Prudential Gary Greene, Realtors® Homebuyer Guide A Step by Step Process to Owning the American Dream
The American Dream of Homeownership • Owning a home. It is the American Dream. • Many people simply assume that it is always to their advantage to buy a home, and for most, it is. • Take a moment to review the advantages and disadvantages to see how your situation fits.
Renting More fixed costs for term of the lease. Not gaining equity, but not losing any either. When the lease is up, you can just move. There is generally less work in maintaining a home or apartment. Smaller amount of “up-front” cash. Buying More variable costs. Equity may go up, down, or stay stagnant. If you want to move, home generally must be sold. Work needs to be done by you--or paid for by you. Generally a larger initial investment--the downpayment. The Disadvantages of Owning a Home
Renting No matter what happens with the value of the home, you will never gain equity. Limited--or no--ability to personalize your living quarters. No tax advantage to renting. Your landlord gets any and all tax breaks that are available. Buying Over time, the mortgage balance decreases and equity builds, even if the value does not increase. The ability to remodel and redecorate the home to match your needs and desires. There can be tax advantages attached to home ownership. Consults competent legal and accounting advice for details on your situation. The Advantages of Owning a Home
If Homeownership Suits Your Situation • It is important to make a realistic “shopping list” in an attempt to narrow your choices of properties. • Hunting for a home can be a time-consuming process, especially if you have not determined in advance the parameters of your search. • Many home buyers make the mistake of misinterpreting a WANT as a NEED. • It is important to be able to differentiate between what you really need and what you would like to have. • Many wants can be changed in a home [if the house doesn’t have that feature now, you can change it later].
Examples of NEEDS Enough square footage for comfortable living. Enough bedrooms to accommodate the family. Adequate number of bathrooms Eat-in kitchen Garage or closets for ample storage needs Lot size to accommodate children’s play area. Proximity to a specific school Examples of WANTS Carpeting color, paint color, exterior color, roof color, etc. Pool or Jacuzzi [unless for medical reasons] Wood floors Bay Windows Built-in entertainment center Brass lighting fixtures Skylights or a pretty view. Examples of Home Buying “Needs and Wants”
Develop Your Own List of Needs and Wants • Take the time to develop your own list of needs and wants. • The goal is to put emphasis on finding a home that includes all of your needs and as many of your wants as is practical--yet remains in your budget. • Once you have a clearer view of what your home will need to have, looking for a home will be a great deal easier!
Develop a Budget • The development of a household budget is a desirable activity both before you make a real estate purchase as well as consistently during your ownership. • By preparing a budget while you are looking at homes, you can better focus on mortgage payment goals and how the new house will affect your total expenses. • Maintaining a budget can help prevent potential financial disasters as well as point you in a money saving direction so you have more funds available for those things you need and want. • You will need a little time to develop a budget. • Most importantly, get everyone involved in spending involved in developing the budget. • Be realistic in your budget assessment. Make provisions for possible increases in some items [for example, insurance, taxes, school tuition] • Then look for ways to get control over your budget.
Items Needed to Develop a Budget • All current monthly loan payments. • All other monthly expenses [such as child care, dues, etc.] • Records of variable expenses [for example, utilities, food and car repair] from the last 12 months. This will give you an estimate of your monthly expenses. • Records of annual or semi-annual expenses [such as insurance and taxes]. • An estimate of what your new mortgage payment will be. Our loan officers can determine this for you for free! • Records of non-fixed expenses [for example, medical expenditures, new tires]. This will give an estimate of average expenses of this type. • Records or an estimate of personal expenses. [entertainment, travel, etc.] • Get a current copy of your credit report. Go to www.equifax.com or www.experian.com.
Qualifying for aMortgage • Part of the mortgage application process will be the determination of how much house you can afford based on your income. • The two ratios computed are the front ratio and the back ratio. • Front Ratio: The total mortgage payment including principal, interest, taxes and insurance [PITI] as well as any condo or homeowner association fees divided by your total GROSS income. • Traditionally, this ratio must be below 28%. Example: With a gross income of $3700 per month, a total mortgage payment [PITI] of $973, the front ratio would be 26%.
Qualifying for aMortgage • Back Ratio:The total mortgage payment [PITI] and homeowner association fees PLUS any car payments, credit card and any other loan payments divided by your total GROSS income. • Traditionally, this ratio must be below 36%. Example: With a gross income of $3700 per month, a total mortgage payment [PITI] of $973, a car payment of $212, 1 credit card payment of $59 and 1 credit card payment of $43 for a total of $1251, the back ratio would be about 34%. • It is important to remember that the amount of mortgage you will qualify for is the maximum. • If you qualify for a $100,000 mortgage and you have $15,000 available for a cash down payment and closing costs, you are qualified to buy a maximum of $115,000 home. Do not push yourself beyond your financial capability.
