First Time Homebuyers Need Service Providers

inspector70Inspectors & Service Providers Make a Difference to First Time Homebuyers

As a first time home buyer, in particular, you might not have a clue where to start when choosing service providers.  Your Realtor is happy to provide you with contact information for various services. Often, a recommendation comes along with the name of a person the agent has worked with before and trusts.  Keep in mind that North Carolina law prohibits kickbacks and such for any referrals a real estate agent make for professional services, so you should feel comfortable with their recommendations.  However, some real estate firms do not like their agents to make recommendations for the various services you will need, as they have been sued when the agent is negligent in recommending a “less than wonderful” person.  Our team feels that is unfortunate, as it leaves first time homebuyers to fend for themselves in a field where they have no experience.  So, we recommend the best people we know to help our first time homebuyers.

Of course, you are free to choose any service provider you like.   You will need a wide range of services, starting with a lender to help you get the special first time homebuyer financing.   Once you get a contract to buy a home, you will need to select a closing attorney to research that title, get the title insurance,  get the loan documents so you can sign them, and record the documents in the official records to complete the sale.  In North Carolina, it is customary for the homebuyer to select  the closing attorney to close the sale.  Before you close the sale, you will need homeowners insurance, so you will need to find an insurance agent.

After signing a contract you will need a  home inspector to go through the property in detail to give you a report on any problems.  You will also hire a termite inspector to determine if the property has termites, or to certify that the property is free of termites.   If the property has a well and septic system, you may need inspectors for those features.  If the property has structural issues, you might need a structural engineer.    There are all sorts of other issues that may come up, so you may have even more professionals that you need to hire. 

Then there are utility services such as gas, electricity, water, trash, telephone, cable TV, and Internet. A first time homebuyer should have all these service accounts established prior to closing, so they are active upon moving.  Your Buyers Agent is happy to provide you with contact information for these services as well.

If you move from outside the Triangle, you had a network of stores and professionals to provide everything you needed from doctors to birthday cakes.  Feel free to ask about services like local banks, grocery stores, and restaurants too.  Part of what we do is to help you reestablish the network you had to provide all the services you need. 

There’s always the Yellow Pages and the Internet, but you may prefer a personal recommendation from your Realtor who should have learned what you value in someone who provides a service.   You need a lot of help, but with a good guide, you will get through it gracefully.

Do You Know Your Credit Score?

young-couple-credit-score70

Credit Score is Important to a First Time Homebuyer

Knowing your credit score is one of the easiest things you can do to help you buy your first home.  Credit scores are used by lenders to decide if you are likely to repay money they loan you.  Credit scores or FICO scores are assigned based on information in your credit report.  Everyone is entitled to one free credit report form each of the three major credit reporting agencies each year.  These agencies are Equifax, Experian and Trans Union.

Before you begin the Raleigh home buying process have your Realtor recommend a lender.  Then, meet with the lender to establish your purchasing power by getting preapproved for a loan.  As a part of this process, the lender will run your credit report and be able to discuss your credit score with you.  The lender cannot give you a copy of the credit report, but you can order your free one at that time.  By the way, Equifax is hard to deal with when you try to get a free credit report, so try the other two first. 

Getting a report from at least one of these credit reporting agencies is recommended for every first time homebuyer.  The mortgage company will use these reports and your credit score to decide if you are an acceptable risk for a mortgage.  Some first time homebuyer loan programs have cut off scores and anyone below that score are not considered. 

Any score over 680 is generally a good score for mortgage purposes.  

It used to be that any score over 620 was considered good, but lenders are being more strict with their approvals.  Scores less then that may still be eligible for a first time homebuyer loan, but may be considered “sub prime” and as such be charges a higher interest rate to offset the “risk” of a less then desirable credit history.

Knowing your score before you start can help you to avoid dissappointment when deciding to by a home.  A low score can be raised with some time and corrective credit behaviours.  So, even if you have a problem with your credit score, if you find out about it early, you can work to improve it. 

Talking to an experienced North Carolina Realtor and a knowledgeable lender can help you develop a plan to increase your credit score if needed.

Get started now investigating your credit score  if you want to buy a home in Raleigh before the December 1, 2009 deadline for the $8,000 incentive that is given to first time homebuyers.

Want to know more?  Ask questions, get educated – get in touch with us!

