Are you considering buying your dream homestead?
If so, then you are probably super excited and ready to begin the house hunt. I’ve shared before a few things that you should consider when buying your homestead and how to go about it.
But I’ve actually learned a few things during my own home buying experience, lately. As I’ve told you before, we are in the middle of moving to a larger homestead.
Well, needless to say, we’ve learned a lot in this process, and I think it is important to share with you what we’ve learned while it’s still fresh.
Note: Laws change all of the time and guidelines may vary between financial institutions. This is what I learned in my experience. This is given for informational purposes only. We claim no responsibility for what comes about in your own experience. But we do wish you all the best!
So here is what I learned in my homestead buying experience:
Purchasing Your Perfect Homestead
1. Be Selective
If you have to finance your home, you need to be very selective as to which bank you allow handle your mortgage. I’ve learned this the hard way.
But you need to realize up front that you are the customer. They are there to serve you. It is not the other way around.
So they should be willing to help you to earn your business. A lot of banks want you to feel as though you have to earn a mortgage. That is not the case.
Also, when shopping for a home mortgage, don’t allow just anyone to pull your credit. This will impact your credit score negatively. If you shop at too many banks, you will cause your credit score to tank, which will be a problem in the home buying process.
So begin by registering with a credit monitoring service so you’ll have an idea of what your score is.
Then you can visit banks and mortgage companies with a general idea of what your score is and see who might be able to best fit your needs.
2. Deal Locally
There once was a time when everyone told you to only go with the ‘big banks’ because you were safer, and they would charge you less. Well, that was before 2007 at least.
However, in my experience, I’ve found that dealing with smaller mortgage brokers might actually make the process a little smoother. The reason is that their underwriter is in the same office as the loan officer, usually.
So they can talk directly to them to see what they have to do in order to close the deal. They aren’t having to go through different departments which equate to you having to wait for a longer period for answers.
Again, you may find a big bank that suits your needs, but I was stunned to find how much headaches I could’ve missed if I’d gone with a smaller lender.
3. Get the Details
Next, you need to be sure to get the full details of each type of loan. There are farm loans, conventional loans, and FHA loans. I’m sure there are more, but these were the 3 I had to dive into when purchasing our larger homestead.
For starters, I found that conventional loans require anywhere from 5-20% down depending upon your credit score.
But on the upside, you have less hurdles to jump through. The appraisals are usually a little easier as they can count most of the land, if not all. (I’ll go into greater detail with this in a moment.)
A farm loan may be a great option to look into if you are considering buying land in a rural area. We had an issue with the bank trusting the comps for where we were buying land because of how rural the area is.
So it caused some headaches, naturally. But if we had gone with a farm loan, most farm credits are used to dealing with large areas of land and rural areas.
Finally, if you go with FHA, there are few things we’ve learned through this process. The information provided to me is that FHA only requires a 3.5% down payment. This sounds great, but you also have to pass an FHA appraisal and an inspection of the well and septic system.
Which means that if the house has some wear and tear on it, then the sellers may have to fix the home in order for it to be financed. That is all in negotiations, but someone will have to pay for the repairs.
Also, the appraisal is a little more difficult to pass. For instance, if you want to buy a piece of land that is over 5 acres, you need to know that (according to my sources) FHA will not appraise anything over 5 acres.
So if you are buying 20 acres, the house will only get credit for 5 of those 20 acres. This can cause issues with the selling prices of homes. We hit this snag, and it isn’t fun! Be sure to get all of these details from your loan officer.
And you may have to really push to get these answers, but you need to know everything you possibly can so you can make the best choice. Don’t always go by how little the down payment is because if the structure of the loan won’t work for what you really want, then you may need to put more money down.
Don’t be 45 days into the loan before you figure this out though.
4. It Takes 3 Days to Close
Who knew? You get a closing date on the agreement between the buyer and seller, and you would assume that this will be the day. Wrong!
If you don’t have the closing disclosures from your bank 3 days prior to the closing date, you aren’t closing on that day. It is my understanding that by law, the banks have to give all parties 3 days to read over the disclosures before closing can occur.
