Adventures in 1st Time Home Buying – Potential Pitfalls in the 11th Hour
March 13th, 2007 by Rich JacobsonThis is the ninth installment in an on-going series of posts dedicated to helping 1st Time Home Buyers successfully achieve their home purchasing goals.
We have been identifying and discussing, in chronological order, key events in the home buying process. In our last time together, we talked about the importance and value of conducting a home inspection in a post entitled, “Home Inspection or Home Alone?”
Today’s topic is: “Potential Pitfalls in the 11th Hour”
Okay, so we’ve conducted our home inspection and have successfully negotiated with the Sellers for those items which need to be corrected/repaired prior to closing. We now enter into the “Pending” phase of the home buying process. Typically, there isn’t too much more drama left, but it is helpful to understand that there are still some additional steps in the transaction that may lead to unforeseen challenges or delays.
The Lender’s Appraisal
Immediately following the inspection, your mortgage specialist will order up the appraisal. The underwriter for your loan will need to know if the house you are purchasing is worth the value/price you have agreed to pay.
There are several possibilities that may occur as the result of an appraisal:
1. The property appraises at the full value of your agreed purchase price and with no conditions for funding. This is the most preferred result, and typically ensures a timely closing.
2. The property appraises at the full value, but there are some conditions for funding that need to be remedied prior to closing. Even though you may have conducted a thorough home inspection and negotiated the corrections with the Sellers, the Lender may still require for other issues to be resolved before they can provide funding. This is especially prevalent in VA or FHA transactions. Both VA and FHA loans typically employ more stringent standards, focusing primarily on safety and structural concerns, when conducting their appraisals. Shortly after the appraisal has been done, your Mortgage specialist will receive notification of value and the called-out conditions for funding. These additional conditions or issues will need to be negotiated with the Sellers for correction and hopefully can be resolved in a timely manner.
3. The property appraisal comes in under value. In this instance, the appraiser has determined through their analysis that the current market value of the property is below the agreed purchase price. In most cases, the financing contingency of your contract provides language which protects you as the Buyers, and offers you some options to address this discrepancy:
A. Depending on the variance amount, you may be able to ask the Seller to lower the sales price to match the appraised value.
B. As the Buyer, if you have the resources, you can bring in cash to make up the difference.
C. In some instances, depending on the type of loan, you can request that the Sellers pay for a reappraisal by another company that is acceptable to the Buyer’s lender.
D. If any of these options are not feasible, most financing contingencies allow the Buyers to back out of the contract and retain their earnest money deposit.
Homeowner’s Insurance
Since I haven’t covered this point yet, now is as good a time as any. Typically, once you’re under contract, as a Buyer, you will want to make contact with your insurance agent to determine if the property can be reasonably insured. There may be instances where the current owners have submitted significant claims against the property, thereby making homeowner’s insurance very costly or difficult to obtain. Once again, your contract should contain language that protects you in this event, and allows you to terminate the contract, if necessary.
Seller’s Remorse
This rarely occurs, but it needs to be mentioned. Every once in a great while, a Seller may have second thoughts about letting go of their precious home and treasured memories. If you’ve ever seen the Steve Martin movie “Father of the Bride” you’ll understand exactly what I’m talking about.
As a professional agent, I always counsel my Buyers not to worry or be overly anxious about these kinds of issues and the potential for challenges to occur. If and when they happen, we’ll deal with them head-on, and work with the Sellers to achieve a mutual resolution agreeable to both parties.
Hopefully, with a capable, professional agent working hard to represent Your Best Interests, the 1st Time Home Buying process will be a smooth and enjoyable adventure!
For the final installment, go to Are We There Yet?
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