Buyers

There is a reason we put this section first: the first step to buying a house or condo in Key West should be finding out how much your bank is willing to lend you. When you pre-qualify for a mortgage, your lender will look at your income, your debts and your down payment. It’s important to take the pre-qualification to the next level before you fall in love with a house by getting pre-approved for a mortgage. A mortgage pre-approval will be in writing (generally valid for 90 or 120 days) and will require you to prove your income and credit history. Pre-approvals will include an interest rate guarantee.

Of course a pre-approval is not a guarantee that a lender will lend you a certain amount of money for any home. Lenders want to know that the home they are purchasing with you (by lending you the money) is worth what you paid. In Key West, banks generally order independent appraisals of a home before they lend the mortgage money. Getting pre-approved will ensure that you know how much mortgage you qualify for, which in turn will help you know what price range of homes you should be targeting in your search. It allows you to focus your house hunting efforts, and eliminates the risk and uncertainty of financing once you find your perfect home.

Mortgages can seem intimidating, especially for the first-time buyer. Once you’ve qualified for a mortgage, there are some basic decisions you will need to make before you take possession of your house or condo: Mortgage term, amortization, interest rate and type of mortgage. Read on to find out what all of that means and use our handy Mortgage Calculator to estimate what your payments would be.

Mortgage Term and Amortization

The mortgage term and amortization period affect the amount of money you can borrow (and thus the price of the home you can buy), and dictate how much your monthly payment will be

Payments

Most mortgage payments consist of two parts: principal and interest. This is known as a blended mortgage payment. Each payment reduces the balance owed on the mortgage by the portion of the payment that is credited to the principal. Over time, the proportion of your payment that reduces the principal balance will increase. The faster you can pay down the remaining balance, the less total interest you’ll pay. There are many ways you can pay down your mortgage faster, from accelerating your payments (e.g. paying biweekly instead of twice a month, for 26 payments per year instead of 24) to making lump sum payments on your mortgage; your lender can help define the right strategy for you.

Interest Rates

The interest rate is one of the biggest contributing factors to how much you end up paying for your home, both on a monthly basis and over the life of your mortgage.

Interest is the cost of borrowing money. Interest rates fluctuate with the economy. The interest rate you commit yourself to at the beginning of the term can have a significant effect on the amount you pay each month for your mortgage. Interest Rates are unique to every situation. The two basic types of interest rates are fixed rate and ARM (adjustable rate mortgage)

Mortgage Options

Conventional Loans:

Conventional loans are mortgage loans offered by non-government sponsored lenders. These loan types include:

Conforming Loans:

Conforming loans are conventional loans that meet bank-funding criteria set by Fannie Mae (FNMA) and Freddie Mac (FHLMC). Both of these stock-holding companies buy mortgage loans from lending institutions and secure them for resale to the investment community. Every year, form October to October, Fannie Mae and Freddie Mac establish limits on what constitutes a conforming loan in a mean home price.

Fixed Rate Mortgage:

With a fixed rate mortgage, the interest rate does not change for the term of the loan, so the monthly payment is always the same. Typically, the shorter the loan period, the more attractive the interest rate will be.

Payments on fixed-rate fully amortizing loans are calculated so that the loan is paid in full at the end of the term. In the early amortization period of the mortgage, a large percentage of the monthly payment pays the interest on the loan. As the mortgage is paid down, more of the monthly payment is applied toward the principal.

A 30 year fixed rate mortgage is the most popular type of loan when borrowers are able to lock into a low rate.

Benefits:

• Lower monthly payments than a 15 year fixed rate mortgage
• Interest rate does not go up if interest rates go up
• Payment does not go up, it stays the same for 30 years

Drawbacks:

• Higher interest rate than a 15 year fixed rate mortgage
• Interest rate stays the same even if interest rates go down

A 15 year fixed rate mortgage allows you to pay off your loan quicker and lock into an attractive lower interest rate.

Benefits:

• Lower interest rate
• Build equity faster
• If interest rates go up, yours is fixed

Drawbacks:

• Higher mo Interest rate stays the same if interest rates go down
• Interest rate stays the same even if interest rates go down

FHA Loan:

FHA mortgage loans are issued by federally qualified lenders and insured by the U.S. Federal Housing Authority, a division of the U.S. Department of Housing and Urban Development.

FHA loans are an attractive option, especially for first-time homeowners:

• Generally easier to qualify for than conventional loans.
• Lower down payment requirements.
• Cannot exceed statutory rate limits.

