IMPORTANT REAL ESTATE INFORMATION FOR BUYERS

IMPORTANT REAL ESTATE INFORMATION FOR BUYERS

BUYER BROKER AGREEMENT

A Buyer Broker Agreement outlines your real estate broker’s duties and responsibilities to you as a buyer. The agreement will spell out the nature and price range of property you are looking for as well as the geographic area. It also defines the broker’s source and amount of compensation, duration of the agreement and any other mutually agreed upon terms.

So far so good. However, this agreement can also preclude you from using another broker in the event that you are not happy with his/her performance. You are contractually bound and have to meet the requirements of the termination clause in order to be released from the agreement.

While the intent of this document is well founded on the premise that if a broker expends his/her time and resources in pursuit of your objectives, compensation will be received.  There have been many instances where brokers have been engaged in an all-out pursuit of a property and then when it came to writing a Purchase Agreement, buyers used their second cousin or a friend to write it up.  In spite of this risk, all of us at EXP Realty still prefer to earn your loyalty as opposed to contracting it.

FACILITATING YOUR HOME BUYING EXPERIENCE

Buying a home is the most important decision that most people will make.  First time homebuyers especially should do their homework and prepare for this exciting adventure.  Here are a few assignments.

Get your credit report ( you can get a free report every year at  www.annualcreditreport.com ) from each of the nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.  Go over it carefully  and dispute any items that are in error.  You can do this online at each of the reporting companies.  Make sure you start this process well before you start your house hunt as it can take up to 60 days for disputes to be resolved and your credit report adjusted.  You want to have the best credit possible when you start the loan process.

Get  pre-qualified with a local bank, mortgage company or credit union. A pre-qualification is an estimate of how large a mortgage you can afford based on your financial situation. It will help you focus on how much house you can realistically afford.  Please note that a “pre-qual” letter is not committing you to that specific lender.  Just because you choose one lender to work with doesn't mean you'll have to use them to take out the loan.  Most lenders will encourage you to work with them on the mortgage, but by no means should you feel obligated to.  You will be working closely with your lender of choice, so it is important to choose someone you feel comfortable with and someone who will advise and coach you through the process.

The pre-qualification process represents an important first-step most prospective buyers tend to overlook. But as lending guidelines have gotten more strict, it's crucial to know where you stand before setting your sights on a home you just can't afford.

Most likely you will need to take along your last month's pay stub or other proof of employment; along with tax returns from the previous two years.  

Having this Pre-Qualification is also a good negotiation tool.  Your Realtor will present it along with any offer you make on a property, thus letting the seller know that you are a viable buyer and not likely to have a “deal” fall thru because of a denied loan.

PROPERTY SEARCH

Now that your loan pre-qualification and know what your budget will afford, you are ready to start your home search.  Any of our experienced and professional EXP Realtors can help you get under way with this exciting adventure into the world of real estate. Here are a few tips & pointers for a successful house hunt.

Choosing a Real Estate Broker
Just like your friendly Mortgage Loan Consultant, you will definitely be spending even more time with your helpful real estate agent, so it is very important to find someone whose personality you like. Different strokes for different folk, so to say!  You need to feel comfortable being with this person and asking questions.

Where to Start
Once you have your budget, it is often a good idea to look online and get a basic idea of what appeals to you.  Our EXP.com website provides very easy to use and convenient search features, such as the option to privately “Save Searches” and “Share” property information with friends/family. There is also the option to have the complete mls information emailed to you, in case you want to investigate a certain property a bit more before putting it on your “Possibility List”.  

Once you gather your “Possibility List” of about 10 or so properties, it is time to set-up an appointment with your broker of choice.  Let him/her know that you want about an hour of face time to discuss what you like about each property.  It also is a useful idea to get a blank copy of the purchase agreement ahead of time so you'll know what decisions you'll face when you make an offer, aside from familiarizing yourself with the legalese of the document.

Touring Properties
Now you have your list of properties that you definitely want to see. Maybe you have scratched off several since talking with your broker,or maybe he/she has suggested one or two that he/she thinks that you should see. Here are a few pointers:

  • Only schedule 3 or 4 houses at the most to see each day
  • Wear comfortable shoes
  • Bring water and any snacks that you might want
  • Bring a camera and a notepad, so you can refresh your memory later about the properties
  • If you dislike a neighborhood immediately or a home from the curb, don’t waste your time looking inside
  • Try to focus on the property; while it is easy to get distracted by someone’s clown collection or penchant for lime green. Endeavor to envision lovely “Desert Blush” colored walls free from tearful laughing faces!!
  • Relax!!!!!!  Yes,  buying a home is a major life-altering event, but it's not worth making yourself crazy or super stressed.  Our EXP Realtors will also do their part to make this a pleasant experience.

