June 13th, 2011
In her article “5 nasty surprises that can stop your home purchase cold,” Marilyn Lewis of MSN Real Estate gives 5 good reasons why buying a home can be trickier than it may appear. You will have a better grasp on the process of buying a home if you foresee these possible road bumps before you hit them.
The Appraisal. Agreeing on a price is up to more than just the buyer and the seller. Since the bank is the one lending the money, they want to make sure it’s a fair deal, and that the house is actually worth what you’re going to pay. Starting off underwater – or owing more than the home is actually worth – is recipe for disaster, or foreclosure.
Plus, appraisals are a tricky thing right now. The value of homes is dropping, and foreclosures are common – since the value of a home is impacted by its neighborhood, any nearby foreclosures can lower the value of all surrounding houses.
Lewis gives this advice for appraisals:
Choose an agent with deep experience in the neighborhood. Robertson, for example, could show the appraiser that several nearby homes of the same size and floor plan had sold for more. The appraiser revised the home’s value to the price the buyer and seller had agreed upon.
Home Repairs. Once again, agreeing on whether or not the condition of the home is up to par is up to more than just the buyer and the seller. Even minor issues can lower the value of a home, and again, the banks are very cautiously when it comes to home value.
To anticipate issues an appraiser might raise, scrutinize the home inspector’s report for any potential problems with the property. Also, be certain all conditions listed in your purchase and sale agreement are met.
Home or Seller Baggage. As you have to be approved to buy a house, the seller has to be approved to sell the house, as well. Any debt that the seller may have – due to bankruptcy, a lawsuit, alimony, or child support – must be settled before the house can be sold.
Missing permits for work that has been done can be a deal breaker, as well as incorrect property boundaries. Some easygoing neighbors aren’t nuts over property lines, and sometimes fences and sheds are actually not within the legal boundaries. If that’s the case, the structure will have to be removed, or the seller will have to negotiate to buy part of the land from the neighbor, which is a pain to say the least.
Buy title insurance…With insurance, your claim to your home is protected. Warning: If an insurer declines to insure the title of a home you want to buy, walk away from the deal.
Tougher mortgage requirements. With the current foreclosure crisis, lending requirements are tighter than ever before. Lewis points out that a few years ago, the average credit score for a homebuyer was 720. Now it’s 760.
Even if your credit score is good, you have to have proof of income, and your income has to meet a certain cutoff, depending on the cost of the loan. As Lewis suggests, give yourself a year to work on your credit score and save a large down payment.
Invalid Pre-approval. With tougher mortgage requirements, pre-approval often becomes invalid quit easily. A slight change in your credit can make your mortgage approval null and void.
Also, the preapproval is only an approval for a loan with specific terms within a specific time period; it’s not an approval for a loan on a specific property. If the lender doesn’t like the property you’ve found for any of the reasons above, the pre-approval no longer has value.
You should still get pre-approved though. Sellers prefer buyers who have been preapproved because it demonstrates that they are serious and eligible.