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Old 06-09-2005, 04:37 PM
Brian Carlton Brian Carlton is offline
Join Date: May 2002
Location: Blue Point, NY
Posts: 25,396
I've owned 12 houses over the years and have had my share of experiences with real estate brokers and the purchasing process.

The first thing you must do is to get a sense of value in the area that you are looking. This must be a rather confined area, because values can change significantly if you travel five miles one way or the other. While you can look in multiple areas, getting educated in valuations is difficult, especially when you don't live nearby.

If you find a house that you are very interested in, you can make an offer instantly. Have no fear in this regard. Simply put the following on the offer:
"Subject to approval by the buyer's attorney". This allows you to exit the deal at any time in the future, however, it ties up the seller until you can get to a formal contract. You leave $100. with the real estate broker, and, if the offer is accepted, the seller is tied up until you decide what to do. You can go forward to a formal contract, or you can get an engineer to go through the house to pick up things that it needs that you might not notice. In any case, the ball is in your court. If something comes up that you don't like, your attorney simpy rejects the deal for you and you are out.

Since you don't show much income on a W2 statement or a tax return, you will probably have to go with a "no income check" loan. While they will check your credit, the interest rate and terms are not quite as onerous as a "no-doc" loan. On the no-doc loan, they basically check nothing and allow 25% down payment to cover themselves. I believe that you can get a no income check loan with 20% down.

Be careful regarding the points on the loan. They can add up fast and cost you a bunch of money up front. You must decide how long you will be in the house. If you will stay there for 7 years or more, it does pay you, in the long run, to buy down the interest rate on the loan by paying more points, up front, provide you have the cash. A typical loan of 6.5% may drop to 6.25% with two points and would drop to 6% with four points. Again, if you plan to stay in the house for longer than 7 years, it is to your advantage to pay the points up front.

When comparing lenders, watch what they call "points". Sometimes points are hidden in things called "origination fees" or "loan fees". Be absolutely sure you know all the fees that the bank wants to charge you, BEFORE you plunk down the application fee for the loan (non-refundable for any reason).

One additional way to conserve cash, is to pay the full asking price for the house, but have a clause where the seller contributes "up to $5,000" to pay for closing costs. Since your closing costs will be more than $5K, you have effectively borrowed another $4K from the lender for your closing costs. This tactic can be pushed up to about $7K, but, you run the risk of the appraisal coming in too low. While this rarely happens, especially if you find a the house at an attractive price, it will cause you to need more money to complete the purchase.

Rather then write a documentary on here, just e-mail me with any questions or issues that arise. I've probably been there and done that.
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