June 9th, 2019 9:45 AM by Jackie A. Graves, President
Home ownership is a cornerstone of the American dream.
Unfortunately, there are many ways that the American dream can turn into your
family’s personal nightmare.
These hazards include
purchasing more house than you can really afford (becoming house poor),
unexpected surprises that weren’t identified during the home inspection, and
finding out that your pre-approval for financing is about as flimsy as the
paper it’s written on.
In a market inundated with realty advertising, let’s look at 4
critical areas where first-time homeowners run into trouble.
Homebuyers are inundated with commercials on TV and the internet
telling them that they can get pre-approved for a certain amount and shop with
the confidence of a cash buyer. This is a bit of an exaggeration. Pre-approval
is a good first step. But, it’s important to understand that a pre-approval is
different from an approval.
Pre-Approval is when a lender tells you that you are approved
for a certain loan, with general terms, but does not require you to provide
paperwork and other supporting documentation.
Approval is when the lender has completed the underwriting
process and offers you a firm loan offer that can be executed.
The easiest way to know the difference is to consider what
information the bank has required of you at this stage. First time homebuyers
are understandably upset when they select a home based on what they thought was
an approval, only to find that some information came up during the underwriting
process that cancelled out their pre-approval.
In the final stages of becoming approved for a mortgage, you’ll
need to provide proof of income and other financial disclosures. Most mortgage
lenders offer homebuyers the option of enrolling in digital verification. This
means that the lender can digitally access your required documentation on your
behalf. Some of this information will need to be manually uploaded, but the
ability to digitize these records will allow the entire underwriting process to
Manual verification involves a loan officer giving you a long
checklist of documents they’ll need in order to verify your identity, income
and existing financial obligations. Manual verification can take three-times as
long because you need to gather the documents, submit them to the lender and then
the lender needs to manually verify their authenticity.
If you are given the option, enroll in digital verification.
If you’re used to paying rent, the idea of a less-expensive
mortgage payment may seem appealing. After-all, landlords price-in the various
additional costs they have into your monthly rental payment. If you could just
pay the mortgage, it seems that you’d lower your overall housing costs.
This is not exactly true. Just because you can afford the mortgage
payment does not mean you can afford the full cost of homeownership. Be sure to
inquire into the real costs, including:
• PMI: Private Mortgage Insurance
• Homeowner’s Insurance Premiums, Deductibles and Coverage
• Maintenance Costs: While renting, your landlord took care of
all the costs associated with your residence’s maintenance. As a homeowner, if
a major appliance fails, or there’s structural wear and tear, it’s your
• Natural Disasters: Hurricanes, tornadoes and forest fires can
cause substantial damage to your home. Homeowner’s insurance can help with
this, but there are policy exceptions. The average ranch-style home would
require an investment of $6725-$9000 in order to replace it after major damage.
• Property Taxes are often rolled into the monthly mortgage
cost, but it’s important to understand the various fees and assessments you’ll
be required to pay for your property.
Most homeowners turn to their smartphones or laptops when home
shopping. Online listings for homes and properties are filled with heavily
enhanced photos of the property - from the best angles, of course.
Future properties, or areas that are still being developed are
impossible to see in-person. But, it’s important to dig deeper than an
architectural rendering or an artist impression. This article about off-plan purchaseshighlights
a few examples where the mock-ups provided to potential residents were way off
the mark. This includes:
• Amenities, like pools, which are far smaller once constructed
- an important consideration for apartment buildings with hundreds of
• The perspective is enhanced to make a future high-rise look
far larger than other surrounding buildings - implying that views will be more
breathtaking than they will be in reality.
To avoid getting taken advantage of, they recommend visiting the
construction site yourself, viewing the surrounding area on Google Maps and
take advantage of Google Earth’s features that show building shadows and other
factors that could impact your future home.
In conclusion, there are many pitfalls for first-time
homebuyers. A pre-approval is a great first step, but it’s only the beginning
of the actual approval process. Don’t make the mistake of selecting manual
verification when digital verification is available - especially if timing is a
factor. And just because you can get a loan, does not mean you can afford the
total cost of home ownership. And, as always, trust but verify. If you’re
looking at an online listing or prospectus, nothing can substitute an in-person
visit to the construction site.
Source: To view the
original article click here