The home buying process may be the most stressful life experiences you’ll ever have! Major money transaction, moving and a big life commitment all rolled into one experience.
What to do? Here are three strategies to help you buy a home, without pulling your hair out.
1. Be prepared. Scrambling for money and documents that the lender requires to close is one of the top stressors that buyers experience.
Avoid scrambling by being prepared. If you are planning to buy a home down the road, consult a mortgage broker and/or your real estate pro, Kevin Toll, early on in your planning process, so you can know what kind of cash you’ll realistically need to close the deal – before you start the buying process. You might keep hearing about 3.5% down FHA loans, but in reality it might cost an addition 5 or 6% of the purchase price just to close such a loan, in your area and price range!
Have all your documents ready, too – things like divorce decrees, tax returns, updated check stubs, documentation of bills that you’ve recently paid down or off , even driver’s licenses; keep all of these items in a folder in case your lender requires them.
Last, but not least, there’s also an education element of preparedness. Educate yourself about the standard practices and timelines for a real estate transaction in your local market. If you’re buying a bank-owned property or a short-sale, educate yourself about what this will entail.
When it comes to buying a home, realistic expectations will keep you stress-free.
2. Keep your timelines as flexible as possible, as long as possible. Somewhere in America homebuyers near you are wondering how long they’ll have to:
a) live with their in-laws,
b) pay for the hotel room that is down the street from their new home
c) pay the daily fee for the moving truck which is parked outside, containing everything they own,
d) ask your landlord to give them another 24 hours
e) push back the vacation days they took off work for the move that seems like it will never happen, or
f) some combination or all of the above,
all because their escrow is not closing on the timeline they expected it to.
There are as many reasons for late escrow closings: buyer’s loan underwriting is taking too long, seller’s short sale application is still being processed, appraisal is wrong, bank-owned property asset manager is slow to produce the necessary signatures, and the list goes on.
More important than knowing the causes, though, is having the awareness that escrow closing dates are not set in stone until the end is very, very near – and that the problem of delayed closing comes up with ever-increasing frequency these days. Buyers who are trying to time their closing so that they move out of their apartment on the exact day they plan to close are likely to be disappointed – and temporarily homeless – in the current market climate.
Best practice is to plan on some overlapping days, weeks or even a month between the time you should be able to move into your next home, and the time you must be out of your current home, if you can afford it. Keep your moving plans flexible as long as possible – I’ve know a number of buyers who didn’t realize their move would be delayed until they were signing their closing docs!
Also, keep some flexibility in your daily calendar while you are in escrow, in case you need to show up at the property and get some additional inspections, unexpectedly. If you only have a couple of days before you must remove your inspection contingency, you might have to drop everything and stop in at the place for an hour here or there. You might also need to stop in at the bank – in person – to wire cash when it’s time to increase your deposit or pay your down payment or closing costs into escrow. This cannot usually be done over the phone or outside of banker’s hours, so if you can be a bit flexible for these outings, calendar-wise, you’ll be in good shape.
3. Pre-approve the folks across the bargaining table from you. There’s nothing worse than doing every thing you’re supposed to do, then having the deal fall apart at the last minute, through no fault of your own. Buyers whose short sales failed to get approved by the seller’s bank and fell out of escrow as a result. Buyers deals have died when their intended properties failed to meet the buyer’s mortgage guidelines because of condition problems like incomplete kitchen remodel jobs, mold or electrical problems and high-cost pest report items that neither the buyer nor the seller can afford to repair.
These ailing transactions can be prevented by early diagnosis: examine the other party’s qualifications and ability to close the deal, before you get into contract. For buyers, this can mean having your agent collect as much information as possible about the seller’s equity position, how underwater the home is, which banks are involved and how successful the listing agent is at closing short sale transactions – all of these things can give your agent and yourself a big old clue as to whether a short sale is likely to close. Similarly, if you’re getting an FHA loan, before you make an offer, walk through the property with your agent and troubleshoot it for condition problems that might come up during the appraisal.
With this information you can make an informed decision and have realistic expectations.