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For most people, a home 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 for
most people. With a little bit of homework though, and
some 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 a house,
which typically costs you 25% to 40% of your gross
income!
- Looking for a house without
getting pre-approved.
Do not confuse pre-approval with pre-qualification.
During the pre-qualification process, a loan officer
asks you a few questions and then hands you a pre-qual
letter. The pre-approval process is much more
complete.
During pre-approval, the mortgage company does the
same work as for full approval, except for the
appraisal and title search. Once 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),
being pre-approved can make the difference between
buying a home and not buying a home. In other
instances, home buyers can save thousands of dollars
as a result of being in a better negotiating
situation.
Most good Realtors will not show you homes until you
are 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 tries to make you sign a written
document that is contrary to his/her verbal
commitments, don't do it! For example: if the agent
says that the washer will come with the house, but
the contract says that it will not––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
she/he has 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 include origination
points in 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 criteria. There is no substitute for asking
family and friends for referrals and for
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 he/she promises. 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
s/he is recommended by your Realtor.
Your Realtor is not a financial expert. S/he 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.
I recommend shopping for a loan with at least 3
mortgage companies before you make a decision. There
are countless stories of consumers who wind 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 (an agent
who represents the buyer and the seller on the same
transaction).
Buyers and sellers have opposing interests. In most
normal situations, dual agents cannot be fair to
both the buyer and seller, and they represent
sellers more strongly than buyers. 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 seller's word
that they have made repairs.
Unless you are buying a new house with 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 need to 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, but then they have no time
left 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 ever 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 sure give you
peace of mind
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