Qualifying for aMortgage • What mortgage options are there for those with poor credit? • There are lenders available for many of those with tarnished credit reports, however, they involve a higher risk to the lender, and the interest rates are higher. • Many buyers are unaware of what their credit report says about them. If it is unfavorable, they have to scramble to get the problems handled. • You can avoid these hassles by getting a copy of your credit report and examining it for errors that need to be corrected and accounts that need to be handled. Go to www.equifax.com or experian.com • What options are there for buyers with no money down and no cash for closing costs? • Actually very few. Since the mortgage payment takes a good portion of your income, lenders will want you to have your money involved from the very beginning. • There are options for low down payment [5% or less] mortgages such as FHA and the seller could absorb some closing costs [usually 3-5% of sales price.] To buy a home with no cash down is rare.
Mortgage Pre-Qualification and Pre-Approval.What is the differenceand why do I need both? • Pre-qualification is the process where the lender will look at a basic copy of your credit report and use the information you supply to determine how much mortgage you can afford based on income. No accounts or employment information is verified. • Pre-Approval occurs when all credit and employment is verified and is approval of the mortgage subject to the appraisal of the property you have chosen to buy. • Final Approval occurs when the property has been appraised, all documentation is in the hands of the lender and all contingencies have been met.
Get Pre-Qualified and Pre-ApprovedBefore you Begin Your Search for a Home • Why get pre-qualified and pre-approved for a mortgage before you begin your search for a home? • Because you, your agent and the seller from whom you eventually buy your home will all benefit! • How you benefit: It answers immediately with precision the question, “How much home can I afford to buy?” It gives you and everyone involved a clear sense of direction. • How your agent benefits: By knowing your financial parameters, your agent can spend more time looking for homes that “fit” and less time pursuing dead ends. No matter how much you might want a 4000 square foot house for $275,000, you can only buy what your approved maximum loan amount will allow. • How the Seller Benefits: It strengthens your bargaining position. Your offer stands out in a case of multiple offers for the same house. A seller pays far more attention to an offer with a “real” buyer than one who will make loan application soon.
Prudential Gary Greene, Realtors has Mortgage Services Available for Free, No Obligation Counseling. • We have Compu-Fund Mortgage services available for a free, no obligation loan counseling. • You can call our 1-800 number for a personal interview! • Here are some helpful hints to prepare for making a successful loan application: • Don’t build yourself a mortgage mountain. Be certain it is comfortably affordable. Stay within the 28% and 36% guidelines. • Get your budget under control. • Prepare to pay off small debts. Having 3 credit card balances is not a good thing. Prepare to pay them down to $0 balances. • Begin to gather documentation. You will eventually need: • W-2’s and the income tax returns from the last few years [especially if you are self-employed] • copies of pay stubs, • copy of your credit report • records of child support and alimony • bank statements for all accounts
Compu-Fund Mortgage is Available for Free, No Obligation Counseling. • Do not forget about closing costs. In addition to your down payment, you will need to reserve funds for closing costs. Depending on the type of loan, these costs can range from 3-5% of the mortgage amount, and will be paid in cash at the closing. They cannot be borrowed funds. • Consider points when comparing. Your total mortgage cost will be determined by 3 factors: • the interest rate, • the term and • the amount of points.
Enlist the Supportof an Agent to Guide You to Happy Homeownership! • We are experienced and trained to guide you through every step of the process to Happy Homeownership! • Select representation through Buyer Agency. • When an agent represents the buyer, that Agent represents you and your interests above their own and owes loyalty to you, the buyer. • A Buyer Agency Representation Agreement clearly spells out the obligations of all parties. Most often your fee is paid by the commissions offered by the seller.
The Role of the Real Estate Community Types of Agency Representations • Seller’s Agent - represents the seller in a real estate transaction. • Seller’s Subagent - is a subagent of the listing broker and represents the seller. • Buyer’s Agent - represents the buyer in a real estate transaction. • Intermediary - By written consent of the parties, the broker represents both the buyer and the seller. The broker must treat all parties fairly, but has limited duties to both.
