Phil Pless, CRB, CRS's Blog
If you’re ready to buy a home, you probably have done a lot of research. One thing is sure: You know you need to get pre-approved for a mortgage. It’s perhaps the most critical step in the process of buying a home for a variety of reasons. There’s down payments and debt-to-income ratios, and other financial issues to worry about. You need to know what type of mortgage you should get. To help you understand what kind of mortgage you need, you should get pre-approved.
Understand The Pre-Approval Process
There are many misconceptions about pre-approvals. First, buyers need to understand that there is a difference between a pre-qualification and a pre-approval. A pre-qualification merely scrapes the surface of your financial state, while a pre-approval goes through everything a mortgage company will need to grant you a loan. You may be pre-qualified for a much higher amount than you can actually afford, for example.
A pre-approval is a lender’s written commitment to a borrower. The approval states that the lender is willing to lend a certain amount of money for a home. The lender obtains the following from the buyer:
- Employment history
- Credit report
- Tax returns
- Bank statements
The time and effort that it takes to get a pre-approval is worth it because everything will be ready for the lender to grant the mortgage once an offer is made on a home. It also gives the buyer an upper hand in finding the home of their dreams. Many sellers require a pre-approval with an offer.
When To Get A Pre Approval
As soon as you know you’re serious about buying a home and are ready to start the house hunt, you should get pre-approved. Pre-approvals do expire after a certain amount of time, but lenders can renew them with proper notice.
The Importance Of The Pre-Approval
Many buyers feel that they can skip the pre-approval process altogether. It has many benefits. Besides giving you a better look at your finances and how much house you can afford, pre-approvals can:
- Give you the insight to correct your credit score and help you correct credit problems
- Help to avoid disappointment when you find a home you love
- Allow first-time buyers to see all of the costs involved in buying a home
A pre-approval is a handy thing to have, and it’s not just because the experts say it’s essential. Getting pre-approved for a mortgage can help you to be more on top of your finances going into one of the most significant purchases you'll ever make in your life.
The homebuying journey may prove to be long and complex, particularly for an individual who fails to plan ahead. Fortunately, there are lots of things that you can do to get ready to pursue your dream house, such as:
1. Make a Homebuying Budget
A homebuying budget will give you a good idea about how much money you have at your disposal to find your ideal residence. Thus, if you craft a homebuying budget, you can hone your house search to residences that fall within your price range.
As you craft a homebuying budget, you should consider both your house mortgage and closing costs. That way, you can prepare for myriad costs that you may encounter as you try to acquire your dream house.
You also may want to meet with various banks and credit unions. These financial institutions can help you budget for a home purchase. Perhaps best of all, they can help you get pre-approved for a mortgage.
2. Narrow Your Home Search
You know you want to purchase a house, but it usually is beneficial to understand what you want to find in your dream residence. If you put together a list of home must-haves and wants, you can narrow your house search accordingly.
Consider your short- and long-term aspirations prior to launching a home search. For instance, if you need a home that is close to your office in the city, you may want to check out residences in or near the city itself. On the other hand, if you aspire to own a residence that includes a state-of-the-art heating and cooling system, you should explore homes that offer this feature.
3. Hire a Real Estate Agent
A real estate agent is a must-hire, especially for an individual who wants to seamlessly navigate the homebuying journey. Because if you have a real estate agent at your side, you can take the guesswork out of finding and purchasing your dream residence.
Typically, a real estate agent learns about a buyer's goals and crafts a personalized homebuying strategy based on his or her aspirations. If you want to purchase a budget-friendly house as quickly as possible, for instance, a real estate agent will help you accomplish your goal. Conversely, if you are operating on a tight homebuying budget, a real estate agent will do everything possible to help you find a first-rate house that won't put you in the red.
Let's not forget about the homebuying expertise that a real estate agent possesses, either. A real estate agent understands all aspects of the homebuying journey and will share his or her industry insights with you. Therefore, if you ever have concerns or questions during the homebuying journey, a real estate agent will respond to them at your request.
Those who understand what to expect during the homebuying journey can boost the likelihood of finding a terrific house at an affordable price. Thanks to the aforementioned tips, you could reap the benefits of a successful home search.
If this is your first time buying a home, you might feel a bit intimidated by the purchase contract. Contracts are often filled with industry and legal jargon, making them difficult to understand for the average buyer and seller.
Contingencies in particular give some buyers cause for concern because their contract depends on the contingencies being fulfilled. However, in most cases contingencies are pretty standard and only serve to protect the interests of both the buyer and seller during a real estate transaction.
In today’s post, I’m going to give you an introduction to contingency clauses and break down some of the most common contingencies you’ll find in today’s real estate purchase contract.
Contingency clause definition
Simply stated, a contingency clause is a statement within a contract that requires a certain event takes place before the contract is considered legally valid. As a result, contingency clauses are used to cancel or invalidate a contract if certain conditions aren’t met before the sale is made final. So, if one party fails to meet the obligation of the contingency, the other party is no longer bound by the contract (or required to buy or sell the house).
Contingencies can get confusing when they are vaguely worded in the contract, making them difficult to interpret. In these cases, a court may decide the specific meaning of the clause or determine that it is too vague to be legally upheld.
