MAKE A LIST OF WHAT OPTIONS YOU WANT IN A HOUSE

When you are shopping for a home, know what you want to buy.

CONSIDER THE FOLLOWING FACTORS (which are not all inclusive but meant to prompt your thoughts) WHEN DETERMINING YOUR IDEAL HOME:

1. Travel distance for work, how close are you to a main highway. ____________________
2. Size of the home in general, do you want a ranch, multi-level, 2 story. _______________
3. Should the entry access but level (without steps) _________________________________
4. Is it satisfactory if the home is on a main road or at the top or bottom of a hill (water run-off and icy roads can be a factor). ________________________________________________
5. Do you want a front yard, front porch, tree lined street (how wide is the street for parking during family get-togethers). __________________________________________________
6. Condition and age of the property, would you want to do renovations, (do you have the finances?). ________________________________________________________________
7. Bedrooms, number and sizes. _________________________________________________
8. Closets and Storage Space. ___________________________________________________
9. What size lot would you want? (Someone has to mow the grass and shovel the walk)____________________________________________________________________
10. Parking, do you want garages? Attached, Integral, Detached, just off-street?__________________________________________________________________
11. Fireplaces, location? Game-room/family-room, gas or log burning?__________________
12. Do you care about the school district? Do you want to contact the administration office and receive material from them?___________________________________________________
13. Do you want a finished basement? ______________________________________________
14. Do you want a laundry/mud room and if so, where in the house?______________________
15. How many bathrooms do you want, how many partial, location?______________________
16. Is a family room a requirement? ________________________________________________
17. Is an eat-in kitchen a requirement and how updated should it be?_____________________
18. Do you need an office in the home?______________________________________________
19. Would you like an open floor plan? How large should the family room and dining room be?_
20. How about a deck off the back of the house?______________________________________
21. Would you like a pool? If you might want to install a pool, you may want to get a survey___
22. Would you like a hot tub?_____________________________________________________
23. Should you check the area for local methadone clinics, registered sex offenders or other potential neighbors that you would not want?___________________________________
24. Are you interested in a plan or condominium community? Would you like a 55+ community?_____________________________________________________________
25. Do you have a boat that you need to store or company vehicles that would be parked in your driveway, there could be rules or ordinances regarding those.__________________
26. Whole house air conditioning________________________________________________

DETERMINE THE COST OF STEP NUMBER ONE.

BECOME KNOWLEDGEABLE ABOUT THE CURRENT REAL ESTATE MARKET.

FIND OUT WHAT HAS SOLD AND WHAT IS AVAILABLE ON THE MARKET.

It's critical that you have a good understanding of the price of similar properties that are on the market currently and those which have sold within the last year. 

The are a number of public websites such as Homes.com and Zillow that can give you information about what is on the market and what has sold.

Pay attention to the number of days that the homes have been on the market and the ratio of list price to sale price. That will tell you, in general, how long homes stay on the market and how close the sales prices have been to the asking prices.

Once you have the information, we suggest that you go to STEP THREE and run the numbers on mortgages and payments. You may qualify for a house payment that is higher than you desire or you may need to consider altering the options in STEP ONE. 

DETERMINE YOUR PURCHASING ABILITY 

FIND OUT THE CLOSING COSTS ASSOCIATED WITH A PURCHASE; YOUR ABILITY TO QUALIFY FOR A MORTGAGE; MORTGAGE OPTIONS AND YOUR POTENTIAL MORTGAGE PAYMENT

As an owner of Advocate Mortgage Services Inc., which has made hundreds of millions of dollars in mortgages, I always suggest to buyers:

