Thursday, February 20, 2014
A Few Essential Rules Before Purchasing Real Estate
Spring signals the start of two hallowed seasons: homebuying and baseball.
Like the national pastime, purchasing a home supposedly comes with its own set of “unwritten rules.” Conventional wisdom and considered opinion have long led consumers to believe you never make an offer on the first home you tour, or you always close at the month’s end.
The reality is the only rules you have to follow relate to mortgage fraud (one might regard them more as federal statutes than rules). Home buyers and real estate agents routinely flout common “Never this or that” industry truisms when the need arises.
But make no mistake. While there aren’t hard-core “rules” to follow, there are absolutely best practices and proven precepts that you should carefully consider. Here’s a look at five big ones.
1. Don’t make an offer without pre-approval
Getting pre-approved means a lender has vetted your credit and financials and is so far willing to continue the mortgage dance. Pre-approval letters detail your purchasing power and provide sellers and real estate agents a degree of confidence they won’t get anywhere else.
“I don’t accept an offer without a pre-approval letter,” said Bill Gassett, a realtor in Franklin, Mass., with Re/Max Executive Realty. “People are more cognizant of how important it is to have a qualified buyer. Without an actual pre-approval, you’re really gambling.”
The chicken-or-egg debate will rage on regarding whether to talk first with a real-estate agent or lender . Either way, you may not want to start touring homes or making offers without a pre-approval letter in hand.
2. Use a real-estate agent
For many consumers, buying a home is the single biggest purchase they’ll ever make. It’s something you’ll do maybe a handful of times. It can pay to have an expert in your corner.
Real-estate agents show homes, negotiate contracts and close deals every month. They can help identify red flags and potential problems, all the while working to best match up properties to your unique needs.
The Internet has certainly helped demystify and democratize the homebuying process. But consumers may still want an industry professional on their side. Nearly 90% of home buyers use a real-estate agent or a broker, according to the National Association of Realtors.
3. Put down earnest money
It’s customary, if not legally required, to provide a deposit when you make an offer on a home. Known as earnest money, this deposit is typically 1- 2 % of the purchase price, although the amount can vary by location and other factors.
Consult with your real-estate agent regarding the right amount, and quibble if you dare. Earnest money follows in line with loan preapproval—it’s another way to show a seller you’re a serious, legitimate home buyer.
Be sure your agent includes contingencies in the sales contract that allow you to recoup the deposit in case the deal falls apart. Common reasons include a bad appraisal, inspection issues or your inability to sell your current home.
4. Tour homes in person
Mobile video technologies like Google Glass are ushering in a new era for home tours. Cool tech and new apps can be a huge help for consumers moving to new states or service members purchasing homes during a deployment.
These tools will continue to supplement the shopping experience. But nothing quite compares to the in-person experience, Gassett said.
“People will use them to enhance what they’re already doing,” he said. “There’s never going to be anything that will completely replace the touch and feel of going to a house.”
[Editor’s note: Before you start shopping for a home, it’s a good idea to know what shape your credit is in. Check your credit reports from each of the three major credit reporting agencies—which you can do for free once a year—for errors or other problems with your credit that could hurt your chances of getting a mortgage. You can also check your credit scores for free using a tool like Credit.com’s Credit Report Card, to see whether you need to do work to build your credit before you apply for a mortgage.]
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