Don’t make these 6 mistakes when applying for a mortgage

There’s a road you will head down when you first decide that it’s time to buy a home. Before taking even the first step, you’ll encounter a fork in that road. Sadly, most first-time homebuyers take the wrong fork and end up disappointed.

Not having a clue about your credit

 Do you know what’s lurking in your credit reports?

It’s bad enough that nearly 80 percent of credit reports contain errors, but did you know that nearly a quarter of them contain mistakes so bad they result in a denial of credit?

Don’t be among those rejected—order copies of your credit reports and go over them, looking for errors. You are entitled to free copies of your credit report from each of the three major credit bureaus every 12 months. Get yours at AnnualCreditReport.com.

If you find errors, file a dispute and clear up the problems before applying for a mortgage. The Federal Trade commission offers additional information on how to obtain your free credit report and how to dispute errors you may find in your report.

Shopping without knowing how much you can spend

 That fork in the road we spoke about earlier? Sometimes it takes homebuyers online, looking at homes for sale and, sometimes, to open houses or new-home communities.

Big mistake.

Homebuyers, especial first-timers, tend to overestimate how much they’ll be able to borrow. If you’re among them, and you look at homes, you’ll most likely be viewing those that are out of your price range and, after that, those that you can buy will pale in comparison.

Don’t set yourself up for disappointment – see a lender before looking at homes for sale.

Take the next logical step after repairing your credit—start shopping for a lender, not a home (at least not at this point).

Not shopping strategically for a loan

 It amazes us how casually many people treat the sale and purchase of an investment as large as a home.

A National Association of Realtors’ survey finds that most real estate consumers hire the first real estate agent they meet.

And, the Consumer Financial Protection Bureau clams that half of borrowers use this same cavalier attitude when choosing a lender.

Until you obtain a mortgage, quoted terms aren’t set in stone, so shopping for the best terms will save you money on your closing costs and, quite possibly, your monthly house payment.

So, use the same care in finding a lender and comparing loan products as you would if you were considering buying a big-screen TV.

A good place to choose lenders to compare is Bankrate.com. Remember, you want to compare the APR, and the stated rate is not necessarily what you’ll be offered. This is why you must apply for preapproval to determine your budget.

Not being honest

 Remember “liar loans?” It wasn’t that long ago that lenders were approving mortgages for just about anyone with a heartbeat.

Think of those loans as dinosaurs, because they no longer exist. Lending standards have tightened considerably since then and lenders are bound by statute to ensure that the borrower can afford to make payments on the loan.

This means that you are required to provide documentation that proves the income you state on your application. So, be honest on all parts of the loan application.

Switching jobs after loan approval

A common requirement for loan approval is your employment situation. Most want to see at least two years with your current employer (or in your current field), or two years in business if you are self-employed.

It is important to not make any changes to your employment situation during the period of time between loan application and closing on your new home.

Changing your financial picture

Yes, it’s tempting to start purchasing furniture and appliances as the closing date draws near. But, don’t do it.

The lender will run one final credit check, just before closing, to ensure that nothing in your financial picture has changed. If you purchase items on credit or open new credit accounts, your score may go down.

Also, the new debt you’ve taken on may change your debt-to-income ratio and you’ll be denied the loan and the closing will be cancelled or postponed.

For many real estate consumers, the entire mortgage process is foreign and, quite frankly, dull. But, it involves your money—and lots of it—so learn as much as you can and you should sail through the process.

Real estate lingo defined: What is due diligence?

After a long, grueling search, including several overheated bidding wars, Jim and Claire found the California home of their dreams. They were ecstatic when their offer was accepted and the transaction sailed to an effortless close.

As summer settled in, it was time to crank up the air-conditioner. Curiously, they couldn’t find the thermostat for it. Sure, there was a thermostat for the heater and, isn’t the cooling system typically attached to it?

After searching the entire home, they came up empty. The HVAC system was missing the AC side of the equation—there was no air-conditioning system in the home, despite the MLS listing claiming otherwise.

Who gets the blame?

It’s easy to assume that the listing agent and/or her broker were to blame for this. After all, the box on the MLS listing, right there next to “central air conditioning,” was checked.

Perhaps the homeowners should’ve caught the MLS mistake and brought it to their agent’s attention? If so, perhaps they’re to blame.

In the end, after mediation, the buyers were found to be at fault.

Why?

They didn’t perform adequate “due diligence”

Huh?

Caveat Emptor

You’ve most likely heard the Latin term for “let the buyer beware.” But, did you know that it’s part of a longer statement that admonishes buyers to “beware, for he ought not to be ignorant of the nature of the property which he is buying from another party?”

According to FindLaw.com, there is an assumption, under law, that a buyer of any product will inspect it completely before consummating the purchase.