1. Speak to an experienced loan officer about closing costs; mortgage qualifying; current real estate tax assessment; condo fees and potential condo assessments.
   1. Costs to Buy; there are three (3) categories (Down-payment, Closing Costs and Prepaids)
      1. Minimum Down-payment, for VA mortgages, 0% down, FHA mortgages 3.5% (with an exception for rural housing) and Conventional mortgages 5%.
      2. Closing costs, for things such as; Transfer Tax ranging from 1%- 2.5%; appraisal; title insurance; recording fees; settlement fees, etc.). Although not required we recommend buyers obtain a home inspection [ and any additional inspections recommended by the inspector] and a survey. Additional inspections that you may elect could be for the roof, furnace, and structural integrity because these can be expensive to replace or repair.
      3. Pre-Paids, include amounts needed for real estate taxes (both for an escrow account for the next year and pro-rations with the seller for the current year), home insurance and interest collected on the mortgage from the day of closing to the end of the month.
   2. Mortgage Qualifying [ These are just highlights]
      1. Typically to qualify for a conventional mortgage you can have up to 43% of your income, including the new house payment, in debt;
      2. If you have part-time, commission or bonus income or are self-employed, typically, (there are a few exceptions), you need a two-year history with the same company (& it’s usually averaged);
      3. Alimony and Child support can be used for income if it has been received for at least six (6) months and will continues for at least three (3) years;
      4. Debts include things like, alimony and child support, car loans/leases, student-loans (even if in deferment), minimum payments on credit cards, personal loans or lines of credit;
      5. Not counted are your utilities, payments for life or auto insurance, cell phone bills, loans that are collateralized against other assets like a 401k
      6. Money being used to purchase the home must be documented and from an acceptable source such as savings, sale of a home, gifts from a family member. Unacceptable sources are personal loans, cash under a mattress, cash that shows up in your bank account within the previous two (2) months and the source cannot be verified
      7. Documentation required is usually; last 30 days of paystubs; last two (2) years of tax returns with W-2s and 1099s; drivers licenses; last two (2) months of bank or other statements from which funds are being drawn for the purchase; home insurance information; copy of a sales agreement if you are purchasing and the hand-money check after it is cashed
   3. Current Real Estate Assessment
      1. Buyers should pay close attention to the current real estate assessment which is used to determine the amount of real estate taxes paid on the property. Frequently, once an existing home is purchased, the school district will appeal the assessment because the district wants to collect more tax. To figure out the potential tax, take the sale price that you pay multiplied by the common level ratio. To make it worse, if your taxes are included in your mortgage payment and you don’t pay strict attention to the notices of the assessment change, you could wind up owing taxes for the previous year and have to increase the amount collected in your mortgage payment for the current year.
   4. Condominium Fees and Assessments
      1. When you purchase a unit in a condominium you are agreeing to follow a host of rules that may prohibit your use of the property in a manner that you intend, prohibit what you park in your drive and more. Under the standard agreement of sale in Pennsylvania you are entitled to receive a Resale Certification, requested by the seller at the seller’s expense. You should read this carefully and look for prohibitions and expenses of the condominium project. In addition to the monthly assessment for condo fees (make sure you know what those fees include), you may also be charged a “special assessment” for your purchase. Furthermore, from time to time, you may have to pay a special assessment if the condo project does not have enough funds in the budget for major projects (when you get the budget look for the breakdown of what the plan is putting aside in reserve). If possible, also ask for copies of the minutes from the last two meetings of the homeowners-association. Those minutes could alert you to issues in connection with the construction of the units or lawsuits that may be draining the funds from the budget.
   5. Condominiums mortgages
      1. Mortgage financing for condos can be difficult at times. The condo project itself has to be qualified in order for you to obtain the best type of mortgages (through Fannie Mae or Freddie Mac). Typically, questionnaires need to be completed and insurance for the project and for the company collecting the dues must be obtained. Depending on the answers to the questions, more documentation could be required. Condos under construction or with many rental units are often not acceptable, even if you, the borrower, are a triple A borrower. Of course, these units can often be financed, with a large enough down-payment, by banks at higher rates and worse terms.
         Often, borrowers tell us that the unit they are considering is a “townhouse”. The style of the unit, apartment or townhouse is different from the form of ownership. Per an authority on condos in Pennsylvania, for condo purposes, everything that is not specifically defined as the “unit” is common and everyone owns a share automatically. So, all of the open space, land and parking is common. As opposed to a Planned Community, the owner’s unit is often an entire subdivided lot, including the land. There are then defined common spaces (called Common Facilities) and the association may-sometimes- have control over things they do not own, such as landscaping, parking, siding colors, etc. Those are Controlled Facilities.
2. Mortgage Options
   1. Certain Veterans can obtain 100% financing and request that the seller pay all of the costs and pre-paids. You need a Certificate of Eligibility from the VA to determine if this is an option. The VA controls the appraisal. They charge a “funding fee” to guarantee the mortgage, the amount varies by how many times you have used it and the down-payment you are making. The funding fee can be financed.
   2. The FHA (Federal Housing Administration) requires a 3.5% down payment and minimum contribution for the purchase. You can request that the seller pay up to 6% of the maximum mortgage toward closing costs and pre-paids. For 2024, the FHA charges an up-front Mortgage insurance Premium of 1.75% currently and for 30 year mortgage a monthly fee if .55% (the monthly will vary with the loan to value and term of the loan). These mortgages tend to be for borrowers with more challenged credit or higher debt to income ratios.
   3. Conventional mortgages, purchased by Fannie Mae and Freddie Mac, are available up to $766,550 and require usually 5% down (there are some 3% down, first time homebuyer mortgage options with income limitations). Conventional mortgage insurance is required if you put down less than 20% but you can elect to pay the premium monthly and it will drop off at 78% loan to value. The Seller can agree to pay 3% of the sale price toward your costs with a 5% down-payment and 6% with 10% down. Sellers will often choose a buyer with a conventional mortgage contingency over a VA or FHA because the appraisals are more seller friendly; the buyers are stronger buyers with better credit and more money down.
   4. Down-payment assistance programs are available as long as the funds last and are for low-income borrowers to assist with the funds needed to purchase a home.
   5. First time home buyer mortgages with slightly better rates are available from time to time with income limitations.

