Below you will find an article prepared regarding the
purchasing experience,and information.Of course, while there is
absolutely no shortage of information on any topic readily available
with the click of a mouse, these articles try to piece things
together into one article, covering each topic less, to provide an
overall view and fundamental points often easily overlooked. In some
cases, it is not exactly chronological, but attempt to explain
issues as they arise, with many issues and factors arising several
times during the process. I hope you find it useful.
We strongly advocate professional assistance and
representation in the purchase,and/or sale of ones home, most often
their single most important, and largest asset.
The general misconception is that price is the most
significant factor involved in a negotiation, but, we do like to
point out, there are many, many other aspects which may, and often
do come into play, which may have a significant impact on
the buyer, or sellers, situation than price alone.
The below is merely assistance with understanding the
situation a little more possibly than one may already, and should
not be taken as legal advice, or as comprehensive coverage of the
process.
A Real Estate transaction may take a turn in any
direction, at any given time, and covering all possibilities would
not be possible in such a limited format.
We hope you enjoy the article.
Most consumers seem to be under the impression that, for buyers,
or sellers, locating a property to purchase, or, for sellers,
securing a contract, is the difficult part of the process.
For the professional, this is the "easy part",and,once a property
is located,then the "real work" actually begins.
Locating a property is only the beginning of the transaction,
and, even that detail can be accomplished much easier than a
consumer can their own, and often, much quicker than the average
buyers believes.
The MLS contains every property, listed by every Realtor in
Northern Illinois.(The MLS Northern Illinois is the nations
largest,with over 60,000 members). Working with a Realtor will
ensure you are indeed seeing every available property in your
budget. Any other way would limit yourself.
With the advent of the internet, many potential buyers have taken
to the web to search, and spend large amounts of time on the web
doing searches on the various sites, even going to different sites
with the assumption they will locate a property on one site not
appearing on the other.
The simple truth is, the MLSNI contains every property, as
mentioned above, listed by every Realtor in Northern Illinois, and,
through co-operative efforts with the nations largest sites, each
and every listing input into the MLS appears.
Most of the consumer searches on these sites are very limited to
specific information,not enabling the thorough searches possible
through the Realtor database.
Within the Realtor version of the MLS, a search can be made for 3
bedroom, 2 bathroom, specific school district, exterior(brick), kind
of basement (full,finished, unfinished, walk out), hardwood floors
or carpet, mechanicals(C/A), and even a search through the fields
containing comments(my favorite), such as return all homes with the
features listed above + homes with "beautiful, marble, newly
remodeled "etc in the comments to further screen them.
In addition, there are at any given time a substantial number of
homes that do not have signs, due to the sellers request.(Don't want
neighbors to know, they are private people, etc)
Please also be aware when beginning the process after deciding to
move forward on your purchase, that each and every city, and
neighborhoods within, property values do vary widely.
If you had recently seen a home in a certain area or, in the case
of a condominium or townhouse for a certain price or range, this
does not mean another similar unit or home can be found for even a
price remotely similar in another area of your choice.
Breaking the transaction down into several easy to understand
steps would be, initially, the pre-qualification and approval. This
can be performed fairly quickly. After the purchasing power has been
established, then the initial discussions of what is interested may
begin. Finding out purchasing power first is recommended prior to
deciding what one is interested in, as, it may, or indeed not
be possible.
Pre-approval is also, and should be, considered by the consumer
something to be performed before considering viewing properties,
and, most agents will require it prior to beginning to show a client
properties for several valid reasons, from a client finding a
property they absolutely love, only to find they cannot afford it,
to having a chance to address potential financing issues that might
arise early on in the process.
Finding a property can take anywhere from days, to months. Many
buyers are hesitant to purchase one of the first properties they
see, and this is not necessarily the best course to follow.
A special property is indeed, exactly that. Many wish to see more
homes, as they want to be sure of their selection. While we do not
recommend against this, as we certainly understand a buyer wanting
to see as wide a selection as possible, it is very important to be
decisive when one locates a property which is what they are looking
for, or as similar as may be possible.
Most likely, after beginning to view properties, the buyer
will have a fairly good idea as to what is available, where, and for
how much.
From the time a contract is made on a property, through closing,
the standard is approximately 45 days. This is not a fixed number,
and, the period is frequently less, and just as often more. Again,
many factors do contribute to this.
Just as every client and home are different, also are many
aspects of the transaction, including possession
desired,etc.
