Pre-Approved vs. Pre-Qualification

Getting pre-qualified is the initial step in the mortgage process, and it is generally and fairly simple. You supply a bank or lender with your overall financial picture, including your debt, income and assets. After evaluating this information, an lender can give you an idea of the mortgage amount which you qualify. Pre-qualification can be done over the phone or on the internet, and there is usually no cost involved. Loan pre-qualification does not include an analysis of your credit report or an in-depth look at your ability to purchase a home.

The initial pre-qualification step allows you to discus any goals or needs you may have regarding your mortgage with your lender. At this point, a lender can explain various mortgage options and recommend the type that may be best suited to you.

Getting Pre-Approved is the next step, and it tends to be much more involved. You will complete and official mortgage application (and usually pay an application fee), then supply the lender with the necessary documentation to perform an extensive check on your financial background and current credit rating. Typically at this stage you will not have found a house yet, so to reference to “property”on the application will be left blank). From this,, the lender cantle you the specific mortgage amount for which you are approved. You will also have a better idea of the interest rate you will be charged on the loan and, in some cases, you might be able to lock in a specific rate.

With a pre-approval, you will receive a conditional commitment in writing for an exact loan amount, allowing you to look for a home at or below that price level. Obviously, this puts you at an advantage when dealing with a potential seller, as he or she will know you’re one step closer to obtaining an actual mortgage.

The other advantage of completing both of these steps – pre-qualification and pre-approval before you start to look for a home is that you’ll know in advance how much you can afford. This way, you don’t waste time with guessing or looking at properties that are beyond your dreams. Getting pre-approved for a mortgage also enables you to move quickly when you find the perfect place. When you make an offer, it won’t be contingent on obtaining financing, which is a huge benefit to sellers and can set you apart from other competing bids.

Once you have found the right use for you, you fill in the appropriate details and your pre-approval will become a complete application.

Getting Committed

The final step in the process is whats called a “loan commitment”, which is only issued by a bank when it has approved you, the borrower, and the house in question. This means the home should be appraised at or above the sales price. The bank may also require more information if the appraiser brings up anything he or she feels should be investigated. (i.e. structural problems, accessibility issues, outstanding liens or litigation in progress). your income and credit profile will be checked once again to ensure nothing has changed since the initial approval.

It is important to note, your credit score really drives the interest rate you get, which will ultimately affect your monthly payment. While you are searching for a home and planning on obtaining a mortgage, you should refrain from other purchases that will affect your credit score, such as buying furniture, cars or other big ticket items.

Consider Cost, Not Just Price

As a buyer you should start thinking about the ‘long term cost’ of the home.

The Mortgage Bankers Association (MBA), the National Association of Realtors (NAR) and Freddie Mac all project that mortgage interest rates will increase by this time next year. According to CoreLogic’s most recent Home price Index Report, home prices will appreciate by 4.7% over the next 12 months. What Does This Mean To a Buyer?

If home prices appreciate by the 4.7% as predicted by CoreLogic over the next 12 months, here is a simple demonstration of the impact an increase in interest rates would have on your mortgage payment of a home that sold for $250,000

Other Costs To Consider

Purchasing a home is a great investment! When you buy a home, essentially you are purchasing a long term bank account that you can live in, and even earn money from.

But as with any investment, you first have to spend money in order to earn money. The following list are some of the costs involved in purchasing a home. This list is provided to help you vision and plan for your purchase. It is not intended to be exhaustive or relied on as legal advice. If applying for a mortgage, your lender will give you a specific and detailed outline of all costs associated with your individual purchase.

Costs Involved in Purchasing a Home

Down Payment – When you make an offer on a home, part of your offer will include a down payment. A down payment can be anywhere from 3.5% of the purchase price up to 20% of the purchase price. (or in some cases even more) A down payment is provided by the purchaser to the seller’s attorney when a contract is drawn and signed by the purchaser. The money will stay in a specific bank account, called an escrow account, held by the sellers attorney until closing. The funds will be used toward the purchase of the home and distributed at the closing table. A down payment is money that represents the purchasers intention of following through with the sale, should the buyer change their mind and default on the agreed upon contract, they do risk losing this down payment. Because of this, often times the purchasers attorney will recommend a lower down payment. In a competitive market however, sometimes a larger down payment is more attractive to a potential seller, as if the contract defaults, they will be paid for the time and money they potentially will lose for taking the home off the market during the contract period.

