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Posts Tagged ‘buying’

6174 TreywoodOkay, it’s easy to find long lists of things you should do when buying a house. Everyone knows the rules…check your credit, be realistic, save your money, etc. But what about those things that will end up trashing your deal or making you pay more money for your dream house. Here’s a list of some things you should avoid.

“I’ll save money if I call the guy on the sign!” No you won’t. Actually, you could end up paying more. The agent who has the right to put his name on the sign has already signed a contract with the sellers to list their house. That contract includes a fixed commission rate, and just as important, a promise to represent the best interests of the sellers.

Many people think that they will save money by using the agent on the sign because it will reduce the commission by half. Actually, this idea gets most listing agents to salivate uncontrollably. What actually happens is that they will earn twice the commission because they will receive both their portion  as the listing agent as well as the portion they have agreed to pay to the buyer’s agent.

The listing agent has what’s called a “fiduciary ” duty to the seller. This means that they promise to get a deal that serves the seller’s best interest. In most cases, that includes getting the highest possible price with the fewest possible concessions. Really? How is that going to help you as a buyer? You are dealing with someone who is bound by law to get the most money out of you.   By dealing directly with the listing agent you don’t get a break on the commission and you work with someone committed to getting more money for someone else. That is not in your best interest.

Buy a boat. Another misconception is that once you are approved by a lender, your loan and terms are written in stone. Wrong. If you are approved, then go out and buy a new car, an 80 inch tv, or a boat (the list goes on, these are just examples of big ticket purchases) your lender will quickly lose interest in you. You  could lose your approval, lose your loan, and lower your credit rating. Bad. Very bad! Even moving to a better job without telling your lender first could cost you that precious approval!

Here’s a true story to give you the idea. A fellow agent in my office had a couple who was approved for a loan, had an iron clad contract to purchase a home, and a settlement scheduled to close the deal. The night before settlement, the couple decided to check and make sure they had the best interest rate available. They went online to a service that promised to give them several quotes from different companies within a few minutes. After feeding in their information, they received their quotes. What they didn’t know was that the online company  had given their information to 32 different lenders in order to come up with the top four rates. That meant that on the night before closing, they had 32 credit checks, each one lowering their credit score by a few points. When they went to closing, the lender who had originally approved them refused to fund the loan. Their lower credit score on the day of closing disqualified them for the promised financing. And yes, they can do that!

In this case, the buyer’s agent was an excellent realtor, and called another lender that he had worked with. After explaining the situation and doing some bargaining, he was able to find them a loan. The interest rate was several points higher and the terms weren’t as favorable, but they were able to close on the home later that day. They also ended up paying several hundred dollars more each month because of the increase in interest rate. Ouch!

Here’s another one. Be inflexible. “I’m going to hold out for exactly what I want, where I want it, and at the price I have decided to pay.” Unfortunately, that deal doesn’t exist in 99 out of 100 cases. It’s a good way to pass on a house that would have been a great home for you. If you have a buyer’s agent (good decision!) and that agent, who is working for your best interest, tells you that there are no homes with fireplaces and finished basements in the 3 blocks of a specific neighborhood that you chose, then you should believe him!  Your agent is working hard to get you exactly what you want, but if your expectations are unrealistic, he still can’t wave a magic wand and make the impossible happen. “Okay, I heard that prices were low, so let’s offer $100,000 less than the asking price. I’m sure the sellers are so desperate after this house has been on the market for three days that they’ll jump at the chance to sell to great people like us!” Not going to happen. Ever. In any market. Do not insult the sellers!

Listen to the agent that you so wisely hired for absolutely no dollars. (Because the buyer’s agent commission is paid by the seller as specified in the listing agreement, which is written in stone.) Your agent also has a fiduciary duty to you, which means that he is obligated to get you the best possible deal. Yes, he has to obey the law, he can’t ignore fair housing laws or lie for you, but that is also in your best interest.

If your agent says that you need to look in a different neighborhood, it could mean that there are no houses available there, that the prices are too high there, or that the type of house you want just doesn’t exist in that area. Trust him, be a little open minded, and see what he has to suggest. You may be surprised to find that the house of your dreams is just a few miles down the road.

Buyers usually start out looking for their perfect dream house. It’s hard to accept that the perfect house doesn’t exist. Even if you have lots of money and can afford to build a house according to your own plan, there will still be things that don’t turn out the way you want. That big oak tree may have to come down, the pond may need a new dam, you may find that having the laundry in the kitchen interferes with your lifestyle in a way you hadn’t expected, or that the guest bedroom in the basement is too isolated after all. Even a brand new home will have small defects.

If you want to lose a comfortable home where you could be happy, insist on getting exactly what you want. If you want to have that same comfortable home for yourself, be ready to compromise. Let your agent know that you perhaps really need 3 bedrooms and 2 baths, or a house with a basement, but put the fireplace, the fenced backyard, the gourmet kitchen, and the porch swing on the “would be nice but not a dealbreaker” list.

Just to sum it up, use a buyer agent to represent your best interest. Pick one you get along with and stick with him or her. Get preapproved, then sit tight. Save the big purchases, even furniture, for after you close on your new home. And be reasonable! There is a lovely home in a great neighborhood waiting for you, but it may not be what you expect. Follow these three simple rules, and you too could live in the house that creates your dreams!

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Recently, I have had  a lot of calls from people who want to rent rather than buy. My first question is: “Why?” There really are several good reasons, but many renters don’t fit into any of these categories.

First, if you are only going to be living in an area for a year or two, it makes sense to rent. This is especially true if the time it takes to sell a house in that area is especially long, or if values there are currently heading down. Those in this category would likely be military or those on a special assignment for their job. It could also include those who are temproarily relocating to care for an elderly relative but plan to move back after the person is settled or passes.

Second, if you are new to an area and don’t know which neighborhood you want to settle in. If you arrive and just buy the first house that you see, you may end up in an area that is less than desireable for your family. This might mean something as simple as too long a walk to the bus, or it could progress to more serious issues such as the local drug dealer living next door. In this case, you are better off to rent for a year and then make a decision on where you want to live permanently.

Third, if you have bad credit. Naturally, this will keep you from qualifying for a loan which makes it next to impossible to buy a house. Rent the smallest, least expensive place you can stand for a year or two while you work on getting your finances in order. This is best done with the advice of a mortgage lender or broker, or a financial planner. Follow their advice, get things straightened out and check again in a year to see if you can qualify for a loan.

Fourth, if you are strapped for cash. There are multiple reasons for this, ranging from bad financial decisions to circumstances that go way beyond your control. If you don’t have enough to cover the down payment and settlement costs, then put the homebuying dream on hold for a few years while you save. One of the saddest things I see in real estate is someone living in a beautiful home who can’t afford furniture. Be patient, wait until the time is right and then buy something you can afford.

Fifth, if you are waiting for a home to sell in some other part of the country. Many times people will be transferred and move before they can secure the equity in their home through a sale. This can put them in a bind if they can’t afford to make two mortgage payments while they wait. Rent until the old house sells, then you can use the money to buy without putting yourself in a bind.

If you are not in any of these categories, perhaps you should consider purchasing a home rather than renting. There are home types for every need, from those who want to have no yard work and just a small place (condo or senior living development), to those who want a place to entertain or a big yard for the family. You may have to make some compromises, but the money you save in taxes and other fees can more than make up for the cost of the house.

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