The 15 Critical Issues to Buying A Home
	Part 1: The 8 Deadly Mistakes to Avoid When Buying Your Home

1. Deadly Mistake 1: Failing to have a plan
2. Deadly Mistake 2: Thinking, “I can’t afford a home”
3. Deadly Mistake 3: Failing to properly “screen” your  Realtor
4. Deadly Mistake 4: Failing to get pre-qualified for a mortgage loan
5. Deadly Mistake 5: Choosing a loan based only on the interest rate
6. Deadly Mistake 6: Failing to obtain a home inspection from a qualified inspector
7. Deadly Mistake 7: Not knowing your rights and obligations
8. Deadly Mistake 8: Failing to make your own inspection

 Avoid these mistakes—or it could cost you thousands!!

Deadly Mistake 1: Failing to have a plan

Deciding to buy a home is probably the biggest financial decision you'll ever make.  It's an exciting decision, but it's serious business too — and you deserve serious advise.

Zig Zigler, a famous motivational speaker, once said that People don't plan to fail — they fail to plan.  With a game plan, you will eliminate many of the headaches involved in this complicated transaction.  You need a clear plan when deciding to buy a house. 

Evaluate your current situation

Do you currently own a home?  If so, will it be necessary to sell before making another purchase? 

Are you renting?  How much time is left on your lease?

Do you and your family plan to use the back yard?

What is important about the location of you house?  Do you want to live within 10 minutes or one hour from the office?

Make a list of features which are important in your home

Write down desirable locations you would consider, an acceptable price range, number of bedrooms and bathrooms, and any other amenities.  Be specific.  It is unlikely that you will find a home that offers every feature you desire,  however, without a wish list, it will be more difficult to recognize a home which meets your expectations.

Provide the information to your Realtor.

Your Realtor will look for homes that match your criteria.  This will save you time - you won't need to look at homes that don't fit your needs and desires. 

A proper game plan will save you time and reduce the hassle of shopping for a home.  Spend a little time in advance and save a lot of time and money in the future!

Deadly Mistake 2: Thinking, “I can’t afford a home”

Many people feel that they can't afford a home, but affording a home has never been easier.  Mortgage rates are more flexible today than ever, and the tax laws favor home ownership like no other tax shelter.

Home ownership is a durable (real) investment.  Although no one can say if a specific home will appreciate in value, generally speaking, the odds favor the home owner.

Numerous unique tax advantages are available to home owners.  The thousands of dollars you pay in mortgage interest is deductible.  This tax deduction alone can sometimes make owning your own home cheaper than renting with after tax take home dollars.

The Tax Advantages of Home Ownership included at the end of this report, will provide you with a rent vs. buy comparison so you can see the dramatic difference that home ownership will make!

Deadly Mistake 3: Failing to properly “screen” your Realtor

It's likely that you don't often interview people.  Yet, in order to find the Realtor who is right for you, you may need to interview several.  The quality of your home buying experience is dependent upon your skill at selecting the best qualified person.

It's interesting that in the real estate business, someone with many successfully closed transactions usually costs the same as someone who is inexperienced.  Bringing that experience to bear on your transaction could mean a lower price at the negotiating table, buying in less time, and with the minimal amount of hassles.  Your agent should be a skilled win-win negotiator!

You need to select an agent that guarantees his/her service.  You should have the right to fire the agent if you are not satisfied — no questions asked.

Agents make it their business to provide every service connected with your home search, from expert advice in the early stages through careful monitoring of your settlement.  The more closely you work with your agent, the better your needs are known and the more effectively you can be served.

Your agent should have access to the MLS system — a computerized system that will assist you in locating the home that fits your needs and desires.

The purchase of your home could well be the most important financial transaction you have ever made.  The person you select can make it a satisfying and profitable activity, or a terrible experience.  It’s your home.  It’s your money.

Deadly Mistake 4: Failing to get pre-qualified for a mortgage loan

Don’t waste hours searching for a home that is not in your price range!  Save time and money by pre-qualifying for a loan.

Before you go shopping for a home, you need to determine how much you can afford.  Once you are pre-qualified for a mortgage, you will know what your buying power is — you will save time by looking only in your price range.