FINANCING,PRE-QUALIFICATION AND
PRE-APPROVAL
Before you begin your search, you should first
determine your buying power. All too often, a buyer will assume they
have the capacity to make a purchase for a certain amount, based on
formulas they have seen, or financial calculators(They are good for
an idea, but, not accurate enough to go out and purchase a home
based on what they display).
This step, and the reasons for this step first, will
become clear as you read on.
I you would like to know how much home you can
afford, or are seeking a pre-approval, please contact
us.
NOTE:
PRE-QUALIFICATION is simply the process of
determining financial factors, and property debt service and
expenses to determine what you might qualify for, should everything
otherwise be in order. This should not necessarily be the basis for
beginning to shop, for, as can be seen below, there are many other
factors involved. A pre-qualification does not necessarily include a
credit check.
PRE-APPROVAL - A pre-approval is not only beginning
to become standard when presenting a contract, but, more often, is
the norm. The seller and agent want to see that, in fact, it is
sure that you can obtain the financing, and that has already been
determined by a lender.
A pre-approval is referred to differently by
different people. All involve the credit being checked from all
three major credit bureau's and client financial and employment
information input.
The second involves the input of your loan
application into a system which, according to universal underwriting
guidelines, and issues an approval based on the information
input.
The third would be an actual approval, whereas, in
addition to the above, the corresponding information, financial and
employment, and corresponding documentation is actually verified.
The lender than grants an approval based upon property information,
which includes such items as the property appraisal, which is the
norm.
Many buyers also assume the main factor when
contemplating a loan is credit. This is not necessarily so. Many
other aspects are taken into consideration, such as income, type of
income(very important-self employed or W-2), time on the job,
monthly obligations (credit cards, auto loans, student loans), and,
how much those monthly obligations amount to.(less than 10-12 months
remaining on an installment loan, such as automobiles, are usually
not included in factoring debts. This time period may vary from
lender to lender,and with various loan programs.)
Down payment is also a factor. Many first time
buyers are not aware of additional costs associated with a purchase,
such as:
Attorneys fees (each and every buyer should have an
attorney), $300-$1000. You should have your attorney before you
begin your search, as you will need for the contract to be forwarded
for their review immediately. This cannot be stressed enough, as
there, most of the time, is a fixed amount of time for attorneys
review and approval (typically 5 days, although anything other than
that can be written into the initial contract.
Any extension can be, of course,discussed between
the parties and their attorneys, and an extension of said period
granted, and often is, but, nevertheless, an attorney should be on
hand and chosen, and contact information readily available upon a
purchase contract presented and accepted. We can provide referrals
to attorneys if you are a purchaser and do not have a Real Estate
Attorney.
Inspection-It is always strongly advised, even when
purchasing a newly constructed home to have an inspection. There may
be a cost involved, but, far less than should an inspection not be
performed, and a serious defect arise. Typically $250-$450, which
can vary depending on the property(condo, townhouse, single family,
2 unit, 4 unit, etc.) Do not forgo your inspection, even on new
construction. 9 out of 10 times everything will be fine, but you do
not want to risk what is most likely the largest single investment,
(and debt owed) you and your family will ever make on 1 out of 10
odds simply to forgo a fee of several hundred dollars..
We can again, for clients, provide referrals to some
of the best inspection companies in the areas.
Any applicable mortgage related fees such as credit
reports and application fees $25-$350.
An insurance policy is needed at the close of every
transaction. The lender will also retain 3 months of reserves on
this, in addition to 3 months reserves of the annual tax bill.
(annual tax, divided by 12, times 3). Depending on the property, and
the annual tax and insurance, this can amount to quite a
bit.
Of course, moving,which,depending on the amount of
property, can range free(move yourself)to $500+
These are simple costs that accompany the
transaction, yet, are often overlooked during the process, but,
taken together, can add up to quite a bit.
Another aspect often overlooked comes about when
contemplating properties that have association due, such as
condominiums and townhome developments.
Often,these fees,when matched against purchasing
power, can represent quite a substantial sum. For
example:
At a 7.5% interest rate, your principle on a 30 year
mortgage would equal approximately $7 for every thousand
dollars.This means that a property with association dues of $280(in
some cases low,others high)the dues would represent purchasing power
of approximately $40,000 on a property with no dues.(280 divided by
7 equals 40).
