The housing bust is well past over, and buying a home is becoming increasingly competitive in most major markets. Sales may be down a bit, but that’s only because of a lack of homes for sale. In spite of that, owning a home is still a dream for many Americans. In this tight market, home-buying can easily become a nightmare — especially for first-timers.
Mortgage rates have dipped a bit in the past couple of months. Even with the lower rates, borrowing standards are still fairly tight in the wake of the Great Recession. They were relaxed a bit in 2014, and a bit more at the end of last year, but you still need a solid financial picture before you go house shopping. It’s best to have your credit ducks in a row and a realistic down payment at the ready. But just what does that mean? How high should your credit score be? How much of a down payment is enough? That’s all going to depend on you and your local real estate market.
Buying the right house at the right price with the right financing requires a thorough understanding of the local market, the homebuying process and the facts on funding. If you don’t have this knowledge, no problem. Just build a team that does. It really only takes two good people.
The mortgage pro
The first person you need — unless you’re rich enough to pay cash — is a mortgage expert. A mortgage professional will find out how much mortgage you qualify for based on your credit and income level, and offer advice if your credit needs help. Once you’ve got that credit score as high as possible, they’ll take you through the preapproval process so you’ll be ready to pull the trigger when you find the perfect home. In a hot market, most sellers won’t consider your offer unless you are preapproved.
Your mortgage expert’s job is to provide you with three numbers: the mortgage amount you’re able to qualify for, the amount of cash you’ll need to close, and the monthly payments you’ll ultimately pay. Keep in mind that your property taxes will likely go up year after year, which means your mortgage payments will follow suit. Says loan officer Rob Hurst of Paramount Residential Mortgage Group (PRMG) in Fort Myers, Florida: “Once you know and accept those three numbers, you’re more comfortable writing a contract” because you know exactly what you’re getting into.
So how do you pick a mortgage pro? Here’s some advice:
Talk to several. “I would get three good-faith estimates from three different reliable lenders and compare and shop in terms of rates and fees,” Hurst says.
Be wary. “I would ask if there’s any upfront fees,” Hurst suggests. He adds that the company he works for doesn’t collect anything until the buyer has a contract, and that “anybody who wants a higher-than-normal application fee or up-front fee, I would stay away from them.” Typical mortgage broker fees are from 1 to 2 percent.
Ask questions. While interest rates and fees are obviously important, so is working with someone experienced. So do what you (hopefully) do with any professional before hiring them: Ask about experience. The paperwork involved in closing a mortgage loan can be daunting, and problems aren’t uncommon. Someone who’s done 1,000 transactions is better than someone who’s done 10. And if possible, sit across the desk from them. “It would mean a lot to me as a buyer to have that face-to-face interaction,” Hurst says.
Get recommendations. Ask your real estate agent for recommendations — an agent should know who’s good. “Let’s say there are two [mortgage professionals] that are identical,” Hurst says. “If one of those two has a relationship with my agent, that’s the one I’d pick.”
Of course, recommendations work both ways — a local mortgage professional may be able to help you find a good real estate agent too.
The real estate agent
A real estate agent isn’t essential: You can buy a house directly from an owner. And many buyers like it that way, since that saves the seller thousands of dollars in commissions, which means a potentially lower price.
But a good real estate agent can help in major ways. “A lot can go wrong, from an appraisal issue, to a negotiation issue, to an inspection issue,” says real estate agent Denny Grimes. “Everything along the way can cost the buyer a percent or two, and that adds up.” Having the right person to help you find the right house at the right price may well pay off.
To find the right person, Grimes offers this advice: Ask open-ended questions. Aside from asking about experience and recent transactions — both critical — Grimes said he would quiz the agent with open-ended questions.
“I would ask, ‘Please give me your evaluation of the market.’ If they start to spout headlines versus local data, or they’re a little bit uncomfortable with that question, that suggests to me they have not adapted to local market dynamics,” Grimes says.
Focus on qualifications, not personality. Everyone wants to deal with someone they feel comfortable with, but take comfort from winning credentials, not a winning smile. “For a lot of people, it’s relationship-based instead of professionally based,” Grimes says. “The best agent for you may not be your best friend.”
Request referrals. In addition to asking mortgage pros and agents about each other, get in touch with past customers. The personal feedback, along with the sheer number of referrals they offer, may say something about the agent’s experience. “If you’re looking for a pedigree, I can provide more satisfied customers than probably any other agent in town,” Grimes says. “If you ask for a satisfied customer and they only have one on their list — and it happens to be their mom — you might want to look elsewhere.”
Bottom line? Team-building is the foundation of any successful venture. The more your team knows, the less you have to know. The more trustworthy they are, the less stressed you are.
What’s your experience working with mortgage experts and/or real estate agents? Share with us in comments below or on our Facebook page.