Making a Game Plan Helps In Buying A Home
Buying a home is a time of enormous possibilities and intense preparation. Doing some preliminary planning before you begin your home search will make the entire process more manageable and less overwhelming. As part of your initial game plan, you should:
CHECK YOUR CREDIT RATING
Even if you're sure you have excellent credit, it's wise to double-check at the outset. Straightening out any errors or disputed items now will avoid troublesome holdups down the road when you're waiting for mortgage approval.
You may see disputed items, in addition to errors caused by a faulty social security number, a name similar to yours, or a court ordered judgment paid off that hasn't been cleared from the public records. If such items appear, write a letter to the appropriate credit bureau. Credit bureaus are required to help you straighten things out in a reasonable time (usually 30 days).
TIP: Make sure that any outdated derogatory entries are deleted from your credit file. Adverse credit information is not supposed to be reported or included on your credit report after seven years (except bankruptcy information, which can be reported up to 10 years).
TIP: Officially cancel inactive credit cards. If you have an inactive credit card with a $5,000 limit, even though you owe nothing on it, some mortgage lenders will consider that a potential future debt. Too many inactive credit cards with significant credit limits could keep you from obtaining a mortgage loan. Don't just cut up your extra cards; officially cancel them, and do it now so there will be time for the news to reach the credit bureaus.
TIP: Hold off on making any major credit card or car purchases while you're waiting to apply for a mortgage. Monthly payments you're obligated to pay will be counted against you, and reduce the amount of the mortgage loan you'll be offered. Even if you've been pre-approved for a mortgage, that approval is subject to last-minute evaluation of your financial situation, and a spending spree for appliances, furniture and other goodies intended for your new home may wreck your chances for buying it.
PRE-QUALIFICATION AND PRE-APPROVAL ON A MORTGAGE
A real estate professional -- a REALTOR® -- can help "pre-qualify" you for a mortgage before you start house-hunting. This process includes analyzing your income, assets and present debt to estimate what you may be able to afford on a house purchase. Mortgage brokers, or a lender's own mortgage counselors can also calculate the same sort of informal estimate for you.
Obtaining mortgage "pre-approval" is another thing entirely. It means that you have in hand a lender's written commitment to put together a loan for you (subject only to the particular house you want to buy passing the lender's appraisal).
Pre-approval makes you a strong buyer, welcomed by sellers. With most other purchasers, sellers must tie the house up on a contract while waiting to see if the would-be buyer can really obtain financing.
The down side is that you must pay application fees to cover the lender's paperwork in verifying your employment, income, assets, debts and credit rating. If you later decide not to use that particular lender, you'd have to start all over again elsewhere - with no rebate.
Pre-approval will also speed up the entire mortgage procedure once you've found the house you want. The only remaining question will be whether the house will "appraise" for enough to warrant the loan.
BECOME AN EDUCATED BUYER:
Research Neighborhoods, Read Ads and Visit Open Houses
If you were changing cities, the standard advice used to be to subscribe to the local newspaper in the new town and start reading local news and classified ads to get a feeling for different neighborhoods. Although that's still a good idea, you can simplify and streamline the house-hunting process by using the Internet to Find a Home, Find a REALTOR®, Find a Neighborhood, and Find Resources.
For local moves, you have the advantage of driving around neighborhoods that interest you and looking at lawn signs. Particularly on weekends, you will see "Open House" postings. Don't hesitate to walk in, even if you're not ready to buy yet. Visiting open houses is an excellent way to familiarize yourself with the market and judge various real estate agents you may meet along the way, and it won't put you under obligation to anyone.
YOUR WISH LIST
Making sure you end up with the right home involves figuring out exactly what features you need, want and don't want in a home. Before starting your search, you should make a “must-have”, ”extras" and “no way list” to decide which features are absolutely essential, which are nice "extras" if you happen to find them, and which are completely undesirable. Once you have create your own personalized "Wish List" and when you're finished filling it out, share it with your real estate agent.
The more specific you can be about what you're looking for from the outset, the more effective your home search will be. Also keep in mind, that in the end, every home purchase is a compromise.
Create a "must-have" list.
A must-have list, as the name implies, spells out exactly what you must have in order to be satisfied with a home. If you must have four bedrooms to accommodate you and your husband and your three children, for example, place that item at the top of your list. If you must have at least two bathrooms in order to eliminate before-school squabbles, include that on your list.
Other must-haves might include easy access to bus routes or major highways, a grocery store within walking distance and a quick commute to work -- say, no more than 10 minutes' worth. Separate the essential “must-have” from the “would be nice” extras. Create a "no way" list.
Once you've created your must-have list, create a companion list of definite disqualifiers.
