Chances are, if you’re looking to buy a beach home, it’s not your first real estate transaction.  However, that doesn’t stop Buyers from making purchase blunders that can potentially—and often do—lead to losing the contract on their dream beach home.  I’m going to cover the most common mistakes we see during the purchase process, so you can be sure to avoid making the same or similar mistakes when you’re ready to submit an offer on your beach home.

DON’T MISS ANY LOAN OR CREDIT PAYMENTS

I’ve seen situations where Buyers are closing on one property while selling another, and the property they’re selling has a loan payment due just a matter of days before closing—they don’t need to pay that, because in a couple days they won’t own the property anymore, right?  Wrong. 

That missed payment gets flagged on their credit report.  Many Buyers think they’re safe once they have the loan commitment in-hand, but your Lender is going to re-run your credit before finalizing your mortgage to check for any drastic changes that have happened since the commitment was issued.  If you find yourself in a situation like this, always reach out to your Settlement Attorney to ask how payments should be handled on a property you’re selling—they will never tell you to not make a mortgage payment!  On your Settlement Statement (often called an ALTA or a HUD-1), you will be credited any monies due for a mortgage payment that covers any periods after the settlement date.

AVOID MAKING LARGE PURCHASES

We know it can be tempting to start purchasing furniture and décor for your beach home so you can start ‘making it yours’ as soon as you have the keys in your hand… But I’m going to have to ask you to place that credit card on the table, put your hands in the air, and slowly back away.  Taking on large debts shortly prior to settlement raises red flags to your Lender.  Remember, part of your credit score is based on debt-to-credit ratio, and suddenly eating up that credit has the potential to significantly alter your credit score.

Also, don’t buy a new car.  Please.  It’s not uncommon for Buyers to get that “beach buzz”; for many, owning a beach home is a big Bucket List item, and when that becomes a reality, it’s hard to not ride the high of achieving a lifelong dream.  So much that it becomes an impetus for wanting to achieve more goals… like buying a shiny, new car.  This adds a massive debt load to your credit and almost always leads to your Lender being unable to approve your loan at the final stages.  Now you’re left with a pretty car full of beach gear, but no beach home to take it to!

PRETEND YOU DON’T HAVE A BANK ACCOUNT

Well, not literally… But avoid making any sudden changes to your bank account.  Think of it like this: your Lender is going to look at your bank account(s) during the commitment phase, and again shortly before closing at the final stage.  Now let’s pretend those two inquiries are “spot the difference” pictures.  There should be very little difference in those 2 pictures.  Now, this doesn’t mean you can’t spend money, of course (ya gotta eat, am I right?), but your financial behaviors should be nearly identical, both in terms of withdraws and deposits. 

If a Lender sees large deposits suddenly appear in your account, it’s going to make them nervous.  At minimum, the money you’re going to use for your down-payment needs to be in your account for 2 months.  Adding new money to your account that is out of the ordinary from your usual financial behavior can appear fishy to your Lender and they may no longer be comfortable backing your loan.

You will also want to avoid moving money around between accounts or moving your finances to a new banking institution.  I know it can be tempting when a competing bank waves ‘impossible to resist’ offers in front of your face, but you’re going to have to achieve the impossible and let that offer pass you by.  That offer (or maybe even a better one!) will come around again, don’t you worry.

The ultimate message to take from all of this is that your Lender is looking for stability in your financial status and habits.  Your pre-approval and/or loan commitment was based on the current state of your finances at that time.  Keep your finances at that state all the way through closing.

DON’T CHANGE JOBS (or retire… yet)

Your Lender is looking at how reliable and stable you are, right?  A major influencing factor is your employment history.  Your Lender looks at a collective, consecutive period of pay stubs as reassurance that you are gainfully employed, receiving a consistent income from the same employer for a period of time—and that trend will likely continue.  However, if you suddenly change jobs and have little, or no, income history with your new employer, you’re now a much higher risk for being able to cover your mortgage payments.  I’ve had Buyers think a letter from their new employer will be enough to reassure the Lender, but it’s often not.  It’s in your best interest to wait to make that move in your career until after settlement.

 

The key to being a smart Buyer is knowing the roles of those involved in your transaction, and the most important person involved—honestly, probably even more important than your Agent (ah, shucks)—is your Lender.  Once you have a clear understanding of how they’re looking at you as a Buyer, you’re much more capable of maintaining your finances in a way that makes you most desirable to them.  STABILITY + CONSISTENCY = LOW RISK.

 

Thanks for reading, don't hesitate to reach out with any questions.   We are your beach real estate resource

Grant Fritschle  410-430-5880   Grant@GrantF.com

Jon Barker  410-935-3810    Jon@GrantF.com

 

 

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