41 Essential Tips Every Home Buyer Should Know

“Why Most Home Buyers Lose Thousands Of Dollars When Finding, Buying And Financing Their Home…”

It’s true. Even savvy home buyers lose thousands of dollars…even tens of thousands of dollars they could have "pocketed" had they known about the important "secrets" that make up a successful purchase of a great home.

They don’t lose money because someone took advantage of them. And they don’t lose money because of the economy. The problem is…

"Most People Don’t Plan To Fail…But Fail To Plan."

If you’re in the market to buy a home anytime soon, and you want to find the perfect home at the best possible price, terms, and financing, there are THREE things you need to do up front:

First, understand and get control of your personal emotions about the purchase of your home Second, get the most valuable, important information available so you make a prudent and educated decision. And third, become informed about the very best financial resources and products to fit YOUR needs…NOW, not later.

After all, buying your home is very different from any other financial transaction. It isn’t just a "home", it’s a transaction that affects your monthly overhead expenses…your ultimate net worth…your retirement…your kids education…and much more.

So it’s no surprise that buying your home may involve a bit of fear, anxiety, frustration…or even excitement for that next move in your life.

The secret is…try not to let these emotions get in the way of a prudent purchase. The tips and information in this report will help you have a better understanding of most, if not all, aspects involved with the purchase of your next home.

So, let’s examine some of the critical questions you might have with your next home purchase…

1. What is an “as is” sale?

An "as is" property is sold without a warranty as to condition, repairs, or structure. With an "as is" sale, the buyer is on notice that the seller makes no promises regarding the property’s physical status. With an "as is" sale, it is extremely difficult to make a claim against a seller if something is found to be wrong with the property after closing. "As is" clauses should be seen as an absolute requirement to make the transaction contingent on a professional inspection "satisfactory" to you. With a properly written sale agreement contingency, if you are not satisfied, then the deal is dead and you can get back your deposit in full.

2. How long must I live in a house once I buy?

When you apply for a loan, a lender will ask if you intend to use the property as a prime residence. If the answer is "yes", then it is expected that you will physically move into the property and live there for some time. There does not seem to be a set definition in the term "some time", but what lenders are getting at is this: They do not want to make residential loans with low rates and little down to investors.

Thus, if someone gets a residential mortgage, instantly moves out, and quickly rents the place, lenders will be more than unhappy - they may call the loan. They may also review the loan application to see if fraud was involved. Lenders do not want borrowers to move in and then rapidly move out, but they will look at the “facts and circumstances” if such an event occurs. For instance, a sudden job change not known in advance might be a valid reason for a move after several months of occupancy. What lenders do not want are situations where a “residential” borrower is actually a disguised investor. Given that most homes are occupied for 8-10 years, a move after several months or a year is likely to set off bells.

3. Can I buy real estate with no money down?

Yes. Millions of people have bought real estate with no money down through the VA loan program.

If you mean, can you buy real estate at a discount of 20% or 25% with no cash or credit, and then instantly sell or rent the place at a profit, then the answer is probably not. Why “probably” instead of “absolutely” not? Because in a marketplace with millions of transactions each year, somebody somewhere has made a deal with no money down and rented or sold at a profit. But it is also true that somebody somewhere was hit by lightening. The problem is that the term “no money down” is sometimes in the worst cases a code expression for a deal where someone without cash or credit wishes to buy property from someone who is needy, unsophisticated, desperate, in mourning, etc. Under the guise of “helping” the owner, buyers offer to purchase property at 20% off, or more, and with subordination and substitution clauses. Of course, if purchasers really meant to be helpful, they would surely pay full market values. Let’s be clear. If no-money-down schemes are so wonderful, why do folks who engage in such investments have a need for “partners” with cash?

Rather than get-rich-quick tapes and seminars, prospective investors are best served by taking a basic real estate license class in your state. This will explain much about financing, marketing, title, and other issues. It will also allow an individual to take the entry-level real estate exam and qualify for a license.

4. We made an offer on a home that was about 5% below the asking price. Our offer was rejected. What can we do to make the owners more reasonable?

Who says the owners aren’t reasonable? They have established a market price for their home. If they can get that price within a reasonable time frame, then they have logically priced their home. If the price cannot be obtained, they will lower either the price or the property will be withdrawn from the market. Because your experience in a different market made selling at a loss acceptable, that does not mean the same logic applies in other markets, or that your choice should in any way impact the sellers. Perhaps it would make sense to restructure your offer - maybe raise your price but seek better terms.

