First Time Home Buyer Series - Part 7: Inspection Period

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At this point, you set your budget, got prequalified, went house hunting, and successfully negotiated an agreement on your first house! The next step is to investigate everything we can about the house to make sure it is in acceptable condition.


Inspections

It is up to the Buyer to do any desired inspections. Assuming we have a due diligence period, we have the opportunity to learn as much as we can about the house before we have to make the final decision to move forward with the purchase.


Home Inspection

• The first step is to get a home inspection. Home Inspectors are highly educated professionals who look at houses all day, every day. The in depth inspection will help us reveal issues and areas for improvement. A home inspection typically last 2 – 4 hours, and I recommend that the Buyer attends, if at all possible. Remember, even the best home inspectors can’t find everything!

Termite Inspection

• Termites are everywhere in Georgia. Once, I heard a termite inspector say, “There are two types of houses in Georgia – those that have had termites and those that will!” A termite inspection will check to see if there are any active termites in the house. If so, the house will need to be treated. We can often ask the seller to make this repair. In older homes, it is common for the inspection to reveal previous termite damage. That may not be an issue if the termites are not active and have not caused any structural damage.

Radon Test

• Radon is a naturally occurring element that seeps out of the ground. Georgia has some areas that are prone to elevated radon levels, and this can be dangerous. Your home inspector can set a test to analyze the radon levels in your home. Check out the EPA’s Home Buyer’s Guide to Radon for more information.

Survey

• A survey is not required to purchase a property in Georgia. However, it is the only way to truly know the exact property lines. We can talk through whether or not you should get a survey, but you should definitely consider one if you are planning on installing a fence, pouring a new driveway, or have any questions about the property boundaries.

Contingencies


Contingencies are clauses in your contract upon which the purchase is contingent. That means that if these criteria are not met, you can exercise the contingency to terminate the purchase. These contingencies usually have a time limit and specific requirements. Below are some common contingencies:


Due Diligence

• The first and most powerful contingency is the Due Diligence Period. The purpose of the Due Diligence Period is to conduct your inspections, make sure the house is in acceptable condition, and negotiate any repairs or concessions. This negotiation is completely separate from the original negotiation. The Buyer has the right to ask for anything to be done to the house. The seller has the right to counter and do all, some, or none of the items. However, the Buyer has the ultimate right to terminate the contract if they are not satisfied.

Appraisal

• An Appraisal Contingency is a common addition to real estate contracts. This contingency states that the property must appraise for the purchase price or higher. This protects the Buyer. If the property does not appraise for the purchase price, then the seller has the choice to drop the price to the appraisal value or they can allow the Buyer to walk away without penalty. If the Buyer is getting a loan to purchase the home, the lender selects the appraiser. Otherwise, the selection of the appraiser is a negotiable point.

Financing

• A Financing Contingency gives the Buyer time after going under contract to get their loan approved. This contingency states that if the Buyer does not get approved, then they can terminate the contract without penalty. Before we started house hunting, you were pre-qualified for a loan. Now that you know what house you are buying, it is time to get actually qualified. This requires you to turn in a plethora of financial documents to your lender. Basically, they are verifying the information you submitted during the pre-qualification. If for some reason you do not get approval at this point, we can exercise the Financing Contingency to terminate the contract and get your earnest money back.

Does this seem like a lot to do? Don’t worry, we will make sure you know how to take each step of the process. After we navigate the inspections, due diligence, and any contingencies; it is time to finalize the loan, tie up any loose ends, and get ready for closing!

Justin Landis
Keller Williams Peachtree Road
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series - Part 6: Making and Negotiating an Offer

In our First Time Home Buyer Series, we made our budget, got prequalified, looked for a house, checked out some foreclosures and short sales, and now I'm hoping you found the right house! All you have to do now is buy it!

It would be nice if there was a magic formula for how to negotiate the best price on a house. Unfortunately, every situation is different, which makes every negotiation different. Sometimes we have to come in quickly at full price to snatch up a deal. Other times, we will start really low and do our best to work the seller down from their asking price. One of my most important jobs is to guide you through this process based on the situation.

Instead of covering negotiating techniques in this post, I'll go over the important aspects of the offer so that you'll know what to expect. When we make an offer, we not only offer a price, but also an array of other terms. Your real estate agent will explain these terms and make sure you understand your options and rights per the contract.

