INFORMATION FOR BUYERS

Buying a home is potentially the largest purchase you’ll ever make. It can be exciting and enjoyable; or for any number of reasons it can become stressful and hectic! Your house is not just your home; it is an investment in your future.

When buying a home you are bound to have several questions. For example, “Where do I want to live?”, “How much money do I need to put down?”, “What type of mortgage can I get and what is the best choice for me?” and “How long will this process take?”

Below are some articles that you might find useful. Please feel free to click on one of the links below to read more. Buyer Articles Below:

  • Advice for First-Time Buyers
  • How to Negotiate with Sellers
  • Types of Mortgages

Advice for First-Time Buyers

Pre-Qualification
Meet with a mortgage professional and find out how much you can afford to pay for a home.

Pre-Approval
Knowing how much you can afford is the first step. Sellers will be much more receptive to potential buyers who have been pre-approved. In the Phoenix market it is mandatory to provide all Seller’s a Loan Status Report (LSR) upon submission of an offer to purchase. You’ll also avoid being disappointed and wasting your time by looking at homes that are out of your price range. To get a LSR pre-approval, you will be required to apply for a mortgage and receive the commitment in writing from a lender. This way, when the home you’re interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and many lenders may even allow you to pay them when you close your loan.

Decide on the “Must Haves”, the “Wants” and the “Don’t Wants”
Make a couple lists. Include first the items you must have (i.e., how many bedrooms, baths, garage stalls, etc.). Now the wants list, things you would like to have (pool, den, etc.) but that are not absolutely necessary. Realistically for first-time buyers, you probably will not get everything on your wish list, but it will help keep you on track. Then, if there are any items you absolutely can not tolerate (busy street, grass y, add these to this part of the list.

Representation By A Professional
Contact Matt Krause to be your buyer’s agent; he will guide you and represent you and your best interests as you go through the process. He is your eyes and ears in the marketplace, working for you!

Create a System to help You Organize
In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:

1. A detailed map with your primary areas of interest highlighted.
2. A folder with all the properties your agent has shown you, advertisements you find for new homes or areas of interest.
3. A pad of paper and a pen, for taking notes as you search.
4. Be sure to have a digital camera, even if you have a cell phone with one. You can keep a photo record of all the properties you tour, especially if you tour more than one or two at a time. They all begin to blend together after a while!
5. Data sheets: Many cities or other online resources have information data sheets highlighting amenities and information on school districts, crime rate, proximity to positive (shopping, parks, freeway access) and negative (abandoned properties, garbage dump, source of noise) features of the area?

Visualize The House With Your Decor and Lifestyle
Are the rooms laid out to fit your needs? Is there enough light? Will the formal dining room set fit in the dining room? Does the kitchen have a place for homework to be done while you’re cooking dinner?

Be Objective
Stop and look with your head not your heart. Will the layout work with your family now and in the future? Falling in love with 2 bedroom home now and plans for a big family down the road could create an issue.

Negotiating The Deal

Buying a home may be one of the most important purchases you will make. In order to make the right decision the first time, you need to be prepared. Review following before starting negotiations:

Be Prepared
Research the housing market in the target area. Once you have information about the general area, focus on the particular property and seller. Look to Matt Krause for guidance and answers to questions such as:

1. Why is the current owner selling? (Did they find the area undesirable, is there another issue?)
2. How long has the home been on the market? (In this market especially, if its been for sale for some time, perhaps there are negative things that you need to know.)
3. How much did the seller pay for the home and does it fall inline with the current asking price? (Was it remodeled recently? Did the sellers buy at the peak of the market or at the bottom? Does the price seem reasonable compared to the rest of the neighborhood?)
4. What is the seller’s time frame and needs for selling and moving? Does it fit within your needs?
5. Are there any defects or deferred maintenance items on the home or problems with the surrounding neighborhood? (Does the roof look sound? The appliances all work? Is there a major change in the neighborhood coming, such as a transit station, a large shopping center or other commercial development slated to be built?)

As the potential buyer, don’t rush to provide the seller too much information. You want answers to all your questions from the seller, don’t reveal any more than necessary about your circumstances. Do not give the seller personal information such as your income, the maximum down payment or mortgage amount you are qualified for, or even when you want to move. Make sure that your agent knows not to reveal any such information to the seller or his/her agent.

Don’t appear over-anxious to get the house, now is the time to put on your “poker face” and let Matt go to work for you. If you seem super excited about the house, the seller then has the stronger bargaining position. If you are meeting with the seller or listing agent, keep your emotions in check.

Establish A Timeline
Ask if the seller needs to sell sooner rather than later. If the seller is feeling pressured to sell, that potentially becomes your advantage in negotiating. Even if you are the one with the deadline, don’t be rushed into making concessions or a purchase you may regret later.

