HOW BARGAIN-HUNTING CAN BACKFIRE ON HOME BUYERS

It's natural to want to save money when you're making a purchase as large as a home. You want to buy the best hom

e in the best neighborhood at the best price, and you may think the only way to accomplish your goals is to look for bargains. So instead of hiring a real estate agent, you scour the market for FSBOs, short sales, foreclosures, or homes that have been on the Internet too long.

While you're bargain-hunting, here are five things you should keep in mind:

Low-balling sellers doesn't work.

They don't waste time with low-ball offers that they find insulting. Just as you want the home you buy to appreciate in value, sellers purchased their homes as investments, too. They want to net as much as possible, because they took a financial risk and had the foresight to buy the home they chose.

This sense of entitlement -- that homes should only be sold at a profit - may cause them to overprice their homes or be less willing to negotiate. You'll feel the same way when it comes time for you to sell your home, so make your offer reasonably and respectfully. Show the comparables that led you to make the offer. Be open to compromise.

Other buyers are getting professional help.

Ninety percent of buyers use a real estate agent while you're spinning your wheels driving around neighborhoods and calling FSBO sellers who aren't home to take your call. Soon, you'll notice that the homes you're watching are going under contract with other buyers.

True bargains are rare.

Sometimes a distressed home will impact the prices of the other homes because they typically sell at a discount of 17 percent, according to the National Association of Realtors. The other sellers may discount their homes somewhat, but if they're not in distress, don't expect them to negotiate as if they are. A bank foreclosure or bank-approved short sale could take months to close.

If a home has been on the market for a long time without a price reduction, there's usually a good reason. You have an unmotivated, unrealistic, or upside-down seller, any of which could waste your time without resulting in a purchase. Move on to a deal that you can actually make.

The home needs work.

Sometimes a home will be marketed "as is," which suggests that it needs a lot of work. Or, a home may be well maintained, but it's so out of date it looks like a vintage sit-com set. You could be looking at a money pit.

Are you willing to perform the work or pay someone else to do the work? Before you buy, get a home inspection and then get bids from contractors who can help you bring the home up to today's standards. If the purchase price and repairs come to approximately the same price as an updated home in the same area, then go for it.

It's not a bargain if it doesn't suit your needs.

A home is a good buy only if it suits your family's needs for space, features, comfort, and function. If you buy a home without enough bedrooms or baths, you'll pay more in transaction costs to sell the home and buy another that's more suitable. Choose wisely in the first place because it takes time to build equity. Your home should meet your needs for a long time.

A Comprehensive Market Analysis Is Not An Appraisal

As part of the home buying process, your real estate agent

may create a comprehensive market analysis or CMA. Later, when you apply for a mortgage, a bank appraisal is conducted by a licensed appraiser. Are CMAs and appraisals the same thing?

While both CMAs and appraisals help determine a home's market value, their purposes are not the same. The CMA is a sales tool to help you find an offer price for the home you want to buy. The homes in the CMA include the home you want to buy plus similar nearby homes. This helps you see how the home you want compares to other homes so you have an idea what to offer.

A real estate professional may prepare a CMA for their sellers to help them choose a listing price. The CMA includes recently sold homes and homes for sale in the seller's neighborhood that are most similar to the seller's home in appearance, features, and general price range.

Although the CMA is used to help determine current market value, the seller's home is typically not even featured in the CMA. The CMA is merely a guide to help the seller learn what's happening in their local market, so they can better understand where their home fits in term of price ranges, based on location, features, size, condition and other factors.

The CMA offers the same advantages to you as a buyer. They help you better understand the local market. You can expand the search and get different results in a CMA simply by changing the zip code or the price range or the number of bedrooms and baths.

Appraisals are all about risk retention for banks and their customers. If the buyer is receiving financing through a bank, the bank will order an appraisal.

Unlike the CMA, a bank appraisal is a professional determination of a home's value. It's performed by a licensed appraiser, using guidelines established by the Federal Housing Finance Agency, which regulates federal housing loan guarantors such as FHA, VA and housing loan purchasers Fannie Mae and Freddie Mac.

An appraisal is a comprehensive look at a home's location, condition, and eligibility for federal guarantees. For example, the home you want may have porch steps but no handrail. If you want to buy the home with an FHA or VA-insured loan, your seller will have to repair or install a handrail. The FHA or VA appraiser will look at the home a second time to make sure the steps were made safe.