Offer Terms:

Price - of course, price is first! There's a saying in real estate that it's not about the price unless it is about the price. This is often the most difficult term upon which to reach an agreement!

Seller Paid Closing Costs - In Georgia, all the closing costs are he responsibility of the buyer. That means that in addition to your down payment, you have to pay these additional closing costs on the day of closing. The costs include items such as attorney's fees, loan fees, home owners insurance, intangible and transfer taxes, setting up your escrow account, and more. Buyers often ask the seller to pay some or all of these costs so that they do not need as much cash on the day of closing. This essentially allows the buyer to finance the closing costs in their loan. Sellers usually don't mind to do this because it does not effect their net proceeds. For example, for the seller, a $325,000 purchase price with the seller paying $5,000 in closing is the same as a $320,000 purchase price with the seller paying no closing costs. For the buyer, this means they need $5,000 less dollars because their loan will be for $5,000 more.

Earnest Money - This is a deposit that shows good faith that you will purchase the home. When you buy the house, it becomes part of your down payment. If you terminate the contract for some reason, it can either go back to you, or it could go to the seller as damages for termination without a contractual cause. Of course, if you terminate the contract based on a valid contingency, then you will get the earnest money back. Another important job for your agent is to make sure you know your rights in the contract pertaining to the earnest money.

Closing Date - This is the day on which you will be a home owner! There are advantages and disadvantages to doing the closing at different times of the month, and you have to consider your personal situation. Typically, the closing will take place 30 to 45 days from the when we make the offer.

Closing Attorney - In Georgia, all closings take place at an attorney's office. The buyer has the right to select their attorney. Usually your real estate agent will have a relationship with a good attorney. However, if you buy a short sale or foreclosure, the bank often requires you to close at an attorney they select. Don't worry too much about that. The attorney represents your lender in the transaction, and you can always have a different attorney examine the title and documents for you.

Due Diligence Period - This is the length of time you have to do your inspections and make sure you want to move forward with the house. The main point of this period is for us to do inspections. We will also have a second negotiation with the seller to try to get them to repair problem items. However, it's honestly a free look, and you can terminate the contract for any reason. You also get your earnest money back if you cancel during this time. We will examine this period in detail in our next post.

Contingencies - These are other provisions in the contract that protect the buyer. They require something to happen in order for the buyer to be required to move forward with the purchase. The most common contingencies are for the buyer's financing to be approved and for the property to appraise for the purchase price. However, you could also have a contingency for the sale of an existing home, a certain inspection, the bank accepting a short sale, etc. Contingencies usually have time limits associated with them. For example, the buyer may have 21 days for their lender to perform an appraisal and confirm that the value of the home is equal to or greater than the purchase price.

Special Stipulations - In this section of the contract we can ask for anything. Maybe you can luck into that new car you've been eying! Seriously, you do see a variety of items in this section, but not usually a new car! Some common stipulations for first time home buyers are a home warranty, any appliances not originally included having the house cleaned prior to move in, leaving some furniture, for the seller to provide a survey, etc. This is free form, so it's up to you!

Process

It's hard to generalize the offer process because negotiations can go so differently. In general, the buyer makes an offer and the seller can accept, reject, or counter. Typically, they counter. The buyer then has the same options - accept, reject, or counter. Often, they will counter again. Once the buyer and seller agree and all the signatures are on the contract, the contract is said to be "binding". When you hear people say that a house is "under contract", this is what they mean. The buyer and seller have agreed to sell the property, and they are in the period between that agreement and closing. We will talk more about that period in our next post.

Justin Landis
Keller Williams Realty Peachtree Road
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series - Part 5B: Short Sales

In Part 5A of our First Time Home Buyer Series, we talked about bank owned properties, which are commonly called Foreclosures. In this installment, we will look at another type of "distressed property" - Short Sales.

A short sale is when the seller is trying to sell the property for less than his mortgage balance. Therefore, he is "short" on his mortgage and is asking the bank to take a loss in order to sell the property. As home values declined over the past few years, this has become a much bigger part of the market. When home prices were going up, sellers were usually in a position to sell their homes for more than their mortgage even though they could no longer make their mortgage payments. That's the beauty of rising prices! However, with declining prices, a short sale is often a seller's last resort before foreclosure. It benefits the seller because he does not get a foreclosure on his credit report, and even though the bank takes a loss, it benefits them versus actually foreclosing and taking ownership of the property. If you know someone how is "upside down" on their house, this may be an option for them. Jarrod Thomas, on our team, is a Certified Distressed Property Expert, and can help them navigate their options.

