Saturday, November 28th, 2015

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Beyond the Mortgage

This article is part of our 52 week journey through Bill’s latest book, The Graduate’s Guide to Life and Money. Each week, a full excerpt from his book will be presented from beginning to end. To get your copy of his book, visit www.TheGraduatesGuide.com.

Visit the Young Money Mortgage Center.

Now that you have your finances squared away, it’s time to find a real estate agent. Do you really have to use one? Yes and No. If you already know the house you want, especially if it is for sale by the owner, you can probably get away without any real estate agent. You’ll just need a good attorney to write your contract. Otherwise I would use some type of real estate agent, at least for the first two or three homes you buy. One thing you need to know about real estate agents is that most of them work for the seller. Unless you specifically find a buyer’s agent, which are becoming more popular, the agent is actually working for the seller.

Now you have to ask yourself, “What is it that I want out of my new home?” Unless you plan to stay in your home for the rest of your life, you have to consider what features would make the house easy to re-sell. Even if you do plan to stay in the house forever, you have to consider that you are not your parent’s generation. You are much more mobile. Remember the seven-year itch? There is a very good possibility you will move within seven years of purchasing your first home.

You may not care which school district the home is in if you don’t have any kids, but if it is a four bedroom home, then when you are ready to sell, families are more likely to look at it. And one thing most families consider is the type of schools in the area. You should also consider your commute to work and the distance to the nearest large city and any other amenities such as doctors offices, grocery stores, etc. Not only should you consider such issues for your own liking, but also for potential buyers once you move out and sell. There are many more features you should consider about the home, the neighborhood, and the community you are considering.

Once you have an idea of the type of home you want, and how much you are willing to spend, it is time to find a real estate agent. The best way to find a good real estate agent is to ask friends, family, neighbors or co-workers who have purchased a home if they would recommend their agent. While you are at it, ask them if they have any advice for you since they obviously went through this process at least once before. You may also be looking to purchase a new home from a planned community. They don’t advertise this, but you can still use your own agent when buying from the builder in a planned community. If you don’t, the sales person at the community usually makes more money. Remember, they work for the builder, not you.

Your agent will usually ask you some of the standard questions, such as what your price range is, what areas of the city or county you are looking at, how many bedrooms you want, etc. It is not uncommon that the house you end up purchasing at the end of this long journey is completely different than the one you imagined when you began. It could be because the home prices were a lot different than you expected, or it could just be that once you saw what you described to the real estate agent it really wasn’t what you expected.

Most experienced real estate agents are able to listen to what you say, and then find exactly what you mean. If your agent continues to show you the wrong homes after trying to give them feedback (such as ones way out of your price range or completely the wrong style), feel free to find a different agent. You are about to work with somebody to spend more money than you ever have before, so you want to make sure you can trust the person and they understand you.

Once you search online for different homes and visit several more with your real estate agent, you may finally find one or two that really work for you if you are fortunate. Sometimes you are lucky just to find that one right home. Other times you may realize your expectations were too high and you need to find a “starter home” that better fits your budget. Either way, the process is just getting ready to heat up.

Your next step, if you found the home you really want, is to make an offer, which sounds easy enough… but just wait. First, you have to work with your agent to determine what a fair offer is for your home. Perhaps they are listed at 10% higher than previous similar home sales in the area. You could choose to offer them 90% of their asking price. A home’s value is subjective after all. On the other hand, maybe their home is under-priced, or you feel you will die if you don’t get that one. Then you may want to just offer them 100% of their asking price.

If the market is really tight, it may make sense to offer them a little more than they asked. You can even use an escalation clause. An escalation clause let’s you make an offer of $100,000 for example, plus $1,000 higher than the highest offer up to $110,000. That means if somebody else offers $105,000 then your offer automatically becomes $106,000. Of course, once you show your hand, the seller can counter offer and ask for the full $110,000 since they know you are willing to go that high anyway. Just don’t give away any more than you have to. You must be smart in your negotiations and try not to get too emotionally involved.

Speaking of emotions, I must say that buying a home is an incredibly emotional roller coaster. First, you have to absolutely fall in love with the home in order to be willing to spend that much money on it to begin with. To justify the cost (especially if you go above your original budget) you convince yourself of all of the positives (the master bedroom has a huge walk-in closet and the basement has a built-in game room) and ignore the negatives (we’re not that close to work). So now you have decided that you love it so much you are willing to sign away hundreds or thousands of dollars every month for the next 30 years to get it. Then you make the offer and … wait.

You may wait for a few days before you hear anything from the seller. So after a few nights without sleep, you finally hear from your agent. Either the seller accepted your offer, rejected your offer, or made a counter-offer. If they accepted the offer, congratulations! But we’ll get back to you. If they rejected your offer, then I am sorry for your disappointment, but that must not have been the right house for you. You’ve made it this long without your own home, so a little while longer, until you find the perfect home, won’t hurt too badly. Hopefully your next experience will work out a little better. If you receive a counter-offer, be prepared for more roller-coaster emotions.

A counter-offer means they did not reject your offer, and they did not go with another buyer right away, but they want something more out of you. Perhaps they want more time before they have to move out, or they want some more money. This is where you have to decide what is most important to you. If the counter-offer is reasonable, you should probably take it. You don’t want to regret losing the house because you refused to pay another $1,000 and move in a month later (unless your circumstances absolutely will not allow it). You can accept their counter-offer or counter back. Either way, you have to wait some more. Then, if finally accepted, you have a few contracts to sign, which your agent may deliver to you. At this point the settlement date is selected and you know when you will become the proud owner of a new home.

Then you go to settlement. This will be the time in your life where you sign more papers on one day than you have previously in your entire life combined. Although the settlement agent will probably try to rush you through the process, take your time and read the documents and look at the numbers. Remember, at this point you should already know how much you are paying for the house, how much your monthly payments will be and whether or not you have any extra payments such as PMI or a second mortgage. You are about to sign away a whole lot of money so do not let anyone rush you through this process.

When it is all over, you are finally the proud owner of a new home! Congratulations and enjoy your new home. Try to relax and celebrate before your first mortgage payment comes due.

Visit the Young Money Mortgage Center.

Bill Pratt is a former credit card executive turned student-advocate. He is the author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit Debt & Ca$h and The Graduate’s Guide to Life and Money. Bill speaks at colleges to educate and entertain students about real-life issues in money, leadership, and success. His goal is to help students succeed personally and financially so they can improve the lives of those around them. You can learn more at www.ExtraCreditBook.comor www.TheGraduatesGuide.com.

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