Your Home Buying Resource

Many visitors to this Web Site, in their search for a home, pass by some of the most important information in it. They, like many home buyers before them, believe that the Agent with whom they are working–sometimes on a daily basis–represents them and their interests. Without certain disclosures, this definitely is not the case.

The Agent, unless specifically disclosed otherwise, represents the seller in any transaction for the sale of a home. It is that Agent’s fiduciary duty (where their loyalty lies) to protect the seller’s position at all times.

Buyer’s Agency, however, may be an option available to you. Simply put, it allows the Agent with whom you are working to be your representative and to put your interests above all others.

Example 1: You see a house advertised in the newspaper, a home magazine, or the Internet. You contact the Listing Agent (this is who will be advertising the home) and make an appointment to see the house. The Agent is friendly, informative, and tells you what you believe to be everything about the house. The Agent represents the seller, not you.

Example 2: You are working with an Agent, who shows you 25 different homes over 3 weekends. The Agent buys you lunch twice, knows all 4 of your children by name as well as all of your personal likes and dislikes, but does not offer Buyer Agency. You feel comfortable with the Agent, revealing important personal information. Without Buyer Agency, “your” Agent represents, and owes loyalty to, each and every one of those 25 sellers–not you. Any information you reveal to the Agent must be relayed to the sellers.

“Okay,” many buyers say, “so the Agent represents the seller and not me. Is that a big deal?” Maybe not, but it is important to understand that if the Agent represents the seller, they cannot reveal certain things to you, as the buyer:

• The reason for selling (unless the seller specifically authorizes it)
• Any concessions, in price or otherwise, that the seller may be willing to give up.
• Any conversations that the seller and the Agent may have had.
• Any information that could be detrimental to the seller, or give you, the buyer, an advantage. This would include a CMA (Comparable Market Analysis) that could put the seller at a disadvantage.

Buyer Agency turns the tables. If a Buyer’s Agency agreement is struck between you and the Agent, it is you, rather than the seller, who has the representation from the Agent with whom you are working. If you are represented by a Buyer’s Agent, some of the potential benefits include:

• The Agent can develop a CMA (Comparable Market Analysis), revealing at what price similar properties in the area have been listed for and sold for.
• The Agent can reveal to you any information about the seller that the Agent has been able to ascertain. This may include reasons for selling, potential concessions, or other information that may be to your advantage.
• Information about property value trends that may influence your decision about a certain area can be relayed to you.

Summary. Is it necessary to have a Buyer’s Agent? No. Thousands of home buyer’s have been well served dealing with the seller’s Agent. (For years, it was the only way it was done). The important thing is to understand your options, so that you don’t unintentionally accept less representation than you want.

If you would like to find an Agent who will represent you as a buyer, click here and make sure that you note “want a Buyer’s Agent.”

The development of a household budget is a desirable activity both before you make a Real Estate purchase as well as consistently during your ownership. By preparing a budget while you are looking at homes, you can better focus on mortgage payment goals and how the new house will affect your total expenses. Maintaining a budget during the time you own the home can help to prevent potential financial disasters as well as point you in a money saving direction so you have more funds available for those things that you need or want.

You will need a little time to develop your budget–it’s not a five minute exercise–but should not take longer than a few hours if you gather the necessary information first. Get everyone who will be involved in spending involved in developing the budget.

Some of the items and information you will need to develop your budget are:

• All current monthly loan payments.
• All other monthly expenses (such as child care, dues, etc.).
• Records of variable expenses (for example, utilities, food and car repair) from the last 12 months. This will give you an estimate of your monthly expenditures.
• Records of annual or semi-annual expenses (such as insurance and taxes).
• An estimate of what your new mortgage payment will be. You can estimate that using a mortgage calculator.
• Records of other non-fixed expenses (for example, medical expenditures) for the last year. This will give you an estimate of average expenses of this type.
• Records or an estimate of personal expenses (entertainment, travel, etc.)
• Having a current copy of your credit report can be very helpful. Not only will it reveal any inaccuracies in your credit history, it will also give you a clear picture of not only your total debt but your monthly obligations. You can get a copy of your Credit Report or, see the credit center for additional resources for getting your credit report.

