Finally, after months of looking—you find the perfect home. Buying a new home is stressful. You worry if something may go wrong and your carefully crafted plan will fall apart. Follow these steps for preventable problems, issues you have some control over.
1. Get Your Mortgage Pre approval
One reason for a real estate deal to fall apart is that many homebuyers don't fully understand the mortgage process. I can help educate you on the ins and outs of this step. Pre approval does NOT guarantee you will get the loan!
After you receive your pre approval letter and decide to move forward with the purchase the lender will start your file, give you a list of paperwork required, order an appraisal and credit reports, verify your employment and income, and more.
Then, the file is sent to the processor who will review all of your information, as well as the appraisal. The processor will put together a package of all pertinent information to be sent to the underwriter.
The underwriter ultimately determines whether or not you are an acceptable credit risk. Underwriters will assess your ability to repay the loan, your credit, and the collateral used to secure the mortgage—in this case the collateral is the home. Then, just before funding the loan, the underwriter will perform what is known as a "soft pull" of your credit information to see if anything has changed.
This is the point where many borrowers have problems. If you hope to keep your purchase alive, don't purchase anything on credit—from application to closing—that might change your financial picture and sabotage your final approval. This means no shopping on credit for appliances, furniture or anything else. Additionally, don’t switch jobs, fall behind on your bills, co-sign a loan for anyone, or in any way reduce the income stated on your application.
2. Read Homeowners Association Documents VERY Carefully
When you purchase a home in a managed community governed by a homeowners association (HOA), you'll be given a mountain of paperwork to read and approve. The devil is in the details, and there may be something in the fine print that will make you want to double think the decision to purchase. It is better to know what the details are before closing, then on closing day.
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. These documents aren't easy to read and understand, be sure to have your attorney look them over.
3. Home Inspection Problems
All homes—even newly constructed ones—may have problems. Going into the process not fully understanding this can set you up for a failed real estate deal.
Consider finding a home that has small, easy-to-fix problems, and realize some problems are easily fixable and other problems, such as water damage, can be a negotiation point.
4. Budgeting Mistakes
Be aware of your loan's closing costs. Closing costs is the money you will be required to pay before the house is yours. Closing costs are a little hard to pin down. They vary wildly and depend on the type of loan, the amount of the down payment, and a host of other factors.
Unfortunately, this lack of information could causes real estate deals to fall apart. To avoid this particular problem—pay attention to all communications from your lender.
First, you will receive a form called a Loan Estimate. Look this over 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 an estimate and the amount may go higher or lower in the end. Speak with the lender if you find any problems here, especially if it will be impossible for you to come up with this money.
Just before closing you will receive the "Closing Disclosure," which is quite similar to the estimate, but these figures are final. Again, review the "Cash to Close" figure.
Most real estate deals conclude successfully. For a smooth real estate transaction, rely on a experienced real estate agent, such as myself, to walk with you every step of the way—and heed the legal advice of your attorney.