If you're like most people, purchasing a home is the biggest investment you'll ever make. If you are considering buying a home, you're likely aware of the complexity of the endeavor. Because of the numerous factors to consider when purchasing a home, it's important to prepare as best you can. Some common home-buying principles and caveats are presented here for your consideration. By keeping them in mind, you'll help create a successful and more enjoyable experience. This list is by no means exhaustive. Since your home could cost you 25 to 40 percent of your gross income, it's important to conduct research, ask questions and study the process carefully.

1. Looking for a home without being pre-approved. As a potential buyer competing for a property, you'll have a better chance of getting your offer accepted by being as prepared as possible. Consider this hierarchy of preparedness:

• Neither pre-qualified nor pre-approved
• Pre-qualified
• Pre-approved

The benefits available at each level can be easily understood when viewed from the seller's perspective. Imagine you're a seller in receipt of multiple offers to purchase your property. A complete stranger (buyer) is asking you to take your property off the market for at least the next two to three weeks while they apply for a loan. As the seller, let’s consider the type of buyer you'd prefer to deal with.

Neither pre-qualified nor pre-approved
This buyer provides no evidence that they can afford to purchase your property. The seller will wonder how serious they are since they're not at least pre-qualified. Most sellers reject the offer without consideration since there is too much risk. 

Pre-qualified
This buyer has met with a mortgage broker (or lender) and discussed their situation. The buyer has informed the broker regarding their income, expenses, assets and liabilities. The broker may also have seen their credit report but that is all. So, pre-qualified means almost nothing - intelligent agents will advise their clients not to accept the offer. I do.

Pre-approved
This buyer has provided a broker written evidence of income, expenses, assets, liabilities and credit. All information has been verified by a lender. As a result, much of the paperwork for this buyer's loan has been completed. This buyer will probably be able to close quickly. They provide you with a letter (pre-approval certificate) from the lender. You're as certain as possible that this buyer can close. As a potential buyer, you can see that being pre-approved will give you the best chance of getting your offer accepted. This is critical in a competitive situation.

2. Making verbal agreements. If you're asked to sign a document containing instructions contrary to your verbal agreements--don't! For example, the seller verbally agrees to include the washing machine in the sale, but the written purchase contract excludes it. The written contract will override the verbal contract. More importantly, contracts for the sale of real property must be in writing. Do not expect oral agreements to be enforceable.

3. Comparing Two Loans. Ok, you have offers for loan from two different sources. You have several pages from each source and all you see is that they are different. Which is the best? I feel the comparison is reasonably easy. First, ignore API, origination fees, etc. Only look at two numbers. The total price of obtaining the loan and the monthly payment. Assuming that both loan programs are the same (30 year fixed, etc.) looking at these two numbers will tell you most of what you need to know.

4. Not receiving a Good Faith Estimate.
Within three business days after the broker or lender receives your loan application, you must receive a written statement of fees associated with the transaction. This is both the law and the best way to determine what you'll pay for your loan. Bring the Good Faith Estimate (GFE) with you when you sign loan documents. You should not be expected to pay fees which are substantially different from those contained in your GFE.

5. Not getting a rate lock in writing.
When a mortgage company tells you they have locked your rate, get a written statement detailing the interest rate, the length of the rate lock, and program details.

6. Using a dual agent--i.e., an agent who represents the buyer and the seller in the same transaction.
Buyers and sellers have opposing interests. Sellers want to receive the highest price; buyers want to pay the lowest price. In the standard real estate transaction, the seller pays the real estate commission. When an agent represents both buyer and seller, the agent can tend to negotiate more vigorously on behalf of the seller. As a buyer, you're better off having an agent represent you exclusively. The only time you should consider a dual agent is when you get a price break. In that case, proceed cautiously and do your homework!

7. Buying a home without professional inspections. Unless you're buying a new home with warranties on most equipment, it's highly recommended that you get property, roof and termite inspections. This way you'll know what you are buying. Inspection reports are great negotiating tools when asking the seller to make needed repairs. When a professional inspector recommends that certain repairs be done, the seller is more likely to agree to do them. If the seller agrees to make repairs, have your inspector verify that they are done prior to close of escrow. Do not assume that everything was done as promised.

8. Not shopping for home insurance until you are ready to close. 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.

9. Signing documents without reading them. Whenever possible, review in advance the documents you'll be signing. (Even though some specifics of your transaction may not be known early in the transaction, the documents you'll sign are standard forms and are available for review). It's unlikely that you'll have sufficient time to read all the documents during the closing appointment.

10. Not allowing for delays in the transaction. In a perfect world, all real estate transactions close on time. In the world we live in, there can be delays. If someone is moving into your present home as soon as you move out, a delay of even a couple of days could cause a domino effect and inconvenience many people. Finding interim housing for a few days or a week can be a nuisance. If you allow a week of overlap or leeway, this type of stress-producing episode can be avoided. This approach might cost a little more, then again, it might not.

If an agent is not saving you money, time and risk, what value are they providing? Call me today to discuss your real estate needs. You will be glad you did.

Eric Fernwood
702-358-8884
EricFernwood@Gmail.com