BIDDING BATTLES (MORE PREPARATION)

WOULD YOU BE WILLING AND ABLE TO BUY WITHOUT SELLING YOUR CURRENT HOME?

Just because you have followed the above steps and have been told that you qualify for a mortgage to purchase a new home without the sale of your current home, the question then becomes, are you willing to do that? 

In a SELLERS MARKET, buyers sometimes face stiff competition when placing an offer on a home. Real estate agents often request buyers present their “HIGHEST AND BEST OFFER” or suggest that they put an “ESCALATION CLAUSE” in their offer. HIGHEST means the highest price a buyer will pay and BEST has to do with what contingencies are in the contract. ESCALATION CLAUSES provide that the buyer will pay a certain amount over a higher priced offer up to a maximum sale price. HIGHEST AND BEST ARE USED MORE OFTEN AND USUALLY PREFERRED BY SELLERS.

In either case, should you as a buyer have a home to sell before you buy, you are probably going to lose out in a bidding battle if you make that a contingency in the agreement. So, here are things to consider:

1. Can you qualify for a new mortgage on the house that you want to buy while you still have a mortgage payment on your existing house that counts as a debt? If you can, is that something that you can live with? Do you have the cash reserves to carry two mortgage payments and if so, for how long?
2. Assuming that you can qualify for a mortgage while carrying your existing, do you have the cash for the down-payment, costs and escrows on the new house without the sale of your home? If you are planning to purchase a home (before you put your home on the market), you may want to obtain a home-equity “line of credit” that you could use to access the equity in your home for the purchase of a new one. Of course, with this plan, you would have your existing mortgage payment, a payment on the line and a payment on the new mortgage, at least temporarily. You could also consider taking a loan from a 401k (not a withdrawal) and then repay it when your home sells. Gifts from family members are also acceptable sources for the purchase of a home under Fannie/ Freddie guidelines.
3. Traditional “bridge loans”, if available, tend to be very expensive.

There are many details and areas of concern when buying before selling that you should consider so we recommend that you consult with a knowledgeable loan officer to probe the pros and cons of this approach. And be prepared so that you don’t lose out on purchasing the home you really want.

HAVE DATA TO SUPPORT YOUR OFFER

DON’T UNDERVALUE WHAT THE SELLER CAN OBTAIN FOR THEIR HOUSE BY MAKING SUCH A LOW OFFER THAT SELLERS DECLINE TO COUNTER.

             Borrowers who have not taken the time to be educated about the current market for real estate often are unsuccessful in their initial offers to purchase. They frequently pick a number out of the air as a wish for the sale price.

Your agent, in addition to running searches of what comparable properties have sold for (and what is on the market, ie. your other options), should be able to run an automated valuation model which will give you a range of values for which the property should be worth on the open market. 

You should consider how closely the size, rooms, condition and other characteristics of the other properties compare to the one in which you are interested. How many days were the properties on the market? How closely did the comparable properties sell for compared to the listing price.

Making offers with independent data about other properties can often help to persuade sellers to negotiate the sale price. For sellers who dismiss your data, request to see the comparable sales data that they used in determining the price. If you can show them that their own “comps” have features that the home they are selling lacks, you, again, are making a powerful point that reasonable sellers should consider. 