Perhaps you're adamantly opposed to any house with a pool, for example, because you don't swim, would hate cleaning a pool and would be terrified that your toddler would wander to the pool when you weren't looking. Or perhaps you're a clothesaholic who's lived in an older home with barely visible closets and swore that this time, in your next home, every bedroom, hallway and bath would feature walk-in storage space. Keep both lists handy at all times during your house hunt. When a house measures up to your must-have list, yet features several items from your list of automatic disqualifiers, abandon all thought of buying it.
Lists give you focus during what can be an emotionally confusing process.
Insurance Availability & Cost Becomes a Concern
Property and casualty insurance has become a barrier to homeownership and increasingly more expensive for residential as well as commercial properties. It’s an issue that has garnered the interest of real estate professionals here in Ohio and throughout the nation.
As you know, insurance is necessary to secure a mortgage, and lenders require ongoing coverage. Without insurance, lenders will not lend; without mortgages, the great majority of sales transactions cannot be completed. Without continuing insurance coverage, existing property owners cannot remain current on their mortgage obligations and may find themselves subject to expensive lender forced-place coverage or possibly foreclosure.
Availability and affordability of insurance are critical to the continued growth of homeownership and the real estate industry, which has been the pillar of the economy. Home sales in Ohio and nationally have reached record levels—with homeownership rates shattering all-time highs.
Increases in insurance premiums are preventing some potential homebuyers from qualifying for a mortgage and buying a home; current homeowners are also put in jeopardy by the increased costs of insurance. The average cost of homeowners insurance rose by about 8 percent in 2002 and jumped another 9 percent in 2003, and even higher in some states, according to the Insurance Information Institute.
How prevalent is the insurance crisis? Consider:
Some buyers are getting coverage from alternative carriers not regulated by insurance commissioners; such coverage is obtainable only at very high rates.
Owners of multifamily properties are facing lender demands for additional insurance coverage, such as additional liability insurance beyond what has been traditionally required.
Some insurers are using new underwriting tools to limit risk; but these new tools, such as credit-scoring and claims databases, are being used unfairly to deny insurance to consumers.
Despite the insurance industry claim that there is a statistical correlation between credit and insurability, there is no statistical research that proves a causal relationship between scores and insurance claims.
Insurers are using claims databases to deny coverage to individuals and on properties for as few as one claim, regardless of whether there was damage to a property or whether the damage was caused by the insured. Most insurers will not write coverage for a property with even one water damage claim. Such actions have the potential to create a class of stigmatized properties.
The regulation of insurance is exclusively state law. However, National Association of REALTORS® has taken proactive steps to address areas that are federally regulated and is working with state and local REALTOR® associations and outside experts to define appropriate responses at all levels.
NAR created an Insurance Task Force that made recommendations covering the following areas: expanding the variety of insurance products; providing extensive technical assistance to REALTORS®; educating members and consumers about the best practices to deal successfully with the insurance problem; and pursuing activities at the federal level to bring about increased transparency to the underwriting process.
Additionally, the Ohio Association of REALTORS® has convened a group to study the issue of insurance coverage/availability in the Buckeye State and will work at finding solutions to insurance problems.
The following tips are offered to help consumers save money and offset higher premiums:
Raise your deductible. Covering smaller losses could mean a substantial saving on a homeowners insurance premium. Hiking your deductible from the standard $250 to $500 could save you 12 percent, according to Insure.com, a consumer insurance website. A $1,000 deductible can save you up to 24 percent, $2,500 can mean a saving of up to 30 percent and a $5,000 deductible can result in a savings of up to 37 percent. If you raise you deductible, bank some of the premium savings so that you'll have the money for minor home repairs.
Buy all insurance policies from the same company in order to receive a multiple policy discount.
Avoid frivolous claims. Submitting a legitimate claim after years of paying premiums is justifiable, but frequent claims may mark you as a high risk. Consider paying for smaller losses to avoid related premium surcharges or even the chance of nonrenewal.
Review your policy annually. Correct and/or update the information. Double-check the information regarding how far your home is from a water source such as fire hydrant, as well as the location of the nearest fire station. If you carry an insurance endorsement on an item that's depreciated, reduce or eliminate the endorsement that covers it.
Although there are more cases of under-insuring rather than over-insuring, make sure you land is not included in the amount of insurance coverage you buy. Land is part of your home's market value but does not need to be insured.
Stay with your insurer. Some insurers reduce premiums by 5 percent after three to five years, and up to 10 percent if you remain a policyholder longer.
Keep tabs of your credit. An Insurance Bureau Score (IBS) is a snapshot of your insurance risk picture based on information in your credit report. Some companies take insurance scores into account when assessing a potential homeowners insurance risk. IBS reflects your credit payment patterns over time, with more emphasis on recent information.
Ask about available discounts. Some companies provide discounts typically in the 8 to 15 percent range for new construction, since newer homes are built to updated building codes and standards. Some insurers offer discounts for monitored home security systems. As noted earlier, if you've had your home insured with the same company or agency for several years, you may also be eligible for an additional premium discount.
