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Choosing
a Buyer's Broker
Select
a Buyer's broker: Many people have negative impressions of salespeople and would
just as soon do without one. They attempt to find a home by
driving neighborhoods, calling off signs, visiting open houses,
or through the internet. A buyer should be aware of the pitfalls
of searching for a home without a buyer's broker.
There are a number of disadvantages of looking for a home without the assistance of a qualified
broker. First off, you are limiting the number of homes to
which you are exposed. You probably don't know all the neighborhoods
which could fit your needs. The agent you talk to on the sign
call or open house work for the seller and are obligated to
get you to pay as much as possible for the home. And, there
is no one to guide you through the process of searching for
and buying a home..
The reasons to have a buyers broker: They work for you to get the best possible price and
terms. They can expose you to all possible neighborhoods fitting
your needs. Many of the best properties sell within a day
or two. Looking alone, you will miss many of the best properties.
They have resources for everything from inspectors to mortgage
companies mat your disposal. Remember a good Buyer's broker
can do these things. It is your responsibility to take the
time to interview the agents!
Mortgage Process
Begin
the mortgage process:
There are a number of advantages to beginning the mortgage
process before you look at your first house.
You know your price range. If there are multiple bids on a
hot property, your offer can stand out because you are already
prequalified. It gives you peace of mind knowing that you
are approved. Also, you are not obligated to the mortgage
company until you sign the papers at closing. Therefore, you
can always change if there is a better deal elsewhere.
Search
systematically for a home: Develop a realistic list of what your needs and wants are. It's hard to know what a realistic expectation is until you've had an
opportunity to see what's available.
Choosing a Lender
Caution should be exercised when selecting a lender. While there are many excellent loan officers,
there are also less than trustworthy lenders. The tricks and
traps for an unsuspecting buyer are numerous. Some loan companies
will advertise unbelievably low rates only to inform you the
rate is not available once you have signed with them. Others
may quote low rates but add on hundreds or even thousands
of dollars in extraneous hidden fees. You may ask for the
interest rate to be locked, but the loan officers neglect
to, betting rates will drop so they make more money. These
are just a few of the many ways you can be taken advantage
of by an unscrupulous lender. It is always a good idea to
get recommendations from friends and associates. Quite often
some of the larger companies will have Company Credit Unions
which can provide excellent mortgage sources.
Past performance, however, does not guarantee
future performance. It ultimately is up to you to do the research
and make your own decisions.
Types of Lenders
There are 3 basic types of loan companies: mortgage
brokers, mortgage bankers and direct lenders.
Below I've tried to outline their differences. Also, I've attempted
to show their individual benefits and draw backs.
| Direct
Lenders |
These
are usually banks, savings and loans or credit unions. These lenders may sell their loans to other investors
or they may keep the loan in their portfolio.
Advantages: Often lower closing cost and competitive rates. Some
often buyer's seminars, preferred builder and REALTOR
programs as well as many different ways to same money.
Disadvantages: Some of the small operations may not be as technologically
advanced. |
| Mortgage
Broker |
This
is the type of loan officer you'll most likely encounter.
They vary from large, publicly traded companies to someone
doing loans from their garage. Basically, a mortgage broker makes loans for investors
throughout the country. They assemble the loan &
the investor lends the money. The loan officer is paid
by the difference in the market interest rate and the
loan's interest rate. The bigger the spread, the more
the broker makes. Caution should be exercised; it's
important who underwrites (makes the lending decision)
the loan. Do they use their own underwriters or does
it go to the individual investors for approval? A loan
officer sending the package to an investor for approval
has little to no control over the loan.
Advantages: Can be competitive on the rate.
Disadvantages: Most opportunities for unethical behavior. Unless they
underwrite the files, they have little to no control
of your file. They can have more fees than other lender
types.
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| Internet
Lenders |
I
like shopping on the internet as much as the next hi-tech
person. However, this may not be the best place to get
a loan. Unless it is with a large, well-know company,
you are opening yourself up to fraud and abuse.
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The Loan Process
One of the smartest moves buyers make is to start
the mortgage application process before looking for a home.
One of the strongest tools you can have when negotiating on
a house is a pre-approved mortgage, one only conditional on
an appraisal of the house. This is not to be confused with a
pre-qualification. If you have done your homework and have selected
a good lender, the process should be fairly painless. Below
is a brief outline of the process below
| Loan
Application |
This
can be done via the telephone, internet, fax or in person.
