3 Things You Should Not Do When Buying a Home
The Twin Cities Are Filled With Real Estate Stories
Real estate is the story of buying and selling a home. Since I’ve been a Realtor for 14 years I have stories. Most end happily even though there may have been challenges along the way. But, every once in a while something goes wrong. Mistakes that could and should have been avoided happen. The only upside to mistakes is learning from them. Even better is learning from someone else’s mistake. Free advice that another paid for is like earning bonus miles.
I’m going to share three stories from three buyers who were on the home stretch to close on their dream home and then did something they shouldn’t. They had a signed contract, they had a loan, they had their closing date and all systems were go. And then they did something unthinkable that blew that deal.
Don’t Buy a Car
Alex was ready to stop renting. He was tired of the cost of his tiny apartment going up every year and knew the tight rental market was not going to loosen up anytime soon. Because he had student loans, it took him 2 years to scrimp and save and pay down his debt to a point where he would qualify for a mortgage on a modest condo.
It was a happy day for Alex when he had a signed contract on the perfect one bedroom in a Minneapolis neighborhood he loved. With the inspection and appraisal completed he had a closing date in a couple of weeks. He wanted to celebrate in some significant way and decided it was also time to start thinking about replacing his old and tired clunker of a car so off he went to the Subaru dealership. Alex, being an impetuous type of guy, took an offer he felt he couldn’t refuse for the new Crosstrek he had been wanting for the last year.
What Alex didn’t anticipate was THAT THE LENDER WOULD PULL HIS CREDIT AGAIN right before closing. When that happened, the income to debt ratio no longer worked in his favor. He had traded in not only his car but his ability to purchase the condo. Bummerama!
Epilog: Suffice it to say that the only thing that would have made Alex feel worse at this point was if someone had stolen his new car or if his dog died. On the bright side, his landlord hadn’t rented his apartment yet so he was able to renew his lease and he did love driving that new car. A year later, a promotion found Alex with more income and less debt, and he bought himself a condo he liked even better than the one that got away. The lesson, however, is clear. DO NOT take on new debt before you have closed on your home because it’s not over until the papers are signed and the keys to the front door are in your hand.
Don’t Take Out a Line of Credit to Buy Furniture and Appliances
Eric and Maggie knew it was going to be a challenge when they decided to move into her tiny Minneapolis studio apartment together. Long term they were saving to buy a townhouse in the Lake Minnetonka area which they both loved and felt any sacrifice they made now was worth it.
Two years later, after several months of looking and a couple of disappointments, they found a three bedroom townhouse they loved. It was the perfect space with a room for Maggie’s home office and one for Eric’s studio, a newer kitchen and a large space for entertaining inside and outside! They couldn’t have been happier or more excited when all the details were behind them and they were busy packing waiting for their closing.
As Eric and Maggie looked around at the hand-me-down furniture they had been living with since their college days, they decided it was time to act like grown-ups and buy some new things like chairs, tables, and sofas to go with their new townhouse. Yes, dear readers, this is when the story goes south. Originally they were "just looking" until they found a great sale they wanted to take advantage of and opened a line of credit to secure the deal. They thought all would be well because they wouldn’t take delivery until after they closed on their new home and would be charged at that time. WRONG! The line of credit showed up on their report before closing and again, had a negative impact on their debt ratios as well as lowering their credit score.
Epilog: Even though Eric and Maggie were able to cancel the line of credit, it held up the closing and the sellers refused to extend the contract. Sadder but wiser, our buyers moved in temporarily with friends since their studio was already rented to another tenant. In the end, they got everything back on track and found another property but not one that was as perfect a match as the one they lost. DO NOT take out a line of credit even if you are not taking delivery until after closing. That will show up on the report and it will have an effect on your ability to get a mortgage.
Don’t Change Jobs
When the twins arrived, Nick and Sally was still living in the 1 bedroom apartment they moved into when they got married 2 years ago. Their 5-year plan at the time was to save for a home, but didn’t include 2 additions to their family so soon and at the same time! To save money at a faster rate, they decided to take up Sally’s mom’s offer to live in the basement apartment of her home for as long as it took them to save enough to buy a place of their own.
According to plan, they found the home of their dreams in a neighborhood they thought they could never afford. After negotiations resulting from the home inspection and the appraisal behind them, they were awaiting the closing date. It was at this time that Sally, who had been working towards starting her own consulting business for the past year, landed a solid client and knew she would generate the income she needed and quit her job. No, Sally! Don’t do it! But she did thinking that since she would not be taking a cut in her salary all would be fine.
If you are self-employed, lenders like to see a two-year track record of earnings to approve a loan based on your income. The lender would not allow Sally’s income to be considered and based on Nick’s alone it was not enough to purchase the home they had contracted to buy. Be aware changing jobs before or during the loan process and before you sign the ownership papers is not a good idea. Unless you are going from one full-time job to another and earning the same income or higher, you are likely going to have issues getting a mortgage.
Epilog: Nick and Sally were heartbroken for quite a while. However, they were thankful they had a great home to live in for now and that Sally finally was living her dream of self-employment. As often happens, events that seem like tragedies at the time often lead us down a path to something better. Over the next 2 years, Sally’s mom met a wonderful guy and married him. They are both living their own dream of retirement in the south of France. Nick and Sally bought her mom’s home and couldn’t be happier and the basement apartment is now being occupied by Sally’s younger sister and her husband who are now saving to buy their home.
Yes, I am a sucker for a happy ending! To make sure your own home buying story has you smiling on closing day, keep these stories in mind. Don’t make any changes to your finances, credit or employment while in the home buying process. They will show up in your lender's final report and might sabotage your deal. This includes making large purchases on credit, securing a line of credit, getting a new credit card, moving money around, accepting a large monetary gift from your parents, or changing jobs. If extenuating circumstances arise, check with your agent and your lender before you proceed.
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