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Tuesday, November 16, 2010

SharkByte's All-Encompassing Guide To Homebuying (A Top Bytes Premiere)

Fourteen months passed by between the time we got our first offer accepted on a house and when we closed Escrow on the house we now call home.  Throughout the homebuying process we learned a lot and I want to share what we learned with my readers, and hope that you'll pass on the information I provide with any of your friends or family who may be looking to buy their first home.

I'm using this post to introduce a new series I'll be sharing, called Top Bytes.  I've written reviews before about restaurants and businesses but I've experienced some exceptional customer service that inspired me to start this new series which is far more than a simple rant/rave style review.  With each new Top Bytes post, I'll share a business or individual whose services are exceptional and someone I would personally recommend with confidence as the first choice in their field to handle your needs (think of it as my personal version of the SuperPages).

During the process of buying our first home we had the privilege of working with two incredible people in the real estate world, and since this is my first Top Bytes post, I'll be featuring them both.  The first is Deanna Orr, of Lyon Real Estate.  I was referred to Deanna through her husband, whom I work with, and after dealing with a bad Short Sale situation (aren't they all?) my wife and I began working with her.  The level of service that she provided and the knowledge that she passed on to us was invaluable, and she is as personable as she is professional.  Through Deanna, we were introduced to Evelyne Jamet from Vitek Mortgage.  Deanna told us that one of the things she appreciates about Evelyne is how she treats every client the same, regardless of your credit situation or budget.  If your credit score is not good enough to qualify you for a loan, Evelyne will take the time to help you get your credit up, when others may just turn you away with no advice.  Even if your score is good enough, she can help you improve it further so that you can get the best rate possible when it's time to lock it in.  For anyone looking to purchase a home, whether you are a first-time buyer or not, I highly recommend Deanna Orr from Lyon Real Estate and Evelyne Jamet from Vitek Mortgage.

I also have another name to include as a Top Byte, and for very good reason.  Folsom Parkshore Self Storage is the only storage facility I would recommend for outstanding customer service in the greater Sacramento area.  Although I've moved out of Folsom, I would still go there because of how nice they were and how helpful they are for their customers.  We had one unit there already filled and when we went shopping for appliances we found a refrigerator that was part of a package we liked that was being sold as a floor model, but we had to take delivery immediately rather than wait until we got into a house.  I arranged the delivery and called ahead to the storage place to secure a unit, and asked the appliance store for a 1hr call ahead so I'd have time to run over and secure the unit before the fridge arrived.  However, just 20 minutes after I received the "1hr call ahead", the appliance guys were already leaving the storage place.  When I arrived, the people in the office had accepted delivery, put one of their own locks on the unit and had the paperwork waiting for me in the office.  I know that many storage facilities will take deliveries but I didn't even have to ask.  Beyond that, they were very reasonable with rates and gave me a generous discount off the 2nd unit since I had another unit, and let me apply my deposit on both units.  There are so many companies out there who treat their customers like just another payment coming in each month, but the people at Parkshore Self Storage in Folsom know what real customer service is.

Now that we have the Top Bytes taken care of, here is a checklist for prospective homebuyers that will help you prepare for buying a home, gathered from our experience:

1. Do not plan to buy a home without having a clear understanding of what you can afford 
If you know ahead of time what your max monthly payment should be, it will help you decide how much to offer on a house and how much room you have in your budget.  This way, if you find a house that may be a little beyond your personal budget but within the limits of your loan approval amount, you'll know whether you can make it work without having to guess and later regret it.

2. Do not start working with an agent until you are pre-qualified for a loan by a reputable bank 
Responsible agents won't even allow you to make an offer until they have a pre-qual letter from your bank of choice, although pre-qualification means nothing.  The best thing to do is to have a bank run your credit through a manual underwriter, who can qualify you up to a specific amount.  This is what we did with Vitek since we had received an automated approval from another bank only to be declined when it was run through manually when we were in contract.  If you have your credit run manually, the only thing left to chance is what you do in the time between receiving approval and close of escrow.  For example, if you bounce checks and your new bank statements come in with a bunch of overdrafts, most likely you will be declined.  In fact, if you do not have at least two months without any overdraft on your bank statements, wait until you do before submitting your information to be run through underwriting.

