In our first article, Home-Buying 101, we discussed preliminary steps. Now, you’ve got everything in place to find your perfect home.
The home of your dreams may not be move-in ready. Don’t overlook “as-is,” handyman specials or repossessions. Often, you can find everything you need in a house that needs a bit more love. But you don’t have to be a carpenter. You can often roll a construction loan into the mortgage. With this type of loan, at closing, the bank will disburse the purchase price to the seller. Then as construction begins, the bank will disburse funds to the contractor at a predetermined percentage of completion. This type of loan may provide a small advantage. Your initial mortgage payments will be less because not all the funds have been disbursed. The disadvantage is that you may have to live in the construction zone until completion. This was my life, as we renovated the butternut home for many years. One of my daughter’s first phrases was “dry wall mud.” So far we have not noticed any other ill effects.
Once you identify the house of your dreams, the adventure begins. Your realtor will prepare a bid. You will need a letter from the lender confirming that you are an eligible buyer. You should already be preapproved. Contact that lender and have him produce a letter specific to this property. You bid, the seller counterbids. This may go on for several rounds. Keep in mind though, if another buyer steps up with a higher offer, you may not have the opportunity to bid again. Arm yourself with knowledge. Go to Zillow or a similar site, see how the neighboring houses are valued and look for recent sales. You do not want the most expensive house in the neighborhood. Often, you may be able to pull statistics from the county or locality assessment website. Any information you can glean can help you come up with a proper offer. Rely on your realtor here, as well. A good agent will have a handle on the market and can estimate how much you can negotiate.
When the seller accepts your offer, you will have a predetermined period of time to have a home inspection, appraisal and any additional health and safety inspections that might be required (often radon or sanitary sewage inspections). You will now also lock in your mortgage rate. If it’s been a while, take a fresh look at the lenders and what is available. Often, the lender will pay partial closing costs, but you may get a lower rate if you are willing to pay them yourself. If your credit score is high, you can negotiate the rate a bit lower. Don’t be afraid to ask. Some lenders will offer to lower the rate if rates have declined before closing. Use online calculators to get an idea of how the differences in rates can impact payments. I prefer the template in Excel, “mortgage amortization.” You can adjust various inputs and see how they affect future payments and interest. You will have to complete a mortgage application and provide your mortgage lender with W-2s, bank statements and other personal information. Ask if they have a secure electronic drop box. If not, make sure it is encrypted and password-protected before you send this information into cyber space.
At closing, don’t be surprised if the estimated closing costs are a bit off. Be prepared for last-minute negotiations, and be flexible. Most of all have fun and enjoy the process; soon you will be a homeowner!
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