Buying A Home
Buying a home, no matter whether it’s a very first or you’ve gone through the process multiple times, is an exciting journey and among the most fulfilling milestones to be reached in life. While the process is complicated, that doesn’t necessarily mean it will be stressful and certainly shouldn’t be feared. Rather, working with the amazing professionals we have right here in the Omaha area will allow you to have the best possible experience while also avoiding any pitfalls that may present themselves along the way.
First Step: Financing
Indeed, as many of our local real estate agents will agree, securing financing is a major part of the buying process. As another area that’s complicated to anyone not actively involved in the industry, you’ll want to be sure you’re working with a knowledgeable lending professional that has plenty of experience with the mortgage process.
Jesse Ostdiek of Pinnacle Bank offers the following information for potential homebuyers:
“Start working with a lender early on in the process, before looking at new homes. This ensures a buyer is pre-approved and ready to write an offer, which gives them negotiating strength over other potential buyers who haven’t taken this crucial first step. It also ensures that the party has accurate costs, cash needed to close amount, and monthly payment numbers before deciding on the right home. To get pre-approved, a borrower completes a mortgage loan application and submits it to a lender. The lender then will pull credit and communicate with the borrower to request additional documentation such as pay stubs, W-2s, tax returns, etc. A lender cannot require those documents but a borrower should understand a lender’s pre-approval is only as good as the information on the application. It is recommended that a borrower provide and the lender should review all verifying documentation before submitting an offer. The mortgage process can be complicated and documentation heavy so starting early on and discussing the process with a lender will provide them with a better overall customer experience in the end.
Affordability is different for each borrower, so what a borrower regards as an affordable monthly payment and what they may get pre-approved for are usually different numbers. As such, it’s very important that potential homebuyers work their monthly budget numbers to determine a payment range that they feel confident with regardless of what a bank may provide pre-approval for initially.
Generally speaking, debt-to-income levels should not exceed 36%, although with other positive factors such as high credit score, reserves in savings, large down payment, and so on, a borrower’s debt to income can be approved above 40%. Fannie Mae’s max debt-to-income ratio is 45%. Borrowers can compute their own debt-to-income ratio by dividing their total minimum monthly payments for credit-reported trade lines such as a mortgage, auto, student loans and revolving accounts by their gross monthly income. So if a borrower’s monthly minimum debt payments total $2000 and their gross (before taxes) pay per month is $6000, their debt to income will be 33% ($2000/$6000).
An example is as follows:
Annual Gross Pay: $72,000 = Monthly Gross Pay: $6000
Proposed new house payment: $1,200
Current Auto monthly payments: $500
Student Loan payments: $200
Credit Card payments: $100
Total minimum monthly debt: $2,000
So, $2,000 / $6,000 = 33%
There are other loan products that offer low down payment options, such as VA financing which offers 0% down, no mortgage insurance for qualified veterans, and FHA financing which requires only 3.5% down. In addition for rural areas, there is a USDA rural development loan which features 100% financing as well. To find the best option, home buyers should discuss with their loan officer. Some of these loans may allow for higher debt to income ratios (up to 50%) with significant additional positive factors.”
He further advises, “It is essential that borrowers maintain regular communication (at least once a week) with their Realtor and mortgage loan officer. Both work very hard to provide regular communication but it is a partnership between the three, which requires working together on all sides for a positive customer experience. To the borrower, this is the most important event usually in their lives. To a loan officer, it may be one of 20-30 loans in process. So while the loan officer will work very hard to provide regular communication and status updates, it is very important that the borrower stays an engaged, active participant and communicator with their lender and Realtor as well.
There are a significant number of steps and processes that happen behind the scenes that take time so understanding those stages and timeframes is essential to a great mortgage experience and to ensure closing happens on time. Government regulations changed October of 2015 which now mandates that mortgage lenders and banks must provide borrowers the final numbers via a Closing Disclosure at least 3 business days prior to closing. This helps ensure the buyers receive and have time to understand their numbers before getting to the closing table but it also impacts closing timeframes as lenders have 3 days less now to work with in the process. So borrowers, be aware that a more realistic closing period to insure a smooth transaction is 40-45 days as opposed to 35-40 that we’ve seen in the past.
With these new regulations, lenders are now held more accountable for accuracy of their numbers and on fees where the borrower isn’t allowed to select or shop for; they have zero tolerance from initial loan estimate to final numbers. On others where they are allowed to shop and choose the lenders vendor for the service, banks have a 10% tolerance. For all other fees where borrower can shop and then chooses a vendor not on the lenders list, these numbers can change without any limitation. These new regulations provide additional comfort to home buyers who may be nervous about the process, costs and interest rate.