Common Types of Mortgages

As the housing market continues to improve, the choices of mortgages is expanding again as well. It is in your best interest to look around, and ask questions to determine which is the best for your needs. You more than likely won’t qualify for all of them. In fact, you may only qualify for one or two. But if you do qualify for more than one, you can often save yourself money in the long run if you do your homework before signing on the dotted line.

  • Fixed-Rate Mortgages
  • Adjustable-Rate Mortgages
  • The Convertible ARM
  • FHA and VA Loan

Fixed Rate Mortgages
Consider a fixed rate mortgage if either of the following describes you:

  • You plan on staying in this home long term and the likelihood of a job transfer or other major event is minimal.
  • You are not a risk-taker and prefer the stability of knowing how much your payment will be each month.

The most common home loans are for a period of 30 years, if you want a stable, predictable payment you can count on for that long of a period of time, a fixed rate mortgage may be best for you. Once your loan amount and interest rate are calculated and locked in, a fixed rate mortgage will guarantee that you will have the same principal and interest payment over the life of the loan. Of course making extra payments to principal will still allow you to pay your loan off sooner.

This may not always be the best choice, however. If interest rates are a bit high at the time you take out your loan, and you are confident you’ll be transferred or want to move up to a larger home, a variable term or short term locked rate loan may make sense. However, if interest rates are low, you’ll be the winner with a payment that will stay low no matter how high interest rates go in the future, should you choose a fixed rate mortgage.
The following are the advantages and disadvantages of the varying lengths and terms of fixed-rate mortgages:

15-Year Fixed-Rate:

  • Pay off the loan in half the time of a 30-year loan.
  • Equity builds up more quickly than in a 30-year loan.
  • Payments are higher (which may be a problem if you lose your job or become unable to work).

20-Year Fixed-Rate:

  • Pay off the loan in 2/3 the time of a 30-year loan.
  • The overall interest paid is considerably less than for a 30-year loan.

30-Year Fixed-Rate:

  • The most common choice, especially for first-time homebuyers, as it’s the easiest of the fixed-rate loans to qualify for.
  • Monthly payments are lower than a 15-year or 20-year loan. This can be especially helpful if you do not have a lot of savings, are on a fixed income or are planning major life changes, ie: children, a spouse leaving the workforce, etc.
  • More desirable if you plan on staying in the same home for years. Equity on a 30 year loan builds at a slower rate than a short term loan but you can always pay additional principle when it “fits in the budget”.

Adjustable-Rate Mortgages (ARMs)
If you are not adverse to risk with your money or if interest rates are very high at the time you get your loan, an adjustable-rate mortgage (ARM) may be an option for you. You might also choose this type of loan if your plan is short-term before a transfer or move up or if you expect your income to increase to cover any potential rise in the interest rate.

Typically, the interest rate on an adjustable rate mortgage loan will be lower than a fixed-rate mortgage. Please note, while this is true initially, it may not not necessarily be long-term.

Since an ARM rate rises and falls depending on the index it is tied to, your mortgage payment will rise and fall accordingly. If your income is not sufficient to cover the highest possible payments, then this option may not be for you. On the positive side, the lower initial payments may allow you to qualify for a larger loan than if you choose a fixed-rate. The downside is that your payments will increase if/when the rates go up.

Typically, ARM interest rates are tied to a specific financial index (such as Certificate of Deposit index, Treasury or T-Bill rate, Cost of Funds-Indexed Arms or COFi, or LIBOR [London Interbank Offered Rate]) and your payment will be based on the index your lender uses plus a margin. Ask for the formula used by your lender in writing and be sure you understand what it means.

Often times, the amount an ARM can increase will be limited. There are caps on how much the lender can increase your rate, both each and for the life of the loan. Be informed, and have your lender calculate what the maximum payment would be if your rate hits the cap for your particular mortgage. If you are not confident you’ll be able to comfortably pay that amount on a monthly basis, perhaps you need to reconsider this type of loan.

Convertible ARMs
If neither the fixed-rate or the adjustable-rate mortgage seems like the a good option, maybe the convertible ARM will be right for you. This type of loan combines the initial advantage of an ARM with a fixed rate after a predetermined number of years. Obviously, this type of mortgage has more advantages when the initial interest rate is low and the future rate is not guaranteed.

Government Loans
Another mortgage option available to some people is a government loan, providing that you meet the qualifications for these loans.

  • VA Loans: Veterans may qualify for a loan from the Veterans Administration. There are a number of limitations and benefits to these loans if you qualify based on military history.
  • FHA Loans: The Federal Housing Association offers loans to wide variety of buyers and often times has become the prominent choice in today’s tighter mortgage market.