“This does not, however, give sellers the green light to actively engage in fraudulent transactions,” according to findlaw.com, but it does put a lot of responsibility on buyers’ shoulders.

And, in this case, the mediator found no evidence that the sellers acted fraudulently.

The due diligence period

This time period extends from the minute the seller accepts the offer to when the last contract contingency is removed.

Homebuyers are, therefore, given ample time to perform due diligence. They are even afforded the opportunity to request additional time, if needed.

During this period, the buyer will have the home inspected, shop for insurance and examine HOA documents (if applicable), the lender will work on the buyer’s loan and have the home appraised and the title company will investigate the home’s title.

The buyer, who receives copies of inspection reports, appraisal information and the title search, is well-armed with information during the due diligence period. Savvy buyers will personally inspect the home as well, which Jim and Claire did, twice.

Before the last contingency is removed, the buyer has the opportunity to negotiate with the seller for repairs or the money to have the work performed by someone else. If this doesn’t occur, and the contingency is removed, the buyers are agreeing to take the home as-is.

And, it’s expected that they know what they’re getting into.

Jim and Claire lost their case at mediation, and here’s why:

There was no evidence that the seller exhibited fraudulent behavior. His property disclosure noted that there was no central air conditioning. The buyers either didn’t read the disclosure or ignored what was stated.

The home inspector noted the lack of central air conditioning. Why any homebuyer wouldn’t thoroughly read home inspection results is mind-boggling, but apparently, Jim and Claire didn’t.

The buyers personally inspected the home on two separate occasions and performed an additional final walk-through before closing. While it would be too late to seek remedy after the final walk-through, the prior two inspections fall under the umbrella of performing due diligence.

Don’t let it happen to you

It can happen to even the most experienced homebuyer. It’s easy to be so excited by the fact that you finally found THE home that you either don’t notice or overlook its flaws.

While Jim and Claire’s own real estate agent should have noticed a feature that the couple told her they wanted, in the end it all came down to their negligence.

Buying real estate, even for personal use, is a financial investment. Treat it as such by forcing yourself to leave the emotions aside and approach the purchase with all the seriousness it requires.

How to survive – and win – during the spring homebuying season

Working with first-time buyers and those on tight budgets during last spring’s overheated sellers’ market was heartbreaking. So many offers made and so many passed over for someone else’s.

One of the most frequently-asked questions we received was

“Aside from increasing the amount of money we’re offering, what else can we do to win in a multiple-offer situation?”

As we head into the spring 2018 season, we will no doubt hear this question again, so today we want to share with you some tips that just might win you that home.

Write a personal letter to the seller

Letters to the seller get a bad rap from some in the industry, but we’ve found them to be quite effective.

Ensure that the letter will connect emotionally with the seller. Explain, specifically, why you love the home and how living in it will affect your family.

Personal letters are especially effective when accompanied by a photograph of yourself and, if you have one, your family.

Need ideas? Housingwire.com recently published some sample letters that might just do the trick.

Don’t nickel and dime the seller over the small stuff

It’s tempting to want the seller to fix even the little things that show up on a home inspection report. If you truly love the home, and the inspection report doesn’t show any major problems, avoid that temptation and leave out requests that the seller make or pay for repairs.

The cleaner your offer, the more likely it will stand out among others. And, after price, the seller will look at other aspects of the contract that will cost him or her money when deciding on which offer to accept.

Increase your earnest money deposit

What sellers want most, aside from the most money possible, is to know that when they take the home off the market after getting an offer, the sale will go through.

To reassure the seller that you are serious about the purchase, increase the amount of your earnest money deposit.

The earnest money deposit, by the way, is a cash deposit – typically a certain percentage of the offering price.

It’s held in escrow and applied toward the purchase price at closing. It can, however, be forfeited if you breach the contract.

An increase in good faith money shows an increase in good faith – and sellers love that.

Agree to be flexible with your closing date

Believe it or not, we’ve seen buyers win a bidding war against higher offers just by being flexible on the closing date.

Many sellers need more time to move out, so offering to close on their preferred date, or even to rent back the home to them after closing, may be a way to win in a multiple offer situation.

If the home is vacant, offer to close quicker, if possible. Of course, you’ll need to get with your lender to determine how quickly you can close, but this is an attractive offer to a seller with carrying costs inherent in a vacant home.

If all else fails

If you’ve ever been in a multiple-offer situation you know that the seller may find another offer to purchase more attractive than yours. If this is the home of your dreams, consider making a backup offer which will put you next in line if the chosen buyer backs out of the purchase.

The backup offer, when accepted by the seller, is a binding contract, so make sure you have your lending in order before submitting it.

Sure, it sounds like a long shot but back-up offers frequently become primary offers so they’re worth considering when the home is exactly what you want.

Still have questions? Reach out to us – we love talking about real estate!