Decision Time
Some people will know their home the minute they set foot inside while others need to compare the virtues of several properties before deciding on the “one”.  Once your decision has been made, it will be the duty of your broker to expertly guide you thru the process and strategies of negotiations including offers, counter offers & inspections.  

MAKING AN OFFER

What is your dream home worth??  In simple terms, a home ultimately is worth what someone will pay for it. Everything else is an estimate of value.  No one wants to overpay for something, but maybe you have the best family in the world, and they are simply “over the moon” for this house.  You might make an offer very close to the asking price. Right??  However, another family who prides themselves in the thrifty business might make a substantially lower offer.   Your real estate broker can offer suggestions based on factual information such as comparable sales,  number of days the home has been on the market, and how many price reductions it has seen, which can speak to the motivation of a seller, but ultimately the decision of how much to offer is yours.

Unless you are a cash buyer, your Purchase Agreement will most likely have at least 4 contingencies.  Contingencies are conditions that are included within the offer that must be fulfilled before the deal can close. If you or the seller is unable to satisfy a contingency, then the agreement may become void. Contingencies usually include time frames in which a buyer can get his earnest money back if the contingency isn't fulfilled before the deadline. For example, if a buyer schedules an inspection within the time specified on his contract and decides that there will need to be too many repairs made, he can rescind his offer and get his earnest money back. The most common contingencies are :

  • Financing Contingency: the buyer must get approved for a mortgage loan to be able to buy the home. He will have a set amount of time to receive a loan commitment letter from a lender to confirm the approval of his loan application.

  • Inspection Contingency: gives the buyers the rights to get the home inspected and negotiate further if there are repair issues.

  • Title Contingency: the offer depends on whether the title of the home that documents the history of ownership is clear of any liens, and that the seller will be able to convey “clear” title. This contingency grants the buyer the right to review a title report.

  • Appraisal Contingency: the success of the offer depends on an appraisal confirming a value for the home that is equal to or greater than the buyer's offer amount.

There can also be contingencies for the sale of your home and for NM septic systems along with any number of others, some of which maybe unique to your circumstances.

While nothing is set in stone, some costs allocated in your Purchase Offer are considered customary, such as who pays for the survey (seller) or how closing costs are shared.  Your broker will advise you on these matters as well as the amount of earnest money that should be put down. Earnest Money is the money buyers submit along with their offer to show that they are serious about the offer. The money is deposited into an escrow account. When the sale is completed, the earnest money becomes part of the buyer's down payment. If the sale fails due to a contingency outlined in the initial Purchase Agreement, the buyer recovers the earnest money. If the buyer backs out for reasons not covered in any of the contingencies, he is considered in breach of contract, and the seller has the right to keep the earnest money.

Once your Purchase Agreement is completed, your real estate broker will become your best advocate while presenting the strongest case possible in order to achieve acceptance of your offer.  Depending on how aggressive (low price and other conditions that benefit the buyer) the terms of your offer and the motivation to sell on the part of the seller, your offer will either be accepted (best scenario possible) or you will receive a counter-offer.  Again, it is the responsibility of your broker to expertly guide you thru this process and the strategies of negotiation.

Now that the buyer and the seller have “meeting of the minds”, so to speak, you are “under-contract” and both parties must now attend to the terms and contingencies laid out in your Purchase Agreement.

THE MORTGAGE PROCESS

Even the most experienced homebuyer can find the home mortgage process hard to understand. However, since you, wise homebuyer, have been learning from our EXP website and doing your homework which includes finding a competent Mortgage Loan Consultant, you will most likely pass this test with flying colors! It is the responsibility of your Loan Consultant to make sure you understand everything you need to know about this important transaction.  Don’t be afraid to ask questions, and if you don’t understand the answer, don’t be afraid to ask for it in simpler terms.  As any professional, such as a doctor, Loan Consultants often forget that most people don’t speak their language of ratios, accrued interest & escrows.

