Sometimes, the perfect home presents itself at an inopportune time. If you’re not prepared to buy but stumble into a great deal, it can be tempting to take owner financing or other non-traditional financing options in order to buy your dream home. Owner financing, lease options and mortgage assumptions all make tempting opportunities if traditional financing is beyond your reach due to credit, income, downpayment or other concerns. In other cases, it might just seem like a deal too good to be true, with no need to pursue traditional financing, especially considering all the stories in the national media as of late on how hard traditional financing is these days. If you’re considering an alternate financing deal, or if you’re a first-time homebuyer, you may want to consider adding an appraisal contingency to your contract. If you have the help of a local, trusted real estate professional, they will work to make sure the appraisal contingency is part of your purchase contract.
What is an Appraisal Contingency?
Like other types of contingencies, appraisal contingencies give you a loophole to withdraw from or re-negotiate a deal based on the results of an appraisal. When you negotiate an appraisal contingency, be specific about the terms. Set a minimum dollar amount, and give yourself the opportunity to re-negotiate or withdraw from the deal if the appraisal comes in too low. Likewise, name your own appraiser, if you are using alternative financing methods. If you work with an appraiser selected by the seller, you could be looking at inflated numbers designed to push a home sale through. Here’s another opportunity to enlist the help of a local, trusted real estate professional to help you in this appraiser selection process. If you use traditional financing, the appraiser will be selected by your lender automatically as part of the mortgage approval process.
Protect Yourself from Overpaying
The idea behind an appraisal contingency is to protect yourself from paying too much in a home deal. This is a serious danger in non-traditional financing situations, such as owner financing, lease-purchase options and mortgage assumptions. Without a lender evaluating the property and the deal and without a real estate professional helping you to determine the proper asking price upfront, sellers may find it easier to slip an overpriced home or unfavorable terms into the contract.
A classic issue for first-time buyers and non-traditional financing deals is to focus too much on the amount of money down and the monthly payment, and not enough on the price of the property. Beware of deals that seem more attractive than they are, and let an impartial appraisal make the final decision on your purchase deal.
The appraisal process is a key step in finding out whether or not you’ll be approved for a loan on the new home you chose to put an offer on. The appraisal tells lenders all about the state of the home, how it compares to other homes in the neighborhood and similar neighborhoods, and, most importantly, how much it’s worth at the time of transfer. This is one of the key documents that lenders use when deciding whether or not to offer a loan, so you need to know what to look for on an appraisal – and what can go wrong.
Asking price too high.
The biggest issue that you might see on an appraisal is that the appraisal value is too low. This can happen for a number of reasons. One possible explanation is that you’re overpaying for the property. Appraisals compare properties with similar properties in the area, so if the seller is asking for more than the property is worth, an appraisal reveals it. If the asking price is too high, you can take the appraisal back to the seller and attempt to negotiate a lower price.
Appraiser doesn’t know your area.
Another potential issue with appraisals is that the appraiser might not know your area. This is especially an issue with the Government issued, Home Value Code of Conduct (HVCC). The HVCC appraisal code promotes independence of the appraiser to be outside of “undue influence” of the lender and where appraisers may have to drive from hours away in order to evaluate your property. Lenders and real estate agents are currently restricted from using specific appraisers who may be familiar with properties, and the HVCC appraisal code is causing a host of problems with appraisal values coming in too low because appraisers are unfamiliar with the area. If you think the appraisal is too low, you and your lender may work together to find an alternate solution, or you may simply be out of luck due to the HVCC appraisal code.
Issues with your property.
Finally, an appraisal can come in too low because of potential issues with your property. While an appraisal isn’t an inspection, it may reveal things that lenders would consider to be a problem. You should still order a separate inspection on the property, but the appraisal can point to potential problem spots. You can use issues found on an appraisal to negotiate a lower sales price with the seller, or you may decide that you don’t want to deal with a property that has issues and move on to find another home.
