When your parents or grandparents purchased a home back in the 1940s or 50s they faced many of the same dilemmas you face today when considering buying a home. Affordability, workmanship, materials, condition, and location were just as important then as they are now.
Still, much has changed in the buying process. In particular, regulations and laws have been implemented to better inform all parties in the purchase agreement, and buyer safeguards have been improved over the past 50 years. Purchase agreements decades ago usually consisted of a one page document; today it’s not unusual to find six or more pages to review before signing an offer to buy.
Yet the caveat has not changed; “buyer beware” is still as important today as it was a half century ago. Even with safeguards in place, it’s still the buyer's responsibility to become informed in all aspects of the buying process. It can be a daunting task. But even in today’s recessionary marketplace, homes are selling across America and buyers are overcoming obstacles in the process.
Where to begin?
An important consideration on the buyer’s side of the transaction is communication. Let’s explore that further. A lack of communication has contributed to our declining real estate markets and this recession. Too often, lending institutions and consumers (home buyers) have failed to present information in a thoughtful, accurate and simple fashion. We know now that some mortgages were issued with little consideration for the ability of the buyer to pay the mortgage. In turn, buyers too often gave little thought to their ability to repay their home loan and kitchen table discussions on budgeting were absent from the process.
Prospective buyers can begin by attempting to follow the simple rules of communication as they relate to the home buying process. Before the home search begins, buyers should do the following:
1) Buyers should have an open “kitchen table” discussion of personal finances. Carefully review or create a precise monthly budget including all expenses and income leaving room for savings and unexpected monthly expenses. Write out the budget and keep it available for regular review. “Buyer Beware” – Omitting this step may lead to serious financial problems.
2) Contact at least two lending institutions of your choice for prequalification purposes to discuss your finances and determine how much you can afford in monthly principal, interest, mortgage insurance, taxes and homeowners insurance.
If possible meet with the lending officer in person and come prepared with questions relating to the application process, fixed interest rates, closing costs, credit reports, down payment estimates, and initial costs including the appraisal fee.
The lending institution meeting should involve a thorough review of your income and expenses and is an important step on the way to a successful home purchase. Open lines of communications with the lending institution can go a long way in overcoming problems which may arise as you begin the search.
What should you learn from this meeting?
It's important for you to have a clear understanding of the down payment requirements and an itemized estimate in writing of the closing costs (the amount of funds you will need to close the loan based on an estimated price of a house you hope to find).
In addition you should have a clear understanding of the present fixed rate mortgage rates available and their terms and an estimate of the total cost of monthly payments.
You should also have a better sense of the loan process and the time it takes to secure the loan (loan approval ) after making an offer and the potential closing date (generally the date you take possession).
Finally, you should ask the loan officer for a prequalification letter which can be used as an addendum to your purchase agreement when the time comes to make an offer. A letter of credit or prequalification letter can help show the seller that you are a legitimate buyer for their home and may positively influence their decision to accept your offer.
“Buyer Beware” -- The lending officer may give you a maximum mortgage amount you will qualify for which may be far more than you feel comfortable borrowing. Review your personal finance sheet and set the total monthly costs of home ownership based on careful review of your savings, income and expenses.
(Coming next) “Buyer Beware” issues related to the house search and the purchase agreement.
Copyright: August 3rd 2009, T. H. Behrens
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