This process is simple.  A lender will ask you basic questions concerning your history, run a credit report, and determine your buying power.

You can even get pre-approved for a loan!  Imagine for a moment, if, when you and your Realtor initially drafted your offer for the home you select, you are already approved for the loan - IN ADVANCE...

No stress, no worrying about qualifying, no concern whatsoever about your ability to qualify would stand between you and the home of your dreams.

In today’s market, a pre-approval can be a powerful negotiating tool.  The old system saw the buyer spending many hours locating the perfect home, carefully drafting an offer, awaiting acceptance of the offer, consulting a Loan Officer, filing out the multitude of forms and applications, and often go to waste because, for whatever reason, he was turned down for the loan.

You deserve peace of mind and negotiating power by getting an approved loan before you make an offer.

Deadly Mistake 5: Choosing a loan based only on the interest rate

MYTH: I've been told that a fixed rate mortgage at today's rate is the best mortgage loan.

Many different types of loan programs are available.  It is a mistake to think that just because Aunt Sue got a 8.5 percent 30-year fixed rate you should get the same loan.

You should get together with an expert who can explain the different types of loan programs.  Each program may have its own series of special benefits for you and your specific needs.  When considering such an important decision, it is best to explore all possibilities.  It may well be that a fixed rate is the best type of loan program.  It may also be that you can save a significant amount of money by exploring alternative adjustable programs.

A full service lender with relationships throughout the mortgage industry is a must in today's market.  Lenders need the flexibility of the small business owner with the clout of a large company.

Today there are almost as many different programs as there are housing options.  A few considerations are anticipated time in the home, available asset base, current income situation vs. future income situation, etc.  It is wise to pick a program that fits YOUR lifestyle.

Example:  If you pay off a loan in fifteen years versus thirty years you will obviously save a lot of money in interest expense.  It is important to note that this savings is due to repaying the loan in half the time.  The savings is not due to a significant savings in interest rates.  You would expect that there would be a much lower interest rate since the loan has a quicker repayment and, therefore, a loan with less risk.  The difference in interest rate is not that significant.  Rates on 15 year loans may be 1/4 percent to 3/8 percent better than 30 year rates.  Payments on 15 year loans will be approximately 25 percent higher on a monthly basis.

MYTH:  I should go to my bank to get the best loan at the cheapest interest rate.

 Typically a commercial bank will own a separate business entity which shares the bank's name and happens to offer mortgage financing.  But, this does not mean that you will get a special deal just because you are the banks client.

The bank's mortgage subsidiary has no special access to your financial records as you might expect. The bank's mortgage subsidiary must request your financial records from the bank just as any other mortgage company.  Your mortgage loan process will not be simplified or viewed differently from any other applicant making a request.

The perception of most people who go to their bank's mortgage subsidiary is that their loan payments will always be made to their bank; thus, all of the individual's banking needs will be under one roof.  Most mortgage subsidiaries sell their loans on the secondary market and may sell the loan servicing just as any other mortgage company will.

Another important consideration is that a typical bank mortgage subsidiary works with a small number of mortgage products.  You may not find a wide variety of loan programs and your loan officer may not have a good comprehension of all the different programs offered.  It is doubtful that they can adequately advise you as to the best program for your needs.  It is possible that you, or the property you are buying, may need to have special underwriting to approve your loan application.

Just as you should interview your Realtor, you should also interview your Lender.  Not all lenders look after your needs.  Select a Lender who is willing to discuss your needs and help you choose the loan program that is best for your situation, not the best for the Lender!  

Deadly Mistake 6: Failing to obtain a home inspection from a qualified inspector

The job of a professional home inspector is to look over every major part of a home and write a report that judges the homes quality and condition.

A home inspection reports on the structural and mechanical condition  of the home.  After the inspection, you will have the facts you need to make a decision about buying your home.

A well-qualified building inspector who has adhered to federal licensing standards can spot problems that you might not be able to see.

Expect problems to be clearly explained, repair expenses closely calculated, maintenance costs estimated, and a written report delivered within a day or two.

