4 Insider Secrets for Avoiding Surprises at the Closing Table
I used to pass a mortgage company billboard on the freeway every day that read: "Surprises are for birthday parties.” (Implied: surprises are usually unpleasant when they arise in the context of real estate transactions.)The worst case scenario that looms large in the minds of buyers, refinancers and sellers alike is that they’ll get to the close of escrow and some big glitch will arise, coming between you and your home – or your cash.
Here are 4 key need-to-knows to help you avoid getting a nasty surprise at the closing table.
Read my lips: no new bills (or other financial blips). Most savvy buyers know better than to run out and buy a car while they’re trying to buy a home.But you’d be surprised at how many don’t think twice before opening new credit accounts to buy appliances or finance the kitchen remodeling work they plan to have done as soon as they get the keys to the place.Many a lender will run a quick credit check right before closing, mostly so they can detect whether your bills – your monthly obligations – have increased to a point that pushes your debt-to-income ratio too high to qualify for the home, or would make it tough for you to pay your new mortgage.
If your escrow runs 45, 60 or 90 days (or longer) as they commonly do in short sales and sales of bank owned homes, new accounts can certainly show up on your credit report in that time frame, endangering the deal and generating a surprise "no deal” from your lender just when you thought you’d be getting a set of closing docs to sign.
Also, some lenders conduct a last-minute check of borrowers bank account statements. Of course they want to make sure that you have the cash you need to seal the deal. But you might be surprised to learn that lenders also want to be sure that there are no unexplained, major deposits to your account, as well. They know some borrowers are inclined to borrow fistfuls of dollars from family and friends just before closing in an effort to scrape together the cash they need to close their home purchase by any means necessary.
And, unless the money is a lender-approved gift, that’s not allowed! (Why? The mortgage lender wants to avoid the friend or relative later saying they "own” part of the house, and also doesn’t want your obligation to repay a "friend-and-family” loan to interfere with your ability to repay your new home loan!)
If you have any large deposits (other than your normal income) come in just before or during escrow, be prepared to both explain them and document their source.
Make full disclosure when you first apply for your mortgage or short sale. Today’s loan underwriters are notorious for being sticklers about verifying and re-verifying the facts on your loan application. And as mortgage guidelines have tightened, lenders have also tightened up the underwriting process, creating a virtual gauntlet of review after review, underwriter after underwriter that you have to get past in order to close your deal.The most critical one?The funder – it is this underwriter’s job to give the thumbs up (or down) on wiring your mortgage money into escrow.
Funders are the toughest to get past, understandably, because the buck stops with them when it comes to their employer’s issuance of tens, even hundreds of millions of dollars of mortgage money every year.So, they want to be sure every last one of your loan qualifying i’s are dotted and t’s crossed – up to the very last possible moment before they green-light the disbursement.They have the right – scratch that – the responsibility to re-check your credit, assets, even your employment at the last minute, and they take this responsibility very seriously.
And on a short sale, the pre-closing title check can reveal legal judgments and liens against the seller that have been placed on the property up to the day of closing.
I’ve seen deals fall apart or come to the brink of failure the day or so before they were supposed to close because a buyer had lost a job, turned out to actually be legally married (the divorce they’d put on the application was not yet final), or a new collection account had surfaced.I recently saw a short sale nearly cancelled when a new collection account of the seller’s was filed as a lien on the house.Once, I even saw a deal killed beyond salvation when a last minute credit re-check surfaced a social security number flag that revealed one buyer was not in the country legally!
To avoid these sorts of last minute surprises, be 100 percent honest with your real estate and mortgage agents at the beginning of your homebuying (or selling) process about any and every area of your life that corresponds to a mortgage or short sale application question, even before you complete the application – there’s almost no such thing as an overshare at that stage.That puts them in a position to help you avoid closing table drama from the jump, even if it means they advise you to stay in your job, settle some bills or buy the home on your own, rather than with your spouse.
Watch the calendar closely. Buyers who originally were pre-approved for their mortgage many moons before they find the right property should obtain updated estimates of their mortgage payments and the cash they will need to close their purchase as their house hunting period goes on, and especially once they have a firm closing date estimate. Mortgage interest rates can change dramatically over a period of a few months, and closing costs vary widely based on things as seemingly minor as whether your transaction closes at the beginning or the end of the month.
To avoid getting to closing and realizing that you have to come up with an extra few weeks’ worth of prepaid mortgage interest because your closing date changed, make sure your real estate and mortgage brokers are in close communication, and ask them to keep you apprised of how any closing date changes will impact the size of the check you’ll have to write to close the deal.And if you’re buying a property that is a short sale or foreclosure, ask them to give you this briefing as soon as possible (and as frequently as possible!) in the transaction so that you can prepare a little cushion of extra cash in case closing is delayed for reasons beyond your control (which happens very frequently in these sorts of sales).
Obtain and review your closing documents in advance.I used to give this advice mostly to buyers, urging them to ask their agent and mortgage broker to provide them with their loan and title documents at least a day or so in advance – earlier, if possible.If you have to sign 300 pages at the closing table and you know your keys and moving plans hang in the balance, the chances you’ll be scrutinizing every line are pretty slim – and if you do happen to catch an error, the time it will take the lender to revise and reissue a set of papers can throw your moving calendar entirely out of whack.