Have available all credit account numbers and balances,
bank account numbers, listing of any assets and approximate
value. At this point, the loan officer will have you sign
releases for credit information. You provide a check for
the credit search ($65) and appraisal fee ($325). You
should receive a good faith estimate of money needed to
close. |
| Processing |
Here
you will need to provide copies of the last two years
tax returns, last three bank statements, plus copies of
any saving type account statements. The processor will
assemble all information into a package to be submitted
to the underwriter. |
| Underwriting |
This
is were the decision takes place. An underwriter trained
in loan rules evaluates your file and determines if it
meets all the guidelines. If so, your loan is approved
and made ready for closing. If not, it is sent back to
the loan officer for follow-up information or explanations. |
| Closing
Department |
They
prepare the necessary documents for submission to the
title company for closing. |
| Closing
and Funding |
Closing
is typically held at a title company. Here you will sign
all the legal documents and submit a cashier's check for
the amount of down payment and closing costs less any
earnest money deposits you have made. |
Home Search
& Negotiations
Take your time looking for a home, but when you find that
dream home, don't waste time. With the current Chester County
real estate market, the best properties don't last long!
The
market analysis: After
identifying a house to buy the information gathering
begins. The first and most important steps is to determine
what the home is worth. This is done by obtaining a list of comparable home
sales in the last year. Caution should be exercised here,
a creative agent can adjust the parameters of the search to
justify any price. You want to attempt to limit the properties
search to the specific subdivision. If limited information
is available, then you can expand the search. With this information
you can start to determine an offer price. Some buyers get
so caught up in how much they can get off of the listing price,
they may lose out on a great deal or even overpay for a property
that was substantially overpriced to begin with.
Making
the offer: Now that you've determined your pricing
strategy, it's time to write and submit an offer to purchase. In addition to the terms you offer, the
offer should be contingent on obtaining a mortgage,
having a home inspection and reviewing the survey and title
policy, plus any special needs you may have. If you need to sell a home before
you can close on this house, make it contingent on the sale
of your current home. The state of Pennsylvania writes the
contract, we fill in the blanks. Therefore, attorneys are
not used by most buyers or sellers. This does not mean I don't
recommend an attorney. I'm a believer that you can't have
enough experts on your team. If you do choose to use an attorney,
make sure they are familiar with residential real estate.
At this time, you will also write a check for earnest money
to the title company.
The
negotiation: The seller will receive the offer
from their agent. After reviewing the price and terms they
will either accept the offer, reject the offer or counter
the offer. After everyone has agreed on the terms, the contract,
along with your earnest money check, is taken to the Title
company to be deposited. This earnest money will be credited
towards your closing costs at closing.
Contract
to Closing
Now that the contract has been signed by both parties and
the title company has received the contract, it's time to take
care of all the details.
Mortgage:
With a fully executed contract on a home, you need to deliver
a copy of it to your lender.
If you haven't selected a lender by now, it's time to do so.
Home
inspection: Texas is one of only a few states requiring
home inspectors to be state licensed. To become a home inspector
you must do an internship and take an exam. This is not an
easy process, therefore we have mostly professional inspectors
doing a good job. However, there are a few that cater their
inspections more towards the agents than the buyers. Some
agents will refer the easiest inspectors. I'm a firm believer
that a buyer should get as thorough an inspector as possible.
After the inspection, you'll review the report with your agent.
If there are concerns about the home, a negotiating strategy
is developed regarding repairs.
Title
policy: Within a week or so of the contract being
receipted by the title company, you should receive a copy
of the title search. This outlines all the easements and
restrictions on the property. It's important you review this carefully. If you have questions, you
should contact the title company immediately. If they're not
able to answer your questions, it's time to consult an attorney.
Ten
days before closing: At this point you want to
make sure you are prepared for closing.
1. Obtain insurance for
the home to be delivered and paid for at closing.
2.Contact the utility companies and have the accounts transferred to your name the day of closing.
3.
Contact your banking institutions and insure you have adequate funds in an account for
closing. The good faith estimate of closing cost should give
you a good idea of your cost. *Remember, you must bring a
cashiers check to closing for the closing costs and remaining
down payment. If transferring funds or selling assets, make
sure you allow ample time for the money to be available.
4.
Check with your movers!
Day
before closing: You should receive a copy of the
itemized closing costs from the title company. Review the
itemized title costs and any questions need to be directed to the title
company or your agent. Also, it's wise to visit the property
to make sure everything is in good condition. Get
a cashiers check made out to the title company. Rest your arm because tomorrow you'll be signing more papers
than you will believe. If you are one of those people who
read every word before signing, request the title
company send you a set of documents the day before. Other than mistakes, most mortgage documents are nonnegotiable.
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