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Welcome to Louisiana Title Services, Inc.
Buyer's Corner
Congratulations! You have decided to make your dream of owning a home into a reality.
You are going to embark on a journey toward the American dream of becoming the owner of your own home. As with any journey toward a prized goal, you may encounter problems along the way. We are here to help you leap the hurdles, navigate the obstacles or smooth the snags that might impede your journey.
Before you begin, let's look at some important issues
that will provide you with the answers and the steps that will make your
journey a pleasant and rewarding experience.
- How much home can you reasonably afford?
- Choosing the best real estate agent for you
- Selecting the most advantageous mortgage lender
- Choosing the right mortgage
- What is an FHA Loan?
- Finding the perfect home
- Making the Offer
- Closing the Deal
How much home can you reasonably afford?
Before you begin the search for your dream home,
decide how much you can comfortably spend. Mortgage lenders most often will
take into consideration all of the following:
- The size of your down payment
- Your job stability
- Existing debts
- Credit references and,
- Payment history.
Knowing your credit status and how credit agencies
rate your credit also may be a deciding factor, especially when you begin
talking to lenders. There are three main credit-reporting agencies that will,
for a small fee, send you the most current credit report on file.
- Experian
- 1888-EXPERIAN (397-3742)
- Equifax
- 1800-997-2493
- Trans Union
- 1-216-779-2378
Lenders usually use the following two qualifying
guidelines to decide how much of a loan you can manage:
- Your monthly housing expenses - mortgage payment, property taxes, insurance, etc. These expenses should total no more than 28 percent of your monthly gross income.
- Your monthly living expenses and any long-term debts - utilities, car and school loan, child support, health and car insurance, etc. These expenses should be no more than 36 percent of your monthly gross income.
Choosing the best real estate agent for you
Once you've assessed your spending qualifications,
you will need to find a real estate professional. As with any major journey,
you need a capable, competent guide, one who clearly is able to lead you
through the steps that ultimately will bring you to your final destination -
your new home.
Choose an agent with whom you feel comfortable. One
who is responsive to your needs and the needs of your family, one who
compliments your personality, and one who is prepared to be with you throughout
each step of the home-buying process.
A few simple guidelines for finding the 'right'
agent are:
- If you already know the neighborhood in which you would like to live, find an agent within that community.
- Seek an experienced agent with a known reputation - look at credentials, track records and awards received.
- Seek someone who is a member of the Board of Realtors®.
- Find someone who is continuing their education - a Certified Residential Specialist (CRS), Certified Residential Broker (CRB), a graduate of the Realtors Institute (GRI) or an Accredited Buyer's Representative (ABR) - this shows the realtor is interested in the business long-term and is willing to invest in their career.
- Seekreferrals from your family and/or friends.
- Interview at least three agents before you make your final decision.
If you are being referred to an agent, here are
some questions you will want to ask about him or her:
- What were they like to deal with?
- How hard did they work for you?
- Did they get you a good price?
- Were there any complications?
- Did they always tell you the truth?
- Were they always looking out for you or just interested in getting paid?
- Would you use their services again?
You've narrowed your choices to the top three
professionals. It's time to make the final decision on who will be your guide. Ask these questions of your three finalists:
- How many buyers have you successfully represented in the last six months?
- Can I have the names and phone numbers of three to six of your most recent buyer clients?
- Do you deal mostly with homebuyers or primarily with home sellers?
- What professional designations do you have?
- Are you fully automated with your own personal computer, FAX machine, copier, pager, voice mail, etc?
- What is your commission?Or do you have hourly rates or a set fee?
- Do you have a list of home inspectors, insurance agents and reputable lenders for me to consider?
- What clauses will be included in our offer to protect us as buyers?
- Will you try to sell me one of your listed properties before you show me listings from other real estate companies?
- Do you have information about For Sale By Owner properties?
- How will you help me save money?
- How will you protect my interests, and why should I hire you rather than another agent?
Now, here are some questions to ask yourself after
the final interview of real estate agents. The answers to the following
questions will increase your chances of choosing the best real estate agent for
your and your family.
- Which one returned your phone calls?
- Which one asked questions to determine what you want/need in a home?
- Which one performed a financial analysis to determine how much you can afford?
- Which one suggested financing methods?
- Which one seemed most knowledgeable about the community?