How does the short sale process work?

The process is a little backwards in my opinion, but here are the absolute basics.

1. The property is listed by an agent at a price at which the agent thinks will generate an offer. At this point, the bank has not set a price at which they will sell the property. Therefore, the buyer and seller do not know if this asking price will be accepted.

2. The offer is received and accepted by the seller pending acceptance by the bank who has a mortgage on the property.

3. The listing agent submits the offer and other short sale paperwork (the seller has to apply for a short sale, but we won't go into that here) to the bank.

4. The bank has the property appraised to determine the current market value. Often the bank's other alternative is to foreclose. In that case, they have to hire an attorney, take the property back, clean it out, list it with an agent, etc. Therefore, they want to evaluate if it makes more sense to sell it now with the current offer.

5. The bank accepts, rejects, or counters the current offer.

6. If accepted, the buyer can move forward with their inspections and loan in order to purchase the property.

7. If the bank counters with a higher price that is not acceptable to the buyer or if the buyer walks away, the agent will re list the property at the price accepted by the bank. They can now market it as an "Approved Short Sale". In this case, a new buyer can come in a purchase the property at this price.

The reason I said it was a backwards process is because you do not know the price the bank will accept until you make an offer. So you can offer full price and still not get the property! That doesn't seem right!

For the buyer, short sales can be one of this market's best opportunities and one of its biggest frustrations! How could it be both? I'll outline the advantages and disadvantages below.

Advantages of a Short Sale for a buyer

1. Buy the property at a discount.

You can often get a great deal on a short sale. The seller is not going to receive or pay any money at closing, so they are only concerned with getting the property sold. On the other hand, the bank is concerned about the sales price since they are taking a loss on the mortgage. However, they are going to take a loss whether they approve the short sale or whether they foreclosure. There are quite a few other costs associated with foreclosing, so the bank is actually incented to sell the property for a little less as a short sale.

2. You are not locked into the property.

At least you are not locked in at first. The contract will be written so that you can terminate the contract prior to bank approval. Therefore, we can keep looking for other properties while we wait for the bank to decide. Your due diligence period and other contingencies begin once the bank approves the sale.

3. Better condition than a foreclosure.

This is obviously a generalization. I've seen foreclosures that are immaculate and short sales that are dumps. However, in general short sales are usually better maintained than foreclosures because the owners often still live in the home or they just moved out. Foreclosures have often been vacant for a while, and homes age quickly when they are vacant. You can also find out information about the property from the owner (such as maintenance history, repairs, etc.). This info is never available from the bank on a foreclosure.

Disadvantages of a Short Sale for a buyer

1. Uncertain pricing

Until the bank approves the short sale, you don't know if you can buy the property for the asking price! This can obviously be frustrating. I've seen buyers wait months only to find out the bank will not accept their offer. This is heartbreaking!

2. Uncertain timing

Short sales are not for you if you have a very tight and precise timeline. A few years ago, banks would take forever to respond to short sale offers. In the last year, many of the banks have significantly improved their process. However, it is still a longer process than buying from a regular seller. We also don't know exactly how long this process will take. Therefore, if you have to move into a place one month from now, I can't promise you that the short sale will be approved in that amount of time. I can't even promise it will be approved in two months.

3. Uncertain sellers

The seller also has to be committed to getting the property sold. They have to fill out a lot of paperwork and submit a lot of documents to the bank. If they do not get approved, the sale could fall apart. Also, if they feel like it is too much effort or they would rather just let it foreclose, the deal won't get done. Unfortunately, I've seen both happen.

To wrap it up, short sales provide a great opportunity to get a stellar deal in this market. However, you do have to navigate the uncertainty of the process. They are best for buyers who have the flexibility to wait and see what will happen.

We've worked with many clients on both sides of short sale transactions, so if you need some help, give us a call!

Justin Landis
Keller Williams
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series - Part 5A: Foreclosures

In today's real estate market, everyone wants to know about foreclosures. These are the most common distressed properties, and they are usually associated with "getting a good deal". Distressed sales now make up a sizable chunk of the market, so it makes sense to be educated on these properties.

