Ten Tips For Prospective Home Buyers

Posted on September 17, 2010 by Ronald R. Pennington

 

Buying a home in the U.S. Virgin Islands can be a time-consuming process. However, home ownership can also be very rewarding. The purchase of a new home is often times the largest single purchase that an individual will make in their lifetime. Consequently, the right amount of planning and preparation can reduce your stress and make for a comfortable transition into your new dream home in the U.S. Virgin Islands. Buyers, especially first time buyers, need to be sure to ask the right questions about potential properties and make careful financial decisions leading up to the home purchase. Most importantly, buyers should obtain professional assistance from the outset to make for a smooth transaction.

 

Tip#1: Professional Assistance

Select an experienced real estate agent and a lawyer that is experienced in real estate.

An experienced real estate agent is invaluable in showing you multiple properties, explaining options, listing the pros and cons of each property, and providing valuable insight into the various areas where you may be considering a home.

A real estate lawyer can help you through the home buying process by preparing or reviewing the purchase contract, advising you about financing and title insurance, answering your legal and tax questions and arranging for the documents necessary to complete your purchase. When you first contact the lawyer, you can request an estimate of legal fees and costs.

You should consult a lawyer before you sign a contract to buy a home. Although a printed form may be used for the purchase contract, your attorney can make changes that protect you and your family.

Tip #2: Be an Informed Consumer

Reading the available real estate information materials, talking to friends and experts, and investing your time wisely by viewing a variety of homes on the market and researching the neighborhoods is the best way to be armed with as much information as possible about a potential purchase.

Tip #3: Make A Plan And Get Pre-Qualified

Carefully examine each important decision and think it through. Develop a well organized plan for making your home purchase. Focus on the most important factors. Create file folders on house hunting, home financing and service providers such as property and title insurers, as well as home inspectors.

 

Get yourself pre-qualified for a loan so you can determine the type of home you can afford. Getting pre-qualified also increases your chances of closing a deal as a seller is more likely to accept pre-qualified buyer’s offer than one from a home buyer who still needs to initiate the loan process.

Lenders usually employ the 30% formula in approving your loan. Your monthly mortgage should not exceed 30% of your monthly income. Plan your actions and get pre-qualified, this reduces the chance of panic situation and allows you seize opportunity when it is presented.

Taking the time up front to formulate a plan will save both time and money in the long run.

Tip #4: Value

The classic rule of buying the worst house in the best neighborhood still applies. If you buy with an eye towards improvement, you can customize the home to fit your needs. The saying, "make money buying a home, not selling one," should keep you focused on the long-term importance of the purchase price. When buying a home view the purchase for the long term, not with the idea you will be selling it in a few years.

Tip #5: Create A Top 10 List of Amenities

List the features that are most important to you in deciding on which home to purchase. Be sure to include items like a generator, new appliances, access, location, a swimming pool, etc. Establishing your criteria early will save time shopping for inappropriate homes and may keep you from buying a home on a whim. As detailed in Tip #4, your top reason for buying a home should be the value you are getting. Some of your top 10 amenities may need to be sacrificed if an incredible value is available.

Tip #6: Fixed vs. Adjustable Rate Mortgages

Which type of loan fits your particular needs? Are you a first home buyer or are you moving to a larger home? If you know you will own your home for a short time due to work relocation or other factors, an adjustable rate mortgage may be the best type of loan. If you're shopping for your dream home or you plan to raise a family, a fixed rate mortgage is most probably more suitable for you.

Whichever loan you choose, make sure that you scrutinize all the closing costs. If you are required to have a mortgage escrow account and private mortgage insurance, make sure you understand the terms and cancellation procedures. Under Virgin Islands law there can be no prepayment penalties on residential loans. A good mortgage reduction plan can save you tens of thousands in interest costs, and shorten your loan term, with only small extra principal payments. If you experience negative changes in your job, health, or marital status, you can revert to the standard payments in your mortgage contract.

 

 

Tip #7: Develop A Mortgage Shopping Chart

One of the biggest decisions to make before submitting a contract on a home is how to finance the purchase. There are many Virgin Islands as well as off-island lenders competing for your mortgage business. You can apply for a loan over the internet or use a mortgage broker to shop for your loan with various lenders.

When choosing a lender, you want to avoid apples to oranges contrasts by comparing fixed rates to fixed rates, not fixed rate to adjustable rate mortgages. Create a chart that lists different types of loans, fees, and discount points charged for at least three mortgage providers (including a mortgage broker).

