Lesson #6: Making an Offer

Congratulations!  Before making an offer, feel free to return to the home for a couple more showings with friends or family.  Enjoy this exciting time when you feel twitterpated about your new home (that's right, I used a Bambi reference.)

Your awesome realtor will also take this opportunity to walk through the entire house and mark items that will "convey" with the home.  For example:  Anything that is attached to the walls should convey but if you see something you like (like a bathroom cabinet or wall sconce) and put it in the offer for good measure.

What to expect (besides your realtor being really busy):

• Decide on how much you want to pay for the house.  
• Typically, you ask the seller to pay all of the closing costs.
• Your loan officer will need to send the pre-approval letter for the offer amount to your realtor.
• Write a check for $1,000 to the selling agency which is called an "Earnest Money Deposit" (don't worry - if the house doesn't work out, then you get this money back.)
• Realtor will run a "CMA" or Comparative Market Analysis to review similar (same sq. footage, neighborhood, age, etc.) listings in the area.  The CMA basically provides a temperature reading to tell if your offer is comparable, higher or lower than the market.  
• Realtor will recommend any offer adjustments based on the CMA.
• Realtor will write up the offer paperwork (around 15 pages) and review each page with you.  
• Typically, you ask the seller for 14 days to have a home inspection done.  If any issues arise during the home inspection that you cannot negotiate with the seller, then you can get out of the contract.  
• After signing and returning the offer paperwork, the Realtor will send it to the selling agent.
• Typically, the seller will respond within 24 hours (unless you're dealing with a bank/foreclosure.)
• The seller will either accept your offer or mark changes (ex:  revise amount of selling costs or advise if an item you requested does not convey.)  If this occurs, do not panic.  Your realtor will guide you through the negotiation process (more on that later.)
• If you and the seller come to an agreement, then you will have a "ratified contract" on a home!

If your offer is accepted, then you should do three very important things:

1. Buy a ream of paper to prepare for the onslaught of paperwork from your bank.
2. Schedule your home inspection.
3. CELEBRATE!

Lesson #5: Tour a Home

The best part of the house buying process is getting to tour homes!  Our agent drove us around, told us about each neighborhood and pointed out any local attractions.  The quality time spent with our agent touring homes, also helped us get to know each other.  (Having a solid relationship with her was key to us not going completely insane)

When pulling up to a potential home, I recommend paying attention to the block the house is on, the neighbors and immediate surrounding area.  Changing where the house is located or who your neighbors are can be incredibly expensive and time consuming (remember that HGTV reality show "Haulin' House" that followed professional home movers?)

It's important when you're walking around, to ask your agent any question you may have.  Be an oversharer - like you're one of those people on Facebook or Twitter wanting everyone to know that you are craving mac n'cheese.  Be vocal and open about your likes and dislikes.  If your agent rocks, he/she will be taking mental notes.  At one point, our agent knew whether or not we liked something before we told her.

Some questions we asked ourselves:

• How much sunny garden space do we have?  
• Are we too close to our neighbors?
• Where are the property lines?
• Can we imagine ourselves living here?
• What comes with the house?  (appliances, light fixtures, etc.)
• Why is there a toilet in the middle of the bedroom?  (no kidding! it was random)

Spend as much time as you want in the house.   Don't feel rushed if you want to explore or just sit down and get a feel for it.  Also, feel free to leave if you don't like the house.  The house's feelings won't be hurt because it was just not meant to be.  

Don't worry about taking pictures the first time.  Nowadays, you typically get a small 3-4 page printout about the house with pictures.  You can also go back as many times as you want to see a house and even bring a panel of specialists before making an offer.  Our panel consisted of my best friend, my parents and a 7 month old they were babysitting (he liked all the houses we saw.)

We also drove by the house during different times of day.  Our agent also recommended going by Saturday or Sunday morning to see how it felt.  

Everyone said, once you find the right home - you'll know.  That is 100% true.  What they don't tell you is you will promptly become obsessed with the house until your offer is accepted (more on that later.)

To recap:

1. Pay attention to where the house is located and who your neighbors are
2. Ask lots of questions
3. Overshare
4. Take as little or as much time as you want
5. Always ask "do you see yourself living here?"
6. Have fun!  Cheesy, I know.  But, everything before and after the home tours will be stressful so enjoy these moments :)

The Victorian

And there she was - the ultimate house.  I could hear angels singing, light shined down from above.

• Built in 1829
• 5700 sq ft
• .8 acres
• 14' ceilings
• Guest house, finished basement and attic
• 15 min. outside of the city
• At the bottom of our price range (only $225k)
• Absolutely beautiful

We couldn't say no to a bedroom that looked like this:

Or a huge garden with chicken potential like this:

Checkout the full virtual tour which was posted when the house was listed a few years ago.

