If you're like most people,
buying a home is the biggest investment you'll ever make. Annual
mortgage, taxes and insurance costs can range from 25% to 40% of your
gross annual income.
By visiting this reference page, you're on your way to protecting
yourself, and making the home-buying process easier by becoming an
informed consumer.
Read, talk to family, friends and real estate professionals. You'll
be glad you took the time to understand the process. |
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Buying a Home
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| 1. |
Looking for a home
without being pre-approved.
Pre-approval and pre-qualification are two
different things. During the pre-qualification process, a loan
officer asks you a few questions, then hands you a "pre-qual"
letter. The pre-approval process is much more thorough.
During the pre-approval process, the mortgage
company does virtually all the work associated with obtaining
full-approval. Since there is no property yet identified to
purchase, however, an appraisal and title search aren't conducted.
When you're pre-approved, you have much more
negotiating clout with the seller. The seller knows you can close
the transaction because a lender has carefully reviewed your income,
assets, credit and other relevant information. In some cases
(multiple offers, for example), being pre-approved can make the difference
between buying and not buying a home. Also, you 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. They don't want to waste your, their, or the
seller's time.
Many mortgage companies will help you become
pre-approved at little or no cost. They'll usually need to check
your credit and verify your income and assets.
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| 2. |
Making
verbal (oral) agreements!
If an agent tries to make you sign a written
document that is contrary to their verbal commitments, don't do it! For
example, if the agent says the washer will come with the home, but the
contract says it will not--the written contract will override the verbal
contract. In fact, written contracts almost always override verbal
contracts. When buying or selling real estate, abide by this maxim:
Get it in writing!
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| 3. |
Choosing
a lender because they have the lowest rate. Not getting a written
good-faith estimate.
While rate is important, you have to consider the
overall cost of your loan. Pay close attention to the APR, loan fees,
discount and origination points. Some lenders include discount and
origination points in their quoted points. Other lenders may only
quote discount points, when in fact there is an additional origination
point (or fraction of a point).
This difference in the way points are sometime
quoted is important to you. One lender will quote all points, while
another lender may disclose an extra point, or fraction thereof, at a
later time--an unwelcome surprise.
Within 3 working days after receipt of your
completed loan application, your mortgage company is required to provide
you with a written good-faith estimate of closing costs. You may want
to consider requesting a GFE from a few lenders before submitting your
application. With a few GFEs to compare, you can get a feel for
which lenders are more thorough, and you can educate youself regarding the
costs associated with your transaction. The GFE with the highest
costs may not indicate that a particular lender is more expensive than
another--in fact, they may be more diligent in itemizing all fees.
The cost of the mortgage, however, shouldn't 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 they
promise.
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| 4. |
Choosing
a lender because they are recommended by your Realtor®.
Your Realtor is not a financial expert. He
or she may not know which loan is best for you. Your Realtor® gets
a commission only when your transaction closes. As a result, the
Realtor® may refer you to a lender who will close your loan, but who may
not have the best rates or fees. Also, many Realtors® refer you to
one of their friends in the loan business--who also may not have the best
rates or fees. Although most Realtors® are professional and concerned
about your best interests, you should do your own homework.
We recommend shopping for a loan with at least
three mortgage companies before you make a decision. There are
countless stories of consumers who ended up paying higher rates, or got a
loan that wasn't right for them, because they blindly followed their
Realtor's® advice.
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| 5. |
Not
getting a rate lock in writing.
When a mortgage company tells you they have locked
your rate, get a written statement detailing the interest rate, the length
of the rate lock, and other particulars about the program.
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| 6. |
Using
a dual agent (an agent who represents the buyer and seller in the same
transaction).
Buyers and sellers have opposing interests. Sellers
want to receive the highest price, buyers want to pay the lowest price.
In most situations, dual agents cannot be fair to both buyer and
seller. Since the seller usually pays the commission, the dual agent
may negotiate harder for the seller than for the buyer. If you are a
buyer, it is usually better to have your own agent represent you.
The only time you should consider using a dual
agent, is when you can get a price break (usually resulting from the dual
agent lowering their commission). In that case, proceed cautiously
and do your homework!
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| 7. |
Buying
a home without professional inspections. Taking the seller's word
that repairs have been made.
Unless you're buying a new home with warranties on
most equipment, it is highly recommended that you get property, roof and
termite inspections. These reports will give you a better picture of
what you're 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 made,
the seller is more likely to agree to making them.
If the seller agrees to make repairs, have your
inspector verify the completed work prior to close of escrow. Do not
assume that everything will be done as promised.
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| 8. |
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 find they have no time left to shop around.
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| 9. |
Signing
documents without reading them.
Do not sign documents in a hurry. As soon as
possible, review the documents you'll be signing at close of
escrow--including a copy of all loan documents. This way, you can
review them and get your questions answered in a timely manner. Do
not expect to read all the documents during the closing. There is rarely
enough time to do that.
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| 10. |
Making
moving plans that don't work.
You expect to move out of your current residence
on Friday and into your new residence over the weekend. Also on
Friday, your lease terminates and the movers are scheduled to appear.
Friday morning arrives: bags packed, boxes
stacked, children under arm and the dog on a leash; you're sitting on your
front door stoop awaiting the arrival of the movers.
Your phone rings. Your loan closing is
delayed until the following Tuesday. The new tenants turn into your
driveway with a weighted-down U-Haul and the movers pull up across the
street.
You ask yourself, "Where's the nearest Motel
6 and storage facility? How much will the movers charge for an extra
trip? Can we afford it?"
How can you avoid such a disaster? Cancel
your lease and ask the movers to show up five to seven days after you
anticipate closing your transaction. Consider the extra expense an
insurance policy. You're buying peace of mind--and protecting
yourself from expensive delays. |
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