How to Buy a House - Part 1

This is one of my favorite subjects and one I've been looking forward to writing about for some time.  There's a great deal that goes into buying a home and so I have split it up into sections so you won't get so overwhelmed. The most important thing to me in the world is helping you have the absolute best experience possible with your real estate transactions.  Why?  Well, if you care, there's a little bit of my "Big Why," before we start.

**If you don't care about why I got into this, you can skip to the section titled "What You Need To Know First." (You're welcome, I hate those epic tomes about people's personal lives when I'm trying to get to the recipe too, but if you want to know, you can read it)**

Why I got into the business:

I left the safety and relative security of a very lucrative and successful sales career with a very prominent cable company to start all over as an independent contractor in real estate. People told me I was nuts, the HR lady even told me, to my face, that she thought I was making a "bad business decision"... after a decade in the business, I can confidently say she was, in fact, wrong.  But I got into real estate because I wanted my life's work to matter.  I'm not saying cable salesman's lives don't matter, but I wanted to do something that yielded high earnings for my soul, not just my bank account.  I felt I could do that with real estate.  To be there for my clients and not just during the transaction, but long after as their trusted adviser and real estate resource, really appealed to me.  This blog helps me accomplish that goal as well. Plus, I fell in love with this industry, I love the laws, the rules, and even the paperwork.  Gross.  I know.  But it gets me up in the morning, and keeps me going well into the night most days because my heart is in this.  SO, that's why, when I say I want you to have the best possible experience with real estate, you can bet I mean it.  Whether you chose to go with me as your agent or find someone else you jive with that's a competent defender of your health, wealth, and happiness, I want you to feel confident in the decisions you're making.  Ok, off my soap box, and on with the post!

What you need to know first:

Before you start putting furniture on your Amazon wish-list for that house you've been drooling over on Zillow, there are some things we need to get clear on first.  Let's begin with the importance of the right people! No man is an island.  

Now, I know you are a very smart, capable person, and there are a lot of great tools on the internet to help you make educated decisions, BUT, you still need great people in your corner to help you navigate the potential pitfalls of home buying.

Yes, I'm talking about a Realtor®, but I am also talking about a good lender, inspector, title company, home warranty company, and even good contractors for later on down the road.  A good Realtor® can usually help with all those connections.

"Why do I need a Realtor®? My (cousin/uncle/friend/co-worker) just called the lady on the sign."

I touched on the Laws of Agency in the previous blog post about Zillow & Trulia, but it's so very important, I'll say it again:

Just so you are aware, in the state of Texas, when I took classes originally, agents and brokers were required to take a 30 hour course involving the Laws of Agency prior to being able to take the licensing exam.  That’s a lot of hours but, I’m going to break this down for you really quickly, the person with the sign in the yard, WORKS FOR THE SELLER.  They may like you, you may like them, but if they are the one you are calling, their only obligation is to the SELLER.  Anything you tell them, will go right back to the seller, and they are legally obligated to keep their mouths shut about the seller unless the seller allows them, in writing, to tell you something. (Disclaimer, I am not a lawyer and cannot give legal advice.)  Now, if you call the number on an agent’s sign, and decide the house they have listed is not for you, they can then work with you and REPRESENT you on any other transaction so long as it’s not a house they have listed.  They can then become your BUYER’S AGENT.

"What's a buyer's agent?"

A buyer's agent is a real estate agent that works for the buyer exclusively in a transaction.  They put that buyer's best interest above everything else.  They are your advocate, adviser, confidant, and keeper of secrets.  They will point out everything they can that will either help or hurt you and your negotiation position.  They will pull information on previously sold homes in the area to help you decide if the price is right and advise on your next steps. AND, they are often free to you as they will usually have a commission split set up with the listing agent.  NOT ALWAYS, but often. In short, if you’re buying, you want a buyer’s agent.

"Ok, I get it, Emerald, I need a buyer's agent to represent me! But
what else do I need?"

If you've read any of the other blogs, especially the one about Pre-Approvals, Pre-Qualifications and Proof of Funds letters, then you're probably already ahead of the game here and are accurately predicting what I'm about to say.  If you haven't, don't worry!  You can always go back and read it by clicking here if you want a deeper explanation of what I'm about to say.

The first question I will ask you when you call me and tell me you're ready to buy a house is "Do you have a lender you're working with yet, or are you paying cash?"  While cash buyers are a lot more common than you think, a fair amount of my clients and a great deal of my first time buyers are going to go the financing route.  If you don't have a lender yet, I have about 3 or so regulars that I work with and once we discuss some of the specifics around your financial situation and timeline, I'll know which ones to recommend. If you don't want to talk it out and just want my list of the best, you're in luck, I have them below:

Bali Mendels, Encompass Lending Group
Brad Lynch, Axia Home Loans

Dave Smith, Edge Home Finance Corporation

LOANS! MONEY! GRANTS! PROGRAMS! 

