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The element of surprise

How do you plan for surprise in the home buying process? You don’t…because then it wouldn’t be a surprise, now would it? But somehow you do need to “plan to be surprised” during the home buying process. Expectations…throw them out the window.

The process, while it has predictable general steps, has unexpected twists and turns that may occur. Unfortunately, it can be a frustrating process for those who are used to knowing everything that is expected and being fully prepared upfront so nothing comes up later. There are limitless scenarios that may rear their head, that none of the professionals know will come. So there’s no way to say…this is “here’s all I’ll ever need throughout the process” or “we can count on this or that”.

The answer to your question may be, “I don’t know, but I’ll let you know ‘when’ I do.”

It might take longer to process the loan that you expected. They may ask for more information after they should have had everything they need.

The inspection report might reveal some costly issues. The seller may or may not agree to fix them.

The seller may or may not agree to your terms or price.

The appraisal may not come back as high as the purchase price.

Closing may or may not be on time as you scheduled. There may or not be some off the wall scramble at the last minute.

The termite letter might reveal that there are termites.

The house you just have to have may be owned by a real….well, fill in the blank with something that represents nightmare negotiation.

Multiply these scenarios by infinity, and you’re completely prepared.

You can do it. Tell yourself you can’t always be “proactive” enough to avoid everything unexpected or to take care of everything….It’s certainly not always gloom and doom, but it’s never perfect. The best scenario is that if you expect surprises, the process has the “opportunity”, certainly not the guarantee, to go surprisingly well. Let your agent guide you through the process and help relieve some of the pressure or stress. It will all work out for the best in the end!

You may have seen several posts here with varying degrees of information regarding the $8000 tax credit as it relates to down payment assistance. At first, it was not available. Then there was an announcement that it would be added that it could be used for down payment assistance. A week later, that announcement was retracted and down payment assistance was not available with the $8000 tax credit. So, now, the teeter topper flips again…

The latest, I’m told, HUD announced down payment assistance is now available again for FHA-approved vendors through a bridge loan for the $8000 tax credit to monetize it up front to assist with closing costs, pay down interest points or to put down additional down payment outside of the 3.5%. So buyers will still need to come up with the 3.5% required for an FHA loan on their own, if they take advantage of the loan.

What I do not have much information on at this point is the “bridge loans”. My instinct is that if you go this route you should be careful because it’s a “loan”. Make sure you are well acquainted with how this works. You’ll need to talk to your lender about the terms and implications to ensure it’s actually more beneficial for you to take the loan to monetize the tax credit before it would normally be available (after you file your taxes next year.)

Last week, we heard the announcement from HUD Secretary, Shaun Donovan, that the $8000 tax credit would now be available for down payment assistance at closing. Lenders would provide it through short-term bridge loans on federally insured mortgages (FHA).

It was received favorably from real estate agents, lenders and builders because it would open more doors for first-time buyers. Not everyone responded with enthusiasm. It was said that it too closely resembled a now illegal practice of “seller-funded down payment assistance” where the seller provided a “gift” to the buyer to help with closing. Because it was provided as a “loan”, it was more debt instead of the savings that is required for a down payment.

The loans would have probably been at a high interest rate as well. It was shot down by the IRS also as it could have created income-tax issues.

So it’s back to the original plan. The $8000 tax credit for new home buyers is available for those homes bought between 1/1/09 and 12/1/09. However, it is received after the buyer files their taxes next year.

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, announced today that the Federal Housing Administration is going to allow home buyers to use the $8,000 tax credit as a down payment through its approved lenders. Previously, the credit would come to first time home buyers after they filed their tax returns…next year in 2010.

“We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan says.

According to Donovan, FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

This will help many home buyers who were still unable to take advantage of this year’s $8000 tax credit. Down payment assistance is what most home buyers need the most, so this will be a welcomed change to the credit for many.

First time home buyers account for half of all home buyers right now in many areas due to the $8,000 tax credit (or 10% if less) combined with high inventories and record low mortgage rates that make homes more affordable now. This tax credit applies only to first time home buyers purchasing between January 1, 2009 and December 1, 2009. That is December 1st not December 31st. The biggest difference between this credit and last year’s credit is that this year’s purchase does not require the credit be paid back.

In the case of the first time home buyers tax credit/stimulus some ask: “Who qualifies as a first time home buyer”? You qualify if you and your spouse (if married) did not own any other main home during the 3-year period ending on the date of purchase.

Click here to read more specifics and download the actual IRS form.

So if you’re a first time home buyer (or someone who hasn’t bought in awhile and has a fading memory of the process), what can you expect? What are the steps?

Steps involved in buying a first home

1. Find a Realtor who can guide you through the process, who can make recommendations, who can negotiate on your behalf and who delights in helping you. In many cases, having your own representation in your own Realtor costs you nothing. So why not have that extra protection, expertise, knowledge and guidance? Otherwise, on your own, you’re on an unlevel playing field with the listing agent. If you don’t have someone in mind, I’d love to see if I can help.