When you hear someone say they bought a foreclosure, what they likely mean is that they bought a bank owned property. Foreclosure is the process in which the bank takes a property back from a delinquent borrower. However, the term foreclosure is often used to describe a property that the bank has taken back and is now selling.

When a bank takes ownership of a property, this property is initially auctioned off at the courthouse steps. This is an entirely different process, and one that likely isn't for most first time home buyers. For that reason, I'll skip it in this series. If the property is not purchased at the courthouse (and most are not), then it becomes bank owned. The bank will then decide on a price and list the property with a real estate agent. At this point, a buyer can purchase the property just like any other property that is for sale.

Is buying a foreclosure a good deal?

Sometimes. Just because a property is a foreclosure doesn't mean it is a good deal. A lot of buyers have gotten good deals on foreclosures, but they can be overpriced or underpriced just like any other property. We need to evaluate the home, the neighborhood, and the comparable sales to make sure it is the right deal for you.

Are banks negotiable on their price?

Once again, sometimes. The banks set their price by hiring a real estate agent and / or appraiser to tell them what price the property should sell for. A few years ago, our team had an account selling properties for Fannie Mae. In our experience, they were not very negotiable right after a property was listed, and I still see that in today's market. After all, they just paid someone to tell them the right price!

Is buying a foreclosure difficult?

It's usually more difficult that buying from a private seller. However, we've helped dozens of clients buy foreclosures and can help you navigate through the process. The banks and a lot of the brokers who list bank owned properties are not known for their customer service. Of course, some do make the process easier, but to make a huge generalization, it's usually a bit of a challenge. If this is your first house purchase, have someone with lots of experience help you through it.

Will a foreclosure need a lot of repairs?

Not always. Rarely is a foreclosed property in the "perfect"condition that a private seller may have their home. However, some foreclosures are in move-in condition with some great features. The banks are even making improvements on certain properties to make them more attractive to buyers looking to move right in without any work.

Can I inspect a foreclosure?

Definitely. Once you have a foreclosure under contract, you will hire an inspector to do a home inspection. One of the big differences between buying a foreclosure and buying from a normal seller is what happens after the inspection. With a foreclosure, if you find issues, you usually have to make the choice of walking away from the deal or moving forward and addressing the issues yourself after you buy the property. With a normal seller, you have the ability to ask them to fix problems, and often you can negotiate those repairs to be completed before you buy it.

Will I have to bid against other buyers?

If it is a great deal, then this is real possibility. This is one of the most difficult situations in real estate because you don't know what the other buyers are bidding. It could be well over asking price or they could be low balling. I always advice clients to find the price at which we will be excited if we get it, but if we don't, we can say that we didn't want to pay that much anyway.

How quickly can I close on a foreclosure?

The time line for buying a foreclosure is similar to buying from a private seller. You could close in as little as a few weeks or take the normal 30 -45 days.

Is it better to buy from a bank or from a normal seller?

In my opinion, if you could buy the same property for the same price from a bank or a private seller, I would pick the private seller. You usually find out more information about the history of the house, the history of systems, and the history of the maintenance. The bank doesn't know any of this information. As we mentioned earlier, you also have the ability to ask a private seller to repair items for you and with a bank, you have to handle these issues on your own. Finally, private sellers are usually easier to work with if you need to make any changes or do anything creative with the deal. However, the main reason so many buyers purchase bank owned properties is that the price discount offered by the bank outweighs all the uncertainty and difficulties. For a big enough savings, many buyers will deal with a tough process and taking care of issues on their own to get that deal.

Next time, we will look at short sales, which are another type of distressed property that present a good opportunity for certain buyers.

Justin Landis
Keller Williams Realty
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series - Part 4: House Hunting - What to Expect

It's time to grab a coffee, load up into the Toyota Highlander (that's what I drive), and hit the streets! The day has finally come when you get to live out HGTV's show House Hunters.

In Part 4 of our First Time Home Buyer Series, we will talk about what to expect when you start seeing houses in person, and a few tips to make your time more productive.

What to Expect

1. Compromise

Compromise! That's not a fun way to start! I know you want your first home to be your dream home - the best location, the best street, flat back yard, huge kitchen, spa-like master bath, and every paint color exactly what you would have selected. Sorry. Unless your first home is a multi-million dollar custom home, it's not going to be like that. You will see features that you like and dislike in each home. One of the fun things of going to see houses is that you may not even know that you like some features or dislike others until you start to see them. Making notes on these features helps us find other homes that will be good fits.

