- Advice for First-Time Buyers
- How to Negotiate with Sellers
- Types of Mortgages
- Getting the Best Mortgage Rates Online
- Surviving Escrows
- How do I win in a Multiple Offer Situation
- Pre-Qualification: Meet with a mortgage broker and find out how much you can afford to pay for a home.
- Pre-Approval: While knowing how much you can afford is the first step, sellers will be much more receptive to potential buyers who have been pre-approved. You’ll also avoid being disappointed when going after homes that are out of your price range. With Pre-Approval, the buyer actually applies for a mortgage and receives a commitment in writing from a lender. This way, assuming the home you’re interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and lenders will usually permit you to pay them when you close your loan.
- List of Needs & Wants: Make 2 lists. The first should include items you must have (i.e., the number of bedrooms you need for the size of your family, a one-story house if accessibility is a factor, etc.). The second list is your wishes, things you would like to have (pool, den, etc.) but that are not absolutely necessary. Realistically for first-time buyers, you probably will not get everything on your wish list, but it will keep you on track for what you are looking for.
- Representation by a Professional: Consider hiring your own real estate agent, one who is working for you, the buyer, not the seller.
- Focus & Organization: In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:
- One or more detailed maps with your areas of interest highlighted.
- A file of the properties that your agent has shown to you, along with ads you have cut out from the newspaper.
- Paper and pen, for taking notes as you search.
- Instant or video camera to help refresh your memory on individual properties, especially if you are attending a series of showings.
- Location: Look at a potential property as if you are the seller. Would a prospective buyer find it attractive based on school district, crime rate, proximity to positive (shopping, parks, freeway access) and negative (abandoned properties, garbage dump, source of noise) features of the area?
- Visualize the house empty & with your decor: Are the rooms laid out to fit your needs? Is there enough light?
- Be Objective: Instead of thinking with your heart when you find a home, think with your head. Does this home really meet your needs? There are many houses on the market, so don’t make a hurried decision that you may regret later.
- Be Thorough: A few extra dollars well spent now may save you big expenses in the long run. Don’t forget such essentials as:
- Include inspection & mortgage contingencies in your written offer.
- Have the property inspected by a professional inspector.
- Request a second walk-through to take place within 24 hours of closing.
- You want to check to see that no changes have been made that were not agreed on (i.e., a nice chandelier that you assumed came with the sale having been replaced by a cheap ceiling light).
- All the above may seem rather overwhelming. That is why having a professional represent you and keep track of all the details for you is highly recommended. Please email me or call me directly to discuss any of these matters in further detail.
- Be prepared Research the housing market in the target area. Once you have information about the general area, focus on the particular property and seller. Look for answers to questions such as:
- Why is the homeowner selling? (If they’re moving because they find the area undesirable, you might want to consider this issue.)
- How long has the home been on the market? (If it has been on the market for a long time, perhaps there are negative facts about the property that you need to know.)
- How much did the seller pay for the home compared to the current asking price? (If the seller paid more, find out why. Was it a general real estate trend, or did property values in that particular neighborhood go down?)
- What is the seller’s time frame for selling and moving? Does it fit within your needs?
- Are there any defects in the home or problems with the surrounding neighborhood? (For example, is the roof so old that it will likely leak during the next storm? Is there a new construction project in the area that will lead to major traffic congestion?)
- Establish a Timeline Find out if the seller needs to have the sale closed sooner rather than later. If the seller is feeling pressured to sell, use that to your advantage in negotiating. Even if you, the buyer, are the one with the deadline for purchasing a home, don’t let yourself be rushed into making concessions or a purchase you may regret later.
- You plan on living in your new home for many years, and/or
- You are not a risk-taker and prefer the stability of knowing how much your payment will be each month.Since most home loans are for a period of 30 years, if you want a payment you can count on for that long of a period of time, a fixed rate mortgage may be what works best for you. Once your loan amount and interest rate are calculated and locked in, a fixed rate mortgage will guarantee that you will have the same payment over the life of the loan. Making extra payments to principal will allow you to pay your loan off sooner.This may not always be the best choice, however. If interest rates are very high at the time you take out your loan, with a fixed rate mortgage you’ll be stuck with that high interest for the life of the loan (unless you choose to refinance). Conversely, if interest rates are very low, you’ll come out the winner with interest rates that will stay low no matter how high interest rates go in the future. The following are the advantages and disadvantages of the varying lengths and terms of fixed-rate mortgages:
- Pay off the loan in half the time of a 30-year loan.
