Please Note: This is the latest in my series of blog posts where I write about the ABCS of buying, selling and investing in real estate. Each week I pick a subject based on a letter, P this week, and write up an imaginary advice column around it. The story is fake, but the story is real(ty).
Paul the computer guy was always a great person willing to work on my computers whenever I called him, no matter the day or time. It was his great customer service that made me anxious to return some of the goodwill when he approached me about buying a new home for him and his fiancee. We had a long chat about what sellers look for in offers and he seemed ready to go house hunting when we were done discussing it. After 10 days of not hearing from him, I gave him a call to see what was what. Paul said that he was still looking to get a house, but he had some new anxieties that was preventing him from moving forward. He was scared of making a mistake and doing something to ruin his chances at getting a home. He told me that he woke up in the middle of the night worried sick he was going to do something to screw things up. What mistakes did other buyers make? He asked me in terrified voice.
This is what I told Paul….
When buying a home the first time, sometimes buyers learn the hard way what not to do. I applauded his forethought to ask this question and assured him that we could work together to eliminate the risk in the process and give him the best chance to find his first home. Home buying is like everything else in life. You have to experience it to really understand it. However, there is no reason you can’t prep yourself on how the process works most of the time. I have a series of videos on buying and selling a home (see below for example). I told Paul that he should start there and then read over my blog closely where I cover many of the issues one faces when buying a home. He might also look around the web for additional educational sources on the matter. The Texas Association of Realtors have a good concise guide here. I also warned Paul not to get overwhelmed by the amount of content available on the subject. One could spend hours reading all that has been written on the topic. He needed to spend a couple of hours going over the sources I gave him and then move on the first step, which would be to get approved for a mortgage (you have to know what you can afford before you go shopping). Paul nodded, but still wanted to hear about some hard lessons learned I had seen some buyers make over the years. I told him about three.
1. Don’t follow the lender’s timeline – One would think that if someone took the time to find a lender, get pre-approved for a loan, find a realtor and then make an offer on a house, that the buyer would be diligent in getting materials to the lender as requested. After all, the lender does require some work on the part of the buyer to approve the loan. The lender will request a whole litany of items about the buyer such as pay stubs, bank account statements, credit card statements, etc. It might seem the lender is being intrusive and shouldn’t be asking for all these items, but buyers need to remember that the lender is being asked to give you a lot of money. The lender has to ensure the buyer qualifies for the mortgage before he can fund the deal. I have had buyers take a week or two to return requested documents. I have had buyers who did not sign the paperwork in a timely manner, which delays the process even further. Basically, these buyers learned the hard way that you can’t ignore or put off getting a lender his required material. They either lost the house altogether or ended up giving some additional funds to the seller for closing being delayed. It is always best to work closely with your lender and make sure you follow their every request to the letter.
2. Wait on seeing a house – You have your preapproval letter in hand. Your realtor has found some good homes that just came on the market, homes you know fit your own needs. The realtor texts to ask when would be a good time later that day to go see the homes. You respond that you were too busy to get out there today and it would have to wait until the weekend. The realtor warns them against waiting, but you insist. To no one’s surprise (especially the realtor), the homes went under contract by the weekend. In a tight seller’s market that we are experiencing, you never have the luxury of waiting to see a home. You have to go see it immediately if you are serious about getting a home that is move-in ready and matches what you want in a house. I see homes go very quickly, sometimes the same day they are listed. It is a lesson learned the hard way when buyer lose out on their dream home.
3. Skip the inspection/option period – You found a house you like and you heard from your best friend that you should just skip the option period. He said that your offer will be much stronger if you do skip the option period and you want the strongest offer possible in a market where most homes get multiple offers. Hopefully, your realtor told you this advice was off the mark and shouldn’t not be followed even if it means you might not get your offer accepted by the seller. Believe it or not, this scenario has played out for me in the past year as buyers get more desperate to find a home and get an offer accepted. In no way do I ever advise a buyer to skip an option period. As a reminder, the option period is the time the buyer gets to get the home inspected by experts who can find issues with the home that need to be addressed by the seller. The buyer pays for the option period and it allows a buyer to terminate a contract for any reason without defaulting on it. An offer with no option period is stronger since the seller knows the buyer is less likely to back out of the deal, but it is never a good idea to sacrifice the option period in favor of making the offer stronger. Most properties need repairs so the option period allows you to evaluate the repairs needed and see if you want to continue to buy the house. Don’t skip it. It is a lesson learned the hard way by many buyers in this market.
Paul signed on the other end of the phone when I was done with my quick lesson. He was already working with a lender and was already not liking some of the requests being made. He promised to do what was needed despite how he felt. He was ready to see as many homes as possible so he didn’t think he would wait to see any home. Finally, he hadn’t known about the option period before, but now that he did he promised he would not skip it. We finished our conversation by promising to meet up again the next week to start seeing some homes.