A recent survey conducted by Chase determined that homebuyers though at the time did not feel unprepared while they were purchasing the home, now have a few regrets about what they would have done differently during that transaction.
Over half of the homebuyers stated that they underestimated the cost of home maintenance and renovations. While some renovations may simply entail a “face lift” and are only completed for aesthetic improvements, there are many renovations that must be done because they apply to the maintenance and functionality of the home. It is incredibly important to get a detailed report from the home inspector prior to moving in to the home. In the case that the home inspector discovers issues marginally wrong with the home, be sure that your buyer’s agent has come up with a contract prior to the inspection that includes a provision for the seller to discount the price or renegotiate the home price should they determine that the home needs significant and urgent changes to be made. If possible, tour the home with the home inspector prior to sealing the deal, and calculating the approximate cost of improvement.
Almost 40% of respondents stated that they would purchase a home with a different size, price, or neighborhood.
For homebuyers in the process of obtaining a home, determine the family size and how long each family member will be in the house. For example, do you have an 18 year old who will move out of the home for College in about a year or two? Planning accordingly for family size will prevent homebuyers from buying a home too big or too small.
In terms of the price, it is always useful as a rule of thumb to get a second opinion. You would never turn down a second opinion from another doctor who would like to evaluate you, so why would you turn down a second opinion from a financial advisor who wants to evaluate whether the home you plan on purchasing is within your reach. If you have someone who consults you about your personal finances, life insurance, or investments, ask if they will go over your financial situation and give you their two cents on the home that you plan to purchase. You don’t want to find out that a home is too expensive for you once you are already the rightful owner of the home.
A neighborhood is also something that should be tactfully research prior to purchasing the home. Research the neighborhood online, question the neighbors about crime rate, noise levels, and school systems, and take a walk around to determine if the town or city offers everything that you require in your surroundings i.e. parks & recreational areas, hiking, proximity to the ocean, shopping, grocery stores, pharmacies, proximity to work, gas stations, movie theaters, night life, etc. The bottom line here is, make sure you do all of your homework. The process of purchasing a home is not one that should be rushed. This is one of the most important purchases of your life.
90% of respondents said that at the time they felt prepared to purchase the home, but looking back on it they wish that they would have understood the financing, how to negotiate offers, and house closings. Here at Broadview Mortgage we completely harness idea that knowledge is power. So for those of you who wish you had this education, here it is, and it is better late than never.
Home financing does not simply mean the price of the home. Home financing takes into account your monthly household income, expenses, how much down payment you are willing to put down, the term of the loan, the interest rate on the loan, property taxes, homeowner’s insurance, and at times, mortgage insurance. Just like in purchasing an automobile, the sticker price is not everything. Calculate your home affordability considering all of these factors. Getting pre-approved from a loan officer is one method to achieve more clarity on your home affordability.
But wait, there are more costs! How exciting.
For the sake of being able to spell out all of the factors that are involved in the home loan closing process, I am going to use a write-up by one of our top producing NMLS Licensed Loan Officers, Wesley Oliver. “There are many costs associated with a mortgage purchase transaction and many borrowers are unaware and unprepared for these costs when accounting for the funds needed to complete their mortgage transaction.
- Loan Origination Fee: This fee covers the lender’s administration costs in processing the loan. It is a one-time fee and is notated as a percentage of the loan amount known as the APR.
- Points: This is also known as a loan discount fee. It is a one-time fee that a borrower can pay to lower the interest rate below par pricing. One point is equal to 1% of the loan amount. For every $100,000 increase in the loan amount, you would be paying an additional $1000 as a loan discount fee.
- Appraisal Fee: This is a one-time fee paid to a third party appraiser to complete the appraisal report to assess the needed value of the purchase property.
- Credit Report Fee: This is a one-time fee that covers the cost of the credit report. This is paid to a third party Credit Reporting Agency.
- Title Insurance Fee: There are two title insurance polices, in a purchase transaction. One policy is to protect the buyer and one is to protect the lender. These are both one-time fees and the seller frequently covers the cost of the buyers title insurance.
- Miscellaneous Fees: These fees would include title search, title examination, notary fees, recording fees, and the settlement or closing fees. These are all one-time charges.
- Document Preparation Fee: There may be a separate one-time fee that covers the preparation of the final legal papers, including the note and deed of trust.
- Prepaid Interest: This fee will be dependent upon the date that your loan funds. Depending on when the loan funds you could pay a full month’s interest or just a week. The earlier in the month your loan closes the more you will pay in prepaid interest.
- Private Mortgage Insurance: If you put less than 20 percent down as a down payment you will be required to pay Mortgage Insurance on most loans. You may be required to cover the first months to cover your impound account.
- Property Taxes: Depending on the time of year your loan closes, you will be required to pay for the property taxes due on the property. It could just be a few months of reserves or as much as 8 months.
- Hazard Insurance: You will also need to cover the deductible for your hazard insurance which is one year and also a couple of months of the insurance deductible for the next year.
- Funding Fee/UFMIP: If you are using government insured loan programs like FHA or VA there will be a funding fee or upfront insurance premium that will be added into your loan amount.”
We know what you are all thinking, that is a TON of stuff to remember. But, it is better to know now versus when you think you’ve found your dream home and your dreams are shattered because you didn’t account for the closing costs and as a result cannot afford that dream home. The other primary concern that homeowners wish they knew before they became homeowners is how to negotiate an offer on a home. Here are a few tips:
- Know what type of market you are in. If the housing market is currently a buyer’s market, the buyer has most of the negotiation power as it is hard to make a sale. In a seller’s market, the seller has most of the negotiation power as homes for sale are scarce. Currently, we are in a seller’s market.
- In a buyer’s market: Make an offer at least 10% under the price that you want to end up paying. However, be polite and don’t offer too low or else the seller may throw out your offer altogether without further consideration,
- In a seller’s market: Get pre-approved for the loan first, and make an offer at the asking price or close to it.
- As mentioned before, ensure that your buyer’s agent included a provision to renegotiate after an inspection should any issues with the home be discovered during.
- Don’t waste time. Act fast.
The home buying process is not simple, but by doing your homework and having an understanding on what the market is doing, as well as properly accounting for all costs, you will be put at much more ease with much less regret.