Taxes

Peconic Bay Region Community Preservation Fund – On the East End of Long Island there is an organization that was put into place with the intention of conserving Long Island’s working farms, natural lands, and heritage for our communities now and in the future. The Preservation works by taxing all purchase transfers in the townships of Southampton, East Hampton, Shelter Island, Riverhead and Southold.

The tax is 2% of the sale price after the certain exemptions are considered

Additional exemptions apply to 1st time homebuyers who meet certain income and purchase criteria.

Mansion Tax – A rate of 1% is payable by the purchaser on a residence when the total purchase price is $1,000,000 or more. This will be due and payable at the time of closing.

Professional Fees –

Attorney – Once you find the home of your dreams, we will need to choose an attorney who will represent you in the sale. They will review contracts and ensure that you are protected in the purchase. We will need their contact information as soon as we get an accepted offer. If you need help choosing an attorney, please visit our About Us page and navigate to our collaborations and you can find some excellent professional attorneys to choose from.

Real Estate Agent Commission – If you are working with your real estate agent representing you as a Buyers Agent, technically the commission agreed upon at the onset of your working relationship will be your responsibility to pay at closing. The very good news is, that cost is already likely built into the purchase price of the home and there should be no additional costs to you out of pocket. Plan to discuss this with your agent, should you have any questions

Lender Fees – If you are using a bank for the purchase of your dream home, there are fees that will be involved that are charged by your lender. Your lender will give you a detailed list of all of the costs, specific to your purchase.

Need to Have vs. Nice to Have List

If you have been thinking about buying a home of your own for some time now, you’ve probably come up with a list of things that you have to have in your new home. Many new homebuyers dream about the amenities that they have seen on television or Pinterest, and start looking at countless homes with these dreams in mind. How will you narrow down your choices?

All my list-makers out there rejoice! It’s time to get to work! List all the features of a home that you would like, and then qualify them as follows:

Must Have vs. Should Have

• Must-Haves – if this property does not have these items, then it shouldn’t even be considered. (ex: distance from work or family, number of bedrooms/bathrooms)

• Should Haves – if the property hits all of the ‘must-haves’ and some of the ‘should-haves’, it stays in contention, but does not need to have all of these features.

• Absolute Wish List – if we find a property in our budget that has all of the ‘must-haves’, most of the ‘should-haves’, and ANY of these, bid immediately!

Having this list fleshed out before starting your search will save you time and frustration, while also letting your agent know what features are most important to you before he or she begins to show you houses in your desired area.

Choosing a Neighborhood

Here in the Hamptons we have a lot of great neighborhoods, some more well known then others. We often compare the different hamlets of the Hamptons to members of your family, for instance; maybe Sag Harbor is the creative artist in the family, Montauk could be your laid back surfer sister, Bridghampton may be your very well dressed sibling that always keeps everyone together and ‘bridges’ the family together. Your East Hampton sibling could either be the successful but very private movie director or the quirky artist, while Southampton can be your very good looking and wise aunty who loves to throw garden parties!

What ever it is that drew you here, and resulted in you falling in love with the Hamptons, picking the hamlet that best suits you, may actually start with you.

Reflect on what it is that you like to do while you are here, are you a beach lover, do you favor hiking, or off-road biking? Is art your thing? Are you contemporary, or do you love a front porch surrounded by the gentle but bursting colors of hydrangea bushes.

If you start to think about what your passions are, you may find that your neighborhood will choose you.

Offers, Terms & Negotiations

Ready To Make An Offer? – 4 Tips For Success

So you’ve been searching for the perfect house to call ‘home’ and you’ve finally found it! The price is right and, in such a competitive market, you want to make sure you make a good offer so that you can guarantee that your dream of making this house yours, comes true!

Freddie Mac covered “4 Tips for making an Offer” in their latest Executive Perspective. Here are the 4 tips they covered along with some additional information for your consideration:

• Understand how much you can afford – as we mentioned getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and will allow you to make your offer with confidence knowing that you have already been approved for a mortgage for that amount. You will also need to know if you are prepared to make any repairs that may need to be made on the house. (ex: new roof, furnace etc.)

