Wednesday, February 18, 2009

First Time Home Buying 101: Finding the Home

Hopefully, at this point you have found your real estate agent. Your agent has referred you to a mortgage broker that is knowledgeable in ALL types of programs, including FHA, VA and/or community programs designed for persons such as teachers, firemen, etc. Or, you have found a mortgage broker, you are "pre-approved" for an estimated loan amount, and your broker has referred you to an exceptional real estate professional!

Granted, the law does not require you to hire a real estate agent. You can meet with a homeowner, agree on a sales price and sign a contract. However, if you do NOT hire a real estate professional, I strongly urge you to hire an experienced real estate lawyer. A lawyer is the only person that can give you legal advise. You really don't want to make foolish and costly mistakes. There are many more unusual circumstances in acquiring loans and finding homes than ever, with foreclosures, auctions, and short sales. Although, they have existed before, certainly not with the frequency as now. It can make for a really great deal, but you really want to know what the deal is!

AGENCY LISTINGS:
These are what you are used to seeing on the Internet, in the newspaper, from signs posted in front of homes. They are on MLS (Multiple Listing Service) and sold by a listing agent for a commission. They are the most familiar to the average real estate shopper. Of course, the listings will include foreclosures, short sales, bank owned, etc. (I'll give a brief definition in this section).

Foreclosures: There are a lot of them now, so I suspect most agents are pretty familiar with how to deal with these properties. But, you should ask your agent if they are skilled in this area. Sometimes these properties are fantastic, other times not so great....if the homeowner had to choose between the mortgage payment or food on the table, chances are they didn't do a lot of "renovations or updates". They will be sold "as is". In the case of a foreclosure, "as is" is exactly that, be aware, but don't run scared! You could find a real "diamond in the rough" A professional that is experienced can tell you what to walk away from, and a home inspection is critical.
Pre-foreclosures: Sometimes an ad will read "beat the bank". Generally, this means the homeowners are in trouble and no they can't keep up with the payments. Simply, they want to sell the home quickly and not destroy their credit. They will usually sell it for what they owe, plus an amount of a few thousand dollars to "keep their heads above water" or even pay for their first month rent and deposit! This may be less common than in the past because the market has changed so much that many houses are not even worth what is owed. You need to know the value of the house in today's market. Your real estate agent will have an "experienced estimate" as to whether the price is logical.
In foreclosure: Once the payment's have lapsed, the lender "bank" will serve notice to pay by a certain date or the house will go to auction. The homeowner will have pay the payments and a lot of attorneys fees to get out of foreclosure. Now, some banks are more willing to negotiate a different scenario with the homeowner simply because the banks now has a lot of vacant houses.
Short Sale: The property is in foreclosure, but not yet gone to auction. The seller owes more money than the house is now worth. The "bank" is willing to accept a short-sale. This means your offer is less than what is owed on the mortgage. The owner of the house could accept your offer, but the "bank" has to agree to accept it. The seller does not receive any money. These can sometimes take months. Again, a good idea to work with an agent or lawyer that knows the process.
Auction: The payments haven't been made in the time allotted and the house goes to auction.
The lender will usually place a reserve price. (If they don't receive that much, they will keep it.) It is really not for the faint of heart! Chances are you are bidding from a photo, without a pre-inspection. There are situations where after you purchase home, the former homeowner has an amount of time for "redemption". In some states, up to year to get the home back. If the people are still there, they become tenants and YOU might have to evict them. If they have moved, they sometimes get pretty angry. When you finally get to see the property, it could be trashed in the inside........actually, really trashed. You may be missing everything, water heaters, copper tubing, appliances, windows.
Foreclosed: Okay, so the house didn't sell at the auction. Nobody bid on it, the price was high, whatever. It now belongs to the bank. The "bank" has had to evict the tenants and contacts an agent to sell the property for them. You will see terms like "as is", bank-owned, no warranty. You truly get what you get. The bank has probably never seen this place and now owns hundreds or thousands just like it. But, now you and your agent can look at the house just as any other listed property. If you like it, you put in an offer, have it inspected and proceed. Your real estate professional could be a real asset to you here. The banks may be willing to negotiate on the price because of their inventory. Remember, a real estate agent can't tell you what to do or how much to offer on a property. They can tell you if it seems reasonable. They know the area, the prices homes in the area have been selling for, but they don't have a crystal ball. The final decisions will always be in your court!

