These are excerpts from phone calls that I receive:
"Don't tell me to open any credit cards, I pay cash for everything."
"I'm a first time buyer. I want to buy a fixer upper."
"I don't believe in banks."
"I'm only a couple of months behind in my rent."
"No, I don't want to trade in my truck."
"I found a house that isn't listed with a real estate agent. What do I do now?"
"I know how to do this. I have been researching buying a house on the internet and I watch HGTV."
These are all prime examples of people getting in their own way if the goal is to purchase a home. If you are a regular reader of this blog you probably have guessed that obtaining a mortgage and closing on a home isn't a piece of cake. Things have changed since 2008. Your success in working through a home purchase process without it turning into a nightmare will most likely depend on the lender and the real estate professional you choose to help guide you through. The first thing you need to understand is: If this was easy there would be no real estate companies. Let me take each of the above statements that I have heard from well meaning, but very ill informed consumers and speak to each one.
You may not like credit cards, you may prefer to pay cash for everything. If that is the case, then you need to be able to purchase your home using cash. Don't have an extra 100K kicking around? Oh, well, then. You are going to need credit. You see if you are going to ask someone to loan you thousands of dollars, they want a realistic assessment of your ability and willingness to pay back the loan. So, if you have no credit and you see yourself purchasing a home in the future, you need to establish credit. In past blogs I have explained how to do that. You will need consumer credit i.e. credit cards, an installment loan or two and possibly some history with student loans. And it is best if you have a 12 month history. Opening a couple of cards for a month or two really isn't enough to show a solid picture of how you manage and pay credit.
12propertysolutions.com
Ah, the attraction of the fixer upper. Unless a borrower has carpentry, electrical, plumbing, and roofing skills a fixer upper is not a good purchase for the first time buyer. Many people are attracted by the low prices on some of these properties, thinking they can obtain a twenty or thirty thousand dollar loan, move in, and repair at leisure. The fact is that these home are almost always purchased using cash. Why? Because of lending restrictions that have come out of the Great Recession. Typically, in order to finance such a low mortgage amount, lenders are in violation of the stipulation put on the amount fees that can be legally charged. Often just the normal cost of getting a loan done puts a lender in violation of federal limits and that is before the lender makes a dime. I don't know about you, but I like to be paid for the work I do. The second issue with fixer uppers is that they often are barely habitable if at all. A buyer's intention to fix a place up isn't a guarantee that will occur and often the same folks who are most interested in these homes because of the price, have little or no money to install such items as hot water heaters, furnaces, repair roofs etc.
If it is just repainting and buying new carpet or eventually updating the kitchen - that is an entirely different matter.
graphicriver.net
I understand your concern about the health of the banking industry. But the banking industry is doing just fine. If you want a mortgage loan then you have to have a bank account and the money in that bank account all has to be documented. I.E. money coming into it has to be from documented sources like your pay checks, or the US Treasury. Large deposits of cash are not allowed in mortgage transactions. (Thank you very much 9/11 terrorists.) This is not subject to discussion or debate, it is federal law. So if you want to dump the 15K you have had buried in the back yard for the past five years and use it on a house, you can have the discussion with the FBI. Sadly, they are watching.
If you have paid your rent late in the last 12 months, you can just about forget about a mortgage until you have a 12 month on time payment history. Lenders come to the conclusion that if you aren't paying where you live on time now, you probably won't pay them on time either.
ford.com
People love their trucks, that is a fact. However, the decision you made a couple of years ago to buy the ultimate truck may backfire when it comes to buying a home because often expensive trucks create a problem when it comes to debt ratio. If your truck is eating up one third of your gross income, adding a house payment into the mix may be problematic. Often when I ask buyers if they would consider selling or refinancing the truck so they can buy a house, the reaction is less than positive. Then all I can say is that the truck better have two bedrooms and a bath because that is as close to a house as those folks are going to get. If you think you may want to purchase a home, be careful of the vehicle payments.
tonidutton.com
Our internet age has taught us that information is at our finger tips and we can learn anything we need to know from cyber space. Articles abound regarding how easy it is to save money by ditching the real estate professional, cutting out the middle man and buying a home from someone who is selling it without the aid of a real estate agency. (And we all know that everything you read on the internet is true - - right?)
I am not going to say this never works. It works 5% of the time. There you go, the percentages are not greatly in your favor of success-and I wouldn't suggest a do it yourself job EVER, if you are a first time home buyer. This will probably be the biggest financial transaction of your life - why would you trust it to a few on line articles and a complete amateur (you) when it comes to purchasing a home. Sellers who sell homes without agent assistance do so for any number of reasons, but you can be sure, saving you money is not one of them. What you don't know can hurt you. While I will certainly accept a loan application from a buyer who has made his own real estate deal, I also am not a real estate agent so I am not the go to person to advise you about your deal. When you buy without an agent, you are the agent which means, YOU are responsible for writing and executing the purchase agreement, YOU are responsible for negotiating terms, closing costs, further conditions and inspection addendums. YOU are required to perform certain functions within the confines of the time frames required by the purchase agreement and YOU are the person who is in charge of solving any issues that come up with the transaction or the seller during the process. What kinds of problems can occur you ask? Let's begin with title issues. There will be a title search to determine any blots on title, unpaid liens, taxes etc. If there are, then what? Or perhaps the seller moves out before the transaction closes and the basement floods. Whose job is it to clean up and repair? How do you work that through? Maybe a tree branch falls through the roof right before closing. All these things have happened in situations I have first hand knowledge of. Fortunately there were realtors involved to work through the repairs and solve any issues. In the instances where there wasn't an agent, the transaction died. Any monetary loss such as appraisals that had been done, inspections etc. were born by the buyer. The fact is that every real estate transaction has at least a couple of problems that occur. Many times the buyer and seller are totally unaware of what they are. This is due to the fact that professionals are handling their deal. Real Estate agents pay quite a bit of money on education and licensing so they know how to steer through anything that might be thrown at them during the sale process. As a buyer, in most instances this expertise is available at no cost to you. Why wouldn't you use it?
Okay-these two guys, while entertaining aren't the answer to all things real estate. For one thing, they practice in Toronto. Toronto is in another country, folks. Not our country. Based on my real estate knowledge, I can conclude they know a lot. But to translate what they know about their market to your local market from another country can be a huge stretch. Real Estate is a very local proposition. Local customs vary as do property values. Watching the Property Brothers or House Hunters doesn't give you inside information on how to negotiate or shop for a home. These are television shows. They are subject to editing and assessment by the producers as to what will make good t.v. (Otherwise The Property Brothers wouldn't continually have a supply of buyers who don't seem to watch the show and know that everything will be fine in the end.)
Nor can the internet give you all the answers you need when it comes to shopping for a mortgage or looking for a home. Many properties don't hit the internet because Realtors talk to each other. They have their own internet sites that they can preview upcoming listings. So what you see on Zillow and other big internet sites isn't all there is. And as far as mortgages go-unless you are a mortgage professional and you know how the mortgage industry prices mortgage money and how it all works, don't take the information you read for mortgage offers seriously. Again - mortgage rates and terms are local in nature and are based on a several factors: loan size, credit score, and loan type. Develop relationships with the real estate professionals, mortgage and agents, in your area. Work with people you trust to make this most important purchase. Obtaining a mortgage and buying a home isn't the same as ordering sweats from Nike. It just isn't.
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