And Not Get Burned!   

The Key is Preparation.  Get Pre-Approved for your loan (not just a prequalification letter) before you begin your search. A loan approval is a commitment from a lender to lend you money to buy your house. This type of approval is much more valuable than a loan Pre-Qualification. Having a preapproval for a loan is almost as good as having cash in the bank and greatly strengthens your negotiating position when you make an offer for a house.

Many lenders issue a Pre-Qualification rather than a Pre-Approval because it is easy for them to do and doesn’t require getting all of the credit reports and job history and verification, etc. and isn’t generally accepted by sellers since it isn’t worth the paper that it is written on. A Pre-Approval is based on what you tell your loan officer and doesn’t require any real work on their part. Shop around for the lender that will give you the best loan, costs, and interest rate terms.

Determine Your Budget and stick with it.
Determine how much you can afford to use as a down payment and how much you can Comfortably Afford to spend each month on your House Note including Taxes, Insurance, Utilities, HOA fees, Trash Pickup,Recreational Facility Fees, Lawn Maintenance, etc. If you are currently paying rent, you can use that amount as a beginning point for your estimate. If you multiply the monthly payments that you plan to make by 100, that will give you a ball park amount to use for a house purchase. You should allow roughly 10% of the sales price to be needed for down payment and closing costs. Most lenders recommend that your Debt-To-Income Ratio (Front End Ratio) not exceed 28% , and your Back-End-Ratio should not exceed 36% of your monthly income before taxes (at a maximum). Your Front-End-Ratio includes Principal, Interest, Taxed, Insurance (PITI). Your Back-End-Ratio includes includes all debts,  including Mortgage Payment, Car Loan, Student Loan, Credit Cards, Rental Payments (for furniture, appliances, etc.). If you are considering a new, major purchase for an auto, boat, RV, appliances, or anything else, include that in your estimate. Include your estimate for entertainment, holiday, and travel expenses that you don’t want to give up. Don’t spend all of your savings. You never know when you will be changing jobs so make sure that you maintain enough money, in savings, to get you through at least 6 months.

Check to see if there are any Down Payment Assistance programs that you, or your new house, might qualify for. You might be surprised what programs are available for U. S. Veterans and certain professionals as well as Low and Moderate Income Families.

Check your Credit Rating and Fix any Issues that show up. You can do it yourself or hire a credit repair company to do it for you. The credit score requirements vary, depending on the type of loan. FHA requirements are generally more lenient than conventional loans. Check with your lender to see what is best for you.

Get Pre-Approved for your loan. A loan approval is a commitment from a lender to lend you money to buy your house. This type of approval is much more valuable than a loan Pre-Qualification. Many lenders issue a Pre-Qualification rather than a Pre-Approval because it is easy for them to do and doesn’t require getting all of the credit reports and job history and verification, etc. that is requires. A Pre-Approval is based on what you tell your loan officer and doesn’t require any real work on their part. Shop around for the lender that will give you the best loan, costs, and interest rate terms.

 

Check out the neighborhood and surrounding are including the local schools and find out if there are plans to redistrict the schools. School districts can change frequently, depending on population growth and decline in an area. Plan to attend a PTA meeting, in the area, if you have time. Talk to parents of children that attend the local schools. Use Google Maps to see what businesses, Landfills, Lakes, Rivers, etc. that are in the surrounding area. Visit the area at night and on weekends to check for noise, parking, lighting, etc. before you spend time looking at houses in the area. Check with your home owner’s insurance agent to see if the area is prone to flooding and if the property is in a flood zone.

Check out the Crime Reports and The Texas Sex Offender Registry before you go to the area.

Check out the local traffic patterns and test out the drive to your work location to see how long the drive takes, at the time that you plan to be travelling.

Educate yourself. There are lots of resources on the internet that will provide you with information on how to look for a home and the process of making an offer and everything from offer acceptance to closing. A good place to begin in with the HUD website.

Assemble a Great Team:
Before you begin looking for a house, you should have selected your team. (You should always select licensed professionals that are in good standing with their respective trade associations.) Interview 3 or so REALTORS® and choose the one that you think will do the best job for you.

