Tuesday, October 11, 2011

3 Issues that Will Kill Your Home Purchase

Deals come and go, some are tougher than others, and some run smoothly.  Ask any agent, no particular deal is exactly the same, whether it be different terms, buyer/seller issues, loan problems, etc...There are always problems to be sorted out and dealt with in any transaction. But what issues are the biggest?  What can kill your deal?  Below are three issues that can and will kill your deal, unless you know how to avoid them.

Condition of the Home
Believe it or not, the condition of the home is a huge reason why some lenders will REFUSE to loan you money to buy the home.  Crazy right?  Well, after the wave of distressed properties (short sales and foreclosures) a lot of homes were left in pretty bad shape.  Some had missing sinks, appliances and systems; others had chipped and peeling paint, wood rot, and dangerous electrical hazards.  Think about it, if you were lending money to someone to purchase the home, and the home was your collateral, would you at least expect it to be in good enough condition so that if your borrower defaulted, you would be left with a live-able or at least sell-able home?  That's exactly what the bank feels.  For FHA and VA loans, the home will need to be in a good condition for you to receive a mortgage.  When a bank owned foreclosure mentions that the home is "as-is" it really means it.  Don't expect the bank or asset manager to do any repairs, so make an offer accordingly.

Loan Approval
Typically when writing your contract to purchase a home, your agent will put a contingency in the agreement that says if you can't obtain financing, the purchase will be terminated and your earnest money will be refunded.  The only problem with this contingency is if your bank (or lender) drags out the process and you aren't sure if you are going to be financed or not.  Getting pre-approved is just the first step in the entire lending process.  Sometimes you'll get pre-approved for your loan months before your offer is accepted on your home, and you'll need to provide proof to your lender that your situation is similar to your situation at pre-approval.  The best thing to do at the time of pre-approval is to ask your lender/broker/bank what documents are going to be required for underwriting.  They typically have a checklist.  Use this checklist and immediately start collecting all the documents that are required.  When your loan is being processed, they will ask for these documents, sometimes multiple times, so be prepared to send them redundant information without delay.  The faster you are in getting everything to the lender, the quicker they will move.

Low Appraisal
What might seem like the best thing ever could kill your deal.  We're talking about a low appraisal.  What this means is that a professional appraiser values the property for less than you offered.  Your bank will not lend you money towards something that is worth less than what you're offering.  If the difference in the appraisal and the offer is only a few thousand dollars, usually the seller will concede and you'll get just a little bit better deal than what you offered, which is great for you.  If the difference is too much and the seller can't afford to take that much off the price, the deal may fall through and the seller may be forced to stay put.  This is bad for you.  Your dream home is gone for now.  There are ways to avoid the low appraisal, some you can control, some you can't.  First, even though you may really, really want a home, don't offer strangely above what the comparable properties in the area are valued at.  Before your offer, your agent should give you a list of comparable properties in which to base your offer off of.  Don't get crazy.  Another issue is when an inexperienced appraiser, or an appraiser not largely familiar with your area inadvertently appraises the home too low.  This can be tough to avoid as your lender is in charge of who appraises the property.  The best way to get an appraiser familiar with your area is to use a local mortgage broker who has a smaller pool of local, qualified and knowledgeable appraisers rather than a large bank who is lucky to get an appraiser from the region to appraise the property.

There you have it!  Now, you're armed with some tools to help you navigate the market out there.  Remember, I'm always here to answer any questions you have.

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