2. Call a local lender to begin the pre-qualification process for a loan. Whether you plan to buy this month or December 1, a quick conversation with a lender can help you plan accordingly over the next months as you prepare. Before you start your home search process, it’s important to have an understanding of what you can afford. This initial conversation does not obligate you to work with them. If you are pre-qualified at this point, you’ll want the lender to send a copy of the pre-qualification letter to your Realtor. Here are a couple here in town you could call to get you started:

3. Work with your Realtor to begin your search. You can talk through your needs and criteria with them so they can send you properties as they meet your requirements to review. You can have them set you up on an website with MLS search that allows you to search through many of them yourself as well.

If you do not know what you’re looking for in a home, after price range, think about location. Which area do you want to live? Which area do you not want to live? What do you want to be close to (work, play, shopping, etc.) and how close do you need to be? Then think about the condition/age of the home…do you need it move in ready or are you willing and able to fix it up? What five things (criteria) do you have to have? What would be “nice to have”?

3. Start viewing homes. Your Realtor will schedule appointments of either homes you’ve expressed interest in or that he or she feels meets your criteria. If you’re looking to move right away, you should still limit yourself to no more than 10 homes in one day of showings. They will all run together if you see too many at once.

4. Select the home you will make an offer. Once you narrow your search down and have found the home that ranks highest on your list, it may be time to submit an offer. First, contact the lender and get a revised pre-qualification letter to reflect the list price of the home you’ve selected. Then your Realtor will walk through the Purchase and Sale Agreement and other forms that accompany the contract.

5. After negotiation and counter offers and the agreement has been reached by both parties, submit earnest money. You’ll likely give an earnest money check to the Realtor at the time you submit the offer, which will be submitted to the listing agent’s company immediately upon the agreement being reached. Customary earnest money is 1% of the purchase price, but variations do exist. This will all be applied to your closing costs overall, but it’s just up front instead of at closing.

6. Get a home inspection. Again, your Realtor will guide you through this process and will likely set the appointment. They will either give you a suggested resource or you can choose your own home inspector as long as they meet certain minimum requirements as stated in the contract. You can choose to be present at all or part of the home inspection, but you do not have to be present. A detailed report will be given to you by the inspector. This, too, will be another up front cost to you. Inspections vary based on the size of the home, additional services, and the inspector, but a general range in this area is between $300 - $500.

7. Submit repairs requested from inspection report as stated in the contract and obtain agreement on what will or will not be done as a result of the home inspection.

7. Get approval for the loan. Immediately after you get an agreement with the seller, begin the official loan pre-approval (beyond pre-qualification) with a lender. Right after you have a contract in place, I would call three different lenders and obtain a Good Faith Estimate (GFE) from them all for that particular property. This way you can compare apples to apples to select the right lender. The rate is not the only comparison factor. The type of program, rate, fees, points, etc. are some of the things you’ll want to review. You’ll need to do this fast because you only have a short window (usually 5 days after the contract was agreed) to select your lender. Then you usually have another window (usually 20 days from the contract date) to have the official approval from the lender. They’ll want bank statements, W2s, past pay stubs, employment history and information and more, so dig up those important papers well beforehand!

8. Appraisal will be ordered by the lender. As soon as you select your lender, they’ll order the appraisal on the home. In the contract, hopefully you made the purchase contingent upon the appraisal coming back at least as high as the purchase amount. So then it’s just waiting to make sure it appraised for as much or more than your agreed purchase price.

9. Select your homeowner’s insurance carrier. Obtain insurance quotes from different insurance companies and select your carrier well before closing after the appraisal has come back.

8. Schedule a transfer of the utilities in your name beginning on the closing date.

9. Final walk-through. Usually the day before closing, you’ll want to walk through the house again to verify the repairs you agreed to were made (if any), and to just to make sure it’s left as you expected (no new holes in the wall from the owner moving furniture out, etc.).

10. Closing. Your closing company would have been selected as you put in the offer. Realtors will have recommendations, but of course, just like with any other company, you can choose whomever you wish. Before closing, your lender, realtor and closing company will be working together with you for additional data (insurance, loan approval items, etc.) that will factor into the final closing package. Once the lender can send the package to the closing company, the closing company will prepare a HUD-1 statement, which will include the dollar amount you need to bring to closing. For closing you’ll either wire or bring a cashier’s check for the down payment specified in the loan plus closing costs. Closing costs can range between 3-4% of the purchase price in addition to your down payment. The amount you originally paid in earnest money will be deducted from the total. Once at the closing company to close, the attorney or title agent will walk you through the paperwork where you sign, sign, sign. Hopefully your agent will be there at the end of it to hand you the keys to your relief and smiling face

The process always comes with surprises. If you prepare to have the unexpected happen it will be less stressful to you when they come.

Another article that might interest you to compare rent vs buying a home can be found here: Rent vs Buy.

home buyers tax credit

What is the tax credit in the stimulus pkg?

American Recovery and Reinvestment Act of 2009

What: Plain and simple it’s $8,000 or 10% of the property’s value (whichever is the lesser).

Who: First time home buyers who have not owned a property in the last 3 years.

When: Homes bought between January 1, 2009 and December 1, 2009.

How: IRS form 5405 form here. Recipients must not make more than $75,000 per individual or $150,000 jointly (adjusted gross income). The credit does NOT have to be repaid if purchase is between January 1, 2009 and December 1, 2009.

This is different than last year’s $7,500 first time home buyer tax credit, where homeowners who bought in 2008 that receive the credit must pay it back over 15 years.