 Most contracts are written conditional on the outcome of several inspections.  These  inspection may include several items including inspection for wood boring insects, excessive amounts of radon gas, structural soundness and the condition of the heating, wiring and plumbing. 

When the contract is written, it should address who will be responsible if there is a problem with the results of any of these inspections. 

If well written, home inspections can create a safety valve for both the buyer and seller.  If poorly written, the result can be heartbreak and law suits. 

Your Realtor should be very familiar with the laws regarding home inspections.  Many people have lost the home of their choice because the agent failed to comprehend this crucial inspection. 

Deadly Mistake 7: Not knowing your rights and obligations

Real estate law is extensive and complex; the contract for sale and purchase is a legally binding document.  An improperly written contract can cause the sale to fall through or cost you thousands of dollars for repairs, inspections, and remedies for title defects. 

You must be certain which repairs and closing costs are your responsibility.  You must know whether the property can legally be sold as is and how deed restrictions and local zoning will affect the transaction.  If there are defects in the title, or if the property is in conflict with local restrictions, you or your Realtor must remedy them.  Otherwise, you could lose thousands!

I will assist you!  I will make sure you understand all the technical lingo in the sale of your home.  A commercial for a local vendor states that Our best customer is an educated consumer.  How true!

It is my job to know the laws governing real estate transactions.  I am involved in an on-going training program to keep up to date with these laws. 

You deserve to have an agent who is not only knowledgeable about the transaction but is also willing to educate you throughout the process so you will fell more comfortable. 

Deadly Mistake 8: Failing to make your own inspection

You probably would not want to rely on the seller to point out defects in a house he is attempting to sell. There may even be hidden problems of which he is unaware.

Be sure your sales contract is worded so that any “earnest money deposit” must be returned in the event the house fails inspection. If a major defect is found, you have the option to cancel the contract and have your deposit returned, bargain for a lower price to compensate for the cost of repairing the problem, or have the owner make needed repairs before the sale.

Even before you get to the point of a contract and having a professional inspector look at the house, there are many items you can check yourself as you are shopping for a home.

Structure—Basement, check the foundation for cracks or water marks. Floors, are they level? Does the roof sag?

Water damage—Look for unevenly painted ceiling or wall; mildew odor in basement; signs of re-plastering or re-tiling in just one area of a room.

Water pressure—Flush toilet and turn on both hot and cold water faucets at the same time to test.

Plumbing—Ask what type pipes are installed and their age. If applicable, ask when the septic system was last inspected and cleaned. Stand near the tank to detect odor or soggy ground.

Wiring—A 100-amp system is typical in modern construction and uses a one-inch main line; this can be seen leading to the fuse box. Appliances such as dryer or range require a 220-amp line. Notice is lights flicker or don’t work. Check for electrical outlets . . . usually at least 2 in each room.

Energy efficiency—Ask to check last year’s heating and cooling bills. Determine if proper insulation has been used.

Pests—Be alert for small accumulations of sawdust in the basement. This might indicate an insect problem. Obtain date and results of the last wood-destroying pest inspection.

Ask to see the seller’s survey made when the seller bought the house.

Part 2: THE 7 GREATEST MISTAKES IN FINANCING

STANDARDS & GUIDELINES

1.  What’s so special? Aren’t all Lenders and mortgage companies the same? Aren’t all Lenders required to adhere to the same standards and guidelines?

This is an excellent question. Buyers often believe that every lender has a set of guidelines that are cast in stone. We refer to these as the They Sayers. An example of this is ‘They say you can’t get a mortgage if you’ve just changed jobs or employers.’ Remember, standards and guidelines are merely that.

There are many different types of generic guidelines that form the basis for mortgage approvals. In effect, these are  ‘rules’ which lenders use as their baseline for evaluating loans. The most popularly known guidelines are FHA, VA, FNMA (Fannie Mae), and FHLMC (Freddie Mac). These guidelines and procedures are extensive and change frequently, but many lenders will deviate from these guidelines in order to obtain a special competitive advantage. 

