I can't say this enough times to potential buyers.
You need to have your finances approved by a mortgage lender and trust (earnest) money ready so you can swoop in ahead of the competition when the right opportunity arises. What this means is getting
pre-approved BEFORE you start viewing homes is the best first move. In the Memphis and surrounding areas market, homes are selling quickly. Most sellers even require a pre-approval letter along with an offer, so you can't even submit one if you haven't got a pre-approval with a lender.
Another reason you should speak with a lender before viewing homes is so that you and your agent have a financial guideline to use when deciding what prices homes you should be looking at anyway. You may WANT a $300,000 home, but your credit score and income may only afford you a $150,000 home. Knowing your financial limitations is a must from the beginning.
So...say it with me.
I WILL GET PRE-APPROVED BEFORE I LOOK AT HOMES.
(Not to mention, I have some great lenders that have great programs to offer.)
You'll be glad you did.
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I'll never forget the only client of my career that refused to get an inspection. For the life of me I couldn't understand it. And can you believe, it wasn't long before she was calling to tell me that the A/C unit had stopped working. The unbelievable part was she said she no longer wanted the house, and to call the previous seller to let them know. Unfortunately, there was absolutely nothing she could do about the issues of her home at that point but fix them herself.
The moral of the story is before you make one of the largest investments of your entire life, take a few hundred dollars and check to make sure this is truly the house you want to buy. Home inspection prices vary by the square footage of the home, but for the average house, usually range somewhere between $225-$400. Because once you sign your name on the dotted line, its yours for keeps. There's no turning back, and any repairs needing to be made, will now be made by you, the new homeowner.
I understand, buying a home, can potentially become expensive with down-payments, closing costs, appraisals, etc. But be very clear about what you are purchasing and everything there is to know about it, including its defects. Don't skip the inspection. It is arguably the single most important deciding factor when buying a home.
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Divorce. As unfortunate as it may be, it is a daunting reality for over 40% of homeowners. Besides the emotional trauma that comes along with it, there is inevitably a financial piece that accompanies the hardship. But what I would be willing to bet a gallon of Blue Bell ice cream on, is that one crucial piece of info about your home is not being told.
Let's just say that a separated couple mutually agree that the wife gets to keep the home. So it is written in the divorce decree that the wife will simply quit claim the house in her name, therefore dropping the husband's name off of the title. Wife stays in home, husband leaves, and everything works itself out, right?
Quit-claiming a home does change the title (or simply whose name the home is in). However, it does not change the terms of the loan under which the home was purchased. If both spouses signed loan papers to purchase the house, the only way one is released from those terms is to either refinance the home, or sell the home. Otherwise, if the spouse keeping the home winds up missing payments, guess whose credit will be affected? Yep, you guessed it...both. Even worse, if one spouse stops making mortgage payments altogether and forecloses, that foreclosure will show up on both parties credit.
Lesson Learned: If a divorce becomes necessary, regardless of what a lawyer or judge says, if both parties names are on the loan, both parties are still financially responsible, until the terms of the LOAN are changed (refinance) with the LENDER, or the house is sold.
Unfortunately, quit-claiming does not solve the problem.
And hey, you don't have to take my word for it...just ask your mortgage lender who owes the mortgage after your divorce is final.
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Once upon a time there was a husband and wife ready to buy a house. So they did their research and found out they could move into the home with no down payment! They got 100% financing to buy their home. And they lived happily ever after.
These are the bedtime stories being told, or should I say rumors being spread, causing future homebuyers to believe that they can simply qualify with a credit score (of which we shall discuss at a later time) and not spend a dime. So this, my friends, is some advice from your friendly realtor on what financial expectations you should have when preparing to purchase a home.
**Disclaimer** There are a variety of loans available for buyers. This section on down-payments are specific to FHA loans. Other loans such as VA and USDA loans are offered at 100%.
Down-Payment: FHA loans offer a max 96.5% loan-to-value (LTV). This means you are responsible for coming up with the remaining 3.5% of the purchase price to buy the home. For example, a $150,000 home would require a $5,250 down-payment. (Calculation: 150,000 x 0.035 = $5,250)
Conventional loan down-payment requirements are currently 5% of the purchase price.
Pro: There are down-payment assistance programs that can cover some or all of your down-payment.
Con: Some of these programs require a second mortgage on the home. This comes along with a specific time frame that you have to occupy the property. If you move out any sooner, you will have to pay all or some of the amount borrowed back. Some of these programs require you to purchase a home within specific city or county limits and does not apply to any and every home. Some of these programs have income restrictions, so if you make too much money you cannot qualify.
Closing Costs: When buying a home, the time will come when the property ownership is transferred from the seller to the buyer. This is what we call your “closing”. When you get to closing, you will be expected to pay what is called “closing costs”. These costs usually include, but are not limited to, the loan origination fees, the closing attorney’s fees, prorated taxes, document preparation, title search, homeowner’s insurance, mortgage insurance, etc.
Pro: Sometimes you can get the seller of the home to agree to pay for some, or all of this. In some cases, the lender will allow this money to be “gifted” to you by a family member or friend.
Con: This money is not a set amount, and could vary based on the price of the home being purchased, the location of the home, the taxes on the home, etc. The amount could range anywhere between 3%-6%. You won’t know a close estimate until you find the home you are searching for.
Trust Money: I won’t go into what this is (refer back to my 2/21/18 blog post). However, this is usually about 1% of the purchase price. (Calculation: $150,000 x 0.01 = $1,500)
Pro: If you go through with the purchase, this is always your money that goes towards your purchase. You will see it reflected as a credit at closing.