5. Where can I get more information regarding accessible housing options?

Try the following sources:

• State architectural associations
• Local builders
• State and local builder organizations
• Hardware and building supply outlets
• University architectural schools
• The library of the National Association of Home Builders in Washington, DC
• Local public housing agencies
• Local chapters of associations that serve those with special needs

6. Can I discount the sale price to create a down payment?

No. Lenders provide financing based on the sale price or the appraised value, whatever is less. In the case of a “discounted” price, say selling a home worth $150,000 for $140,000, the sale price is $140,000. Lenders do not recognize a discount.

A better approach is to pay full market value but to make the transaction dependent on a "seller contribution" at closing. The effect is the same, but the accounting makes more sense to lenders.

7. What is a "due-on-sale" clause?

When a home is financed, the borrower agrees to make regular monthly payments. However, if those payments are not made, if they are late, or if the lender’s security is reduced (by not making payments, damaging the property, not maintaining insurance, not paying property taxes, selling the property, selling a part of the property by placing someone else on the title, etc.), then the lender has the right to call for the complete and immediate (say within 30 days) repayment of the loan. The mortgage language outlining the lender’s rights is generally called a "due-on-sale" or "acceleration" clause. One effect of a due-on-sale clause is that it effectively prevents a loan from being assumed.

Borrowers should note that state and federal law may limit the ability of lenders to enforce a due-on-sale clause. For instance, a title change in the event of an estate situation may be allowed.

8. What is a “land contract?”

A "land contract" or "contract for deed" or "agreement for sale" is an installment sale you buy today but only get title after some or all of the payments are made. If you miss a payment, you could lose some or all your equity. Because title has not been transferred, there is nothing to foreclose. Some states, however, have special provisions protecting those who buy property with a land contract.

Be careful in a land contract situation to look at the proposed financing. Is lender approval required? If yes, and such approval is not received, the loan could be called. State rules regarding land contracts vary extensively and such arrangements should be reviewed by an attorney or legal clinic before acceptance.

9. What are the pros and cons of a land contract?

A land contract may allow a buyer to obtain real estate even if he or she is not able to obtain financing through regular loan channels. A land contract may allow a seller to market a property when interest rates are high.

If a buyer with limited financial capacity purchases with a land contract, then a seller may have problems collecting monthly payments. However, since a buyer with a land contract does not have title until all conditions are met, it is often possible for the seller to get the property back with a "forfeiture" rather than a "foreclosure". The attraction of a forfeiture is that it is much quicker to obtain than a foreclosure. It is also a complex undertaking that should only be done with an attorney.

If a land contract involves the use of existing financing that cannot be assumed, that could set-off a due-on-sale clause. Both buyers and sellers could lose the property if the loan cannot be repaid.

Or, suppose Seller Hirsh sells a property to Buyer Shapiro using a land contract. Title will remain in Hirsh’s name until Shapiro makes a certain number of payments. But suppose that Hirsh goes bankrupt. What rights does Shapiro have to the property? Or, suppose Hirsh does not pay the property taxes? If the local government forecloses, what rights does Shapiro have?

Also, what happens if Seller Hirsh goes off to Tahiti? How does Buyer Shapiro get title? Land contracts should be seen as complex arrangements. Both buyers and sellers should consult an attorney or legal clinic (separately) to assure that all aspects of the transaction are fully understood.

10. What is a "seller contribution"?

A sale agreement typically includes both a purchase price for the property as well as terms and conditions. It sometimes happens that a buyer will make an offer subject to certain terms. (I’ll buy your house, but I want to keep the washer and dryer, etc.)

One possible condition concerns "seller contributions". (For example, I’ll buy your house if you will pay the first $x of my closing costs.) Lenders will generally accept seller contributions as part of a transaction providing they are written into the sale agreement, fully disclosed and only represent a limited fraction of the sale price. Different loan programs have different contribution caps. Lenders and brokers can provide specific advice.

A seller contribution can be a useful bargaining chip in slow markets. (Buy my house and you can have a credit of $x at closing.) It’s a thought that goes a long way with cash-strapped buyers.

11. Can I rent out a room to help me qualify for a loan?

Generally no. Lenders have no assurance that such income will be regular and continuing.

12. How quickly must I apply for a loan?

Many sale agreements require buyers to apply for a mortgage within a specific time period, say seven days after the contract is signed. This is a negotiable item, however, and can be any period agreeable to both parties.

This is an important matter because if an application is not made, then a buyer may be in violation of the sale agreement. A violation of the sale agreement, in turn, could be grounds to forfeit the deposit. Thus, buyers should go through the sale agreement with great care before signing to assure that all obligations are known and understood. Work with an appropriate professional such as a buyer broker when reviewing a sale agreement.

