Get pre-qualified – Better yet, get pre-approved for a mortgage
Unless you are overloaded with cash, get pre-approved for a mortgage. Work with your mortgage professional to get ready to be able to execute a purchase contract when the time is right.
Do it right the first time. Provide your mortgage professional with all of the documentation required for underwriting approval. Simply filling out a loan application is not sufficient. Provide the documentation needed. Ask you lender what they need to provide credit and income approval. Then you will need concern yourself only with appraisal and property approval.
Ready to Purchase . . . Really?
You have found the dream home and you are ready to buy it. Now. Today. Wait, the auction is two business days from now, that’s plenty of time right. You know better. And the reason you know better is that you don’t have a few hundred thousand large available in ready cash. Why build hopes and dreams into a myth which will crash against the shores of reality? What is the benefit in that? If you do not already have your financing in order – Why waste your time even looking at property?
Determine a Realistic Type of Property to Purchase
When it comes to purchasing at an auction you need to have the cash in hand or be prepared to go to risk on forfeiting a substantial earnest money deposit. This is a one of the highest risk methods of purchasing property. Reminds me of an adage of early Crested Butte development days – How to make a small fortune, simply bring a large one to start.
Make sure your eyes are not too big for your belly as your parents may have told you when you were a child. Avoid playing in a field where you are not prepared to play. There are wonderful opportunities out there; pick only those within the reality of your realm. If the property needs more cash than you have, or can borrow, why beat yourself up for failing to get the property. Such is a non-starter.
Set a Realistic Timetable
When it comes to the calendar, most buyers are overly optimistic. An unrealistic timeline is one of the most frequently seen homebuyer mistakes.
With a regular sale, assuming you’re preapproved and it’s straightforward, you can possibly do it in 30 days, but 45 is realistic. To be on the safe side, allow a minimum of 45 to 60 days.
With a foreclosure, some larger lenders will aim for 30 to 45 days, but liens and title issues often mean delays. The norm is 60 to 75 days, and 90 to 120 days is not uncommon.
With a short sale, you need to know how many mortgages the house has and how many lenders — and whether the lenders have agreed to a short sale. If the house has one mortgage and that lender has a preset price, you can close within 45 to 60 days. If the lender doesn’t have a preset price, it could take six to nine months. The more lenders, the more complications, and the more time you have to allow.
With an auction sale, there are no worries about extended timelines. Have the cash on hand when you enter your bid.
Show reserve funds of 4-6 months housing expense post-closing
After finally finding that “dream home,” what buyer isn’t tempted to stretch as far as possible — and drain all available savings — just to make the numbers work? It’s one of the big homebuyer mistakes.
Often, buyers fall in love with a property, and they try to rationalize the decision. You need to be disciplined about it.
Too often, buyers set a price range and then fall in love with something that costs more. So they figure they’ll borrow the difference.
You need reserve funds — something you hold back to address unexpected problems, like the furnace that quits in mid-January, or the “like-new” water heater that dies the day after you move in. Or any other of a myriad of problems that can occur which will require immediate attention and the funds to solve the problem.
In most homeownership situations, there will be unforeseen circumstances. Yes, even in new builds. Make sure you have reserve funds to back you and to help you pass through underwriting with approval.
Your Current Lease
As part of the documentation you provide you loan originator, you will provide proof of your current residency and payment history. Does your current lease allow you to simply walk away with no financial consequences? If so, there is no problem. Otherwise, discuss your exit strategy with your originator.
No Lease History
We need to discuss how you have been living free and where for how long. We will need documentation. Underwriters will be looking for any potential negative housing information as living rent free is not the norm for the vast majority of us.
As always, I invite you to write me with your comments, questions and concerns. I read all comments and I always respond to legitimate inquiries.James Spray, MLO, CNE, FICO Pro CO LMO 100008715 | NMLS 257365 | September 15, 2012
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.