Pre-approval

Believe it or not but this should in fact be where you start before you actually begin the process of looking for a home. Whether the market is crazy or not, having the means to purchase a house is undoubtedly most important part of the home buying process.

Buyer’s jobs

Consulting with your loan officer and having a loan officer to speak to about the financial part of the process is the buyer’s job. The buyer will be tasked with staying top of mind with their lender and not getting lost in the sauce of larger more trying transaction their loan officer may be consumed with.

3 things a pre-approval does for you

A pre-approval will help you understand the parameters of your range of financial motion, defining a budget will help you understand your financial picture monthly and at the closing table which will help you to decide if you feel truly that you are financially able to take on this new acquisition. 1 of the hardest part of the lending process will be getting monthly numbers set in stone and many times you may not get a solidified number until closing or just a few days before. Try not to get flustered it’s very common. Stay on top of your lender.
Defining a budget will help you pinpoint areas that are affordable, features that you can expect in that home such as 2-3 bedrooms, upgraded Kitchen and baths… or homes that may contrarily need a little TLC. You’ll be able to then answer questions for yourself as to whether or not you want to or even can afford to take on a home that still needs to be upgraded or if you’re happy or can settle living in the home how it is for a while, or forever in it’s current condition.
Shows agent’s and sellers you are a serious contender in the market and not just kicking tires in between window shopping. They will be far more open to getting right down to business with you and coming with a strategy that will put you on the right path for the best results possible.

A great reason to get a pre-approval first is simply because … well, it;s easy to break your own heart by jumping on Redfin, Zilow, Trulia, etc… without knowing what you can actually afford. Your wishlist will start over the top and you will have to have many come-to-jesus moments with yourself if you do this prior to knowing what you can afford. Don’t do it to yourself it will make the home buying process torturous. Yikes! For cash buyers you essentially will provide POF proof of funds. A bank, 401k,trust account statement from the last 15-30 days should be sufficient to begin.

Conventional vs FHA

Consider Conventional vs FHA

Consult with your lender on what’s best for you. A tidbit to know. In Detroit many buyer’s find more flexibility, and advantage with a Conventional loans. Why?

Well let me start by a basic explanation ( please consult and verify with your lender as I am a realtor NOT a lender.) Put it like this FHA is generally designed for the individual, the family, not the investor etc. Since you’re looking reasonably to just live in and own the home, not flip it or lease it etc.. Many times FHA has a lower downpayment and better interest rates however…. the FHA is designed to protect consumers and I’d say be more-so in their interest therefore the loan has more conditions I.e. you must live in the home 3-5 years before you can lease it, there are additional inspections and requirements of repairs such as lead which may be harmful to people and of course kids and pets… these items when found are generally required to be repaired which then puts a burden on the seller or they then have to negotiate costs and splitting or taking on all of it etc. Most sellers just want to get their money and go… You' will find in Detroit more often than not the homes in a reasonable price point lean towards terms offered of Cash & Conventional vs allowing FHA. Not to say it is not doable…however the options tend to be narrower as the less the seller has to do the better in their eyes.

Conventional loans are less prohibitive and open up more options to investors with less restrictions such as not being required to live in the home for 3-5 years etc. Generally known to have higher rates however not always the case which is why it is important to have a lender who is fast, responsive, and knowledgable who can guide on you on the best vehicle for you. Sometimes a 30 year fixed, sometimes a 15 yr fixed… who knows. Get with a lender so you do!

In the detroit market -

- This is something that can be done immediately after you receive your pre- approval. Before we get to deep into the wishlist, we must first speak on the difference between a pre-approval and a pre-qualification. Realtor’s are looking to see that your assets have already been verified with your lender. A pre-qual is a very light look into the buyer and can cause problems in underwriting because they begin asking for you items that you may or may not be able to produce which could hurt your approval. Not that a pre-approval can’t change but it is a bit more solid of an approval. You’ll want to be sure that you are not creating new lines of credit, buying cars, and making large purposes, any change is enough to change your approval or debt to income ratio so stay diligent and focus on your home-buying goals. Don’t start buying couches and items for your new home that you haven’t even found yet. It may hurt you in the long run.

Make a wishlist

- area, features, - Now that you know what you can truly afford… set filters that match your price point, and areas of interest. This will help you really start to narrow down your options. Within these parameters decide… do you like the idea of having 2 floors? A bungalow, a ranch? 2 car garage? Large back yard..etc…Once you’ve created this list remember to keep it loose you likely will have to compromise on things as there really isn’t a perfect house that was made just for you.This list will serve as a good starting place… you’ll also be able to look at the pictures of the homes to get an idea of the typical conditions you can expect within your price-point.

Its a deal - make it exclusive with your agent!!

Sign on with your agent:

Many agent’s like myself will ask you to sign on with them “exclusively” meaning that you are working with them as your buyer’s agent for an agreed upon amount of time. This is usually a joint contract which is very simple and straight to the point. This will identify any fees and commissions the buyer will be expected to pay on a a retainer or at closing.

Begin looking: Now that you identified what you’re looking for it’s time to start working on logistics. Generally we will create a recurring touring schedule and your only concern will be emailing me a list of addresses that you’re interested in seeing in between our regularly scheduled tour times. I will then work on creating a tour schedule that is sensible within in the time frame permitted. Many times when looking at homes in Detroit… if you’re in the investor price point somethings to consider while looking at homes. In the winter it gets very dark early many homes do not have working electricity making the homes hard to actually see. This can be a little hard for those who’d like to see the home after work hours like 6pm and later. Another thing to stray away from would be if you’re not an investor homes that are very clearly labeled “Tenant Occupied”… you don’t want to to have to deal with an eviction or a tenant that won’t move out of the home in a timeframe that is suitable for you, so take time to read the description and weed out the homes that will not be suitable for you.

