, and at least five mortgage providers (including a mortgage broker).

Tip #9: Get A Quality Home Inspection

Although it is hard to believe, more people pay for inspections before buying used cars than when making the biggest investment of their lives - their homes. Paying for a qualified home inspection before you buy a home isn't just spending "a little extra" for peace of mind; it's absolutely essential for anyone who doesn't want to spend thousands of dollars for repairs.

Tip#10: Peace Of Mind: Home Protection Plans

To protect both you as a buyer, as well as the seller, it is a good idea to purchase a home protection plan. What exactly is it? A home warranty, or home protection plan, is a service contract, normally for one year, which protects homeowners against the cost of unexpected repairs or replacement of their major systems and appliances that break down due to normal wear and tear. A negotiable contract between the buyers and sellers which does not overlap or replace homeowner's insurance policy, this type of warranty can save the new homeowner lots of headaches, as well as put seller's fears to rest. The warranty covers mechanical breakdowns, while insurance typically repairs the related damage. For example: if a hot water heater burst and destroyed a wall in your home, the warranty would repair the water heater and your insurance would pay to fix the wall.

Getting a Mortgage

Mortgages

The modern mortgage market offers a variety of mortgage loans catering to the needs of homebuyers. The titles and details of these plans can become confusing, especially as new types are introduced continuously. You can make sense of these loan types, however, if you understand the basic principles that govern all mortgage loans. Again, you can look to your real estate professional for assistance.

Basic Principles of all Mortgage Loans

  • The home is used as security to back up the loan. A lender can force sale of the home if the borrower defaults by failing to make scheduled payments.
  • The larger the loan compared to the value of the home, the more risky for the lender and, often, the more expensive the loan will be.
  • Interest earned by the lender always is equal to the periodic interest rate times the outstanding principle balance of the loan. The periodic interest rate is the annual interest rate divided by the number of payments in the year (usually one per month).
  • The required payment usually is a bit larger than the interest due so that some of the loan principal is repaid with each payment. This process is called Amortization and is why most mortgage loans can be retired when all the monthly payments have been made.

All mortgage loans have one of the following features:

  • Fixed payment and fixed interest rate - fixed rate mortgages
  • Fixed rate but variable payment - graduated payment mortgages
  • Variable rate and variable payment - adjustable rate mortgages

As you learn more about the types of financing available, you will notice that some loans appear to have more favorable terms. That may indicate that those loans are, indeed, bargains (and it does pay to shop around), but usually it means that those loans could have some feature that is less appealing to borrowers. For example, shorter-term loans often have slightly lower interest rates compared to longer-term loans. However, the monthly payment for the same amount of principal may be higher because of the shorter term. Variable rate loans usually have much lower interest rates to compensate for the risk the borrower accepts that interest rates will rise in the future.

 

Here's what home buyers need to know about the new rules of mortgage preapproval.

Information from SmartMoney.com - http://www.smartmoney.com/spend/real-estate/7-tips-for-getting-a-preapproved-mortgage/
 

Shop around. And shop early.

When seeking preapproval, talk to a few different mortgage lenders to find the best mortgage package that suits your needs. Two or three lenders is customary, says Brad Blackwell, a national sales manager at Wells Fargo Home Mortgage in Danville, Calif. More aren t necessary to get a good deal because loan packages are generally very similar and pricing tends to be comparable, he says. And consult with lenders before you start house hunting. This way, you ll know how much you can borrow and which houses are in your price range, says Ann Stickel, vice president of affiliated services at Michael Saunders and Company, a real estate brokerage in Sarasota, Fla.

Prepare your financial biography.

Getting preapproved means a lender must review and verify a home buyer s income, credit and assets to ensure he can make the necessary monthly payments on a house. In the wake of the housing bust, borrowers must be more forthcoming when it comes to their finances, Stickel says. Your lender should tell you precisely what you need, but be prepared to include:

  • W2 statements (or 1099 income statements) for the last two years
  • Federal tax returns for the last two years
  • Bank statements for the last few months
  • Recent pay stubs and proof of other income
  • Proof of investment income

Know you're not obligated to one lender.

Preapproval doesn t bind you to a particular lender; it s just a promise -- albeit, a conditional one -- that the lender is willing to make the loan. The buyer isn t obligated to borrow from that lender. 

A preapproval will stipulate the loan amount or monthly payment but not necessarily the loan type or rate. When you apply, lenders use that day s mortgage rates to estimate costs and payments. Just don't expect them to keep the same rate they preapproved you with as the actual rate that will be available when you find a property and sign a purchase contract, says Danny Valentini, a senior vice president and regional manager at Homeservices Lending, a mortgage lender in San Diego.

Keep an eye on your credit score.

Usually, a loan inquiry can ding your credit score. If you applied for a bunch of credit cards within a short period of time, for example, your FICO score might fall. (Most lenders use some version of the FICO score to determine your eligibility for credit and what interest rates and other terms they should extend to you.)

But the credit-scoring models are designed to allow for mortgage loans. The score ignores mortgage, auto and student loan inquiries made during the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping, according to MyFico.com. Also, the score looks at your credit report for mortgage, auto and student loan inquiries more than 30 days old. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score.

Deal only with a reputable lender.

Sellers now are looking much more closely at who the buyer s lender is. To avoid instances in which the lender might not be able to deliver on the loan, they want to see that any prospective buyer is working with a financially sound and reputable lender, says Blackwell. Most national brokerages and banks have local branches, so buyers should ask a local realtor (and the buyer s agent who is representing them) for recommendations.

To satisfy any doubts you might have about a particular lender, visit the Better Business Bureau's web site to find out what kind of reputation they have.

Watch the clock.

Preapproval letters and the documents they verify have expiration dates. Those dates vary by lender, but the letters are typically valid for 90 days, Blackwell says. If you re still house hunting after, say, 60 days, and you re concerned, ask your lender to re-validate the preapproval letter. Sellers want to be sure the buyer s financial situation hasn t changed since the time the lender initially checked them out. If any part of your financial picture has changed your credit, job status, income or assets, for example you should notify the lender so your preapproval can be adjusted.

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