• Act Fast! The inventory of homes listed for sale has remained well below the 6-month supply that is needed for a ‘normal’ market. Buyer demand has continued to outpace the supply of homes for sale, causing buyers to compete with each other for their dream home. Make sure that as soon as you decide that you want to make an offer, you work with your agent to present it as soon as possible.

• Make a Solid Offer – Make your offer as strong as it can be. Ensure that you understand fully the value of the community, the comps and the fair market value for the house you are bidding on and present a strong and fair bid. Talk with your agent to find if there are any ways that you can make your offer stand out in this competitive market! Use the terms of the sale as another point of negotiating, they could make all the difference (i.e. a closing date that accommodates the sellers needs, all cash, leave the furniture, etc.).

• Be prepared to Negotiate – If your offer is strong, you will likely get a counter offer from the Sellers. If the offer is too far apart from asking to offer, some sellers have refused to offer a counter, not being able seeing a compromise from the low offer to the asking price.

Bottom line, whether you are buying your first home or your fifth, having a professional real estate agent (such as ours) who is an expert in their market on your side is your best bet to make sure the process goes smoothly. Let’s talk about how we can make your dreams of homeownership a reality!

How to Choose an Insepctor

Your agent will most likely have a short list of inspectors that they have worked with in the past that they can recommend to you. Realtor.com suggest that you consider the following 5 areas when choosing the right home inspector for you:

• Qualifications – find out what is included in your inspection and if the age or location of your home may warrant specific certifications or specialties.
• Sample Reports – You can ask for a sample inspection report so you can review how thoroughly they will be inspecting your dream home. The more detailed the report the better, in most cases.
• Memberships – Not all inspectors belong to a National or State association of home inspectors an dmembership in one of these groups should not be the only way to evaluate your choice. Often times, membership none of these organizations means that there is continued training and education provided.
• Errors & Omission Insurance – Find out what the liability of he inspector or inspection company is. The inspector is only human after all, and it is possible that they may have missed something they should have seen.

What to Expect During the Inspection

It is great if you can accompany the inspector during the inspection so that they can point out anything that should be addressed or fixed. But if you can not make it, that is okay to. Your agent will likely accompany the inspection as well and can convey any important information as needed.

If you are present for the inspection, don’t be surprised to see your inspector claiming on the roof, crawling around the attic, and on the floors. The job of the inspector is to protect your investment and find any issues with the home, including but not limited to; the roof, plumbing, electrical components, appliances, heating & air conditioning systems, ventilation, windows, fireplace & chimney, the foundation & so much more.

When investing your hard-earned money in a home of your own, it is important to be aware of the condition. Work with a professional you can trust to give you the most information possible about your new home so that you can make the most educated decision about your purchase.

Contracts

The process of getting a home fully into contract is an important one and should be faced with the knowledge that until a home is fully in contract, meaning that it has been executed by both parties, the home is not bound to any one purchaser. Time is of the essence to move “into contract” as quickly as possible.

What does this mean? A home will likely continue to be shown and offers are still able to be presented to an owner until there is a fully executed contract. In a sellers market where buyers are competing for homes, this phenomenon is not only possible, it is probable. Often times bids continue to stream in and sometimes those bids can out perform the standing accepted offer (yours), causing homeowners to change deals. This is why, during negotiations it is so important to put your best offer forward, with terms that are agreeable, and sometimes favor the owner (yet still make sense to you).

Your attorney will play a big role in this as well, when hiring your attorney to represent you, it may be a good discussion point to see how busy they are, you want to ensure you get a very responsive attorney who will be able to review, amend (as necessary) and turn contracts around as quickly as is prudently possible.

What exactly is a contract anyway? A contract is a purchase offer that binds both you and the seller to the terms agreed upon. You will be held to your offer once it is signed by the seller, so it is important for you and your attorney to discuss the details. Things that could be included.

