BUYING A HOME IS ONE OF THE BIGGEST COMMITMENTS one can make, and there are a number of things that may surprise first-time buyers as they navigate the process.
As with other aspects of living in the city, purchasing a house here will present some unique challenges and concerns, but there are local experts who can help even the most clueless figure it out.
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Even the most financially savvy future homeowners should talk to a lender in-person when considering purchasing a house. Georgia Harrington, a senior loan officer at NOLA Lending Group (3197 Richland Ave., Metairie, 504-355-5121; www.nolalending.com), specializes in working with first-time homebuyers.
“One of the most important things is to have your credit straight,” Harrington says. It’s even more important than your annual income, she adds. As a general rule at NOLA Lending, if potential buyers have a credit score of 680 or higher, the process of taking out a loan will be “much smoother.”
Getting a loan
Loan applications are all about “offsetting risks,” she says. While each lending company may come up with its own requirements for approval, companies examine several factors, including a potential homeowner’s savings, income, job longevity, and/or low debt-to-income ratio, which takes into account income and the number of other obligatory monthly expenses. There are a few types of loans out there — most individuals qualify for conventional or Federal Housing Authority (FHA) loans, while veterans can qualify for loans through the U.S. Department of Veterans Affairs. FHA loans are more flexible (and a good option for people with lower credit scores); a conventional loan requires a higher credit score and down payment.
YOU DID IT! In what is perhaps the pinnacle of “adulting,” you put in an offer to buy a house and that offer was accepted. Now you’re under contract.
If your credit score is on the low side, Harrington says ways to increase it include paying bills on time and making sure you stay within one-third of the credit card limit. She adds that maxing out a credit card drastically decreases your credit score.
Harrington recognizes that many people don’t like to use credit cards, but she recommends using one at least for smaller purchases, such as gas or groceries, then paying off the balance completely every month to build or improve a credit score.
Lenders also help potential buyers figure out their specific budgets based not only on their income, but also on their lifestyle preferences and other monthly expenses (such as car payments, health insurance and student loans). They also go over additional home costs, such as mandatory flood insurance (in certain zones), homeowner’s insurance and property tax. In some cases, there will be neighborhood association fees or condo fees.
“There can be discrepancies between how much you qualify for versus how much you want to pay for the house,” Harrington says. “Someone might make enough money [and] could qualify for a huge loan, but that’s not what they want. They don’t want to be house-poor. You have to think about disposable income.”
Harrington strongly recommends purchasing an escrow account, allowing the mortgage lender to pay money owed on taxes and insurance.
“It’s like a savings account. Every month when you [the buyer] make your payment, part of it goes into an escrow account that will hold the funds for flood [insurance], property taxes and homeowner’s insurance,” she says.
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The purchase agreement
Once you’re approved for the loan that works for you, the exciting part happens: finding your dream home within the set budget.
Buddy King, a senior Realtor with Korman Gerrity Real Estate (4505 Magazine St., 504-483-8884; www.wesellnola.com), says spring and fall typically are busy seasons for real estate purchases in the New Orleans area, meaning you’ll need to “pull the trigger a little faster” in terms of completing the homebuying process. In the winter and summer months, there is less competition, he says. Nevertheless, he says, “If you’re ready financially, there’s never a bad time.” He encourages clients to attend open houses, consider their priorities and weigh the pros and cons of specific features in each home.
One of his missions is to get to know buyers so he can help them decide what’s best. He and Harrington agree there is a huge value in meeting face-to-face and getting to know clients.
When it’s time to make an offer, the agent will work with the buyer to decide the best price.
“I will look at properties that have sold around the target house to create a comparable market analysis [CMA],” King says. “Ideally, I will find at least three houses that have sold in the last six months that are similar to the target house in terms of number of bedrooms, number of bathrooms, square footage and condition.”
“The next term I discuss with my clients for the offer is the amount for the deposit. … Typically, a deposit is 1 percent of the purchase price rounded to the nearest $500,” he says.
The agent and buyer then draft a purchase agreement that puts these figures — as well as the desired act of sale date and the length of the inspection period (usually between seven and 14 days) — into writing. The document is sent to the seller or the seller’s agent, who will respond by accepting the offer as it is written, countering the offer or rejecting it.
“Most of the time the offer is countered in some way, and pretty much any term can be negotiated,” King says. “Usually, I will see any combination of the price, inspection period, deposit amount or who it is held by, or the home warranty countered.”
This process can go back and forth until both parties are satisfied; King says he typically sees one or two counter offers per transaction.
Once the offer is accepted, the property is considered “under contract” and the inspection period begins. The prospective homeowner will bring in some experts (recommended by the real estate agents in most cases) to inspect the home for potential hidden problems.
Common issues in New Orleans homes include termite damage, dysfunctional sewer lines and leaky roofs. “I always advise [clients to] use a general inspector, termite inspector and get someone to do video plumbing,” King says. “Inspection is so valuable. Even if it costs you $800 to hire an inspector, it can save you tens of thousands of dollars in the long run.”
During the inspection period, real estate agents help buyers put together a list of the deficiencies and recommended remedies. You can ask the seller to fix the deficiencies prior to purchasing the home, but King says another option is to negotiate the price, or ask for closing cost credits (i.e., if there’s a $5,000 roof repair, ask for a $5,000 closing cost credit). He adds that closing costs are limited by the loan type and the money spent on the down payment.
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Get acquainted with the area
While the house is under contract, King says it’s time to do “due diligence.” He recommends driving past the house often. “Do your work commute from the house at the time you’d be driving to work if you lived there,” he says. “Go by it at all times of the day, check it out when it rains — does the street flood? You want to be certain about all the things that factor into your everyday life,” he says. “Your ability to walk away is a very powerful tool. Don’t feel like you have to buy it.” During this period, a homebuyer has the power to get out of the contract if there are problems that are too much to handle.
Once the house is up to your standards and passes the inspection, the next step is to get in touch with your lender again to assess the home, which will determine the property tax.
With the title in hand and the closing costs paid, you’re finally ready to move into your home, sweet New Orleans home.