Friday, March 12, 2010

Potential Problems with Your Next Home Purchase

When it comes to buying or selling a home, it is wise to anticipate for some problems in almost every transaction. Anyone who tells you that their transactions never have any problems is not someone you should trust. Think about it; could you honestly make that promise about what you do to earn a living?

Several years ago, I had a customer who still owns a company that specializes in the installation of windows for businesses and automobiles. He told me that when he interviews potential glass cutters, one of the questions he asks them is, “Do you ever break any glass when doing an install?” If their answer is, “No”, he doesn’t hire them because, “If you don’t occasionally break glass on an install, you’re not doing much work as an installer.”

Similar truth applies to your next home transaction. Especially in today’s lending climate. The list of guidelines borrowers must meet in order to qualify for a home loan gets longer and more involved all the time. Once the transaction is started several of the factors involved are out of the hands of either your realtor or your loan officer. Here are just a few of the more common problems in today’s home buying and selling market.

Changing credit scores: Almost everyone knows about credit scores. Most don’t realize that their scores are not static but they are subject to change every time their credit is pulled. This is because the scores are a “snapshot” of your credit profile at the moment your credit is pulled. Pull it again in a day or two and scores could be a bit different based on any purchases or payments you may have made.

This problem usually only comes into play with those borrowers who have FICO scores that are “on the bubble” to qualify for financing. If this describes you, my best advice is to make no additional credit purchases and pay all credit lines on time until your purchase is complete. Most lenders re-pull credit prior to close to verify the borrower’s credit scores.

Appraisals with values below asking price: This has become a growing issue in today’s housing climate. Most realtors have done extensive homework to head off this problem, but there are occasions when even this background check isn’t enough to foresee a low appraisal price. Compensating factors such as recent neighborhood sales, the number of foreclosures in your area and average days on market can have a negative impact on the final value the appraiser assigns to your home. If it comes in higher than expected, that’s okay. You could have left money on the table. If it comes in lower than expected, you may be stuck renegotiating the asking price of your home.

Repairs discovered by the inspector: You’ve lived in your home for years and have done everything you know to keep it in good repair. But when the home inspector comes to call you may be in for some surprises. Recently one of my customers was buying a home where the sellers had lived for about three years. The inspector discovered that the floor vents for the HVAC system were leaking and that the owners had painted the ducts to try and hide this problem.

Changing interest rates: If I get one call a day I get ten. “What is today’s rate?” the caller inquires. Of course I give them a rate, but in reality our industry publishes multiple rate changes throughout the day. If you’re planning to close within the next 30 days the safest bet is to lock in your rate. But if you lean more to the adventurous side you can “float” your rate and lock just prior to closing. If you choose to “float” your rate, be prepared for changes beyond your control.

Unknown title issues: Regardless if you’re taking a mortgage to purchase a home, or if you’re paying cash, you want a clear title before signing the closing documents. Surprise tax liens, mechanic’s liens, property boundary disputes and unpaid property taxes are just a few of the issues that must be cleared up before the property title can be declared clear to transfer.