- Equity builds up more quickly than in a 30-year loan.
- Payments are higher (which may be a problem if you lose your job or become unable to work).
- Pay off the loan in 2/3 the time of a 30-year loan.
- The overall interest paid is considerably less than for a 30-year loan.
- The most common choice, especially for first-time homebuyers, as it’s the easiest of the fixed-rate loans to qualify for.
- Monthly payments are lower than for 15-year and 20-year loans. This can prove especially helpful if you do not have a lot of “padding” between the amount you can afford to spend and the monthly payment for your desired property.
- More desirable if you plan on staying in the same home for years, since equity builds more slowly than for shorter-term loans.
- For income tax purposes, this term provides the maximum interest deduction.
- VA Loans: Veterans may qualify for a loan from the Veterans Administration. There is a limit on the amount you can borrow, so this option works best for those buying a lower priced home.
- FHA Loans: The Federal Housing Association offers loans to lower-income Americans. Look for the phrase “FHA approved” when looking at ads for homes.
Advice for First-Time Buyers
How to Negotiate with SellersBuying a home is one of the most important purchases most people will make. In order to make the right decision the first time, potential buyers need to be prepared. Consider the following before starting negotiations:
Fixed Rate Mortgages Consider a fixed rate mortgage if either of the following describes you:
Convertible ARMs If neither the fixed-rate or the adjustable-rate mortgage seems like the best option, perhaps the convertible ARM will be right for you. This alternative combines the initial advantage of an ARM with a fixed rate after a predetermined number of years. Obviously, this type of mortgage has more advantages when the initial interest rate is low and the future rate is not guaranteed.
Government Loans Another mortgage option available to some people is a government loan, providing that you meet the qualifications for these loans.
With the advent of the Internet, much of this information is readily available online. Once you have educated yourself sufficiently about real estate loans, all it takes is the time and energy to sift through online resources to find the information you need. Rates change quickly. That great rate you find today might not be there tomorrow. Once you find the rate you are looking for, submit a loan application and lock in that rate. Some sources for interest rates on the Internet include:
If you do not have the time or experience to “do it yourself,” look for a qualified mortgage broker that can assist in finding the right mortgage for you. Ask friends and associates who have refinanced or purchased recently if they have a broker they can recommend. You’ll want to find a broker who is energetic, flexible and knowledgeable about finance and loans and someone who has your best interests in mind.
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- Inspection contingency: this should be completed as soon as possible after the contract to purchase is signed as unsatisfactory results of the inspection may mean that you will want to cancel the contract.
- Financing contingency: once the contract is signed, you have a period of time to secure funding. If, for any reason, you are unable to secure funding during the period of time granted to you by the contract (and the seller will not provide a written extension of time), you must decide whether you want to remove the contingency and take your chances on getting a loan. You may choose to cancel the purchase contract.
- A requirement that the seller must provide marketable title.
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HOW DO I WIN IN A MULTIPLE OFFER SITUATION?Multiple offer situations are the toughest challenge that agents and home buyers face. They occur when home inventory is low and buyers are all looking at the same properties. Demand builds as new buyers enter the market alongside those who have been searching for a longer time. As a result, when a home is up for sale in a desirable area, buyers submit aggressive offers within days of it coming on the market. The result is a highly competitive atmosphere; home prices increase and buyers become frustrated as they are out-bid on the homes that they want.
For two years, this is what the real estate market has looked like in the Greater Boston area. Well-priced homes in and around Boston often receive four or five offers; and some receive as many as twenty. Some buyers go to extreme lengths to win out over the competition.
