Question of the week: What are your tips for making our search for a new home easier?
Answer: This week’s question of the week is a bit of a reprise from last October. However, given the current conditions with a scarcity of homes on the market creating an unbalanced market I think it is worth repeating. Our home buying clients are in multiple-offer situations and to be successful they are often offering over the seller’s initial asking price. Here are the tips I provided last year, with some additions below for the current market.
The first thing I tell new clients is to remember a few things. First, when meeting with mortgage professional(s), real estate agent(s) or other service providers, you are conducting job interviews. You will be working with these people for quite a while, if you’re very lucky in finding the right home right away, are fully qualified, you are looking at a month minimum. The home buying process is somewhat emotional and you want to work with people you have confidence in their ability, are experienced and that you trust.
Either the first or second step was being taken care of, they were meeting with a mortgage professional. Being that they are first time buyers, our initial meeting was about an hour. We covered how mortgages work, the process once they have an accepted offer and the relationship between price, down payment, mortgage amount, rates and costs for closing. Then we got into their financial details to determine a purchase price range and subsequent funds needed for closing and their monthly housing payment.
With this information exchange, they were comfortable with the financial aspects of their purchase and we are able to generate a pre-approval package to accompany their offer when they find the right home. My objective is that when you are looking at homes in the price range we discussed you are focused on the properties and their plusses and minuses and not wondering if you can afford the homes you are considering.
If meeting with a mortgage professional is not the first step, the first step should be to meet with a licensed real estate professional. If you have not been pre-approved, or spoken to a mortgage professional to determine a price for which you can qualify, I advise that the initial meeting with an agent is to get to know one another. As mentioned, this is a job interview. Ask how they like to work with buyers, what is their process, when are they available to show you properties. If you have already met with a mortgage professional, let them know and provide contact information. If you have not met with me yet, please tell them that you have a mortgage guy with over thirty years in the industry and you will be meeting before you start looking at homes—unless you are out of state in which case I, unfortunately, cannot assist you.
Until you know how much of a home you can afford, an amount verified by a mortgage professional, do not start looking at homes. Most experienced agents will not start showing new potential clients homes until they hear from a lender letting the agent know they are qualified, any potential issues being addressed and how much the buyers can afford.
The obvious concern is you do not want to look at homes for $750,000 and find out you can qualify for a $650,000 home. However, we also have worked with many clients who were looking at homes with prices significantly lower than what they can afford. They made assumptions of what they can afford, or used simple on-line calculators, and after our discussions with them and educating them on the process and how we determine affordability adjust their sights a bit higher.
The next step I strongly suggest for home buyers before starting to look for property is a Must Have/Can’t Have list. If you are buying with your spouse or significant other, I advise that you each be very selfish. Go into separate rooms and make a list of the three things, or less, that your home must have. Then make a list of three things, or less, that if a home has this feature you absolutely will not buy it. Then compare lists.
If there is something on your “can’t have” that is on your spouse’s “must have” list then you need to have a conversation because one of you might not be happy living in a home that either has that feature or does not.
Ideally, your lists are compatible and reasonable. When my wife and I were looking to purchase our current home 20 years ago her only “must have” was a formal dining room. I didn’t have a “must have” and my only “can’t have” was a rock roof.
Regarding the Can’t Have, I have had agents express to me, “I’ve shown them fifteen houses that are exactly what they say they want and they won’t write and offer.” I ask, “have you asked them what the home can’t have?” Knowing what that may be usually solves the problem, as the Can’t Have for some can be more important than the Must Have. Make sure you let your agent know any features that will stop you from buying a home, it will make your search easier. As well, if an agent continues to show you homes with features that you have expressed are deal killers you may want to look for another agent.
Once you have your list give it to your real estate agent. With your list, knowing the price range for which you qualify and the area where you would like to live, your agent should be able to show you homes that are on the market the meet your criteria, or most of it.