To prevent losing coverage:
Protect your home against typical perils. By preventing losses and claims, you can also help to keep the cost of insurance down. These include: Keep fire extinguishers in fire-prone areas such as the kitchen and laundry; Replace old, faulty wiring and make sure to tell your insurer; Regularly check your roof, down spouts and pipes for clogs or leaks; Discourage crime by using exterior lights at night and deadbolt locks; Repair loose railings, steps or walks.
Avoid filing claims for small loses, such as those just above your deductible.
As previously noted, on average a home owner files a claim once every eight to 10 years. If you happen to file multiple claims within a few years, you may be susceptible to being nonrenewed.
Educate yourself. Find out what Ohio 's law is regarding home insurance renewals. Contact the Ohio Department of Insurance at (800) 86-1526 or on the Web at www.ohioinsurance.gov.
If you receive a nonrenewal or cancellation notice, take immediate steps before the policy lapses. It's easier to find another carrier while you're still insured in the voluntary market. Obtain quotes from at least three insurers so you can compare premiums and coverage options. If you are having trouble finding coverage, contact the Ohio FAIR (Fair Access to Insurance Requirements) Plan. The Ohio FAIR Plan provides a variety of coverages, but at higher premiums. Many FAIR policyholders obtain coverage on a temporary basis in order to clear past claims histories or to buy time in locating a private insurer. For more information on the Ohio FAIR Plan, call (800) 282-1772.
Using the Internet in Your House Search
It used to be when someone wanted to buy a home they rode around in the back seat of a real estate agent's car until they either found a property they liked, or both parties became exhausted and postponed the buying decision. But times have changed.
According to recent research by the National Association of REALTORS®, seven buyers out of 10 begin their search by checking available properties listed on the Internet before they even talk to a real estate agent or physically view any properties at all.
A growing number of consumers are finding there are many benefits to taking the on-line route in their initial home search.
Through the Internet, a potential homebuyer can see many properties and their specifications quickly. Listings on the Internet usually include at least one picture of the home. Increasingly, however, more Internet property listings now have three-dimensional, panoramic 360-degree views of the property, which gives prospective buyers an even better idea of what the interior and exterior of the home is like.
In addition to viewing the physical appearance of a potential home through the Internet, buyers can also check out various neighborhoods including their proximity to important features such as schools, churches, shopping and other amenities. Other useful information that can be found on the Internet include an area's traffic patterns, tax rates, crime statistics, even the location of underground hazards and other problems that might be in the vicinity but not easily visible or readily disclosed.
Potential homebuyers who use the Internet for their initial search often are able to eliminate a large number of properties and neighborhoods that might be less suited to their needs and tastes, and concentrate on the few that are probable prospective choices. The Internet does not eliminate the need for a real estate agent or to visit potential properties, however, it just makes the process more efficient, organized, and oftentimes less frustrating.
Typically, the Internet-savvy consumer sees fewer properties than in the old days, spends less time on the search process, makes a more informed decision and ends up more satisfied than was possible before this new technology became available.
Another vital area where the Internet is increasingly serving today's potential homebuyers is in the financial arena. Properties listed on the Internet will have price information -- not a trivial matter since the price factor is typically the first factor used by buyers to determine a property's suitability. After evaluating price trends in an area, consumers who shop the Internet first in their home search oftentimes are in a better position to spot bargains.
While there are a number of good sites available on the Internet to choose from, the most comprehensive is Realtor.com, the proprietary site of the National Association of REALTORS® and the premier source of homebuying, selling and virtually all housing and shelter issues.
Realtor.com contains the lion's share of the nation's listings, with more than 90 percent of the available listings posted at one time. It is constantly being updated, and covers the entire country (and Canada ). The information is free, timely, and besides property listings, the site contains a wealth of background information for the consumer interested in homes. It should be the cornerstone of any search.
Certainly, checking out the inventory of homes for sale on the Internet is a smart decision. However, don't forget to contact a REALTOR® to assist you beyond this first step in the home buying process.
House Hunting With Kids Can Test Patience, Sanity
If house hunting with a spouse can be a test of patience and marital stability, house hunting with the kids can be a test of sanity. Here are tips to help preserve your peace of mind, as you shop for the home of your dreams accompanied by the children of your nightmares:
Schedule house hunting for times when the kids are likely to be in an "up" cycle -- directly after a meal or a nap.
Prepare for the outing as you would prepare for any long car trip. Bring along snacks, simple games, favorite stuffed animals, a blanket and a change of clothing.
Get the kids involved in picking a house by asking for their help. Ask, "Jimmy, would you please make sure your bedroom would be big enough for your computer and aquarium?" Or ask, "Susan, do you think the yard is big enough for you to practice soccer?"
Break up your house hunting into kid-sized segments. Seeing too many houses in one day can be confusing for the kids, just as it can be for you.
Reward kids for being helpful and good-natured. Treat them to ice cream or a visit to the zoo after a days house hunting.