Give Yourself The Gift Of Home This Holiday Season
Kevin Graham9-minute read
December 22, 2021
Everyone has their own holiday traditions. My favorite memories involve Christmas Eve with my dad’s family. Before we would open gifts, my aunt would quiz me on the latest Barbie dolls or whatever other odd topic she thought she could make me playfully uncomfortable with. Christmas Day was spent with my mom’s family and my grandpa had the coolest train set going around the tree.
Whatever you do, the best part of the holidays is always spending time with family. Home is the place where many of these memories are made. If you love your family, but you can use space for the next big gathering, maybe it’s time to consider giving yourself a present that will pay off well into the future.
We’ll spend the rest of this post discussing what you need to know if you’re thinking of buying a home for the holidays. And because it’s that time of year, fair warning that I plan to sweeten things up with a fair amount of holiday cheer.
Set A Realistic Budget
When I reached my teenage years, I liked getting tech gifts, but of course those are more expensive. Before determining which hunk of plastic that will be outdated within 2 years you should buy, it’s important to make sure you know how much you have to spend.
Although things like phones grow ever more expensive, obviously buying a home represents a gigantic financial transaction on an entirely different level. But the same rules of budgeting apply.
The single most important thing you can do is take a look at the money you have coming in and make a list of your expenses. Think about the monthly mortgage payment you would be comfortable having while still maintaining an emergency fund and the little things you like to do that make life worth living.
It’s important that you do this because when it comes time to be preapproved, it’s a simple mathematical equation for lenders. They determine the maximum you can afford, which may not always be what’s comfortable. Ideally, you want your budget to be as comfy as an evening by the fire.
A mortgage preapproval will tell you exactly how much you can afford to spend. Just be sure you know what you’re getting. Occasionally, lenders and others will make the mistake of using the terms “prequalification” and “preapproval” interchangeably. They don’t mean the same thing.
In a prequalification, a lender will ask you about your credit score, assets you want to use toward your mortgage and your income. Because nothing is verified, the best way to think of this is that it gives you a good estimate of what you might be able to afford. We call this a Prequalified Approval. While it’s nice to have, it doesn’t really mean anything if nothing is verified.
We recommend all of our clients get a Verified Approval.1 We start by doing a credit check. We then verify income and assets that you have through documents like bank statements, W-2s, 1099s, pay stubs and tax returns.
Beyond knowing exactly what you can afford, Verified Approvals are stronger in the eyes of sellers because they know that your documentation is verified and you can afford to pay what you’re offering. You can also change the amount showing on your Approval Letter up to your full approval amount so you can make a lower offer without the seller knowing exactly what you’re approved for.
Make A List And Check It Twice
Santa may have wanted to know whether children were naughty or nice, but when it comes to home shopping, you’ll want to make your own list of needs and things that are nice to have, but not entirely necessary. Inventory is limited in many areas of the country. You may not be able to get a home that has everything you want, but you may find what you need. (OK, holiday and maybe one Rolling Stones reference!)
If you’ve got kids and are outgrowing your home, maybe the number of bedrooms is a must, but you don’t bake very often, so you don’t need updated appliances for homemade pumpkin pie. Maybe you need a two-car garage – whether it’s for your hippopotamus or a Camaro – but you don’t need a finished basement.
Writing down what you need right away and what you might be able to add later is very helpful, particularly if you’re looking to find something in a certain time frame on a certain budget.
Find A Real Estate Agent
A good agent is like Rudolph. They can light the way in terms of finding the right home for you as you’re going down the dark wormhole that is scouring an endless barrage of real estate listings.
The relationship between a buyer and their real estate agent is important because this person plays a key role in finding a home that checks many of the boxes on your list and negotiating for it on your behalf. There are many questions you can ask your real estate agent to see if they might be a good fit.
If you’re looking for a good agent and don’t know where to start, our friends at Rocket HomesSM 2 can help. They work to match you with a real estate agent who can find homes in your price range that meet your preferences in terms of features.
Make An Offer
Once you find the perfect home for your tree, menorah, kinara or Festivus pole, it’s time to make an offer. There’s an art to this because you don’t want to overpay, but you want to give yourself a good chance of having your offer accepted. Your real estate agent will be able to give you guidance in this area.
While money is a big concern in any purchase, it’s not the only one. Sellers value certainty. One of the ways you can increase your chances of your offer being accepted is to have flexibility around contingencies.
Although you’re required to get an appraisal if you’re buying a home with a mortgage, you might waive an appraisal contingency in a hot market so that the seller knows you’re bringing the difference between the appraised price and the agreed-upon sale price to the closing table. We’ll get into why you might keep that appraisal contingency a little later on.
