Looking to purchase a home? Here is a preflight checklist to step up your game.
by John V. Gallant
Whether you are spending your nights combing the interwebs for the perfect house, or just kicking around the idea of a purchase, here are some suggestions that will help you get prepared.
Check your credit
If you were walking in to a car dealership to buy a car, they may not really care about the fact you got into a disagreement with Columbia House Records back in 2008. You may not get an ideal interest rate, but the financial consequences of paying a half-percent more wouldn’t be too painful on a smaller loan. However, with a loan amount of $300,000 a half-percent increase will far outweigh the inconvenience of paying the balance of your treasured Bobby McFerrin cd. For example, increasing from 3% to 3.5%, on a 30 year $300k mortgage, means paying approximately $29,636 more over the life of the loan.
Should you have more serious credit issues, it is possible to hire a company which specializes in cleaning up credit issues and negative remarks. If you are feeling really adventurous, you can order your own credit reports and clean it up yourself. It is more time consuming than complicated, but it will really help!
Get preapproved for a mortgage
A preapproval from a reputable lender can give you a good amount of useful information. First and foremost you can get an idea of the price range you should be looking into. If you are working with a Mortgage Loan Originator who is willing to go above and beyond, you may be able to ascertain if there are issues that can be resolved to help you obtain the best deal possible.
A preapproval will also potentially show a seller you are serious. If they are considering multiple similar offers, but you are the only one who has spoken to a lender, it could just be the competitive edge that pushes your offer to an acceptance.
Interview Potential Lenders
Many people believe that the best source of financing is the bank they use for everyday checking and savings accounts. While I love the bank I use, and would certainly include them when looking at what options are available, I have a preferred lender who I feel treats my customers like family. They also have been able to provide an outstanding level of service.
These types of relationships are what you should be looking for while comparing the risks, benefits, costs, and penalties of a loan offer. This purchase is quite possibly the biggest financial transaction of your life, it makes sense to thoroughly examine your options.
Keep perspective of the value of $1.00
My dad told me, from a very young age, that if you mind your pennies, the dollars will soon follow. When talking about the large dollar amounts in a transaction as big as a home purchase it is easy to lose perspective of just how valuable the US Dollar is.
I will avoid a lengthy discussion about how The Federal Reserve and the US Government have inadvertently devalued the US Dollar, but it is important to realize that through obscenely low interest rates, open market operations, bond purchases, and increasing the money supply; your dollar just doesn’t go as far as it once did. Should this continue into the future, real estate may be a good place to invest money. A certified financial planner is a great source for more specific information about investing, diversification of assets, and hedging against inflation.
I often hear others discussing money in a relative manner. When in the midst of a large transaction it is tempting to say, “It’s only $5k, what does that really matter in my $500,000 deal”? If you can produce $5,000 an hour, it’s not much. When you make $50 an hour, it could potentially be 133 hours of work, after taxes.
Occasionally I will hear an agent discussing some tens of thousands of dollars as if it were a paltry sum, and my gut reaction is usually to ask them to write the check. If it is not that much money, please, just make the check out to Chicago All Saints Hospital (C.A.S.H.), they will appreciate the donation.
Check out your neighbors
Make your own determination of where you are planning to live through multiple visits to the area, at different times during the week. Look for things that could impact your enjoyment of a new home such as poorly maintained yards, ugly campers, incessantly barking dogs, etc.
You may be pleasantly surprised, or you could save yourself from numerous arguments with a neighbor who likes to practice Tantra Yoga to Camille Paglia books on tape on high volume every morning at 7am. Again, this purchase is quite possibly the biggest financial transaction of your life, it makes sense to thoroughly examine your options.
Go into financial hibernation
If there is one thing that can cause the financing of a sale to go askew, it’s making any large financial changes before closing the transaction. Hold off on buying a new car, or buying any large ticket items in anticipation of moving in until AFTER the closing. Lenders tend to get a little nervous when they pull a second credit report before a closing and find that your debt-to-income ratio has changed, or new accounts have been opened. They may have the right to refuse financing, or change the terms of the agreement at the 11th hour, leaving a buyer forced to make unpleasant changes or even cancel the transaction.
Keep in mind that you may face a plethora of potential expenditures for: appraisal fees, inspection fees, legal fees, escrow deposit, closing fees, and moving. Make sure you have planned for all of the ancillary costs of purchasing a home. Make sure you understand the risk/reward to forgoing any of these items as well.
Get the best information available, from the best sources. If you aren’t sure about something, ask your real estate agent to direct you to a reputable source for information. Real estate agents have many skills, but they should not be practicing law, appraising property, or functioning as accountants without possessing a license that allows them to practice within that profession.
A fallacy among a small group of real estate agents is that they need to know “everything about everything”. A good agent has a broad knowledge base, but understands to direct his or her customer to the appropriate licensed professional, or enlist the help of a licensed professional when it is appropriate.
Without a proactive approach to sourcing the right information, a transaction can go from bad to worse within a three-minute phone conversation. Even if a buyer or seller can point their finger at the responsible party and say definitively, ”It’s their fault”, it cannot always rectify what could have been a successful transaction. Don’t risk it, this purchase is quite possibly the biggest financial transaction of your life, it makes sense to thoroughly examine your options, and I truly apologize for being repetitive!
Fine tune your attitude for success!
Buying a home can be a stressful time for anyone, there is a lot at stake; and people have emotional attachment, or fixate on circumstances and actions, and sometimes the irrational mind prevails! Find an agent that you can put your trust in, make sure they know what you want out of the transaction, and focus on the larger picture. It is important to pay attention to the little details, but avoid getting caught up in them.
As long as the process can take, it may feel like a never-ending process. Keep a positive attitude, be prepared, and stay calm. Finally, always be prepared to walk away. Although this should not be deployed as an aggressive negotiating tactic, being prepared to walk away from a deal going wrong is essential.
I wish you luck!
Blue 9 Realty, Inc.