What Type of Home Do You Prefer? • The process of buying a home is a series of decisions--a sort of real estate “what,where,when and how.” • One of the first decisions is the “what.” • Single-family homes. Your ownership includes the house and extends to the limits of the property line. • Townhouses. Your ownership includes the lot on which your house sits as well as the entire structure. • Condominiums. Your ownership is limited to a single unit and a shared interest in all of the common areas. • One type may be more suited to your budget and lifestyle than another.
Finding a Home • With an organized house buying plan, you can minimize a great deal of the emotional impact of a major life change. • By determining your buying power, your wants and needs, and having an organized search plan through an agent, your chances of a stress-free experience are much better. • We are proud to offer our web site, http://www.garygreene.com as the premiere search tool for the home of your dreams. • Take a tour of all homes listed and available in Houston! • You will also find the most unique area of all - our home services division. This service can handle all of your moving arrangements for you!
Finding a Home with Your Real Estate Agent • If you physically look for houses before you have your own agent, you may not have the representation you want. Remember, a For Sale By Owner or a New Home Sales Office is representing himself and his own interests. A home buyer always benefits with agent representation. • Choose an agent that you feel comfortable with and who understands and responds to your needs. They should be good listeners. We have the best agents in this area! • A good agent will help you keep a scorecard to compare homes you have toured. • They will also help you stay in an affordable and comfortable price range. • Maintain your perspective--and your cool! You may find an acceptable home on the first day--or the tenth. The important thing is to get the home that is best for you!
Setting a Value on aHome • Two of the most frequent questions we receive from potential home buyers are: • How much should I offer for a house? And • What is the normal concession from the selling price? • Unlike the automobile business [one of the other major purchases where prices are negotiable] real estate does not have an established selling price or a specific cost. • It is impossible to give “standards” as to what is fair as every property stands on its own price and merits. • This is where a real estate agent is invaluable. Constantly attuned to the latest market data, value assessment is their specialty. • A Buyer’s Agent can develop a Comparable Market Analysis for homes in the area in which you are interested.
Making An Offer on A Home • One of the most common misconceptions among home buyers occurs when it comes time to making an “offer” on a home. • Many believe that even though they have tendered an offer to the sellers, that their options are still open. • To some degree, this is correct. TREC promulgated contracts contain an “option clause” that enables a buyer to opt-out at any time during the option period. The option clause is often used to have an inspection performed to determine the structural and mechanical integrity of the home before purchasing. • After the option period passes without opting out, however, your contract becomes binding.
Making An Offer on A Home • Your agent will guide you on all of the items that need to be addressed in an offer: • The proposed selling price [our offer]. • Any concessions you desire the seller to make. • Any financing contingencies. You can state the maximum interest rate, and specific terms, etc. • Any home inspection contingencies • A clear definition of precisely what is to be included in the sale. Do not assume that certain items are included. Be sure to read what is included on the promulgated form, and include that which is not but desire to receive with title. • The amount of earnest money [your deposit] that is being tendered with the offer. • We will be happy to provide you with a sample Residential Sales Contract to familiarize you with it contents.
The Art of Negotiation • When it comes to real estate matters, the 3 most important aspects of an effective negotiation are: • 1. Information • 2. Preparation • 3. Realism • Information--Once you have found a home you are prepared to buy, the first step in your process of negotiation is to determine the fair value for the home. Your agent can be of great help here. Real estate agents can develop a Comparative Market Analysis. A CMA will show exactly what properties similar to the one in which you have an interest have sold for. • Condition also has much to do with the ultimate selling price. Does the home to which you have an interest shine above or fall below the others that have sold? Agents are invaluable in this area also. • Extra Amenities can be a factor. • Motivation--if possible, find out the sellers reason for selling.
The Art of Negotiation Preparation • Just having the right information is not enough. • The most important factor is your emotional frame of mind. Keep your excitement in check or you will lose the value of the information you have. • Your Financial Frame of Mind - your power here comes from being pre-qualified and pre-approved for a mortgage. • Set a realistic limit and then stick to it. You cannot be afraid to let it go. • Plan your work and work your plan. Organize your information and have it quickly available.
The Art of Negotiation Realism • Do not turn the seller off by making a low ball offer on a well priced home. Negotiations will most likely be stopped, and if re-opened, the seller may stand on list price. • In Houston, most homes that sell are within 95%-97% of their list price. This varies according to neighborhood. For best results, consult your agent. • An unrealistic offer on a home that meets your needs and is priced correctly could end up costing more than it would with a realistic offer.