First Time Homebuyers Using the Internet

internet70First Time Homebuyers Can get Good, and Bad, Information on the Internet

After deciding that you are ready to buy a home the first place most of us turn to is the Internet. The Internet can be a very useful tool to help, especially for first time homebuyers. Home buying is a daunting task and one of the largest purchases most of will make. So, you are looking for answers to a large number of questions.

Almost all the information you can imagine is at our finger tips online. However, the Internet is full of misinformation and advice from people who do not know what they are talking about. Weeding through his information can be overwhelming so using a qualified Realtor to help you is the best and easiest way the slog through all the information out there. For example, your Realtor can recommend websites with accurate information that is organized in an easy to read manner.

For example, there are a number of lenders who operate online. Some of them will give you a pre-qualification letter to say that you are qualified for a loan with only the slightest amount of information. If you select a Realtor who is not fully aware of the problems that can be created by Internet lenders, you may proceed with a purchase thinking that you can get a certain kind of loan, when you cannot. You need to use lenders that have a proven track record of success, because there are few things worse than getting right up to the time of closing, with all your possessions on a moving van, only to find out that you are not buying anything or that your purchase may be substantially delayed until financing can be obtained.

Some of the best resources to use are mega sites like realtor.com to find homes that are listed on the MLS systems of all areas of the country. Also using a search engine, such as Google, can also be very helpful. If using a search engine be as specific as possible in your search. Decide exactly what information it is you want and use all the key words in your description. Another great resource is to use a Realtor’s website. Often you will need to give some information to access the full site, but a Realtor’s site like www.TeamForYOUrDreams.com , will contain links to every home that is available in the local MLS, and will usually contain other links to information about the area like schools, city and county websites, and many others. Using a site like this will also give you access to a Realtor in the area that will be able to help you answer any questions you may have about home buying in general and about the specific real estate market in the area you are searching.

First time homebuyers can find a great deal of information on the Internet. However, they need to be able to determine what information is reliable and what is not.

Referrals Benefit First Time Homebuyers

lighthouse70First time homebuyers get better agents from referrals

Referrals are the lifeblood of real estate agents. A referral is a recommendation, most valued when introduced by someone both the agent and client regard highly.  Since the majority of referrals come from clients that an agent has worked with before, this is highest form of flattery an agent can receive. Having never bought a home, first time homebuyers might be most comfortable with this process, because they can rely on the experiences of friends they trust to help them find the right agent. The next best thing is working with an agent who specializes in dealing with first time homebuyers, like our Team For YOUr Dreams. First time homebuyers take a lot more time, need many more questions answered, and require more care in making a decision, so it is important to find an agent who can provide this extra level of service.

Referrals also come from other agents. In this case, a referral fee is paid to the referring agent if the lead results in the sale of a property. This arrangement is often used when a client relocates from one region to another and asks their local agent for help with their impending move. Keep in mind, however, that North Carolina law restricts payment of a referral fee only to licensed real estate agents. 

However, there are some companies that have found a way to sully the process of getting referrals.  There are companies who generate leads for Realtors, then refer the clients to anyone who will pay the fee.  In the normal referral relationship, a Realtor finds a qualified agent in another area and confirms that their clients will be well cared for.  Unfortunately, in the lead generating process, the care in selection provided by your Realtor in your home town goes out the window, and you get stuck with anyone who can pay the fee.

If you are trying to find the right Realtor, ask a friend who has bought a house in Cary, Raleigh, Apex or anywhere else you want to live in the Triangle area of North Carolina.   If you are a first time homebuyer who is new to the area, find a team that specializes in first time homebuyers so they can give you the extra care you deserve.

First Time Homebuyers Shouldn’t Buy Without A Buyers Agent

protect70Buyers Agents protect first time homebuyers

Anyone who buys real estate should consider having the assistance of a real estate agent. This is especially important when you are buying your first home.  Actually, it is almost a necessity for a first time homebuyer, because they have no experience to guide them.  Contemporary real estate sales usually revolve around the efforts of Realtors—a Seller Agent, who represents the seller of a property; and the Buyer Agent, who represents the buyer of that property. While neither is mandatory, most buyers prefer to have expert representation because purchasing real estate is costly, mistakes can be extremely expensive and surprises can lead to a failed transaction or worse. Since the seller pays the commission, in most cases all the fees of a Buyer Agent are effectively paid for by the seller out of the commission paid by the seller.  So, being represented by a buyers agent costs the first time homebuyer nothing.  Not being represented by a buyers agent can cost the first time home buyer a great deal, because errors in judgment can lead to an expensive education.