Here are some guidelines as to what to expect in your mortgage process:

Step 1: Pre-Qualification
As mentioned in our “Steps to Facilitate your Home Buying”, this should be done before your house hunt begins. Information is gathered about your income and debts in order to figure out how much you can afford to borrow. Sometimes different loan programs can result in different pre-qualification loan amounts.  Your new “best friend” your Loan Consultant, can help you pick the ones that best fit your situation.

Step 2: Loan Application
This is often the most overwhelming point of your home loan process, because it involves excavating lots of documents that are most likely tucked securely away in someplace you have yet to remember, or requiring excruciating hold times to get replacement copies. For this formal loan application you will need employment verification, income verification, bank deposits, and any other documents lurking in some storage box, all needed for processing.

Step 3: Processing
Your new and improved credit reports (see Steps to Facilitate your Home Buying) will verify your debts and payment histories. Sometimes a written explanation will be required if there are late payments, collections for judgments or other concerns.

At this point, an appraisal is ordered to ascertain that the home is not overvalued. In other words, it is some insurance to you the homebuyer that the real estate market supports the price that you are paying for the home by comparing it to other homes of similar nature and location that have sold in the recent past.  If your appraisal does come in at a price lower that what you have contracted, it will allow you and your Realtor to renegotiate the purchase price of the home.

Title insurance (see our section on Title Insurance) and homeowner's insurance is ordered. A complete package is put together for final approval and underwriting.

Step 4: Underwriting
“Underwriting” is the process that happens after your friendly Mortgage Loan Consultant submits all your 2 tons of paperwork to the lender.  The lender conducts a thorough investigation into your credit and employment history to ascertain whether you are a suitable borrower. This investigation, called mortgage underwriting, may take several days or longer to complete before you receive a decision from the lender about your financing.  In these days of strict guidelines by lenders, don’t be alarmed if you are asked to submit additional information.  Just smile and say….”as you wish”. Your fast action will help you keep to the timelines that are addressed in your Purchase Agreement for your new home.

Mortgage Insurance Underwriting
If your down payment is less than 20%, all lenders, including FHA require Private Mortgage Insurance (PMI) to insure the loan in case of default. PMI is typically paid monthly but can sometimes be financed in with your loan or paid upfront at closing. After a few years, you may be able to eliminate PMI if your home goes up in value resulting in 20% equity, but your lender will require a new property appraisal and most likely other documentation.

Step 5: Closing
Hooray!!!! Your home loan has been approved! You have jumped thru all the hoops and soon the keys to your future will be in your hands. Closing date and time are scheduled.  The closing typically takes place at the local title company from which your title insurance came.  You will be accompanied by your friendly Loan Consultant and helpful EXP Realtor.  Start doing your finger stretches, because you will sign “ oodles “of papers with your complimentary title company pen!  Congratulations!!!

AGREEMENT TO CLOSING

After you breathe a big sigh of relief or utter a shriek of terror that your offer has been accepted, you may think that your work is done at this point but think again. There are things that you need to do and review between now and your closing date. This is the point in your real estate experience where your real estate broker becomes your invaluable asset.

In general order of appearance, this is what you can expect:

Documents to Mortgage Company
You will deliver your fully-executed Purchase Agreement (signed and initialed in all the right places) to your Mortgage Loan Consultant.

Receipt of Seller’s Documents
You will receive documents from the Seller such as Seller’s Disclosure of the property and possibly some documents that pertain to Road Maintenance Agreements, Well Documents or Water Rights.

Home Inspection
As part of your due diligence, you will need to order your home inspection. A home inspection is not required, but it is not only prudent, but it is highly recommended. This is probably the largest purchase you will ever make. So, spending a bit of money to have a qualified person thoroughly inspect your future home may prevent thousands of dollars of unexpected repairs later on. Your broker can give you contact information for several home inspectors in the area for you to call and interview.  Make sure to agree on a price in advance with your home inspector. It is very beneficial and acceptable to be present on the day of your home inspection as you will learn a thing or two about your new home.

Attorney Review
It is often very sensible to have your purchase agreement and other pertinent documents reviewed by your attorney. Although not required, having an attorney familiar with real estate law will save you peace of mind and possibly money should any legal issues come up.

Title Company
The next step in the process is to order a title search on the property and the issuance of a Preliminary Title Binder (Report). The real estate broker for the seller will order this from the title company normally of the seller’s choice. This is where an attorney review can be valuable as to assure you that you will receive the property with a clear title.