- Which one explained things most clearly?Which one did YOU feel most comfortable with?
Keep in mind, home buyers - you -
need to search for a realtor the same way that home sellers do.
You see, there are two "sides" to every
sale. The seller's side is represented by the listing agent. The buyer's side
is represented by the selling agent. The selling agent also is referred to as
the buyer's agent. Usually, real estate commissions are paid by the seller. For
this reason, the selling agent, although representing the buyer, has certain
duties to the seller. If you, as the homebuyer, want to have a real estate
agent represent only your interests, you will need to hire and pay commission
to your own real estate agent.
These real estate agents are generally referred
to as buyer's agents.If you call on a single classified advertisement in
a newspaper, an ad in a home selling magazines or a listing on the Internet,
you most likely are calling the listing agent.
Selecting the most advantageous mortgage lender
With your realtor chosen, you now have someone who
can guide you through the process of securing a mortgage lender. Your agent
will help you understand and choose the type of lender that best fits your
financial needs.
Each lender is different, so be sure to choose one
that will work with you and your specific circumstances. Shop for lenders
offering the best deals. Check with several mortgage companies and use one or
more reporting services. If there isn't a reporting service covering your area,
begin the search at your own bank or savings and loan or through any of the
following sources:
Independent Mortgage Companies:
Make just over
half of all home mortgages, including most VA-guaranteed and FHA-insured loans.
Savings Institutions:
Savings and
loan associations and savings banks originate close to a quarter of home
mortgages. Most are conventional loans - those not guaranteed by the VA or
FmHA, or insured by the FHA.
Commercial Banks:
Active in
residential lending. Banks also are a major supplier of loans for mobile-home
buyers.
Mortgage Brokers:
Act as
intermediaries. A broker keeps tabs on the mortgage market through ties to
local, regional and national lenders, and can refer a prospective borrower to a
mortgage banker, savings institution or a commercial bank. Brokers don't lend
money and can't approve loans.
Credit Unions:
Make close to
one-third of all first-mortgage loans, but you must be a member.Public Agencies:State and local
finance agencies make below-market-rate financing available to eligible low-
and moderate-income first-time buyers through the sale of tax-exempt bonds.
Employers and Unions:
Don't overlook
your employer as a source of assistance. An employer may subsidize the interest
or even act as a lender. Unions are another possibility. The AFL-CIO offers
what it calls "Union Privilege." Unions that sign on can make
first-time home loans available to eligible members for as little as three
percent down.
Again, remember, your realtor should be able to
provide a great deal of assistance in finding just the right lender. The
following directory also will help you locate a lender right for you.
Choosing the right mortgage
The next step in your journey is choosing the right
type of mortgage for your individual financial needs. While there are some
people who can and do pay cash for a new home, most are like you, and this is
where your lender's skills and knowledge will take effect.
Pre-qualifying before house hunting puts you ahead
of the game. Your research into how much home you can afford has provided you
with the knowledge of already knowing the standard of mortgages for which you
qualify. Quite simply, you are shopping for a loan from a mortgage lender.
First, review the major kinds of mortgages you may
encounter. The following list contains the mortgages you are most likely to
see. Again, ask questions; your lender will be happy to explain each type of
loan arrangement and satisfy all your concerns.
Fixed-Rate Mortgage (FRM)
This is the
standard mortgage model. It is the oldest and most easily understood type of
mortgage. Its primary attraction is that the interest rate and the amount of
payment remain fixed for the life of the loan, typically either 15 or 30 years.
However, if rates fall, the holder cannot benefit from the new, lower rate
except by refinancing.
Adjustable-Rate Mortgage (ARM)
With this kind
of mortgage, the interest rate you pay rises and falls along with other rates
charged throughout the economy. Therefore, you, the borrower, assume the risk
of rising rates, and you stand to benefit should rates fall.An essential
question to ask about an ARM is whether there are limits on how much your rate
can be raised, both at each review and over the whole term of the loan. Without
limits, known as "caps," you'll have no way to predict how much your
rate (and thus your monthly payments) might change.
