Part of your job as a real estate professional is to help clients keep from stepping in a big, steaming pile of manure. You’re the pro. They’re the amateur. Don’t keep all your hard won knowledge to yourself. Below is an incomplete list of the kinds of issues that might seem so simple as to not be worth discussing. Trust us, the vast majority of buyers arrive at your door with very few clues (and likely a lot of misinformation) about how to proceed.

Don’t Start House Shopping Until You Know What You Can Spend.
It makes no sense to walk into your local grocery store with a long shopping list if you have no idea how much money is in your bank account. Similarly, there is no sense in beginning to seriously look for houses until everyone has some idea of the available budget. With the increased down payment percentage being required by most banks (thanks to the foreclosure mess), it’s vitally important your real estate buyers have enough of a cash down payment to close the deal. Years ago, it wasn’t unusual to find a mortgage requiring only 5%. In your dreams today. Don’t be surprised to find lenders requiring 20% or even as much 25% cash upfront to buy a house. You might be surprised how few home buyers are aware of this recent development. The best solution of all is to procure a pre-qualification letter from the lender before any house hunting commences.

That FHA Appraisal is Intended to Protect the FHA
Since 1934, the Federal Housing Administration (FHA) has been in the business of helping low income Americans afford a house. The problem is that too many consumers think this means the agency will move heaven and earth to accept responsibility for trouble areas like leaky roofs, shaky foundations, or non-functional plumbing systems. While it’s true that the FHA pays for a house appraisal prior to providing financing, this appraisal is for the benefit of the agency, which is putting money into the deal, and NOT for the consumer. A prospective FHA borrower should provide for their own inspection of the premises to establish to their own satisfaction that no surprise maintenance issues are lurking out there. To drive home the last point, FHA last year developed a new form to be signed by all purchasers of existing houses involving an FHA mortgage. The form is entitled: “For Your Protection: Get a Home Inspection”. It says that “FHA does not guarantee the value or condition of your potential new home…” This is why its so important for you, the buyer, to get an independent home inspection.”

Financing Closing Costs
Often a buyer decides he or she wants to finance the closing costs of a real estate transaction. “Closing costs” refers to incidental expenses incurred while buying a house that don’t directly relate to the price of the property. The larger question: Is this a good idea? The answer: It depends. The sometimes overlooked fact is that tacking an additional few thousand dollars onto the loan might raise the interest rate or mortgage insurance for the entire loan. This could be a substantial hike in total amount to be paid back. Trying to explain the nuts and bolts of the numbers behind it all, complete with phrases like “pricing notch point”, might make your client’s eyes glaze over, but he’s liable to thank you some day for saving him thousands of dollars. This short article provides a good summary of how financing closing costs might or might not work in a client’s favor.

Lease Purchase Agreements
Under the present unsettled market conditions, many buyers find they don’t qualify for traditional financing, thus ponder the idea of a lease-purchase agreement. We would never say this is a bad idea in all circumstances, but would suggest that anyone seeking to enter such an arrangement make darn sure they know what they’re signing. Lease purchase agreements operate on the rent-to-own business model, where they buyer puts down a 1% to 5% down payment based on an agreed price, then makes monthly rent payments that are credited towards eventual purchase of the home. But the devil can be in the details. It’s not unusual for a large development company to tilt the contract in their favor by allowing for the eviction of a renter/buyer for a single monthly payment arriving a single day late. This, friends, constitutes a bad agreement and you should counsel your clients not to sign one. This type of agreement is designed to create profits for the company by “churning” through multiple potential buyers, and collecting multiple down payments along the way.

The bottom line is this: keeping the client from shooting himself in the foot is good for your business. Generate trust and there’s a good chance he’ll be back another day, with another deal, and ready to pay you another commission.

The AIPIS Team

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