The other instance in which contingency clauses can be confusing is when a party includes a contingency that is atypical for a real estate purchase contract. Buyers and sellers alike should be wary of unusual contingencies.
The main contingencies
Appraisal contingency. Designed to protect the buyer, appraisal contingencies require that a home is appraised at a minimum amount, which is stated in the contract.
Financing contingency. Another contingency geared toward protecting buyers is the financing contingency. It states the number of days that a buyer has to secure financing for the home. This allows the buyer to cancel the contract (and offer) if they’re unable to secure suitable financing for the home.
Inspection contingency. One of the most important and most common contingencies is the inspection contingency. It allows the buyer to have the house inspected by a licensed professional within a certain number of days. This protects the buyer against unforeseen expenses and repairs that will need to be made in the near future.
House sale and kick-out contingencies. A house sale contingency gives the buyer a certain number of days to sell their home before financing a new one. However, since this can be a risky clause for sellers, a kick-out clause is often included. This contingency allows the seller to keep the home on the market and entertain other offers while the buyer secures financing and sells their other home or homes.
Ready to submit an offer on a house? Not so fast. First, you'll want to consider a few key questions, including:
1. Can I afford to buy a house?
If you find a house you like, make sure you can afford the monthly mortgage payments. By doing so, you may be able to avoid costly, time-consuming problems down the line.
Ultimately, getting pre-approved for a mortgage can make a world of difference, particularly for a homebuyer who is ready to submit an offer on a home.
With pre-approval for a mortgage, a homebuyer will understand exactly how much money is at his or her disposal. As a result, this homebuyer can avoid the temptation to overspend on a house.
2. Should I submit a "lowball" offer?
For many homebuyers, it may seem like a good idea to submit a "lowball" offer on a house. But doing so may be problematic for a number of reasons.
If you submit a lowball proposal, a home seller is unlikely to take your bid seriously. As such, this home seller may dismiss your offer and move on to other proposals quickly.
In addition, a lowball offer may cause you to miss out on the opportunity to acquire your dream residence.
When you locate the perfect residence, there is no need to leave anything to chance. If you submit a fair proposal that meets or exceeds a home seller's expectations, you can avoid the risk of losing your dream house to a rival homebuyer.
3. How much should I offer for a residence?
We've already established that a lowball offer is rarely, if ever, a good idea. Now, you'll just need to determine what differentiates a fair proposal from a lowball one.
A fair proposal accounts for the needs of both a homebuyer and home seller. It should be based on the current state of the housing market as well as the condition of a home.
For instance, if you're operating in a buyer's market, there is likely to be a broad assortment of homes available. This means a home seller may need to lower his or her expectations due to the sheer volume of quality residences currently on the market.
Don't forget to study the prices of recently sold homes in a particular city or town too. This housing market data will help you better understand how a residence you're considering stacks up against comparable houses so you can submit an appropriate offer.
4. Do I need a real estate agent?
A real estate agent will take the guesswork out of buying a home, and for good reason. This real estate professional can help you prepare an offer and will negotiate with a home seller on your behalf. That way, you can streamline the process of going from homebuyer to homeowner.
Hire a real estate agent before you submit an offer on a house – you'll be glad you did. A real estate agent will guide you along the homebuying journey and ensure you can secure a great house at a price that fits your budget.
Deciding whether to set up a home showing sometimes can be a tough decision. Yet a home showing can make a world of difference for a buyer as he or she searches for the ideal residence.
Ultimately, there are many reasons to schedule a home showing, and these include:
1. You can look beyond a home listing.
A home listing generally offers details about a house's age and features, as well as photographs of different areas of a residence. But a home listing can only provide so much information. Fortunately, a home showing enables you to assess a house in person and decide whether a residence is right for you.
During a house showing, you can walk around a residence and view each room. If you want to further pursue a residence after a showing, you can submit an offer to purchase. Or, if you find a house fails to match your expectations, you can always continue your search for your dream home.
2. You can gain comprehensive insights into a house's condition.
When it comes to evaluating a house's condition, it typically is a good idea to attend a showing. That way, you can get an up-close look at a home's condition and determine whether a residence needs major or minor repairs.
A home showing enables you to analyze a residence both inside and out. After a showing is complete, you can decide whether you are satisfied with the condition of a home and map out your homebuying journey accordingly.
3. You can imagine what it would be like if you purchase a home.
A home showing makes it easy to envision what life may be like if you purchase a particular house. As such, a showing may prove to be crucial as you pursue your dream residence.
If you feel good about a house following a showing, you should not hesitate to submit a competitive homebuying proposal. Conversely, if you feel uncomfortable with a residence, you may want to pursue other options.
Of course, hiring a real estate agent may be exceedingly valuable as you search for your ideal house. A real estate agent can schedule home showings at your convenience and provide plenty of tips to help you pursue residences in any housing market. By doing so, a real estate agent will empower you with the insights you need to make an informed decision about a house.
Let's not forget about the assistance that a real estate agent will provide after you find your dream house, either. At this point, a real estate agent will help you put together a competitive offer to acquire your ideal residence. And if you have any concerns or questions as you move along the homebuying journey, a real estate agent is happy to respond to them.
Ready to find your dream residence? Schedule a home showing, and you take the next step to acquire your ideal house.