Being A Successful Buyer In Today’s Market
Becoming A Powerful Home Buyer - NOW
It’s time to rise above the other ordinary home buyers
Becoming the most powerful home buyer(s) takes work and dedication. Why? Because other buyers out there aren’t going to put in any work or dedication! Remember, it’s always the ones that stand out that stand tallest.
…okay, maybe I just made that up…but it makes sense!
In addition to putting in work and dedication, having the correct mindset according to the current real estate market is incredibly important as well.
In this blog, I am going to go over what “work” translates into, what “dedication” translates into, and what type of mindset you should have as well whether it’s a “buyer’s market” or a “seller’s market”. Let’s get started!
One Part Work; One Part Dedication
You put in the correct effort and it will all go your way
Work and dedication. If those words have you cringing then you already understand why so many buyers fail before they begin, or worse yet, fail while they’re trying to buy their property.
Work: Let’s face a very real fact; buying a property is one of the largest transactions in a person’s life and it should be treated as such. Buying a property is a big life step and is not to be taken lightly. There are many steps to the journey and once you’ve succeeded, you’ll be bound to a lifetime of memories and the anticipated building of equity and wealth.
Dedication: You have to be ready to respect the process and to prepare mentally, there are going to be highs and lows, there is going to be excitement and disappointment, and you’re going to experience it all…and if you don’t, then you either got very lucky, or you voluntarily backed out of buying for any variety of personal reasons.
So now let’s get to the major points and get you ready to get out there!
Understanding Your Housing Needs
The beginning path, where you find properties that best suit you
This is the very beginning part of the process and is oftentimes the simplest. Grab your smartphone and/or go to your laptop or tablet and begin visiting the popular real estate websites.
The first thing you’re going to want to do is figure out the types of properties that you’re most interested in according to style. Do you like a Colonial style house? How about a Ranch style house? Maybe you’re more of a 2-Family house? Perhaps you’re into a beach Bungalo or how about a small to medium Cape, heck maybe even a mansion?
Whatever it is, you’ll quickly determine this for yourself as you browse the different homes currently listed for sale.
Going forward from there, you need to determine how many bedrooms and bathrooms you will want and then how many you will need. Remember, in many cases, price follows these two parameters closely, so if you’re focusing on price, then you’re going to want to be careful here.
Next up you should take note of the towns you’re interested in the most. Watch the home prices you’re seeing in those towns you’re interested in.
If you’re finding that the homes that interest you most cost, for example, $600,000 but you feel your budget is set for $525,000, then your best bet is to change your parameters. I understand that negotiating price might be a thing (more so if a buyer’s market, less so if a seller’s market), but keep in mind that you don’t want to start from a point of weakness, you should always start from a point of strength, having the right budget is strength.
The Pre-Approval, Down Payment & Closing Costs
The pre-approval letter tells you what your budget truly is
A mistake many initial home buyers make is to assume what they can afford. What they feel they can get will almost always be far different than what a bank calculates their affordability to be.
Why would that be? Remember the great crash of 2008? Yeah, that was the bank’s fault. The banks were giving mortgages to literally everybody, including animals and the deceased (for real). Debt-to-income ratios were not thought about, income was oftentimes fabricated, and the types of mortgages being offered were (at the time) deemed legitimate and safe.
Welcome, to the crash.
Today things are far, far different. The banks are much more protective of how much they lend and are far more interested in income and debts.
I can’t tell you how many times I’ve heard people say “I can get a mortgage easily. I make $200,000 per year!” but what they don’t realize is that however much someone makes in a year guarantees nothing, especially if the bank calculates what they owe each month versus what they earn to cause them to be pre-approved for far less than anticipated.
The next common statement is “I have a 800 credit score! My “Carma Credit” score says so!” which is equally as cringy since the only credit scores that matter are your FICO scores (a great way to discover your FICO scores are at www.MyFICO.com).
So how does the bank do it? How do they determine your pre-approval amount?
The bank will collect (at the very minimum) the following documents and information from you to determine this:
- Last 2 Years Tax Returns
- Last 2 Months’ Paystubs
(Or equivalent time of other legal income sources) - The last 2 Months of Bank Statements
- Social Security Number
- Driver’s License(s)
From this information, the bank will understand your income, monthly debts, and how much money you have for down payment, closing costs, and cash reserves.
From there, they will build a pre-approval letter which will let you know what the maximum mortgage will be and how much in property taxes.
Down payment monies go toward the house purchase. it is not profit for the seller, it is not a bank fee. If you are buying a $600,000 house and you’re putting $50,000 down, then your mortgage is $550,000, so your monthly payment is based on a $550,000 mortgage amount, not a $600,000 mortgage amount.