This is important—listen to your agent. If your needs list, amount for which you qualify and area where you wish to purchase do not match, then you need to make some changes in your expectations. Every agent has the story of clients who wanted what was impossible, essentially a $800,000 home with a $500,000 budget. The clients go from agent to agent to agent being told, “that is not possible,” but refuse to listen. These types of clients are still looking, only the house they could have bought for $500,000 a few years ago now costs $575,000.
Finally, on the home search, there is no perfect home. I have had clients have custom homes built and after they moved in there were features they wish they had added, not put in or built differently. Your objective is to get as close to your list as you can, but you may need to make a few concessions.
Once you are all on the same page be ready to buy. Your agent knows what you want, s/he knows what you can afford and has been monitoring the market, and making calls to past clients, for the home you want to buy. If s/he calls you on Tuesday and says, “I found it and it went on the market today..” go see it that day or evening and do not be afraid to write your offer!
For the current market, be ready to pay more than the seller is asking for, how can you do this? When I am going through your pre-qualification and pre-approval numbers with clients and arrive at a price point that works for the buyers, I start some scenarios. What if the home for listed for $600,000 will need $615,000 to buy it, here are some options, are you comfortable? What if we are in escrow for $615,000 and the appraisal comes in at $600,000, here are the possible options, are you ready to come in with more cash? (Here is WR&MU with the answer to “what if the appraisal is lower than sales price?”)
One final point, this process is about you. You will be getting advice from a lot of people, some involved in the transaction, such are your agent and me (ideally); some not involved, such are you co-worker or cousin Linda. I tell clients to always remember they are in control, they make the decisions and everyone else reacts to those decisions, and that three things are true, at least when it comes to me and likely everyone else: 1) I am not spending any of my savings to buy your home 2) I am not going to dedicate any of my income to make your monthly payment 3) I am not going to live in your home. All advice you get goes through that filter—you are buying the home, paying for the home and living in the home, your opinion is the one that matters most.
Working with homebuyers to set up their purchase transaction and work with them through our closing of escrow to become homeowners is something myself, and our company, excel at, as thousands of homeowners in California can attest. We do not just punch numbers and say, “this is how much you can buy.” We work closely with our clients to ensure they understand the transaction, are comfortable with the financial aspect of the purchase and have all their questions and concerns addressed.
In the current market you need to be prepared and comfortable with many different options and scenarios as you are competing with many others who want to buy a home. This is where seasoned professionals are valuable to you as a buyer and to the agents in the transaction, providing advice and options based on experience doing thousands of purchase transactions and having faced many different challenges successfully. Over the last several months we have had many clients come to us that were working with other lenders who were unable to structure financing in such a way that worked for the clients and enabled them to be competitive in their offers. Primarily because they were unable to properly explain the options available and how they would impact the clients so they were more comfortable with their decisions.
If you know someone considering a home purchase in the near, or even distant, future please have them call me.
Happy home hunting!
Have a question? Ask me!
Rates for Friday October 23, 2020: A see-saw week in the markets this week, mostly in reaction to Capitol Hill and whether another stimulus package will come out before the elections. Mortgages have been under pressure to rise as economic news is relatively good for still having a significant amount of the economy under some type of restrictions. The end result is that we are flat from last Friday, barely. Next week should be pretty jittery with the election the following week.
Please note rates are for purchase transactions, refinance rates are higher, please call for quotes to meet your situation.
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS FOR PURCHASE TRANSACTIONS:
30 year conforming 2.625% Flat
30 year high-balance conforming 2.875% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
I want to public thank everyone who responded to my WR&MU the last two weeks. Every two or four years I hesitate before writing about propositions and elections considering the impact of how some may take my comments. Thankfully I have a very sophisticated, intelligent and reasonable group of readers who understand that disagreements are important to democracies, that disagreeing with someone enables you to learn about an issue from a position you may not have considered and that respecting others points of view is critical.
My position is that I do not need you to agree with me, what I do need, or at least desire, is that you are comfortable with our disagreement and very importantly we strive to understand why we disagree and respect how we have come to our positions.
My thanks to all who respectfully disagree with understanding, and friendship.
Have a great week,
Past Weekly Rate & Market Updates can be found on my blog page at my website www.DennisCSmith.com/my-blog