VA Loan:

Designed to offer long-term financing to American veterans, VA mortgage loans are issued by federally qualified lenders and are guaranteed by the U.S. Veterans Administration. The VA determines eligibility and issues a certificate to qualifying applicants to submit to their mortgage lender of choice. It is generally easier to qualify for a VA loan than conventional loans.

Here’s how it works:

• 100% financing without private mortgage insurance or 20% second mortgage.
• A VA funding fee of 0 to 3.3% (this fee may be financed) of the loan amount is paid to the VA.
• When purchasing a homeveterans may borrow up to 100% of the sales price or reasonable value of the home, whichever is less.
• When refinancing a home, veterans may borrow up to 90% of reasonable value in order to refinance where state law allows.

There are lots of kinds of lenders and mortgages out there. It’s a good idea to go to at least 2 lenders:

1. Your own bank. They have your bank accounts, credit cards and investments so they should be motivated to give you a good rate.
2. A mortgage broker. Mortgage brokers work with a lot of different lenders and will go to them on your behalf to find the best mortgage rate and terms. Usually, broker fees are paid by the banks, so it is a good way to comparative shop without having to do all the leg work yourself.

It is important to note that not all of these decisions have to be made before you start looking for a home; the crucial step is getting a pre-approval from a lender—then you are ready to start the search! Details regarding term, rate and even which lender you use can be decided—and changed—after the actual purchase, all the way up until reasonably close to your closing date (the date you take possession of your new place). However, the more you understand about your options, the better prepared you will be when that magical day comes.

Knowing what you need and want in your home is critical. What are your must-haves, your nice-to-haves, and your no-way-absolutely-nots? How many bedrooms do you need? What kind of outdoor space do you want? What about counter-tops, appliances and floors? You can’t get what you want if you don’t know what you want. Of course location will be a big decision – what neighborhood makes you feel at home?

Almost everyone needs to compromise on something and it usually comes down to 4 things: size, finishes, location and price. What’s most important to you? Would you rather live in a bigger house or closer to downtown? Are you OK spending more money for a renovated house or could you buy a less expensive house and do the renovations yourself? Would you consider living on a busy street to affordably be in a better neighborhood with access to better schools?

You are not alone: a good percentage of people search for their home online. While there are endless real estate websites out there, here are the ones you should consider:

Realtor.com is the website owned by the real estate association. It pulls available properties for sale directly from the system that agents use, the MLS (multiple listing service).

1. Custom Listings from a REALTOR® Another way to get quick and easy access to what’s available is to have a real estate agent e-mail you daily listings of available houses and condos that match what you’re looking for.
2. Tips for looking for a home online:
   • Keep an open mind. Photos are not always representative of what the house actually looks like in real life.
   • Do not always believe the description and read between the lines. ‘Ready to put your decorator touch on it usually means it needs a lot of work.
   • If you are shopping for a condo, keep in mind that what is included in the maintenance fees varies from building to building, so it is not easy to compare condos. A lower maintenance fee might still mean more monthly costs if it does not include building insurance coverage.
   • Take some time to learn how to read an MLS listing – all the acronyms are guaranteed to confuse you.

This is your opportunity to get a feel for the Key West areas, refine your House Hunting wish list, and ask questions. While a wish list seems kind of scientific and is a useful tool in deciding which properties to visit, the truth of the matter is that most people walk into their perfect home and just feel it. Of course it helps when it satisfies your needs and wants too, but do not underestimate the power of ‘just knowing’.

You can visit homes for sale in real life with your real estate agent or by attending an open house. Keep in mind that not all properties will have open houses, so working with a real estate agent you trust is the only way to guarantee that you will be able to see the houses or condos you want to see (and on your schedule!).

Tips for looking at homes in real life:

1. Make a plan. Try to have a few target neighborhoods. Try to focus on one neighborhood at a time.
2. Car pool. If you are looking at houses or condos with a real estate agent, let them do the driving. Your attention is better focused on the actual neighborhoods rather than when to turn left. If you are visiting open houses, try walking or biking to them, parking can be a challenge.
3. Wear comfortable shoes.
4. Do not just focus on the house or condos, focus on the neighborhood. Drive around the neighborhood. Locate the schools, parks and grocery stores. Take a walk down the street and check out the neighbors. Make a point of going to a cafe, restaurant or pub in the area.
5. Vary the time of day that you house hunt. Everything looks better when the sun is shining, but it is important to get a feel for the home or condo and the neighborhood during the day AND at night.
6. Experience the bad with the good. Every neighborhood has its drawbacks, so make a plan to experience them.
7. Take notes and photos. It is surprising how quickly you can forget the first house or condo you saw.
8. See past the gross. You will probably be surprised to find out some peoples living arrangements, but conditions do not let someone’s bad decorating styles, outdated tastes and lack of housekeeping get in the way of finding your perfect house or condo.
9. Do not fall in love with the Seller’s belongings. This happens all the time and that beautifully staged condo will not look nearly as great with your unique decor in it. Try to imagine your own furniture and style.