Closing costs are a total combination of fees as part of the home-buying process. Some examples of closing costs include:
- Your Attorney Fees
- Pre-purchasing 1 year of home insurance
- Title fees
- Mortgage origination points
- Pre-payment of property taxes
- Reimbursement of heating oil
- Bank processing fees
- And other costs
A good estimate to determine how much closing costs can be would be to put aside approximately 3% (give or take) of the home purchase price to pay these fees.
The good news is that if the total closing costs turned out to be 2% instead of 3%, you only pay 2%, you do not pay 3%.
Do You Really Need 20% Down Payment?
The truth behind down payments and how they affect you.
The quick answer is: NO. You do NOT need 20% as a down payment to get a mortgage.
Depending on the mortgage type (FHA, Conventional, etc) you can have as little as 3% down (or 0% if you are, for example, a military veteran) to get a mortgage.
Despite this news, you must keep something in mind, the current real estate market.
If it’s a buyer’s market, then getting a low down payment loan is oftentimes advantageous in that you don’t need a huge bank account to “qualify” to get a house. You can get away with putting less money down, keeping more cash in your pocket.
If it’s a seller’s market, then you may have to offer a higher down payment amount as part of needing to compete with other buyers who will be putting higher amounts down.
While it’s true that the bank will allow a low down payment, the other half of the equation is that homeowners and their agents oftentimes favor buyers who have a higher down payment as being “stronger” and will select the offer with a higher down payment.
This is because it is seen as more “stable” and the buyer has the cash available for any variety of situations that can arise during the purchase process (such as an appraisal that comes in lower than the accepted offer amount).
It's Time To Go House Hunting
You’ve been pre-approved, you know what you want…now it’s time
This is the exciting part! You and your YourHomeYourTerms.com team agent will now go out into the field and look at homes!
Generally speaking, it’s a tag-team effort, since you have access to the same homes agents have access to, a best practice may be to inform your YourHomeYourTerms.com team agent of the homes you’re interested in, and then that agent will arrange an appointments around the times and days you’re available.
Once the appointments are set, your YourHomeYourTerms.com team agent will meet you there with plenty of information about the property including secret insider information, general information, and other important information such as how long it has been on the market, whether there was price changes, whether it was listed previously, and more.
Once you arrive at the house, your YourHomeYourTerms.com team agent will review with you home touring strategies. Generally speaking, it’s a good idea to remain calm throughout, be respectful to the agent or the homeowner who is showing the home, and maintain a “poker face” while you’re in the property.
Once you’ve finished the tour, your YourHomeYourTerms.com team agent will walk with you away from the house to have a discussion, gauge interest, and address any questions. The reason why we walk away from the home is because doorbell cameras and the like will pick up conversations that are private to you.
Eventually, you will find a home that you truly love and will decide it’s time to place an offer on the property, this is where things truly become exciting!
Placing An Offer On The Property
You’ve found the home you love, it’s time to place an offer
The home you love is within grasp! Before you can place an offer on the property though, your YourHomeYourTerms.com team agent will prepare a report of comparable homes to go over with you to unveil what an appraiser may appraise the value of this home to be.
This information is important because if the offer placed on the property is greater than what the bank appraiser says the home is worth, then there’s a possibility that you may have to come out of pocket with the extra cash to cover the difference. It’s a terrible position to be in, but your YourHomeYourTerms.com team agent has the tools necessary to help uncover what the appraised value of the home may be, therefore helping minimize the possibility of overpaying.
At the same time, this comparable report will be the critical information needed to determine what offer amount to place on the home.
If it’s a buyer’s market, then there will likely be room for negotiation here and you’ll likely have the ability to place a lower offer with the expectation of some negotiating and ultimately settling on an offer that you will be pleased with.
If it’s a seller’s market, then there will likely be multiple offers on the home, and securing a price that is below the asking price may be challenging especially when competing for the same home with other buyers.
Your YourHomeYourTerms.com team agent will help you determine which kind of market it is, but typically you’ll know for yourself, especially if the home you’re interested in just listed for sale a few days ago and the open house you went to had a line of people waiting to get into the house.
When placing an offer, the amount of down payment is also a key topic. The total of the down payment monies are paid usually at two separate times; when you’re signing your portion of the contract of sale, and, if applicable, the remainder at the closing table where you take possession of the home.
The amount you pay at contract signing is money that is “at risk.” This is the money you could forfeit if you decide to back out of the sale for any reason other than a reason that would be considered outside of your control (e.g. the bank does not approve the loan) after you’ve signed the contract.
