Save for a Down Payment
Whether you get a second job, use a tax return, sell unwanted items, or store away money incrementally, having a down payment on your new home will save you money in both the short-term and long-term life of your mortgage. Saving money doesn’t have to be depressing. My friend, Travis, decided to earn extra money in the morning before his day job as a talent consultant even began. He combined his financial goal with a fitness goal by taking on two paper routes daily to earn extra money and become more fit. He now has a beautiful home and is a marathon runner! However, you should budget your down payment as you will be most attractive as a borrower and buyer if you can put at least 10% to 20% of the purchase price down as a down payment.
Manage your Credit Score
The interest rate of your mortgage can add (or subtract) thousands of dollars over the life of your loan. Your credit score is one of the factors that determines your interest rate, so be sure to get your credit score in the strongest possible range before you start shopping for homes. Review your credit report and correct errors immediately. Creditkarma.com is an excellent (and free!) service for managing, repairing, and monitoring your credit score. Ideally, do not make any large credit purchases for a year before you plan to apply for a mortgage, and definitely hold off on applying for additional credit until after the mortgage is finalized. Once you are in excellent financial shape, get pre-qualified from your lender and have him or her on speed dial, because things are about to get real.
Hire a Buyer’s Agent
Don’t be penny wise and pound foolish. A buyer’s limited agent is an agent who represents a buyer. A buyer’s agent will typically cost a buyer very little, if anything, out of pocket, so don’t panic about the thought of signing an agency agreement. It is tempting to think that because you don’t know what a buyer’s agent does, it must be easy. But no, Donnie, being four credits short of your second PhD does not qualify you to successfully identify, negotiate, and procure your family’s perfect home. What are you going to do after that—tell grandma how to improve her Thanksgiving gravy? Don’t be that guy. A good buyer’s agent knows the market, negotiates for you, steers you away from expensive mistakes, has inspectors on speed dial, and is your best chance for getting your dream home under contract before a less-savvy buyer even knows the house is for sale.
Navigating the Market
Buying a house is a big step, and in the heat of a seller’s market, it takes perseverance and know-how. Hire a buyer’s agent who has experience in the community in which you live, preferably one who has been involved in the sale of homes in your area of interest. In a seller’s market, don’t even think about flying solo. Even if you know something about sales, negotiation, contracts and the like, and even if you have a lot (I mean a lot) of extra time to devote to the task of buying a house. You can’t even access the full inventory without having a subscription to the realtor’s holy grail—that is the Multiple Listing Service (MLS). We can get into a philosophical debate about anti-competition another time, but I charge by the hour and you have a house to buy in a very tight market, so hire the best buyer’s agent you can find and let’s move on.
Getting Under Contract
When you find the right house, it is very likely you will be competing against other buyers when you make an offer on the property. Remember, cash is not always king. Your job is to be someone the seller wants to see get their home. I have seen sellers reject higher offers from buyers they dislike and accept lower offers from buyers they thought would enjoy the home more. Other sellers want to move asap and won’t want to wait for a buyer to sell their own home. Learning the seller’s motivations will help you and your agent to construct the most competitive offer. That said, don’t accept a property “as is” just because you have developed an emotional attachment to it or to the idea of winning. Before you make your offer, the seller or seller’s agent should have given you a Sellers Property Disclosure Statement, in which seller answers questions about what that they know to be wrong with the house. Study that document carefully and be sure to make your offer contingent on inspections.
Get the Inspections
After you make the offer and the seller accepts it, you enter a due diligence phase that is no less important than all the preparations you have made to get your dream home under contract. Your purchase agreement should give you the opportunity to get the house inspected. Order a whole house inspection. Not only should your agent be present at the whole house inspection, but you should be present as well. Bring your own flash light and walk around with the inspector. Ask questions. If boxes are stacked up against a wall, ask to have them moved so the inspector can look behind. Inspectors will not move boxes or furniture or other obstructions.
Ask the inspector to pay particular attention to possible structural issues, pest infestations, and water infiltration. Ask your inspector how to recognize these issues (and stay tuned for my next blog topic). Foundation problems, water leaks, and pest problems are the most troublesome material defects that can kill your deal. They are also the most common defects that, when not caught and treated at the inspection phase, will cause buyers to sue sellers after closing.
On a related note, check out the age and condition of the appliances, the hot water heater, AC unit, etc. and decide what stays, what is replaced, and who pays for what.
Fun fact: Most decisions to sell start in the kitchen. Long-term homeowners admit that they fantasize about a new kitchen when their appliances start to fail from age. Their thinking is, “Should I repair or replace the dishwasher? If I have to replace the dishwasher, I want the fridge and microwave to match so I might as well replace everything . . . and while we are disrupting the kitchen, we might as well update the cabinets and countertop.” And these thoughts naturally lead to a cost comparison of a home remodel vs a whole new house! The moral of the story is, don’t assume you’ve been tricked into buying a money pit if the ice maker fails in the first year of ownership. Unless you bought all new appliances, I can almost guarantee the ice maker will fail in the first year of ownership. No home is perfect, appliances age, not all defects are “material”, and not all material defects are detectable during the inspection phase.
If you do discover a material defect after closing, you are not without remedies. Your first order of business is to call a contractor to stop the damage from getting larger. Your contractor will identify the source of the problem and give you options and estimates for repairs. If it is clear from you and your contractor’s investigation that the seller knew about the issue but did not disclose it, call Berry Law. There is a time limit on certain remedies for non-disclosure, so the sooner you talk to your real estate attorney the better.
About the author: Susan Napolitano fights for her clients through her main practice areas of Real Estate, Business, and Estate Planning to make sure they keep all they have earned and that they continue to build upon their assets. Susan has been practicing law since 2006, and she has a litany of connections in the Lincoln Real Estate business.