Line up your inspectors so that you can get your home, plumbing, electrical, furnace, roof, structural or other inspections done quickly and if applicable a surveyor. You should also be in touch with your home insurance agent so they can give you information about the insurability of the property.

UNDERSTAND THE CONTRACT

CONTINGENCIES, TIME FRAMES, DEADLINES AND POINTS OF NEGOTIATION

 READ THE CONTRACT EARLY. Don’t wait to read the Pennsylvania of Realtors Agreement of sale (largely used in residential sales) until you are making your offer. And don’t worry about understanding every detail ( your attorney should be able to explain anything that is unclear) but focus on:

1. The execution date, in paragraph 5 currently, because all deadlines are derived from here:
2. The inclusions paragraph, currently paragraph 7, know what’s included and what isn’t and when in doubt make sure that you insert anything that you want to be included
3. The home inspection paragraphs and time frames, currently in 12 and 13. Keep in mind that all inspections  need to be completed within the allotted time, that means if the home inspector suggests that you need a roof, furnace, structural or other inspection, you may need to act swiftly or request an extension of time (something that the sellers may not be inclined to grant without at least additional non-refundable hand-money for tying up the property from being on the market). Pay attention to who can attend the inspection and the five (5) and two (2) day periods following the time to complete the inspections. You are entitled to two (2) walk throughs prior to closing, in the current version of the contract, make sure you plan those in advance with enough time to fix something if it’s not correct.

1. Look at the date on which you need to have mortgage approval and the date of closing. 
2. Understand what the Mediation clause means in the event that you have a problem with the seller in the transaction and consider striking that clause (You and the seller can always agree to Mediate).
3. As just mentioned, you are permitted to strike language and paragraphs, although unless a real estate agent is an attorney, agents changing contract language (and not just filling in blanks) is probably the unauthorized practice of law. You may need an attorney to fully represent you. 

FINALLY LET’S LOOK AT HOMES

Call the agent for the Seller, “the Listing agent”, not just the same company,  and make an appointment to view the home. Let them know that you do not need them to be your agent. The Seller hired them to sell the property and therefore they should be able to get you access. AS THEM IF THE SELLER HAS AGREED TO PAY FOR A BUYER’S AGENT AND AS HOW MUCH. **AFTER YOU SPEAK TO THEM, FOLLOW UP WITH AN EMAIL CONFIRMATION ! ** If you believe that they are delaying (which could happen if they want to find a buyer who will pay them as well) then let them know that you will contact the manager of the office for access and if that fails, you may want to just contact the seller directly and let them know that you want to see the home.

YOU DON’T NEED ANOTHER REAL ESTATE AGENT TO BE YOUR TOUR GUIDE! YOU CAN MAKE THE APPOINTMENTS YOURSELF TO SEE PROPERTIES!

If you believe that you need help with making the offer and working through the system, you can now SHOP FOR AN AGENT OR AN ATTORNEY WHO WILL GIVE YOU THE BEST DEAL. You don’t need to add thousands and thousands of dollars to the price of the house by agreeing the pay an agent 2.5% or more.

MAKING THE OFFER

Considerations when submitting the offer to the Seller or agent for the Seller:

1. Include the hand-money deposit check
2. Include a pre-approval if the offer is subject to a mortgage
3. Do not leave the offer open for more than 24 hours unless there are extenuating circumstances because it will permit the Seller to take your offer and “shop” it to other potential purchasers
4. Make certain each page is initialed and dated by all of the parties
5. Don’t assume that you have a done deal until you get the agreement back, signed and dated, by the seller

ONCE YOU HAVE SIGNED A CONTRACT TO PURCHASE A HOME

WHAT HAPPENS?