Keep in mind that when a buyer enlists a real estate agent to help buy a property, they are really hiring a real estate firm along with all its agents. Of course, the buyer’s main contact is the specific agent they signed with, though other agents within the firm might help as needed. If a Buyer Agent is hired to represent you, they must…

• Promote your best interests
• Be loyal to you
• Follow your lawful instructions
• Provide you with all material facts that could influence your decisions
• Use reasonable skill, care and diligence
• Account for all monies they handle for you

As part of this agreement, a Buyer Agent cannot pass along any confidential information about you to sellers or their agents thereof without your permission—while they represent you. While it is possible to establish either oral or written Buyer Agency, an agent must have the agreement in writing before an offer can be made to purchase a property. If you decided not to sign the agreement then, however, the agent does not owe you a duty of loyalty and is not required to keep your personal information confidential. 

In North Carolina, a buyer should ALWAYS assume a real estate agent is working as a subagent of the seller; and NEVER tell a real estate agent anything personal or confidential until a buyer agency relationship has been established with that agent. 

If you sign a buyers agency agreement, your agent works for you.  If you do not sign a buyers agency agreement, the agent works for the seller.  Since you get all the benefits of full representation without any cost, signing a buyers agency agreement gives a first time homebuyer much better representation.  Also, an agent who knows the buyer is going to be loyal to them can concentrate more time and effort getting that first time homebuyer better properties on better terms.

Buyers agency is an amazing consulting relationship.  The buyers agent has to use every skill available to represent you, dig out all the material facts you might want to know, give you the best advice, and you do not get to pay the agent.  Just try to find that consulting relationship in any other field.

First Time Homebuyers Need To Know How Realtors Get Paid

pay70Understand how your agent gets paid when you buy your first home

Most people do not understand how Realtors get paid, particularly first time homebuyers.  Realtors are paid on commission, and commissions are only paid when a sale closes.  So, there is no payment for all the work that is done for people who do not buy a property.

Also, a Realtor only gets paid when his client buys or sells a house.  So, if one Realtor shows a first time home buyer many properties, but another Realtor takes over representing the buyer, writes up the sale and closes it. the second agent gets paid, even though the first agent did some of the work.  If you look all over town with one agent, then buy from another agent, the first agent did all that work for nothing.   First time homebuyers need to appreciate how commissions work in order to understand why it is so important to your Realtor that you are a loyal customer.  If you do not show loyalty, they cannot devote their full time and effort to finding the best homes and negotiating the best deals.

Some first time homebuyers see the commissions paid at closing and think, “Wow. That’s a lot of money.” And the total amount paid usually is, considering that the purchase price of real estate typically involves many thousands of dollars. But what looks like a windfall is actually divided among multiple principals. Let’s look at a typical transaction, where the seller is represented by a Seller Agent, and the buyer by a Buyer Agent.

A closing statement (HUD) shows the commission as being split into two portions—part of which goes to the firm which the Seller Agent works for, and the rest to the firm which the Buyer Agent works for. Most often it is split equally between the two firms, but in Wake County North Carolina it is typical that the selling firm receives a higher percentage. You might note that the real estate fees earned from the sale of the property are paid by the seller.

Now here’s where it gets complicated. Since both firms pretty much divide earnings the same way, we’ll focus on what happens to the funds going to the firm representing the buyer. Any time a firm receives funds from a real estate transaction, it takes a bit off the top for their fees before passing the remaining funds to the actual Realtors who did the work. Now, if the Buyer Agent got their client as a referral from another Realtor, then a referral fee is first paid to firm of the referring agent. Finally, any remaining funds go to the Buyer Agent. However, most agents work as part of a team, thus those funds are actually split between the team leader and the Buyer Agent.

Whew! So, as you can see, real estate commissions are used to compensate every firm and agent involved with a transaction. And, perhaps more importantly, nobody gets paid anything until the property closes.

Home Maintenance Education for First Time Homebuyers

baby-close-up70Your First Home Needs Your Care

 

One of the easiest ways to preserve the value of your first home is by proper maintenance so it does not deteriorate with age.  For example, it costs very little to keep caulking around the bathtub and sinks.  But if you do not keep the water out of these areas with caulking, the deterioration from water intrusion will be expensive to repair and the appearance will hurt your value.

