Buying a House
For most people, buying a house is the biggest investment they will ever make. However, few people do the research necessary to make a good buying decision. The home-purchase process is extremely confusing. With a little bit of homework and with advice from family and friends who have been through the process before, you can make this a little easier on yourself. There is no substitute for taking the time to educate yourself before you buy or refinance a house––which typically costs you 20% to 35% of your gross income!
Buying a house
Looking for a house without getting pre-approved. Do not confuse a pre-approval with a pre-qualification. During the pre-qualification process, a loan officer asks you a few questions and hands you a pre-qual letter. The pre-approval process is much more complete.
During a pre-approval, the mortgage company does all the work of a full-approval, except for the appraisal and title search. When you are pre-approved, you become like a CASH BUYER and have more negotiating clout with the seller. In some cases (especially in multiple-offer situations), having a pre-approval can make the difference between buying a home and not buying a home. In other instances, home buyers have been able to save thousands of dollars as a result of being in a better negotiating situation.
Most good Realtors will not show you homes before being pre-approved because they do not want to waste your time, their time, and the seller’s time. Many mortgage companies will pre-approve you at little or no cost. They typically will need to check your credit and verify your income and assets.
Making verbal agreements! If an agent makes you sign a written document that is contrary to their verbal commitments, don’t do it! Example: the agent says that the washer will come with the house, but the contract says that it will not. In this case, the written contract will override the verbal contract. In fact, written contracts almost always override verbal contracts. Buying a house is a very complex process––but it’s a lot easier when everything is in writing.
Choosing a lender just because they have the lowest rate. Not getting a written good-faith estimate. While rate is important, you have to look at the overall cost of your loan. This includes looking at the APR, the loan fees, as well as the discount and origination points. Some lenders add origination points into their quoted points while other lenders add an origination point in addition to their quoted points. So when one lenders says 2 points they mean 2 points, whereas another lender means 2 points plus 1 origination point.
The cost of the mortgage, however, cannot be your only criterion. There is no substitute for asking family and friends for referrals and interviewing prospective mortgage companies. You must also feel comfortable that the loan officer you are dealing with is committed to your best interests and will deliver what they promise. Often, the company that has the absolute lowest quoted rate may not be the best company for your mortgage business.
Choosing a lender just because they are recommended by your Realtor. Your Realtor is not a financial expert. They may not know what’s the best loan for you. The Realtor only gets a commission when your house closes. As a result, the Realtor may refer you to a lender that is sure to close the loan, but not necessarily the lender that has favorable rates or fees. Also, many Realtors refer you to their friends in the loan business––who again may not be able to get the best loan for you. Even if the Realtor is very professional and looking out for your best interest, you should still do homework on your own.
We recommend shopping for a loan with at least 3 mortgage companies before you make a decision. There are countless stories of consumers who wound up paying higher rates or getting a loan program that was not right for them because they blindly followed their Realtor’s advice.
Not getting a rate lock in writing. When a mortgage company tells you they have locked your rate, get a written statement which details the interest rate, the length of the rate lock, and details about the program.
Using a dual agent––i.e. an agent who represents the buyer and the seller on the same transaction. Buyers and sellers have opposing interests. A dual agent in most normal situations cannot be fair to both the buyer and seller. Most dual agents represent the sellers more strongly than they do the buyer. If you are a buyer, it is much better to have your own agent who will be on your side. The only time you should even consider a dual agent is when you get a price break from using a dual agent. If that is the case, then tread carefully and do your homework!
Buying a house without a professional inspection. Taking the sellers word that they have made repairs. Unless you are buying a new house where you have warranties on most equipment, it is highly recommended that you get a property inspection, a roof inspection and a termite inspection. This way you will know what you are buying. Inspection reports are great negotiating tools when it comes to asking the seller to make repairs. If a professional home inspector states that certain repairs be done, the seller is more likely to agree to do them.
If the seller agrees to do the repairs, have your inspector verify that they are done prior to close of escrow. Do not assume that everything has been done the way it was promised.
Not shopping for home insurance until you are ready to close. Start shopping for insurance as soon as you have an accepted offer. Many buyers wait until the last minute to get insurance and do not have time to shop around.
Signing documents without reading them. Do not sign documents in a hurry. Whenever possible try to get documents that you will be signing ahead of time so you can review them. It is advisable to ask for a copy of all loan papers you are signing a few days ahead of the close of escrow. This way you can review them and get your questions answered. Do not expect to read all the documents during the closing. There is rarely enough time to do that.
Making your moving plans too tight. Example: you expect to move out of your prior residence on a Friday and into your new residence over the weekend. So you give notice to your landlord to end your lease on a Friday and arrange for movers to come to your house on Friday. Then, your loan closing gets delayed until the next Tuesday. You now may be homeless! New tenants could be moving into your apartment, and the movers are going to charge you for wasting their time. You could be forced to live in a motel for a couple of days!
A Better Plan: allow for a 5-7 day overlap between closing and moving. In the long run it is not nearly as expensive, and it will certainly give you peace of mind. you expect to move out of your prior residence on a Friday and into your new residence over the weekend. So you give notice to your landlord to end your lease on a Friday and arrange for movers to come to your house on Friday. Then, your loan closing gets delayed until the next Tuesday. You now may be homeless! New tenants could be moving into your apartment, and the movers are going to charge you for wasting their time. You could be forced to live in a motel for a couple of days!