Be realistic in your budget assessment.

Make provisions for possible increases in some items (for example, school tuition, insurance and taxes). Then, look for ways to get (and maintain) control over your budget.

Most People Spend 10% More Than They Make!

You probably know how much money you made last month, but do you know how much money you spent? Or do you know how much money you have left to spend this month? If you don’t you’re not alone, most people have no idea. The fact is most of us spend 10% more per month than we make. That comes out to $431 per month based on the average American income. No wonder the average credit card debt is now at $8,500!

Financial Focus

• Run a Credit Report to make certain that there are no discrepancies or problems in your credit history.
• Do an analysis of your current financial situation: where the money comes from (your total income) and where the money is presently going (your current spending). Develop a household budget for your current situation. Get into the habit of using it on a consistent basis!
• Keep your spending patterns in check.
• Do an analysis of how a house purchase will affect your budget. Be sure to factor in not only mortgage payments (including insurance and taxes) but also funds for items such as repairs and maintenance.
• Begin to gather items such as: last 3 years Income Tax returns, current copies of pay stubs, records of any past derogatory credit history that has since been paid off, and records of any supplemental income you may have. If you are self employed, you will need all business records and tax returns for the last 3 years. Having these items close at hand will save an enormous amount of time when the Mortgage Company begins to ask for them (and ask for them they will!)
• If it is possible to do so without adversely affecting your down-payment situation, pay off minor debts. The less debt you have the easier your Mortgage “sailing” will be.
• Do not incur any new debt. Many mortgage applications have been stopped in their tracks because the applicants had decided a week before the application that a shiny new car with a big finance or lease payment would look just perfect in the driveway of their new home. Since mortgages are based on debt to income ratios (the amount you pay out monthly versus the amount you bring in) a newly acquired debt could be enough to throw the ratios off and make the mortgage unobtainable.

Probably one of the reasons that buying a home is such an emotional experience is because of the fact that not only do you have the actual house buying to deal with, but for most home buyers you also have the mortgage process to encounter. This can be a smooth and almost uneventful process, or an unnerving one. A great deal depends on the preparation of the buyer as well as the selection of an efficient mortgage company.

What a Mortgage Payment Consists of
1) Principal: The repayment of the original amount borrowed on a monthly basis.
2) Interest: The cost of borrowing the principal amount, repaid on a monthly basis.
3) Taxes: Real Estate taxes paid to a local government agency.
4) Insurance: Homeowners insurance on the home. Also any mortgage insurance, which is paid to protect the mortgage company.

The total of these items is known as the PITI (Principal/Interest/Taxes/Insurance) payment.

Types of Mortgages

Fixed:A fixed term (for example, 15 or 30 years) as well as a fixed interest rate. The interest rate and term are fixed at the start of the mortgage. The monthly amount for the payment of principal and interest will not change during the term of the mortgage.

Adjustable:Often referred to as an ARM (Adjustable Rate Mortgage). The interest rate on your mortgage will be adjusted up or down according to current interest rate levels. The monthly amount for your principal and interest payment will go up or down with these rate changes. These mortgages may include “Interest Only” type of loans.

How much down payment?

One of the first questions that home buyers ask is “how much down payment are we going to need?” Unfortunately, there is no standard answer. Down payments will vary from 0% (with a VA–Veteran’s Administration loan) to upwards of 25% (with certain “non-conforming” loans). As an average, most home buyers make down payments in the 5%-15% range, although your own personal situation may dictate more or less down payment. When you are factoring money for a down-payment, don’t forget about closing costs, which will total in the 2-5% range, payable in cash at the time of closing.

What is Pre-qualification? Does it mean that the loan is approved?

Pre-qualification is the initial step in securing a mortgage. A lender will analyze your current income, debt and basic credit history situation in order to qualify you for a maximum loan amount. This gives you a clear picture of your financial parameters and a maximum housing price (the mortgage amount plus your down payment). With pre-approval, the lender verifies your income, debt and financial picture, approving the loan subject to a favorable appraisal of the property you select.

