A "Passport" to Purchase...
...Whether You Rent, or Whether You Buy, You Pay for the Home You Occupy
by Verna Acker

Tickling around the edges of your "wish-list" is the remote idea that you would really like to buy a home. The "idea" begins to take on a life of its own. It begins to creep into your thoughts more and more often. But, between the idea and moving day is a wide, deep, dark crevasse! Not really...if you follow a few simple guidelines.

Most valuable to your endeavor is the helping hand of a competent professional. Chosen well, that person can lead you through the confusion of home selection, financing choices, inspection duties and buyer's jitters.

Your first project is to find out how much home you can buy vs. how much home you want to buy. A call to a real estate professional or a lending professional will help you establish the guidelines within which the lending community will require you to work. For a 30 year fixed rate mortgage you can expect the payment-to-income ratio to be 28 percent to 36 percent. Most 30 year loans are underwritten by the secondary market. They do not want your principal, interest, taxes, and insurance (PITI) payment to exceed 28 percent of your gross monthly income, nor do they want your debt load (those needing six months or more to pay off) to exceed 36 percent of your gross. That will establish your qualifying point. You may, however, discover that the lender will allow you a bigger payment than you are willing to pay. Then you start from the payment and work backwards to establish the home price that best fits your wishes. The real estate professional should be adept at working through the general discussion of what you want and how best to accomplish that goal. That professional, after the initial qualifying meeting, should then send you to a competent loan officer for the preliminary conference and a pre-approval program.

Beware of the real estate sales people who conclude too quickly that you can't afford to buy yet. I have gone to several happy closings with people who had gone through five or six "turn-down" interviews. Creative and alternative financing plans are "out there" in abundance. FVA doesn't require a down payment. FHA allows you to receive a gift for the amount of your entire down payment from a relative. ARM's can get you in to the mortgage with carefully designed upward increments over regulated periods of time. If there is something in your "package" that prevents you from buying now, there is help available to help you re-shape your financing picture for a near-future purchase. That help is as close as your telephone and as simple as choosing someone who is interested in assisting you.

Real estate professionals, for the most part, are working as agents for the sellers of property. That designation places them in the position of working in the best interests of the sellers of the property that is on the market. To fulfill their commitment to the seller, that professional must be skillful in working WITH the buyer. No buyer...No sale. THAT is NOT in the seller's best interest. The broker is obligated to treat all parties fairly. Without breaching loyalty to the seller, the broker is bound to provide all information about the property, available financing, and to assist in preparation of the offer. They have a duty to give accurate and honest answers. They are bound by law to handle all offers with skill. Providing competent assistance to the buyer is part of the job that the seller is paying that agent to do. Good agents respect that responsibility to the fullest degree.

Having established the price range within which you have chosen to work, location and criterion should then be established. It is important to keep your requirements as broad as possible. I have sold a tall, white colonial with pillars to a buyer who insisted they would only look at ranches. Or, they have chosen to buy in a completely different location when the "perfect" house showed up on the "perfect" lot, outside of the predetermined area. Have you ever set out to buy a tailored outfit to wear to the office and come home, instead, with the best outfit in the world to wear on your weekend boat trip? Same theory.

Locating the right home can be frustrating and disappointing. you may soon discover that calling off of real estate ads and off of signs in yards is the least productive way of finding a home. Frequently, these homes will already have accepted offers. Industry guidelines suggest that the REALTORS® should not indicate publicly that a home has an accepted offer until the financing is secured. Consequently, For Sale signs do not necessarily indicate the home is still available. The best solution is to establish a rapport with a real estate person who will accept the responsibility of informing you as homes become available. In our office, the first thing we do each morning is to check the update on the computer to see what was entered during the last work day. An efficient listing broker will call buyers when they bring a new listing into the office.

Care should be taken to choose your help wisely. Part-time or less than dedicated licensees may be tardy in notifying you of new listings. Establishing a relationship with one person who begins to understand just what you are looking for and is willing to go the extra mile to help you is imperative in an active real estate market.

If you are a first time home buyer, chances are that your price range is in the lower reaches of the average priced home in your neighborhood. There you will find the competition to be extremely fierce. Getting to see a home the minute it is on the market is imperative. Since the competition is fierce, you may also find yourself competing with other buyers who are just as anxious as you to buy a home. I encourage buyers to start their financing application process before they find their home. Most lenders will have a pre-approval process, often called "The Passport to Purchase." If you are in competition, the preapproved buyer will have a "leg-up" against the other, merely pre-qualified, buyers.

Make it your business to find out what every home in your chosen community has sold for in the past year. Become the newest expert regarding homes in your price range. Know what homes are selling for, what they are appraising for, and anything else that you can about the area you prefer. That way, when you find something that you like, you won't have to be afraid to make a decision.

With all of this behind you, you have found the home of your dreams, and you want to write an offer. Here is where you separate the "men from the boys" when it comes to real estate professionals. A competent, knowledgeable professional can guide you through the contract in a sure and comfortable manner. Each line will be explained as you proceed. Each fact or representation that has been discussed will be written down. NEVER ASSUME ANYTHING!!! If you are thinking about it, or if it is important, write it in the offer. Don't assume that the drapes stay unless you write them down. Don't assume the Franklin fireplace stays, unless you write it down. NEVER ASSUME ANYTHING!!!

The most important clause in the offer to purchase is the one giving you the right to an independent or professional inspection of the property, at your expense. This does not ordinarily mean that you can bring in your dad or your brother. This usually means an "arm's length" disinterested party. Unless you are an expert in structure and mechanics yourself, always get a professional inspection. They may even discover things that the seller doesn't know. A cracked heat exchanger or reversed polarity in the outlets are difficult to know about unless the seller has experienced trouble. A good inspector will not only look for faults, he will, with great care, help you to understand the home. He may explain about furnace filters, water heater elements, how to increase the fill to prevent basement seepage, and how many years you should be able to expect your furnace or roof to continue without repair. Usually costing in the neighborhood of $200, this is the best investment you can make. When you buy a used car for $3,000 or $4,000 you take it to a mechanic to kick the tires if you aren't an expert. Why on earth would you use any less care when you are spending $100,000?

You have carefully chosen a competent lender. You have chosen your home with confidence because you are fully informed about the values in the community. You have a responsible and caring professional helping to smooth the bumps and clear paths that often get clogged with paperwork and confusion. All items on the offer were written down so that all parties have known from day one what the procedure is and what to expect from all parties.

As you proceed to the closing, all that you must do now is order your moving truck, plan for your electricity and other utilities to transfer and get your phone ordered. Except for the excitement and adrenaline that is pumping through your veins, you are comfortably ready for one of the most memorable days of your life. Few of us forget our first home purchase. This is an occasion to be enjoyed. With proper planning, it will be just that.
The author has been a REALTOR® since 1978, working in Northern Racine County
Published in: Business+, August 1993, Vol. 1, No. 4, p. 32