Speaking of which, interest rates are near all-time lows so it’s never been less expensive to borrower money. This doesn’t mean everyone should march out to buy a new home; borrowers should always be financially savvy and make sure they’re living within their means. However if you’ve been thinking that it may be time for a change, or interested in cutting interest and your loan term down so you pay less interest, or you would like to take some cash out of the equity in your home for a project, now is the time to do it.”
Your lender will probably share with you Rule # 1 once you’re in serious house-buying mode, and especially once you’re under contract to buy a house: Don’t use your credit or do anything out of the ordinary financially without talking to your lender to make sure it won’t affect the loan process. Don’t go buy a new car, new furniture or run up a $7,500 vacation on your Visa. Instead, wait until the house closes. Changing jobs is also discouraged; if it’s unavoidable, make sure to alert your lender ASAP.
It is also better when the loan underwriting process is local, accessible, reasonable, and can adapt quickly because the federal regulations lenders have to abide by now are very cumbersome and time-consuming. Furthermore, funny little unexpected requirements just pop up at the last minute, so be prepared to respond to your lender quickly when they request information. Unfortunately, most of us are not carrying around $100,000 – $1,000,000 in cash so taking out a mortgage is the other option – be prepared to breath deep and be patient with the process. If you don’t already have a go-to financial professional or institution, seek a reliable, trustworthy lender referral from your Realtor®.
Second Step: Shopping
After you’ve met with your lender, worked out the numbers, and have your pre-qualification letter in-hand, next comes the fun part—house shopping! During this phase, you’ll want to work with a real estate agent who is familiar with the local market and can offer plenty of expertise and guidance, ensuring you ultimately make an educated decision that’s in your best interest.
As it’s a seller’s market for the most part these days, promptly obtaining a letter of prequalification before house shopping is important and there are a few other things to consider too. Making low-ball offers and asking for closing costs is, most of the time, not the best strategy to get the result you want, which is to buy the home you love. If you love it, other people probably do too. It is competitive out there but now is still a great time to buy a home. Rates continue to stay low and relatively speaking, home prices are reasonable compared to national averages.
The most common misconception when it comes to real estate is that buyers have to pay a commission in order to be represented. This is completely false; Buyer’s Agents are compensated through the proceeds of the sale. In other words, the seller typically contracts with a Listing Agent for a specific percentage, and upon closing the sale, the Listing Agent pays the Buyer’s Agent a portion of the percentage contracted with the seller. As a home buyer you have a right to representation, so you might as well take advantage!
Third Step: Closing
After shopping around and finding the home that’s perfect for you, the buying process isn’t just a simple transaction of money and then both parties call it a day. There are certain steps such as putting in an offer, the home inspection, getting all details confirmed and paperwork in line, and then closing to make it official.
There are many things that could potentially affect your decision to buy a home, and a home inspection is a critical part of full disclosure so that you can evaluate the positives along with any negatives.
Along the same lines of knowing what to expect in the future as was mentioned regarding obtaining pre-qualification in order to establish a budget, towards the end of the home buying process, you’ll want to ensure that a whole house inspection is performed so that you’re alerted of any potential issues and know what to expect as far as maintenance and replacement in the future. A whole home inspection includes electrical, plumbing, heating and air conditioning systems, structural components, interior and exterior finishes, roofing, grounds and landscaping. An inspection can uncover defects or issues with a home that the buyer (and many times the seller) is not aware of so that these issues can be dealt with prior to purchase. Additionally, other inspections such as termite, radon testing, mold, lead paint, and asbestos may be asked for as the need arises.
A home inspection is usually done as part of the negotiation phase during the purchase process. You’ll want to schedule your home inspection as soon as possible after getting your offer accepted; usually home inspectors are in high demand and booked out several weeks. When choosing a home inspector, look for one who has years of experience and credentialing with a national association, such as International Association of Certified Home Inspectors (InterNACHI), American Society of Home Inspectors (ASHI), or National Association of Home Inspectors (NAHI). Also, look at the education and experience of the inspector; if possible, select one who is certified or a Master Inspector (meaning years of education and experience).
Remember, while a home inspection is comprehensive, it is not invasive. This means your inspector will review readily accessible areas of a home, but will not dismantle water pipes to look at the insides, video scope a sewer line, water test a furnace heat exchanger, or any other invasive, exhaustive analysis of parts of the home. Those types of inspections are specialized and far beyond what a home inspector does. The home inspector often will refer you to a specialist for further evaluation if a component is suspect. Also, a home inspection is not a guarantee that nothing will go wrong with your house; you can purchase a home warranty to help cover things that may break or go bad. These are usually for one year and can be renewed. Ask your Realtor or representative at your title company for more information on home warranties. On older homes or ones with equipment over 20 years old, they are often a very wise investment.
Components in a house have a lifespan, and your home inspector can identify the age of components and help you formulate a game plan on when to plan to remodel, replace, or upgrade components such as shingles, a water heater, or an HVAC system. This is important, especially if major systems have to be upgraded in the first few years of ownership as it helps the buyers to know what major expenses they may be facing on a particular house.