As a consumer, it is critical that you select a Loan Officer who has a good understanding of the basic guidelines. In addition, you should select a Loan Officer with access to lenders who have the ability to deviate from standard financing guidelines. You can make a big mistake by going to a lender who offers only one method of financing your home.

IN-HOUSE UNDERWRITERS

2.  I’m better off going to a lender that has ‘in-house’ underwriting - right?

Many mortgage-financing sources will boast that they can just step down the hall to their underwriter and get an expedient  (presumably affirmative) loan approval. This also tends to give one the false belief that an underwriter who works within the same company is willing to be more flexible.

I have found that the exact opposite is probably a more accurate assumption. In-house underwriters often exert more caution to avoid any implication of impropriety. In some cases, it is even company policy for the Home Loan Specialist and underwriter to avoid directly discussing a loan file.

A typical example of my full-service financing is my ability to discuss ‘what-if’ questions with the underwriter who will actually review our loan files. This allows us to review any special situation with the underwriter prior to actually submitting a loan for approval.

MORTGAGE FROM PERSONAL BANK

3.  I should apply at my bank for my mortgage. After all, they have all of my checking, savings and other accounts. Won’t it be simpler for them to provide my mortgage? Won’t they offer me a special deal and give me some type of preferred rate?

Typically a commercial bank will own a separate business entity which shares the bank’s name and happens to offer mortgage financing. It is important to note that it is a separate business entity and does not necessarily offer special considerations for bank customers. Interest rates, loan costs, and programs are normally the same as those that the bank’s mortgage company would offer to any prospective customer - regardless of where they bank. Special considerations are rarely given in terms of how a bank’s mortgage subsidiary will evaluate your application for a mortgage loan. The bank’s mortgage subsidiary has no special access to your financial records as you might expect. In other words, the bank’s mortgage subsidiary must request your financial records (to verify account balances, loans, etc.) from the bank - the same as any other lender. This means that your loan process will not be simplified or viewed in any context different from any other applicant making a request from a bank’s mortgage subsidiary.

The perception of most people who go to their bank’s mortgage subsidiary is that their loan payments will always be made to their bank; thus, all of the individual’s banking needs will be ‘under one roof.’ Most mortgage subsidiaries of banks sell their loans on the secondary market and may sell the loan servicing just as any other mortgage company can.

Another important consideration is that a bank mortgage subsidiary usually works with a small number of mortgage products. You will seldom find a wide variety of programs, and your Loan Officer may not have a good comprehension of the many different programs available. You may fail to receive adequate advice as to the best program for your needs.

PRIVATE MORTGAGE INSURANCE

4.  I must avoid Private Mortgage Insurance (PMI) at all costs. This would mean that I’d have to put 20 percent down. After all, mortgage insurance is just a waste of money. I don’t get anything in return for buying mortgage insurance.

Private Mortgage Insurance is required for most loans that exceed a loan-to-value of 80 percent. Private Mortgage Insurance insures the lender in the event that you default on your mortgage payment and the lender is forced to sell your property at a loss.

We are very fortunate in that mortgage insurance companies have created a number of different plans. Over the years, the cost of mortgage insurance has actually declined.

 Deciding whether you should liquidate some assets to amass additional down payment (to avoid the cost of mortgage insurance) requires that you evaluate what you lose by liquidating those assets. Many clients also find that paying other debts is better than applying additional cash toward the down payment. Paying off credit cards and car loans may improve cash flow more than avoiding Private Mortgage Insurance.

Most of the time I find it is more profitable to keep your money working for you in investments other than your home. Your cash (properly invested) in some growth or income-oriented fund will earn significantly more than the offsetting expense of mortgage insurance.

LOCK-IN INTEREST RATES

5.  I’m under contract to buy or build a home. The closing is scheduled beyond the normal times to lock in on interest rate. I’d like to select my lender now and begin the loan process. The best way to compare different lenders is to call around and ask what each one is offering on a normal lock-in basis. The will give me an indication of who will have the ‘best deal.’

This is the worst way to decide the lender you should select. Lenders are just like any other business - the product they are offering for sale is subject to price changes. By the time you get in a position to obtain a commitment (lock-in) for a specific rate and program, you may find that particular lender is no longer offering the best rate.

