Buying a home doesn't have to mean mountains of paperwork, costly inspection surprises, and days filled with worry.
Hoping to take advantage of the rebounding housing market, Colleen Chance-Chelf and her husband, Ron, listed their Fishers home last spring and were thrilled when they received an offer just 19 days later. After more than a year of driving a twice-daily, 45-minute commute from her home to work in Speedway, the Angie’s List members could finally move to Marion County and she could reduce the amount of time she spent on the road.
With no new home yet on the horizon, the couple quickly accommodated the buyer’s request for a July closing date, hoping they’d find a home to move into when the time came. Sure enough, before July 31, Colleen says they found the home of their dreams near 86th Street and Ditch Road on the city’s Northside. Tons of updates, including new flooring and fixtures, made the home move-in ready. “But it came to 10 days before closing [the home we were selling], and I got a call from my Realtor and she said, ‘Well, the gal buying your house decided to refinance her truck.’ And I said, ‘What does that mean?’”
Colleen says her agent, Heather Upton of A-rated Keller Williams Realty in Indianapolis, explained that the financial move lowered the buyer’s credit rating and negated her loan, ultimately derailing the entire sale. The buyer’s messy finances, Colleen adds, forced she and her husband to forego making an offer on the dream home. They also had to place their house back on the market, and Colleen says she had to continue her long daily commute: “We were back to square one.”
Even in perfect conditions, buying and selling a home involves a ton of stress, with money, time and peace of mind all on the line. Would-be buyers who scramble to provide voluminous documentation to secure financing can quickly uncover imperfections that could prove costly later, and review and negotiate terms — all before inking a deal. And as of January, homebuyers must now meet more stringent federal regulations prior to purchase.
To make a closing go as smoothly as possible, housing experts recommend those in the market for a new home look to partner with trusted professionals, from a real estate agent and lender to a home inspector and title agent, all of whom should advocate for their best interests to avoid closing calamities.
FINANCES: SECURE PRE-APPROVAL
Buyers should first take a harsh, critical look at their own financial health, highly rated providers and experts say, and then seek pre-approval for a home loan through a bank or mortgage professional before touring a single home. “The worst thing for a seller is if the pre-approval integrity of the buyer is so bad that the buyer goes away,” says Kristie Smith, Realtor with A-rated Indy Homes Team on Indianapolis’ Northeastside, explaining how a seller doesn’t want to waste time on a buyer who’s not qualified to buy their home. The seller’s Realtor also should make sure the buyer hires a qualified lender.
“The loan officer who gives out the pre-approval, they are really salespeople,” Smith says. “They are not underwriters, per se. They want to get a sale, get a customer and get lots of them.” In other words, Smith says, those loan officers aren’t concerned about the longterm health and viability of a buyer’s purchase, or their ability to sustain payments on that purchase, but instead are only interested in approving a loan, then moving on to the next customer.
Cathy Strawn, president of A-rated First Mortgage of Indiana in Indianapolis, agrees. “With some lenders it’s not about the customers, it’s about the number of transactions they are doing,” she says, adding that drive for quantity over quality isn’t limited to lenders. “Like any industry, there are Realtors out there who are about numbers. Buyers need to align themselves with someone who will be concerned about you as a buyer.”
Experts say in all aspects of the deal, from real estate agents to lenders to inspectors, would-be buyers should employ strategies useful when hiring any professional service: check references, check licensing, interview prospective providers, and know the best advocate for your deal will likely be one who won’t just tell you things you want to hear, but instead tells you even uncomfortable truths that you as the buyer need to know.
That may be even more important because of the recent federal regulations, says Rod Alba, vice president and senior counsel of mortgage policy for the American Bankers Association. A further rollout of the 2010 Dodd-Frank Act, these new provisions take away much of the autonomy lenders may have had for borrowers relative to debt ratio, Alba says.
For instance, a hometown banker who’s had a local customer for years may no longer be able to approve a qualified mortgage for an individual who carries debt that totals above an estimated 43 percent, Alba says. That may seem high for some, but for business owners, farmers, or those who own multiple homes, the new regulations could force them to pursue more expensive, unprotected mortgages that fall outside the bounds of the qualified mortgages guarded under Dodd-Frank. Qualified mortgages are less likely to fail, because the length of the loans can’t exceed 30 years, and borrower’s fees paid on the loans can’t exceed 3 percent.
“The days of someone just saying, ‘Harry, go out and buy your house, you’re going to be pre-approved, I’ll take care of you,’ [are] gone,” adds Don Frommeyer, vice president of Amtrust Mortgage Funding in Carmel and president of the National Association of Mortgage Professionals.
The plus side to the more stringent requirements and documentation, Alba says, is the certainty that borrowers will get earlier in the process. “You’re going to know way before closing what’s going on with your loan,” he says. “Given the new regulations, you won’t necessarily have any surprises at closing.”