An offer contains a number of variables that a buyer can change in order to win the bid:
• Offer response time and date
• Down Payment kept in escrow
• Cash portion
• The Inspection Contingency: including date of inspection and a “walk-away” number. This amount is the congregate cost of material defects that the buyer will take care of. Anything above and beyond you can ask the seller to fix, give a credit back to you as the buyer or you can walk away. If other buyers are standing in line waiting for you to walk away, we suggest that you not negotiate. The seller will probably refuse to negotiate and go to the next highest bidder.
• Mortgage Contingency: including the application date, the commitment date and loan amount.
• Purchase and Sale Date: The standard date for execution of this contract is 2 weeks from offer acceptance.
• Radon Inspection
• Lead Inspection
• Inclusions and exclusions
• Closing Date
Each seller weighs these “moving parts” differently. Usually, sellers are simply looking to get the most money possible out of their home. But in multiple offer situations, where most buyers are offering more than the asking price, it is the “cleanest” offer that wins; little to no financing (a “cash offer”), a quick close (or an adherence to seller’s preferred closing date), and no inspection or mortgage contingencies.
If a buyer waives the inspection contingency, they can still have an inspection. However, they lose the option to negotiate based on the inspection’s results, and if they decide to walk away, they lose any money that is currently in escrow. Buyers will drop this contingency if they are experienced home owners, have enough capital to take care of large repairs, or simply because they think it will make their offer more competitive.
A buyer can also waive the mortgage contingency. This is most common with cash offers, where no financing is involved. In this case, the buyer must provide proof of funds with the offer. A buyer that is confident in their ability to qualify for a loan may also drop their mortgage contingency. In this case, however, if they fail to get a mortgage, they are still responsible for purchasing the home, or else they lose their deposit. This means the mortgage contingency should only be dropped when a buyer is 100% sure that they can obtain a mortgage without needing to sell another property, and their purchase does not hinge on any other financial factor. Make sure that you have job security.
Most people looking for a home, however, cannot afford to lose these protections. First time home buyers, for example, should not waive their inspection or their mortgage contingency. While this may make it more difficult for them to compete, hope is not lost.
One of the easiest actions you can take is to find out the seller’s preferred closing date. The assumption many people make is that sellers always want to close quickly. However, there are sellers out there who are not prepared to move out immediately, or are still in the midst of looking for a new home themselves. A savvy buyer’s agent always asks the listing broker what the ideal closing date is, so that their buyer can put that date (or one as close as possible) into their offer.
If you must have an inspection, you can choose a higher “walk-away” number for your contingency. A higher threshold shows the seller that you are not going to get out of the transaction over small items on the inspection and that you are not going to try to negotiate post inspection below your offered price.
If you need a mortgage, you can improve your chances by putting as much money down as possible. To most sellers and all agents, the more cash involved, the better, as they believe it means a more certain closing.
Sometimes, a personal touch can shift the scales in your favor. A letter to the seller about you can appeal to their emotions. Most sellers want to know that the person getting their beloved home will cherish it the same way they do. Letters many times are used as a tie-breaker. Even with this personal letter, the other parts of the offer have to be strong.
Sellers can also make requests of potential buyers that add to the already long list of demands. They may ask for a closing date so far out that it goes beyond the normal rate-lock for a loan. They may ask to rent the home back from the buyer until they find a new place to live. Sometimes, an offer conceding to these specific demands can be more attractive to a seller than the one offering the highest price.
This is where your buyer’s agent comes in. Our job, when it comes to multiple offer situations, is to give you the advantage. We gather as much information from the seller side as possible in order to glean what is most important to them in the sale of their home. Usually, it’s the money, but sometimes we are surprised by the outcome and the reason that the seller chose a particular offer. We have no control over the seller or their decision making process.
For this reason, we aim to maintain a reputation of professionalism and diligence among our peers in every area we work in. This makes seller’s agents more likely to share information with us. In some cases, it has even been the deciding factor in the seller’s decision. One thing that every seller wants is a smooth transaction, even during phases of negotiation. If there are two equal offers, we want the seller’s agent to point to ours and say “all things being equal, these agents are better to work with.” It can really be the tie-breaker.
A competitive market can be overwhelming and there is a lot to consider when putting together a strong offer. In summary, we can only control our side of the transaction but not the seller side.
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