By being on top of current events in the financial arena, I will see that you are in a position to take advantage of whatever opportunities exist in terms of rates or new mortgage products which are created each week. Many of these new programs have excellent benefits that can translate into significant dollar savings for you. Begin your loan process with a company and a Loan Officer with the knowledge and expertise to locate a competitive rate and advise you on the most appropriate loan program to suit your specific needs.

FIRST-TIME HOME BUYER

6.  I’m purchasing my first home. My available investment cash is minimal. This means that I must get an FHA loan - right?

Even though there are some disadvantages to an FHA loan  - 1) mortgage insurance is expensive, 2) the process is somewhat bureaucratic, and 3) interest rates on FHA loans are sometimes slightly higher than conventional rates - there are offsetting advantages - 1) it is possible to add some of the costs of financing to your loan amount, 2) the mortgage insurance premium can also be added to the loan amount, and 3) FHA underwriting guidelines are more liberal on your debt-to-income ratio (you can possibly qualify for a slightly higher loan amount). Notice that most of the advantages increase how much you can borrow. You are (essentially) leveraging yourself into a higher debt position just to compensate for a couple of factors. One can probably negotiate with the seller of a property to pay closing costs when negotiating the purchase of a property.

As noted previously, lenders are constantly creating new loan programs. One of the current focal points for new programs is related to the first-time homebuyer market. Many barriers to home financing for first-time purchasers have been removed from the process to the extent that first-time purchasers should definitely examine the benefits of conventional financing. One thing is clear in the long-term, conventional financing will be much more cost effective because of interest rates and higher mortgage insurance associated with FHA mortgages.

FIXED-RATE LOAN

7.  I’ve been told that the best type of program is to get a fixed rate loan. I’ve also heard that I should get a fifteen-year loan if there is any way I can manage the additional monthly expense.

You should get together with an expert who can explain the different types of loan programs. Each program may have its own series of special benefits for you and your specific situation. I have found that when considering such an important decision it is best to be confident that you have explored all possibilities. It may be that a fixed rate is the best type of loan program. It may also be that you can save a significant amount of money by exploring alternative adjustable programs, balloon programs, and others.

Currently, there are almost as many different programs as there are housing options. A few of the considerations you should consider are anticipated time in the home. Available asset base, current income situation versus future income situation, etc. It’s wise to know that you have picked the most appropriate program based upon what is actually occurring in your life at this time.

If you pay off a loan in fifteen years versus thirty years, you will obviously save a lot of money in interest expense. It is important to note that this is a saving because you will repay the loan in half the time - not because of significant savings in interest rates. You would expect that there would be a much lower rate since the loan has a quicker repayment and, therefore, less risk. The difference in interest rates is not that significant, but the payments may be as much as 25 percent higher each month.

I have seen clients select a fifteen-year mortgage only to discover that the monthly payments are just a little too high for their budget.

UNCLE SAM WANTS TO GIVE YOU MONEY...

The only catch is that he wants you to buy a house first!

Many people feel that they can't buy a home.  The reasons they state are numerous, but affordability is at the top of the list.  Actually the ability to afford a home has never been easier!  Mortgage rates are more flexible today than ever, home prices are low, and sellers are very motivated.  On top of that, the tax laws favor home ownership like no other tax shelter.

Many people currently renting compare their rent payment with a projected home mortgage payment and feel that they can't afford the monthly payment... without realizing that the projected tax savings may significantly reduce the effective mortgage payment.

It is very important to point out that real estate deductions, taxes, and mortgage interest deductions, are the only ones left by Congress fully intact.

We will compare tax deductions of renters vs. homeowners to see the dramatic difference the American Dream of home ownership can make to you!

 HOW UNCLE SAM HELPS YOU PAY YOUR MORTGAGE

A CASE STUDY:

Jack and Jill have a combined income of $50,000.  They are purchasing a home for $150,000, making a 10 percent down payment, and borrowing $135,000 on a 30-year mortgage at 8.5 percent.  Their monthly principal and interest payments amount to $1,038.  The table to the right shows the value of the tax deductions and the amount of cash they will save.