Buying Real Estate

Francy’s note: I have tried several times to shorten this post. It appears I have a lot more to say than I initially thought (no Jay, that doesn’t mean I’ll be posting more often – it just means this may have to be a multi-post series).

Identify a property. The internet can be a great asset to your search for a property - especially if you’re not sure of the area where you want to be. There are some terrific tools available to search crime statistics by zip code, check out schools and even see what the neighborhood looks like - all from the comfort of your home. A good on-line search not only will allow you to see what is available in your price range, but can answer many of the questions you may have about a specific property such as if there is a homeowners association fee, property taxes, school information, etc. Some searches have information about the area a property is in, give you the ability to save your searches, download the listing or can even send you updates. If you feel overwhelmed a Realtor with a membership to the multiple listing service (MLS) will have the ability to set up an automatic search for you using your needs, wants, area you want to live, your price range and other criteria.

We are often asked where the “good neighborhoods” or “good schools” are. Real Estate Agents cannot legally give you their opinion of an area. Giving their opinion could be considered a form of discrimination called “steering”.

This is usually the point where I like to mention to my clients about going to an open house, or a new home builder, without your Realtor being present. It’s really not a good idea to preview homes by yourself. As mentioned in Part 1 of this series — “Once you have been shown a home by an agent, that agent is considered to be working with you for that particular property”. So if you go to opens, including new model homes, you will find yourself being represented by an agent who has the sellers best interest in mind, not yours.

If you live near the city/area where you are planning to look for a property, I highly recommend trying to narrow down your search to roughly 5 or 6 properties before your first showing appointment. Many buyers find that they will need to make adjustments to their needs/wants after viewing about five homes. This brings up a point that differs from agent to agent, “How many properties should you view before you buy?” I believe this number to be different for each individual buyer. I have had a buyer who purchased the first home he saw (to be sure it was the right one we viewed 10 additional properties before he made an offer). I have had clients who looked at more than 80 properties before they found what they were looking for.

Buyers who are relocating from out of town may not have the luxury of viewing a small number of properties and making adjustments. Many of our relocation clients are given a mere two days to find a home. For those of you in this situation I caution that viewing a large number of properties in one day can be mentally and physically exhausting — be prepared! I dare not share my record of homes shown in a day for fear that I will be asked to repeat it!

Once you’re ready to begin viewing properties in person you will want to contact your agent for an appointment. A common misconception is that Realtors are always available. A good agent is often working with several different clients at a time. Even in a slow market an agent may have appointments set up days (and sometimes even weeks) in advance. If you are coming in from out of town you should make an appointment with your agent as soon as possible to be sure they will be available. It can be very frustrating to drive 300 miles, call your agent from in front of the first home you want to see and find that they have appointments with other clients for every day you are in town.

Coming soon, more info on the remaining steps!
Write and negotiate an offer
Property inspections
Close escrow

Jay’s Note: I’ve been trying to get Francy to write a post for months years. Today, after handling email inquires from two first time buyers, she finally caved.

For most of us buying a home is the most expensive purchase in our life. Making the right choices can save time, money and future headaches. We are often asked about the process and I thought it might be helpful for home buyers to have an actual list with some references. Whether you’re a home buying novice or you’ve purchased a home before the process is pretty much the same:

1. Talk to a lender
2. Evaluate your needs
3. Choose your Real Estate Professional
4. Identify a property
5. Write and negotiate an offer
6. Inspect the property
7. Close escrow

Talk with a lender. This important first step is sometimes skipped over by even the experienced buyer. Nothing can be more disappointing than finding a home that you love only to realize that you either cannot obtain a loan or you cannot afford the payment for that property. Lenders have tightened their criteria in the last year. Even if you currently own a home it may be difficult to obtain a new loan with a payment you can afford.

Evaluate your needs vs. your wants. This includes location (where do you need to live vs. how far are you willing to commute). Do you need a den or can you get by without one? Is a pool a must or would you like to have a pool? Some “wants” can be difficult to locate in some price ranges. Knowing what you cannot live without can be very helpful when beginning your home search.

