2020 Buying A Home Handbook – Part 3
Ready to Make An Offer? 4 Tips for Success.
Once you find that perfect house to call home, making an offer can be an intimidating part of the buying process. In such a competitive market, you want to make sure you make all the right moves so you can ultimately land your dream home.
Below are four steps provided by Freddie Mac to help you make a solid offer, along with some additional information to consider:
- Determine Your Price
“You’ve found the perfect home and you’re ready to buy. Now what? Your real estate agent will be by your side, helping you determine an offer price that is fair.”
Based on your agent’s experience and key considerations (like similar homes recently sold in the same neighborhood or the condition of the house and what you can afford), your agent will help you to determine an offer to present.
Getting pre-approved will not only show home sellers you’re serious about buying, but
it will also allow you to make your offer with confidence because you’ll know you’ve already been approved for a mortgage in that amount.
- Submit an Offer
“Once you’ve determined your price, your agent will draw up an offer, or purchase agreement, to submit to the seller’s real estate agent. This offer will include the purchase price and terms and conditions of the purchase.”
Talk with your agent to find out if there are any ways in which you can make your offer stand out in this competitive market. A licensed real estate professional who is active in the neighborhoods you are considering will be instrumental in helping you put in a solid offer.
- Negotiate the Offer
“Oftentimes, the seller will counter the offer, typically asking for a higher purchase price or to adjust the closing date. In these cases, the seller’s agent will submit a counteroffer to your agent, detailing their desired changes, at this time, you can either accept the offer or decide if you want to counter.
Each time changes are made through a counteroffer, you or the seller have the option to accept, reject or counter it again. The contract is considered final when both parties sign the written offer.”
If your offer is approved, Freddie Mac urges you to “always get an independent home inspection, so you know the true condition of the home.” If the inspector uncovers undisclosed problems or issues, you can discuss any repairs that may need to be made with the seller.
- Act Fast
The inventory of homes listed for sale has remained well below the 6-month supply that is needed for a ‘normal’ market, especially at the entry level. Buyer demand has continued to outpace the supply of homes for sale, causing buyers to compete with each other for their dream homes.
Make sure as soon as you decide you want to make an offer you work with your agent to present it as quickly as possible. Whether buying your first home or your fifth, working with a local real estate professional who is an expert in the market is your best bet to make sure the process goes smoothly.
Things to Avoid After Applying for a Mortgage
Once you’ve found the right home and applied for a mortgage, there are some key things to keep in mind. You’re undoubtedly excited about the opportunity to decorate your new home, but before you make any large purchases, move your money around, or make any big-time life changes, consult your loan officer – someone who will be able to tell you how your decisions will impact your home loan.
Below is a list of Things You Shouldn’t Do After Applying for a Mortgage that are important to know – or simply just good reminders – for the process.
1. Don’t Change Jobs or the Way You Are Paid at Your Job.
Your loan officer must be able to track the source and amount of your annual income. If possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.
2. Don’t Deposit Cash Into Your Bank Accounts.
Lenders need to source your money and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
3. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home.
New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher debt to income ratios…higher ratios make for riskier loans…and sometimes qualified borrowers no longer qualify.
4. Don’t Co-Sign Other Loans for Anyone.
When you co-sign, you’re obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you won’t be the one making the payments, your lender will have to count the payments against you.
5. Don’t Change Bank Accounts.
Remember, lenders need to source and track your assets. That task is significantly easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
6. Don’t Apply for New Credit.
It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be impacted. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
7. Don’t Close Any Credit Accounts.
Many clients erroneously believe that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score.
Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best plan is to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.
What to Expect From Your Home Inspection
After you make an offer and it’s accepted, your next task is to have the home inspected
prior to closing. Agents often recommend you make your offer contingent on a clean home inspection.
This contingency allows you to renegotiate the price you offered for the home or ask the seller to cover necessary repairs. Your agent can advise you on the best course of action once the report is filed.
How to Choose an Inspector
Your agent will most likely have a short list of inspectors to recommend. HGTV suggests you consider the following five areas when choosing your preferred home inspector:
1. Qualifications – Find out what’s included in your inspection and if the age or location of your home may warrant specific certifications or specialties.
2. Sample Reports – Ask for a sample inspection report so you can review how thoroughly they’ll be inspecting your dream home. In most cases, the more detailed the report,
the better.
3. References – Do your homework. Ask for phone numbers and names of past clients who you can call for references.
4. Memberships – Not all inspectors belong to a national or state association of home inspectors, and membership in one of these groups should not be the only way to evaluate your choice. Membership in one of these organizations does, however, often mean continued education and training are required of the inspector.
5. Errors and Omission Insurance – Find out what the liability of the inspector or inspection company is once the inspection is over. The inspector is only human, after all, and it is possible they might miss something they should see.
Ask your inspector if it’s okay for you to tag along during the inspection, so they can point out anything that should be addressed or fixed.
Don’t be surprised to see your inspector looking very carefully at all elements of the home. The job of the inspector is to protect your investment and find any issues that may be present, including but not limited to: the roof, plumbing, electrical components, appliances, heating and air conditioning systems, ventilation, windows, fireplace and chimney, foundation, and so much more.
They say ignorance is bliss, but not when investing your hard-earned money into a home of your own. Work with a professional you can trust to give you the most information possible about your new home, enabling you to make the most educated purchase decision.
*Home inspection regulations, requirements, and processes may vary by state and locality. Work with a trusted advisor to ensure your process runs smoothly based on your specific area.
Have You Put Aside Enough for Closing Costs?
Once you’re ready to finalize your home purchase, it’s important to make sure you’ve also saved enough for closing costs.
Freddie Mac defines closing costs as follows:
“Closing costs, also called settlement fees, will need to be paid when you obtain a mortgage. These are fees charged by people representing your purchase, including your lender, real estate agent, and other third parties involved in the transaction.”
Closing costs are typically between 2 & 5% of your purchase price.
We’ve heard from many first-time homebuyers that they wish someone had let them know closing costs could be so high. If you think about it, with a low-down payment program, your closing costs could equal the amount you saved for your down payment.
Here is a list of just some of the fees that may be included in your closing costs, depending on where the home you wish to purchase is located:
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Is There Any Way to Avoid Paying Closing Costs?
Work with your lender and real estate agent to see if there are ways to decrease or defer your closing costs. There are no-closing cost mortgages available that feature a higher interest rate or wrap closing costs into the total cost of the mortgage (meaning you’ll end up paying interest on your closing costs). Your lender can help you find the option that best fits your needs.
Homebuyers can also negotiate with the seller over who pays these fees. Sometimes the seller will agree to assume the buyer’s closing costs in order to get the deal finalized. Speak with your lender and agent early and often to determine how much you’ll be responsible for at closing.
Finding out you need to come up with thousands of dollars right before closing is not a surprise anyone wants to experience. Let’s get together to discuss your options today.