3. There is no such thing as an "approved" Short Sale

In addition to that statement, I would basically recommend avoiding Short Sale homes completely.  For those of you who do not understand, "Short Sale" does not mean a sale that happens really fast, in fact it is quite the opposite.  A Short Sale is a home being listed for less than the owners owe on their mortgage.  The seller must provide proof of hardship to their bank during the approval process, which does not happen ahead of time, but only once the seller has accepted your offer and it is submitted to their bank.  Just to clarify, if you make an offer on a Short Sale home and your offer is accepted, you are not in escrow.  You are waiting for the bank to decide to take a loss on the house so that you can get it at your offer price.  If you find a Short Sale listing that claims to be approved, that means that the bank had approved the previous offer and they will usually tell you what it was (Ex. "Short Sale approved at 205K).  However, the moment that contract is cancelled, the approval process starts over, and you will likely wait months for an answer.  Furthermore, some agents will list the house for 10-15K less than previous approval to attract buyers, so that is another thing to watch out for (ask if it was previously approved and for how much) because if you end up offering list price that was 10K-15K below previous bank approval, your chances for getting a new approval for less are terrible.  The first house we got an offer accepted on was a Short Sale, and we waited 5 months for the approval only to find out that an auction was scheduled that we were never notified about.  Many times this happens, as the foreclosure/auction process is in place in the background and while waiting for bank approval you're really fighting the clock to see if the bank will issue approval in time to cancel the foreclosure.  The 2nd Short Sale situation we got into was practically handed to us, the agent told us how much to offer based on the previous approval amount (previous buyer had to back out for personal reasons).  We were told to expect about 30 days, yet it took another 4-5 months and then the buyers pulled out because their agent did not explain the Short Sale process to them and the paperwork that came with the approval said that they could be liable for the deficiency balance.  Needless to say, that was the last Short Sale we offered on.  The general lesson is that if you have any kind of deadline for getting into a house, do not offer on a Short Sale.  Furthermore, you could find yourself stuck in a Short Sale contract if your agent's firm does not allow multiple offers on the table (making offer on one home while in contract on another) so you'd have to pull out of Short Sale and risk losing it just so you could make an offer on another listing, and may not get that one either.

4.  Always make your strongest offer when you find a house that you really love

Many buyers (myself included) assume that in this market, which is considered a buyers' market, banks are thankful to get any offers just to make a sale.  This is absolutely untrue, and there is a huge inventory of foreclosed homes that aren't even being listed yet that prove it.  Banks are not desperate for offers, so if you're looking at bank-owned homes, which many will be with the market as it is, you need to make your strongest offer possible.  From personal experience, if you are shopping in the 150K-200K range, every house that is even moderately "move-in ready" will have at least 5 offers in within a few days of listing.  You have to remember also that on every house you may be competing with cash offers and different loan types.  Additionally, it's a waste of time for you, your agent, and the listing agent if you are planning on submitting a low offer earlier than 60-90 days on the market.  I had heard 10% within list price to be considered a reasonable offer, but in the 150K-200K range, there is so much competition that you may find it necessary to offer slightly over listing price to get a house if you really want it.  The appraisal will protect you from overpaying, because your lending bank will not approve the loan if the house doesn't appraise for what you're offering.

5. Be sure you love a house enough to spend a few hundred dollars on inspections for nothing 

What I mean by this is that not every house you get in contract on will be a sure thing just because you get an offer accepted.  You may have to get a few inspections done before you realize there is a problem, or you may get through inspections and seller has to pull house off market, or you could have a problem with your loan and have to rescind your offer.  Because of this, you can expect to possibly lose 4-500 dollars from inspection fees between general home inspection, roof inspection, pest inspection, and chimney inspection (if there is one); they are non-refundable.  In other words, if you just throw out offers on a house because every one that falls through could put you $500 behind if you get far enough into the process.

