Real estate is a tangible asset that can provide a sense of security, stability, and wealth over time. As a homebuyer there can be unknowns that you don’t know to look for, until a problem presents itself during (or even after) the homebuying process. Most professionals in the industry can help you see the pitfalls and help you discover the right questions to ask. Here’s a start; Let’s breakdown four major categories where issues are likely to occur in the homebuying process.
- Funds to close: If the origination of funds cannot be documented, the funds are not eligible to be used in the transaction. It matters how you got the funds and how long you have had them. Gifts are an allowable source on all programs, except investment property purchases. Typically family members are the only eligible source from which gifts can be received. Other deposits that will need documented are: transfers from one account to another; sale of assets; bonuses; distributions from lines of credit,; 401k’s; and retirement accounts. Be prepared to prove your deposits. Cash on hand is rarely an acceptable source of funds to be used to close home loan funds.
- Employment and income: this is reverified in a window of time before closing. Changing employer, positions, or type of pay; going from salary to hourly or adding bonus and overtime during the process can cause the income to not be eligible for the loan. Steady employment and pay structure during the transaction is important. A soft-pull credit report also happens in a window of time before closing. Adding any additional credit accounts, loans, or increased balances on existing accounts, can affect the ability to keep your approval and close on time. Pay all payments on time and always ask your trusted loan officer about action on collections.
- Property questions to look for: When obtaining a government loan (USDA, FHA, VA) the property is inspected for any health and safety hazards. When touring the home, ask your real estate agent about: mold, carpet -ripping hazards and steps in and out of the residence. These are items that government loans require for the property to be considered in good condition. A common health issue is peeling paint. All peeling paint must be scraped and repainted, even on outbuildings. Other conditions of concern are how many years of life does the roof have left, is the land value exceeding the value of the structure; and do the well and septic, if present, need to be inspected. Additional inspections that may be needed, should be taken into consideration when writing the contract. One final pitfall to note is that not all loans will accept a property that is sub-dividable. Final inspections are required on any repairs for residential financing, and these take additional money and time. A good real estate agent can answer your questions about the property.
- A title is a very important and specialized document. Your title rep and agent should review this document with you. It can show the following issues: liens against the property; multiple estate ownerships; driveway access issues; shared well agreements; judgments; encroachments and easements. Ask your lender and agent how the items in your title work will affect your purchase.
- Contract disputes can occur. Read the fine print. Only sign and initial what you agree to and understand. Understanding and agreeing to additional provisions and the inspection addendum will help the process go smoothly and without dispute.
Real estate agents and lenders want you to be successful in the home-buying process. Be honest and transparent with your real estate agent and lender. This will help you receive best guidance and avoid common pitfalls.
Portia Vigil is a native of Delta, Colorado. She is a mortgage lender and has 14 years of experience working in the field as both a mortgage lender and a broker.
The above content is for informational and educational purposes only, readers should not construe any such information or other material as legal, tax, investment, financial, or other advice.