Falling in love with a new home can be exhilarating. It can also be scary, especially when that home has captured your heart. You have your fingers crossed, and hope - but still... what if something goes wrong? No matter how careful you are, some deal killers are unavoidable. Others, however, are preventable. Let's learn more:
1. Don't Mess with Your Mortgage Pre-approval
One common reason for a real estate deal to fall apart is that many home buyers don't completely understand the mortgage process. You may get a loan pre-approval, but don't that is not a guarantee that you will get the loan.
After you receive your pre-approval letter and decide to move forward with the purchase, the lender starts a file and gives you a list of paperwork that is required. He orders an appraisal and credit reports, verifies your employment and income, and more.
Then the file is sent to the loan processor who will review all of the information along with the appraisal. He or she will then put together a package of all pertinent information and send it to the underwriter.
The underwriter is the person who ultimately determines whether or not you are an acceptable credit risk. He or she assesses your ability to repay the loan, considers your credit, and collateral used to secure the mortgage. In this case the collateral is the home. Just before funding the loan, the underwriter performs a "soft pull" of your credit information to see if anything has changed.
This is the point where many borrowers make mistakes. If you want to keep your purchase alive, don't do anything crazy -from application to closing- that may change your financial situation and sabotage your loan approval. Don't open new lines of credit for appliances, furniture or anything else. Don't switch jobs, fall behind on your bills or co-sign a loan for anyone. You also don't want to do ANYTHING that may reduce the income stated on your application.
2. Read Homeowners Association Documents Carefully
If you purchase a home in a managed community governed by a homeowners association (HOA), you'll be given paperwork to read and approve. There may be deal killers included in the fine print, so it's important to get to this task immediately upon receipt of the documents.
Look for any information about liens against the property; current litigation against the HOA, the builder, or the developer; and any red flags in the HOA budget. Since these documents aren't easy to read and understand, it is worth the money you'll spend to have your attorney look them over and advise you of any potential deal killers lurking within.
While HOA problems could potentially ruin the deal, it's better to have it happen upfront rather than when you're further along in the process.
3. Home Inspection Problems
All homes can have problems. Going into the process not fully understanding this can set you up for a failed real estate deal. Ideally you want to find a home that was owned by perfect people, who conscientiously took care of everything during their ownership, but those are few and far between, and seeking them out is unrealistic.
Try finding a home that has small, easy-to-fix problems, and don't worry if some are worse than others. When considering making an offer, laugh at a loose doorknob but negotiate when it comes to water damage, or roof repairs.
The home buyer, who plans on "nickel and diming" the homeowner into replacing simple items like missing switch plates and drippy faucets, is a deal-breaker-in-the-making. In a buyer's market you may get away with some minor demands. In a seller's market, however, there is always a better offer right behind yours.
4. Budgeting Blunders
The real estate industry does a great job of reminding home buyers that they require a down payment - usually its from 3 percent to 20 percent of the total loan amount. In some cases however, they often fail to inform real estate consumers about are the closing costs. This is the money you will be required to pay before the house is yours. This probably happens because closing costs are a harder to pin down. They vary quite a bit from lender to lender, depend on the type of loan, the amount of the down payment, and a host of other factors.
First, you should receive a form called a Loan Estimate. Look it over very carefully to ensure that everything your lender agreed to is included. Pay close attention to the "Calculating Cash to Close" section, which concludes with an estimated cost to close the loan. Remember, this is just an estimate, and the total amount may go higher or lower. Talk with your lender if you find any problems, especially if you cannot come up with the money.
Just before closing you will receive the "Closing Disclosure," which is similar to the estimate, but the figures are final. Again, review the "Cash to Close" figure.
Most of the time real estate deals conclude successfully. Typically, it all comes down to the experience of your agent. Choose wisely and you'll avoid the common mistakes that can ruin your transaction. For a smooth, low-stress real estate transaction, slow down, keep your expectations realistic and heed the advice of your real estate agent or attorney.