Home Builders Association of Western Ma - You're almost there. The light at the end of the new home buying tunnel is visible. Your offer has been accepted, your loan pre-approved and the house is officially under contract. Only time separates you from closing on your new home. Easy sailing from there, right?
Before you throw out your welcome mat, there are still a few hurdles to overcome before you can claim "Home, Sweet Home." The decisions you make between contract and closing can delay, impede or even stop the transaction completely, creating one monstrous headache along the way. To ensure the biggest struggle you have before closing is deciding whether to paint your new kitchen pale goldenrod or lemon chiffon, keep these eight tips in mind.
Stay in Your Current Job
Keep your employment stable unless it's absolutely necessary to make a job change. Lenders like to see a consistent work history and changing employers can create an uncertainty about your future, particularly if your salary is commission-based. Also avoid a change to self-employment. When approving a loan, lenders usually like to see a two-year track record of self-employment income. In addition, self-employed workers tend to include a lot of expenses on their tax returns, especially when initially getting off the ground. These expenses reduce your income to qualify for a home loan.
"When you are approved and underwritten for a loan, it is contingent upon your financial situation at the time of the application," said Tim Doyle, senior director of Mortgage Bankers Association in Washington, D.C. "If there is a change in your financial position, you need to contact the lender, and they may have to reunderwrite your loan, particularly if the change is significant. This can cause delays in your closing."
Wait to Move Money Around
To ensure quality control and eliminate potential fraud, many mortgage lenders require you to document the source of all of your funds. You may have to provide a paper trail, including cancelled checks, deposit receipts and other seemingly trivial data, which can get quite exasperating. Moving money around between checking and savings account, money market funds, mutual funds or even retirement accounts - even if you are consolidating funds to make it easier - could leave you and your lender with an extreme headache trying to properly document it all.
Hold Major Purchases Until AFTER Closing
Why? The biggest reason is to stabilize your debt-to-income ratio, the percentage of your gross monthly income (before taxes) that you spend on debt such as monthly housing costs, credit cards, student loans, installment debt and car payments. A major purchase reduces the amount of income you have available for your home mortgage. And reduced income may convince the bank you can't afford a new home.
Your best bet is to wait for that new car or home entertainment system until after closing.
"At closing, lenders often are required to recertify your loan application to ensure its accuracy," said Doyle. "If you've taken on more risk since your initial approval, such as buying a car or new furniture, or opening a new line of credit, you could put your loan in jeopardy."
Use a Third Party to Manage a FSBO Deposit
Many war stories have been told about For Sale by Owner (FSBO) sellers who spent "good faith" deposits prior to closing. When the transaction is canceled for valid reasons such as repair or financing issues, buyers have to battle for a refund. A better choice is to put the deposit in a trust account and find an attorney or other third party who will safeguard the money until after closing. Be sure to state in your contract what happens to the deposit if the transaction doesn't occur.
Keep Your Emotions in Check
Most likely you have fallen head over heels for your new home, but be careful not to let Cupid's arrow lead you astray. Buying a house is a business transaction, and you must have a cool head throughout the deal. Try not to fall so much in love that you ignore major repairs that you can't afford, while keeping in mind no home is perfect. Avoid walking away from a terrific home because of a seller's refusal to do a small repair.
Work with Builders and Be Realistic
"If you are building a new home, be proactive and work with your builders early on," said Bill Watson, Member, Institute of Residential Marketing (MIRM), and president of Bill Watson and Associates, Inc. in Aurora, Colo. "By getting involved early on with decisions such as color and carpet selections, you will receive more cooperation from the builder and a wider variety of choices. And most importantly, you won't be waiting to close because your dream home isn't ready."
On another note, if your new home's closing is contingent on selling your old home, Watson suggests being realistic about its sale and marketing. "You don't want your new home purchase to fall through because your old home is still on the market."
Estimate Closing Costs Well in Advance
In many cases, closing costs can be as much or more expense than the down payment required to purchase a new home. "Always have sufficient funds for closing costs," said Doyle. "Keep a buffer of extra money as well to cover unanticipated costs." It is also advisable to keep in close contact with your lender so that you know what to expect come closing day. Understand the numbers and don't hesitate to ask questions, so that you fully understand the lender's requirements. The more you know going in, the easier it will be to buy your new home.
Remember to Hire Representation
Chances are the seller has a broker. Make sure you have good representation on closing day, whether it is your broker, attorney or both. Having representation ensures that all bases are covered and no detail is missed.
By following these few suggestions, closing day will leave you as a blissful homeowner. For more information on buying a new home, visit the National Association of Home Builders website at www.nahb.org/forconsumers.