Buying the right home with right mortgage
Preetam Khanna
Mar. 26, 2005

Buying primary residence is time consuming and can be traumatic experience especially in a Real Estate market that is steadily going up in every part of the world.

The right home loan is also not easy to obtain. Here are some tips that you can apply.

Home buying:

-If you decide to use a Real Estate Agent, use many not one. Make sure that you do not see the same house with more than one agent.

- Remember, it is you who is buying the house. Real Estate Agents who work for their brokers can only help. You have to do the homework.

- Establish the area you want to live in and research a lot in that area about environmental and other issues. Look into the school systems if that is a concern.

- Use your Realtor as an aide not a guide. Many times they may push wrong properties or may not have the same perspective as you.

- After you have selected the area that you want to live in, make an appointment with the Tax Assessor of the township. Tax Assessor has the best knowledge of home valuations for that town. You can inspect how the assessment values have gone up or down in that neighborhood. All those records are in the public domain. You have the right to see them.

- There are three methods of home valuation – Sales comparison, Cost and Income approaches. The Realtor knows only Sales Comparison and that too in a crude fashion. Sales comparison allows you to get an idea of the valuation by looking at recently sold similar homes in your neighborhood. The cost approach actually finds the cost of building a similar home. The income approach looks at the home from income standpoint. Based on what rental income the property can generate, the price of the home is determined. The sales comparison method can be useful in a market with rising prices. But you may face falling market in the next several years. You should be able to get an idea for the real valuation of the property from all the three approaches and then confirm the same with tax assessment.

- Please note that if the tax-assessed value of a property is normally less than the market value. Three is something called equalization factor, which is a factor by which the market value is higher than the assessed value. The equalization factor is different for different township. Ask the tax assessor of the town for details.

- Use a good Real Estate brokerage firm. Remember the seller pays the commission. Negotiate hard and do not over look For Sale by Owners (FSBO).

- Use your Realtor for doing all the paper work. Tons of paper work needs to be completed before the closing. Let the agent work for you and help in the paper work.

- Choose a good home inspection company and Real Estate attorney. Choose an attorney who specializes in Real Estate only.

- Be prepared for last minute problems before closing. Ask your Realtor one straight question – what will you be doing for me?

- Keep an open mind, browse the Internet regularly and ask the Realtor to make the multiple listings available to you. Good properties get sold before they come to multiple listing. Be proactive in your search.

Finding the right mortgage is not easy either. Mortgage brokers can do little. They are normally licensed by the department of Banking in your state. Check credentials of a mortgage broker or banker before dealing with them. There are four kinds of individuals or entities - Mortgage Warehouse Loan Provider, Mortgage Banker, Mortgage Broker and Loan Agents. Loan agents are normally registered by the State and work for a Mortgage Banker or Broker. Mortgage banker underwrites and approves the loan. If a Mortgage broker is involved, their primary function is to bring the customer into the process (sale) and perform the initial paper work. The Mortgage Warehouse Loan Provider provides the money for loan to Mortgage Banker.

Make sure you read the Mortgage terms and conditions very well. Ask your attorney to advise you. There are many hidden clauses that can make your life hell with a mortgage in the coming years. If any mortgage broker or banker does not allow you or your attorney to review the terms and conditions, it is not a good sign. Remember to ask a question, under what circumstances can they call the loan? In other words, down the road can they ask you to come with the whole cash after a few years? What happens if you cannot pay the mortgage in time due to hardship or bad economic time? What are the hidden fees? What are the possible fees during the life of the Mortgage?

Here is an example of a hidden fee that the homeowner never knew till they were hit hard. The homeowner was late in a payment. The mortgage company hired a local agent to look into the home if the homeowner is still living there. The homeowner ended up paying a ton of fees to mortgage company for “keeping an eye on themselves!” Nothing could be done because it was part of the terms and conditions and the homeowner never cared to read the same carefully before giving the mortgage.

There are innumerable possible hidden fees like these. Be careful to look into them!

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