Mortgage Pre-qualification and Pre-approval

Why get pre-qualified and then pre-approved for a mortgage before you begin your search for a home? Because there are 3 people who will benefit from your pre-approval: You, your Agent, and the seller from whom you eventually buy a home!

You: The most important beneficiary, of course, is you. One of the most common questions we get from users of this site goes something along the lines of “Please let us know how much house we can afford.” We’re stumped! Why? There are simply too many variables–credit history, income, debt, special mortgage programs and variations in qualifying guidelines between different mortgage types–to answer that question. The only sure way of getting the question answered is through pre-qualification. The mortgage pre-qualification step is a relatively simple one, but it is an important one. It begins the process of formally applying for a mortgage, and it gives everyone involved–especially you–a clear sense of the direction they should be headed.

Your Agent: By knowing what your financial parameters are, your Agent can spend more time looking for houses that “fit” and less time pursuing dead ends. No matter how much you might want a 4000 square foot home for $275,000, if your qualifications say $125,000, your qualifications say $125,000. When it comes to mortgages, “yes, but” doesn’t carry much weight!

The Seller: Want to strengthen your bargaining position? Get pre-qualified. Want your offer to stand out in a case of multiple offers for the same house? Get pre-qualified. Look at it from the seller’s perspective. If you had 2 offers on the table for your house, one from a fully pre-qualified buyer and the other from an “I’ll get around to that soon” buyer–to which offer would you devote the most attention? Even if the pre-qualified buyer’s offer was $1000 less, would you take the chance on the buyer that perhaps may not be qualified? When it comes to a seller evaluating offers, “a bird in the hand…” definitely applies.

It is important to remember that the amount of mortgage you will qualify for is the maximum. It is the amount that the lender feels you can afford, but it is not necessarily the amount that you want to pay. It sometimes is advantageous to be conservative here. For example, if you qualify for a $100,000 mortgage and you have $15,000 available in cash for down-payment and closing costs, you are qualified to buy homes with a maximum selling price of $115,000. So as to not push yourself to the limit, you may want to look at homes that sell in the $100,000 to $110,000 range. Too many buyers simply rush off to the $115,000 level and some find themselves strapped when it comes time to purchase necessary items (such as draperies, additional furniture and lawn and garden tools, for example) or when they forget to factor in increases in monthly expenses (for example utilities and maintenance and repair costs).

Finding Pre-approvals: Virtually every lender will be able to process pre-approval for you, or you can use the power of the Internet and begin the process; you submit one easy loan request form and receive instant review and follow up service.

There are probably few things in life that are as exciting–or as nerve- racking–as the search for a house. All the good emotions and the bad emotions seem to converge when the house hunting begins. Don’t worry, this is a normal reaction, and is found in seasoned home buyers as well as those who are looking for their first home. One of the first decisions you need to make is whether you want to do your house hunting on your own, or by using an Agent. If you decide to go it on your own, you will be able to see (and buy) those houses that are For Sale by Owner (known as FSBO’s). Depending on your area and the overall market, this will be around 20% or so of the total homes available (the other 80% are the “listed” properties–being sold through an Agent. Those homes you can’t buy–or even see–on your own).

With an organized house buying plan, you can minimize a great deal of the emotional impact. By determining your buying power, your wants and needs, and having an organized search plan, your chances of a stress-free experience are much better.

