6 Tips for Homebuyers
What every homebuyer should know:
Buying in the Richfield marketplace
Buying a home can be exciting, but a bit scary, both at the same time. You can ease the process in the Richfield area market with a little market knowledge and tips on buying. Sound financing advice will also make your home buying a pleasant experience both now and in the future.
Summer, 2006 finds the Richfield market low on inventory, with homes selling in 30 to 60 days. Buyers should be ready with pre loan approval and be able to make a sensible decision in a short period of time.
Don't buy a home that exceeds your financial comfort.
Buy only what you feel you can afford. Everyone can agree that a four-bedroom, three-bathroom house in mint condition on three landscaped acres has more appeal than a two-bedroom, one-bath on a small lot. But there's nothing worse than winding up with such a big monthly payment that you've nothing left over for a vacation, the kids' camp or your retirement. A good rule of thumb: Your total monthly debts, including your mortgage, should not exceed 36 percent of your income before taxes.
Remember that your mortgage payment is only one aspect of what you'll be paying. Budget for homeowner's insurance, property taxes, furniture, general maintenance and so on.
Select a good agent.
Most agents are friendly, smiling and brimming over with positiveness. Dig deeper to know what you're getting in terms of knowledge, experience, and one that will keep your needs uppermost in mind. The right agent is a tremendous help—and often a necessity when it comes to finding the right house.
Get references from family, friends and colleagues. Take time to interview different agents in person. Ask questions. You want an agent who's experienced in the marketplace and understands buyer strategies and negotiation tactics. Decide before you buy how long you might be living in the home you’ll be purchasing and let the agent advise you regarding ‘re-sale’ issues.
A good agent will point out — rather than gloss over — any flaws with a house, help you negotiate a good deal, explain your other options and be unquestionably on your side.
Keep your feelings to yourself.
If you fall in love with a house, keep your feelings to yourself. Neither you nor your agent should let the seller or the seller's agent know how you feel. Handing over that bit of information may empower them to hold out for the asking price.
Tip: Visit both at night and on a weekday. Before you buy, find out what the neighborhood is like at other times. Is it quiet? Noisy? Full of traffic? Also, drive the surrounding few blocks in each direction from the house. Make sure you are feeling comfortable with the area.
Negotiate with knowledge of the current marketplace.
In the Richfield marketplace, ask yourself: Is this the only home that works for you? Are there other homes you like equally as well? How long has the home been on the market? Before making an offer, work out a strategy with your agent. You can also ask your agent for a Comparative Market Analysis (CMA). The CMA lists the addresses of recently sold homes in the neighborhood/area, with the date sold, the price and the number of bedrooms and bathrooms. Your offer should be comparable and not necessarily based on the seller's asking price. If the market is moving up in price, be willing to adjust your offer accordingly if it’s the only home that works for you, and let the appraisal condition protect you.
Then, insist that the contract include two types of escape clauses: a financing (or mortgage) contingency and an inspection contingency. If you make an offer but then are ultimately turned down by lenders, the financing contingency will release you from the contract. You'll also get back your earnest money (your deposit). (Losing the home of your dreams can be devasting however, and a good lender won’t advise you to start the loan process without full knowledge of your financial situation.)
If a professional inspection finds damage or structural flaws in the house, the inspection contingency will release you from the contract and your deposit will be returned. You can also opt to use the inspection contingency to negotiate for repairs to the house or for a lower selling price. There are different types of inspection contingencies; work with your agent to put the type you want into the written offer you make on the house.
Pick the right mortgage
Mortgages are available from banks, mortgage companies and credit unions. You can also get one through a mortgage broker, who will contact several lenders for you to find competitive rates. A good lender should have a variety of loan programs to choose from: Utah Housing (100% financing for 1st time homebuyers) Rural Housing, conventional buy downs, FHA 100% financing, rural development guarantee. In the Richfield market, it will pay you to shop around.
Get mortgage information from more than one source, and get the same information from each so you can compare the offers. In addition to finding out the basic interest rate you should ask each lender:
- Is the rate fixed or adjustable? When interest rates rise, monthly payments for adjustable-rate loans eventually go up, too.
- What is the loan's annual percentage rate (APR)? This includes the interest rate, points, broker fees and any credit charges you may have to pay, expressed as a yearly rate.
- Is private mortgage insurance (PMI) required? If you make less than a 20 percent down payment, the lender will probably require you to purchase PMI, which protects the lender in case you fail to pay. Find out the exact monthly amount and how long you will be required to carry PMI.
You can also choose between a 30-year or 15-year mortgage. A 30-year mortgage will mean lower monthly payments but a higher interest rate. In the long run, you'll be paying more for your house because you'll be making more interest payments. With a 15-year mortgage, the monthly bill will be higher but the interest rate lower; thus you'll pay less for your house because it will be paid off in a shorter period of time.
- Have the lender provide you with a written statement of all fees connected to the loan (called ‘a good faith estimate’).
Tip: If you have an excellent credit rating, you may qualify for a lower down payment through a special Fannie Mae program: The Flexible 100TM requires no down payment while the Flexible 97TM requires just 3 percent down.
- Get a preapproval letter
This gives you substantial leverage: Sellers immediately see you as a serious buyer. Not only will you know the exact price range you can afford, you'll be able to negotiate a better deal and move faster when you see a house you like. Work with your lender to get preapproval—you'll need to supply information to verify your income, credit history, debts and assets. The lender will then issue a letter stating that your mortgage is approved for a certain dollar amount for a certain time period. Don't confuse preapproval with prequalification: The latter is a non-binding estimate of how much mortgage you can afford, is often inaccurate and places you at risk for a ‘bait and switch’ tactic, common in the loan industry throughout Utah.
Once you get preapproved for a mortgage, avoid taking on any serious new debt and make timely payments on all existing debts. Otherwise you risk downgrading your credit rating partway through the buying process and can jeopardize your loan closing.
Tip: If you're charged a preapproval fee, negotiate to have it refunded at the closing.
- Lock in your interest rate
Once you get what you think are the best terms possible, ask for a written rate lock. It will include the interest rate, how long the lock-in will last and the number of points to be paid. A lock-in protects you from a rate increase if rates go up during the time your loan is being processed. Some lenders, including Zions Mortgage in Richfield, offers a lock in program that will allow you to roll down if the interest rate goes down.
Watch out for predatory lending.
Signs of trouble:
- Being asked to include false information on your loan application.
- Being asked to sign a blank form.
- Being pressured into borrowing more money than you need or can afford.
- Being promised one thing but delivered another (bait and switch) If you get new numbers or new terms at the closing, don’t sign until you get a satisfactory explanation. Be prepared to walk away from settlement if necessary.
For more information, contact:
Hal or Jean Ward
Coldwell Banker Preferred Properties
Richfield, Utah
435-896-5887
