River City Blog

How do you know if you are doing the right thing? Are you paying too much for a property? Are you getting the best terms you can? Can you afford the monthly payment?

In recent times it has been all too easy for a home buyer to obtain mortgage financing. Many borrowers have unwittingly agreed to borrow too much, pay too much in closing costs and lender fees. Sometimes there are pre-payment penalties that prevent refinancing within a certain period of years from the closing date. Perhaps the initial interest rate is attractive and affordable, but will reset after one or two years and could then be too high for the borrower. Sometimes a sale price has been inflated in order to create funds for down payment or closing cost assistance from a seller.

So what is the home buyer supposed to do? As a real estate professional and REALTOR® (member of the National Association of REALTORS®) it is easy for me to say you should work with a REALTOR®. But the truth is the right real estate agent, broker, REALTOR® will have enough experience and knowledge to help you avoid these and many other pitfalls.

Keep in mind that in a real estate transaction your REALTOR® “represents you”. They have specific fiduciary responsibilities to you. In other words your REALTOR® has a contractual obligation to work in your best interest. Other service providers (including lenders) have no such obligation.

I tried to create a “top ten” pieces of advice for a home buyer. The truth is it would be easier to create a “top one hundred” since there is so much to be aware of in each and every transaction. I did narrow the list down some.

Here are just a few pieces of candid advice.

1. Get represented by an experienced REALTOR®. If you purchase a “listed” property, the buyer’s agent is often compensated through the transaction by the seller. Even if you are purchasing a property “For Sale By Owner”, you should seek representation. The right agent will save you far more than any fees they may charge for their services. Again the seller may pay your agent’s fee.

2. Know what you qualify for. Loan programs have parameters for debt to income ratio, credit score, employment, and residence history. Get pre-qualified or pre-approved before you make an offer to purchase. Don’t cheat or exaggerate on the loan application - don’t try to borrow too much.

3. Understand the “terms” of your loan. Is there a prepayment penalty? Is the rate fixed, or adjustable?

4. Don’t use all of your resources and savings to get to the closing table. It is okay to seek 100% financing, down payment assistance and help with closing costs, provided you qualify. But it is important to have something in reserve also. I think a good rule of thumb is, after all is said and done, have enough money in reserves to pay at least two house payments.

5. Make sure you know what your final monthly payment will be. Remember to allow for principal, interest, property taxes and hazard insurance (PITI).

6. Make sure your lender explains ALL fees and costs. Have your REALTOR® review a Good Faith Estimate from your lender with you. Lender fees vary. The loan originator is going to make some money for their service. Make sure their fees are not excessive.

7. Ask about your options with regard to the interest rate offered. You may be surprised to find out that the interest rate can be negotiated or may be “bought down” with “points”.

8. Ask the lender how much they are charging you to originate and process the loan.

9. Ask your agent for a sample copy of a Purchase Agreement early in the process. Read through the agreement carefully and familiarize yourself with each clause. Ask your agent about anything you do not understand.

10. Insist on an ALTA Owner’s Policy. The lender will require a lender’s policy.

11. Research the property taxes thoroughly. Most county assessors and treasurers have information available online. Pay particular attention to, and ask about property tax exemptions as these may dramatically affect future property tax bills. Ask your agent to help if you are not comfortable with this process.

12. Know the value of your investment. The lender will order an appraisal. Your REALTOR can provide a comparative market analysis or broker price opinion even before you make your offer.

13. Read everything. Understand what you are signing. Ask questions. Don’t be rushed through a purchase agreement. Ask ahead of time to review the closing documents. You may be making the largest single purchase in your lifetime. You are entitled to adequate time to review everything you are asked to sign.

14. Ask an expert. Your REALTOR has certain expertise and experience upon which to draw. However, most REALTORS are not lenders, inspectors, appraisers or attorneys. Be prepared to pay for additional professional expertise as required.

15. Protect your approved status. Don’t apply for any new loans, credit cards once you have applied for mortgage loan approval without first checking with your loan originator.