Like most things that are too good to be true, the house had a few issues:

• Foreclosure - Since Bank of America was the seller, we had to wait a few days before getting any type of response (bureaucracy.)
• MOLD in the basement - The house was foreclosed on in November 2011.  We looked at it 4 months later and during that time, the electricity had been cutoff.  After a heavy rain, the basement flooded but the sump pump did not have power to pump the water out.  Estimated cost to repair = $10,000
• No kitchen - The previous owners took every piece of cabinetry - even the kitchen sink!  We saw this as an opportunity to build our perfect kitchen with a blank slate.  However, it meant normal loans did not apply.   Estimated cost = $25,000 - $40,000

• Possibly haunted - Civil War ghosts are popular in Richmond, VA, what can I say?

Our first realtor told us that no mortgage company would EVER approve us for a house that needed this much work.  Seriously?  The only way you could buy this house is if you paid cash??  Thankfully we did our own research and Wells Fargo qualified us for a Conventional Renovation loan which included $225k for the mortgage with $50k in renovations, so $275k (more details on other options later.)  

After the bank sent the pre-approval letter to our realtor, we crossed our fingers.  There was another offer on the house but we were willing to pay full price so it had to be ours.  

Did I mention two rooms had built-in bookshelves and huge pocket doors?  My Pinterest activity escalated as I decorated each room.

Sadly, the bank accepted the other offer for $185k.  You may be asking yourself, "But isn't that lower than what you offered?"  Yes.  Yes, it is.   Perhaps it was a cash offer, we do not know.

Life.  Often times, upsetting things happen to you that don't make sense or are out of your control.  We mourned the loss of this house but had to dust ourselves off and Move On.  Leave the negativity behind and keep the lessons learned.  

•  Unless you have a signed contract, do not pay for a home inspection.  We lost $500 because we didn't know any better and our realtor did not advise us otherwise.  Since there could have been other major problems unknown with such an old house, we wanted to avoid getting a contract on a house that needed $200k worth of work.  Apparently, you can get out of a contract after the home inspection so we did not need to have the inspection done beforehand.
• It's ok to change realtors if they aren't working out.  Even if they are a friend of yours.
• Ask the home inspector lots of questions.  They are a great resource, you are paying them and their job is to protect you.
• Shop around for a mortgage that works for you! 

Lesson #4 - Search for a Home

When making a big purchase, Consumer Reports or Amazon reviews normally become my best friend.  Conducting routine interviews of friends, family and coworkers is also part of the process.  It's not easy for me to part with any chunk of cash.  

Since I couldn't quite kick the research habit, I used Zillow.com to browse houses for sale in the area and look at our options.  Zillow is nice because it:

• Maps the houses for you
• Has a lot of fun filters that are useful to narrow down your search
• Allows you to save searches
• Provides the house's value history
• Displays what houses in the area sell for (even if they are not on the market)
• Has pictures
• Is free!

As great as Zillow is, only after falling in love and making an offer on a house, do you have the opportunity to get a professional opinion about a home via the home inspection (more on that later.)  

Therefore, knowing what you want, where you want it and how much you can afford will be your only search criteria.  You may get lucky and find the perfect house.  However, for the rest of us, you need to categorize the must haves from the nice to haves (our list.)

After providing our dream home information to our real estate agent, she setup MLS (Multiple Listing Service) searches for us.  If we found a house we liked, then we drove by it because:

• Pictures on MLS can be deceiving
• We wanted to check out neighboring area
• Determining if a backyard is sunny can only be truly done in person
• It's the only way to scope out the neighbors
• We didn't want the house to be too close to our neighbors (no offense - we just wanted lots of garden space)

When using MLS, help out your agent by marking homes that you are interested in and deleting homes you would never purchase.  Seems obvious but throwing it out there since according to our agent - not everyone does these things.  

Since there were over 300 homes that fit our criteria (blessing in disguise??), I skipped straight to the pictures and looked for a sunny backyard.  If the house didn't have one, then I moved onto the next.  If the kitchen was nice and the backyard was questionably sunny then I marked it anyway.  My husband calls this process "winnowing the chaff" (had no idea what he was talking about either.)  

Since the houses start to blur together after awhile, I recommend adding notes to the ones you like.  For ex:  "Sunny backyard but not sure about neighborhood" or "Beautiful kitchen, need to checkout garden potential."  

One last piece of advice:  after looking at pictures of the 100th house on MLS, my eyes started to bleed so take regular breaks :)

Happy Hunting!