Appraisers use the same data in their market research to find comparable homes as Realtors do. They are also members of the MLS, but they have additional guidelines from the bank to follow to minimize risk to the bank and to the borrower. If home prices are falling, the appraiser takes the number of days a home has been on the market far more seriously.

When the appraisal is finished, the bank makes the decision to fund the loan, or it may require the seller to fix certain items and show proof that the repairs have been made before letting the loan proceed. If the loan doesn't meet federal lending guidelines, the bank will decline the loan.

Despite stricter lending and appraisal standards, most buyers' loan applications go through to closing. One reason the system works so well is that real estate agents are preparing CMAs that are better tuned to lending standards as well as market conditions. As a buyer, it's in your best interest to understand how lenders approach risk and to learn what the market is doing.

Simply put, you need both a CMA and an appraisal to determine market value. A CMA helps you decide what you should offer the seller. An appraisal determines what the lender is willing to lend to help you purchase a home.

6 GREAT REASONS TO BUY A HOME RIGHT NOW

To take advantage of near-record low mortgage interest rates and home prices undervalued by as much as three percent nationwide, now is a great time to buy a home.

You've already missed the bottom of the market, but that doesn't mean there aren't great buys to be had out there. Your community may not have appreciated as quickly as some of the big metro areas have recently. Your boom may yet come.

To begin with, the economy is growing. From information gathered on or before August 22, 2014, the Federal Reserve's "Beige Book" report found economic activity is up in all eight national districts, including consumer spending, freight loads for deliveries of goods, and more.

But there are even better reasons to buy a home right now. Here are just a few:

More jobs are available

The Labor Department announced that the jobless rate is now below six percent. Consider how far the job market has come since January 2010 when unemployment was 9.7 percent.

Houses hedge against inflation

The Consumer Price for All Urban Consumers is up 1.7% from August 2013 to August 2014, excluding volatile food and gas prices. The food index has risen 2.7 percent over the span, while the energy index has increased 0.4 percent. This is the first month that the index hasn't risen since 2010.

Why is that good for homeowners? Even in a tepid inflationary environment, when prices rise, a major asset such as a home, purchased at a fixed cost, becomes more valuable. Typically, in an inflationary environment, housing prices rise.

Housing price gains are slowing

The median existing-home price in August was $219,800, which is 4.8 percent higher than home prices in August 2013. This marks the 30th consecutive month of year-over-year price gains. In 2013, home prices rose in the double digits.

Mortgage interest rates are still low

According to Freddie Mac's archives, the lowest that mortgage interest rates have been in modern history (since 1971) was in November and December 2012 at 3.35 percent with 0.7 points for a benchmark 30-year, fixed-rate loan, and that was back in 2012 before the housing recovery began in earnest. The most recent Freddie Mac survey found national averages at 4.16 percent with .05 percent points in September 2014.

                                

Pent-up demand ready to release

Household formation has been muted since the Great Recession, preventing as many as 2.5 million people from forming households who otherwise would have. Economists with Harvard's Center for Joint Housing Studies predict that annual U.S. housing starts should average 1.4 to 1.5 million over the coming decade. Considering that the largest generation ever –81 million Echo Boomers -- are well into renting and homebuying age, the numbers should be closer to the 2.3% annual growth of the 1970's, when 78 million Baby Boomers reached adulthood.

Buy VS rent ratios favor homeownership

Trulia, a real estate marketplace and research group announced that nationally, rents rose 6.5% year-over-year in September 2014. Apartment rents were up 6.9%, while single-family home rents gained 5.2%. At the same time, housing prices have leveled off.

The takeaway

A housing market never remains even. There are always surges and dips. Buyers could wait for better market conditions, but the present alignment of low mortgage interest rates, slowing home prices, rising rents and pent-up demand add up to great reasons to buy a home right now.

10 WAYS TO GET THE HOME YOU WANT

Rates may soon rising, banks are still operating under tight lending conditions, inventory is shrinking, and competition for well-priced homes, especially in the first-time buyer range, is fierce. Are you being shut out of the real estate market?

With some advise from Real Estate at MSN.com,  here are 10 ways to improve your chances of getting in the market and getting the home you want.

