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You are here: Home » 2017 » May

THE BIG NO-NO

So here is an agent’s nightmare: I’ll have an appointment with a client to sign the final closing papers on their new home, and they drive up in a brand spankin’ new car. My clients usually want me to compliment them on their new “ride” when I instead blurt out, “Does your lender know about this?” Hopefully, they say “yes.” If not, we might have a big problem.

 

When you apply for a loan, you are providing a snapshot of your financial picture, with so much income to support so much in payment obligations. Then the lender takes out your old home payment, and inserts your new home payment. As long as that ratio (your debt ratio) is under that lender’s acceptable range, you are OK. However, if you incur any new payments before you buy the home, the lender will have to recalculate your debt ratio to make sure you still meet their criteria. If that new payment takes you over their limit, your loan could be turned down, or they could raise your points and/or interest rate.

 

And just how will they find out about it? Well, first, you are supposed to tell them. You usually sign something when you first applied for your loan that you would alert them to significant changes in your financial picture. Even if you don’t tell them, many lenders run another credit report right before close of escrow, and your new car payment may show up. At the very least the inquiry will show up, which will raise a red flag to your lender as to why an auto financing company is asking for a copy of your credit report.

 

So, put the Tesla brochure down, and step away from the dealership… It’s for your own good!

MOVING OUT WARNINGS

Moving can be stressful. So many things to do, so many loose ends. The last week or two is the worst because the deadline of moving day is approaching. Here are some items that are easy to miss in the hustle and bustle but can cause MAJOR headaches if not handled correctly:

 

REFRIGERATOR AND LAUNDRY HOOK-UPS. Your washer and possibly your refrigerator have water line hookups on the back. If you are taking either of these with you, you need to really monitor the shut-off valves. These valves don’t get used except once or twice every few years so they OFTEN don’t shut off all the way. Or they appear to shut off, but then develop a small leak hours later. I’ve walked into several vacant homes with water damage because of this very issue. Your best bet is to turn the main water valve off to the house to avoid leaks until the new owner can set up their appliances.

 

THIEVES. They are watching you. They notice when you start moving out but know it can take several trips. This can make you a prime target and unfortunately, I’ve had clients experience thefts during this time period. One client actually had their whole moving truck stolen full of their belongings! Other times the house was broken into when it was obvious no one was home but there were still items inside. Do your best to avoid telegraphing that the house is vacant. Put lights on timers, play music, ask a neighbor to park a car in the driveway, etc. Also communicate with your neighbors and ask them to be aware. The thieves are banking on your neighbors not being suspicious when a strange car or person shows up, even at odd hours, and not calling the police.

THE “BEST” PRE-APPROVAL LETTER

When a buyer submits an offer on a home they want to buy, it’s expected that they will include a letter from their lender. There are several varieties of letters that a lender can provide with different levels of confidence behind them.

 

The least impressive letter is a “pre-qualification letter.” This usually means the lender spoke with the buyer in person or over the phone and asked them some basic questions about how much money do they make, what are their currently monthly obligations (car payment, student loans, etc.), what are their assets (liquid and non-liquid), and how is their credit. Based on the buyer’s answers, the lender will print out a pre-qualification letter.

 

The next step up would be a “pre-approval letter.” This is where the lender gets a full written application and then actually verifies the information and doesn’t just rely upon the buyer’s verbal representations. So they see copies of tax returns, paystubs, bank statements and runs their credit report.

 

In the prior two letters, the lender’s representative is pretty sure that an underwriter will approve the file once it’s submitted to them for their review. A higher-level letter would be one where it’s stated that an underwriter has actually reviewed the file. Either a flesh-and-blood person, or a computer underwriting system, usually called “Desktop Underwriting” or “DU” for short. The best letter is what’s called a “loan commitment” where the lender is saying they are truly ready to make that borrower a loan as soon as they identify a home. This means everything is verified, an underwriter has signed off on it, and the only missing piece is the house itself.

 

So if you are buyer wanting to make your offer stand out in multiple offer situations, see if your lender can provide this last kind of letter. This will take cooperation from you to get them absolutely every document they ask for. If you are a seller and you’ve received multiple offers on your property that are otherwise pretty similar, you may want to give extra consideration to offers with this last kind of letter versus the others.

TITLE CO. = NEUTRAL

From time to time, a real estate deal will fall apart. Sellers are usually pretty locked into selling as long as the buyer is performing. So most often it’s the buyer that can’t or won’t perform for some reason. In some rare occasions, the Buyer just freely admits that they are at fault, and they agree to give up their deposit. A form is drawn up, both Buyer and Seller sign it, which cancels the contract and releases the deposit, or most of it (depending on the negotiation process) to the Seller.

 

But what if the Buyer DOESN’T just agree to release their deposit? What if they have reasons to believe that they should get their deposit back? And what if the Seller is just as adamant that they should keep the deposit? I don’t have room to go into all the particulars of what happens next, but I did want to clarify the role of the title company in this situation. They are a neutral third-party to the transaction. They can only act when they receive identical instructions from BOTH parties.

 

What this means is that even if you have iron-clad proof that YOU should get the deposit, if the other side doesn’t sign that form, the title company will do nothing until it is resolved. You can scream at them all you want and ask to speak to the president of the company, but they will not release a deposit, or even change any of the terms of the deal, unless both parties give the same instructions.

 

If an impasse is reached, then Buyer and Seller will go to the dispute resolution options as called for in their purchase agreement. Once that process is taken to it’s final conclusion, only then will the deposit be released. But again, the title company is not the one that makes the final decision on this matter.

RENTERS BEWARE

Here is the latest scam I have to warn you about – homes for rent at “too good to be true” prices. The most common location for these scams are on Craigslist, but they can happen anywhere.

 

Here is how it works. You are looking for a home to rent, and come across one that looks great, and the price is even better. When you contact them, they tell you the owner has to leave the country unexpectedly, or got a sudden job transfer. They are willing to rent it for less than market rent just to get it over with. They will send you multiple interior photos, but make excuses why they can’t show it to you in person. When you express interest in renting the property, they will send you an application and an official-looking rental agreement. Once you give them your deposit and first month’s rent, they will send you a house key.

 

Here is the problem: They may not even own the property, so when you show up, your key doesn’t work. The real owner may meet you at the door and ask what you are doing on his front porch. When you try to reach the “owner” or “agent” you dealt with, they are long gone and so is your money.

 

These scam artists are “scraping” info and pictures of legitimate homes for rent from the Internet, then substituting their contact info to pretend to be either the owner or the owner’s agent. Some of them even target vacant bank-owned homes. They have the locks changed to make the scam look even more real by opening the home up for you in person.

 

You’ll want to verify three things – 1. The property. Drive by and see if there is a different for lease or for sale sign in front. 2. Is the owner real? Check the public records for who really owns the property. 3. Is the agent real? Go to www.bre.ca.gov to verify their license. But even these 3 items won’t 100% protect you if the scammer is sophisticated enough.

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