Convertible Option
FRM and ARM
represent the primary options available to homebuyers today. The convertible
mortgage represents something of a compromise between the two. It is designed
for those who want the advantages of the ARM, but also want to limit the risk
of rising rates.Under this arrangement,
the buyer starts out with an ARM, but has the option of converting to an FRM at
specified points during the loan term. You may want to ask the lender these
questions: When can you convert? How often can you consider the option? Are
there any up-front fees involved? Will you have to pay more for an ARM with the
conversion feature than for an ARM without it? Are there additional fees due if
and when you decide to convert? Find out the lender's conversion rate.
Graduated Payment Mortgage (GPM)A fixed-rate
GPM starts out with low payments, usually below that of a fixed-rate and
possibly that of an ARM, but rise gradually (usually over five to ten years),
then level off for the remaining years of the loan.
Growing-Equity Mortgage (GEM)
This option is designed
for borrowers who want to pay off their mortgage as soon as possible.
Therefore, the interest rate remains fixed, but the amount of the monthly
payment increases according to a prearranged schedule, with the higher payments
going to reduce the principal balance. This mortgage can be appealing to
someone who is expecting regular income growth and wants to build equity
quickly.Fifteen-Year MortgageLike the GEM,
the fifteen-year mortgage enables borrowers to repay their loan more quickly,
which means they build equity faster and pay less interest over the life of the
mortgage.
Biweekly Mortgage
Another option
for people who want to repay their loans sooner is the biweekly mortgage.
Instead of making a single mortgage payment each month, borrowers who choose
this option make two equal payments monthly.
Federal Housing Administration Insured Loans (FHA)
FHA, also known
as the Federal Housing Administration, operates under the control of the
Department of Housing and Urban Development (HUD) and has the primary
responsibility for administering the government home loan insurance program.
This program allows buyers who might otherwise not qualify for a home loan to
obtain one because the risk is removed from the lender by FHA.
What is an FHA Loan?
In 1937, under an act of Congress, the Federal
Housing Administration was established to provide American families with a
unique opportunity to become homeowners. Formerly, a homebuyer's options were
limited only to short term loans ranging from one to five years in term.
Borrowers had to put as much as 40 to 50 percent down on the property and pay
off the entire loan balance by the end of the term. FHA revolutionized the
mortgage industry at the time by offering the 30-year mortgage and made the
possibility of home ownership available to Americans nationwide. Throughout the
years, a variety of programs have spawned from this revolution to make that
American dream of home ownership easier, more affordable and attainable to
Americans.
There are several notable FHA home loan programs available.
- Standard fixed rate (FHA 203b)
- FHA adjustable rate mortgage (FHA 251)
- FHA 2-1 buydown (FHA 203b, FHA 251)
- Energy Efficient Mortgages Program
Payment Problems
Should one fail to pay, FHA insures mortgage loans
made by approved lending institutions. The FHA insures a variety of mortgages,
including FRMs, ARMs, GEMs and GPMs. Down payments are low - 5 percent or less.
The FHA doesn't set the interest rate on loans it insures, so you'll need to
shop around for the best rate.
The FHA limits the amount it will insure to
whichever is less: 95 percent of the local average home price or 75 percent of
the loan limit set by the Federal Home Loan Mortgage Corporation, a large buyer
and reseller of mortgages.
Veterans Administration Guaranteed Loans (VA)
VA loans have most of the advantages of FHA loans,
and then some, but they also have eligibility restrictions. They are available
only to veterans of the armed services, those currently in the service and
their spouses. VA loans are typically half a percent or more below market
rates, and they can be obtained with no money down.
Finding the perfect home
You are now ready and armed with your
pre-qualification or pre-approval to find the home of your dreams. Your journey
has brought you this far and now your real estate agent will provide you with
as many homes as you care to see.
However, do you know what kind of home you are
looking for? Do you know what neighborhood in which you wish to live? What kind
of schools will your children be attending? Is shopping important to you or are
you looking for that home on the golf course or near the water? Would you be
comfortable in a condominium, a townhouse or even a pre-fabricated home? All
these questions and more regarding amenities and specific features will be
among those your real estate agent will ask. She will be much more capable of finding
the right home for you if she knows as much about your requirements, needs and
desires as possible.
To help your real estate agent with this process,
make three lists - a need list, a do-not-want list and a dream list. Factor in
your current housing needs, likes, dislikes and possible future changes in your
life and lifestyle, such as more children, less children, parents moving in or
out and other major life changing factors.