Tip for Finding the Right House

• Once the decision to buy a home has been made, take the time to prepare before you go on your home search. For example, much of the information on this Web Site should be very familiar to you before you go looking for homes. Yes, it is very tempting to rush out and actually look at houses, but to do so without full preparation can be both disastrous and expensive. If you review the (checklist) you will find that “house hunting” is about halfway down the list.
• Get your financial house in order first! We can’t stress this enough–it will save you an enormous amount of time, aggravation and heartache.
• Determine what your budget will comfortably allow and stick to it. Don’t spend yourself into a “house poor” situation.
• Get pre-approved for a mortgage. This will not only give you a clear idea of how much a lender will approve for you, it will make your home buying process a great deal easier (and save a lot of time later).
• Get familiar with the different housing types available to narrow your search.
• Determine your minimum requirements as well as any desired additional features–your needs and wants – Take note of any items that you don’t want in a house. Determine the desired location (schools, work, public transportation, etc.)
• Familiarize yourself with the mortgage process.
• Choose an Agent that you feel comfortable with and who understands your needs. Be completely aware of the (agency link) issue. If you look for houses before you have your own Agent, you may not have the representation you want.
• If you don’t already have an Agent screening homes for you, you can check listings and prices throughout the U.S. on our interactive map.
• As you are looking, use a (scorecard) to compare homes. A scorecard is a great tool when it comes time for comparisons (and for remembering which home had which features!)
• Get familiar with the inspection process–especially the personal inspection aspect, so that you can weed out unacceptable houses quickly
• Maintain your perspective–and your cool! You may find an acceptable house on the first day–or the tenth. The important thing is to get the home that is best for you!

One of the most common misconceptions among home buyers occurs when it comes time to making an “offer” or a “bid” on a home. Many believe that even though they have tendered an offer to the sellers, that their options are still open. To some degree, this is correct. If the seller rejects the offer, counteroffers it, or simply does not respond, options are still open. You, as the buyer, can accept the counteroffer, make another offer, or simply move on.

If, however, the seller accepts the offer (and you are notified of its acceptance) then a legally binding contract has most likely been struck. In the majority of cases and localities, there is not even the need for additional paperwork–the signed offer becomes the contract. Your options now are more of the “do we want to paint the master bedroom before or after we move in?” Once the offer has been accepted, the “lets think it over just a little bit more” phase has passed. This is why it is crucially important to make sure that all of your bases are touched and all of your intentions made clear in the offer–it can become a binding contract in the blink of an eye and a stroke of the seller’s pen.

Some of the items that need to be addressed in an offer are:

• The proposed selling price (your offer).
• Any concessions you desire the seller to make.
• Any financing contingencies (for example, subject to you being able to obtain a satisfactory mortgage. You can go as far as to state maximum interest rates, specific terms, etc.)
• Any home inspection contingencies (for example, subject to an acceptable whole house inspection report).
• A clear definition of precisely what is to be included in the sale. Don’t simply assume that items such as porch swings, fireplace doors and refrigerators are included. Doing so usually causes some unpleasant surprises on moving day. If there is any question, be specific!
• The amount of earnest money (your deposit) that is being tendered with the offer.

Contracts

Once the perfect home has been found, it is time for the house buyer to take the step that makes so many of us tremble with fear: the sales contract. To take some of the mystery out of the house sales contract, we will discuss what the contract involves and the components of most housing sales contracts.

First, remember that what you are signing is a legal contract. No matter what anyone says, you are not just making an “offer”. Most sales contracts will have some paraphrase of the following: “This is a legally binding contract. If not understood, seek competent advice before signing.” To put it simply, if what is written on the contract regarding selling price and provisions is accepted by the seller, you have bought a home. Unlike other negotiable businesses, such as the automobile business, “would you take?” is defined in Real Estate by a legally binding contract backed with a monetary deposit.

What are the Components of a Contract?

Although there will be some variance based on the location of your residence, most Real Estate contracts contain most or all of the following items:

• What: A legal description of the property as well as the street address.
• How Much: The selling price.
• Mortgage Contingency: Subject to obtaining a mortgage (if applicable) and the specifics of the mortgage–amount, rate and term. Application to be made in X number of days.
• Deposit: How much money accompanies the contract and who will hold it.
• Closing: When and where
• Inclusions & Exclusions: What is and is not included in the sale of the property.
• Home Inspection: Contingency for and to be done in X number of days.
• Warranties: Any that are included with the house and description of the warranty.
• Condominium: If the property is a condo, other provisions will apply.
• Well & Septic: If applicable, they must be tested (and pass).
• Termite & Pest Inspection: Who will pay and if there is infestation or damage, who will repair.
• Possession Date: When the buyers take possession of the house–before, at or after closing.
• Acceptance: How long the sellers have to respond to the offer with either acceptance or a counter-offer.
• Arbitration: Any provisions for arbitration of disputes.
• Insurance: Whose insurance covers the property up until the closing date.
• Property Disclosures: Notices of any property disclosures concerning the house

