Today’s housing market is like none other we have seen in awhile. I hear agents talk about how bad the ’80s were but this market is different in many respects. In order to purchase a home in this market, it is best if the home buyer prepares for potential hurdles that can be placed in between them and the door to their new home.
The first hurdle is summoning the courage to buy a home in a downward trending market. Tell your friends you are house hunting and inevitably they will say, “Oh man, I would wait. It is surely going to drop some more.” That may be true but for most people buying a home is very different then buying a stock. Some people buy because they absolutely hate renting. They crave to paint the walls any color they want. They want to have a dog, or a water bed, or a private jacuzzi for skinny dipping. Whatever the reason, they want a home.
The second hurdle is relentlessly trolling the multiple listing service (MLS) and the multitude of other home search sites. I do not know of a single site that has it all. Look at this site for school districts. Look at that site for street view. Look at this site for market trends. Some like Trulia, Zillow, and RealtyTrac have a lot of information but it may not always be as accurate as we would like. Part of the process is simply deciding how you like to search. By map? By criteria? By school district? I offer my clients a variety of ways to search and I also offer the option to receive homes directly to their email inbox based on their specific search criteria. There is no doubt internet house searches will continue to improve. However, sifting through the inventory takes a trained eye and a deep knowledge of a variety of neighborhoods. This is where a good agent can add value to the online real estate search.
Once you have found the home you like, the third hurdle is deciding what to offer. Have your agent review the comparable homes with you and ask the agent for their opinion about the value. Ask to see housing market trends for the zip code or neighborhood area. Ask to see the number of distressed properties (short sales and foreclosures/REOs). Ask to see other properties in the neighborhood even if they don’t meet your criteria for number of rooms or yard size. It helps to see what other homes are offering for the dollar. Think about the long term because in this market we are most likely looking at 5-10 years for appreciation points. Strategize with your agent on not only the price but also the terms and conditions. How quickly can you remove contingencies regarding physical inspections and the like? Work with your agent and loan officer to determine the most reasonable time to close escrow. Look for ways to create negotiable items without being ridiculous. If the only thing a seller has to negotiate is price; they certainly will.
If your offer is countered as a single offer or as a group of multiple counter offers, know your true “highest and best” offer. Sometimes it is difficult, after looking at a lot of houses, to not believe this is the one and only and throwing all that you have to get it, is the right thing to do. Your ability to know your own limits both emotionally and financially will be your best asset in determining what to reply when a counter is received. Again, use your agent to help you with the strategy for all the possible scenarios.
The fourth hurdle comes once their is a “meeting of the minds” and you have a ratified contract. Many believe they are on the downhill stretch. In about 30 days they will be new home owners. Maybe. We certainly want that to be the case. Obtaining final loan approval has its own challenges. Lenders are moving the hurdles almost daily. Keeping up with what they want from this day to the next, is more than a full time job for your loan officer. Particularly, if you are applying for a FHA loan. Documentation is so very important. If your loan officer asks for a document (bank statement, copy of VISA, 401K statement) get them to them as fast as you possibly can. Online print outs for money accounts rarely work. Don’t believe that ignoring the request will make it go away. Be prepared to update bank statements and pay stubs right before you close escrow. Create a folder with everything and have it handy. Do not pack any financial information away.
The next hurdle is the appraisal. Especially in this market, appraisals can be a show stopper. If the loan is a FHA loan, and is over $417,000, and you are planning on less than 5% down, there will be two appraisals completed. In the past, appraisals could be turned in three days. Lately, I have seen 7-14 days for appraisal turn around. If the appraisal comes back lower than your sales price, you will most likely re-negotiate the selling price. Or walk away.
While waiting on the appraisal process, there is a whirlwind of inspections to complete and review. If at all possible, be there for every inspection. This is close to the “birth of your first born” importance. When investing this much money in a piece of property, be there to understand the condition. Not to mention, as a first time home owner, chatting with the inspectors can provide a ton of information about your new home. No matter how seemingly small or how horrific the findings are, take a step back and evaluate how this affects your desire for the home. Can these items be fixed? Can you negotiate with the seller and resolve the findings? Once repairs are complete is this still the home you want? Again, the ultimate value and desirability of the home, is up to the home buyer.
The high hurdle for loan approval normally comes around the items called “conditions” for funding the loan. These can be simple documentation issues, or they can be conditions for repairs that must be completed (termites – “section 1 items”). Whatever this list consist of, it is exactly what is standing between the home buyer and the money to buy the house. Work closely with your agent and loan officer to resolve these quickly and completely.
The loan conditions are met and the loan documents are ready to be drawn up for signature. We refer to this as “getting loan docs to escrow”. Typically, this may take 24 to 72 hours to complete once all conditions are met. Lately, with added quality control around the underwriting process, this can take up to 5 days. Be patient. At this point, it is highly unlikely all won’t go through but it will most definitely happen at the lender’s pace. Not the home buyer’s pace. Not the real estate agent’s pace. Not the loan officer’s pace. Once docs are received in escrow, the home buyer will need to sign immediately. Be flexible with your schedule. Be ready to obtain your closing cost number from a document called the HUD-1 statement and have a cashiers check ready to take to signing. Bring a photo identification and the folder with all your collected documents from the process. If anything is missing, they can make a copy right there on the spot.
The last hurdle is recording the title into your name as a home buyer. This is when you get the keys. Depending on what time of day the loan monies are transferred to escrow for payment to the seller, the escrow company will record the change in title with the County Recorder. Sometimes, this is not possible to complete the same day as funding and then it occurs on the next business day. If the home buyer funds the loan on Friday, it is most likely that the title will not record until Monday. Not only are you unable to move into your new home, but you paid two days of interest on the home without possession. In this market, it is best to try and close on a Tuesday or Wednesday. That way there is a buffer before the weekend.
I can’t express enough how much patience is a part of this process. Each hurdle can most likely be overcome. Each hurdle is simply a step in the process that the home buyer has very little control over and is very much at the mercy of the transaction. Expect communication from the professionals involved. Updates and next step outlines can help manage the stress. Ask questions and challenge assumptions but know that ultimately, there is not one single person involved in the transaction that does not want it to go through. Everyone is working to a common goal; completing the deal. The hurdles will become faded images quickly as you bust through the finish line and unlock the door to your new home.