 

Tip #8: Evaluate The Seller's Motivation

Take time to understand the reasons the seller bought the home, their reasons for selling, and the improvements they have or have not made, and you'll be in a better position to evaluate the home and negotiate a better deal. You are about to make one of the most important decisions that will affect both your life and the life of the seller. In the end, the real estate process comes down to the individuals buying and selling the home. A closer look at the seller may help you in deciding whether to buy a particular home and for how much.

Tip #9: Sign A Contract That Protects You

Make sure that the contract you submit on a house allows you to arrange financing, inspect the home, and negotiate any problems that you uncover. Ensuring that the contract you sign will minimize potential legal battles and will let you enjoy your new home with your family and neighbors instead of wasting time with disputes. Don’t sign a contract and then go to a professional for assistance. It is too late at that point as you have already committed to whatever terms are in the contract. See Tip #1.

Tip #10: Get A Quality Home Inspection

Paying for a qualified home inspection before you buy a home is not just spending "a little extra" for peace of mind. Utilizing a qualified home inspector is absolutely essential for anyone who does not want to spend thousands of dollars for repairs. As mentioned earlier, buying a home is a huge financial commitment so you want to spend a comparatively small amount to be informed about what you are purchasing. More often than not, the money a buyer spends on a home inspection they will save on the purchase price or in future problems.

Your new home in America’s Paradise, the United States Virgin Islands, can be a valuable investment and provide you and your family years of enjoyment. You can protect yourself against expensive mistakes if you proceed carefully before signing a purchase contract and closing the deal by becoming an informed consumer.

Ron Pennington is Chair of the Real Estate & Financial Services Practice Group at BoltNagi PC, a full service business law firm located on St. Thomas, Virgin Islands.  Attorney Pennington concentrates his practice in commercial and residential real estate, acquisition, development and financing. To contact Attorney Pennington, please email: rpennington@vilaw.com or visit www.vilaw.com

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"White Knights" for Residential Mortgage Workouts

Posted on August 9, 2010 by A. Jennings Stone, III

 

One of the areas of practice for BoltNagi PC is commercial and residential mortgage foreclosure law.  Although the substantive law governing commercial and residential mortgage foreclosures is virtually identical, commercial borrowers have an important advantage over residential borrowers:  If a commercial borrower is facing foreclosure, it can seek out new investors or a “white knight” to get it out of trouble.  Residential borrowers don’t generally have that option.

 

However, residential borrowers actually do have a network of potential “white knights” who can help them get back on track:  Family members.  Family members are usually deeply vested in one another’s relative success, and the burdens that are occasioned by the loss of a home for one family member can have ripples throughout the rest of the family.  Foreclosed home owners often have to turn to other family members for financial support after the fact, and there is no mechanism for supportive family members to recoup the money that they spend.  And, arguably, that money could have been better spent reinstating the defaulting home owner’s loan.  If a borrower’s family members could be encouraged to help the borrower become current on his or her payments and stay current, then everybody wins.

Usually, a white knight in a commercial context gets an interest in the company in exchange for its investment.  Lenders could experiment with similar (and creative) incentives to encourage “investment” in a troubled mortgage loan by family members.  Incentives for family members might include a lienable interest in the property (with the approval of the mortgage lender) up to the amount that the family members contribute to reinstating the loan.  If a lender agrees to guarantee repayment of those amounts—either through some sort of guaranty or subordination of the lender’s mortgage interest to these (relatively) miniscule amounts—then family members would be even more enticed to help “bail out” a family member who has fallen on hard times.

An alternative to the subordination idea might be for lenders to offer some sort of guaranteed rate of return—an eighth (or even a tenth) of a percent shaved off the interest rate—so that family members see this as way to assist their family members without throwing good money after bad.  The key is not to make these arrangements some kind of alternative to regular investments.  The key is simply to allow family members to contribute to the well-being of the borrower with some kind of guarantee that they will see their money again.  This plan could even be spread across several family members, with each member contributing a small amount, without any single family member taking on the enormous burden of bailing out the borrower.

Even if these suggestions are ultimately unworkable, borrowers, family members, and lenders should be encouraged to experiment along these lines.  The incentives for family members to invest in one another’s success are based on informal age-old family bonds.  If these naturally-existing loyalties can be retooled and incentivized in the context of

residential mortgage loans, then the same incentives that exist for commercial investment can be brought to bear on the problem of residential mortgage foreclosures.  Given the right circumstances, it is generally beyond dispute that family members will rally to help one of their own, so long as the downside risk for any one of them is not too great.

 

A. Jennings Stone is an attorney in the litigation practice group and concentrates his practice in the area of foreclosures at the law firm of BoltNagi PC. BoltNagi PC is a full service business law firm in St. Thomas, Virgin Islands.

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