If it’s a buyer’s market, then you may be able to get away with minimizing the down payment portion at contract, sometimes even providing no money during the signing of the contract, depending on the situation.
If it’s a seller’s market, then you may have to provide the full down payment on the contract signing in an effort to make your offer seem stronger. Homeowners like to see down payments paid on contract, it gives them a greater sense of security.
Accepted Offer - Time For The Inspection
Inspection occurs after an accepted offer but before you sign the contract
Congratulations! Your offer was accepted! This is great news! There is still more work to be done, but at least you now know what your future home is and it’s time to start working to make sure it’s as safe and secure as possible.
(Quick sidenote: Having an accepted offer does not obligate the seller to you exclusively and does not obligate you to the seller exclusively. Either party can opt out of the purchase for any reason at this time. Only once the contract of sale is fully signed by both parties is there a “binding agreement” (see attorney for full details).
The next step after your offer is accepted is to conduct the home inspection. A home inspection is where a licensed and insured home inspector visits (you are present for this) and reviews the property for any issues and provides you with as much feedback and technical information as possible the process generally takes about 2 hours.
You will have the opportunity to speak with the inspector during the inspection and at much greater length after the inspection is complete.
Keep in mind that the inspection report is going to be very lengthy. At no point does a home inspection give a home an “A+ clean bill of health.” There will always be issues, even if it’s a brand-new construction home. Don’t be surprised or caught off guard by the length of these reports.
These reports are oftentimes used for both immediate information/negotiation but also as a future “honey-do” list of smaller repairs and updates that can be done during your time owning the home.
Having a detailed conversation with the home inspector after the inspection is complete is important to understanding the quality of the home.
Additionally, many home inspectors will provide a termite report as part of their cost. Termite reports are important and if there is the presence of active termite activity, it will be marked and noted.
A common question concerning these reports is; should we ask for repairs or the replacement of noted items in the report?
If it’s a buyer’s market, then you will have the opportunity to make more requests and can be more “daring” with what you want to have repaired regardless of its actual importance. Health and safety issues should always be repaired/replaced 100% of the time.
If it’s a seller’s market, then it is most likely best to request health and safety issues be repaired/replaced and to set aside a budget to repair or replace other issues noted in the inspection report.
Regardless of which type of market it is, your YourHomeYourTerms.com team agent will be happy to provide you with a 100% free home warranty on the home you’re buying to help make it as safe a home as possible and to provide you with an added sense of security.
Should there be any requests for replacements or repairs as a result of the inspection, it will be added to the contract for the seller to address.
Contract -> Bank -> Closing Table
A quick synopsis of the steps toward the closing table
So at this point everything is complete; you’ve researched the types and locations of homes that interest you, you’ve gotten pre-approved, you’ve been seeing homes with your YourHomeYourTerms.com team agent, you’ve placed an offer on the home, the offer was accepted, the inspection was completed, the inspection requests were entered into the contract (if applicable), and now you’re at the contract signing!
At the contract signing, your attorney will review the contract of sale with you. When you sign your half of the contract (the seller signs after you’ve signed), you will provide your attorney with the down payment money, generally by way of a paper check. Once this is done, the contract (and check) will be mailed back to the seller’s attorney whereas the seller will then sign their half of the contract.
Once both you and the seller have signed the contract, CONGRATULATIONS! You’re now “Under Contract” and the home is on its way to being yours!
At this point, the contract of sale will go to your mortgage officer. The mortgage officer will forward it along to the loan processor who will in turn begin the loan process with you.
You will still be responsible for providing various paperwork and information to the bank in an effort to secure the mortgage fully. Eventually you will receive something called a “mortgage commitment.”
The mortgage commitment letter is a document that basically states that the bank is interested in providing you with a mortgage as long as you fulfill several requirements known as “conditions.”
Some examples of conditions may include:
- Updated bank statements
- Legitimate explanation of a large deposit/withdrawal
- Updated pay stubs
- Legitimate explanation of monies which were transferred
- And more
Once these “conditions” are all met, then you will proceed to what’s called the “Clear to Close.” These are the magic words. Once you have the clear to close, you are given the green light to go to the closing table and gain ownership of your new home!
There are many documents and details that are part of this process that are not included in this blog (e.g. “Loan Estimates”, “Closing Disclosure” and “TRID”) as this is a general rundown of the whole process, but rest assured, you’ll be hand-held through the process.
In Conclusion
Thank you for taking the time to read this blog article
I hope you enjoyed this informative read about the home buying process!
I am sure you have some questions about the process and would like those questions answered.
