3 Things you must do before you begin your home search
BEFORE YOU BUY A HOME- Pine Bluff Real Estate
#1) Meet with a lender
For some this may seem obvious, but my experience in and out of real estate shows me that roughly 1 out of 10 home buyers start their home search by meeting with a lender. The people with poor to mediocre credit are too embarrassed and/or are too scared to talk to a lender because they are worried they will tell them they can’t buy a house. Conversely, people with good to great credit don’t see a lender because they assume that getting a loan approved with be no problem for them.
But understand this, my #1 piece of advice to home buyers (new or old, bad to good credit…it doesn’t matter) is to meet with a lender first. There is no greater money saver or time saver in the home buying process than meeting with a lender before you ever begin your home search.
For People with Poor to Marginal Credit: If you are in this group, given the current credit climate…you are probably right…they are likely to tell you that you can’t get approved for a loan. But a good loan officer never turns away a client no matter how bad their credit is without outlining for them the steps they can take to make themselves approvable in the future. They’ll take a look at your credit report, and your income information and give an in-depth analysis of your information to advise you on what you could do to be approved. Often these things can be done in as little as a few weeks (though usually a few months) and you’ll be ready to go find a home. If you are a borderline credit or low income buyer one of the biggest reasons to see a lender is they often know about loan programs and grants that are geared toward helping people like you buy a home. If you are going to use those programs then you’ll need to know about them well in advance of your home search because they are often only available on certain types of homes and only for properties in certain areas of town. And while all of those are good reasons to see a lender, the biggest reason why you should meet with a loan officer before starting a home search is you don’t want to get your hopes up. The saddest moments of my real estate career occurred when a buyer who I’d been showing houses to found out that they could get approved for a loan. I’ve seen more people cry in those circumstances than I care to count, and the disappointment could have been avoided very easily.
For People with Good to Great Credit: This group likely has more to gain from visiting a lender than the poor to marginal credit buyers. First, how do you know you have good credit? Have you checked it lately? Most victims of identity fraud don’t know even know it until they try to buy something. That can take months to get fixed, and ruin your chances of being approved until it is taken care of. Do you think its good because you were easily approved for a loan on your last home in 2004? In the last 4 years the criteria for loan underwriting has changed dramatically, and every lender I know is having trouble getting what they would have termed “good credits” approved. Also the criteria for home loans and things like cars or credit cards can’t even be compared, so don’t assume just because you have an AMEX with a $50K limit on it that you’ll be approved for a home loan. Ok, so you say, “I’ve pulled my credit and its flawless, so there is no guesswork for me”. Well then you will benefit from seeing a lender first most of all, because it can save you thousands of dollars. How? Mostly because you have options. Most people don’t visit with their lender until they have made on offer, and by that time things are moving quickly so you are likely just to visit with your bank and tell them to handle the loan. If you do that then you likely costing yourself some money. Mortgage lending is a very competitive business, and easily approvable buyers are hard to come by these days so lenders are willing to significantly cut their rates and fees to win your business. If you wait until you have made an offer, then you’ll likely only have 24-48 hours to secure a lender and that is not enough time to shop around.
Wonder if its worth it? Well on my current home I shopped around on lenders for a few weeks and when it was all said an done I’d negotiated $2400 in lender fees off of my loan and I received a rate that was 3/4 of a percent lower than the “preferred customer rate” my bank had offered me. That could save me nearly $40,000 in interest over the life of the loan. I never could have done that if I’d waited until after the offer was made to find a lender. Another way HUGE way it saves you money is during the contract negotiation stage. If you’ve picked a lender, and they’ve given you a pre-approval letter then you are worth your weight in gold to a home seller in today’s market. So many deals fall through due to financing issues and a buyer who has all the financing hurdles crossed is someone a seller definitely doesn’t want to lose. I’ve seen a seller, when presented with competing offers, take a lesser priced offer because one buyer was pre approved and the other was not. Getting a pre-approval letter costs less than $100, and takes practically no time…there is absolutely no reason for you to wait to meet with a lender and tens of thousands of reasons why you should do it right now.
#2) Find a Realtor
Most people get hooked up with a real estate agent by calling on a listing they saw with a yard sign or on the internet. This phenomenon always amazed me as a real estate agent. Your real estate agent isn’t just going to be the person showing you houses, they are going to be your consultant and the person who acts on your behalf during negotiations. For most people, buying a home is the biggest investment you’ll ever make, and you are going to entrust all of that to a person who could have very well have only one house listed and that was just because the seller happened to be their maiden aunt. For all you know they could have gotten their license last week, or maybe they aren’t even full time. Do you want the lady who sells make-up at dillards and “sells” real estate on the side helping you invest hundreds of thousands of your hard-earned dollars? If you didn’t just yell out, “HECK NO!!”, you missed a great chance to do so.