(note:Article was written prior rates decreases we
have been seeing, but, the concept, while the exact number of $7 at
today's rates still apply)
To simplify,this means that,on a
property(condominium/townhouse with dues)for,say,$140,000 with
association dues of $280,if,indeed you qualify,that you
would,likewise,qualify for a property of app. $180,000.(no
dues,$40,000 extra purchasing power)
In closing,there are,of course,many loan programs
that vary from the norm regarding all of the above
issues(credit,income,monthly debt-referred to as ratios).Programs
vary so that it is almost possible for anyone to obtain a
mortgage,BUT,please note,as all factors relate to one another,the
issue that accompanies credit as it falls is interest rate,and down
payment.The less the credit,the higher the down,the less the
credit,the higher the rate,and,the less documentation available,the
higher the rate.Likewise,the better the credit,the larger the
down,accordingly,the lower the rate(to a point....)
Zero down loans are indeed possible(excluding
closing costs),but compensating factors must be in place,such as
excellent credit,and cash for items such as closing costs,and
reserves(several months mortgage/taxes/insurance in
bank/onhand)
PLEASE NOTE!: If you are planning
to purchase a home in the near future,do not make any substantial
purchases on credit, as they may drastically effect your purchasing
power, and possibly even create cause for a denial, although,
currently, there are very few circumstances in which one cannot
obtain a mortgage, it will affect your position regarding favorable
terms, and, due to the ratios, which are discussed here, you may
find yourself at an uncomfortable position regarding rate and
terms.Please feel free to contact us with any questions, or speak
with your lender prior to any such purchases.
FICO SCORES
There has been quite a bit written,and
asked,regarding FICO scores,their disclosure to the consumer,and
many other aspects.
You may by now be aware that FICO scores
are the numerical scores assigned to your credit report,based upon
your credit history.
What you may not be aware of is exactly
ho they impact,and why,and other aspects,such as "How can I find out
how they score,so I can adjust my credit for a better
score".
Well,the answer on that is,you
can't.(Believe me,I have been on the phone with them more than
once,and think most people who work for the major 3 do not know
themselves.)
That is the whole idea.
If you know how to manipulate your
score,then you can,and you will,and so will most,and,overnight,there
will be tips and books popping up all over.
That again, is the idea.Your credit
report,and score,is a UNbiased, third party view of your re-payment
habits and spending.
First, lenders require what is know as a
"tri-merge",all three credit reports simultaneously for review.(All
three reports,and your "middle score taken for purposes of
establishing your score.)
For example:One score is 570,next is 600,
and next is 650. Theoretically, they would use your "middle score".
Again, here we go to "compensating factors".
Second, I cannot necessarily agree that
the public should be made aware of their FICO scores, as they do now
know what the score means to their credit, and the impact.(There is
an outcry to make scores public, but nobody stepping up to then
explain exactly what that means.)
I will make a very simple attempt to go
over exactly what your score means to you, NOW, regarding your
mortgage:
A conventional loan is one which is
readily seen in every newspaper,and rates quoted daily. The interest
rates offered to those who qualify "conventional".
Typically, this has been a score of 620
or over,but has been increasing.
BUT! (And this is where the true meaning
of scores and the accompanying information comes into play, and also
what I describe elsewhere on this site and in articles: That each
and every aspect plays off another during the real estate process,
and dozens of factors may decide the final outcome.)
A client may very well score over 620,
yet NOT have conventional credit, depending on what is contained
regarding their repayment history.
Also,a client may very well have
"excellent" credit, (history-wise), yet not fall into
conventional,having a score below 620.
Sound confusing?
It is.Very, and further example of the
complexities involved in residential financing.
The good news is,there are other programs
available,just as attractive, (sometimes more)that can enable you to
receive a mortgage at conventional rates, even if your credit is
less than a 620, and you also have a few "dings".
FHA programs are not based on credit
scores, and do accept minor delinquency.You will also receive a
conventional rate, and at 3% down(there are limits on the loan
amounts,for single families up to 4 flats, and many other strict
requirements),or,in some cases, lower.
Now, also as mentioned elsewhere on this
site, another aspects that comes into play is ratios,which are your
income and expenses combined.
Ratios are not fixed,and can be greater
than typically allowed.(Traditionally, conventional ratios were
28%/36%, but, can range much higher depending on "compensating
factors".FHA allows for much higher still, again, taking into
consideration "compensating factors")
More confused? Yes. It is.
There are, as I will repeat many times,
many aspects involved in a mortgage, which is exactly why the client
needs to become pre-approved prior to venturing out. Any, and
everything can affect purchasing power, and does. The client should
know exactly here they stand prior.