INSPECTIONS, SURVEY, TITLE SEARCH, UTILITIES, HOME WARRANTY, MORTGAGE

1. Home inspections (which usually include a radon and wood-boring insect inspection) are the starting point of due diligence. The home inspector is probably not an expert in all facets of construction and may recommend that you get further inspections. We would agree to get any and all inspections suggested. Do not rely on representations of the Seller and seller disclosure but rather use those as a guide for potential areas of concern. Confirm that the appraiser is ASHI (American Society of Home Inspectors) certified. They will most likely have a clause in their agreement which attempts to limit their liability however the home inspection law will still hold them responsible if they are grossly negligent. Keep in mind that you only have one year within which to file suit against the home inspector, two years to sue the seller under the seller disclosure law and pay attention to the “integration clause” currently in paragraph 25 which can limit your ability to make claims against the seller (you can strike this clause but the seller may not agree).
2. Surveys. These are not required by mortgage companies but you SHOULD get one. We routinely receive calls from buyers about boundary line issues that could have been discovered by a survey. If you think you might want to put in a pool or a fence, you need a survey. Have the surveyor put in stakes, it costs more but they will clearly mark the boundary lines. If you want the title insurance to cover boundary lines, you will need a more detailed survey.
3. Ask the seller for copies of bills for water, sewage, gas, electric, garbage and any other utility type bills (for the most recent year) so that you can average the costs of those services.
4. Pay attention on the seller disclosure to the age of things, like the roof, furnace and air conditioners. If they are nearing the end of their life, you should prepare financially to replace those.
5. If any appliances are older or appear to be at the end of their useful life, you can request that the seller pay for a HOME WARRANTY or you could purchase one yourself. Make sure you ask questions and have the home warranty agent point out what is covered; what is not covered in the policy and the term of the coverage (for example, it may only cover the first 12 months of ownership and may have deductibles).
6. Often overlooked by purchasers is the option to elect the DEEDS RESTRICTIONS AND ZONING search. It may come with a small fee but if you close with the same company for your mortgage, there may be no fee at all. You can spot potential issues, like if a mortgage exists prior to when the seller purchased the property. This can provide time for a resolution that is acceptable to everyone and not just accepted because you have no time or real choice to not accept the proposed solution.
7. Home Insurance. Contact your agent early and see if there have been prior claims on the property which could increase the premium; if they need further information such as if the furnace is older and they want a current inspection; and ask if there is a need for FLOOD INSURANCE.
8. If the property has a well or septic system, those require special tests.
9. Mold kits. There is no national standard for the amount of mold that is acceptable. You can probably purchase these at home improvement stores.
10. Mortgage Application. There is a standard time frame in which you must apply for a mortgage unless you elect otherwise. Therefore, you usually have to pay for an appraisal while the inspections are ongoing. The appraiser on FHA AND VA loan applications may have conditions which have to be satisfied in addition to any home inspection issues.
11. Hand-money. You will be required to make a deposit to hold the home. The amount of the deposit is subject to negotiation but buyers have a big advantage with the typical contract. if you, within the timeframes permitted in the agreement, elect to terminate the contract, you will typically have the hand-money refunded.

CLOSING

1. Buyers, as mentioned earlier, are entitled to two (2) walk through inspections to make certain that the condition of the property is unchanged from the time that you signed the agreement and that the items that were to be included, remain in the property. Take advantage of them and make sure that there is enough time between the final inspection and closing to address any issues before the actual closing.
2. The closing is usually done in person and consist of the sellers, buyers, closing officer and real estate agents, although there are options. Sellers, for example, can sign most of the important documents before closing and give their agent the power to sign the final numbers (called the closing disclosure or the ALTA disbursement sheet).
3. Allow an hour for the closing, it can take a little more or less (if it’s a cash deal with no mortgage, it’s likely to be over in 15 minutes). 
4. Sellers bring things like: keys, remotes, possibly codes for alarm systems that need to be reset.
5. Buyers need to wire funds or bring “bank checks” so that the funds are immediately available to be disbursed to the seller. Always be very careful on wires of funds and confirm with the closing company the correct information.
6. If there is a mortgage involved, there are usually hundreds (100s) of pages and many documents and you will never have the time to read at closing. If you would like to read them, you must request that they be sent to you in advance. Many of the documents are non-negotiable and standard in the industry so while you will probably be unable to alter the content, you can ask for explanations.

POST CLOSING

1. Keep the three (3) real estate files, as mentioned in HOW TO USE THIS GUIDE, (especially all documents relating to the purchase and the documents relating to the mortgage) in a safe place. [  you may want to keep one hard copy and save one to a cd). You will most likely need some of the documents in the future, for example when you prepare your next income tax return or when you sell the home and need to know the tax basis. If you do improvements to the property, you should keep a file of those and the costs so that you can add those, as appropriate to the basis, for the purpose of determining capital gain.
2. Within a month or two after closing, you should receive the recorded deed to the property and the title insurance policy. If you don’t, call the County Recorder of Deeds and ask when you might expect to receive it and call the closing company, this document can be important when you sell the home.
3. Keep on alert for a Notice of Tax Appeal of your assessment. This could dramatically increase your taxes and mortgage payment