Why Buying a "For Sale By Owner" Makes Sense
When you're shopping for a home, it may seem easier to just call up a Realtor. But the potential savings and other benefits to "going FSBO" are compelling for buyers.
Instant Equity by Getting a Good Price
You're always better off buying a house that you can get for anything less than its full market value. One way to do that is to buy "for sale by owner" from a seller
who comes down a bit on the price because his overhead in selling it is less.
Mathematical example: Say the house is selling for $200,000. A realtor commission
would be $14,000. The seller will come down $7,000 to avoid having to list it.
$3000 at 7% for 30 years is $56,815. In this example both the buyer and seller WIN, with a little effort FSBO provides tremendous benefits.
Financing: Getting the Loan Gets You the Home
Smart buyers line up the financing for a mortgage before shopping or putting in
offers on homes for sale by owner. Among the benefits of doing this are: knowing what monthly payments will be in
your price range, allowing you to narrow down your search for a home; knowing
how long the loan process will take so you can write the most attractive offer
you can reasonably follow through on; and taking much of the stress out of those
weeks between offer acceptance and closing.
Choose Your Lender Wisely
How should you choose a lender? Most of us do the one thing that doesn't help
or work at all: calling to ask about rates! The number one worst way to pick a
lender is to call everyone in the yellow pages and ask about rates. That's because
we have no better information to go on. This doesn't work because rate quotes are so misleading. It is perfectly honest to say
"today's rate is x on a 30-year loan" and yet it evades the truth completely. Wholesale
lending rates are nearly identical from one lender to the next on a given day. So
the 30-year rate is the same from lenders A, B, C and so on. Rates change from day to day.
Unless you are ready to lock right now, this tells you nothing!
Better Way:
There are some key factors to look for:
How well the lender chooses the program that fits you best. In other words,
their knowledge and service.
Look for: lenders or brokers that ask you for details
about your situation and goals.
Their ability and willingness to 'get the job done'. Every home purchase has a
hundred details, any one of which can unpredictably be a stumbling block. This is
normal; an experienced loan officer will smooth out these bumps in the road.
Another item to look for when calling is whether or not there is an application
fee. Some banks and brokers charge these fees before processing your loan and
sometimes even before giving you a FIRM yes or no. Walk away from places that
charge application fees. Should you decide later that you don't want to accept the
terms they give you, you will either lose this deposit or be forced to factor in this
cost when deciding to accept their offer or not.
Find a lender who will give you good service. A loan officer who sits down with
you, goes over your situation, educates you on where your strengths and weaknesses
are, and helps you find the right answer for YOU. Someone who listens to
you, is honest with you, and offers you solutions (not just products) that work
now and a plan for the future.
Questions to ask:
Give me an example of an unusual situation or problem (unrelated to the
buyer's credit, unless yours is poor) with a purchase and your creative solution
to it.
Can I avoid paying PMI (Private Mortgage Interest) even if I don't have 20% to
put down? Have them explain thoroughly.
Can I buy any house with no money down, even when the seller is not
"distressed" and without anything shady going on? (You will still need money
to pay for insurance and tax escrows, and closing costs.) Again, get a thorough
explanation. If your credit is decent, the answer is YES.
Ask them to *itemize* their closing costs, and be sure to get a good faith estimate IT'S THE LAW.
What one company defines as closing costs another may leave out of their quote, making you think you've chosen the cheapest but you've actually chosen a less-than-forthcoming person.
So compare the charges side by side rather than by lump sum. For example, Company A may say their closing costs are $1500, but Company B says $1800. Yet Company A wasn't including a $450 "underwriting fee".
Get Pre-Approved
Sellers often ask for proof of preapproval before accepting offers. Not having it in
hand will put you at a serious disadvantage.
Pre-approval vs. Pre-qualification: What's the difference?
Pre-approval
means that your credit report has been pulled, and detailed information
about your current and past financial situation has been analyzed. A ballpark
price range has been given to you, and you're often given a letter to show sellers.
Pre-qualification
simply means that your income and current debts have been
plugged into a mathematical formula and a ballpark price range has been given to
you. Your actual credit score and job history are not factored in.
Being pre-approved puts you in a much stronger bargaining position, since you are
a "sure thing" and a serious bidder. It also means fewer surprises will pop up.
Make sure you get a statement from the lender, usually a letter or certificate, so
you can provide proof of this to sellers.
Click Here to visit Lakeshore Mortgage Center.
