I’ve long believed that the number one source of stress experienced by home buyers is all the unpredictability that lies along the home buying timeline: the prospect of unpleasant surprises that seems to lurk around every corner.
Fact is, there are some commonly arising surprises that foul up buyers’ plans and expectations, killing deals and leaving expectations dashed and emotions frayed in their wake. These days, that list includes everything from homes turning out to cost more than the home buyer expected to appraisals coming in below the agreed-upon purchase price.
Here’s some good news: there are steps you can take to manage the risks of being taken by surprise while you’re in the process of buying a home. As I see it, they fall into a handful of buckets.
Here are the five big categories of actions you can take right now to minimize your chances of having an unpleasant home buying surprise:
1. Study up. As a smart manager of your life and your finances, it’s your duty to get as detailed a primer on the ins and outs of home buying as you need to feel comfortable and confident as you move forward with the process: what lenders require, the nuts and bolts of a purchase transaction, that sort of thing.
But when you’re specifically seeking to minimize the risk of unpleasant surprises, you’ve got to take your real estate education to the next level, and study up on some very specific subject matter: your local market, in real-time. What I mean is that markets vary a lot from place to place, and individual real estate markets change very quickly.
If you’re the sort of savvy buyer that’s been stockpiling your cash for a year or more in preparation for buying, it’s entirely possible that the market dynamics you’ll face when you get out there will be very different from those dynamics which inspired you to buy in the first place. It’s a pretty unpleasant surprise to expect to have your pick of the market, then lose out on the first few ‘dream houses’ you find to other offers.
Studying up on your local market empowers you to rejigger your search and offer strategies to be successful without having to first experience these sorts of traumas and dramas. It may also allow you to explore new alternatives for achieving the results you want, like buying via an online auction or Neighborhoods where homes lagged for months on end a couple of years ago are starting to seem some new life this spring, as buyers like you who have been waiting and saving have begun to sense the bottom of the market might actually have passed.
Anecdotally, I’m hearing many more local agents across the country reporting receiving 2 or 3 offers on homes they couldn’t sell at all 18 months ago, and many more buyers reporting that the ‘good’ homes come on and off the market much more quickly than anytime in recent years.
But, again – this stuff is hyper-local. So ask your agent to help you understand the actual data of the housing market in the neighborhood(s) you’ll be hunting in. Specifically, look at how the number of days a home stays on the market (DOM), inventory levels and the list price to sale price ratio have been trending over the last 6 months to 1 year. 2.
2. Team up. It never ceases to amaze me the amount of expertise and plain old help that goes untapped – and the avoidable stress and expense that are incurred – because home buyers don’t even think to express certain concerns to their real estate and mortgage pros.
If there are particular potential surprises or other issues that keep you up at night, you should clearly express those to your team of real estate and mortgage professionals, and enlist their help in keeping them at bay.
Obviously, not all surprises are within your real estate agent or mortgage broker’s power to prevent; and many of the risks that you worry about are things they’re surely already making their best efforts to manage. But if your team knows that your closing cost cash is to-the-penny tight, or that your move-in timeline is hair-trigger touchy, that knowledge might inspire them to call in favors like a free rate-lock extension from their rep at your lender, or to set up a strategic solution, like negotiating your ability to move in a few days before closing.
This knowledge also gives them the signal to educate you about what factors will impact the particular surprises you most dread. And that, in turn, allows you to go from wondering in the wilderness of unknown fear factors, to being able to help them smartly spot issues before they snowball into badness.
For example, the date on which you close your transaction during the month has an impact on how much cash you’ll need to bring to the closing table. Generally, the amount of prepaid interest you have to pay if your escrow closes the fourth week of the month is much less than what you’d have to pay if it closed, say, the second week of the month.
But think about that: if you’re aiming to close at month’s end to keep your closing costs low, and escrow closes even 10 days late (not at all uncommon, these days) you could end up with a big spike in the cash you’re required to bring in to close.
Letting your team know that this would break your heart – and your bank – can help them quickly act and react to either keep closing on track or, if that’s not possible, pushing it out to avoid jacking up your closing costs.
3. Keep up. Like this closing date/closing costs debacle-in-the-making, there are a number of critical dates and deadlines in a home buying transaction by which decisions and deliverable and course-corrections must be made or the seeds for a scary surprise take root. And only some of the time are you, home buyer, in control of making sure those timelines stay on track; many other times, loan underwriters, appraisers, inspectors and lenders are responsible for achieving these important must-meet dates. What you can control is your own awareness of all these calendar points, so that you can make more or less urgent nudges and check-ins, as needed, in order to ensure that things either (a) stay on track, or (b) don’t take you by surprise, if they get off track. Ask your real estate agent and mortgage broker to help you create and stay on top of an escrow calendar containing all the major and minor deadlines and tipping points of your transaction, as well as to leverage this tool to avoid surprises throughout the transaction.
4. Fess up. It’s one thing to be surprised by something you have no control over. But imagine how you’d feel if your deal was killed by a surprise that you (and only you) could easily have avoided! I’ve personally seen this happen a number of times. One buyer I know ended up losing her dream home – and her deposit money – due to false information on her loan application. She’d apparently gotten away with it on a number of credit applications, but a mortgage is an entirely different animal.
Another nearly had the same tragic outcome as a result of telling her team that she was divorced when, in fact, the divorce was not final. (The bank then wanted to vet her soon-to-be ex-husband’s qualifications for the loan. And his credit was really, really bad. Really.)
When you are in the loan application process, keep in mind that it in the world of lending, technicalities matter – a lot. This is not just a conversation with friends; rather, it’s about as official as you get. So, the things you normally say and do to describe your life, the things that make up your aspirations and plans, the way you see things turning out in the near future – none of these things count as fodder for your loan application.
What does count? The hard cold facts of your status quo situation – right now. So, be brutally honest about the state of your life and your finances, warts and all. This might creates obstacles you’ll have to workaround up front, but I assure you that is preferable to getting caught in a falsehood – intentional or otherwise – and having to scramble to try to salvage a deal days before closing.
5. Fluff up. Your cash and time cushions, that is. The reason home buying surprises are so stressful is that they threaten to do one of two things: (a) screw up our timelines for moving, or (b) force us to come up with more cash than we have at hand to close the deal. If you get just a few days away from closing, bags and boxes packed, and are told you need to bring in just an extra few thousand dollars to close the deal, it can feel like your home – actually, your life! – is being held hostage for extra cash, on the one transaction you’ve already spent years saving up for.
The least stressed-out home buyers are those who have built in time and cash cushions to their home buying and moving plans. Give yourself the gift of a few weeks of planned overlap in your ability to occupy your last home and your future one; even if that means you wait to give your landlord notice until you’re well into escrow, it empowers you to avoid looking for hotel rooms and being distressed by the very predictable, very common occurrence of a late escrow closing.
Similarly, if your home buying-related financial plans involve maintaining a nice, fluffy cushion of so-called emergency cash even after your planned down payment and closing costs, you’ll be less likely to go off the deep end if the lender requires you to drop $500 on repairs to get the deal closed.
Article from Trulia