Whether or not you have children, it’s important to evaluate local schools when you’re looking at homes. If you do have children, you have a vested interest in the local schools; you want your kids to go to schools with a good education track record. But even if you don’t have kids, buying a home in an area with good schools can improve your resale opportunities and potentially boost your home values. When you’re looking at homes, you should check out local schools for things like test scores, graduation statistics and other important statistical data. But you also want to evaluate more intangible elements, such as school programs and other important data.
Research Statistics on Local Schools
At the very least, whether or not you have kids, you should research statistics on local schools. Find out whether students at your local school have good graduation rates, and how their test scores compare to national averages. You can also look at things like student-to-teacher ratio, number of students enrolled and statistical data about the teachers. This information may be available online, or you may need to contact your local school board for data.
Interview the Principal and Schedule a School Tour
If you don’t have kids, you may skip this step, but if you do have kids, you’ll probably want to set up a time to meet with the principal and schedule a school tour. Do the facilities seem up-to-date? Are the buildings well-maintained? What can the principal tell you about students at the school, or about the special programs, such as band, drama, cheerleading, sports teams and academic programs? Ultimately, a school that is proud of its special programs typically also does a good job of educating students. But it helps to talk with the principal and see the school – potentially while students are in-session – to get a feel for it. You can also talk with local parents to find out their take.
Posted August 17, 2014on:
Many lenders require home buyers to purchase title insurance to protect against potential issues with the title. Maybe the title report doesn’t show any title issues, but later a prior homeowner comes forward saying that a deed was forged, or you find a forgotten pipeline easement that affects the property’s title. Maybe a lien is mis-recorded after you purchase the property, or perhaps the title search failed to uncover a critical issue that falls outside the typical title policy in a given locality. In these cases, you’ll want title insurance to protect your purchase and ensure you still get enjoyment out of your property.
What Does Title Insurance Do?
Contrary to what many people believe when they buy it, title insurance doesn’t guarantee your quality of title, nor can it prevent title issues from occurring. What it does do is pay for reimbursement for, or defense against, title claims that may arise in the future. In many cases, title insurance policies won’t reimburse for defects existing at the time the policy is issued. However, it protects against future defects by providing financial reimbursement for any steps necessary to resolve the defect. The policy can’t prevent the defect from occurring, but it can reimburse for defects or cover the cost of legal action to resolve the problem.
Lender’s Policy vs. Owner’s Policy
When you get a title insurance policy, it’s important to distinguish between a lender’s policy versus an owner’s policy. Most mortgage lenders require you to purchase a lender’s policy to protect their asset. However, most lender’s policies don’t include any coverage for you, the owner. In other words, the bank may get reimbursed, or may have money to defend title issues, but you personally get no financial benefit from a lender’s policy. That’s why it’s important to have an owner’s policy of your own, to protect your interests. In the State of Iowa, Iowa Title Guaranty offers a free Owner’s Policy on most purchases — a policy that a buyer needs to elect coverage for. Be sure to check with your lender to make sure that you are eligible for, and elect to take advantage of, this FREE home purchase benefit, as opposed to having to pay for it yourself seperately out of your own funds!
Getting pre-qualified or pre-approved says a lot about you as a borrower. However, not everyone gets pre-qualified or pre-approved before they go home shopping. As a potential buyer, what does your status say to sellers and lenders?
What sellers think of buyers.
When you’re buying a home, having pre-qualified or pre-approved status says a lot to sellers. If you are neither pre-qualified nor pre-approved, you’re probably just starting out in the home shopping process. Sellers are likely to take you less seriously as a buyer, and may decline to consider your offer at all if they have multiple offers on the table. Therefore, if you’re serious about shopping for a home, it benefits you to be either pre-qualified or pre-approved before you begin.
What pre-qualified means.
Pre-qualification is the first step of potentially getting approved for a home loan. Pre-qualified individuals have passed a basic screening with lenders and are eligible to proceed on to the next step of the qualification process. Basically, pre-qualification is an invitation to fill out a mortgage application and detailed mortgage paperwork to determine whether or not you’re eligible for a loan. Pre-qualified does not mean that buyers are guaranteed a loan, so don’t assume that you can automatically get a mortgage if you receive a pre-qualification letter.