Lesson #3: Set a Budget

Know thyself and know thy budget.  Unless you are part of the 1%, a 30 year mortgage commitment will be your future.  

Factors we considered:

• Cash up front:
• To know how much we needed to borrow, we figured out how much money to put into down payment which would reduce the amount borrowed.
• What could be the closing costs?  (our estimate was $8k)
• How much are inspections?
• When you find the house you love, what if it needs work or appliances to move in?

• Monthly payments:
• What are our current average monthly expenses?  
• What is our current average monthly income?
• How much savings do we have to put towards a down payment?
• How much can home owner's insurance be?
• Taking our income minus expenses, what is leftover to add to savings each month?  
• When can we go to Hawaii again?

You can also use any Home Budget Calculator like this one.  

If you provide a down payment that is less than 20%, then you will need to add a monthly private mortgage insurance (PMI) payment into your budget.  Our bank estimated $280/month (Rates can range from 0.5% to 6% of the principal of the loan).  

Because we planned on starting a family, it was better for us to put down 20% in order to have lower monthly payments.  

After Microsoft Excel crunched our numbers, we knew the amount of upfront cash and long term monthly payments that were affordable.  Sometimes, the seller can pay all or part of the closing costs but it's best not to budget that will happen.  

Buying a home can be an emotional rollar coaster.  Knowing your limits up front can prevent you from making an emotional budget decision in the future.  (The house we love needs a new foundation?  Sure!  We'll figure out the cost later...you only need one kidney, right?)

House Hunters Addiction

My name is Sarah and I was addicted to HGTV.  Any show focused on searching for a home, renovating a home, decorating a home (pretty much every show) - I watched.  It was like crossing the Sahara and arriving at the only watering hole - I drank every ounce of it.  

During this period of addiction, my DVR recorded every version of House Hunters - House Hunters USA, House Hunters International.  (Probably would have watched House Hunters Antarctica if there was such a thing.)  

  

If you haven't seen the show, it follows people around as they look at 3 different houses.  Details about each house are also shared like price, # of bedrooms, sq. footage, etc.  One house wins at the end and everyone lives happily ever after.  

My husband has a strange talent for guessing which house will win.  There is even a Bingo game!   I love it because you get a glimpse of the housing market in different areas.

After 100 hours of watching the show, dreams of being on it started to creep into my mind.  We would get to see 3 houses and live happily ever after, right?  Not quite - it is still Hollywood.   

According to the blog, Hooked on Houses, the show is completely staged.

"... $500 for four full days if filming. Furthermore, it isn’t just sometimes fake – it is ALWAYS fake. I’ve just gone through this process. They won’t even consider you for the show unless you already have a purchase agreement signed, and have access to both your new home and your former home for the duration of the filming period."

I was floored.  My experience with having a purchase contract (more on that later), is the last thing you want to do is look at other houses.  Your heart already belongs to another!  This shocking discovery lowered the amount of time I spent watching the show - which was for the best.  

While my dreams of being a house hunting TV star dwindled, the journey of looking for a home became our reality.  

Lesson #2: Clean up your credit

Let me preface this post by saying I am not a mortgage expert.  I can only communicate my experiences and information.   However, if you started charging $10/month to a credit card when you were a teenager and don't have ANY late bill payments on anything, then you can skip this entire post.  For the rest of us who hold their breath while their credit is run, read on...

There are 3 credit reporting giants.  Why 3?  More opportunities for someone to find something random that requires you to explain or get documentation that it does not apply to you.  

Credit Reporting Agencies:

1. Experian
2. Equifax
3. Trans Union

Often, one agency would report something that the other two would not.  For example, someone named David Elkins in Florida was late on their Gap credit card payment (I hope they at least got a good deal on some nice jeans.)  Anyway, the late payment showed up on ONLY the Equifax report and it was up to us to prove his innocence.  Annoying, right?

Why do credit reports even matter?  Because they determine what kind of loan you qualify for.  The loan type determines the kind of buyer you are, how much you pay in closing costs, etc. 

Random events that can hurt your credit:

1.  Someone checking your credit report
2.  Using up your credit line frequently.  For ex:  if you have $7500 credit line, charging $5000 to it each month.  It's nice to rack up those rewards points but wait until after you buy a house.
3.  Late bill payments - for anything, credit cards, utilities, you name it

My advice:  6 months before you want to buy a home, start cleaning up your credit report.  Your loan officer will give you all the details on what needs to be addressed.   It can take a few months to dispute items, get documentation and wait for your report to update.  Note:  traveling down to Florida to find your impersonator is not tax deductible.