FOR SALE BY OWNER:
There are Internet sites for houses sold by the owner also. These homeowners have decided they do not want to hire a real estate agent to sell their home. Have your real estate agent check with them if you feel it "might be the one". Often, if your real estate agent calls the homeowner they will allow YOUR real estate person to show the home. If not, and you proceed on your own, be sure you work with an experienced real estate lawyer. You want to know its "free and clear" and "ALL the ducks are in a row."

  1. If you are considering one of these homes, ask the homeowner if the property has had an appraisal done. This is what a professional appraiser has determined the value of the property to be.
  2. Ask the homeowner if they have a completed home inspection for you to view. Sometimes the homeowners (FSBO or not) will have completed appraisals, and ALL the inspections and have them available for you to read or have copies for you to take with you.
  3. Often people feel that a FSBO is overpriced...that people think "their" home is worth more than it is when actually viewed by a professional.
  4. They don't want to pay a commission.
  5. They have had a really bad experience with a real estate agent.
  6. A real estate agent has listed the property and they haven't been able to sell it.
  7. They are living in the house and are tired of inconsiderate agents (there are always some that spoil it for everybody) calling for an appointment while in the driveway or knocking on the door with their phone in hand.
  8. Whether they are living in the house or not, they will be the people showing it and selling it. It can be a bit more uncomfortable if you really don't like the house. It is hard to be "frank" with someone that decorated or remodeled a house they are extremely proud of, when you think it is less than wonderful! They might not "see" that it has defects.
  9. The positive side is that you do meet the homeowners and they know ALL about the house. They generally will like to talk about the house and give more details, perhaps some that don't improve their chances of selling the house.
  10. You will have a lot more homework to do without a real estate person. For example, checking the "comparables" in the neighborhood to see if the selling price asked is reasonable.
  11. Don't buy without a thorough home inspection, it is usually completed after the offer is accepted. In your contract your agent or lawyer, will state the offer is "contingent upon the home inspection." You shouldn't buy any home without one, but your real estate agent would normally "walk you through" these steps and know which professionals to recommend.
Flat Fee Listings: These types of companies list properties for the seller on the MLS for a "flat" fee. Basically, the homeowner is showing and selling their home themselves. However, they generally encourage real estate agents to bring buyers to view the property. The buyer's agent will receive a commission.



LEASE TO OWN: The buyer pays an "option fee" and an additional amount above the rent each month. It is usually targeted for the person that would have difficulty obtaining a mortgage, probably due to credit issues. The theory is that you pay rent, plus an additional amount or premium to help with your future down payment. The contract should establish the purchase price of the home and is usually for 1 - 3 years. The hope for the buyer is that they will, in that amount of time, qualify for a mortgage. However, if the buyer chooses not to purchase or falls behind in their rent, they will lose both the "option fee" and the "rent premium" money.

  1. Know the purchase price.
  2. Buyers often pay all maintenance, taxes and insurance.
  3. Sellers receive the mortgage deductions.
  4. You pay the seller, not the mortgage company.
  5. Probably a "hard to sell" property.
If you decide to do this, which would only make sense if you cannot get a mortgage at the current time, be sure you hire a real estate lawyer to check out the contract. A real estate agent cannot give legal advise.

  1. Know where your money is going.
  2. Know if there are liens or if this property is in or close to foreclosure.
  3. Know what you can lose, and the reality of your personal situation. Do you really think you can have your credit corrected and obtain a mortgage in the allotted time? Or would you be better renting and correcting your credit without the "premium".
LAND CONTRACTS / CONTRACTS FOR DEED:
These were popular in the late 1970's, early 80's when interest rates were high. I suspect we may see more of them again, simply because loans are currently harder to get. Again, the laws on these will vary from location to location.

  1. The sale is between the buyer and seller.
  2. The seller receives a down-payment plus interest on the loan.
  3. The seller finances the property and retains title until paid in full.
  4. Know if you could pay in full prior to the ending date of the contract without penalty.
  5. You will most likely not be working with the "skilled eye" of your real estate agent or with a mortgage broker to guide you through the contracts.

Again, hire a real estate lawyer for legal advise! You really want someone to assure that your interests are safe in this or any type of contract. Also, to assure all documents and title is retained with a holding company. If the seller has a mortgage on this property, remember, the seller is making the payments to the mortgage company. You will want to know they are being paid!

A home is probably the largest purchase you will make in your lifetime. It should be a happy time and one of celebration. It is smart to know your budget and be wise, but when spending this much money the price of a lawyer can be pretty small!

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