As the “for sale” signs on houses continue to sprout like dandelions here in Phoenix, I reflect on the temptations of capitalizing on this buyer’s market. We all know the rule: buy low, sell high. However, I have coached too many regretful homeowners to make this mistake myself. They too had hoped to become savvy real estate investors, and found themselves in my office a couple of years later instead, battling to stay afloat while paying two ballooning mortgages, a home equity loan, and other financial dragons.
As a reminder to myself and other Donald Trump wannabes, I put together the following list of eight steps to smart home-buying, and these apply both to first-time homeowners and to investors:
1. Get out of debt first. I cannot emphasize this enough. Never, never, never buy a home until you are out of debt and have a full emergency fund (3-6 months of expenses) saved up. You should also have a 20% down payment saved so you won’t have to pay private mortgage insurance. It seems impossible to save so much, I know; but I can show you how. It also seems ridiculous to spend hundreds and thousands on rent that could be spent towards owning a home, but remember: hidden costs can kill you. A $900 rent payment and $900 mortgage payment are not equal. Just for starters, new homeowners have to consider utilities and phone hookups, yard maintenance equipment and/or services, new furniture (even if it’s used), window treatments (do you realize how much those cost??), appliances, painting supplies for the orange bathroom that came with the otherwise perfect house, pictures for the extra wall space, you name it. And if you are already in debt and have no savings when you purchase the house, and little Ian drops his rubber ducky in the toilet and it floods the house, you have to borrow the money to fix it. Wham, more debt. Murphy moves in and unpacks his bags. Get serious, get a second job, do what it takes but get out of debt first.
2. Define your needs. Notice I said “needs.” It’s alright to list wants, but those should go on a second, negotiable list. The better you know what you want, and the differences between your needs and your wants, the easier your house-hunting process will go. It will also help prevent you buying a house that you find yourself infatuated with on sight, that you will end up hating because it only has a ski-slope driveway, or only 1.5 bathrooms for your family of seven. And don’t just list bathrooms, total square feet, and whirlpool bathtub. Include an absolute price range based on what you have saved and your desired length of the loan. You will need this for step 4.
3. Choose a professional real estate agent. I am not an agent, and I don’t get commission for saying this. It’s just smarter. Driving around the neighborhood to pick your next house is fun, but if you want to get serious about buying the home that fits your needs (and some of your wants), get some help. According to the National Association of Realtors, 82 percent of home sales are the result of agent connections. In other words, have fun surfing the net and touring the ‘hood if you want, but you can save your gas and time. And the lists you made from step 2 will save both your time and your agent’s time. For an expert near you, my recommendation is to call Mark Shipley at (623) 341-0552.
4. Get preapproved. Again. no commission for me. Once you have narrowed down what you want and more or less where you want it, and how much home you can afford, go through the prequalification process. Remember, this is NOT to “find out what you can afford.” Your friendly mortgage broker will invariably approve you for far more than you should really afford. However, this process of preapproval is still useful to assure sellers that you have endured the crevice-searching financial background check, a lender has agreed to lend you money, and the likelihood of financing obstacles during escrow later is slim. For extreme excellence in customer service contact Grant Botma with Stewardship Mortgage at (602) 373-0269.
5. The hunt is on! We addressed this a little in number 3 – let your agent do most of the legwork and computer-work. Using your need/wish lists as a guide, he or she can alert you of new and existing listings that seem to match. If you like what you hear, your agent can arrange home tours at your convenience. Many agents alert clients by phone, email, or fax daily, depending on how flush the market is with homes for sale.
6. Make them an offer they can’t refuse. Well, not the Godfather kind of offer, but you get the picture. Your real estate agent will come in handy again at this point, by reviewing recent sales of homes similar in size, quality and amenities. He or she will then, with your input, draft a written contract outlining what needs to be done by both parties to complete the transaction. If the seller accepts the offer, the document becomes a binding agreement, so read it carefully and make sure you like the terms. Ask the agent if anything seems unclear. However, if the seller changes any aspect of the offer, it is not a binding agreement until the buyer agrees to the seller’s changes. So they refused your unrefusable offer? Access your agent’s negotiating experience. Almost everything is negotiable when you are buying a house: price, financing, closing costs, move-in date, repairs, appliances and fixtures, landscaping, painting, and more. Don’t get into a competitive mindset: bargaining requires some compromise and mutual respect.
7. Do your deal-closing homework. Now that the offer is a binding agreement, you start in on the list of actions you need to accomplish to make it happen. This generally includes the following: conducting a home inspection, getting an appraisal; finalizing your financing; buying title insurance; shopping for a home warranty. Don’t worry – good real estate agents provide entire lists of service providers for these tasks. Finally, before your closing date (24 hours at minimum), your lender will send a final closing statement that outlines your closing costs, if applicable. Review this with your agent for accuracy, and put together any documentation that you’ll need to bring to closing.
8. Shake on it. The closing is where home ownership is legally transferred from the seller to you, the buyer. Often both parties involved in the transaction will attend. Closing procedures usually are held at the title company’s or lawyer’s office. The closing officer will coordinate all the document signing and the collection and disbursement of funds. As you step out the door, pat yourself on the back – you have arrived. If you have conscientiously followed all the steps above, you are a smart and happy homebuyer. And you still have money in the bank to fix the toilet and paint the orange bathroom. Amazing, isn’t it?
