How to buy a home? April 30, 2008Posted by shaferfinancial in Uncategorized.
Tags: how to buy a house, loan officer, mortgages, real estate, real estate agent, yield spread premium
Since many people have asked, I decided to answer the questions of what the consumer can do to assure themselves a fair real estate transaction.
1. Check your credit report now. Fix problems and incorrect information as you find them. This is a time consuming issue, so better to find out now and start fixing it if needed. Check you credit report every 6 months thereafter to make sure it stays correct. FICO scores are more important than ever before!
2. Find a mortgage broker that will disclose all fee’s and points including yield spread premium (YSP). Banks don’t have to disclose these back-end expenses by law and most won’t even if you ask them. Negotiate the total amount of fee’s and points the mortgage broker will make on your loan up front. Then demand that the YSP be disclosed when the loan is locked (not 72 hrs. before closing as the law requires). This keeps the loan officer honest and allows for him/her to actually work for you in finding the best program and rate for your individual situation since the loan officer knows how much they are making up front and is satisfied with it. I suggest you find a local loan officer instead of one from a 1-800 number or the internet and have a personal sit down with her/him. You will know if this person is professional and competent by the end of the interview. Listen to your intuition, ask questions about their education and experience, and don’t be afraid to say I don’t feel comfortable doing business with you right now! If they are suggesting that you purchase a home with a payment that scares you, find another mortgage originator. They should have a full appreciation for your financial situation and give you advice on what is too much as well as what program would work the best for you. Be prepared to accept bad news on how much house you can afford as well as when you will be best prepared financially to purchase a home.
3. Find a real estate agent that is experienced and works full-time as an agent. Hire them as a buyer’s agent. Tell them exactly what you are looking for and when you are plan on buying. Use the internet to search for properties and get a feel for the market. When you see a home you like send it to your real estate agent. This will allow them to better understand what you are looking for. Don’t physically look at every house, it only gets confusing after a while. Use the internet and your agent to cull the homes until you have a top 5. Then talk to your agent about each home’s location, the good the bad and the ugly, how each neighborhood is fairing in the current market, schools, etc. Then go look at your top five. I mean really look at the home, spend hours looking at every conceivable part of the property, ask questions as they pop into you head. This is where a great agent should shine. They should be able to honestly discuss all the details of the home with you. If you feel you are not getting the honest answers fire your agent!
4. Never use the agent’s in-house mortgage guy. Usually there is a business relationship between the lender and the real estate broker which allows the broker to share the profits of the loan. This means the loan officer will have to add in unecessary fee’s/points to make up for having to share the proceeds. Never use the associated title company for the same reason. Ask if there are any business relationships between the real estate broker and all the other parties. Part of the failure of the last few years is that there were too close of connections between all the parties in the real estate deal. Talk to the appraiser before they appraise your home. Tell them they work for you and you want to know what the real appraised value is, not what the loan officer, real estate agent, or seller thinks it is. Hold the appraiser accountable for her/his work! They are there to protect the lender and YOU from paying over market value.
5. Read all the paperwork. I know for the most part it will read like gobbligook to you, but you would be surprised what you learn from reading it.
6. Don’t be fee driven. Many people shoot themselves in the foot by trying to use folks who charge less fee’s. You get what you pay for. You want to work with experienced professionals who will expect to be fairly compensated. These folks are your best defense against making a bad decision, treat them fairly and they will help you immensely.
7. Choose several homes you would be happy to purchase. Start with the one you like the best and negotiate hard with the seller. Be willing to walk away if the seller won’t negotiate. Move on to the next one on your list and start negotiating hard. Repeat if necessary.