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Common Mistakes that First-Time Homebuyers Make: An Interview with Kevin Chard of Phoenix Realty and Property Management Inc.

By Kevin Chard

Tell us a little bit about your company and the services you offer.

We're a second generation, family owned full service Real Estate and Property Management company that's been serving Boulder, Denver, and The Front Range communities since 1986. My wife, Michelle Irons, is our principle owner and manages our Property Management portion of the business, as well as the business itself; while I manage the Real Estate portion of our business along with our marketing, business development, and strategic alliances. We specialize in single family homes, townhomes, and condominium's, and have 2 varieties of services that we offer to our owners and investors: Tenant Location Services and Full Property Management Services.

Tenant Location is the perfect service for those who live close to their property or who reside in-state and want to self-manage and self-enforce the lease terms on their own, but who would like assistance in marketing and showing the property, insuring their tenants are on a strong, court tested lease, who want to insure their rental rates are maximized to the highest market, neighborhood, and property conditions allowable, and most importantly want us to qualify and secure the strongest possible tenant for their property through our tenant application process.

For ownership who resides out of state or the country, or who don't want to be involved with the management process at all, we offer a Full Property Management Service that includes all the Tenant Location deliverables where we now also collect rents electronically, enforce the lease, create and forward 1099's to ownership, maintain security deposits in a Trust Account, and manage all maintenance issues 24/7 including emergency services. Full Management also provides tenants and owners their own individual portals for tenants to report maintenance issues and pay rent, and where ownership can track their income from EFT's being deposited into their accounts and have visibility into all their property invoicing and reports.

Historically, the majority of our business was from the Property Management side, as we've continued to grow we've recognized the value of having a dedicated resource to manage our Real Estate business. We now have a vibrant and robust Real Estate side of our business, like many other Property Management companies, real estate used to be treated as a service side of the property management business, where not a lot of owners, investors, or tenants recognized or understood that we could facilitate their needs of selling or buying property for and with them and that service wasn't really marketed either (The Colorado Division of Real Estate requires all Property Managers to be licensed real estate agents-as we hold funds in trust and have to follow Federal & State Fair Housing Acts and Fair Credit Act- but not all real estate agents are property managers due to addendum insurance and business infrastructure requirements that property managers are responsible for).

From an investment perspective this is a very powerful and underutilized relationship, whereas property managers we understand what kind of property makes for good investment property, in what geographies rental rates can be optimized and at what level rental rates would be supported contingent upon the property in focus; and as Realtors we understand and can identify property that makes for a good value to invest in. We have the vendor relationships to make any maintenance or construction quotes, repairs, additions, or updates to a particular property and can execute quickly to punch list items once the property is closed; insuring minimal downtime for investors to realize an income stream on their new property. Leveraging our property management resources insures those investment properties go into the rental market showing the best they possibly can.

For those that want to sell the reverse is true, where we have the relationships that can make any necessary updates or refreshments to the home once tenants have vacated, insuring minimal downtime and providing maximum appeal and pricing before we go to market selling the property. Because we maintain the property throughout our management tenure, there is often minimal maintenance to complete, but more updates or refreshments to be made to the home contingent upon how long we've been managing the property.

We have very quick turns with tenancy moving in and moving out of our homes, it's not uncommon for homes to become somewhat dated over time; and with no rush to move in another tenant before selling that's the perfect time to make those updates before going to market. Our current real estate market has enabled numerous tenants to qualify to purchase their own home, and I work with them to either purchase the home they're currently renting or assist them in purchasing a brand new property. Naturally with our new focus on real estate we have numerous opportunities outside of our business to assist those interested in buying or selling their own home, or who want to diversify their portfolio and invest in real estate and have us manage that investment for them.

What is one of the biggest regrets that first-time homebuyers have about home loans?

Some regret that they didn't take the time to explore and understand the process sooner, that they could have had their hard earned money working for them earlier rather than renting and paying off someone else's mortgage. Initially the mortgage loan process seems intimidating, especially when coupled with the home buying process that can be perceived as equally so; as is the initial down payment requirement.

As with everything in this world a little education goes a long way and removes much of the fear, uncertainty, and doubt (FUD) that goes into the prequalification and preapproval process. Mortgage lenders will help identify and explain different loan products that will assist a buyer in purchasing their home, they are professionals who want to help people and shouldn't be feared; they are a vital partner to the buyer throughout the purchasing process and are on their side.

In the unfortunate event that should something negative be discovered during the process where a loan can't immediately be extended, many will continue to work with the buyer on a plan to clean up the underperforming or inaccurate areas and advise as to the next steps that should be taken to insure their financials are in the condition they need to be to be approved for a loan in the near future, often only several months away.

What would you recommend that first-time homebuyers should do to prepare for buying a house?

Buying a house is a big commitment, one of the largest financial commitments we undertake in life; and as such should be treated as a business decision, not an emotional one. Introducing emotion into this process may result in unnatural acts, such as paying too much for a home or inadvertently alienating or insulting the seller, which certainly won't make the purchasing process go any easier. We shop every day for all sorts of items, and buying a house is shopping also, although obviously this is a much larger purchase that takes considerably more time to pay off and is something we may do once every 7-10 years or so; but it's still shopping none the less. When I go out shopping for anything I understand what I can afford and what I'm willing to pay; just because I can afford something doesn't mean that's what I'm comfortable paying for it.