 

The maintenance on your new first home will be a new experience.  Where do you start?  You can get books or multimedia presentations like Home Improvement 1-2-3 from Home Depot.  You can also look on Lowe’s website or American Home Shield’s maintenance tips.  Another good source for a maintenance education is to followthe home inspector during the inspection before your purchase, as the inspector normally gives maintenance tips.  Many home inspection reports have extensive recommendations for proper maintenance of your home, so read the report with maintenance in mind.  

 

Keeping water out of unwanted spaces is one of  the most important concepts in home maintenance.  Water makes the structure rot and may provide a breeding ground for mold.  So, cleaning gutters, replacing weatherstripping, maintaining the paint, caulking and checking the flashing all prevent water intrusion.

 

Another issue concerning water is to be sure that the rain water flows away from your house, particularly since it rains an average of 48 inches per year in the Triangle area of North Carolina.  Raleigh, Cary, Chapel Hill and Durham are all able to grow rapidly due to the abundant water supply, much of which comes from rain.  If the water puddles around your house, it may affect the foundation or get into the crawl space under the house.  Keeping the downspouts for the gutter system working, and having the ground slope away from the house is important.

 

The mechanical systems also need attention.  Changing the filters in the forced air system will make it easier for the system to work.  Having the HVAC (heating and air conditioning) system serviced will also lower your energy costs and prolong its life.  Drain the hot water heater on occasion to remove sediment build up.  Just like your car needs maintenance, the mechanical systems in your house need attention.

 

One of the things you may easily over look is the vent for the dryer.  The buildup of lint in the vent line is one of the largest causes of home fires.  After extended use, the vent line should be cleaned, or just replace it because the vent lines are inexpensive.  For additional protection from fire, the vent line should be made of flexible metal, not plastic.

 

So, all of the chores on a “honey do” list will make your home more comfortable and more valuable.  

 

 

 

First Time Homebuyers Should Plan for Becoming First Time Homesellers

couple-and-baby702How First Time Homebuyers Build Equity

 

After you buy your first home, you need to look forward to the profit you can make when you sell your first home.   You will frequently hear the term “equity” and I will not bore you with a long winded explanation of how it is derived from the legal term “equity of redemption.”  What it means is the value you have in the house.  In other words, take the money you would get from a sale, subtract the amount necessary to pay off the loans, and the money you have left over is your equity.

 

How do you build equity?  Make the home more valuable, and avoid problems that make it less valuable. 

 

We have discussed home maintenance in another post.  If you keep the home from deteriorating, you will preserve the value. 

 

To make the home more valuable, do some home improvements.  The most cost effective improvements are carpet and paint.  This is why many homes get a fresh coat of paint and have the carpet replaced just before they are placed on the market. 

 

Upgrading the light fixtures and the plumbing fixtures will keep your home looking current.  Just like wearing clothes that are out of fashion gives the wrong impression, light fixtures and plumbing fixtures can make a house feel dated.  If you are handy, these improvements are inexpensive, as most of the cost is labor for a plumber or electrician.

 

The kitchen and master suite are some of the most important parts of the home for adding value because they are the parts of the house that are the focus of the buyers’ attention.  Remodeling the kitchen is one of the biggest improvements in terms of increasing value, but it is also one of the most expensive.   Replacing the cabinets, counters, appliances and floor coverings can get very expensive very quickly.   Similarly, remodeling the master bath involves changing cabinets and lots of plumbing, so it can add up quickly.

 

If you want to get seriously involved in changing the house, you can add on a bonus room, additional bedrooms or additional baths.  If you finish off a basement or an attic, you might think that the value goes up by the same cost per square foot as the rest of the house.  However, appraisers are not kind when valuing finished attics or finished basements, and they sometimes get as little as $50 per square foot while the rest of the square footage in your house gets two to three times that value. 

 

If you are adding bedrooms and bathrooms to a home on a septic system, be sure to check the capacity of the septic system, because it is sized for a certain number of bedrooms.  You may have a house that physically has five bedrooms, but it can only be sold as a three bedroom house if the septic system is sized for only three bedrooms.   If your home is connected to the sewer, you will not have this problem.

 

Overbuilding the neighborhood is a concern if you are increasing the size of your home.  If all the other homes in your area are around 1,800 square feet, and you are increasing the size of your home to 4,000 square feet, you will have a hard time getting the money back for your improvement.  The little homes in your neighborhood will be riding your coat tails to hold back your value.  If the entire neighborhood is changing to much larger homes, you may be alright, but it is hard to count on all the neighbors remodel their homes. 

