Shopping for homes and not for lenders & mortgage plans.
There is the same number of mortgage brokers and lender options as houses on the market. Comparing a few brokers in regards to the interest rates they offer could save around $300-$400 in the first year. Every lender has its own criteria on eligibility and how they establish the interest rate, terms, and other offers for buyers. Shopping and being informed about all the programs, definitely helps in the long run.
Looking for properties BEFORE talking to a lender.
If you are a buyer(in need of financing) and you start looking for properties before talking to a lender, it is a waste of your and the realtor’s time that works for you (if any). First, let’s assume you desire to purchase a $600,000 property, with a big yard, 5 bedrooms, a large pool, 2 car garage, and many more characteristics of your preference. You find the property you love, you see it in person, and that's the one. Now what? You have to make an offer. How do you make an offer with no pre-approval letter from a lender? If you do not make an offer within 1-3 days of seeing the property you have a big chance of losing that home to someone else, that is prepared and fast enough to act with a compelling offer showing proof of funds or pre-approval. You start the game with a losing hand, without a doubt will that accomplish any win.
Second, let’s assume you want the same $600,000 home, and somehow you manage to get the pre-approval in 24hours from a connected lender, but this time lender comes back and looks at your financial situation, your credit score, and all your profile, and says: “ you could only borrow $500,000 according to your financial history. As a buyer, you won’t be able to purchase the house, unless you come up with the $100,000 difference in cash.
The conclusion: Is better to have a pre-approval letter from a lender, know how much you can borrow, and only then start looking for properties in the affordable price range. This way you are not wasting time and effort, becoming frustrated in the process. First-time home buying should be a fun experience.
Buying more property than can afford.
A lender calculates mortgage affordability by certain criteria. You are the only one that knows your future plans, this way you can have funds saved for any emergency repairs, property maintenance, etc. As a buyer, you should consider if you would change jobs in the future, or expand your family, because these come at a cost that you have to consider when agreeing to pay a mortgage for 30 years.
Not using a realtor when 90% of the time is FREE
Working with a realtor as a buyer is crucial. It will save you time, funds, negotiating tactics, your downpayment, and lots of paperwork or other hurdles that come along in a transaction. You could contact the owner of the property or the listing agent directly, but if you were to be represented by a great realtor at no cost, would you still go and find out by yourself in your very first transaction?
WHY IS A REALTOR 90% OF THE TIME FREE WHEN YOU ARE A BUYER?
In the state of Florida 90% of the time, you as a buyer are not the one paying for a realtor's services. Those services are already established and taken care of by the agent who is listing the property for sale. The only time you could potentially pay for a realtor's services is when buying off-market properties or from a "For Sale by Owner". If having a really good realtor who knows how to properly negotiate, you won't have to worry about that either.
When buying a property for the first time, the process might be intimidating, since you are not familiar with these types of transactions. Real estate transactions are not something that you do on a daily basis, and it's ok. An experienced realtor will hold your hand and follow up with you every step of the way, even when there is nothing to say, a good realtor will call just to say that. It is important that you feel comfortable, having your funds secure within the contract deadlines and limitations, and the overall transaction until you close and finally move in.
Comparing real estate apps and websites and forget to compare realtors
When shopping for a property it is so easy to overlook the fact that you need a good realtor to represent your best interests. Sometimes, it's not the top agent, or the most popular, nor even the oldest one with the most experience. It is always the one you connect best with, the one you know:
- has a great communication process and follow-up system,
- can have you informed ahead of time about the entire transaction, so you know what to expect, what to look for, and what to avoid.
- can answer any of your questions or concerns in a timely manner.
- won't give up on negotiations, even by doing so won't be in the realtor's favor but yours.
- At all times will keep in contact with the lender, insurance broker, appraisal, inspector, and the listing realtor to negotiate and make the transaction smoothly for you.
- will keep everyone involved in the transaction, accountable to meet all the required deadlines in the contract.
Not accounting for all the expenses that come with ownership.
Most of the first-time homebuyers that I came across were renters. The main reason they wanted to buy is to avoid paying someone else's mortgage by paying theirs instead. That approach is great as long as they consider the following costs that come along with the ownership title:
- Closing costs. When purchasing a property, besides the down payment, and the mortgage you will have to account for closing costs which are typically around 10-15% from the purchase price, but always double-check this information with the realtor and lender, or title company you work with. (Some of the closing cost fees can be negotiated, you only have to know which ones and how to ask for a reduction, if any are possible at that time. It doesn't hurt to try.)
- Transaction Fee on top of the closing costs. Most of the Real Estate Brokers have a flat office transaction fee of $295, which covers the transaction itself and all the paperwork necessary for the closing which goes straight to the Broker and not to the Realtor that you work with (unless the realtor is the broker). Sometimes your realtor will take care of this cost, depending on their limitations, but regardless, they will let you know about it.
- HOA (Homeowners Association) fee if there is an HOA. Depending on the property, location, and SF of the property, an HOA fee can range between $150- up to $4,000/month in Miami FL. Make sure to ask ahead of time what your HOA fee covers in the property you are interested in. Most of the time it will cover all the amenities in a property(if any) plus the outdoor maintenance for the public space of the property that all residents have access to, which can include a gym, a pool, a back yard, a kids area, office spaces, lobby area, entertaining rooms, etc.
- Assessments fee. These fees come along with some renovations that are to be made in the future or are already in progress, which are on top of the HOA fees, (if there are any) - these can highly vary from $150-$300/month. Not every property will have an assessment fee, you will have to double-check that with the realtor.
- Yearly Property Tax. We are all very familiar with these, but sometimes we need a quick reminder. Depending on the location and value of the house taxes can rise each year. There are ways to save on some taxes by applying for Homestead which will reduce some of it.
See HERE Miami Homestead regulations and how to file for it.
- Maintenance & Repair costs. Depending on different aspects. If you're shopping for a single-family home or a condo, maintenance can vary deeply between the two. On a house, you will have the lawn, pool, and other maintenance(if any). On a condo, you will only take care of the interior maintenance of the AC, plumbing, water, electricity, etc.
- Future Renovations. If you think of upgrading your kitchen, perhaps your bathrooms, living room floors, or other new updates in the future, better start planning now, so you can account for all those ahead of time and live in the home you prefer to have eventually.
Waiting until accumulating the 20% down payment.
Waiting to save 20% of down payment only takes more of your time and with a chance of losing on deals right now. Sometimes a buyer doesn't need to pay 20% down, it all depends on the lender and buyer's financial situation at the moment. Buying a property sooner can help you get a lower interest rate and avoid the chance of that same property going up in price in the next month or so, plus interest rates increasing as well. As a new homeowner instead of saving, you better start building your equity earlier as your property also going up in value (depending on the property, location, and other criteria, always check with the realtor you work with). Making less than a 20% down payment makes financial sense if you need to have a cushion of cash money for emergencies or other expenses at the moment. The only downside of paying less than a 20% down payment, is that mortgage companies require a (PMI) Private Mortgage Insurance along with the loan, which is an extra cost added to your mortgage. A (PMI) typically will cost you between 0.5 – 1% of the borrowed amount per year. Once you build up equity on the property you can give up the (PMI) insurance and stop paying for it (ask your lender for specific details in your case, to let you know how much equity you will need to have until you can remove the PMI).
Listen to the Podcast Episode HERE.
If you or anyone you know is in the process of buying a property and needs guidance I would gladly assist in any way I can. Feel free to reach out by email at: Info@AngelaAndronache.com with questions and topics you are interested to hear next.
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