We know it’s a hot market, and buyers have to act quickly to get the home they want. While your real estate agent will give you some good advice on how to write up a contract that will turn a seller’s head, buying real estate is a complex process. It’s rarely a smooth journey from signing the contract to signing the final closing documents.
Slowing down to learn more about the process will help you overcome common roadblocks and even devastating blows to your homebuying quest.
Five Reasons to Slow Down Your homebuying In a Hot Market
- Get quotes from multiple lenders
- Make sure your credit is in order
- Plan for the closing costs
- Pending liens and unpaid bills
- Wire fraud
Get Quotes From Multiple Lenders
In a seller’s market, a pre-approval letter is a must for your offer to be taken seriously. While it’s possible to get approved by the first lender you find, financial experts suggest homebuyers get at least three quotes, ideally five.
The more you shop around for a reasonable mortgage rate, the more likely you are to save on the lifetime of your home loan.
According to the Consumer Financial Protection Bureau, one study of prospective homebuyers in 2016 suggests that failing to comparison shop can add about $300 extra per year. Stretched out over 30 years, and that’s thousands of dollars that could be saved.
Another benefit of comparison shopping, according to the study, is that it helps homebuyers build confidence in the mortgage process.
Make Sure Your Credit Is in Order
Getting a pre-approval isn’t a guarantee of a loan. Sometimes the first lender you go with for your loan may not end up approving the final loan. Loss of financing is one of the common ways that a deal can be delayed or canceled. So, many homebuyers waive the financing contingency and others to win a bidding war.
While that strategy can help turn a seller’s head in a crowded market, it can also open up the buyer to financial consequences, like losing the earnest money deposit if the deal isn’t finalized due to issues with obtaining a loan. Shopping around for multiple quotes means you’ll be able to quickly pivot to another lender and keep the deal on track.
After choosing the lender with the best rates, homebuyers will also want to keep a close eye on their spending and credit score.
Avoid the following to ensure that your home loan is approved:
- Applying for a new credit card
- Purchasing a major item like a car
- Paying off all your debt
- Closing any lines of credit
- Co-signing a loan
- Changing jobs
- Falling behind on current bills
- Losing track of deposits
Keep documentation of any activity in your bank account. It’s okay to take cash gifts from family and put it toward your down payment, but you must be able to show who sent the money.
The pre-approval letter is just the first of three crucial lender documents that homebuyers will see. It is not a legally binding document. If you decide you don’t like the terms of your loan, you can always change lenders before closing.
Related Reading: Homebuyer Tips When Applying for a Mortgage
Plan for Closing Costs
The down payment will likely be the largest sum of money a homebuyer pays at the closing, but it isn’t the only amount paid before the move-in date. While the down payment goes toward the total purchase price and the remainder is financed by the lender, other costs are associated with a real estate transaction.
The closing costs are usually a small percentage of the total loan amount (around 2-5%). This money is used to pay all the professionals involved in processing and approving your loan, conducting a title search, appraisal, land survey, recording releases, and other vital services to ensure the sale and transfer of title is performed properly.
While technology is helping to drive down certain costs associated with mortgages and title insurance, many first-time homebuyers are caught off guard by the final closing costs. Depending on your state, it can rack up. In Delaware, for example, the average total is $17,727.42 as of 2020. Meanwhile, it’s about $1,500 in Missouri.
Related Reading: Closing Costs: How Much Does It Really Cost to Buy a House?
Pending Liens and unpaid bills
There are different types of liens that can be placed on a property if the owner doesn’t pay a bill or misses a mortgage payment. Typically, this information is found in the public record when the title search is conducted. Still, sometimes a pending lien or unpaid bills that will likely become one aren’t recorded promptly.
According to most state rules, governing jurisdiction over the property, like the county, city, or a community association, have a right to enforce unpaid accounts via liens. Unlike other forms of personal debt, the lien attaches to the property, which means a new owner could inherit the debt if the property searches aren’t done during the inspection period.
Unpaid utility bills are a common source of unexpected costs after closing. Often, the utility department’s information isn’t easily accessible, so bills that are piling up may go unnoticed until the new owner calls to turn the water back on. One woman in New York was forced to fork over $4,000 after closing. The bank that reposed the property refused the Monroe County Water Authority to enter the property for a meter reading for nearly a year. During that time, 1.3 million gallons of water had been used!
Typically, the title company will contact the appropriate departments to confirm balances or request a municipal lien search from a provider like PropLogix. This report includes information on the property that hasn’t hit the public record as an official lien but still requires resolution before a new owner takes the title.
In addition to a municipal lien search, buyers should also request a final meter reading before closing.
The only problem is that some municipalities have long turnaround times to get the information in writing. While the chances of inheriting a property with thousands of dollars in unpaid utility bills, pending code violations, or permit fees are low, it’s worth slowing down a bit to make sure.
Related Reading: How to Do a Municipal Lein Search for (Almost) Free
Cybercriminals steal down payments with wire fraud
It’s a new year, and one Nevada man has already lost $78,000 to cybercriminals. The money was intended as the down payment on a house in Millinocket. While this is the first unfortunate story of wire fraud to hit the real estate headlines since 2022, it’s unlikely to be the last.
The crooks use sophisticated email phishing and spoofing to infiltrate the inboxes of professionals involved in the transaction. Once a target (usually an upcoming transaction and the buyers) is identified, the fraudsters begin sending emails to the buyer with “updated” wiring instructions to divert the funds to their accounts.
Real estate and title agents take precautions to prevent these wire fraud attempts from succeeding, but it only takes one email to reach a nervous buyer rushing to get the closing done for disaster to strike.
The most critical time to slow down during the real estate process is when sending funds over a wire.
Some tips to keep your money safe include:
- A title company will rarely change its wiring instructions. If you receive an email with updated instructions and new account information, always call the title company from a known number.
- Beware of emails urging you to act immediately. Cybercriminals often leverage a sense of urgency to encourage people to act quickly without thinking.
- Always call before sending the money. Connect with your title agent or attorney over the phone from a known number before sending the funds.
Related Listening: Moving Money Securely in a Real Estate Transaction with Jason Doshi
Your real estate agent, lender, or title agent may have some other advice for you as you start the homebuying process. Reach out to the professionals involved in your transaction if you have any questions or concerns. For more real estate news and tips, subscribe to our YouTube Channel or join our list of blog subscribers!