Friday, June 17, 2016

New Homeowners May Need to Rethink Approach Before Buying

Purchasing a home remains one of the largest financial investments most people will make in their lives. Some things do not change. What has changed is the perception that owning a home is a necessary component of achieving the American Dream. The dream turned into a nightmare for millions of Americans when the housing market collapsed. The antiquated notion that real estate and houses always go steadily up in value was obliterated. Some of the top housing markets in the country were also the hardest hit and had the steepest drops in home prices.

Some people learned the lesson the hard way when they were unable to pay their monthly mortgage or sell their home for enough to pay off the loan. Many people who purchased foreclosures discovered first-hand the importance of always buying title insurance. Others watched home ownership become more elusive for them as new regulations and more cautious lenders changed the requirements for obtaining a home loan. As the housing market improves and activity increases, potential new home buyers need to approach the process differently than previous generations of buyers.

Prequalification applies to more than finances
Any potential home buyer should absolutely check their credit report and assess their financial situation and goals themselves before they speak with any professional. These same home buyers should also take a personal inventory of their own priorities and long-term goals. Owning a home is not right for everyone. Just as some people get married too young, some people who purchase their first home are financially capable at the time, but not ready for the many other responsibilities that come with home ownership. Millennials are more likely to embrace apartment living and opt to rent long-term over buying. Some people who owned a home previously and lost it to foreclosure feel a part of their life is left undone until they again own a home. These same buyers should also carefully consider why they want to own a home and whether or not it is necessary to live a fulfilled life.

Potential home buyers have a lot of homework
Home buyers are responsible for providing their lender with all the necessary paperwork and documentation to obtain financing. They also have a responsibility to sellers and real estate professionals. It is reasonable and becoming more common that all offers to purchase be accompanied by a verification of funds letter. Just as a home buyer expects the seller to be fully capable of transferring ownership by a specified day, it is only right that buyers be capable of closing without any preventable delays. Buyers should also speak with a professional about what title insurance policy is right for them before they reach the closing table. Title insurance is vital, and all purchasers should make an informed decision on their policy.

Most delays to closings are due to problems on the buyer's side. This is why a large number of REO "Real estate owned" companies include a "per diem" clause in all of their contracts. More individual sellers are now adding the same type of clause to their agreements. Closing delays increase the seller's costs. They must maintain utilities along with security and lawn maintenance on the property. Prorated costs have to be recalculated and the schedule of the seller changed.

It is important to be ready to take action
A limited inventory in many areas is providing a steady increase in home prices. While interest rates are still low currently, that can change quickly. New home construction is not yet up to full speed and many areas of the country still have high unemployment numbers. The market has remained in a bit of a holding pattern for several years. That can change fast. Buyers who are too picky can see the best home for them sold to someone else. Those who take too long to purchase can potentially see a previously affordable home move out of reach due to higher interest rates.


Buyers must spend an adequate amount of time assessing their own situation, commit to a Realtor who is knowledgeable about the local market, and protect themselves with title insurance and proper legal counsel as they take confident steps toward home ownership in this new market.

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