Choose a Real Estate Professional. Choosing the right agent to represent you can make the rest of the process easier. Real estate agents are *not* all the same. Experience and expertise can vary greatly. Is your next door neighbor or your cousin’s friend really the best choice for you? A common mistake is that a potential buyer will locate the property before locating an agent. The agent listed on the ‘for sale’ sign already has an agreement to represent the best interests of the seller. Although they can help you purchase the property with what is called “dual agency” it is extremely difficult for one agent to give their best representation to both parties. Another problem we often see with first time buyers is that they view a lot of properties with a number of different agents. Once you have been shown a home by an agent, that agent is considered to be working with you for that particular property. This can be a difficult situation if you locate the perfect home but you happen to be with an agent you don’t feel comfortable working with.

Coming Monday - We’ll cover the remaining steps in the process!

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Someone submitted a great question to The Real Estate FAQ, so I thought I would share it here.

The question was, “What is a realistic number of homes you should view prior to buying?”

It’s a tough question to answer… there is no hard and fast answer. Beware the agent that limits how many homes they will show — and it does happen, at least in the Phoenix real estate market. I’ve never understood the agent who says, “I’ll only show someone X number of homes.” (I had someone tell me their agent limited showings to five homes. How utterly ridiculous.)

On the other hand, no one wants to wander aimlessly, looking at dozens and dozens of homes with no progress or end in sight.

The short answer to the question is, “as many as it takes”. But there are some strategies and things to keep in mind in any home search, and I discuss some of them in the answer I left to the question on The Real Estate FAQ.

Technorati Tags: real estate FAQ, home buying

Recently, reader “Eri” asked a question about getting pre-approved for a mortgage when looking to buy real estate. I thought I’d pass this one on to an expert, Shailesh Ghimire — The Arizona Mortgage Guru. Shailesh and his wife Aimee are two of our favorite Phoenix area lenders.

The question:

I am in the beginning stages of buying my first investment property, which will also be my first property, ever; I have not applied for financing, as I’ve been advised not to get pre-approved Whether for credit reasons or simply to be contrarian, I’m unsure. I’m interested in the real importance of being pre-approved for a mortgage and if there is any difference in taking this approach. Thanks for your help! Eri

Shailesh’s answer:

Eri, this is an excellent question. Many buyers, especially first time home buyers, ask why they need to be pre-qualified. 

In my opinion it’s always a good idea to be pre-qualified with an experienced lender. I would even take it a step further say it’s also important to be pre-approved. I’ll talk about the difference in these terms later. First and foremost you want to be pre-qualified so you know the loan amount you are able to borrow for your purchase. Quite honestly, it’s a waste to look at real estate without knowing the amount you will be able to bring to the table. Think of it this way, if you can’t afford a $550,000 house then there is little reason to spend time and energy looking at such homes.

Now to define the terms I mentioned earlier. Pre-qualification is when the lender takes your basic asset, income and debt information and determines how much of a loan you may qualify for. This is usually a simple calculation and the amount you qualify for is essentially based on your debt to income ratio (DTI). The lender may or may not pull your credit at this stage. Even if credit is pulled, there is no commitment form the lender and the “answer” is really not even tentative. That is why a pre-qualification is a good first step but not sufficient for someone serious about purchasing real estate.

To be taken seriously you need to be pre-approved. You can receive a pre-approval when the loan officer takes a full mortgage application, pulls credit and determines exact loan amounts and requirements.  Not only are all the calculations involved in a pre-qualification done at this stage, but the loan officer also reviews the file and addresses any potential issues. The loan officer then can then obtain a tentative approval for the loan subject to the borrower fulfilling certain conditions. Conditions could involve verification of employment, income, assets etc. A pre-approval is really the highest form of approval you can receive short of a full approval.

Finally, a major benefit to being pre-approved is that the seller will take you seriously. I know when I was selling my house a few years ago I could not possibly take a buyer seriously who had not been pre-qualified. I can’t imagine that any other seller would behave any differently.

In summary, it is always a good idea to get pre-qualified, and it is even better to be pre-approved. It helps you determine the price range you can afford and establishes you as a credible buyer serious about seeing a transaction through. Otherwise the whole process becomes an energy sucking exercise with lots and lots of headache for all parties.

Jay’s Note: I have to agree with Shailesh on this one. In the Phoenix real estate market (and many others across the country), and in the current lending environment, it is critical to demonstrate to sellers that you are not only willing to purchase their property, but that you are able to. Also, the standard Arizona Residential Resale Purchase Contract requires a “LSR” (Loan Status Report) be submitted with each offer. An LSR is in effect a pre-qualification. Pre-approval will make you, at least in the eyes of the seller, a stronger buyer.

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Technorati Tags: loan pre-qualification, pre-approval