1. Know what to expect from the process

No two real estate transactions are exactly the same, but buyers who have an idea of how things work will have a leg up. "Buying your first home is one of the most important decisions of your life," said MSN. "Yet most people lack in-depth knowledge of the process." Working with an agent you can trust is key. And while you might be tempted to use the lady down the street who just got her license or your brother-in-law's cousin's stepbrother, your best bet is to ask for referrals from your core group and interview a few. After all, there are hundreds of thousands of dollars and the American dream at stake.

2. Know the market

In real estate, things can change quickly. Make sure you keep up on what's happening with mortgage rates as well as home sales and prices in your target neighborhood. You'll also want to know if any homes are in default - this will shed some light on neighborhood stability, and may also uncover a great real estate deal for you.

3. Know your neighborhood

That abandoned house on the corner might be a great deal, but as for neighborhood charm…well, how do you feel about a real-life Breaking Bad situation going on across the street? You don't want to end up on the news as a witness to a drive by, so make sure you consider more than price when narrowing down neighborhoods. How are the schools? Great Schools can give you some insight, but you'll also to simply ask those who live in the area. If you don't know anyone, reaching out to your contacts through social media is a good way to make use of your extended network. You'll also want info on area crime rates, which your agent should be able to provide. The local police department can also give you some information. Finally, you'll want to check registered sex offenders in the area, which you can do on a site like Family Watchdog.

4. Know your credit score

Minimum scores needed to qualify for a mortgage vary depending on the type of loan, the lender, the going rates, the amount of money you are putting down…it's a complicated equation your lender can help explain. For an FHA loan, which is what many first-time buyers use because of the more relaxed requirements, buyers typically need a "minimum FICO score of 580 to qualify for the low down payment advantage, which is currently at around 3.5 percent," said FHA. Buyers should know that a score that low in combination with the minimum down payment may result in a more complicated loan approval process and a higher rate. And "borrowers need, in general for a conventional mortgage, a minimum FICO score of about 650,. Remember, the higher your credit score, the lower your mortgage interest rate will be.

5. Know how much it really costs to buy a house

Down payments are one thing. Have you factored in any upfront fees you are expected to pay? Your earnest moneyrequired to show the seller good faith? How about your closing costs? These will vary depending on your lender and your loan, but closing costs are usually between three and five percent of your loan amount, which can be a hefty and sometimes unexpected output of cash on top of everything else you just paid. For a detailed breakdown of FHA closing costs, click here.

6. Know how much you can afford

And stick to it, even if it's tough to find a house you like. Busting your budget won't pay off in the end if it's a constant struggle to keep up with your mortgage payments. "The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary," said CNN Money. "But you'll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford."

7. Know how monthly payments really work

About those calculators…many real estate sites and online calculators calculate principal and interest only, but as a homeowner, you will also pay insurance and taxes. If you put less than 20 percent down, you will also have to add in private mortgage insurance. And if you are in a planned community, you need to account for homeowners association (HOA) dues as well. Make sure you ask your agent about HOA fees, and ask your lender to do a calculation including everything you will pay on a monthly basis. You can also try this one.

8. Know how to win friends and influence people

Nothing tests the patience like losing out on the home you've fallen in love with (unless it's losing out on 2 or 3 or 10 - hey, it's tough out there for a first-time buyer.)  A good agent should be able to reach out to his or her network to potentially find you a home that is not currently on the market or help you stand apart. But you can also take it into your own hands! Try a little tenderness, and you just might get ahead. After all, not EVERYTHING is about the bottom line. "To stand out from the pack, an increasing number of buyers are taking the old-fashioned approach and penning a love letter to sellers telling them what they adore about the house and why they are the best suitor to end up with it," said MSN. Sometimes, all it takes is a little something extra to take you from frustrated homebuyer to happy homeowner, and making a personal connection with a seller who may be overwhelmed with offers can only help.

9. Know how to play hardball

Is somebody who's working for you under performing instead of over-delivering? Go back to that whole "working for you" thing. If you remember that your realtor, your lender, and your title company are all there to help you - but they're being paid to do so - it'll be easier to have a tough conversation if and when necessary.

10. Know when to cut and run - and how

An inexperienced, overly busy/inattentive, unethical or abusive agent or lender can turn what should be a joyous experience into a disaster. If you reach the point where it's time to move on, heed this advice from MSN: "Once you're ready to break up with your agent, make sure you have this dissolution in writing. That protects you from paying unnecessary commission and keeps the agent from continuing to work on your behalf after you've moved on. Make sure you have the agent revise a contract of representation if you signed one to make it clear that the relationship has been cancelled."