Your needs list may include:
- Number of bedrooms
- Number of bathrooms
- Bath in the master bedroom
- Separate dining room
- Garage
- Basement
While your do-not-want list may include:
- Small bathrooms
- No counter space
- No windows in kitchen/bathroom
- Tiny yard
- Insufficient closet space
- No garage
For your dream list, write down all of the features
you would love to have in your home, which may include:
- Fireplace
- Swimming pool with Jacuzzi
- Greenhouse
- Breakfast nook
- Two stories
- Skylights
Making the Offer
You may already have an idea of where you want to
live, but if you don't, here are few things to think about:
- Look at the surrounding houses in the neighborhood. Are the homes and yards well kept? The condition of these homes will affect the value of the home you buy.
- Is it visually appealing? Explore the lot thoroughly. Does it offer adequate privacy? Will you maintain the ground or hire someone? Do you like the landscaping or would you design your own? When looking into the back yard, are you greeted with the sight of a transformer, radio broadcasting tower, gas station, bus stop or ball field where night games are played?
- What kind of area is it in? How close are shopping facilities, banks, churches, hospitals, schools, parks and movie theatres? And, of course you'll want to know what, if any, crime rate is associated with the neighborhood. Go to the local police station and ask for records of robberies, break-ins, vandalism, assaults and drug-related problems in the neighborhood. Is crime increasing or decreasing?
- What is the traffic like and how will it affect your commute to and from work? Heavy traffic also produces noise and air pollution.
- Is the home in an area that floods when it rains. How fast does the
water drain from the streets and yard? Slope and the soil's ability to
absorb water will determine where and how fast water drains away from the
house.
What ever you do, don't be afraid to ask questions.
Your real estate agent will be very happy to provide you with as much
information as possible. Remember, this is potentially the largest purchase you
will ever make - ask questions until you are satisfied with the answers.
Here are a few other things you will want to
consider in the selection of your dream home:
- Don't fall in love with the first home you see. New listings come onto the market all the time. The best deal may still be 'just around the corner'. The more homes you see, the more you'll learn about what you want and what each house has to offer.
- Don't choose a house because you like the interior decorating - a well furnished home isn't always the most structurally sound. Check out the actual structure of the home. Keep in mind, the furnishings will be leaving with the current owner.
- Go through the house with a fine-tooth comb. Open cabinets, turn on every switch, notice details, move furniture away from the walls, look in the attic, turn on faucets and flush the commodes. Look for water spots on walls and ceilings - you don't want to find out after you've bought the house that the roof is leaking.
- Don't be pushed into making a selection. Make your decision only when you've seen enough to pick the best one
Closing the Deal
You've finally found the home of your dreams.
You're ready to put your money where your mouth is - but wait - before you sign
on the dotted line, before you spend the money your lender has provided and
before you start thinking about interior and exterior design, find out a few
things first. Those things may help you negotiate a better, lower price than
what the owner is asking.
Find out the selling prices of similar properties
to use as a guideline to set your sales price. These
comparable properties should:
- Have sold no more than six months earlier
- Be around the same age and condition
- Have close to the same number of bathrooms, bedrooms and square footage
- Be in a similar location and on a similar lot
- If you still don't feel comfortable setting a price, consider having a professional appraisal done. Appraisers look at what the home is worth today and how the neighborhood may affect future property value. They provide a realistic figure for the true market value of the property
Once you, your real estate agent and the owner have
come to an agreement on the sale price of the house - Put it in Writing.
Don't reveal your strategy and don't make oral
offers. You know you want this house, but don't hand over your money until you
are sure the seller is legally capable of conveying a good title and meeting
other conditions. Yet the seller doesn't want to surrender the deed until
you've paid for the property.
Now what?
With your real estate agent's assistance, offer the
seller a written contract setting out the commitments and promises that you and
the seller need to agree on and fulfill in order to make the sale. A well-drawn
contract should protect all parties.
The first contract you submit should be
comprehensive and include everything of any importance. Keep in mind, once the
seller accepts the contract, it may be too late to add or change anything. In
some states, there may be standard real estate contracts. However, you should
make sure that your contract includes at least the following:
- The offering price
- Down payment
- Legal description of the property
- Method of conveying the title
- Fees to be paid and who will pay them
- Amount of deposit
- Conditions under which the seller and buyer can void the contract
- The settlement dateFinancing arrangements
- A list of appliances, furnishings and personal property being sold with the home
Earnest Money
After you have come up with an offer price, the
next step is to determine how large a deposit you want to make with your offer.