 

If you are going to live in the home for an extended period of time, and you are going to really enjoy the improvement, you may not care if it adds equity.  For example, adding a swimming pool rarely gets even a fourth of the money back from the cost of the improvement.  But, if you swim as often as the weather permits, your health and enjoyment may make the investment worth it to you.

 

If you are thinking of adding value to your home, give our team a call at 919-812-5111 or send an email to tim@TimBurrell.com and we will be happy to guide you.

Escrow Deposits Take Cash for First Time Homebuyers

money-deposit-stack70First time homebuyers have to put money in the escrow account

 

 

At the closing where you get the keys to your first home, you will set up a fund to pay for the property taxes and the homeowners insurance.  On page two of the closing statement, you will see a small money pit.  On line 1001 of the HUD closing statement,  there is a payment to start the escrow account with homeowners insurance.  You look above that on line 903 and you see that you just bought a one year homeowners insurance policy.  So, what is this for? 

 

Every month as a part of the mortgage payment the lender will collect some money to apply to purchasing next year’s homeowners insurance policy.  The payment at closing begins the account that collects this money.   The lender wants to have a couple of months worth of this payment as a reserve to be sure there will be enough money in the account next year to buy the homeowners insurance policy.

 

On lines 1003 and 1004 of the HUD closing statement, there are payments for property taxes that also go into the escrow account.  In a similar manner, the lender wants to have a couple of months worth of this payment in reserve so that there will be enough money to pay the property taxes when they are due.   By the way, property taxes can be paid when the bill comes out, but hardly anyone pays them then, as there is no penalty on the payment until the beginning of the next calendar year.  So, your lender will pay the taxes at the end of the year.

 

On line 1008 of the HUD closing statement.  there is a number with a minus sign in front of it.  The Real Estate Settlement Procedures Act (RESPA) sets a limit on how much of a reserve the lender may collect, which is generally two months of payments.  Before laws were enacted to limit these reserves, some lenders collected excessive amounts for their escrow accounts because the lenders did not have to pay interest to the homeowner on the amount collected.  This number on line 1008 subtracts from the reserves the bank would like to have in order to reach an amount that is allowed under federal law. 

 

At the closing, not only will the taxes be pro-rated and a one year insurance policy purchased, but an escrow account will be set up to start a fund that will pay for the taxes and insurance.  Then, each month, your mortgage payment will include some money for taxes and insurance that will go into this fund so that there will be enough money to pay the tax bill and insurance premium when they come due.

 

First Time Home Buyers and the Purchase Contract

drive-thru-lawyer-70x701The North Carolina Offer to Purchase and Contract is prepared by the North Carolina Association of Realtors in cooperation with the North Carolina State Bar.  So, the Realtors and the Lawyers take part in drafting the standard contract.  You should look at this link to the North Carolina Offer to Purchase and Contract, so you can see the entire documents.

 

The first part introduces the cast of characters.  You are buying the house from the seller so the blanks are filled in with the appropriate names.  The house is identified by its mailing address, legal description and references to the tax records when the blanks are filled in.  The contract wants to be sure the house is properly identified, so you do not get the wrong one.

 

Next, there is a discussion of fixtures to specify what is included in the purchase price, so that you get the light fixtures and plumbing fixtures that you expect.  There is also a discussion of any personal property included in the sale, like a washer, dryer and refrigerator. 

 

The total price to be paid for the house is in the first blank of the next paragraph.  The blank after that has the amount of the earnest money.  Earnest money is a deposit to show that you are serious about the purchase, and to get you to have some “skin in the game.”  The contract goes into detail in other provisions specifying when you would get that earnest money deposit returned and when the seller would get to keep the earnest money.

 

There are a series of blanks for other deposits and payments, most of which are usually zero in the average purchase agreement.  The last blank is the balance of the purchase price, so the amount in that blank plus all the other blank lines above it should equal the total purchase price, unless your real estate agent cannot add J .

 

The next paragraph talks about the financing.  If the blanks in that paragraph are filled in, then the sale is contingent on you being able to get financing.  The blanks specify the type and amount of financing that you need, as well as the interest rate.  So, if you can get that type of loan at that interest rate, or better, you are saying you will proceed with the purchase of the property.  If you cannot get that financing, there is a time limit where you need to cancel the contract before that time limit runs out in order to get your earnest money back.  

 

The first two pages of the North Carolina contract are where most of the information is entered by the buyer.  So, if you understand what the questions you will be asked when you make an offer, you will know the answers and it will be easier to proceed with buying your first home in the Raleigh area of North Carolina. 

 

 

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