Depending on the type of financing you choose, there should be either 2 or 3 separate inspections on the home you want to purchase. The first should be your own basic inspection (see the bottom of this page for what to look for), the second should be a professional whole-house inspection by a reputable person. Should you select a government loan (FHA or VA), the third inspection should come at the time of the appraisal, which to some degree amounts to a “mini-inspection.” Do not, however, rely on this appraisal as your only inspection of the property!

We cannot emphasize enough the value and necessity of an extensive home inspection. Many home purchasers, either in the desire to save the $200 to $500 that a good inspection costs, or due to simple ignorance, have spent enormous sums of money repairing items that any good home inspector would have pointed out. Any offer to purchase you make should be contingent upon (subject to) a whole house inspection with a satisfactory report. Do not let anyone–not the agent, not your family or friends, and especially not the seller–dissuade you from having the property thoroughly inspected! Not only will you sleep much sounder after you have moved into the house, a professional inspection can give you an escape hatch from a contract on a defective house. If the contract is written contingent on an acceptable inspection, any defects in the home must be either repaired or monetarily compensated for. If you are not satisfied, you have the option to cancel the contract.

Inspections are designed to disclose defects in the property that could materially affect its safety, livability, or resale value. They are not designed to disclose cosmetic deficiencies (for example, an interior wall that needs paint touch up). You will need to determine on your own those type of items that will need attention: don’t expect a whole house inspection to reveal them to you.

Don’t wait until you have placed an offer on a house before you begin the search for a home inspector. There will be a time limit in the contract designating when the inspection must be completed (typically between 7 and 14 days). If you start trying to find an inspector at that point, and cannot find an acceptable one to schedule it in that time frame, you will only have two choices: go with an inspector that is not your first choice, or run the risk of running past the deadline for the inspection (which could void any chance having the seller take care of repairs). Neither is an acceptable alternative!

When you have made the decision to build a house, you have conquered an important hurdle, but definitely not the last one. Now you will need to find professionals to carry your plans from the idea stage to construction and completion of the house. If you are buying in an established subdivision, you may have to use a builder who has bought lots there, or you may be able to use one of your choice. If your are building a custom home, you will want to find and compare several architects and builders.

Unless you have plans of being your own general contractor (definitely NOT recommended if you are building your first home or unless you have extensive experience in dealing with subcontractors) you will need to find a contractor or builder to build your house. Finding a builder is not that difficult. Finding one that you have confidence in and who can meet your budget requirements takes a little more work. One source of information is those you know who have recently had houses built for them. Since the experience will be fresh in their mind, they will be able to give you a great deal of input regarding that particular contractor.

Questions to ask:

• Would you have the builder build another house for you? (This one will probably tell you almost everything you need to know!)
• How was the quality of the work? Of the materials used?
• How was the relationship between the builder and the subcontractors?
• Was the house done on time? If it wasn’t, was it the builder’s fault?

Finding an Architect or Designer
If you want to start from “scratch” and custom build a house, you most likely will need to employ the services of a professional architect. An architect can take the photograph of the house that you have envisioned in your mind and turn it into a build-able blueprint. Just as important, an architect can not only make certain that your planned design is structurally sound but also make certain that it will meet the requirements of the various building codes in effect in your community.

If you are also shopping for a contractor to build your custom house, having the design work completed prior to meeting with builders means that you will get accurate–and comparable–bids on the job. When a contractor knows precisely what they are going to be dealing with as far as square footage, design attributes and amenities, they will be able to much more accurately put a precise price on the project.

There are a number of sources for finding architects and designers. Personal recommendations are a good way to go, since you will likely be able to get input as to ability as how easy they are to work with. Some of the questions that you should be asking when you are evaluating an architect or designer are:

• Was the design work done in a timely manner? When there were deadlines to be dealt with, were they met?
• Did the architect pay heed to your input?
• Did the architect work well with your chosen builder?