You want the "earnest money deposit" to be large enough to show the
seller you are serious, but not so large you are placing significant funds at
risk.
One recommendation is to make sure your deposit is
less than two percent of your offered price. The reason for this is that if
your deposit is larger than that, the lender will pay particular attention to
how you came up with the funds. You might have to provide a copy of a canceled
check along with a bank statement showing you had the money to begin with.
Normally, this is not a problem, but if you have a short escrow period or are
barely coming up with your down payment, it could pose an inconvenience.
Another reason to limit your deposit is "just
in case." Although significant problems are the exception and not the
rule, they do occur. "Just in case" there is a nasty or prolonged
dispute between you and the seller, the less money you have tied up in a
deposit, the fewer funds you have placed at risk.
As with practically everything in real estate,
there are exceptions to this rule, too. During a hot market, there may be
multiple offers on the property that interests you. A large deposit may impress
a seller enough so they will accept your offer instead of someone else's, even
when your unknown competitor is offering the same price or slightly higher.
Since large deposits do impress sellers, you may
also find that by making a large deposit you can convince the seller to accept
a lower offer. More money up front may save you money later.
When it comes to buying your new home, everything
is negotiable. Your real estate agent can be very helpful with this process. A
partial list of what's negotiable when purchasing your new home may include:
- Price
- Financing
- Closing costs (except where specified by financing or law)
- Occupancy (When can you get the key and move in?)
- Painting (Will the seller repaint a portion of or the entire house?)
- Repairs (Will the seller repair the roof, plumbing, windows, etc., and what kind and quality of repairs will be made?)
- Yard (Will the seller remove unwanted trees, bushes - put in desired landscaping?)
- Fixtures (Which lights, fans, appliances, etc. stay and which go?)
- Wall coverings (Do the drapes stay or go?)
- Furniture (Will the seller include certain pieces?)
- Prepaid taxes and insurance (Will the seller credit you with these?)
Negotiation gives you - the buyer - incredible
power in making a favorable transaction. As in any negotiation, be prepared to
do some give and take. Let your real estate agent help you and work with you
and the seller to come to the best possible terms for everyone.
As an added precaution, you also should have a
professional inspector go through the house to look for potential problems.
Even though you have made a complete walk-through, asked the right questions
and discussed the offer with your real estate agent, a professional may see
things that would be easy for you to overlook. Even if they are not things the
seller is expected to repair, at least you will have foreknowledge of any
potential problems.
Once you receive the inspection, you will want to
allow yourself sufficient time to review and approve the report. If you do not
approve the report, you may negotiate with the sellers on which repairs should
be performed and who should pay for those repairs. Otherwise, you can cancel
the purchase without penalty, provided you have included timetables in your
offer. Allow a maximum of ten to fifteen days to receive the report and five
days to review it.
One more thing, it is absolutely essential that you
include a closing date as part of your offer. This way both you and the seller
can make plans for moving and the seller can make plans for buying his or her
next home. This also allows the time needed to renegotiate after reviewing the
professional inspection report.
Though most transactions actually do close on the
right date, remain flexible to avoid delays that may create difficult problems.
For example, if you are renting and need to give
the landlord notice that you are moving out, you may want to allow some
flexibility in your time line. Otherwise, if your purchase closes a few days
late you could find yourself staying in a motel with your belongings packed in
a moving van somewhere while you pay storage costs.
You're almost at the end of your journey. Soon,
your dream will be a reality and you can begin living in the home of your
choice. And, now that you and your seller have come to a mutual agreement, you
are ready to sign the contract and put down your earnest money (money
indicating the seriousness of your offer). There are all kinds of people and
services involved behind the scenes to make this happen before you put the key
in the lock.
First, you'll want to close the deal. The road to
closing is short, with only six major steps. These steps generally are handled
at your title company office. Participants at this meeting are you, the buyer,
the seller, your attorneys - if you have them, your real estate agent, escrow
agents and anyone else who may have an interest in the transfer of title.
And of course, the final step - moving in!
Congratulations - you have now accomplished the American dream of owning your
own home! Live long and prosper!