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Build a house and you start with the foundations. Seems pretty obvious, doesn't
it? But buy a house and too many people focus just on what they see above
ground, forgetting that it's as necessary to lay good, solid foundations for
buying a house as it is for building it. Perhaps, as a prospective homebuyer,
you see great interest rates and a buoyant housing market, and you're not
convinced of the need for thorough preparation. You could find, though, that you
don't get to buy your dream home, but instead pay the price for not being
prepared by losing out to someone who has done the necessary legal and financial
spadework.
"The business of America", declared Calvin Coolidge, "is
business", and you should make it your business to recognise that buying a home
is the biggest business transaction you're likely to make during your lifetime.
So, use your head before you lose your heart (and perhaps your money) to that
dream home. Complete the preparatory steps before beginning to look at specific
homes. It's only common sense: foundation stone first and keystone last. Well,
let's get down to basics. Let's see how best to start laying that foundation
stone to ensure that you stand the best chance of actually buying the house of
your dreams.
One of the most important preparatory steps you need to
take is to initiate the loan application process. This will entail a lender
running a credit check and drawing up a credit report for a modest fee of $25.
You will also need to complete a loan application. All being well, the lender
will furnish you with a "good faith estimate" showing the costs of the loan and
the approximate monthly repayments. Pre-approval will follow pre-qualification
subject to verification of the information you provide.
So why then, is
pre-qualification so important?
1.The process involves a credit report.
This might highlight the need to settle outstanding debts in order to maximize
your credit score. Settling any debts, however, doesn't automatically erase them
from your report - it might take months. You might perhaps need the services of
a mortgage consultant to get you qualified for a loan. Whatever the problems you
may experience with your credit report, the very fact that you will have picked
them up early will save you disappointment later.
2.If all goes well and
you get prompt pre-approval, you'll be able to put in an immediate offer when
you find your dream home. Pre-approval stands you in good stead to have a
reasonable offer accepted. It's true that bidding wars have taken place in the
northeast U.S, but it still generally holds that pre-qualification gives you
leverage over sellers impressed by your pre-emptive action.
3.Pre-qualification will help focus your home search. Knowing how much
you can afford will be very useful when searching property websites.
So,
make sure your finances are in order. Make sure too, that you have a realtor
working for you and don't rely on the seller's agent. Word of mouth and personal
recommendation are the best way to secure the services of a realtor you can
trust, and who will act in your best interests.
Finally, having
advocated a proactive approach throughout, there is one area over which you have
no control and that is the appraisal. Mortgage lenders like to have an appraisal
of your prospective home's market value to protect their financial interests.
You might imagine that your interests too, are being protected - surely an
appraisal will reveal any real problems? - but you'd be wrong. You might pay for
the appraisal but you would be well advised to pay for a home inspection report
as well.
Why the extra expense?
1.The inspector is independent
of the lender.
2. The inspection will be thorough taking in inspection
of the roof; testing of electrical appliances; checking plumbing and heating and
looking for signs of pest infestation and dry rot.
3.Having had the
forethought to get a home inspection report you will now have the leverage to
defer payment of the appraisal fee should you be dissatisfied with the proposed
handling of repairs.
One final word of caution. You should apply the
same precautionary principles to the home itself as you did to the homebuying
process. Again, don't let your heart rule your head. Your dream home might
require as much hard work - the addition or removal of features, for example -
as did laying the foundations earlier in the process.
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