Talk to lenders before seeing homes

by Deniece Watkins Smith

As home buyers prepare themselves for the bottom of the real estate market, they are attending open homes consistently. There are many potential buyers who are beginning to look at purchasing their first home in the near future. As a conscientious Realtor, I worry that Buyers are still using a method which presents unnecessary risk to their purchasing process. So how does a buyer minimize risk in today's market? Call some lenders first, yes first, before going to open homes.

Seeing homes first seems very logical. You might say, "Let's go see if we can find a house we like. If we do, maybe we'll make an offer on it." Again, seems logical. If you are a buyer who has thought this, you are part of the ninety percent of buyers who sees homes first, quickly chooses an agent, then makes an offer on a home, then talks to a lender. This is a big trap! Be very careful when doing this.

To explain, the home purchase process has many details, which when overlooked can be risky for Buyers. Buyers think that logic will be the primary tool they'll use to analyze if home purchase is appropriate for them. However, once they find the place they love, emotions take over and they'll do almost anything to live in the home they found was just right.

A smart Buyer must remember that the decision to move effects lifestyle, family, income, investments, stability, they way others see us, our ego, our pride..shall I go on?

So you say, "Hey, I'd like to be prudent in my purchase. What should I do?" The answer: Talk to lenders before seeing homes.

The average consumer hears a lot about interest rates, but doesn't hear about all of the other factors that are involved with a loan. Loan variables can include, but are not limited to: length of the loan; amortization schedule; interest rate; available loan products; income; credit score; pre-payment penalties; reserves; down payment (starting equity); family health situation; how long you plan on living in the home; will it be your primary residence? .
Again, these are only some of the variables to consider when getting your loan.

Lenders frequently change what types of loans they are marketing. This week Bank A may be offering a special on an adjustable rate loan, and Bank B may not even have that product available. Next week Bank A may raise the rates on that product because they are promoting a different product this week that makes more profit for them.

In this volatile lending atmosphere, there is that possibility that Bank A may no longer be around the week after that. So be sure to become familiar with Bank A, Bank B, and Bank C to add certainty to your purchase.

Understanding everything you can about loans should be done before you consider seeing homes. The pressure of working full time, taking care of your family, and finding time to know all you should about your loan is very difficult to do in the time frame allotted in your contract. In Silicon Valley, this time frame (or financing contingency period) is extremely short. Buyers can propose anything in a contract with regard to a financing contingency. However, Sellers feel most confident with Buyers who have already done their homework and won't be using the Sellers' time to do their learning. Having done your lending homework decreases risk to you and makes a Seller more sure of you, which in turn can give you a great advantage on the price you offer, the terms you propose, or even (yes, it's still happening locally) being the winning bid over another Buyer's offer.

Take your time to learn about loans, choose a lender you like, then find your home.

A list of recommended professionals with whom I do business, including reputable lenders, can be found on my website www.dsoldit.com.

President of C.A.R. comments on financial markets

Sept. 19, 2008

Dear C.A.R. Member:

What a week this has been for the financial markets! I’ve been following the tumultuous events on Wall Street, the 24/7 news cycle, and the actions of our Congress and the federal government. No doubt you have as well.

As you know, in recent weeks Fannie Mae and Freddie Mac were placed into conservatorship, the federal government bailed out AIG, Bank of America purchased Merrill Lynch, and Lehman Brothers filed for bankruptcy. Late this week, the credit market appeared to be on the verge of collapsing.

Like most Americans, I’m concerned about both the near-term and long-term health of our financial system and its impact on the housing market, and I’m sorting though an over-abundance of news and information trying to make sense of it all.

Although it is premature at this point in time to address specifics in an evolving plan, C.A.R. strongly supports the intent of Congress and the federal government to calm the financial markets, address liquidity issues and to begin laying the foundation of a new mortgage finance system.

To that end, I want to assure you that your state Association is closely monitoring the events in our nation’s capital. C.A.R. is taking appropriate steps to ensure that the needs of California are addressed, and to emphasize that housing is a central part of the equation in the federal government’s efforts moving forward. We’re actively engaged in ongoing dialogue with our congressional representatives and other key leaders in Washington.

To recap what’s happened -- so far -- this week:

U.S. Dept. of the Treasury Secretary Paulson today announced that Congress and the administration intend to take poorly performing assets, primarily mortgage-backed securities, off the books of financial institutions. These assets have been a prime impediment to the ability of financial institutions to lend money.

The government also prohibited the short sale of nearly 800 financial institutions for 10 days, and may extend this prohibition to 30 days.

The U.S. Dept. of the Treasury also plans to increase the amount of mortgage-backed securities bought from government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, in an effort to increase the GSEs’ role in the housing market.

The Federal Reserve and other major financial institutions worldwide also made hundreds of billions of dollars in loans available to commercial banks in an effort to improve liquidity.

Our expectation is that Congress and the administration will work together to craft legislation as early as next week addressing these critical issues. We expect to have a good sense of what the legislation will contain by this weekend, prior to financial markets opening Monday morning.

As events continue to unfold, look to C.A.R. as your one-stop source for news and information on these critical issues. Beginning Monday, you’ll receive “Market Matters Daily Briefing,” a daily e-mail that will aggressively monitor the situation and keep you informed as events play out. Your regularly scheduled “Market Matters” e-mail on Thursdays will include tools and information to help you explain and communicate to your clients. You also can check www.car.org for recent headlines and video clips, and Wednesday’s “C.A.R. Newsline” e-mail for additional information pertinent to the ongoing story. Stay tuned for more.

Sincerely,

William E. Brown
2008 President
CALIFORNIA ASSOCIATION OF REALTORS®