After the deal is done, it’s time to move. This will also be different for each homebuyer, ranging from those who are moving to their first home to expanding families or downsizing empty-nesters, just to name a few examples of variance. Moving can be quite the undertaking, so most times its best not to go it alone and to have a strategy in place prior to moving day.
“I always advise people to really plan ahead of time and educate themselves on what type of service they will need on moving day,” says Tyler Whalen, co-owner of the Two Men And A Truck Omaha franchise. “I see a lot of people wait until a week prior to the move and both the availability for the particular day and accommodating the service that works the best becomes an issue. As a general rule the more prepared you are, the easier the transition will be. It’s a popular assumption that calling for general pricing is the first step, but in all actuality every move is different so we tailor every estimate to the specific needs of the client. You’ll want to be prepared to provide key details, including both locations, whether you’re doing the packing or you’d like us to do the packing for you, and an itemized list of items to be moved that’s as accurate as possible. The list would include large items, estimated number of boxes, and any items that require special care. We carry a full line of boxes and packing supplies along with offering a complimentary delivery service of those items for any customer that has a booked move with us. We can deliver a bulk amount of boxes, and then take any extras with us after the move so that the customer only pays for the boxes that they actually use. This prevents a lot of hassle and I can assure you we have everything on-hand that you could possibly need, all you have to do is ask!
Finally, as a word of caution specifically regarding packing, avoid leaving a lot of loose items that aren’t in boxes or properly protected. This makes the move much more time consuming along with the chances for damage being much higher. If it’s small enough to fit in a box it should be in one, and it will make for a much more efficient move, which will also save you money on the overall cost.”
Right after the purchase of a new home, many will opt to buy new furniture, appliances, and may even get started on improvements, whether indicated by the home inspection or areas that the homeowner wants to update based on their taste and preferences. There are also the less obvious things that you’ll notice once you actually live in your home; water quality is a prime example.
“Buying a new home is a huge investment alone, and then oftentimes the new owner will also be investing in new appliances on top of that,” says Eric Schnakenberg of Aqua Systems. “An easy way to protect your investment is to have a water softener installed. Hard water causes mineral build-up inside the appliances, so with a water softener that issue will be eliminated, extending the life of major appliances such as the washing machine, dishwasher, refrigerator if it has a water dispenser and ice machine, and even your water heater.
A water softener system will actually provide a monetary return on investment because you’ll use less cleaning products. This will not only save you money but will also decrease your family’s exposure to chemicals and save you time on cleaning because you’ll be doing less scrubbing!
He adds, “If there is an existing water softener system in the house, it’s important to have it checked over to make sure the settings are correct. A lot of times they are set up for the number of people in the house, so we’ll come in and reprogram them based on your family size and usage. Older systems are designed as “timer systems”, meaning they clean every so often regardless of usage, while newer systems are “on-demand systems”, which go by usage and only clean as needed. Furthermore, most homes built from 2005 on are set up for soft water by default. So if you have an older system, you may benefit from a more updated, efficient system and if you’re buying an older home, it’s likely something that’s not been incorporated and well worth addressing.”
While some homes are move-in ready, others are intended to be fixer-uppers. Either way, you’ll likely want to make improvements to your property in the future. Before you start any projects, you’ll want to know exactly where your property lines. In fact, you may even want to know this information before you purchase the house if it’s contingent on improvements that need to be made to the property.
“Don’t rely on the previous owners’ attempt to demarcate the property lines with fences, retaining walls, plant beds and landscaping, etc. It can be a potential waste of money to rely on these ‘fixtures’ and continue to improve upon the property without actually knowing where the property corners are located,” emphasizes Toni Montana, owner of Land Survey Inc. “A boundary survey will clear the path for future improvements with peace of mind, mentally and legally. My suggestion is to obtain a boundary survey certificate. This legally binding document will alleviate any concerns or questions as to where your property corners are. Also, the certificate is filed with the county and helps minimize any future disputes. Property owners need to know where their boundaries are, as this knowledge can allay disputes with neighbors, clear up murky or unclear lines, and give property owners the knowledge, empowerment, and sense of relief that they are doing the right thing.”
Buying a home is one of, if not the biggest, purchase a person will make in his or her lifetime. As such, it only makes sense to do everything possible to ensure that the decision you make on a home is a result of the proper knowledge being applied and the necessary steps being completed. There are plenty of great homes on the market in the Omaha area and we not only hope you find the perfect one for you and your family, but that the process of buying a home is something that you’ll thoroughly enjoy and a memory of a life-changing experience that you’ll look back on fondly. The Omaha Metro is indeed a wonderful place to call home, so best of luck to all of you home buyers out there—but of course, you won’t need much luck if you have skill and experience on your side!