Buyer’s Guide or Something Like It – “You Can’t Cheat an Honest Man”

I’m an economist by education and love the facts and figures around markets. I’ve negotiated deals from a $100 to $500 million, yet I have the same issues as most when it comes to the emotions around a purchase. Buying a home has the same pitfalls as any purchase so the trick is to be prepared, whether you are a 1^st time buyer or an old hand at the game.

The cover image gives away my age but it also reveals my heart.  I loved Charlie McCarthy and Mortimer Snerd.  They remind me that we can’t take ourselves too seriously and we should always ask questions. My point about Mortimer is that you need to know who and what you are.  Be prepared.  Here are a few pointers.

1. Determine how much house you can afford.

It’s never a good idea to go into the buying process not knowing what you can afford to buy. It seems silly even saying it, right? Happens every day. I’m just saying. Take these steps at the front end of the process so you are prepared. All these questions are going to be asked.

• Calculate your monthly income and debt.
  • You need to know how much you make and how much you owe. Go ahead and do this first so you are ready for the paperwork because Mortgage lenders are going to ask. Be prepared to provide your last 2 years income tax returns and employment history.
  • Do a budget. Yes, it hurts at first, but do it. It’s good for you.
• Check your credit report and FICO score
  • There are several ways to do this, so I won’t promote, but you need to know your credit score and be prepared to explain any negative items. Don’t panic. We all have stuff. Just be prepared. Usually a FICO over 550 is workable with a good work history and decent debt to equity ratio, but the higher the better.
• Use a mortgage calculator.
  • There are a multitude of calculators out there. These are helpful but look at the details. Look at the assumptions they use for taxes and insurance. Your agent should be able to help with average in the area you are looking for those items. Work the numbers.
• Figure out your down payment.
  • This can be a tricky question. For a conventional mortgage the down payment can range from 5-20 percent of the contract price. For FHA loans it can be as low as 3%. If you are a Veteran you can qualify for a 100% loan. There are even some in house programs at the regional lenders that provide 0% down programs under the right circumstances. The key here is to work with your agent and your lender. A word of caution here. You are in a very competitive Seller’s market. Seller’s like cash best and first. Second is conventional with a larger down payment. FHA is the next best choice. VA lags in offerings because of the bureaucracy around the appraisal process. Don’t get mad at me for telling you. That’s the reality of a long term Seller’s market. Just know that going in, and adjust your offering to compensate.

2. Get pre-approved for a mortgage.

Without very few exceptions, Sellers are going to ask for a pre-approval letter. Most agents will not show houses to a perspective client without a pre-approval letter. If you are interviewing agents, they most likely have several options to help you if you have not started this process.

• Choose a type of mortgage.
  • You may be able to qualify for several different types of mortgage. As I listed in my earlier comments, Sellers are predisposed to cash and a cascade from there. If you have options, you should be prepared to go with the most attractive means for the market you are in.
• Speak to more than one lender or mortgage brokers.
  • You should interview more than one lender. My advice is to avoid big banks. They are really good at servicing loans and typically very bad at Origination.  Origination is the process of preparing and approving a loan package for your mortgage. They don’t have the same priorities as regional lenders and their under-writers are not typically as educated in the local market. Also they are much slower in general. They will tell you different, but many times my deals have been delayed because they are late, or delayed, or the underwriter needs more information, or whatever. I’m just telling you, go with a smaller regional bank or regional broker. They will sell your paper to BA or WF anyway.
• Shop for the best interest rates and programs.
  • I’ve covered this a bit but it’s pretty obvious. Stay aware of your options. Don’t lock in too early.

3. Determine what you want and need in a home.

Choose a location (downtown, urban, suburban, rural).OK, this seems intuitive but I can’t tell you how many times I’ve met with perspective buyers that just have no idea what they want. Take a little time with your agent to discuss your priorities. Use the market search engines. In today’s environment and with technologies available it’s much easier and economical to do this legwork on the net.

• Choose a type (single family, townhouse, condo, loft).

This is a progression from the comments above. You may be more flexible, but at least be aware that there are multiple options.

• Choose a price range.

If you have the time to budget this should be a no brainer. If you know the budget, the price range will fall in to place.

• Choose a size.

Size is a function of budget, BUT it may be reversed if you have some specific needs. Take this into consideration when thinking through neighborhoods and location in general.

• Choose an architectural style.

This is very HGTV. Sometimes it’s easier to know what you don’t like that what you do. I’m just saying to spend a little time understanding the styles that inspire you.

 4. Research your target neighborhoods.

• Look online for information on schools, crime rate, traffic and zoning.

Agents can’t and shouldn’t ethically comment on this type of data. Don’t ask if it’s a “good” neighborhood because it’s a value judgement we shouldn’t comment on. Do your due diligence here.

• Determine your work commute.

How far are you willing to drive? Do you fly out every Monday morning and come back every Thursday night like I did for years? This makes a huge difference in where you are willing to live.

• Scout local amenities such as parks, shops, and restaurants.

I’ve lived in the same community for a long time. We picked the area we live in because of our Church and where we wanted to raise our kids. It was also close to my Texas Rangers. Take some time to think about what’s important to you and how far you want to drive to get there.

5. Work with a buyer’s agent who knows the neighborhood.

If you are in Lubbock area, and are looking to buy or sell a home, I would be a great choice if you’re not already working with someone! My contact information is (817)308-2076,  Jeff.Hansen@kw.com, or find me @hannurealestate on Facebook!