If you are thinking about buying a house or condo while mortgage interest rates are still low, it’s not too late. We are now entering the best time of the year to buy a home.
To be very specific, between Thanksgiving Day and New Year’s Day is the absolute best home-buying season in most areas. This “prime time for home buyers” even extends until Super Bowl Sunday or later in cities with harsh weather.
Purchase Bob Bruss reports online.
Also known as the slow season for home sales, during this period only highly motivated sellers have their homes listed for sale. Because there are few competing buyers searching for homes during the holiday season, November, December and January are ideal times to purchase a residence.
PREPARE TO BUY YOUR HOME. However, before shopping for your home, if you are like most home buyers who need a mortgage, your first step should be to get pre-approved in writing by an actual mortgage lender. Then you can shop with confidence during this best time of year to buy a home.
But before applying for mortgage pre-approval, it’s best to check your credit report and FICO (Fair, Isaac and Co.) credit score. If there are any glitches or incorrect information in your credit report, get them corrected before applying for a mortgage.
The best place I’ve found to obtain your credit report and FICO score is www.Myfico.com. The fee is $14.95 for instant Internet delivery. If you want a 3-in-1 combined credit report from all three nationwide credit bureaus, plus your FICO score, the cost will be around $29.
When you apply for a home loan, before shopping for a home, don’t be satisfied with a lender’s statement saying: “You’re pre-qualified for a mortgage.” That means absolutely nothing. The reason is the lender hasn’t actually checked your credit and obtained a written pre-approval letter or certificate from the actual mortgage lender.
VITAL TERMS TO INCLUDE IN YOUR HOME PURCHASE OFFER. After you have your mortgage pre-approval letter or certificate in your hands, from an actual lender (not a mortgage broker), now it’s time to shop for a house or condo. This process might take a few days, weeks, or even months.
But when you find the home you want to own, you are ready to make your written purchase offer. Hopefully, you have a savvy “buyer’s agent” or “buyer’s broker” to advise you on the vital clauses, conditions, and contingencies to include:
1 – AVOID OVERPAYING FOR YOUR HOUSE OR CONDO. The most difficult part of your home purchase contract is determining a fair purchase offer price. Your buyer’s agent can help you by preparing a written CMA (comparative market analysis).
This is same form that the home seller’s listing agent prepared for the seller at the time of listing. But circumstances may have changed. Your personal CMA should be prepared by your buyer’s agent based on the most recent sales prices of similar nearby homes like the one you want to buy.
Only after discussing the CMA with your buyer’s agent, who has hopefully inspected the comparable homes recently sold, can you arrive at an appropriate purchase offer price. By adding or subtracting value for the pros and cons of the home you want to buy, your first offer should be realistic, but perhaps a bit low to allow room for negotiation.
Some home buyers think they should automatically offer 5 percent to 10 percent below the seller’s asking price. But that’s not wise. The reason is the full asking price might be an incredible bargain offered by a highly-motivated seller who wants a quick sale.
2 – INCLUDE A REASONABLE GOOD FAITH EARNEST MONEY DEPOSIT. To form a legally binding sales contract, all that is needed are the signatures of the buyer and seller on a sales contract. No deposit is required. However, few home sellers will accept a purchase offer which is not accompanied by a good faith earnest money deposit check.
The general rule is the larger the buyer’s deposit check, the greater the probability the home sale will close successfully. However, home buyers are justifiably reluctant to make a large deposit until all the conditions of the sale are met.
For this reason, home buyers often make a modest initial deposit, such as $1,000, with the written requirement the deposit will be increased, typically to at least 5 percent of the sales price, when the purchase offer contingencies are removed.
3 – INSIST ON A MORTGAGE APPRAISAL CONTINGENCY. As a smart home buyer, you wisely obtained a written pre-approval letter or certificate from an actual mortgage lender. Of course, you are still free to shop among other lenders for better mortgage terms, but lenders know most home buyers stick with their first lender.
However, the lender’s mortgage pre-approval probably included a condition that the home appraises for at least the amount of the purchase offer. If the lender’s appraisal is less, the buyer either can (1) increase their cash down payment, (2) renegotiate the purchase price, or (3) cancel the home purchase and receive a refund of the buyer’s earnest money deposit.
4 – DEMAND A PROFESSIONAL INSPECTION CONTINGENCY CLAUSE. Although home sellers are supposed to disclose in writing all known home defects that materially affect the market value or desirability of the residence, some home sellers “forget” to tell their buyers about significant home defects. Can you imagine that?
Or, some home sellers obtain a professional home inspection report, show it to their buyer, and hope the buyer won’t insist on obtaining their own professional inspection report.
But smart home buyers insist on a professional inspection contingency clause in their purchase offer. After the buyer and seller agree on sales terms, then the buyer hires their professional inspector to determine if the seller overlooked any defects that the buyer should know about.
Because the home buyer pays for their professional inspection report, the buyer should always accompany their inspector for the two to three-hour inspection. If surprise defects are discovered, the buyer and inspector can discuss if they are serious or not.
Home buyers should hire their own inspector, but not necessarily the inspector recommended by the realty agent. Such inspectors are often known as “easy inspectors” or “non-deal killers.”
The toughest professional inspectors are members of the American Society of Home Inspectors (ASHI). These ASHI members must have completed at least 250 inspections, pass a difficult exam, and meet continuing education requirements. To find a local ASHI member, go to www.ashi.com or phone 1-800-743-2744.
In addition, your home buyer’s agent should recommend other customary inspection contingencies, such as for termites (pest control), radon, energy efficiency, building code compliance, roof, plumbing, and electrical.
5 – CONSIDER MEDIATION OR ARBITRATION OF ANY DISPUTES. A recent innovation in many printed home purchase contracts is a mediation and/or arbitration clause for any disputes which might arise. The consequences of these clauses should be carefully considered.
A mediation clause, if agreed to by the home buyer and seller, means any disputes will be submitted to a qualified mediator, with the cost split equally between the parties. A skillful mediator can often get the buyer and seller to resolve their differences, resulting in a quick dispute resolution at minimal cost. However, mediation is non-binding until both parties sign the agreement.
But an arbitration clause is much different. When the home buyer and seller agree to arbitrate any dispute, the arbitrator chosen by mutual agreement has authority to hear the evidence presented by both parties and reach a binding decision.
The cost of arbitration is usually far less than a court trial, but the result is binding. By signing an arbitration clause in advance of a dispute, the parties give up their right to a jury trial, court rules of evidence, and a right to appeal, even if the arbitrator is clearly wrong.
More details on vital terms to include in your home purchase contract are in the Robert Bruss special report, “Vital Terms Smart Home Buyers and Investors Include in Their Purchase Offers,” available for $4 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet download at www.bobbruss.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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