Inspect!Inspect!Inspect! • Depending on the type of financing you choose, there should be either 2 or 3 separate inspections on the home you want to purchase. • The first should be your own inspection, the second should be a professional inspector by a reputable person. Should you select a government loan [FHA or VA], the third inspection should come at the time of the appraisal, which to some degree amounts to a “mini-inspection”. • Do not, however, rely on this appraisal as your only inspection of the property! • We cannot emphasize enough the value and necessity of an extensive home inspection. It saves you money long-term!
Inspect!Inspect!Inspect! • Inspections are designed to disclose defects in the property that could materially affect its safety, livability, or resale value. They are not designed to disclose cosmetic deficiencies [example, an interior wall that needs paint touch up]. • You will need to determine on your own those type of items that will need attention: don’t expect an inspection to reveal them to you. • Our Concierge consultant has access to top-notch inspectors and can arrange the inspection for you!
Residential ServiceContracts • Residential Service Contracts, also known as home warranties can save you a bundle in repair costs after you move in. • A Residential Service Contract covers repair or replacement of some major and minor items and components of a home. Typically, they are 1 year in duration, beginning at the time you take occupancy. • Many cover central air and heat, electrical, plumbing, water heater, and some appliances like refrigerators, etc. • The seller may offer or you may ask for them to furnish you with a Residential Service Contract. We recommend American Home Shield, and we include their policy in our presentation materials.
The Final “Walk Through” • Shortly before the date of the final closing, it will be necessary for you to make a final inspection of the house that you are purchasing--a final walk through. • Take your time on your final walk through • Check the house from bottom to top • Pay attention to items important to you • Watch for areas where furniture and rugs may have been when you originally looked at the house. • If an item is missing or there is trash left behind, deal with it now. • Make sure the home is as you expected. • Deal with any potential problems. If you see any items that need to be addressed, let your Agent know so it can get handled before closing.
Planning for Your Move • Check your contract and confirm with sellers regarding possession of the home and moving date. • Once confident you are proceeding with the purchase, begin to toss out things you do not want to move. It simplifies your life, too! • If you need moving assistance, log on to www.garygreene.com to arrange your moving plans for free. • Prepare a list of all those who will need to be contacted at your new home [utilities, etc.] or call our Personal Move Coordinator to do this for you. • Make a list of items you need to buy for the new home. Draperies, blinds, shower curtains, etc. • Start packing early. Box anything you are sure you will not be using before moving day. • Set up a “staging area” where items that are ready to be moved are placed. • Mark every box and carton with its contents and also what room in the new house you want it placed. Saves movers time and saves you aggravation!
Bringing it all“Home”The Closing Closing is the proverbial “signing on the dotted line:” the process of which will put the title to the house in your name, verify homeowners’ insurance on the property, commit in writing to the terms of the mortgage, and usually, put the keys to the house in your hands. What Items will you need? • A Closing Cost Estimate: This should be given to you by your agent at the time of the contract, and then given to you by the Lender, a Good Faith Estimate, shortly after the application for the loan. This should be a reasonably close estimate of funds you will need at the time of closing. • Homeowners’ Insurance Policy: This must be secured prior to the date of the closing. Home-Link can handle this for you. • Settlement Statement: Obtain a copy before closing, if possible. It tells how the various funds will be dispersed. • Certified Funds: You will need certified funds for closing costs and down payments. You will also need a copy of your driver’s license.
Bringing it all“Home”The Closing • The closing is your final opportunity to make certain that everything related to the purchase of your home is correct. • It is important, therefore, to do adequate preparation prior to the day of closing. • A home is one of the largest investments in your lifetime. • At Prudential Gary Greene, Realtors, we realize the importance of this life changing event and try to make your move as smooth as possible.
Services You Can Expect to Receive From Any of our Associates! • Listen and respond to your needs. • Advocate of your best interests. • Advice, Counsel and Opinion • Fiduciary Duties. • Negotiate in your behalf. • Financial Assistance on your settlement. • Disclosure of Adverse Facts. • Confidentiality.
My Commitment to You • To Communicate with you regularly through every step of the process until we reach the results you desire. • To show you all homes that suit your needs and in the price ranges you can afford! • To provide you with accurate Comparative Market Analyses of home’s you are interested in purchasing. • To negotiate the best possible price for your home with the least inconvenience to you.! • To work according to your time table! • At your discretion, provide you with a Concierge Consultant to assist in any move related needs for FREE!
From all of us at Prudential Gary Greene, Realtors® Thank-you for viewing our presentation on First-Time Home Buyers! You have many choices of Realtors® Now that you know more about the home buying process, know this about our services and the company that stands behind us…. Your Success is Our Utmost Priority!