Day after day I look at the foreclosure report in Clark County and see one home buyer after the other lose their nest egg along with their one shot at home ownership. Boy, if there are losers these are the people. I am not being disrespectful, what I mean is, these people have already lost their down payment and all their mortgage payments, their credit has gone up in smoke and it will take many years, if ever, for them to realize their dream of home ownership.
Why is this happening? Well, I will tell you; the reason is that most people look at buying their Las Vegas home as a singular act and not a process. They think that, looking for and locating a house or condominium for sale in Las Vegas which they believed they could barely afford (evidently NOT), and then signing a couple of contracts is all it takes to own a home. While the new home builders and mortgage companies hire teams of lawyers to write their contracts in ways that protect them, people don’t bother to read the contracts and sign them without reading them first. Why? Because these contracts are in small font, single spaced, long and much of the time written in lawyer-glish, they are brain teasers and repulsive looking, don’t you think that this is by design, and people still fall for it.
I decided to do what I can by publishing my web site Las Vegas Homes Condos and Commercial Real Estate, where I try to teach and avail the necessary tools for perspective home, condo or investment real estate buyers to research their area of interest. What I am trying to do is to divorce people from looking at buying or selling real estate as a single act and start looking at it as a process. I will try to discuss one step per blog entry.
Step 1: Any major decision in life should start with some kind of self examination. In real estate you need to carefully examine your financial situation, and this is before you look at a single property. The best way to do this is by being approved. Getting pre-approved is arranging financing before actually buying a residential property, and you have to do everything that is necessary to finance or refinance your home, except you do it with no time pressure, no listing agent and seller pressure to finance the deal on time. You are not in love with your new home which is in escrow, and have no worries about what happens if the mortgage broker does not come through. Getting approved helps you verify how much you can borrow and with what terms, thus helping you avoid pitfalls which result in unneeded foreclosures and greatly shortens the time to finance your loan.
The other advantage is that in any market, cash is king and being approved is like having cash. Imagine a seller who is under pressure and has the following two offers. Let’s say the asking price is $300,000.
1: Customer one offers 280,000, contingent on financing and applicable inspections, buyer’s approval of CC&RS, etc. The minimum contingency for financing a home from scratch should be about a month. Let’s say that the customer needs a one week margin of error and say the financing contingency is 5 weeks and if all goes well the closing date is to be 45 days from the acceptance of offer.
2: Customer two offers $268,000. Customer two is underwritten approved (the only contingency from their lender is that the property appraises) because we enlightened him /her, and they have us for agents so we can get all the inspections done and the results back within a week.
If the seller already has the CC&RS, It takes the title company about 4-5 days to get us the preliminary title report. There is no reason to not close within a week to 10 days. The only things the seller has to sweat about are the inspection results, appraisal and the preliminary title report.
The seller has to decide which offer to take. On one hand $12,000 is a lot of money and hard to let go, on the other hand, this is a pre-approved buyer. If the seller takes the first buy’s offer and the loan doesn’t go through, the seller has lost 35 days and the second buyer. How many homes or foreclosures will come on the market with more desperate sellers than him/her? What are the chances that he can find another buyer shortly after she/he lists it again?
As you can see, this is not such an easy decision. If I was the seller, I would counter the second buyer for $275,000, but that is just me. What would you do? At any rate, the pre-approved customer has a big advantage which could turn in to thousands of dollars in savings. Customer two did not do anything that customer number one didn’t have to ultimately do; he/she just did it in the right order.
Another thing the prospective home buyers have to keep in mind is the tradeoff between buying your dream home, which you can barely afford and have to possibly get a second job to keep, and a home which you can easily afford but is not your dream home. One does not enjoy a mansion if creditors are ringing the phone off the hook.