What to expect when expecting…to buy a home! Buying a home is an exciting experience. Like a roller coaster, it has its ups and downs. There are issues, that I call hiccups, when you buy a home so you need to prepare yourself to avoid problems down the road. Don’t believe the infomercials about buying homes with “no money down”, “no closing costs”, or “the seller will pay you to buy their home.” Buying a home is more than just having the down payment, the 2 to 3 months in reserve, and having the closing costs in the bank. Buying a home will require you to have the down payment for the electricity, gas, water, and HOA dues if you live in a home owner’s association neighborhood, condo or townhouse. Also, if you are putting down less than 20% down payment, expect to pay private mortgage insurance (PMI). PMI usually adds $20 to $250 more to each monthly payment. Your lender will tell you how much it is when you apply for a loan.
1. The first issue to be concerned about is the loan. You need to contact an established and qualified lender, usually, big banks are the best at this, as they will bring up-front any questions before providing a pre-approval. A pre-approval is just that, it means that your credit score, current liabilities, work and salary, and savings would qualify you for a loan, if no big concerns come up. You need to ask your lender to dig deeper into your credit history, to make sure that you will be provided with a full approval, dependent on the house appraising for the value of the loan or higher. Your lender will be providing the required information and documentation to the underwriter so that you can get a loan. The underwriter is like a judge. The judge decides whether the facts are good or bad. The lender will also see any problems to be solved early so you can get a loan and close escrow on time. There have been many, oh so many, cases where a lender will qualify a buyer and provide a qualification letter only to find out later that the buyer really did not qualify for the loan. It happens. So, before you waste your time, usually one to two months, going through the offer, counter-offers, approval of the offer, down payment, inspections, escrow, and later to have it all fall out, make sure you are fully approved, not just pre-approved. Expect to provide your last 12 months pay stubs, last 2 years of tax returns, 2 months of bank statements.
2. The second issue is finding a home, making an offer, and having your offer accepted. Make sure that you know what you are signing, before you sign it. A purchase agreement signed by all parties involved is a legally binding contract. The seller does not have to sell, and even if you take the seller to court, no judge will force a homeowner to sell and move out of their home. On the other hand, you, the buyer, may lose your down payment (earnest money deposit, or EMD), if you do not follow through with the contract conditions. Some conditions, may allow a buyer to back out of the purchase and having the buyer’s EMD returned to them, such as no loan approval, inspection showing some major defect or something drastic enough where the seller is not willing or able to repair or pay for the repair. Always get advise from a buyer’s real estate agent for all concerns about home buying, contracts, and conditions.
3. The third issue are the inspections. Good inspector who are licensed and work for a licensed company are the best option. There are many types of inspections, A) General house inspection, this is the most familiar to all they check just about everything inside, and outside the house. Please don’t think that a general house inspector is the end of it. House inspectors are good at what they do, but are not specialist on everything. B) HAVC Inspection, this is the one that checks the heating and/or air conditioning systems. C) Plumbing and Sewer inspection, this is the one that makes sure that the current or previous owners did not clog the sewer pipe with rocks or a gigantic wrench under the toilet. Sewer inspections usually put a camera down the sewer line to make sure nothing is down there. It happens, believe you me. D) Roof inspection, this is the one that checks to see if you will need or be needing a new roof soon. The general inspector also checks the roof, but they are not roofers and can not tell you more than “it looks ok, or has X years of serviceable life.” A roofer inspector will get down to the nitty-gritty and let you know how bad it is. Don’t get a roofer inspection, until after the general inspector checks the roof. If it’s a brand new roof, you can go ahead and spend $100 to $200 for a roof inspection for peace of mind. E) Termite inspection, this is the one that checks for the termites. Termite inspection is usually paid for by the sellers, but on bank owned properties, the buyer will usually pay for it. F) Mold inspection, this is the one that checks to see how bad the water damage and/or mold is in the house. You would only get a mold inspection if you suspect or see water damage, or if the general house inspector found water damage.
4. The fourth issue is that when buying a home in a city that requires a city report, the buyer and their agent should make sure that there are no non-permitted additions, patios, roofs, windows, doors, stories, bedrooms or bathrooms. The city will require that these items be repaired to meet code and the required missing permit fees must be paid before a clearance will be provided. Other cities will require that the non-permit addition be torn down completely. Other cities may allow the closing to go through by paying all city permit fees and fines.
5. The fifth issue is making sure that the transaction time lines, inspection contingency, loan contingency and especially close of escrow date are done and completed accordingly. Many bank owned properties will give extensions to facilitate the close of escrow but may sometimes charge a per day fee, per diem, for the extension. Don’t sign anything that comes directly from the seller or escrow company. Make sure that all papers go to your buyer’s real estate agent, so that he/she can take a good look at them, and guide you along. There have been times when a closing will not go through, such as no final loan approval, and the buyer will get a document from the seller’s agent or an escrow officer. The document will sometimes have such wording such as “in case of escrow not closing, buyer releases all money to seller”, or “buyer agrees to pay a penalty of X amount of dollars for not closing escrow.” This is not typical and it borders on an outright scam. Make sure that your buyer’s agent reads anything before you sign it, and make double sure that you know what you sign, and don’t sign your rights away. If any of the above in #5 ever comes up, don’t sign anything, if your real estate agent can’t solve the situation, contact a real estate attorney.
6. The sixth issue when buying a short sale, expect to wait 60 to 120 days to hear back from the bank, even if you received a signed offer back from the seller. The bank that owns the loan will usually take their sweet time to triple check everything, and even if you and the seller agree, the bank always has final say. Also make sure you close escrow on time, banks will not wait and will proceed with the foreclosure sale if you do not close escrow on time. Always keep the seller, and the seller’s bank on top of any delays, and make sure to get approval for new closing dates, in writing.