Q-My wife and I are just starting the quest for our first home. We saw a newspaper ad for a seminar put on at a local hotel by a buyer’s brokerage, so we went.
It was very informative and well worth the $5 fee. A few days later, we received a phone call from one of the buyer’s agents who works at the firm. She asked if she could show us several houses meeting our requirements on the “dream sheet” we filled out at the seminar.
But we didn’t accept because she wanted us to first sign a six-month exclusive contract with her and pay a $200 advance fee which would be refunded when we buy a home through that agency.
I didn’t like the idea of being tied-up with an agent we don’t even know. What is your opinion of buyer’s agents?
A-Any licensed real estate agent can be a “buyer’s agent” representing the buyer exclusively for a home purchase. It doesn’t have to be an agent working at a brokerage which represents home buyers only.
Since the listing agent represents the home seller, I like the concept of a buyer’s agent representing the buyer’s best interests in the sale. Another advantage is a buyer’s agent can show buyers houses offered for sale directly by their owners who don’t have a listing agent.
In such a situation, the buyer’s agent usually negotiates with the home seller to pay a sales commission of 50 percent of the customary fee. When a buyer’s agent sells the buyer a house listed with another agent, the two agents usually split the commission equally, so using a buyer’s agent doesn’t cost the home buyer anything extra.
However, I don’t like that buyer’s agent trying to get you to sign a six-month contract and pay a $200 advance fee. Signing a 90-day contract with a buyer’s agent, with no advance fee, would be more reasonable for you, just in case the agent turns out to be ineffective.
Q-Thank you for the warning about mortgage brokers who offer to prequalify home buyers for mortgages. As a real estate agent, I have seen many mortgage brokers mislead prospective borrowers to think they are approved for a mortgage.
But sometimes the mortgage brokers just base their prequalifications on looking over a loan application. One time I recall a mortgage broker said my buyers were qualified and he hadn’t even run a credit report on them. I doubted they could get a mortgage because I knew they had bad credit.
However, in the last few months I have had several buyers come to me with mortgage pre-approvals from banks and S&Ls which they obtained through mortgage brokers. Is this something new?
A-Yes. Due to the collapse of home loan refinancing caused by rising interest rates, mortgage lenders are desperate to maintain their record 1993 loan origination volume. To do this, banks and S&Ls are offering mortgage brokers various pre-approval programs for home buyers.
As you know, mortgage brokers are middlemen between borrowers and lenders. They can often perform finance miracles by obtaining mortgages for home buyers who are not perfect borrowers. The best mortgage brokers have contacts with dozens of lenders and can match up virtually any loan applicant with a mortgage lender.
However, since mortgage brokers are not lenders they cannot approve home loans. That’s why I have repeatedly cautioned to watch out for mortgage brokers who tell borrowers they are “prequalified.” That means nothing.
But when a mortgage broker arranges a pre-approval from the ultimate lender, such as a bank or S&L, that is a loan commitment, usually subject to conditions, such as satisfactory appraisal. Also, mortgage bankers who fund their own mortgages can issue pre-approvals.
Q-Which should come first? Should we buy our new house and then sell our old house, or vice versa?
A-Sell your old home first. Then you will know how much cash you will have available to buy a new house. Also, then you will be able to qualify for a new mortgage since you will no longer have the old mortgage obligation.
Another advantage of selling your old home first is you won’t be under pressure to accept the first offer which comes along, knowing you have to sell quickly to raise cash to buy your new home first.
It’s all right to start looking for a new home before selling your old home, but don’t sign any binding contract until the old home is sold.
Q-We missed out on the mortgage refinancing boom. My husband kept saying interest rates would go lower so we waited to refinance our 9.75 percent interest rate mortgage. But then interest rates shot up practically overnight.
After showing my husband one of your articles which said if interest rates go down it’s possible to refinance again, we finally applied for a mortgage. We locked in our interest rate.
Now the lender has offered us a no-cost mortgage if we will pay a one-fourth percent higher interest rate. Is this a good or bad deal?
A-No-cost mortgages can be a good deal, especially for mortgage refinancing. As you discovered, in return for a slightly higher interest rate some mortgage lenders offer so-called no-cost mortgages.
This is important for refinancing since your customary loan fee would have to be deducted over the life of the mortgage even though it is paid at the time of mortgage origination.
Some critics say no-cost mortgages are a bad deal because the borrower is paying the loan costs over the life of the mortgage. This may be true, but with the life of an average mortgage less than seven years, it really isn’t so expensive if the loan is paid off or refinanced in a few years.
Don’t tell the lenders, but no-cost mortgages are a very bad deal for the lenders if the loan gets paid off early.
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Please note: Real estate laws differ from place to place, and laws of your area should be checked before making decisions on real estate problems. Letters should be addressed to Tribune Real Estate Features Service, P.O. Box 280038, San Francisco, Calif. 94128.
