Buying a new house ought to be simple, and sometimes it is. Sometimes everything goes right. You find the perfect real estate agent, lender, neighborhood, and house. All the closing due diligence goes flawlessly and the closing paperwork is correct. But, sometimes there are bumps in the road of the real estate process or even potholes. Here are some tips for managing the types of problems you may run into.
Buyers can get into this situation in a couple of different ways. Let’s say you find a great house online and contact the listing agent for more information. After all, who knows more about the listing than the listing agent? In fact, you may decide to contact the listing agents on a number of homes.
Here’s why that’s a problem. The listing agent is required to protect the interests of the sellers. If the listing agent also represents you as the buyer, that’s called dual agency. It means that the agent must try to represent both people in the transaction. As you can imagine, that’s not going to end well for you. The listing agent already has a fiduciary responsibility to protect the seller’s interests.
Besides that, the more agents you get involved in trying to help you find a house, the more complicated your search will be. You’ll get duplicate and maybe even conflicting advice, and none of those agents will really be committed to helping you find your dream home.
What’s the answer? Find a professional and experienced agent to represent you. Your search will be easier, quicker, and more successful.
If you hired the right agent to guide you through the real estate process, they will undoubtedly tell you to get pre-approved for a mortgage loan before you start looking at homes. Getting pre-approved has a couple advantages. First, you’ll know exactly how much house you can buy. Your pre-approval also shows sellers that you’re serious, and that you have the financial ability to buy the home. However, a pre-approval doesn’t automatically mean that you’ll be able to get a mortgage. Wait, what?
Sounds strange, but it’s true. Let’s say you get a pre-approval and get so excited about your new home that you finance new living and dining room furnishings. Or, while you had your credit cards paid down when you were pre-approved, but now you’re carrying a balance. Either of those activities may make it impossible for you to get through the lender’s underwriting.
Another problem that comes up sometimes is when the house you choose to buy has something about it that doesn’t meet the requirements for the type of loan you had intended to use. For example, a USDA loan will finance a home on a well, but not a home on a community well. If your rural haven is on a community well, you’ll need to scramble quickly for another type of loan.
What’s the answer? Don’t do anything that will affect your financial situation between the time you receive a pre-approval and the time when you close on your home. And, make sure you work with a lender that provides excellent customer service and that can help you turn on a dime if need be.
Most states have seller disclosure laws in place. Sellers and/or the listing agent are required to disclose any defects in the home. But, even with the appropriate disclosures, there can be problems that the buyer doesn’t know about. For example, in an older home the electrical service may not be up to code, or there may be structural problems that aren’t evident until an inspector does a thorough evaluation. There could also be more minor problems such as inadequate drainage from gutters.
What’s the answer? There are several alternatives if your home inspector finds problems of any size.
· You can fix the problems yourself. If there are small issues, you may want to fix them yourself. No home is perfect and some wear and tear is expected.
· You can ask the seller to fix the problem before closing. Some buyers aren’t comfortable with this approach because they can’t maintain control over the quality of the repair work.
· You can ask the seller to cover the cost, but make the repair yourself. If you want more control, you can negotiate with the seller to either lower the sales price by the amount of the repair or give you the money to complete the repair as part of their closing costs. Naturally, it’s better for you if they reduce the sales price.
· You can walk away from the deal. Most contracts include a home inspection contingency clause, which means that you can cancel the contract and get your earnest money back. If you don’t have that contingency, you will lose your earnest money deposit if you cancel the contract due to findings in the home inspection.
As a normal part of the real estate process, after you put in a formal application for a mortgage, one of the things the lender will do is send out an appraiser. The lender wants to be sure that the home is worth at least as much as the purchase price. The appraiser will evaluate the house and compare it to other homes sold in your area that are comparable to your home. The appraiser will send a report to your lender with their findings.
Most of the time, the appraisal goes through without a problem. But, if your home appraises for less than your purchase price, you have more decisions to make. Let’s say that you agreed to purchase a home for $255,000, but the appraisal comes in at $250,000. The bank will only let you borrow $250,000. So, what do you do about the $5,000 that is left over?
What’s the answer? You should first talk to your real estate agent. It can be difficult to get an appraisal revised, but find out if your agent thinks that’s a possibility. Assuming it’s not, your next step would be to ask your agent to negotiate a $5,000 reduction in the sales price. No seller wants to lower the purchase price after they’ve already found a willing buyer, but for the sake of getting the house sold, they may be willing to do that.
The seller has other alternatives. For example, they may refuse to lower the price, or ask you to split the difference. You will then need to decide if you want the home badly enough to pay more, and if you are comfortable with increasing your down payment by that amount.
If you’re buying in a “hot” market, you may find that there is competition for every house listed for sale. Sometimes buyers get into a bidding war and the final sales price is higher than the listing price. You need to be careful in a situation like that. If the other home sales in the area don’t support the higher price, you’ll be faced with an appraisal lower than the purchase price. Keep in mind that most purchase contracts have a loan contingency. If you and the seller can’t come to an agreement, you can cancel the contract and get your earnest money back.
Buying a new home can be a lot of fun, but the real estate process is complex in the best of situations. LemonBrew is here to help you find that perfect local real estate agent and mortgage loan program. We’ll match you with advisors to guide you over any bumps in the road during your real estate process.