2. Location, Location, Location

There is a reason that this is the most recognizable saying in real estate. You have to pay for prime location. I am a big fan of buying in the best neighborhood that you can afford. However, what you can afford in different neighborhoods will vary widely. If you've seen an amazing house in a less expensive neighborhood, be prepared that the equivalent house in a more expensive neighborhood will be much pricier.

3. Staging Helps Sell

I guess we are going through HGTV's lineup today, and next up is Design to Sell. There is a big difference going in a cold and empty house versus one that looks like it came out of a Pottery Barn catalog. Don't be fooled by the furniture! I see lots of buyers focus on the seller's possessions - furniture, decorations, pictures, and personal items. That doesn't come with the house! If you are having a hard time envisioning an empty room, talk through it. Your agent has seen 1000's of houses and can help you decide if there truly is an issue with space.

Tips

1. Prioritize

In Part 3 of our Series, you made a list of what you wanted in a home. As you start looking at houses in person, you may find that no house has everything on your list. Now is the time to start prioritizing. What are the most important items on your list? Is it location? If so, you may have to give up some size and finishes. Is it space? If so, you may need to focus in a less expensive neighborhood. Until you decide what is most important to you, it is really difficult to compare your options. For example, is a small bungalow in a great neighborhood close to your office more attractive than a huge home with a basement that is 30 minutes away? It all depends what is on the top of your list. If you don't know the answer, your agent won't either!

2. Some Changes are Easier than Others

Everyone wants to put their own individual stamp on their first home. That can be anything from painting a few rooms, to renovating a kitchen, to finishing a basement. You have to keep in mind that some changes are much easier to accomplish than others. I see a lot of first time buyers focus on having to make those easy changes when the other factors are really more important.

Let's go through the things that are hard to change - location, square footage, layout, the lot, your neighbors. Your house isn't going to move. That means that your location, neighbors, and lot are not changing. You better like them! It is possible to add on to your house or change the layout, but it is much easier to finish a basement versus adding an addition or to update a kitchen versus knocking out walls and changing the kitchen layout.

You also have some things that are relatively easy to change - paint color, flooring, fixtures, appliances, and landscaping. It is easy to focus on the style, finishes, and decorations in a home. However, these are really the easiest changes. Anything that can be done in one day by one vendor (appliances, new carpet, countertops, new light fixtures) is pretty straight forward. For example, does the kitchen have plenty of space and a great layout but is stuck in 1989? If so, replacing the appliances and countertops are some of the easiest and quickest improvements. On the flip side, if it has top of the line appliances, but is small and non-functional, expanding the kitchen is usually a much harder fix.

3. Good Deals Go Fast

Everyone wants to get a deal. For some buyers, that is on the top of their wish list. It is a buyer's market, but when the price is right, there are buyers who will snatch it up. In 2010, houses that sold without a price drop (meaning they sold without the seller dropping the original list price), sold on average in less than 30 days. In 2010 alone, my clients were in dozens of multiple offer situations, which means that more than one buyer is bidding on a house at the same time. If it is truly a good deal, you have to act quickly. This is one of the biggest things with which your agent can help. He or she should be an expert who knows when a house is priced right. It may take you some time in the market to feel comfortable making a quick decision, but if you are still getting comfortable, be aware that one or two houses could get snatched up while you are making up your mind.

In the next part, we will talk about what happens once we've found the right house and are ready to buy it!

Justin Landis
Keller Williams Realty
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series - Part 3: House Hunting - Where to Start

In the first two parts of this series, Personal Budget and Loan Prequalification, we examined your finances to help you determine if you can afford to purchase a home and if so, how much home you can afford.

Now the fun begins! For most home buyers, looking for the right house is the best part of the process. You get to go into a variety of properties and try to envision yourself walking through the front door every day. It's a really exciting time for buyers and sharing in that process is one of the best parts of my job.

You may have seen the billboard along I-85 in Atlanta that shows how many houses are currently for sale. Over the last 5 years, I can remember it ranging from 50,000 to 125,000. With that many homes to pick from, where do you start?

What's important to you in a home?