6.  Do not ask for seller contribution unless you are making an offer above list price

For me, I liked the idea of having my closing costs taken care of by the seller so that way I knew that whatever amount we were going to apply as down payment, that is roughly what would be due at signing.  This helps you budget your reserves for improvements, incidentals (be prepared for a lot of them).  However, keep in mind that if you make an offer and ask for money back the bank will look at your "net offer".  For example, if the list price is 160K and you offer list price but ask for 5K back for closing costs, the bank sees your offer as 155K.  If you want to stick near list price for a strong offer, you need to offer over list price to offset that money back you're requesting.  This is the tactic we used, as we offered a few thousand over list price and asked for money back so our offer was still very close to list but we got our closing costs covered.

7. When looking at homes, try not to focus on decorations as much as structural/working condition

The best example for this tip is that no matter what house we were going to buy, we were going to put new flooring in so I didn't even care what was on the floor.  But to take that further, you want to look at the house as the canvas for your personal tastes, because it is not likely you'll find a house that is decorated as you would do yourself.  If you like the floorplan of the house and it's condition is good overall, with no structural faults or operational problems, you can take time to put your own touches on a house.  This is something that both me and my wife struggled with.  We were trying to find houses that were move in ready and in perfect condition cosmetically and probably passed up a lot of houses with that kind of thinking.  It's OK to have a few things that are important to you, like the shape of the kitchen or whether there is a large master tub, or even a space to put a large tub in, but if you pass up a great house because the light fixtures are bad or the countertop is ugly (but in good shape) you are not buying wisely.  The house we ended up with had the floorplan my wife loved best, that we had seen a few other times, but happened to be the one in the best condition of them all.  However, the kitchen is quite outdated, as well as the light fixtures and the carpet was stained.  We replaced the floor, painted and put in new light fixtures and it dramatically changed the house into the kind of house we were trying to find before.  Of course, you may not have the budget for a lot of "remodeling" early on, so you need to decide what is most important and choose your projects.  I would recommend getting the more involved projects done early if you can afford to (flooring, plumbing, painting).  Small touches like fixtures are easy to change out over time without interrupting much, but if you move in and decide to change the floor, you have to remove all furniture so it would be much bigger inconvenience afterwards.

8. Pick the worst house on the best street

This may seem like a contradiction to the previous tip, but what I'm really saying is don't buy a beautiful house that is on a questionable street.  You can change pretty much anything you want about your house, but you have no power over your surroundings.  If you drive onto a street that gives you a bad feeling, don't force yourself to buy there just because the house is in perfect shape.  When renting, we dealt with heavy partying and loud noises constantly so we would have been just as miserable if we had found a gorgeous house but with the same problem on that street.  One way to ensure that this won't happen to you is to drive by the house at different times of the day.  Your agent may recommend this to you as well, and will probably ask that you drive by a house before going on a viewing of it because pictures can be quite deceiving.  This happened to us a few times, we thought that between the pictures of the house and the fact that we had been in that area before it was safe, but the second we pulled up to the house we knew we had wasted our time and our agent's time by not driving by before.  Even on a street that you like, certain activities may not happen until late at night, like you may see the house in the morning when neighbors are away at work, and come home to find that they have a rock band practicing in their garage every night.

9. Keep in touch with your lender and always be prepared with paperwork

The client/lender relationship is very important from the day you get your offer accepted to the day you sign papers to close Escrow.  You will have a better experience by checking in to make sure that the lender and underwriter has everything they need to process your loan efficiently.  You will be asked to provide a lot of paperwork, including explanation letters for any collections or negative accounts on your credit report, and current bank statements and pay stubs.  If you ensure that they're never waiting on you to get them what they need, you are giving yourself the best chance to get into your new home with as little stress and few delays as possible; just remember, they can only work as fast as you allow them to.

10. Have fun shopping for your new home!

OK, I'll be honest, I really just threw this is an excuse to round out my list, but even with all of the obstacles and rules and tips that come along with buying a home, it should still be fun.  If you follow my tips, and more importantly the advice of your agent and lender, I can almost guarantee a stress-free experience that will end with you in a home of your own.

**None of the information provided in this post is to be taken as legal advice, but as information shared from one buyer's experience.  Always consult with your lender and a licensed real estate agent if you have questions about the statements above.**

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