Sometimes it’s not about giving something up so much as it is being flexible. If the sellers would prefer you wait to move in until after the new year, you can set yourself apart by showing this level of flexibility. The same goes if they want you to move in faster, so they can get into their new home before the holidays.
Home As A Present
One way home can really be a present is if relatives contribute to your down payment. FHA loans offer even a little bit more flexibility in that the gift funds can come from a charitable organization, an employer or even a close friend.
In general, if you’re buying a single-unit primary property, there’s no minimum contribution required from you, so your entire down payment can come in the form of a gift. If you have a multi-unit property you want to buy or it’s a second home, you may have a minimum contribution depending on the amount of the down payment.
If you’re buying a property from a relative and they’re giving you a discount compared to what they could get on the open market, the amount of that discount can go toward your down payment. This is an alternative to providing gift funds in situations where the seller is related.
There are a couple of stipulations here. You can’t use gift funds or a gift of equity on an investment property. Additionally, gifts of equity cannot be given on loans backed by the VA. Finally, the seller must write a gift letter stating that the funds don’t have to be paid back.
If there’s one thing that’s equivalent to getting coal in your stocking during the home buying process, it’s having an appraisal come back lower than what you offered. Let’s go over what this Grinch looks like and how to avoid it.
If you’re buying a home with a mortgage, you’re required to get an appraisal. Your home is used as collateral for your loan, so the lender can’t give you more than it’s worth. They also check for some basic safety issues, although this isn’t as thorough as a formal home inspection.
If after reviewing your property and comparables the appraiser finds that your home is worth less than the price in your purchase agreement, you really have three choices:
- Renegotiate with the seller: You can rework your agreement with the seller. In the best possible scenario, the seller lowers the price to match the appraised value, but it could also be somewhere in between the two.
- Bring the difference to closing: Whether it’s the purchase price or some number in the middle, you can bring the difference between your loan amount and the final agreed-upon value to the closing table. If you choose to do this, just be aware that you’ll also have to bring the down payment for the lender and your other closing costs as well, so be sure to budget.
- Walk away: If the seller refuses to renegotiate and you can’t or don’t want to come up with the difference, you can always walk away. The only caution here is that if you don’t have an appraisal contingency, you may lose your earnest money deposit.
Another item that can chill your hot chocolate as a home buyer is a bad home inspection. The worst thing that can happen is to buy a home to find that it immediately needs thousands of dollars’ worth of work. For this reason, it’s a good idea for every home buyer to get a thorough home inspection of the structure and systems within their new home.
Many issues are minor in nature, but you can have an inspection contingency that specifies major issues for which you can back out of the deal and retain your deposit. Examples might be limited life on a roof that the seller won’t replace or foundation issues.
Closing The Deal
Beyond these items, there are a few things buyers need to take care of before closing. As the period for appraisal and inspection is happening, you’ll also be going through final underwriting. Your lender does a final check to make sure you’ve been good (from a financial standpoint) and qualify to get your home. Be sure to promptly return any required documents so that your closing isn’t delayed.
You’ll also need to purchase title insurance so that the lender is indemnified if there are any property disputes down the line. It’s also a good idea to get an owner’s title policy at this point so that your interests are protected as well.
You’ll require a homeowners insurance policy at this point. This protects both you and the lender in the event that there is property damage in the future. Many people get an escrow account so that their property taxes and homeowners insurance bills are spread out over the course of the year. Depending on the type of loan you have and the size of your down payment, an escrow account may be required.
Finally, you bring your closing costs along with your down payment to the settlement and sign paperwork under the careful supervision of a closing agent. Then you get the keys, which are the best gift of all.
Moving day can be stressful, so you may be tempted to fuel up with the four basic food groups of the elves: candy, candy canes, candy corn and syrup. We don’t recommend it, but you do you.
Buying a home is a big deal, but if the time is right, the sense of accomplishment alone will make your first holiday there something you’ll never forget. If now is the time for you, you can apply online or give us a call at (833) 326-6018.
1 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance and appraisal as well as a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.
2 Rocket HomesSM is a registered trademark licensed to Rocket Homes Real Estate LLC. The Rocket Homes Logo is a service mark licensed to Rocket Homes Real Estate LLC. Rocket Homes Real Estate LLC fully supports the principles of the Fair Housing Act. For Rocket Homes Real Estate LLC license numbers, visit RocketHomes.com/license-numbers. California DRE #01804478. Hawaii License # RB-23371. TREC: Information about brokerage services, Consumer protection notice.
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