Also, even though statistics show very few people who call on a home from yard sign or internet listing actually end up buying THAT house, working with the listing agent (good or not) for that home can be very dangerous. Why? Because a listing agent works for the seller. Yes there are many states when you can work as a dual agent (meaning the agent can represent both buyer and seller), and it can work out well in some cases but it is a very dangerous chance to take. As a listing agent I’ve signed an agreement to market and sell the owners home. I’ve likely promised the sellers that I will work my heart out to get the home sold as quickly as possible and for the most money possible. Do you want the seller to get the most money when he sells his home to you? (insert Heck No here as well) Then it appears that your agent would have conflicting interests right? Many a legal fight was started over this very issue, and real estate agents themselves are bitterly divided over the issue. The Bible verse that contains, “Man cannot serve two masters…” has been quoted at more real estate gatherings than I care to remember.
The point is that you should never let who you work with be an afterthought. You should meet with and interview several realtors before choosing one to work on your behalf. These people are at least going to represent you (would you choose your attorney without doing your due diligence?), and at best going to work for you (would you hire an employee without interviewing them?). Interviewing your real estate agent actually has another benefit beyond allowing you to pick a good one. It will also win you some serious points with the real estate agent you choose and likely get you even better service than you would have normally received. Why? First, real estate agents (especially good ones) see themselves as professionals in the same category as attorneys and architects, etc., but the average consumers rarely see them that way. The ultimate slap in the face to a professional is someone they’ve never met calling them on a random Saturday afternoon and asking them to drop what they were doing to run right over and show you a house. How many architects do you think have to do that? So, if you treat them like a professional then they are more likely to act professionally and work harder for someone who appreciates their work.
Second, a good salesperson “qualifies” their leads, and that means separating the serious buyers from looky loos who, “have always wondered what the inside of this house looks like”. They are very busy people and every minute they spend with a tire kicker is a minute wasted that they could have been spending with someone who is ready to buy. If you are serious enough to interview agents then you immediately jump to the front of the line because you are the most likely to buy a house (and make the agent money). This not only gets you the best service, but you are also going to be the first one I call when a new house comes on the market that matches your criteria. For a good home, that might mean you get to hear about your “perfect home” before any else even has a chance to see it.
#3) Study your City
There are a lot of reasons why people choose a location for their home. Maybe its close to work or in the right school district. Maybe its close to your family or friends, or maybe you just flat out, “LOVE THIS HOUSE!” None of those are necessarily bad reasons for buying a home, but (especially in a soft real estate market) you can’t lost sight of the big picture and the fact that your home is also an investment. Its going to cost you hundreds of thousands of dollars to purchase and maintain, and you are likely going to sell it one day.
To illustrate the importance of this I’ll tell you a story about John and Jane (name changed to protect the innocent) a young couple who bought a house from me several years ago. J&J were new to the area, and we’d been looking at homes every weekend for several weeks. A home came on the market one day that I thought would be perfect for them, so I made an appointment for us all to view the home. It was located in an up and coming area, and the home was well priced and well maintained. They didn’t love the home, but they liked it enough to make an offer that afternoon. They left my office and told me they were going to be running errands in town in case I heard anything from the listing agent about the offer. About an hour later I got a call from Jane and she sounded very excited, “did you hear anything on the offer yet?”. “No not so far”, I replied. “Good” she said, “Call them and rescind the offer, we’ve just found our dream house and we’d like you to make an appointment to see it right away”. “Ok, where is it?” I said. When she told me the address, my heart sank a little. This was located in the oldest part of town, and although that particular street wasn’t too bad, it was surrounded by the absolute ghetto on every side. I did make the appointment, and when I arrived at the home they were already standing the yard, both of them beaming and smiling from ear to ear. “Isn’t it beautiful? she beamed. The truth is, it was beautiful and it wasn’t hard for me to see why they loved it. This home was nearly twice as large as the other home they’d made an offer on, and at 80 years old it had the character that the other, newer home lacked. All of that and it was $10K less than the other home. As we walked through the home every new room was “more amazing than the last”. They were completely smitten, and even though I tried to reason with them about the area and investment they would hear none of it.
They made an offer that was accepted in seconds by the owner (the home had been on the market for months), and they could not have been happier. That was until they started getting random people ringing their doorbell at 2am, then their lawnmower was stolen, then they came home one day to find kids from a few blocks away just playing on the swing set in their backyard. They loved the home dearly and at first they overlooked the problems, but when the husband was offered a great job in another part of the state, they jumped at the chance. When I met with them I painted a bleak picture, because even though they’d bought the house with a low ball offer, the area had done nothing but go down in value since that time. There were two other houses on their street that were for sale and they’d been on the market for over six months each. My proposed listing price was about $5K less than they owed on the house, and even that was about $10K above market price. They thanked me for my time, but ultimately they were going to list with another agent who had been more optimistic about the prospects and pricing. The home did end up selling, unfortunately it was over TWO YEARS LATER and for $15K less than what they owed on the home.
Honestly, I was devastated for them. I take no joy in being right about this situation, but as a comparison, the home I’d originally advised them to buy also sold again at about the same time. The difference was that the first home’s area had continued to grow and those sellers made nearly $20K when they sold it, and that translates into a nearly $40K swing for my buyers. This situation is not common, but it does happen and it illustrates the importance of seeing your home purchase for what it is…one of (if not THE) largest investment you’ll ever make and you must not take that part of it lightly. Falling in love with a home is great, but homes come and go and families move an average of 7 times in their lifetime, so make sure you are minding your dollars.