What you don’t know you don’t know
In real estate—as in life—one of the hardest parts is navigating the unknown. Often times, there are unknown factors in real estate transactions that simply don’t come to light until part way through the deal, and the influence they can have over the process is significant.
Our own Sara Garza is here to help. Through a few common scenarios, she sheds light on some of these unknown unknowns, and provides tips and tricks for addressing them early on. Take a look:
Situation #1: You just receive the coveted pre-approval from your lender and you are stoked that both your down payment and recurring monthly payments are affordable and, in fact, leave you with money to spare.
This is great news, and now you can shop for a home! But, it’s important to remember that you have to maintain your current financial status until you close on your new home. In other words, hold off on making any major purchases that may require monthly payments (like a new car). One of the biggest factors your lender looks at when approving your loan is your debt-to-income ratio and, since they run your credit again just moments before closing, any changes to that ratio (i.e. the addition of new debt) could be detrimental to your home purchase.
Situation #2: You decided you would like to sell your home and buy a new one, but you want to know where you’re living next before you have to think about packing up and selling.
Most sellers do not find contingent offers very attractive (offers based on your ability to sell your current home first). Often times, you have to improve a contingent offer by offering higher than list price, or finding a way to persuade the seller to wait until your current home sells. Because this is often a challenging process, it is typically in your best interest to sell your current home before finding a new one. If that option is not possible, you can ask the buyer of your current home to agree to a longer closing period to allow you to look for and purchase a home, offer you time to rent the home back from them after closing, or a combination of both. Even if you end up having to move into a family members’ home for a short time and move your belongings twice, it could end up saving you thousands of dollars.
Situation #3: You find a great home and the seller wants to negotiate a rent back, where they rent the home from you after closing until they are able to find a new home themselves. They ask for two and a half months. You agree to this; after all, the home is amazing, and you are in love with it!
Kudos for being negotiable with your buyer! One important thing to keep in mind with rent backs is the 60-day occupancy rule. When purchasing a new home with an owner-occupant loan (meaning you are not purchasing it as an investor, but rather to live in yourself), you must occupy the home within 60 days of closing. This is one of banks’ requirements that a borrower must follow to stay compliant against mortgage fraud. Renting back to the seller for a period longer than two months would push you past that 60-day threshold, meaning you would end up failing to meet those requirements. The solution? Keep rent backs to less than two months so you don’t have to worry about this piece.
Situation #4: You are searching for a new home and the lender has provided estimated closing costs. You’re wondering, “What does estimated mean?! Will there be any big surprises at the closing table?”
Lenders do their best at providing accurate closing cost estimate, but there are a few fees that could come up prior to closing that can impact your final costs. For example, some HOAs require capital reserves from each homeowner, meaning you could be required to put an extra few months of payments on deposit with the association. This extra money would increase your total costs due at closing. These fees are difficult for lenders to predict initially, but HOA dues are typically part of deal negotiation, so you should be aware of them long before you get to the closing table.
Situation #5: You find an email with wiring instructions for you to send your final funds for closing, and they appear to be from your broker or the title company.
Do not ever wire money to instructions you receive via email without triple checking with the source. You will never get an email from our brokers with wire instructions. The title company will require the buyer or seller to speak to them directly or to receive them via a secure verifiable password. Wire fraud and hacking is a growing problem in our industry and you should always speak with your broker about how you will be safely transferring funds.
Questions? Contact Sara Garza
firstname.lastname@example.org, (720) 499-4937.