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Health & Fitness

Now is the Time to Buy Real Estate

Tim Malburg, Neighbor

From the middle of the 3rd quarter to the end of the 4th quarter each year, home purchase prices are often deeply discounted from their original listing price.  The reason?  Nobody likes to move during the holidays.  If a house is listed 'For Sale' during this time period, then there is a high probability that the property is owned by a highly motivated seller.  Translation--all offers, no matter how low, will be entertained.

Buyers can capitalize on this situation by making an all-cash offer or one that omits the mortgage contingency clause.  Sellers gravitate toward these offers.  However, this can be a very risky strategy, if the buyer requires financing.  Why?  If the transaction does not close due to the buyer's inability to secure financing, the seller is entitled to keep the buyer's good faith down-payment.  Before waiving a mortgage contingency right, the buyer needs to understand that a mortgage commitment is dependent upon several factors which include, but are not limited too--a satisfactory appraisal, satisfactory verification of income and assets, and a satisfactory credit report.

The term 'satisfactory' is open to interpretation.  It is important to remember that the lender's interpretation may differ from the buyer's interpretation.  For example, a lender will require that the amount and source of a buyer's assets be verified.  There are two reasons for this verification  They are:

  1. the lender wants to verify that the buyer did not borrow the down-payment, and
  2. the lender wants to verify that the buyer has a history of being able to save money.
Both reasons are important to the credit worthiness of the loan.  If the down-payment was borrowed then the buyer has little, if any, equity in the house.  The probability of a buyer defaulting increases as a buyer's equity decreases.  In addition, the lender wants to confirm that they buyer has the ability to manage any potential adverse changes in their income.  Many lenders required additional savings that equal 3-6 months of future mortgage payments.  These savings are called Post-Closing Reserves.  They are in addition to the savings being targeted for the down-payment, the closing costs, the RE taxes and the Homeowner's Insurance escrows.

The documentation required to verify assets (or savings), typically consists of asset account statements.  The buyer must supply the lender with copies of two consecutive month asset account statements (all pages).

FYI--most lenders do not consider "cash under the mattress" art, or collectibles as verifiable assets.
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