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6 keys to happy home-buying

A friend was buying a house. The closing date was a few weeks away. His parents were visiting from out of state, and he wanted them to see the inside of the house. His real estate agent called the seller on Thanksgiving morning to ask permission. The seller was so annoyed to be called on a holiday that she threatened to cancel the sale.

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My buddy wanted to placate the seller. "I'm a personable guy," he told his agent. "I can clear this up." He asked for the seller's unlisted phone number.

The agent convinced him (correctly) that this was a bad idea. The seller calmed down and the mini-crisis withered away.

The moral of this story is that you should trust the judgment of a competent real-estate agent. My friend's agent goofed by calling on Thanksgiving, but otherwise she was capable. She displayed good judgment when she refused to give out the seller's phone number, averting a possible personality clash that could have scuttled the sale.

There are other do's and don'ts for getting a mortgage and for buying and selling a house. Here are a few of them, expressed as New Year's resolutions for 2003:

When buying a house, I will watch what I say to "my" real estate agent.
Know who your agent works for. The agent works for the seller, unless your agent has signed a contract (called a buyer agency agreement) that specifies that he or she works exclusively for the buyer. These contracts are popular, and you can confide in a buyer's agent who has signed such an agreement.

Without a buyer agency agreement, the agent you deal with ultimately works on the seller's behalf. If you say something like, "We would be willing to pay $260,000, but we'll offer $240,000," a seller's agent is obligated to pass along that information.

I will check my credit report before getting a mortgage.
When you plan to buy a house or refinance, the first thing to do is check your credit report for errors, so you'll have plenty of time to fix any mistakes.

Credit reporting errors take many forms: Your report might say that you have declared bankruptcy, when in fact someone else with the same name filed for bankruptcy. It might list closed accounts as open. It might omit a credit card account that you have been paying on time. It might say falsely you're late in your payments.

Derogatory, but wrong, information on your credit report can cost time and money when you're getting a mortgage. If you find out about it too late, you might have to delay the closing while the errors are fixed. Or you might end up paying a higher interest rate than you deserve.

When I buy a house, I will not buy or lease a car, or charge up my credit cards, between making the offer and closing on the mortgage.
The mortgage lender doesn't want your monthly debt payments (for everything from credit cards to auto payments to student loans) to exceed a certain percentage of your monthly income. The lender will check your credit report just before closing, and if you have added lots of new debt since you applied for the home loan, you suddenly might not qualify. Wait until the mortgage closes before assuming new debt.

I will count the cost of taxes, insurance, repairs and maintenance into the home-buying equation.
A rough rule of thumb goes like this: Figure out how much the mortgage's principal and interest will cost each month, and assume that taxes, insurance, repairs and maintenance will cost about the same. Keep this in mind and you're less likely to buy more house than you can afford.

I will save for repairs and maintenance.
Let's say you will need to re-do your kitchen in five years, at a cost of $5,000. If you set aside $80.50 a month in a money market account paying 1.4 percent interest compounded daily, you will have $5,000 in five years.

On the other hand, let's say you don't save any money. Five years from now, you charge the kitchen work to a credit card with a 10 percent interest rate. If you pay off that debt in five years, it will cost $106 a month and you will end up paying $1,374 in interest.

In this example, you save $25.50 a month by setting aside money beforehand instead of charging the kitchen work to a credit card. That's the difference between earning interest and paying interest.

I will contact my loan servicer before taking steps to get rid of private mortgage insurance.
If you get a mortgage for more than 80 percent of the home's price, you will pay for private mortgage insurance. You keep paying for the insurance until your equity exceeds 20 percent of the home's value.

There are ways to stop paying for PMI early. You can pay a lump sum to your lender to bring your equity to more than 20 percent. That method usually works. Or you can have your house re-appraised at a higher value, thus increasing your equity. That method often does not work. The rules governing PMI are complex, so you should contact your lender first to find out if your PMI cancellation scheme will pass muster.

-- Posted: Dec. 26, 2002




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