Appraisal and Loan Processes
Your lender will order an appraisal of the property and begin  processing  the loan.  Stay in close touch with your lender.

Review Home Inspection Report
Any adverse conditions revealed in this report, which may require mitigating and repairs will have to be negotiated with the seller in an “Objection, Waivers & Resolutions” document prepared by your broker.

Contingency Removal
As you resolve all your contingencies such as your home inspection, loan approval and title, you move closer to fulfilling the terms of your Purchase Agreement and home ownership.

Homeowner’s Insurance
After contingencies are removed, secure your homeowner’s insurance if you haven’t yet done so. Do some comparison shopping because the cost can vary widely among providers.

Final Walk-Through
Your final walk-through is typically scheduled within the week leading up to the close of escrow and is your opportunity for one last look at the house. This is not the time to bring up new issues, but to ensure that the home is in the agreed-upon condition.

Utilities
Once you have a pretty solid closing date, now is the time to make sure all the home’s utilities get transferred into your name on that date.  If you are not familiar, your broker can provide the names and phone numbers of all the local utility companies.            

Preliminary Settlement Statement
The Real Estate Settlement Procedures Act (RESPA) dictates that the parties to the transaction must receive the settlement statement (typically called the HUD) within 24 hours of closing. This statement is an itemized accounting of all charges imposed on both parties. These charges include the real estate broker’s fees, your earnest money deposit, appraisal fee, transfer taxes, loan payoff and more. The statement clearly outlines from whom the money is taken and to whom it is credited. Go over the HUD-1 with your attorney or real estate broker and check it carefully for errors.

Closing
Normally the Buyer and the Seller will “Close” separately at the title company.  Your broker and your Mortgage Loan Consultant will typically attend as well. You should bring the following items to closing:

  • Photo identification for each party to the purchase
  • Homeowner’s insurance policy and proof of payment for it
  • Certified check for all monies you are required to pay at the closing, unless you had a wire transfer.

Be prepared to sign more papers than you ever imagined it was possible to sign. When all is said and signed, however, you will be handed the keys to your new house. Welcome home to Santa Fe!

THE COST OF BUYING YOUR HOME

When purchasing your home, you will have two types of closing costs involved with the transaction; Loan and Title Company.

Loan Costs – Your lender will provide you with a “Good Faith Estimate of Closing Costs” before your closing as to what these costs will be.  Below, you will find the averages for fees charged by lenders and third parties.  Take into consideration, not every lender charges every fee.

Origination Fees by Lender

  • Application Fee: Not all lenders charge this fee, but of those that do, it averages $345.

  • Origination Fee:  Normally 1% of the loan amount collected by the lender to process the loan.

  • Processing Fee:  Charged by the lender to cover costs associated with the processing and closing of a mortgage loan. Rates can range up to $500.

  • Underwriting Fee:  A fee collected by the lending institution to have the loan reviewed for final approval. In New Mexico, it averages $200.

  • Document preparation fees: The lender or broker will usually have a fee to cover the preparation of the required documents for the loan.  Average fee $75.

Third Party Fees

  • Homeowner’s Insurance: When borrowing money to purchase a home, insurance is required. You will need to purchase this before your closing.  Annual costs for a homeowner’s insurance policy can be estimated by dividing the value of the home by 1,000, then multiplying the result by $3.50.
     

  • Appraisal fees: An appraisal is needed so that a current fair market value for your home can be established for tax purposes.  Normally start at $400 for a single family home.
     

  • Credit report fees: In order to secure a loan, the lender will require a verified credit report. Usually around $50.

Other Considerations

  • Private Mortgage Insurance (PMI): If you provide a down payment of less than 20% of the purchase price of your home, you are required to purchase private mortgage insurance.  Generally this insurance is will be rolled into your monthly payment.  The PMI rate is figured as a percentage, usually around 1 to 2 percent, of the outstanding principal amount of the loan, and then divided into twelve monthly payments. So if your loan has a principal balance of $150,000, and the annual premium at the PMI rate of 1 percent is $1,500, or $125 a month.

* The above fees were based on a Bankrate.com survey. They surveyed up to 10 lenders in NM in June 2012 to obtain online good faith estimates for an average single family home with a 20 percent down payment.

This article reprinted with permission of: www.TaosNewMexico.com


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Phone: 505-231-9691
Dated: June 30th 2018
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