Make an offer:

Undoubtedly the most important part of the game, Yes ,” Game”. The name of the game is getting your offer accepted. How do we do this? Well it’s a bit like dating, first we have to be attractive… to them. Second we have to catch their eye and gain their interest… for most sellers this is centers around the price you’re offering. You can bet your bottom dollar that when a seller puts a house on the market that they are sitting around hoping for a certain dollar amount and have tried their best to get an idea of how much that will be in the end. They’ve gotten their head wrapped around this number and it could be hard to part them from it. Lowball offers even when deserved are a great way to get kicked to the curb. Inspection and appraisal are two good times to revisit the terms or price of the deal when the results are unsavory. However every seller is not up for negotiation, every seller is not pressed, and going in with a brute force “I’m going to get my way attitude” is the wrong attitude IMO. I’ve heard that a good negotiation results in two dissatisfied people. I have a hard time with that one. I’ve been most successful when finding a compromising middle ground for both parties involved. Many times before placing an offer or inspection addendum. I speak with my buyer on what items they are willing to waive, and throw off. Sometimes we add items (if it wont make it look like a laundry list of items) just to have items to take off so that it can appear we are negotiating and being flexible. So just like dating… the hot ones have lots of options, it’s most important to try to figure out what that hottie wants to win them over or if you feel like even being bothered. You offer will be accompanied by proof of funds, an earnest money deposit, seller’s disclosures, etc.So it is pertinent to have all of this prepared when you sign on with your agent so they aren’t slowed down when the ball is in there hands.

Earnest Money Deposit:

Let’s stop to talk about an earnest money deposit. Put in to the most simplest terms you’re putting some “skin in the game” and showing the seller that you’re a serious buyer. The earnest money deposit is usually about 1% of the purchase price so you’ll need to have that on hand and ready. If my buyer is comfortable with it I have this placed with the title company very early on in the process it makes things streamlined and it shows that you’re pretty serious as you’ve already enlisted a title company. The deposit is considered to be completely refundable to the buyer on the conditions that they fulfill every condition in the contract properly and prove they’ve done so. On the pff chance a buyer does something abrupt like pull out of the deal at a time that is passed inspection period (which usually will have verbiage in the contract stating that on the chance that they can not come to an agreement with the seller after performing inspection that each party will release mutually) and before appraisal (so basically no good contractual reason) then the deposit is then susceptible to a loss to the seller as a penalty.Otherwise, should you get through your deal with no crazy issues which most do, then said deposit will go towards your closing costs.

Negotiate:

Inspection

So what is an inspection? An inspection period is a time frame where you get to do any and all due-diligence on the home. This can be financials, records, or just a good ole basic inspection. My most basic recommendation is to have an inspection on the home many times you can just hire a professional inspector. In many states an inspector is not required to be licensed so be sure to ask your inspector if they are licensed and ask for proof. A good inspector is going to find problems with a home, there will be in fact be something even if it is a newly constructed home. Don’t freak out, all homes have problems of some sort, it is the job of an inspector to tell you about which are items that may need more attention, either before or after you’ve purchased your home. A general inspection period is about 7 days, if you’re thinking of renovating this is a perfect time to schedule your contractors to come through and take a look at the home, if you’re interested in a sewer inspection you may want to consider having your plumber out as well. In this market however many are waiving inspection or shortening the time frame drastically in order to be competitive and attractive to sellers that may have multiple offers on their home. An inspection can cost from $400-$600 on average, so you’ll want to make sure you’ve planned for that also consider any plumbing inspections or if say for instance you end up not purchasing the home… well you then still likely want to perform an inspection on the next. Just a thought.

Negotiate

Once you’ve received your report from your inspector you have the choice to simply move forward, negotiate with the seller on fixing items before closing, a price drop etc…each situation is unique, and will likely be a talking point for you and your realtor on how to proceed with the most savory results possible.

Appraisal & Underwriting

The truth is if you’re doing a lender appraisal this will likely be a very quiet time. You may go weeks without hearing anything depending on the market and how backed up appraisers are. This is exactly why your job is to stay on top of your loan officer for updates, and doing everything you can to stay top of mind with your loan officer. If you wait 2 weeks to make your first inquiry (they may not be honest about how they forgot about you) well it could take another week if they were so busy with other loans/clients that they never followed up with your appraiser earlier on. If your deal is a cash deal I still usually recommend you do an appraisal to have an idea of the value and how your home stacks up to homes in the area.

The underwriting process is a time when the banks underwriters will vet all of your info from your identity, debt to income, etc… They may ask for more documents to finalize your file and sometimes this may take some time.Make sure to have your financial documents, tax returns, etc in an accessible place. The quicker you get documents back to your loan officer the more you help speed along the process. An appraisal can cost from $500-$700 on average, so you’ll want to make sure you’ve planned for that.

finalize agreement or negotiate

Closing:

Closing for the most part can be a breeze granted you have all the funds you need to close.Welp how will you know its time to close. During the appraisal/underwriting process essentially what you’re waiting for is the CTC or…. “Clear to close” …once you have this the agents involved and title company can schedule dates that all parties can either sit down or e-sign and or mail-in/overnight documents so that the title company/companies can put the documents together and officially close the file.

FAQ

What is a title company?:

Put simply they are a trusted middle man that all parties can use to do things accurately, legally and according to the contract.

How long before I can move in?

If the home is vacant, then if agreed upon contractually you should plan on receiving keys at the closing table can be expected after all the documents are signed.If the home is not vacant (refer to the purchase agreement) then you can expect to gain keys in anywhere from 30-60 days, depending upon what was agreed upon on the initial purchase agreement.

12 Things You’ll Want toKnow about Buying a House

Pre-approval