Buying Tips

Buying New Home

Build a house and you start with the foundations. Seems pretty obvious, doesn’t it? But buy a house and too many people focus just on what they see above ground, forgetting that it’s as necessary to lay good, solid foundations for buying a house as it is for building it. Perhaps, as a prospective home buyer, you see great interest rates and a buoyant housing market, and you’re not convinced of the need for thorough preparation. You could find, though, that you don’t get to buy your dream home, but instead pay the price for not being prepared by losing out to someone who has done the necessary legal and financial spadework.

“The business of America”, declared Calvin Coolidge, “is business”, and you should make it your business to recognise that buying a home is the biggest business transaction you’re likely to make during your lifetime. So, use your head before you lose your heart (and perhaps your money) to that dream home. Complete the preparatory steps before beginning to look at specific homes. It’s only common sense: foundation stone first and keystone last. Well, let’s get down to basics. Let’s see how best to start laying that foundation stone to ensure that you stand the best chance of actually buying the house of your dreams.

One of the most important preparatory steps you need to take is to initiate the loan application process. This will entail a lender running a credit check and drawing up a credit report for a modest fee of $25. You will also need to complete a loan application. All being well, the lender will furnish you with a “good faith estimate” showing the costs of the loan and the approximate monthly repayments. Pre-approval will follow pre-qualification subject to verification of the information you provide.

So why then, is pre-qualification so important?

  1. The process involves a credit report. This might highlight the need to settle outstanding debts in order to maximize your credit score. Settling any debts, however, doesn’t automatically erase them from your report – it might take months. You might perhaps need the services of a mortgage consultant to get you qualified for a loan. Whatever the problems you may experience with your credit report, the very fact that you will have picked them up early will save you disappointment later
  2. If all goes well and you get prompt pre-approval, you’ll be able to put in an immediate offer when you find your dream home. Pre-approval stands you in good stead to have a reasonable offer accepted. It’s true that bidding wars have taken place in the northeast U.S, but it still generally holds that pre-qualification gives you leverage over sellers impressed by your pre-emptive action.
  3. Pre-qualification will help focus your home search. Knowing how much you can afford will be very useful when searching property websites.

So, make sure your finances are in order. Make sure too, that you have a realtor working for you and don’t rely on the seller’s agent. Word of mouth and personal recommendation are the best way to secure the services of a realtor you can trust, and who will act in your best interests.

Finally, having advocated a proactive approach throughout, there is one area over which you have no control and that is the appraisal. Mortgage lenders like to have an appraisal of your prospective home’s market value to protect their financial interests. You might imagine that your interests too, are being protected – surely an appraisal will reveal any real problems? – but you’d be wrong. You might pay for the appraisal but you would be well advised to pay for a home inspection report as well.

Why the extra expense?

  1. The inspector is independent of the lender.
  2. The inspection will be thorough taking in inspection of the roof; testing of electrical appliances; checking plumbing and heating and looking for signs of pest infestation and dry rot.
  3. Having had the forethought to get a home inspection report you will now have the leverage to defer payment of the appraisal fee should you be dissatisfied with the proposed handling of repairs.

One final word of caution. You should apply the same precautionary principles to the home itself as you did to the
homebuying process. Again, don’t let your heart rule your head. Your dream home might require as much hard work – the addition or removal of features, for example – as did laying the foundations earlier in the process.

Whoa! That’s quite a claim!

house for sale

But, hold onto your hats. I’m about to hand out a power tip that will TIP the money scales in your favor. What’s more, it will do this transaction after transaction and your savings will mount!

It’s about saving money on what it costs to borrow money, especially hard money. Let’s face it, hard money HURTS! It’s crazy expensive and like taking a punch in the gut each and every time I buy a property. Whomp!

On the other hand, if that’s the only way to get things done, you take it like a trooper and ask for seconds. Hard money has changed my financial life. Let’s be clear about that.

But what if there IS another, better, cheaper way?

What if I tell you that there is a little-known secret out there that will allow you to get your hands on some serious cash…to the tune of $20,000 to $200,000. If that got your attention, try this on for size. What I’m about to reveal can provide serious investment cash, and won’t ding your credit report and keep you from borrowing elsewhere…in other words it won’t decrease your ability to get cash-out refinance mortgages.

Okay, so here it is in a nutshell…

There are lenders out there that will extend businesses unsecured lines of credit. The amounts and nitty-gritty details vary, but these well-known financial institutions will happily hand business anywhere from $10,000, $20,000, to $50,000 in line of credit capital. You pay on what you borrow only when you borrow it.

I closed a property last week and my loan about was $60,000. My hard money cost me 4 points which came to $2400. This was for the honor of using their money. In addition, the percentage rate was $15%. Ouch!

If I would have used a line of credit to pay for that property I would have paid NO points. The lender’s fees ($600)…gone! Percentage rate, about 7.5-12. I could have written a line of credit check and that would be it! I figure I would have saved a total of around $3200 on closing day with a line of credit, plus some month-to-month cash with the better interest rate.

So what’s the catch. Here’s what I’ve found out. (As catches go, these aren’t too bad.)

(1) You have to be a legitimate company. If you are not, form a corporation. Lenders have differing requirements for this, and I’m not going to go into the varied types of corporations. In short, if you need a company, make it so. It’s easy.

(2) You have to apply…with no help. Lines of credit don’t fall into the scope of mortgage brokers, so don’t ask. Contact the lenders directly.

(3) In most cases, these lenders won’t report these lines of credit on your personal credit UNLESS you fall behind. So, don’t let that happen.

There is a lot more to using these lines of credits. If you haven’t guessed, I’m pursuing this realm of funding in a very aggressive way. Saving $3-5,000 per property speeds me toward the day that I self-finance. If I keep a single project going at all times, that’s 6-8 projects a year. If I can use lines of credit for most of these, that’s a savings of $25-$35,000 per year. Heck, that’s another income in some areas!

There isn’t enough space or time to go into more detail. (If I get started, I’ll be at it for page upon page.) I’m not going to list institutions that offer lines of credit. Start with where you bank and other banks in your area. It will take some searching, but you will find them.

So, investigate lines of credit and save some serious closing table, in-your-pocket cash. It will take some knowledge and determination, but the rewards will be well worth it! I will also report my findings as I learn.