The Race to the “Closing” Finish Line
Preparing for a marathon race can only be accomplished with the right advice and preparation to help you overcome obstacles and reach the finish line. Buying a home is analogous to the kind of preparation needed to reach the finish line. Having your real estate professional team prepare and coach you in order to avoid hurdles and make the process of closing on a residential home easier.
A recent Bloomberg article revealed that residential purchase and sale agreements often fall short of the “closing” finish line. Home buyers spend months of preparation to find the perfect home just to find out that, unfortunately, they could not adequately maneuver the real estate process, resulting in an unsuccessful real estate transaction.
Why are so many residential purchase agreements failing to close? Four main hurdles that can foil a residential purchase and sale agreement consist of the mortgage, appraisal, inspections, and the fourth I must add is a lack of legal counsel. In fact many states, it is almost obligatory to have an attorney when you are buying a home as Realtors are forbidden from drafting contracts. In Florida that is not the case.
The first hurdle is the buyer failing to qualify for a mortgage and therefore not having the adequate funds to purchase a home. If the buyer’s mortgage application is rejected, the buyer will not be able to purchase the home. Most first-time home buyers have difficulty securing a mortgage loan because they do not have enough of a down payment or additional cash reserves or their credit scores are too low. According to Total Mortgage, even home buyers that were pre-approved may still be subject to a rejection of their mortgage application if there is a showing of (a) any negative hits to their credit report, (b) increased debt, (c) income change, or (d) an inability to demonstrate the source of one’s funds. All of these factors make it that much harder to get a mortgage for home buyers, especially for first time home buyers.
The second hurdle is when the appraisal value is lower than the sale price of the home. Appraisal values that are below the agreed upon price likely will cause the lender to rescind the loan. This trend of higher home values and lower appraisals customarily occurs during hot markets where the prices are bid up because of so many willing buyers. In this type of situation the buyer has three options. These options include canceling the deal, negotiating a lower purchase price or paying the difference and increasing your cash to continue closing on a residential home… an unlikely scenario where cash is short.
The third hurdle deals with home inspections and the deal breakers that would cause a purchaser to walk away. A home inspection is an examination of a house’s overall condition and the report flags some of the issues with the home that may potentially be costly to repair. Some common deal breakers in a home inspection are faulty roofs, cracked foundations, or water damage. If the home inspection report comes back evidencing extensive repair issues, it may no longer be in your best interest, as the buyer, to go through with the sale. Just watch the movie “The Money Pit” if you need more clarification on this point.
Finally, many of these hurdles may be overcome if a buyer is adequately protected by having a competent real estate attorney at their side to complete the process of closing on a residential home.
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