PLEASE NOTE!: As mentioned
above, if you are planning to purchase a
home in the near future,do not make any substantial purchases on
credit, as they may drastically effect your purchasing power, and
possibly even create cause for a denial, although, currently, there
are very few circumstances in which one cannot obtain a mortgage, it
will affect your position regarding favorable terms, and, due to the
ratios, which are discussed here, you may find yourself at an
uncomfortable position regarding rate and terms.Please feel free to
contact us with any questions, or speak
with your lender prior to any such purchases.
PRESENTING AN
OFFER
When you have found the home you want to
purchase,you will present a written offer,which will specify
information including,of course, purchase price, and all information
such as the type of mortgage you are applying for, your date of
expected loan approval and commitment( a commitment is all
conditions met, and a "clear to close" from the lender.Most
approvals are accompanied by conditions,and,if conditions are
standard,this does not present a significant problem)and other items
such as possession dates,closing date,any property to be
included,and,if so,what,and any other items of importance.Also
included typically are,as mentioned above,attorneys and inspection
clauses typically allowing your attorney 5 days to review and
approve the contract,and also,again typically 5 days for you to have
a home inspection conducted.
Please note that, as it appears above, days refer to
business days(Monday-Friday),and do not include weekends.Should a
problem arise during the inspection,the issue can either be
negotiated with the seller making a price reduction, repairs,
allowing a credit, not fixing it at all, or, if serious defects are
uncovered, declaring the contract void. Each and every scenario is
possible, and can occur for any transaction.
Please take a moment to read a quick point regarding
negotiation, and when finished, hit the "back" button on your
browser to continue with this article.
You will also be required to submit a "deposit", or
referred to as "earnest money" with the offer. The check will be
deposited with the Realtor (Listing Company), and an IRS form signed
(W-9). This deposit is completely safe, as there are strict laws
governing earnest money and escrow accounts in Illinois, and neither
Realtor or attorney will violate those laws, as penalties are swift
and no laughing matter. (Note: Interest rates are quite low for
escrow accounts. In many cases you will be required to sign and
submit of W-9 form with a contract even if there is no call for
an interest bearing account, due to future banking requirements
of bank auditors. )
Also note: Although it will not occur because you
have been pre-approved already ,should any event occur such as
denial for your mortgage, to the cancellation of the contract and
transaction due to repairs or issues found during the inspection,and
being unable to reach an agreement, your deposit will be returned,
BUT, only after all parties involved, and both buyers and sellers
attorneys have agreed, in writing, for the release. Unless such
authorization and agreement takes place, a broker cannot release
earnest money. (This is Illinois regulation for Broker escrow
accounts per the Office of Banks and Real
Estate)
NEGOTIATION
Negotiation involves much more than just price,
possibly including other issues such as financing,
terms, possesion dates and agreements, inclusion/exclusion of
any possession, costs to be divided,and assistance regarding
approvals(mortgage and attorneys), closing, inspection, and other
deadlines, including possible lease-backs.(when an owner remains in
the property for a short time after closing due to various
reasons,and will pay a proportionate amount of the buyers mortgage
payment)
There is an endless list of possibilities of items
and issues which may come into play in a real estate transaction,
either during or after the contract has been executed.
Please do take the time, if the reader has not
previously, to stop and read a quick take on negotiation, and hit your back button on
your browser following to return and finish this
article.
THE CLOSING
Everything above has been dealt with, inspection
issues, if any resolved, mortgage conditions cleared and the
commitment received.There are several, or many issues here not
mentioned, as it does not directly pertain to the buyers actions(The
attorneys ordering title,etc), and you have now received a clear to
close from the lender.
The loan package has to be physically shipped to the
title company, and, when received the file checked and the final
numbers verified. Ideally,there will be ample time for your attorney
to confer with the title company and make you aware of the exact
amount you need to bring to closing, and in what form.
PLEASE NOTE!
DO NOT close and open accounts. Do so only after
talking with your loan officer(they may need verifications of
accounts closed for the lender).We know that we have inserted this
point elsewhere, but we cannot stress enough the importance of this
aspect.
CONGRATULATIONS!on the purchase of your
new home.
TRANSACTION
CONTROL
As one can see,once the transaction proceeds,there
can be an overwhelming number of steps,including
appraisals,inspections, financing,and deadlines for all of the
above,with each and every one mentioned above having possible
pitfalls that need to be scheduled and dealt with
efficiently.
A good agent during this process can be
invaluable.
Unless arrangements are made otherwise,you can
utilize the services of an agent at no cost to you for your
purchase.
Contact us
now with your need and requests.We would be glad to assist
you with your purchase, and are sure you will be pleased with your
final purchase, we we take great pride in locating the best homes
available for our clients.