1. Your REALTOR® – Your Partner, Your Consultant, Your Guide, Your Adviser , Your Planner, Your Marketing Expert, Your Coordinator, and Your Negotiator.  As your REALTOR®, l will put your interests first. I will also assist you with choosing service companies, if you need assistance. Remember, I work for you. You’re the boss. You hire me and you can fire me, if I fail to perform to your expectations.

I will work with you to determine what you should offer for the house, when you find one that you like. Do not get into bidding competitions unless you are willing to spend more on the house than it will appraise for. The lender will base the amount of the loan on the appraised value. If you offer more than the house appraises for, you may have to bring extra funds to closing to make up the difference. You don’t want to be upside down, and owe more on your new house than it is worth, after the close. It may take years to get back to a “break even” point.

2. Lender – Shop around for the best terms. Check with a few lenders to see what their fees are, interest rates and fees vary with each lender. Choose a lender that works with the type of loan that you are looking for. if you will be using a VA loan, get a lender that specializes in that type of loan, has a good reputation, and are Military Friendly.  Get a total of fees and escrow funds needed at closing, as well as the total APR. Know what it will cost you and how much closing costs will be before your begin. Get a Loan Approval!

3. Home Owner’s Insurance Agent – Your agent will determine of past insurance claims against the property (if you ask for a CLUE Report), the risk of flooding and the cost of flood and windstorm insurance, if necessary, and the cost to insure the house. Check to see if your house will need Windstorm Insurance since this can add quite a bit of cost to your monthly payments. You can check the Texas Department of Insurance to see if the house that you are considering to purchase requires this insurance and has a Windstorm Certificate. Shop around for the best coverage and price. Some area have much higher insurance costs than others.

4. Title Company – You can choose any reputable company that is near the new property. For convenience, you might consider on with an office near to the area that you are moving to.  Your escrow agent will work with your lender to coordinate your closing and the associated activities. They will call for the survey and determine closing costs as well make a list of  things that need to be cleared in Appendix C. This appendix is called the “Clear to Close” and has the issues that must be cleared up before closing, otherwise these items will move to Appendix B and be excluded from the Title Policy. You can discuss this with your REALTOR® before selecting the company and escrow agent.

5. Residential Inspectors – Your inspector will check the property for defects in the roof, foundation, plumbing, A/C and heat system, plumbing along with the water heater, electrical systems, windows, appliances, wood destroying insects, etc. to see if there are any major flaws in the property that might need to be addressed before the close of the option period.  This should be a full time inspector and a member in good standing with a trade association.  Supra Key access is desirable so they can enter the home when no one else is available to let them in.  I prefer an inspector that “gets on the roof” and checks the roof close up. I don’t have a lot of confidence in an inspector that checks the roof from the ground.

Typically, a roof should last for at least 15 years, if it was properly installed and has not been damaged by hail or wind or some other event. The cost of replacing a roof is about $8000 to $12,000, or even more, depending on the square footage, type of roof, roof pitch, number of stories, number of gables, location, etc. so get it inspected by a roofing specialist. You home owner’s insurance policy may not cover damage to a roof that was not properly installed, and it takes an expert to certify that the roof meets requirements for the are that the house is located in. Check here for more information.

Have the house inspected by a licensed, certified residential inspector and by specialists for each system. Hire inspectors to check the Roof, Electrical, Plumbing, HVAC, Foundation, and to check for Wood Destroying Insects (WDI). Problems in one, or more, of these ares can be very expensive to correct and can reduce the market value of your house. I also recommend that you have the soil around the house treated for WDI after purchase, even if there aren’t any signs of infestation at the time of purchase. Most WDI inspectors will tell you that there are two types of houses in the Houston area; those that have termites, and those that will have termites. For more information on termites check Texas A&M WDI information.

You should be present for inspections and discuss the inspection, with the inspector, immediately after the inspection is complete. The inspector does an general inspection of all systems in the house but cannot diagnose every problem that might exist. He may recommend that you hire experts in foundation repair, roof repair, plumbing, electrical, HVAC system repair, or termite or mold inspection and treatment where he suspects that their may be a problem that requires a specialist.

