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DO YOUR HOMEWORK. RESULT: YOU'LL BE A SMART SHOPPER

The purchase of a home is likely the largest single financial transaction you'll ever make - and certainly one of the most important. The following are some matters which should be considered by you in the home-buying process.

Determine when you want to buy. This is important. If, for instance, you plan on buying a home the end of the summer 2001, then you don't want to seriously look for a home until some time during the summer of 2000. A typical home purchase transaction is anywhere from 30 to 45 days from the date you offer to purchase the property until closing. But it is wise that if your intentions are to purchase property the end of the summer, you BEGIN looking at homes now if you have not done so, so that when the summer arrives, you are in a position of knowing what to expect in your home shopping experience. Be a smart shopper.

If you found that just-right home today, are you ready, willing, and able to buy the house now? This is also very important because the more ready, willing, and able you are to buy a home, the better price you will get. And timing is everything! Wait one day, one week - guess what? The home of your dreams may be gone.

Narrow down your price range Sellers in the good neighborhoods in Houston are getting 95 to 100 percent of the asking price or list price of the home today. If you are able to narrow down your price range early on, you will be more apt to the find the home of your dreams. So, review your budget and determine how much you want to pay each month. What Lenders look at are the home's sale price and your downpayment in determining how much to loan you. Your monthly payment will also be very important. Also, remember that in addition to your principal and interest payment you pay to the Lender, taxes and insurance are often added to your monthly payment.

Debt-to-income ratio. This is a fairly simple concept. Lenders typically want to see a debt-to-income ratio of less than 28 percent of your gross income. Also, long-term debt is considered (anything over 6 months long, such as car notes, credit card balances) and that monthly amount coupled with the housing cost should not exceed 36 percent. So if you make $9,000 gross income per month, the maximum monthly debt should be $3,240. This $3,240 should include your mortgage payment, principal and interest, as well as your long-term debt. A good realtor and lender can work with you to analyze your budget more thoroughly. Once you know what you can afford, it will make your home-buying experience a much easier experience.

Upfront costs required to buy a home. First, there is the downpayment, which is an amount to be applied towards the purchase price of the home. In other words, if you bought a $200,000 home and wanted to put down 10 percent, at closing you would pay $20,000, so that your loan amount is $180,000. In addition, there will be other closing costs paid at closing, such as legal fees, inspection fees, which can add up. A ballpark figure of these closing costs is anywhere from $2,000 to $4,000 on the $200,000 home.

Are you prepared to put up earnest money for your home? A good realtor will recommend you put up approximately 2 percent of the purchase price of the home. On a $200,000 home, $4,000 is acceptable. Anything below this amount and the Seller may not consider that a "good-faith" attempt to purchase the home. You want to let the Seller know that you have every intention to purchase the home and are making a good-faith effort to do so; otherwise, he may be inclined to decline your offer. And you could lose out on the house entirely. But remember, this amount will be deposited in the title company on acceptance of the contract to purchase and then credited to you at closing.

Is your location of workplace a consideration for where you live? Commuting to work from your home in Houston is a major consideration when buying a home - since traffic jams are commonplace on Houston's freeways. Are Houston's Park & Ride programs something you would consider if you live in a neighborhood that's 20+ miles to your downtown office? If you narrow down your neighborhood(s) of choice, it makes finding your home so much easier when it's the right time to buy.

Determine what type of house you want. So, what will it be? A 2-story traditional? Or a ranch style with pool? 2 car garage and fireplace important? Big yard, 3 bedroom with office, house on north side of the street, whatever. Knowing these details ahead of time will facilitate your home purchase for both you and your realtor.

The virtues of compromise. Housing inventory in Houston is the lowest in decades. And finding that perfect house in the perfect neighborhood may not always be the case. If there's something in the house that you do not desire, can you live with it; if there's something missing, can you do without it? In other words, if the master bath does not have a whirlpool tub, can you opt to put one in yourself in the future, or just live without it? On the flip side, what must you have in your home?

IT'S TIME TO GO HOUSE HUNTING.