When you meet with a lender, be certain to obtain a letter stating that you met and showing when. Immediately provide this letter to the seller’s broker in the manner required by the sale agreement.

13. Can I buy a house with an award from a lawsuit?

Sure, if the money is there. But until the matter is finally resolved (appeals run out, and a check is cashed) how does anyone know that there will be money available for a realty purchase?

What if someone contracts to buy a home today with $20,000 in cash due at closing in 60 days, money that will be generated from the settlement of a suit. And what happens if the suit is delayed? Money at closing is still required, and if the buyer does not close, there could be substantial damages—and maybe another suit.

14. I am getting married in two months. I have lousy credit, but my spouse-to-be has excellent credit. Can my future spouse buy a home individually?

Yes. However, he or she can only borrow based on one income and his or her credit standing. Together you might have far more income. Lenders, incidentally, will probably want both parties on the property title even if you are not on the mortgage. This removes a barrier should foreclosure be required.

15. If the appraised value and the sale price of a home are different, what will lenders use when granting a mortgage?

Whatever is lower. Lenders want as little risk as possible, so they will look at both the sale price and the appraised value and then make a loan based on the lower of the two numbers.

16. What is "buyer’s remorse"?

With some frequency it happens that buyers often have a sense of remorse after contracting to buy a home. Why?

A home is a very large purchase. Not just in terms of dollars, but also in the sense of status, ego, and commitment. And because it is such a transforming event, it naturally and reasonably causes some concern.

But not to worry. Buyer’s remorse typically passes in quick order.

17. Can I buy a house after a bankruptcy?

Probably. There are two issues to consider.

First, lenders like to see two years of good credit after a bankruptcy is resolved. However, there are instances where lenders will finance with a year of good credit.

Second, lenders want to know why you have gone bankrupt. There is a substantial difference between a bankruptcy that is caused by reckless financial habits and simple financial disasters (a car wreck, medical costs, the plant closed after 30 years, the town was underwater for three weeks, etc.). In other words, not every bankruptcy is a by-product of financial negligence.

18. What is a "stigmatized" property?

There are properties that are in flawless physical condition but may nevertheless present unusual marketing issues. For instance, homes that have been the site of murders, suicides, or that are reportedly inhabited by ghosts are known as "stigmatized" properties. This is a home with a condition that is psychological in nature rather than a matter of bricks and mortar.

The subject of stigmatized houses is complex. While some people may want a house with a ghost, others do not. The subject gets tangled even further when one is asked whether murders and suicides at a property must be disclosed.

The rules on this matter vary by state. Some say a given condition must be disclosed, others say "no". Some say disclosure is not necessary after so many years, and some states say nothing one way or the other. For specifics, please speak with a broker or real estate attorney in your community.

19. What is the difference between a co-op and a condo?

In general terms: A co-op is a corporation that owns real estate. If you belong to a co-op, you own stock in the corporation and the exclusive right to a given unit. There is usually an underlying mortgage on the property and your co-op fee includes some or all mortgage payments as well as other costs.

With a condo, you own real estate and you have access to certain common facilities. The condo is typically responsible for exterior maintenance and you pay a monthly condo fee. You have your own title and mortgage, so mortgage costs are not part of the condo fee.

20. What are some of the basic questions to ask when looking at a co-op?

Co-op ownership raises a number of issues that should be of concern:

1. What is the value per unit of the underlying mortgage?
2. What is the voting system (one vote per unit or voting based on unit size)?
3. Is there a reserve fund for repairs? If so, is it adequate?
4. Are major repairs anticipated in the next two years? If so, how will they be funded?
5. Is the co-op now facing or likely to face a lawsuit for any reason? If yes, what are the possible damages?
6. What pricing trends are associated with the co-op? Are prices rising? Falling? Can you review all sales for the past year?
7. Is a property tax rise known or expected?

21. What is a broker’s "trust" account?

In terms of a real estate sales agreement, a “trust” account is typically an account operated by a real estate broker that is used to hold buyer deposits until closing.

Example: Buyer Smith makes an offer to purchase a home. With the offer is a $10,000 deposit. That deposit is held by Broker Smith in a trust account. The money in a broker’s trust account is typically a credit to the buyer at closing. If the sale does not close, however, then several alternatives are possible:

First, buyer and seller may agree to return the trust money to the purchaser. Second, buyer and seller may agree to give the money to the seller to resolve claims that the buyer did not perform as agreed under the sales contract. Third, buyer and seller may dispute how the funds should be distributed. In this situation, the money is usually turned over to a court or, in at least one jurisdiction, the state real estate commission.