The best practice is to get these documents in advance, so you can check on line items like the interest rate and monthly payment in the comfort of your own home or office, ask questions of your representatives and initiate any corrections that need to be made without disrupting the plans for signing and closing.
And this applies to sellers, too – even though buyers have a much higher volume of paperwork to get through at closing (and errors can be costly), closing doc errors occasionally arise that have a serious impact on sellers, as well.I was once asked for advice in a situation where the seller owned two neighboring parcels of land, and the title paperwork for the sale of one erroneously included the other one, too!It took a boatload of high-drama legal wrangling to get the mistake corrected, and get the sellers' other lot back.
Most home buyers feel like they are bona fide real
estate experts after all the studying up on loans and neighborhoods,
online house hunting and open house visiting it takes just to get into
contract on a home these days. But for all but the most handy of house
hunters, getting into contract and starting the home inspection process
only surfaces how little you actually know about the nuts and bolts and
brick and mortar of the massive investment you’re about to make: a home!
you hire a home inspector, but it seems like they’re speaking an
entirely different language - riddled with terms like "serviceable
condition” and "conducive to deterioration” - about your dream home!
Here are 5 questions you can use to decode your home inspector’s
findings into knowledge you can use to make smart decisions as a
homebuyer - and homeowner.
1. How bad is it - really? The
best home inspectors are pretty even keeled, emotionally speaking.
They’re not alarmists that blow little things up into big ones, nor do
they try to play down the importance of things. They’re all about the
facts. But sometimes, that straightforwardness makes it hard for you,
the home’s buyer, to understand what’s a big deal and what isn’t so much
- the information you need to know whether to move forward with the
deal, whether to renegotiate and what to plan ahead for.
seen things categorized in home inspection reports under "Health and
Safety Hazards” that cost less than $100 to fix, like replacing a faucet
that has hot and cold reversed. And I’ve seen one-liners in inspection
reports, like "extensive earth-to-wood contact” result, after further
inspection, in foundation repair bids pricier than the whole cost of the
many states, home inspectors are not legally able to provide you with a
repair bid, but if you attend the inspection and simply ask them
whether or not something they say needs fixing is a big deal, nine times
out of ten they will verbally give you the information you need to
understand the degree to which the issue is a serious problem (or not).
2. Who should I have fix that?
I always ask this question of home inspectors, with dual motives.
First, very often, the inspector’s response is - "What do you mean?
You don’t need to pay someone to fix that. Go down to Home Depot, pick
up a ___fill in the blank__, and here’s how you pop it in. Should cost
you $15 - tops.” And that’s useful information to know - it eliminates
the horror of a laundry list of repairs and maintenance items at the
end of an inspection report to know that a number of them are really
DIY-type maintenance items. Even buyers who are really uncomfortable
doing these things themselves then feel empowered to either (a) watch a
few YouTube vids that show them how it’s done, or (b) hire a handyperson
to do these small fixes, knowing they shouldn’t be too terribly costly.
even on the larger repairs, your home inspector might be able to give
you a few referrals to the plumbers, electricians or roofers you’ll need
to get bids from during your contingency period, which you may be able
to use to negotiate with your home’s seller, and to get the work done
after you own the place. Dropping the inspector’s name might get you an
appointment booked with the urgency you need it in order to get your
repair bids and estimates in hand before your contingency or objection
same goes for any further inspections they recommend - if neither you
nor your agent knows a specialist, as the general home inspector for a
3. If this was your house, what would you fix, and when?
Your home inspector’s job is to point out everything, within the scope
of the inspection, that might need repair, replacement, maintenance or
furthe inspection - or seems like it might be on it’s last leg. But
they also tend to be experienced enough with homes to know that no home
is perfect. Many times, I’ve asked this question about an item the
inspector described as "at the end of its serviceable lifetime” and had
them say, "I wouldn’t do a thing to it. Just know that it could break
in the next 5 months, or in the next 5 years. And keep your home
warranty in effect, because that should cover it when it does break.”
This question positions your home inspector to help you:
understand what does and doesn’t need to be repaired,
prioritize the work you plan to do to your home (and budget or negotiate with the seller accordingly),
get used to the constant maintenance that is part and parcel of homeownership, and
understand the importance of having a home warranty plan.
4. Can you point that out to me? Often,
when you attend the home inspection, you’ll be multi-tasking, taking
pictures of the interior, measuring for drapes or furniture, even
meeting the neighbors, or fielding several inspectors at a time. Worst
case scenario is to get home, open up the inspector’s report and have no
clue whatsoever what he or she was referring to when they called out
the wax ring that needs replacement or the temperature-pressure release
valve that is improperly installed.
best bet is to, at the end of the inspection, while you’re all still in
the property, just ask the inspector to take 10 or 15 minutes and walk
you through the place, pointing out all the items they’ve noted need
repair, maintenance or further inspection. When you get the report,
then, you’ll know what and where the various items belong. (One more
best practice is to choose an inspector who takes digital pictures and
inserts them into their reports!)
5. Can you show me how to work that? Many
home inspectors are delighted to show you how to operate various
mechanical or other systems in your home, and will walk you through the
steps of operating everything from your thermostat, to your water
heater, to your stove and dishwasher - and especially the emergency
shutoffs for your gas, water and electrical utilities. This one single
item is such a time and stress saver it alone is worth the lost income
of missing a day of work to attend your inspections.
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