1st Step In Home Purchasing Process ~ Working with a lender

The home buying process can be a little overwhelming if you look at the whole picture all at once.  If you break it all down into bite-sized pieces it isn't so bad.  This, of course, is not every single detail and all the details for each step, but it will give a potential buyer an idea of what to expect going into the process.

I want to start off by saying that it is most beneficial to have a real estate professional by your side as you go through the process.  This will help to have someone to explain each step, keep you on the right path, and fight your fight when it is needed.  

The very first step is to speak with a lender.  The lender is going to help you:

1. Make sure your credit is at an acceptable level.
2. Guide you if any changes need to be made to your credit.
3. Determine how much home you can afford.
4. Ultimately get you a pre-approval.

Let's look at each of these a little bit deeper.

Make sure your credit is at an acceptable level.  

What is an acceptable level?  Depending on the type of loan you are seeking, the lender has a minimum credit score that is required to get you approved. For an FHA loan, which is the most common and requires the lowest down payment, the required score is usually 620 and above.  There are some companies out there that will allow a lower score, but be careful.  They are going to require you to pay more on the loan.  

Guide you if any changes need to be made to your credit.

It's not the end of the world if your credit is not spotless or if you are below this score when you start. If you are working with a good lender, they will be able to look at your credit and make suggestions on the moves you will need to make to help recover that score into an acceptable score.  They will continue to monitor your progress and work with your real estate professional to advise when you get to a satisfactory level.

Determine how much home you can afford.

I know this sounds silly, but it actually a very important item.  The lender will look at how much money you make, how much money you spend and how much can be allocated towards a house payment.  You don't want to be in a situation where you are house poor, meaning all your extra money goes towards a house instead of other necessities.  So you want to make sure that you are looking at homes that are not out of your price range neither too high nor too low.  

This is also super important if you are wanting to keep your monthly payment within a certain range. Though you may be approved for a higher amount, you may only be comfortable at a certain amount each month.  

Make sure that you don't think that it is only how much the house costs that will determine your monthly payment.  In most cases, taxes and insurance are included into the monthly payment.  Your property taxes may fluctuate on a yearly basis as can your home insurance.  Be extra careful if you want to be at a certain amount.

Get your pre-approval.

Ahhhhh.  You have submitted the necessary paperwork to the lender including items such as current bank statements and paycheck stubs and the lender deems you to be worthy.  You will be issued a pre-approval letter.  The first letter is usually a generic letter that says that you are pre-approved for an amount up to $XXX as long as all of the conditions set by the lender are met.  This letter should be shared immediately with your real estate agent so it can be on file when you are ready to put in an offer.  A property-specific letter can also be provided when you are putting in an offer.  This specific letter will also reflect the amount you are offering on the property as opposed to how much you are approved for.  Great idea if you are not offering all they money you are allotted. 

Pre-Approval vs. Pre-Qualified

If you are super prepared, it is a great idea to get a pre-qualification letter as opposed to a pre-approval letter.  That sounds confusing right?  A pre-approval letter means that the lender has simply quickly viewed the documents you provided and they don't anticipate there to be any problems in the future.  A pre-qualification letter means that you have provided cold hard proof of all items necessary to the lender and there are no other issues after inspection and appraisal.  These are like gold for a real estate agent to have in their hands.  A lot of lenders are able to provide these and then only have to put in house information.  It will make your lending process go faster and smoother with little headaches.  You would be the hero of the day if you are prepared with this.

