With 30 years of combined experience in sales and lending, I have the knowledge to help you with your home-loan needs.  In my years as a mortgage lender, I have seen just about every type of home loan issue that is imaginable.  To help first-time homebuyers on the right path to finding their dream home, I have listed below ten tips to the most common traps or trip-ups I have found when buying a home.

1. The Wrong House. So what does the wrong home look like? It could be one that is either too large or too small for your family. It could be that it needs too many repairs and you’re not handy or don’t have the assets to pay for the work. The location may be too far from work, in an area that isn’t safe after dark, or has issues with the school.  You need to take time to research what and where you are buying. The internet has become a great hub of information for home buyers. School data is readily available, and you can check Megan’s Law data even before looking at a listed property. Of course, before you finish all your inspections you need to take time to drive through the area on a Saturday, and after dark, to be sure that you’ll be comfortable living there.
2. Bidding Blind. Before writing an offer to purchase, ask your sales agent to prepare a comparable sales report for similar properties in that geographic area. This way you’ll avoid over paying, or loosing the house due to underbidding. (Or perhaps missing an opportunity to bid on a great deal.)
3. Trouble Traps in Escrow. Here in Northern California title & escrow or the “closing” is handled by the same company. It may be different in your location, but one thing remains the same, be sure to get a copy of the preliminary title report for your purchase and read it. In most cases, there are no issues. However, there are times when problems arise due to liens, or transactions where the owner of record and your seller are not one and the same. If you have a mortgage lender or real estate agent on top of their game, then they will address these issues and have them resolved for closing. However, not all mortgage lenders or agents are true professionals.
4. Appraisal Surprises. It could be that there have been “non-permitted” additions to the property. If you aren’t buying from the original owners, as in a Bank REO, there would be no disclosure. Often, non-permitted additions limit mortgage lender choices and some home loan programs may not be available. Other complications and costs could also arise. Additionally, the available comparable home sales may not support the sales price for your home. The days of “a willing buyer/willing seller” having the most value on appraisal are long gone. If the value is lower than the sales price, the mortgage lender’s final “loan-to-value” will be based upon the lower value not the sales price. This could push you into mortgage insurance IF your original down payment was 20%, or it would require you to pay the difference if you still wish and can proceed. This is a key reason to have an appraisal “contingency” as part of your purchase agreement, allowing you, the buyer, to renegotiate the sales price if the appraisal comes in lower than the contract price.
5. Property Issues. If you are buying a bank-owned REO it is even more important to have an inspection from a licensed home inspection company. Additionally, even if the home is sold “as-is” it is prudent to have a termite inspection. Knowing early on, during your discovery time, can save you money or allow you to cancel this transaction with a refund of your earnest money deposit. Even if you loose your deposit, it could be much less expensive than proceeding with the sale.
6. Closing Shockers. Pre-paid costs of closing can surprise a buyer. These consist of property tax proration’s, homeowners insurance, homeowners dues and transfer fees, as well as Condo disclosures including budgets and minutes from the last meeting. Be sure to ask your lender to have the closing company provide you an updated settlement statement for you to review, or for your lender to use in calculating your needed cash to close.
7. Wrong Loan Program. The different types and choices of home loan programs over the last few years have been overwhelming. The good and bad news is, the industry has consolidated to more conservative lending instruments. However, there are certain differences for both first-time home buyers and seasoned professionals. First timers could benefit from various State or local jurisdiction down payment assistance programs. Today, seasoned buyers, or Jumbo buyers, have a limited number of the more traditional programs to work with. Whatever your situation, be sure to ask the right questions to understand the loan product.
8. Hurried Closing. When writing your contract, allow enough time for the financing. Don’t give notice to you’re landlord until you loan has final approval. By this, I mean everything has been received and underwritten; title report, appraisal, any inspections and all of your documentation.  At that point, then give yourself an extra two weeks. It is much better to have two weeks to move when your closing is on-time, then to be stressed out about a double move or no place to stay if your closing is delayed.
9. Flips. Flips have become the bane of the lending industry. Banks and investors are loath to loan on properties that are being “flipped”. Many investors have detailed rules and others will not lend until a 90-day time frame has passed. Much depends on who will fund or buy your loan. FHA has changed their rules somewhat to allow foreclosures to move through the market more quickly to provide homes for new buyers and stabilize ravaged neighborhoods. However, if the increase from one sale to the next exceeds 20%, additional documentation will be required from the seller. Most significant will be the seller’s actual rehabilitation or improvement costs for the property. In most cases a second appraisal to support the value is a requirement, as well as a thorough home inspection by a licensed company or general contractor. This is, of course, if the seller is not a non-profit institution, a bank, or HUD, which are all exempt.
10. Cash to Close. If your closing funds are coming from a source other than your checking or savings accounts, be sure to inquire how much advance notice is needed for the funds to be available. This also applies to gifts from your family. When the cash to close comes from money market, stocks or retirement accounts it may take a day to liquefy the funds and another day to get a wire to escrow. If your company does not wire, and only sends funds via a certified check, then you will need to allow more time. It is wise to check in advance on your institution’s policy

As always, I am here to help, and would love to answer any questions you may have.

Ingrid Pierson
(530) 885-1545
ipierson@teamvitek.com