Con: No real cons, but this money is paid after you and the seller have a binding contract. IT’s the first piece of money you pay.
Home Inspection: A home is one of the largest investments you will make in your life. It doesn’t make sense to make a $50,000+investment and not bother to pay $300 to see what’s wrong with it.
Cost is based on home size, but usually $225-$400.
Pro: You get to choose your inspector and they provide you with a report on just about everything going on with the house. If you decide you don’t want the house after the inspection, you get to walk away…with your trust money of course.
Con: If you decide not to get the house, you don’t get a refund on the cost of the inspection.
Termite Inspection: Memphis and surrounding areas have one of the highest termite findings in the state. Pay to get an inspection. Pros and cons are the same as the home inspection. Cost is usually $75-$200
Appraisal: The bank wants to know that the home is actually worth the loan money they’re giving you. This is usually lender-required. This is roughly $475-$550.
Under no circumstances am I saying these are the ONLY fees you will encounter. But, its safe to say they are pretty standard in our area. These are not exact numbers, simply rough estimates. I hope I gave you something you didn’t know before, and more importantly, I hope I didn’t deflate your balloon.
At the end of the day, knowledge is power.
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Imagine this. You are selling something expensive to someone you have never met a day in your life. You have taken this expensive something offline and it is no longer available for anyone else to purchase. The person promises you that they are going to buy it, but they need 30-45 days before they can pay you. The 30-45 days is now up, and the person changes their mind about the purchase. How do you feel? Most of you are likely completely pissed because you could have sold it to someone else! You’ve wasted time with this non-committed person!
Ever heard of a deposit? Deposits usually make the difference between a committed buyer and a non-committed buyer. And when the deposit is non-refundable, people think twice about holding up your product. This is what home sellers call trust money (formerly known as earnest money). Trust money is usually 1% of the purchase price of the home. For example, it would be expected that you put down $1,000 trust money on a $100,000 home. Home sellers want to know that you, as the buyer of their home, are committed, and not going to bail on the purchase agreement in the last hour. And if you do, they get to keep your trust money. Most would agree that this is only fair.
Now, before you raise your hand to ask a question, let me try to address the obvious question.
Under what circumstances can you get your trust money (deposit) back?
1. If after your inspection is completed, and you are still within the inspection contingency timeframe (typically 10 days), and you are not satisfied with the inspection or the seller is not willing to repair the items you requested, you can get your trust money back.
2. If the mortgage lender is unable to grant you a loan and can show proof that you did not qualify for a mortgage loan due to the financial criteria not being met, you can get your trust money back.
Other than that, if you default on any part of the purchase agreement between you and the seller, the seller gets to keep the money.
But here is the silver lining. If all goes well, and you actually go through with the purchase, just like any other deposit, the money goes towards the purchase of the house. The seller does not get to pocket it for keeps. So, virtually, if you do what you said you were going to do, its always your money. But the seller simply gets to hold on to it in the beginning to make sure you don’t disappear in the night like a thief, or rather just a non-committed buyer who made them miss out on other opportunities to sell their home.
So if you are serious, and you are sure...its all good!
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I swear. If you ask any Memphis or surrounding area residential real estate agent how the market is going, within 3..2..1..., you will hear them utter the words, "The inventory is so low!" I have been a realtor for 12 years, and I promise you, I don't think I have seen an inventory as low as the one that exists in this very moment.
First things first, what is inventory? Inventory is what we call the collective number of houses on the market, that are listed for sale. Secondly, what do I mean by the inventory is low? It means that there are a lot of buyers looking for nice homes to buy for their families and grow old in, but unfortunately, there are not a lot of homes on the market for them to view, let alone buy. This poses a couple of problems.
#1. The fewer homes there are listed for sale, the fewer homes I have to show you
whenever we go to view property.
#2. Whenever we finally DO find a beautiful home that you would be willing to give
an arm or leg for, the competition is so thick, that there are maybe 7 other
singles, couples, or families waiting to fight you over it.
At the end of the day, I am here to provide solutions to problems. So I will top it off by saying this. If you find a house that you like, love, and you just GOTTA have... put a ring, I mean offer on it! Think of it this way. What ends of the earth would you go to get it? Would you pay more for it than the asking price (strongly consider this)? Would you put down more earnest/trust money (this will be discussed in a future blog)? Would you pay your own closing costs instead of asking the seller to pay it?
You have to be aggressive in your offer, especially if you know it is a multiple offers situation. And no, the prices and terms of the other offers are usually not discussed with you. You have to simply offer your highest and best.
My other solution is to promote and market to homeowners all over that now is the PERFECT time to sell their home. In most cases, sellers are racking up more than fair market value because of the low inventory. This is what we call a "Seller's Market". My advice to sellers is to revel in it now, because it won't last long. Especially as the warm weather begins to break, more sellers will start positioning themselves to get their house on the market and the inventory will begin to balance itself out.
Hope this helps buyers all over waiting patiently for their dream home and motivates the sellers to help them out.
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Hi. I'm Tamara Manuel. I am a wife, a mom, and a realtor. I am like many of you, in that I juggle and wear multiple hats at any given time. I am easily inspired by others and have been told that I inspire a few myself. This blog was created to help inspire you to purchase a home, or if nothing else, equip you with plenty of knowledge so that if you ever decide to, you will be an informed buyer or seller. I just have four requests of you...