All the homework you did above will really make the task of finding your home much easier. A good realtor will know your wishes and select only those homes falling in your window of possibilities. But this process can be an emotional one. If you can balance emotion with fact all should flow smoothly. You'll know your house when you see it - when you walk in it, it will just feel right and work right also. And your realtor will guide you along the way.

AFTER YOU FIND YOUR HOUSE.

If you find your home:

1) Put in a contract. This is your offer to the Seller indicating the amount you wish to pay for the house, including earnest money. It includes the closing date and other specifics you work out with your realtor. If the offer is not accepted by the Seller, your earnest money will be returned to you.

2) Agreement. The Seller either accepts or rejects your offer. Sometimes, however, a Seller will come back with a counteroffer and you have the option to accept or reject that counteroffer.

OFFER TO PURCHASE IS ACCEPTED

You've just bought a house. No, not yet. It's not done until it's done. First, there's inspections and working with your lender and the title company who will facilitate the closing of the deal. These steps can last a couple of weeks, but if you've done your homework and are working with a good realtor, these matters can go unimpeded. Closing takes place through a title company, papers are signed, funding is done, and house keys are handed to you. Congratulations! You've just bought a house. Whew!

Caveat

If you put an offer for the house and after inspection you find out it has problems you were not aware of. InTexas, a new provision was implemented in September of 1997 to allow you, the Buyer, to terminate the contract if it falls in a "window" timeframe of  approximately 10-14 days after the date of the contract. It is called the "Option Fee" provision in the contract. Let's say you opted for this provision at the good recommendation of your realtor, buyer's agent. What you would do is put down a small amount of 1/4% to 1/2% of 1% of the purchase price (on a $100,000 home, approximately $250) and write a check payable to the Seller. He deposits that check immediately; this tells him to hold off on taking new offers to purchase the home. Immediately an inspection of the home is performed by a certified inspector of your choice. If inspection passes, that Option Fee of $250 can be credited to you at closing. But if you want to back out of the contract after learning that the house has foundation problems, for instance, you lose only the Option Fee, a nominal amount considering you could have ended up with a house that could cost you thousands of dollars in the future. This Option Fee provision was designed to help you, the buyer.

WHY YOU NEED A BUYER'S AGENT.

Did you know that in Texas unless you sign a Buyer's Representation Agreement with your realtor, the agent may actually work for the Seller? An agent should represent YOU, the buyer for many reasons:

1. It does not cost you the buyer a penny for this service. The commission is typically already paid by the Seller. For instance, if the Seller has listed his property with his agent at a 6% commission rate, that selling agent is required to post the property in the Houston MLS system so that all agents have access to the property information. As such, the selling agent is required to offer AT LEAST 3% of the sales price to the buying agent should a buyer's agent be present. If there is no buyer's agent representation, guess what: that 3% is STILL paid by the Seller, but the Selling Agent Broker and Selling Agent are entitled to that 3% commission. The 6% commission will still be paid - regardless!. So why not get a buyer's agent to represent YOU? It only makes sense since it's not costing you one way or the other, right?
2. A buyer's agent is required to protect the interests of YOU, the buyer - not the Seller. By this, he will look at all aspects of the property you have an interest in. A good agent will report to you on all his findings on the property in question, including other surrounding properties, and in general, use his knowledge and expertise to give you advice on the property.
3. A buyer's agent is a professional hired to negotiate the best price and terms of sale for you. For instance, a property may have been listed on the market for a year or more. Wouldn't you like to know that - since this could affect your decision on whether you want the property or what kind of bargaining ability you have?
4. Last, BUT NOT LEAST, once the contract to purchase is accepted by the Seller, your buying agent will help facilitate the closing of the transaction so that the red tape and all the little processes required to bring the transaction to a close are handled by the agent - not you.

It's no secret that what's driving the economy today in America, especially the housing market, is the interest rate. It was only a little more than 10 years ago that interest rates were at 14, 15, even 16 percent! With the Fed lowering interest rates in the last couple of years and keeping them there, you can get expect to get a mortgage below the 6 percent range for 30-year fixed rate. It's not even a surprise to find out that people who have an 7 percent or higher rate are refinancing or shopping for a bigger and better home. SO, LET'S JOIN THE CROWD AND GO SHOPPING.

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                       Niki Mettrick

E-mail: niki@netropolis.net
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