Spring is considered the start of the home-buying season. If you are planning to buy a new house, Lawrence City Lifestyle got some critical information from McGrew Real Estate Associate Broker/Realtor Kimberly Williams and Fairway Independent Mortgage Corporation branch manager Diane Fry to help smooth your way forward.
LCL: Why should a home buyer work with a buyer's agent instead of just using the seller's agent?
Williams: In Kansas, there are three types of brokerage relationships: a buyer's agent, a seller's agent, and a transaction broker. A transaction broker is not an agent for either party and does not advocate either party's interest. For me, personally, I believe a first-time home buyer should have a Buyer's Agent to be able to get advice from an experienced agent. All agents and transaction brokers have a duty to, among other things, disclose all known adverse material facts of the property.
LCL: What is a potential home buyer's first step?
Williams: Contacting a lender to get pre-approved for a mortgage is the first step because you need to know what your money is worth in the current real estate market and what your payments could be.
Fry: If you do the pre-approval first, you're not going to find a house you love, and it's $520,000, but you can only afford $400,000. Or you think you can't afford anything over $200,000, but you can afford something at $300,00 that you're comfortable with the payment. So, getting that taken care of first just eliminates any questions.
LCL: What information will the buyer need to get pre-approved?
Fry: They need to bring the last two years of W-2s and 30 days' worth of pay stubs. If they're self-employed, they need to bring two years of taxes and two months' bank statements so that we can see that they have the funds to close. If they're retired, we might need to see their Social Security awards letter. Whatever shows where their income comes from.
LCL: How much of a down payment should they expect to pay?
Fry: It depends on the loan type. There are 100-percent loan programs. If you're buying in the county, the USDA is a 100-percent program. VA is a 100-percent program. You can also do a three-percent conventional loan with one person in the transaction being a first-time home buyer. FHA is three and a half percent. There is no reason you can't buy a house. You can get a down payment from a tax return. Borrow from a 401K, savings, or checking. Mom and Dad can help with the gift. They just sign a gift letter, and I have them wire the funds to the title company. It's super easy.
LCL: What type of credit score will they need?
Fry: 580 for an FHA loan, 620 for a conventional loan. The absolute worst thing you can do is be maxed out on your credit cards.
LCL: Are there other costs to expect?
Williams: Not only does a buyer have a down payment to come up with, but there are also the closing costs, appraisal, and inspections.
Fry: There's title work, credit checks, flood certification, and setting up your escrow account. Homeowners insurance requires that you pay 12 months in advance.
LCL: What's the industry's feeling about the direction mortgage rates will take in the coming year?
Fry: I would have told you three weeks ago that rates would be back in the five-percent range in the third quarter of this year. Now, I think it's going to be 2025. Right now, they will remain steady, depending on your credit score. It's all based on credit score. But somewhere in the middle six percent.
Williams: But don't wait to buy until rates go down because, in Lawrence, home prices are still going up. If you wait for the interest rate to go down, home prices will be even higher.
Fry: And then you'll be in the middle of a frenzy. You'll have 15 people trying to buy the house, and you'll be paying $50,000 more than the one you'll buy now.
LCL: What are some mistakes people make that can delay or jeopardize closing on their new home?
Williams: Buying anything that requires a loan that makes their debt-to-income ratio go wrong. Buying a car or furniture.
Fry: Just communicate with your lender and Realtor. Seven days before closing, we call to verify employment. Also, some loans require us to do what's called a soft pull on your credit to see if there's anything new. And sometimes life happens, and you have to change jobs or buy a car. Again, communication. If we know that's happening, we can help you.
LCL: Is there anything else you would like readers to know?
Fry: Shop local for your lender and your Realtor. Get somebody who knows the market. That is really, really important. And if you have a pre-approval from a lender in Lawrence, your pre-approval means more because they know if there's an issue, they can sit in someone's office. So local is really, really important.
Williams: Also, go local because there's a higher likelihood of getting an actual Lawrence appraiser. The majority of issues I've had are appraisers who come from Kansas City. They work in Lawrence, but their main market is Kansas City, so they don't know our market as well.
Contact Kimberly Williams at McGrew Real Estate, 785.312.0743, kimberly@kiwilliams.com, and Diane Fry at Fairway Mortgage Co., 785.423.6721, dianef@fairwaymc.com.