Get Your Ducks In A Row To Purchase

The Top 5 Things To Do Before Purchasing A Home

1. Talk to a lender for a pre-approval.  In today's crazy market, it is more important than ever to have a pre-approval before you start looking for a home.  This is so that you will be able to know how much home you can afford, but it will also show a seller that you are serious.
2. Know what you want in a home.  It is a good idea to be on the same page as your partner (if there is one) as to what you are looking for in a home.  The inventory is limited so you may not be able to get everything you are looking for in a home.  Know which items are negotiable and which ones you can not live without.
3. If searching on your own, use correct app/site.  We understand that buyers are looking for their home on the internet without the Realtor's help, and that's okay.  There are a ton of different sites out there that say they are able to help you search for your home.  Some of them such as Trulia and Zillow are not the best used apps because they don't have the most updated information.  You may have seen that if you found a house you really like and inquire about it that it is no longer available.  The best app / site to use is Realtor.com because it is directly fed from the MLS system that we agents use.  This allows the most up-to-date listings as well as taking off the ones that are no longer available.
4. Trust your agent's advice.  Believe it or not, we know what we are talking about lol.  Realtors take an oath and have to uphold what is best for our clients.  We don't worry about our commission which is a misconception.  We really try to find exactly what you are looking for at the lowest price, in the best condition, in the shortest time frame.  And that brings us to number 5.
5. Be realistic.  As I stated before, we are under limited inventory and we are not able to get everything that you are asking for.  We are also here to guide you on the price and will figure in when a closing cost is needed.  We absolutely HATE to send over a lowball offer and ask for closing costs as well.  It makes us look silly and it makes the seller not consider your offer seriously.  So when we try to guide you through the process and let you know where we feel you should be, please understand that we are doing all of this to help you get the home of your dreams!

If you're curious if now is the right time to purchase a home or would just like to ask questions to a knowledgeable team, contact us and we will do everything within our power to help you! 

The Basics of a Short Sale

What is a short sale?

A short sale is when a homeowner is no longer to make their house payment and are behind but don't want to just walk away and give it back to the bank OR when they have a hardship.  The owner must ask the bank for permission to sell the property at a lower price than what they owe on it because it won't sell for the balance of their loan.

Why won't the property sell for that amount?  This happens for a few different reasons like:

• There are multiple loans on the house.
• The neighborhood is selling for less now than what it was when the property was purchased.
• The home is in disrepair and would not sell for a higher price in the condition it is in.

What is a hardship?

• Unemployment / Reduced Income
• Divorce
• Medical Emergency
• Job Transfer Out of Town
• Bankruptcy
• Death

Information on submitting an offer on a Short Sale

• An offer will be presented to the seller of the home to accept or deny.
• The amount that the bank will accept is not known to the seller until they submit their first offer.  Just because the house is listed on the market for a certain amount does not always mean that the bank will accept that amount.
• Banks will want to receive an offer somewhat close to the market value.  These are typically not sold for way below that market value.
• Buyers may wait a very long time to get a response from the bank.  There is no set amount of time that a bank has to respond with an answer.
• An offer can be recanted at any time as long as it has not been accepted by the bank.
• There is a little bit more paperwork that is involved with a short sale.  It is all provided to you when a bid is submitted and turned in as one packet.
• The bank is requiring to have a pre-approval letter submitted with bids. 

The Short Sale Process at the Bank

• Bank acknowledges receipt of the file.  This can take 10 days to a month.
• A negotiator is assigned.  This can take 30 to 60 days.
• A BPO is ordered.  This means "broker price opinion".  Companies hire a real estate broker to prepare an opinion of the value.
• A second negotiator may be assigned.  This can take another 30 days.
• The file is sent to review.  This can take 2 weeks to 30 days.
• The bank may then request that all parties sign an Arm's Length Affidavit.  This means that you don't personally know the seller and are trying to assist them by purchasing the home.
• The bank issues a short sale approval letter.

Some short sales get approval in 6-8 weeks after an offer is submitted.  Others take 90-120 days, on average.

How Much Does A Realtor Cost?

Guess I gave it all away at the beginning with this cute picture, huh?

Seriously, in most cases you are able to use a real estate professional to help you purchase a home at no cost to you.  It is traditional in Central Ohio for the seller to pay the fee for both their agent helping sell their home as well as the agent that is helping the buyer.  There are a few times that this rule doesn't apply and your real estate agent should discuss it with you if this arises.  

Instance 1 is when working with a For Sale By Owner (FSBO).  Because the inventory has been so low lately, we are finding buyers are seeking out these properties and the sellers are not willing to pay the commission fees.  You will find in another of my blogs why you should use a real estate professional.  But most of all, it is to make sure that everything is completely legal for you.  If this happens, the agent should discuss with you the possibility of your paying the negotiated fee.

Instance 2 is when working with investment properties.  There are times when the purchase price is very low and the commission rate offered is very low as well.  Again, the agent should discuss with you before starting this process.  What generally happens is that there could be a flat rate set that would be paid to the real estate person by the buyer to compensate for their time and effort.

Don't feel that you cannot ask your professional right up front if you can expect to pay for their services.  It's all part of the job.