• The date and amount of your deposit
• Your name as buyer and the property owner’s name as seller.
• The total purchase price
• Full legal description and street address of the property
• The attorney’s involved in the sale
• The brokers involved in the sale and their compensation
• The terms and conditions of the sale
• The options available to both the buyer and the seller should either party default
• Earnest money. Ensure that your earnest money (A check you will provide with the signing of the contract) will be deposited in a trust account or with a neutral third party, such as the seller’s attorney. If you’re putting a large down payment (earnest-money payment) stipulate that it be held in an interest-bearing account and that interest earned will be credited to your side of the ledger at settlement.
• Returning earnest money. Set out any conditions for return of your money, including how quickly you will get it back, if for some reason the seller decides not to sell, or something catastrophic happens to the home before closing.
• Deed and title condition. Your offer should state the type of deed and condition of title you’ll accept from the seller. Your contract should also make clear what actions the seller must take to deliver a good title by settlement, and what recourse you should have should that not occur.
• Financing. Make your offer contingent on getting a written loan commitment within a specified time and terms that are agreeable to you (typically 45-60 days)
• Seller financing. There terms and conditions of any seller financing should be fully and exactly set out in the contract.
• Settlement date and possession. The sale should be made subject to a settlement date and when you will be entitled to take physical possession of your new home. Settlement usually correlates with the length of time that’s required for a title search and a mortgage approval. – typically 45 to 60 days. Possession usually occurs immediately after settlement unless agreed to otherwise.
• Settlement Agent. The contract usually specifies the atoner or title company that will perform the final settlement services.
• Sale of current residence. If your purchase of this house is contingent on the sale of another, this should be carefully stated.
• Home inspection. This contingency clause gives you the right to have the property inspected (this will cost you anywhere from $500 to 3500) and to withdraw your offer if the inspections report isn’t satisfactory to you for any reason. It may also allow for price adjustments to pay for any necessary repairs. An alternative to this is to conduct the inspection prior to signing of the contract so this bridge will likely have been crossed.
• Pest Inspection. If a bank in involved in the purchase, there may be a requirement by the bank to have the home tested for pests. Be sure to insert language to reflect this.
• What goes with the house. Specify what furniture, such as curtains, rugs, chandelier and so on are included in the sale.
• Condition of house at settlement. Specify what must be in demonstrable working order at the time of settlement, as verified during a walk-through of the premises a day or so before settlement.
• Other conditions. The list could go on, but keep in mind, every additional condition runs the risk of making your offer more complicated and less appealing to the seller!

Mortgage Process

The process for getting a mortgage can sometimes feel a bit daunting, but it doesn’t have to be. It will be important to connect with a great lending institution, or a mortgage broker.

If you go directly through a lending institution, such as Quicken, much of the work can easily be done on line and with limited hassle. If you have a unique situation, you may benefit from going to a mortgage broker, who will have access to different programs that may better suit your needs.

Another option growing in popularity for all the right reasons is homeowner financing, this route can save you a ton of money and can earn the seller additional income from the interest that they would earn over the life of the loan, it’s a win-win situation and can be the thing that wins you the accepted bid!

Which ever route you take to obtain money for the purchase, there will likely be costs involved, we will try to highlight some of those costs, so they are not a surprise to you and so that you can move forward through the deal understanding all that is going on.

Lenders Fees

• Application. The bank will charge an application fee to apply for the loan.
• Origination Charges. This is a fee that the lender or mortgage broker shares for processing the loan, underwriting, funding and other administrative services.
• Credit Report. The bank will likely charge the buyer to run their credit report.
• Appraisal. This charge, imposed by the bank, will cover the cost for a third party appraisal fee.
• Title Fee’s. There are several!
• Flood Certification. Paid to a third party to determine if the property is located in a flood zone and if there is a need for flood insurance.
• Pre-Paid Costs (Also called Escrow). This money is charged to the purchaser at settlement and then held in an escrow account on behalf of the purchaser. The lender will allocate the funds to the appropriate parties at the time it is needed. (i.e. they will make your property tax payment and insurance payments for you. This account is where they will draw the funds to pay those bills)
• Recording Fees. This charge depends on the transaction and/or purchase price – it is charged to both the seller and they buyer for recording the sale in county records.
• Mortgage Tax. $0.50 cents per $100 of the mortgage obligation. New York State imposes a tax on the privilege of recording mortgage on trial property located within the state.