Handy Tips for Any Home Purchase
For obvious reasons, any transaction involving someone’s home is a significant and important transaction. Some attention to the following subjects will add value to your services for your clients.
1) Credit: Since most of your clients will need a mortgage, make sure they get a copy of their credit and review it for errors. Advise them to reduce any credit card balances which are over 50% of the credit card limit. If they are going to receive the down-payment funds from any source other than their bank account, try to have those funds transferred at least 2 months before and preferably six months before attaining financing. Also, without a doubt, having a pre-approval letter is almost an unstated requirement for any bona-fide purchaser in today’s market.
2) Predatory Lending: There are potential bills going around Congress but no clear definitions. On the one hand, equal opportunity and anti-discrimination laws have helped to expand access to capital for previously under served borrowers. On the other hand, many families suffer from abusive practices. The most common form of predatory lending is risk-based pricing where interest rates on loans are based on credit risk. Lenders argue that since a greater percentage of loans made to less creditworthy borrowers can be expected to go into default, higher prices are necessary to obtain the same yield on the portfolio as a whole. The other common practice is selling the borrower credit insurance which pays off the loan should the borrower die. Although most life insurance policies could be used the same way, credit life insurance is usually the only one the lender is licensed to sell. It is probably the most expensive form of insurance and since the single premium can be financed into the loan, people buy it since they do not have to pay up front. However, unlike a regular insurance policy, if you sell the home, this policy ends and you already paid the single premium whereas life insurance can be paid monthly according to need and transferred to other mortgages/debt obligations.
3) Real Estate Agent Representations: I will never forget one of my first dealings with an agent and when I asked him if he thought the building was well built, he kicked a few doors, knocked on the wall with his ear to it and gave me a confident nod. No, this was not a movie. We all love to know the answers and unfortunately we are not skilled enough to give them. My most frequent response to clients is “I am not an engineer, but I can refer you to one who can tell you about the structural integrity of the building.” Whether it is roofing, plumbing, electric, etc, make sure your client is not relying on an agent’s representation instead of on a licensed plumber, electrician, etc.
4) Mortgage Brokers: Always get it in writing. I have had brokers promise a loan that never occurs. I have seen a lender try to rescind on a mortgage commitment after issuing a commitment. Unfortunately, once your client waives the financing contingency then that is usually the last contingency before closing. If there is a problem with the loan, then they can lose the earnest money. I always try to get a written commitment with no conditions or at least the conditions in writing so to minimize my client’s risk.
5) Extended Title Insurance: Easy to remember and it costs a little more, but it is worth it.
6) Home Inspectors: As with the increase in real estate agents, there has been an increase in home inspection companies. Ultimately, I always refer my clients to a licensed engineer and not someone who just received their certificate in the mail.
7) Agent Referrals: Like most agents, I have my network of lenders, inspectors, etc that I make available to my clients as part of my value added services. However, many real estate companies legally disclose to their clients that the company has an interest in and/or compensation agreements with mortgage lenders, escrow companies, etc. Unfortunately, most people simply sign these disclosures when they have no idea about the amount of compensation involved. For example, I have been offered as much as 1% of the total transaction by a lender who wanted me to refer my client to them. I am proud to say that I have never, ever accepted any such rebate or compensation whatsoever. In my opinion, my client will incur the cost at some level and so I feel unethical receiving monetary compensation above my commission. Despite my position, there are an increasing number of real estate agencies using such disclosures and agents receiving anything from monthly desk fee payments to plain cash.
Frank D. Prestia is the co-founder and designated broker of Prestia Group, a real estate brokerage. He can be reached at 206-624-9366 or Frank@prestiagroup.com or you can visit his web site at www.prestiagroup.com.