What pre-approved means.
Pre-approval is the next step for potential homeowners. When you are pre-approved, it means that mortgage lenders have taken a detailed look at your financial situation and are likely willing to offer you a loan up to X dollar amount. Pre-approval still doesn’t mean you’re guaranteed a loan; the property and the terms must meet certain conditions in order for the lender to generate a loan. However, pre-approval means you can get that much money from the lender, if everything lines up, so sellers know you’re serious and ready to buy.
Choosing the right neighborhood to live in is an important process. It can have lasting effects on your daily life for your family, especially your kids.
Here are 5 steps you can take to help ensure you select the best neighborhood for your family.
Step 1: Make a list of what you want from your home and neighborhood and rate each one on a scale of 1-5, 5 being very important and 1 being not important at all.
1. Style of home desired- single family detached, town home, or condo.
2. Kids: Do you have kids or are planning to have children? This is something to consider when choosing a neighborhood. You have to consider the school system/district where your new home is located. Are there other families with kids in the neighborhood?
3. Proximity to work: How far are you willing to travel to work? Consider the distance and traffic. If you’re not sure how long it may take, try doing a test run. Make sure you start from your prospective neighborhood at the time you would leave for work and time it.
4. Type of community: Do you want a home town feel, city, rural, or suburbs?
5. Proximity to shops: Do you want to be able to walk or have a short drive to stores or will you mind driving 15 minutes or more to get there?
Step 2: Narrow down your neighborhood searches to perhaps 3 or 4 that you’ve researched. Once you’ve narrowed them down, you can start doing a little more detailed investigating.
Step 3: Research schools, crime statistics, neighborhood demographics, parks and recreation, shopping and access to major roads and highways. You can find a lot of this information online. Some helpful sites are crimereports.com, city-data.com, yahoo.realestate.com/neighborhoods and greatschools.net. Also your real estate agent should be able to help you with this process as well, allowing you to concentrate on other items in the selection process.
Step 4: Play detective- After doing your research, visit your prospective neighborhoods and drive around them and in the community. Go on different occasions, day, evening, weekend and get a feel of what it’s like.
Look at the homes. Are they well maintained? Are there many homes for rent or sale? This could be a trouble sign. Talk to people you see living in the neighborhood and ask them questions. Imagine yourself living there and see how you feel. Do you feel good or is there an uneasy feeling?
Step 5: Now that you’ve chosen the neighborhood you want to live in, you can begin choosing the right home for you in your new neighborhood.
So you’ve narrowed your search down to a few homes in neighborhoods you like. They have comparable amenities and the features you want. How do you select the right house? Now it’s time to make use of the principle of progression to find the home that’s going to provide the best deal for you.
What is the principle of progression?
Basically, the principle of progression states that your property values are improved by being located near other homes with higher property values. For example, if your home is $50,000 less than the median prices of your neighboring homes, your home’s value is worth more. The inverse is also true; if you buy an expensive home next to a home that’s significantly lower priced, your home value could go down. The obvious choice, then, is to go for the home with a lower price tag because the homes around it improve its value.
How to decide whether the home is worth buying.
There’s a Catch 22 to the principle of progression: if a home is priced significantly lower than the homes around it, there’s probably a reason. That reason is likely a defect of some sort. Some defects are relatively minor, while others can cause a major drain on your wallet and ultimately make it more difficult to sell the home. When is a home worth buying?
Cosmetic defects are obviously the easiest to correct. If the home would benefit from a new landscaping job or a new paintjob, it’s an easy and relatively inexpensive fix that makes the lower price tag a great deal. Even some larger-scale improvements, such as upgrading a bathroom or an electrical system, can still provide a great deal if the price tag is right.
Be careful about when a minor defect turns into a major defect, though. Before you get into the cosmetic changes, have an inspection and find out what’s under that ugly paint job. Check out the plumbing, foundation and wiring. Underlying problems can become serious issues, so balance the desire for a deal with a professional inspection that can give you an idea of the real picture.