Loans:

I'll let you in on a funny little truth that I tell all my clients.  Qualifying for a home loan is the most invasive procedure you're likely to endure outside of applying for high level government clearances or having a colonoscopy.

You think I ask a lot of questions? You ain't seen nothin' yet!  

Lenders want, and need to, know just about EVERYTHING there is to know about you (well, the you on paper, anyway). They will want your W2's or 1099's from the last 2 to 5 years, your credit score, your employment records with verifications from the last 2 to 5 years, and bank statements from the last 6 months in some cases, just for starters.

If you get a check or cash deposit in your bank account that's not from your regular sources (employers, child support, or alimony, for example) over $200 while you are trying to close on the house, you will likely have to write a letter to explain this new influx of money.  Plus, they will run all kinds of checks and verifications on the information you give them, even up to hours before closing.  I'm exhausted just thinking about it.  

BUT! There's a good reason!  Think about it, you are asking for what will likely be the largest loan you will ever seek... Would you hand a six or seven-figure check to someone without checking them out first?  The correct answer should be, NO.  Not only that, the banks, and financial institutions that make these loans are highly scrutinized by the government. Because of this, everything has to be done a certain way or they could face hefty fines, loss of licenses, or even jail time.  There are great reasons for these regulations and verifications, not the least of which you might find referenced in movies like "The Big Short," or a fabulous documentary on Netflix called "Boom, Bust, Boom." I got off track...I watch a lot of TV in my down time... The point here is that you will need to talk to a lender and find out what documents you will
need to gather so they can tell you how much money you will be allowed to borrow.  Don't have a lender?  Don't worry, your agent will know more than a few.

*Small Side Note*  A loan that's right for your buddy, may not be right for you, and so it is perfectly acceptable, wise even, to shop for a mortgage. I wouldn't put in loan applications with more than 3 or 4 lenders in a 30day period because those apps register as hard inquiries on your credit and could hurt more than help, but, I say, shop none the less!  Interest rate isn't everything, either!  A low long term interest rate may come with higher upfront costs that you can't afford right now, so knowing what you can afford today is just as important as what that will cost tomorrow.

Grants, & Assistance Programs:

A lot of people ask me about down payment assistance programs, and many think that because they are first time home buyers, they automatically qualify.  Not true.  "But, my buddy said it's a thing, and he's never lied to me!"

I don't think your buddy believes he's deceiving you in any way, you have wonderful friends!  He's close, but he's missing some key details.  Down payment assistance programs can be advertised in all kinds of ways and they vary from state to state and sometimes even zip code to zip code.  The main ones I work with here in DFW have some very specific criteria to qualify and even if you qualify, it may be wiser for you to pass them by.

"How can passing up free money be a good idea?!"

Because it's not free money.  Yes, it's often a grant, and no, it doesn't have to be repaid, but it will still cost you.  Grants and assistance programs change frequently so I'll explain what I mean with generalities.

For example, you apply for a down payment assistance program and you meet all the pre-requisite qualifications. You make less than $85,000 per year, have at least a 660 credit score, and the area you are looking in qualifies for the program too.  All seems right with the world, or is it?  

Often, the interest rates, loan fees, and even appraisal fees with these types of programs can be much higher than loans without these programs attached.  This could cost you thousands upfront and tens of thousands over the life of the loan.  

Then, what's a buyer short on excess cash to do?  Weigh your options, be smart, and this can work out for you.  If you can, my advice is to wait until you have enough saved up for your down payment, closing costs, and pre-paids so you can avoid the extra fees.  If you can't, and you need to buy a house right now, try qualifying for one of these programs, with the thought in mind that you will likely refinance later down the road.  Re-financing costs money too but, if it's part of your long term plan, it might be a good way to get into your home today without having to pay way more for it in the long run.

Whew!  That’s a lot to digest up front and we have just barely scratched the surface!  Let’s pause here for now and pick up in the next installment.

The Take Away:

There's a lot to know when you are getting ready to make a move, but the good news is, you don't have to know it all before you start.  Most real estate agents are like me and enjoy talking about real estate every chance they get, so when you're ready, finding the right guide will set you up for success. If you want to work with me, you can reach out and we will see if we are compatible together and if not, I can help you find the right fit when it comes to expert advisors.

As always, questions give me purpose, and they give me more blog topics too, so feel free to ask your questions in the comments below.

Happy House Hunting!

Emerald Scott-Farmer, Agent, Owner of,

The EMERA Group of Keller Williams

www.EMERA.live

** I am not an attorney and cannot give legal advice.  **

(But I know some good ones if you want recommendations)