Contingencies are requirements within the As IS Residential Contract for Sale and Purchase that must be met for the deal to go through. In your offer, you may have included a financing contingency, or an appraisal contingency, or a home inspection. And of course, you will need to submit a deposit–an amount up to 5%-10% of the purchase price, which is held in trust until close. Once the contingencies have been met, the agreement is firm and now it is just a matter of waiting for your closing date. And of course, packing!

Close the Deal

You are almost a homeowner! Closing is the point at which the ownership and possession of the property is transferred from the seller to you. It takes place after all legal and financial obligations have been met. Closing the purchase will be a team effort: in addition to yourself, your lawyer and your lender will all be involved in helping close the deal. Click here to find out how much your Closing Costs will be.

How to win a bidding war

If you find yourself in a bidding war, there are a number of strategies that can help you come out on top:

Recognize that the Seller has control.

If you want the house, accept this fact and plan to make yourself as flexible to their demands as possible. If you want to win a bidding war, you must accept that you are not generally in a position of power.

Forget about the Asking Price.

For the most part, the highest price usually wins the bidding war. Reality check: the asking price on the MLS listing is almost irrelevant. How much a property is worth doesn’t really depend on how much the Seller wants to get for it, or how much money the Seller has put into the house, or how much the REALTOR® thinks they can get for it; the only thing that matters is how much someone is willing to pay for it. Remember, the bank will not lend more than the value of the appraisal.

Do not get caught up in winning a bidding war at all costs.

Have a budget and stick to it. The last thing you want to do is over-pay for a property – your lender (and let’s face-it, the co-owner of your house) will want to ensure that you have paid a fair price for the property. Lenders require property appraisals before they give a mortgage – meaning that they want to approve you for X amount of money for a particular address – especially if you have paid more than the asking price. If your life circumstances change and you suddenly need to sell in the short-term, having paid fair market value will go a long way to reducing any potential losses.

Think of the monthly $$ involved rather than the Big Number.

It’s easier to digest $23 a month than $5,000. As you work through your offer price options, make sure to do the math, factoring in how a higher price will affect you on a month-to-month basis. We’ve lost bidding wars by a mere $500 on a $350,000 property. Ouch.

You may only get one chance

Generally there are no second chances in a bidding war – they are not the usual back and forth negotiations. Your first offer is often your last, so make it a good one. Go in with your strongest offer.

Do not get emotionally attached

I know, easier said than done, but the reality of every bidding war is that there is only one winner. And yes, outcomes are hard to predict and the only way you are ‘guaranteed’ to win an offer is to over-pay: offer the Seller of a $500,000 house $1,000,000 and you’ll be guaranteed to win.

Reduce the Seller’s risks in picking your offer.

During contingencies (e.g. financing or home inspection). When a Seller accepts a conditional offer, they take on the risk that a Buyer will not get financing, or will decide that the leaky basement discovered during the inspection is too much to deal with. Usually by the time that happens, the Seller has lost all the other potential Buyers, and has to start the sale process again. Put yourself in their shoes–would you take that risk? The best way to reduce the Seller’s risk is to enter a bidding war with no contingencies, or as few as possible. More on that next.

Mitigate your risks by taking care of business before the offer.

If you were planning on having a financing condition in your offer, talk to your bank and get their OK before you make the offer. If you were planning on doing a home inspection, then it is best to pay the $500 out of your own pocket and have it done before the offer. That way you can meet the Seller’s desires to have a firm or no-condition offer and still protect your interests

Be ready with a deposit.

Real estate deals become legally binding when a deposit check is provided in trust to the Listing brokerage– an amount usually at least 5%-10% of the price of the property (which then forms part of your down payment). Having a certified check ready on the day of offer is yet another way to reduce the Seller’s risks and increase your chances of winning the house.

Strategize.

From choosing your timing to the actual offer presentation, there are lots of ways to play the bidding war game. Each situation is different and an experienced and strategic REALTOR® can make the difference between getting the house of your dreams and crying in your beer.

Bidding wars are a stressful reality of the real estate market, but with the right knowledge and partners, you can come out on top. Knowing the strategies that can help you win a bidding war will go a long way to getting you the house you want