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Negotiating the Purchase of Your Home
Get
Pre-Approved for a Loan Before Looking for Your Home
Many home buyers confuse a pre-approval with a pre-qualification. During the
pre-qualification process a loan officer asks you a few general questions and
supplies a pre-qualification
letter. The pre-approval process is much more complete. During a pre-approval the mortgage
company does the work of a full approval, minus the appraisal and title search.
When you are pre-approved -- you are similar to a cash buyer. This
will dramatically improve your negotiating position with the seller because they know
you are a serious buyer. In some cases (for example, multiple offer situations), having a
pre-approval can make the difference between getting the home of your dreams and
losing your home to another buyer. Pre-Approved home buyers could save thousands of dollars
on the purchase of a home because they have a much stronger negotiating
position. Finally, many realtors will not show you homes before being
pre-approved because they do not want to waste your time, their time, and the seller's
time. Lack of Pre-Approval could indicate that you are not a serious buyer. Many mortgage companies will pre-approve you at little or no cost.
Typically, a mortgage company will only need to check your credit and verify your income and
assets in order to provide the Pre-Approval.
Try
to avoid using a dual agent
( A dual agent is an agent who represents the buyer and the seller on the
same transaction.)
Buyers and sellers have opposing interests. A dual agent in
most normal situations cannot be fair to both the buyer and seller. Most dual agents
represent the sellers more strongly than they do the buyer. If you are a buyer, it is much
better to have your own agent who will be on your side. The only time you should even
consider a dual agent is when you get a price break from using a dual agent. If that is
the case, then tread carefully and do your homework!
Beware or Verbal Agreements!
If an agent makes you sign a written document
that is contrary to their verbal commitments -- don't do it! Example: the agent says that
the washer will come with the house, but the contract says that it will not. The written
contract will override the verbal contract. In fact, written contracts almost always
override verbal contracts. Buying a house is a very complex process, but it's a lot
easier when everything is in writing. If the agent or seller intend to live up
to their agreement, they will have no problem putting it in writing.
Choosing a Lender
Don't choose a lender simply
because they have the lowest rate.
While rate is important, you have to look at the overall cost
of your loan. This includes looking at the APR, the loan fees, as well as the discount and
origination points. Some lenders add origination points into their quoted points while
other lenders add an origination point in addition to their quoted points. So when one
lenders says 2 points they mean 2 points, whereas another lender means 2 points plus 1
origination point. Request a
written good faith estimate.
The cost of the mortgage, however, cannot be your only criteria. There
is no substitute to asking family and friends for referrals and interviewing prospective
mortgage companies. You must also feel comfortable that the loan officer you are dealing
with is committed to your best interests and will deliver what they promise. Due
to these and other considerations, it's easy to see that the
company that has the absolute lowest quoted rate may not be the best company for
you to trust with your
mortgage business.
Don't select
a lender just because they are recommended by your Realtor.
Your
Realtor is not a financial expert. They may not know what's the best loan for you. The
Realtor only gets a commission when your house closes. As a result the Realtor may refer
you to a lender that is sure to close the loan, but not necessarily the lender that has
favorable rates, fees or you r best interests in mind.
Many Realtors refer you to their friends in the loan
business -- who again may not be able to get the best loan for you. Even if the Realtor is
very professional and you trust that they are looking out for your best interest, you should still do
your own homework. It pays to be prepared for what is possibly the biggest
transaction of your life. We recommend shopping for a loan with at least 3 mortgage companies before you make a
decision. There are countless stories of consumers who wound up paying higher rates or
getting a loan program that was not right for them, because they blindly followed their
Realtor's advice.
Get a rate lock in writing.
When a mortgage company tells you
they have locked your rate, get a written statement which details the interest rate, the
length of the rate lock, and details about the program. This will protect you
from surprises later down the road when you may not have time to find a
different lender if the mortgage company does not honor its agreement.
Home Insurance
Don't put off shopping for
Home Insurance.
Start
shopping for insurance as soon as you have an accepted offer. Many buyers wait until the
last minute to get insurance and do not have time to shop around for the best
coverage and rates.
Professional Home Inspection
Strongly consider a
professional Home Inspection.
Unless you are buying a new house where you have warranties
on most equipment, it is highly recommended that you get a property inspection, a roof
inspection and a termite inspection. This way you will know what you are buying.
Inspection reports are great negotiating tools when it comes to asking the seller to make
repairs. If a professional home inspector states that certain repairs need to be done, the seller
is more likely to agree to do them. If the seller agrees to do the repairs, have your
inspector verify that they are done prior to close of escrow. Do not assume that
everything has been done the way it was promised.
Closing on Your Home
Don't sign documents without reading them.
Do not sign documents in a hurry.
Whenever possible try to get documents that you will be signing ahead of time so you can
review them. It is advisable to ask for a copy of all loan papers you are signing a few
days ahead of the close of escrow. This way you can review them and get your questions
answered. Do not expect to read all the documents during the closing. There is rarely
enough time to do that.
Moving Plans
Don't
make your moving plans too tight.
Example: You expect to move out of
your prior residence on a Friday and into your new residence over the weekend. So you give
notice to your landlord to end your lease on a Friday and arrange for movers to come to
your house on Friday. Then, your loan closing gets delayed until the next Tuesday. You
may now be homeless! New tenants could be moving into your apartment, and the movers are going
to charge you for wasting their time. You could be forced to live in a motel for a couple
of days!
A Better Plan: allow for a 5-7 day overlap between closing and moving. In the long run it
is not nearly as expensive, and it will sure give you peace of mind.
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