Definitely identify and work with a mortgage lender that they feel comfortable in partnering with. Buyers should get themselves prequalified and understand what they CAN afford from a budgetary perspective, but most importantly understand where their comfort level is in what they WILL want to afford. Owning a house should be a joyful occasion, not a cause of misery or unhappiness every time the mortgage is paid each month.

They should really get into the mindset that they are not PAYING for a house, that a house is not a COST; but rather home ownership is an INVESTMENT and a positive financial move for themselves, not a negative one. Identifying their Realtor partner is an important first step as well, as a Realtor will be able to provide lender referrals for them, among others if required. Their Realtor will be able to review and educate them as to the home buying preparation and process, a good Realtor will remove all FUD from their minds and provide best practice advice; they will be their advocate and partner to closing and beyond.

How important is it to know what price range you can afford? How can people calculate what that is?

Purchasing a home should be a solution, not a problem; nobody benefits from seeing a buyer close on a property where they become house poor and trapped financially into their home and unable to live life as they'd like. Insuring the buyer is working with a lending professional who can assist them in identifying where their budgetary comfort zone exists is a great start.

Buyers should also understand their own spending habits and income stream, it's not uncommon for any of us to take a harder look at our financials only upon the cusp of making a major financial decision. They should understand at which budgetary range they're comfortable in making payments based upon the loan variety they will apply for with their lender. Once that figure is understood a price range becomes much more tangible in the search for their next home. While we all would like a luxury product for example and perhaps could stretch to afford one, for many of us an economy good would facilitate our need just fine without the financial stress or feelings of regret that may accompany the luxury purchase.

Carrying negative feelings of that variety for a loan period of 15 to 30 years is not a housing solution in my mind, and I urge my buyers to be sure they have a strong understanding of how their loan works and how that affects their financial comfort zone. If a poor financial decision is made at this point, it may have further reaching negative consequences on that individual or family. It's extremely important that a buyer understands that, has the best available information and partners working with and assisting them with the buyers' best interests in mind; who are able to provide education, interpretation, guidance, and knowledge to enable buyers to make the decision that is best for them or their families.

Unfortunately, due to the large amount of loan products available coupled with the complex nature of becoming prequalified for a particular loan, a buyer really needs to have a conversation with their lender on what it takes to get qualified. Generally as a rule of thumb buyers should have a debt to income ratio of less than 45%, where overall debt is less than 45% of overall income; the less debt in that percentage the better.

What are a few of the most common mistakes you've seen first-time homebuyers make when it comes to the mortgage process?

One of the biggest mistakes a buyer will make is after they are under contract and are waiting to close, they go out and make a significant purchase for their new home; they need to protect their credit all the way to closing itself. It's common and understandable to want a new clothes washer and dryer or new kitchen appliances for their new place, and to purchase on existing credit or by opening a new credit account so they can be delivered the day after closing.

This can be a big mistake which may result in their loan rejection from underwriting, and they may fall out of contract due to their inability to be extended a loan. Be sure to wait until after closing before opening up new credit accounts, or adding to your debt load by purchasing expensive items for your home. It's fine to shop and identify replacement items so once closing is complete buyers can immediately move forward with purchasing and scheduling delivery, but be sure to wait until keys are in hand before doing so, otherwise the loan may be jeopardized and rejected.

Buyers should also have a good idea of what their credit score is, and should take the time to get their free credit report from all three credit reporting agencies to check up on the accuracy of those individual reports. If inaccuracies are found, take immediate action to have them corrected, and be sure to let your lender know what steps are being taken and when.

Buyers can access their free credit reports by visiting this site AnnualCreditReport.com https://www.annualcreditreport.com/index.action Buyers should also have an understanding of the different loan products available and be prepared to review what their mortgage strategy is (how many years do they expect to be in the home, what kind of down payment are they comfortable with?). If you're a veteran of our armed services become familiar with VA loans, they're a great benefit for those that have served our country and are often overlooked by buyers.

Do you have any tips to help first-time homebuyers get the best loan terms?

The easiest way to insure that the strongest loan terms are extended to a buyer is for them to have the highest credit score possible. Lenders look for outstanding credit reports that show that a buyer is a safe credit risk, that they are not overextended from a debt to income ratio perspective and they have a lengthy history of paying their bills on time.

The primary benchmark driving loan terms will be that all important credit score, showing how much of a risk a buyer will or will not be in paying off previous and current credit that's already been extended to them. A strong past history of paying bills on time, not overextending themselves with credit coupled with a lengthy and stable income stream should enable most lenders to feel positive about extending a buyer credit with more favorable terms over the individual who appears to be job hopping with missed payments and an unfavorable current debt to income ratio.

What's the best way for people to contact you and your company?

The best way for me to be contacted personally is via email at kevin@phoenixrealtyinc.com or my office at 303-666-4300, our website is www.phoenixrealtyinc.com. Thank you for your time, I'm happy to be of service!

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