Many buyers like to list out the possible criteria and decide if certain features are "must haves", "must not haves", or "like to have". Below is a basic list with which to start:

Location, Location, Location
How Many Bedrooms
How Many Bathrooms
How Many Square Feet
Which School District
Is a Basement Required
Is a Garage Required
Need an Updated Kitchen or willing to do some work
Single Family Home or Condo / Townhouse
Need a Fenced in Yard

One could obviously make a much longer list, but when first starting out, I like to keep the list relatively short. I find that most first time buyers are not 100% sure of what they "must have" or "must not have" until they actually start seeing houses. The internet has made online home searching super easy. We can see pictures, tours, overhead views, and street views. However, there is no substitute for going into houses. Nonetheless, online is the place to start.

Where do I search online?

There are hundred's of online real estate search engines. In general, they all pull from the same database, so the homes you see on one site, you should see on all of the others. The three biggest differences between sites are the user interface, how often the listings are updated, and how much information is provided. Let's examine each of these.

1. User Interface - this is simply how you can search and how the data is displayed. Is there a map, what search options exist, how many listings pull up at a time, etc. This is really all about personal preference.

2. Up to Date Listings - most sites do not pull the data in real time. They take a snapshot of the data at a certain point and that is what the user sees. Some websites still show listings that are under contract. When real estate people use the term, "under contract" they mean that a buyer and seller entered into a a contractual agreement on the home, and it is now off the market for other buyers. This can be really frustrating to online home shoppers.

How can you know for sure if you are seeing up to date information? Luckily a new service called Listingbook was just launched to help Buyers search the same information as agents. You can click on this Listingbook link and create your own account. It allows you to see the exact data that agents see - what is available, what is under contract, and even what sold!

3. Information on each listing - Some search sites make agents pay to show extra pictures or have a custom description. That allows some agents to make their properties stand out, but it doesn't give the buyer full information. Our search engine on RichHomesAtlanta and on Listingbook allow you to see the full listing.

How do I keep track of my favorite listings?

Once you start searching, some properties will jump out at you. You want to keep track of those properties so that you can share them with your agent. You could always just keep a spreadsheet of the address, and that will work just fine. However, some websites, including RichHomesAtlanta and Listingbook, allow you to create an account and save your favorites to your profile.

Can we go see some houses, please!?!

Definitely! Like I said earlier, online is just a place to start. I will usually send my clients some houses, they will send me some, and we will share our initial thoughts. At that point, I'll put together a list, and we will hit the road.

Next time, we will talk about what to expect as we go look at houses. And in case you missed the 5 other links, you can now search just like an agent by signing up for a Listingbook account!

Justin Landis
Keller Williams Realty Peachtree Road
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series - Part 2: Loan Prequalification

In Part 1 of our First Time Home Buyer Series, we talked about tracking your spending, saving for a down payment, and making a budget. In this installment, we will look at the next step, Loan Prequalification.

What is loan prequalification?

In the simplest terms, loan prequalification is the process in which you get pre-approved for a specific loan for a specific amount. This process is done with a lender like our lending partner Mark Daker at Fidelity Bank. You can find lenders in lots of places - your bank, credit union, and online to name a few. Personally, I think it is important to work with someone who has an expert knowledge of lending and who will take the time to understand your personal situation. A variety of loan products exist, and it is important to find the one that best fits your housing goals. Also, you aren't locked into using the lender who prequalifies you, so unless you have a really unique situation, I wouldn't suggest getting multiple prequalifications.

The lender will ask you a variety of questions about your financial situation. Always be truthful and forthright in this process even if you think that something in your financial picture will be harmful. You don't want to and can't hide this information as you go through the loan process. By telling the lender up front, it allows you to make any changes or make preparations to get over these hurdles.

Once the lender collects your information, they will be able to tell you what loans will work for you and what price house corresponds to the monthly payment you targeted in your personal budget. We will use this price to start your house hunt. It is also common for buyers to be approved for more than what they really want to spend on a monthly basis. Just because you are preapproved doesn't mean you have to spend it Stick to your budget!

Why should I get prequalified?

Once you are prequalified, you will know the answer to some of the biggest questions in the home buying process. The lender will be able to tell you:

- The required down payment
- The interest rate of your loan
- The monthly payment
- The house price that corresponds to that monthly payment

These answers will just be estimates, but the lender will make sure you know everything that needs to be estimated. If you use a simple online mortgage calculator, you are likely to miss something from closing costs to PMI to taxes to home owners insurance. The lender and your Realtor can walk you through each of these costs.