The key to a successful experience, highly rated providers say, lies in proper preparation. Whether buying or selling, they say it’s best to hire client-focused, experienced pros to help navigate the complicated closing waters. Start with a critical, thorough, personal financial investigation, Frommeyer says. “If you’re looking to buy a house [in the next year], you need to start getting everything in order today.”
Look at credit scores and fix any discrepancies or errors well in advance of the mortgage procurement time, because that score affects the type of loan available, thereby affecting the size of the down payment that you’ll need to pay. Additionally, he says, don’t make any major purchases after applying for a home loan. “One of the things we do is stress to the customer — don’t buy anything, don’t do anything, wait until after you buy the house,” Frommeyer says.
REAL ESTATE: HIRE A BUYER’S AGENT
Once financing’s secured, interview real estate agents who can offer expertise throughout the process. Mike Puckett, Realtor with A-rated Sycamore Group Realtors in Indianapolis, says a good agent should ask questions and raise concerns about things a buyer may not consider. “I don’t want someone to get into their house if they can’t afford it, or I don’t want them to get into a house that they can’t resell,” Puckett says.
Advocating for a client doesn’t mean creating an adversarial situation with the other party, says Indy Homes Team’s Smith. “You want an agent whose philosophy is win/win, even in negotiations,” she says. Buyers need to think in terms of hiring a consultant, she adds. “You’re looking for a negotiator. You’re looking for a strategic partner. Think about it no different than if you’re hiring a financial planner or attorney,” Smith says. “I’m not a home-showing service. My job is to be a consultant for these people, to protect their money, their investment, their future investment.”
HOME INSPECTOR: DON’T OVERLOOK VITAL ROLE
The consulting doesn’t end with the lender or real estate agent. Finding a trusted home inspector to thoroughly check a home is a critical component of the initial home inspection process, experts say. “Buyers need to be aware that there is no such thing as a perfect house,” says Rob Rehm of A-rated BPG Property Inspections in Fishers. “That’s what I try to do — educate my clients. Even brand-new homes have things wrong with them.”
Rehm describes his work as home forensics. “What we are going to do is … find pieces of the puzzle and get an idea of what’s happening,” he says, adding that cracks in brick, or in brick veneer, don’t always mean that you have a major problem or major foundation issue. “You need to look at other pieces of the puzzle. You need to go down in the basement or into the crawl space. It could be that you’ve got brick ties that have rusted.” The difference in those diagnoses could mean the difference between a successful home closing and a failed one, he says. Rehm recommends giving inspectors at least a week to get the job done, in order to build in enough time for any repair work.
The inspection that occurs just prior to closing is just as important, says John Kidwell, owner of A-rated Kidwell Home Inspection in Indianapolis. “I’m one of these trust-but-verify guys,” he says. “I tell my clients, if they don’t have me come out and re-inspect everything, then at least make sure you have receipts and bills to make sure work was done.”
He also encourages buyers to be honest with themselves about their home repair skill abilities. “Don’t watch HGTV, because you think you can do a whole kitchen renovation in 30 minutes,” Kidwell says. “And you’re not going to spend $50,000 and bring a house up to code.”
Trust the inspector, Kidwell says, and trust your real estate agent. Carolyn Ruml says those partnerships play a critical role, especially when things go bad. The Greenwood member says it took more than a year for her to finally get into the home she ultimately bought. The initial deal, she says, fell through because the house was in foreclosure and tracking down the home’s owner, which ended up being the Veterans Administration, took longer and was much harder than she or her real estate agent anticipated. Ruml walked away once, but came back to the home she loved and was eager to move in after her November 2012 scheduled closing.
But the closing date came and went without Ruml taking possession of the property because, she says, the seller’s representatives simply didn’t show up to the appointment. After dozens of calls, Ruml says her real estate agent, Fletcher Daly, learned the delay resulted from the seller’s documentation and loan problems. Another date was set for one month later, and luckily, Ruml says, she didn’t have to pay for another set of closing documents. Despite the difficulties encountered, Ruml says she’s happy to be in her home. “It was crazy, but … this is my first house,” she says. “I learned a lot. That’s one of the things I’m grateful for. That experience has served my friends well.”
When her first closing fell through, Colleen Chance-Chelf estimates she spent about $3,000 on the cost of new closing documents and completing repairs on a few new home inspection checklist items, plus the ongoing cost of her long commute. She says she’s learned a valuable lesson.
“After the first fiasco, we told our Realtor we won’t consider offers unless they are pre-approved, and they need to get their act together in three days or we wouldn’t even consider [an offer],” she says. “I look at things as learning experiences. If I can help someone else, then it’s made it worth it to me. My experience, as horrible as it was, if what I say can help someone, then it’s been worth it.”B
— Additional reporting by Michael Schroeder