At a house-warming party I attended, word somehow spread that I am in real estate.
Within minutes, I was surrounded by recent home buyers willing to share their nightmarish stories. Some were amusing; others, though, were pretty disturbing.
The home-buying process can be less mysterious and less stressful if you’re familiar with the process.
Here are some tips to help you get through everything from pre-qualifying for your mortgage to selecting the members of your settlement team:
●Obtain your credit reports from all three major credit reporting agencies. If you have not reviewed your credit recently, you should do so even before speaking to a lender. Know your FICO score. FICO stands for the Fair Isaac Corp., which is a company that uses proprietary algorithms to reduce your financial life to a three-digit number between 450 and 850. The higher the number, the better your credit and the better your interest rate and terms.
You can purchase your FICO score online at www.myfico.com. But beware of the “free” credit reports, as they always have strings attached. Similarly, the credit reports you can acquire for free under federal law at www.annualcreditreport.com do not include the all-important FICO score.
●Obtain a solid pre-qualification letter from a reputable lender. Before you go out home shopping, know how much home you can afford. Contact an experienced, independent mortgage loan officer who is known and respected in your community to provide you with that number. In determining how much home you can afford, your loan officer will rely not only on your FICO score but also your income, cash available for down payment, other assets and liabilities, and items in your credit history, such as bankruptcies, late payments or other events, that hurt your creditworthiness.
Your goal is to obtain a “solid” pre-qualification approval letter from that lender. A solid pre-qualification letter will state that the bank has reviewed your credit score and reports, has verified your employment and cash for your down payment, and is willing to loan you up to a certain amount. There is no magic formula for finding the right lender. More than just interest rates and fees are involved. You will be working with this person for some time and need to be convinced that he or she will be able to get the loan approved and funded in a timely manner. The best way to find a good lender is to simply ask other real estate professionals such as real estate agents, your attorney or accountant to see who was happy or unhappy with their loan officer and why.
●Select one full-time, experienced Realtor with whom you get along. Armed with a legitimate pre-qualification letter, you are ready to start working with one agent. It is critical that your agent be highly accessible, experienced, Internet savvy and, most important, someone with whom you enjoy working. If you find him to be a curmudgeon, your seller and his agent might also, and that might work against you if there are competing contracts for your dream home.
Not all real estate agents are equal. For example, not all real estate agents are Realtors. Real estate agents are those who have obtained a real estate license from their given state. Only those licensed real estate agents who belong to the National Association of Realtors can call themselves Realtors.
Realtors are required to adhere to a rigorous ethical code and practice standards. This code is available at www.realtor.org. Real estate agents work on a commission basis. Commission is typically paid by the seller to his listing broker, who then shares that commission with the selling broker. Commissions are fully negotiable.
Often home buyers and sellers wonder why they should pay commissions when it is so easy to find homes through the various Web sites that display all homes listed by agents or even homes not listed with real estate agents, such as FSBO.com. The answer is quite simple: Locating the perfect home is only the tip of the iceberg in the home-buying process. The best real estate agents will be able to scour the Internet for existing homes that match your search parameters. They will also have automated search capability that will notify you whenever a new home meeting your needs is listed.
Another valuable service that real estate agents provide is completing and negotiating your purchase offer. Today’s real estate transactions are extremely complex. Purchase price is just one of dozens of legally binding terms upon which all parties must agree. For example, the parties need to agree on inspections, financing, appraisal or other contingencies. All contracts involve multiple addenda, certifications and federal, state, local and even community-specific disclosures.
Where there are condominium or homeowners associations involved, there are even more disclosures and investigations to be conducted. Even the savviest home buyer would be hard pressed to assemble and track the 40-plus pages of legal documentation that all parties need to sign.
●Select competent settlement service providers. Under federal and state law, you, the home buyer, have the legal right to select all settlement service providers such as home inspectors, settlement attorneys and lenders. It is absolutely critical that when you select your “settlement team,” you make sure members are competent, experienced, have the right temperament and are independent of any business affiliations that could cause them to have any divided loyalties.
●Leave plenty of time for each step in the process. As you can see, many steps must be taken between the time you first think about buying a new home and moving day. Although everyone’s tolerance for delay is different, plan on the process taking at least several months and you will not be disappointed.
Harvey S. Jacobs is a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord and lender. This column is not legal advice and should not be acted upon without obtaining your own legal counsel. Jacobs can be reached at email@example.com.