The inspector cannot see under fresh plaster and paint, or behind vinyl siding, so beware of potential problems that are hidden from view. If your inspector suspects a problem with an area and recommends that you hire a specialist, then do it. This is the best insurance that you will have to avoid problems, and potentially expensive repairs, after you move in to your new home. Always use honest, reputable companies, and avoid going cheap when selecting your service experts. Avoid “storm chaser” roofing companies that look for insurance jobs after an area has been hit by hail or wind storm damage.

Check for permits and approvals for any structures or modifications that were added since the house was built. There could be permit requirements for the HOA, the city, or the county. Have the seller provide them or arrange to get them before closing.  Use an addendum to make the sale contingent on the seller providing all documents and approvals for all additions or modifications.

6. When considering the purchase of a investor owned and rehabbed property (flip) be suspicious. Some investors do a really great job in making repairs to their properties but some try to get “in-and-out” of the transaction as fast as they can and with the least amount of investment. Pay particular attention to any new plaster and paint. Lots of damage, including mold and cracks in walls, can be hidden under plaster and paint. Foundation problems can be covered up using carpeting. Check all appliances to see that they are clean and in good working order. Be absolutely sure to have the foundation checked as well as the air conditioning by reputable professionals. Don’t take any one’s word for the property condition. Don’t accept the idea that an investor cannot provide a seller’s disclosure. This should be asked for and, if the seller does not want to provide one, consider cancelling the purchase and move on. All sellers are required to disclose what they know about the property. Have the seller provide an explanation about any repairs including who did the work. Have your REALTOR® check previous listings of the property to see if there are pictures and documentation in the MLS that might provide a clue as to what condition the property was in before it was purchased. Talk to the neighbors to get their opinion of the property and to see if they know about property condition. Don’t forget the CLUE report from your home owners insurance agent.

7. A/C Service Company – Always have a qualified professional check out the air conditioning and heating systems during the option period (your inspector can’t do this). Typically, an air condition system has a useful life expectancy of about 12 years so systems that are that old, or older, should be considered “in need of replacement” and you should factor that into your purchase offer. Home warranty companies provide good insurance against major repair to these systems but they need to be in good working order before you purchase the warranty. Use a company with a good reputation.

8. Handy Man or General Contractor – to provide cost estimates for repairs of problems that were discovered during the inspection.  This is especially if you are considering the purchase of foreclosure or damaged home where there is no disclosure of defects in the property.   Home Adviser or other Handyman Companies are listed on Yelp (Free) Angie’s List (Not Free) Choose one that you like most and that has the best reputation.

9. Home Warranty Company – There are several good companies that provide residential service contracts so research them and pick one that you like most. Check the Home Warranty Reviews on the internet. Again, don’t go cheap! Pay for the coverage that you want. I get the top policy for my residence because there are too many loopholes with these policies that disallow coverage for too many reasons. I get the one that provides the best coverage so I can be more confident that problems will be covered instead of excuses being made.

Home Warranty Reviews
Angie’s List of Home Warranty Companies
Home Adviser Home Warranty Companies

10. Movers – Investigate and select the movers that you will use to help you move into your new home.  Make sure that they can handle your move and will be available when you expect to need them. Check their reputation thoroughly.

If you are currently renting, get your copy of your lease agreement and review the terms for termination. Plan to notify your landlord of your intent to move, but don’t do this too soon. If your are on a month-to-month lease, that requires a 30 day notice, consider waiting until you have a signed purchase contract before notifying your Landlord of your intent to terminate the lease. Your Landlord has a right to terminate the lease too and may do so if they learn that you are moving out and they have tenants ready to move in. Remember to use written communications for discussions and notices to your Landlord.

If you are not on a month-to-month lease, review the terms for early termination, and discuss your plans with your Landlord and see if what you need to do in order to comply with the terms specified in your lease agreement. You should discuss this with a real estate attorney to find your what your rights and obligations are.

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