Mistake _3. Not Getting a Preapproval Letter

A branch manager at First American Title Company recently estimated that about 30 percent of the transactions at her branch fall apart or get delayed before closing. The biggest reason is that buyers don’t have their financial ducks in a row before they make an offer. Sometimes this results in lost time and embarrassment; other times earnest money is forfeited, too.
You can solve this problem by contacting a mortgage lender before you start looking at homes. Go through the complete preapproval process and get a letter from your mortgage lender stating you’re good to go for a certain dollar amount.
This preapproval letter gives you the following advantages:

1. You’ll know exactly how much home you can afford, how much down payment you’ll need, and what your closing costs will be.
2. You won’t waste your time looking at homes not in your price range.
3. When you do find the home of your dreams, you’ll be able to make a strong bird-in-the-hand offer that sellers will find harder to counter.

When Ryan and Brittany felt they were ready to buy their first home, they met with a lender recommended by their buyer’s agent. After a credit check and verification of their employment and source of down payment, the lender issued a preapproval letter. The next step was house hunting, and after a couple of weeks, Ryan and Brittany found their dream home. When their agent called to arrange a time to present the offer, she was told there was a competing offer the sellers would also be considering.
Both offers were presented to the sellers, and the competing offer was $1,500 higher than Ryan and Brittany’s offer. Their agent, a real pro, pointed out to the sellers that her clients were loan approved and gave them the letter from the mortgage company. She noted that her clients’ offer was a bird-in-the-hand, that they could close in three weeks or less, subject only to the appraisal. The competing buyers’ agent had not gotten his clients preapproved, and their offer was subject to mortgage approval.
The sellers chose to go with the preapproved offer over a $1,500 higher but riskier offer. Obviously, they didn’t want to take their home off the market and wait a week or two to find out if the buyers qualified. Timing and a sure-thing approach will often win out over a higher offer.

Mistake _2. Buying a Home Before You’ve Sold Your Current One

If you own a home and want to move up, signing a purchase contract can be risky and cost you big bucks if your present home is not sold. Too many homeowners who want to move up write an offer or sign a construction contract before putting their home on the market. Sometimes, these homeowners feel their home will sell quickly because it’s the nicest one in the neighborhood, or they don’t stop to consider what the consequences will be if their home doesn’t sell.
These mindsets can have the following consequences:

1. It can be expensive if you sign a construction contract and want to wait two or three months to sell so that you don’t have a double move. You might find that the market has changed, your home may not sell, and you could end up in a squeeze play. You discount the house to sell and then find the money you planned on for your new home is much less.
2. Your home doesn’t sell and you end up renting it or working out a creative financing deal with risky buyers. Usually, these pressure cooker deals have a 90 percent chance of ending up in default.
3. You make an offer subject to your home being sold. If the sellers are on the ball, they will require a clause that if a buyer comes along, you have three days or less to perform. If you can’t, the offer is void and your time and energy are for nothing.

Sometimes, the timing will work out and you can pull it off. People win the lottery, too. But for most homebuyers, the risks outweigh the rewards.
Robert and Andrea found this out when they waited until their new home was 60 days from completion before they put their old home on the market. They hoped to sell and move into their new home and avoid a double move.
Unfortunately, their old home needed some work to make it saleable, and Robert and Andrea weren’t willing to put time or money into it because they were focused on their new home. When their new home was finished and ready to close, the old home hadn’t sold or even had an offer. So they refinanced it for the maximum possible to get money to close on the new home. Without any other options, they rented out the old house to cover the payment. After a year, the rental is still costing Robert and Andrea about $210 a month because the rent doesn’t cover the mortgage payment. The home is going downhill fast because there’s no money or desire to do the deferred maintenance, and the loan is about $20,000 more than current market value.
The best way to avoid this kind of situation is to sell your home first. Put everything you don’t immediately need into storage and rent an apartment or stay with relatives until your new home is finished or you find your dream home. In a hot seller’s market, you may not have to worry about timing as much, but in a normal or slow market, you’ll need to get your ducks in a row before you make your move.

Mistake _1. Not Planning Your Move

Many first-time homebuyers who are renting get into problems with their lease. They make an offer on a home, forgetting that they still have several months left to go on their lease. Sometimes, there’s a stiff penalty when you break a lease. Other times, you just forfeit your deposit or the landlord may hold you to the balance left on the lease. In one particular situation, a young couple made an offer on a home with a $1,000 deposit that was subject to mortgage approval only. When they informed their landlord that they were moving, he politely informed them they had three months left on their lease. They could move out, but he expected a check for the three months or $2,700, or he would enforce the terms in court. In the end, the homebuyers couldn’t cover both the down payment and the remaining lease payments, so they lost both the house and their $1,000 deposit. The lesson learned is that if you’re renting, read your lease agreement carefully. If in doubt about the terms, talk to an attorney. In another similar lease situation, rather than have the deal fall through, the sellers renegotiated the purchase agreement. They paid two months of the buyers’ remaining rent and upped the price to cover the third one. It was a slow market, and the sellers felt that giving the buyers a concession would be cheaper than putting their home back on the market. Luckily, these sellers took a pragmatic approach to getting their home sold.
To avoid this problem, don’t sign a year or six-month lease and then start house hunting. Sellers are usually reluctant to take their home off the market for more than 30 days. When you’re seriously ready to buy and your lease is ready to expire, see if your landlord will extend on a month-to-month arrangement with a 30-day notice.