So if you are buying and selling a home at the same time, and you are planning on closing your old home prior to buying your new one, be sure that you have these disclosures 3 days prior or you could end up in a mess. (Yes, sadly, I learned this from experience, too.)
5. Be Careful Filing a Dispute
Remember how I told you that some homes don’t appraise for the asking price? Don’t be surprised when you are asked to file a dispute. A lot of times the seller will swear that their home is worth as much as they are asking and tell you that the appraisal is wrong.
Then it may come up that you can dispute the appraisal. The seller’s realtor may be able to provide you with comps they used to price the home, and you may think that this could be a way to still buy the home of your dreams without having to negotiate further or shell out more money.
Well, I urge you to proceed with caution. When you file a dispute it could go a few different ways.
First, the bank could review the appraisal and feel that the appraisal is fine and decline the dispute. In that case, you’d go on with negotiations or pay the difference.
Second, the bank could look at your dispute and accept it. You then go on to closing as the original deal states.
Finally, the bank could look at your appraisal and believe it may be incorrect. Then they call for a field appraisal which means another appraiser reviews the original appraisal to see whether it is correct or not.
Then if the appraisal is correct, you go on to closing as usual. If it is incorrect, you’ll need a whole new appraisal. Sometimes (especially in rural areas,) there aren’t enough comps in the area and this could cause an appraisal to come back unsupported. This also means you need a whole new appraisal and could put you on a hamster wheel of field appraisals.
So I urge you to step carefully in the home buying process, as purchasing a larger homestead has its challenges.
6. Know What You Want
The main thing I learned in our homestead purchasing process was to know exactly what we wanted and don’t be willing to settle. I say this because if you aren’t happy with your buy, you’ll want to move again.
But also, be able to look at a home and see its potential. The home we are buying is going to need a little work to make it more ‘us.’ Yet, I could look at it and see the potential so we felt confident in our commitment to purchase this home.
However, sometimes the loan process can make you want to cave so you can just get into a home. Don’t do this.
Instead, just keep looking and keep working at it. If you keep saving your money, keep working at your credit, and keep looking at the market, you can hopefully make it all work for your dream.
But it is a process. Believe me, I understand that!
7. Make Sure You Have the Money to Back It
Finally, it is always a good idea to have more money than you need for the down payment and closing cost. The reason I say this is because it gives you a little more bargaining power.
For example, if the house you love has a low appraisal, you could potentially be able to make up the difference and still purchase the home.
Also, if things get off with your credit, if you have money in your bank account you may qualify for some of the exemptions allowed for each loan program which still makes you financeable.
So saving your money is a huge benefit when purchasing a home.
8. Pick a Good Realtor
We worked with a realtor the whole time we were purchasing a home. I know some people have had great experiences purchasing a home in a for-sale-by-owner situation.
And if that works for you, that is great and you should stick with it.
However, I’ve found that if you work with a realtor, you need to be picky because they are not all equal. You need one that is going to be blunt and honest with you even when it is not what you want to hear.
So don’t choose your realtor by who is going to sell your house for the most money, or who tells you what you like to hear. You need someone that is going to tell you that your house is only worth so much. You also need a realtor that is going to tell you every little financing issue you could face with your home purchase decision.
Because the more you know, the more informed decisions you can make. We have an awesome realtor who has stuck with us throughout this entire home buying experience, and I know we would’ve been a world of trouble without her guidance.
Well, now you know my 8 additional tips that you should take into consideration when purchasing your perfect homestead.
Hopefully, if you look at my other homestead purchasing articles:
- 16 Decisive Tips for Finding The Perfect Homestead Land and Property
- 10 Tips on How to Purchase Your First Homestead the Right Way
- 5 Questions to Ask Yourself when Purchasing your First Homestead
then you will be well equipped to get your homestead purchase in the works.
But I’d like to know, do you have any tips you can share with us? Did you face anything unusual when purchasing your homestead? Be sure to share so others will know and hopefully avoid a few headaches.
We love hearing from you so please leave us your thoughts in the comment space below.