The other big reason to get prequalified is to help you find your dream home. The prequalification will make sure that you are looking at houses in a price point that you can afford. When I first started helping people buy houses, I didn't require buyers to get prequalified before we started looking at houses. I can't tell you how many times we looked at houses that my clients could not afford. They often made estimates on their own and missed key components. It's heartbreaking to find a house you love and then find out you can't pay the price.

At the end of the prequalification process, the lender will give you proof of prequalification in the form of what is commonly called a "prequal letter". We will need this letter when we submit an offer for your new house. Every seller wants to see that the buyer has the ability to get a loan that will allow the buyer to pay for the house. This letter serves as proof. Often, when we find a great deal, we have to submit an offer ASAP! If we don't have the prequalification in advance, it can delay our offer and hinder our chances in getting the house.

The bottom line is that a prequalification will answer many the financial questions about home buying and put the buyer in position to start searching for their dream home!

If you are at this stage in the process, call a lender you know or call Mark Daker, 770-649-4949, to get prequalified.

Justin Landis
Keller Williams Realty Peachtree Road
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series - Part 1: Personal Budget

Most conversations about buying your first home start with money.

Buyers ask "Can I afford to buy a house?" and if so, "How much house can I afford?" I always ask buyers to take one step back at this point. We can't answer the previous questions until you have a solid grasp on your current financial situation. You may have even spoken to a lender and found out that you are pre-qualified for a loan. However, just because you are pre-qualified, doesn't mean that buying a house is a wise decision. We may find that you can easily afford a certain price house, or we may find that it's better to keep saving for another year or two.

Here are some basic steps to assessing your current financial situation and then making a budget for moving forward.

1. Track Your Income and Spending

Until you know how much money you bring home and how much you are currently spending, it is impossible to make a budget. You will just be guessing! After a few months of tracking your spending you will see how much you really spend eating out, at the sporting goods store, or shopping online. You will also see how much you actually have to spend after Uncle Sam takes his cut.

You can track your spending the old fashioned way by saving your receipts and logging your expenses in a spreadsheet. However, there are lots of great FREE tools available now. One of my favorites is a website called Mint.com. Mint allows you to enter in all of your checking, savings, credit cards, and investment accounts into one very friendly interface. They have great tools for you to see where your money goes each month. Once we get to the budget step, you can even do this in Mint.

2. Establish Reserves

I'm no financial planner, but the first thing most financial gurus tell you to do is to establish reserve savings. I usually hear them say to have 2 to 6 months of reserves in savings. That is 2 to 6 times what you normally spend each month. This is your safety blanket in case you face unexpected expenses, a job loss, etc. In most cases, if you don't have this extra cash in the bank IN ADDITION TO your down payment, I would say to think long and hard about buying a house at the current time.

3. Make a Budget

I love the advice given in a financial study that my wife and I did called, Balanced. The study said to set your budget in this order:

- Give
- Save
- Live

Their advice was to first determine how much you want to give to charity, second determine how much you want to save, and lastly divide up your remaining income into living expenses. The great thing about this advice is that you are always helping others, and you are always saving for your future. No ifs, ands or buts about it.

As I mentioned earlier, Mint.com has a great budget tool that allows you to set and track your budget online. Most people like to break their budget into categories such as Gas, Grocery, Dining, Insurance, Travel, Shopping, etc. Take a look at your historical expenses in each category and see if you think those are realistic numbers moving forward. Once you have numbers in all of your categories, we are particularly interested in what you can comfortably spend each month on housing.

4. Determine your Desired Monthly Payment

Once you've tracked your spending and set your budget, you should be able to see what you can spend each month towards housing. If this number is lower than you hoped, you may be able to tweak it by paying off a car, paying off a student loan, or cutting back on some extra expenses.

This number is important because we will match it up with a housing purchase price to determine what housing price point is right for you. We will talk more about how this monthly payment correlates to how much house you can afford in the next part of the series - Loan Pre-qualification.

Additional Resources

There is no shortage of information to help you with your finances. Lots of financial superstars have written entire books on this topic. I just tried to hit the highlights. I have read a few books and completed a few studies on personal finances. I have a some favorites, and depending on your current situation, I'm happy to share my suggestions with you.

Justin Landis
Keller Williams Realty
404-803-0471
justin.landis@kw.com