Buying a new home is a huge accomplishment and often a very exciting time, especially for first time home buyers. Unfortunately though, just because it’s exciting doesn’t mean it’s without occasional pitfalls. You want to be aware of the possible pain points that might arise so you’ll be prepared to handle them. Here are some of the potential roadblocks that could come up along the way.
Roadblock #1: Not Getting Approved For The Amount You Wanted Or Expected
We see this happen often. Many buyers go into the process of getting pre-qualified with a specific number in mind. Only after lenders analyze their financial situation do buyers find out they can’t obtain approval for the amount they thought or at the interest rate they wanted.
In these types of situations, it’s important to have a Plan B in place. This could mean modifying your expectations in terms of where you’ll look, what you really want in a home, etc. It could also mean that you may want to wait and instead work on improving your finances before trying again.
This is also further proof why a pre-approval is so important. Being pre-qualified and then pre-approved can eliminate the guesswork and either give you a starting point or allow you to revaluate.
BankRate has a great list of what you can do in the event you’re not approved for the amount you want.
Roadblock #2: The Time And Energy The Home Search Takes
Unlike on popular TV shows, you likely won’t just look at a handful of houses. It’s far more probable you’ll see a large amount of homes.
Especially in a fast moving market like Boston, new homes come up quickly and can disappear just as fast. You’ll have to be prepared to dedicate a decent amount of time during your home search to visiting homes and debating their pros and cons. Luckily, if you have a great agent, you at least won’t have to be constantly searching for homes on your own. They will shoulder much of the burden in terms of finding homes that meet your needs.
Yet, going to see all of these homes takes both time and energy that you normally don’t have to expend, and it can be overwhelming. This is why it’s critical that you budget the time and mental space to handle all that home searches require. The Balance shares some tips on how to handle the stress of buying a home.
Roadblock #3: Lack of Inventory
Though this isn’t as much an issue in Boston in that it’s more the speed of the market over inventory, this can be a problem in some surrounding areas. Depending on what your needs and requirements for a home are, inventory might be low with only a few homes for sale that meet your criteria.
Even if you started out excited, finding out that there aren’t as many homes for you to see as you thought can be frustrating. It can also significantly prolong the time it takes to find the home you want.
Since this is a major purchase and serious investment, as much as you may feel frustrated, you’ll want to balance your desire to find a home with your budget and wishlist. A great agent can talk to you about whether some items may be worth dropping from your wishlist (EX: Do you truly need that second parking space or is that more of a nice to have?) or whether you need to reexamine your budget to accommodate all that you want your new home to have.
Either way, when the issue of inventory arises, this is where you’ll really want to lean on your real estate agent for help.
Roadblock #4: The Seller Doesn’t Accept Your Offer
In a competitive market, it’s likely that more than one offer will come in on a house. In Boston, it’s almost a guarantee that this will happen since the market moves so quickly.
Because of this, it means the seller might not accept your offer and you’ll have to find another house to bid on.
It can be emotional to have envisioned yourself in a certain home only to have to let it go. It’s perfectly normal and understandable to feel this way. However, don’t let that disappointment keep you from moving forward.
Your agent can help you find something potentially even better! And with the speed of the Boston market, it’s likely that a new option will come available very quickly.
Roadblock #5: An Appraisal Or Inspection Kills The Contract
What can sometimes be even more heartbreaking is that even after finding your dream home, putting in an offer, and having that offer accepted, either the bank rejects the appraisal or the inspection goes poorly. This then nullifies the entire contract you’ve already committed to and can send you back to the drawing board.
However, all hope is not necessarily lost. There are a number of options available, though they depend on how well your contract offer is written.
WHEN YOUR APPRAISAL GOES POORLY
Option #1: Utilize Your Mortgage Contingency
Your first option if your appraisal doesn’t go well is to invoke your mortgage contingency from your offer contract.
Before we explain what a mortgage contingency is, we should explain how we get to that point in the process.
When you make your offer on the home, as is required in any contract, you have to give something to prove you’re entering into the contract in good faith. When buying a home, that consideration is called “earnest money” and is generally 1-5% of the home’s purchase price (although this can vary). These funds will be applied towards your payments on the home once everything is finalized.
Next, you’ll take your mortgage pre-qualification back to your lender with all of the information specific to the home you’ve decided upon. The bank will then evaluate the home to decide whether to underwrite the mortgage loan or not.
This is where the appraisal issue can arise. Before the bank will sign off on the mortgage, they will have the house appraised to ensure that the home is valued at the price that you’ve committed to pay for it. If the appraisal comes back and it appraises for less than you offered, the bank can refuse to approve your mortgage.
And that is where mortgage contingencies come in. If you’re taking out a mortgage loan to purchase the home, then there is almost always a mortgage contingency that goes along with that contract. This addendum to your offer contract says that if for some reason you cannot get a mortgage approved, as can happen after a bad appraisal, then you can terminate the offer contract without losing any money. Under the mortgage contingency, you can choose to get your earnest money back and walk away from the entire deal.
Option #2: Negotiate With Seller
If you truly love this house and you don’t want to walk away, you can enter into additional negotiations with the seller. Let’s use an example to illustrate this situation. Say for instance that you offered $720,000 for a home, but the home only appraised for $700,000.
Either you or the seller could attempt to come up with the additional $20,000 to cover the difference between the appraisal amount and the offer.
Or, the seller could offer to split the difference and reduce the offer to $710,000 and have each of you come up with the funds to meet it.
So even if your appraisal nullifies your original offer contract by coming in below your offer, there are plenty of options on the table to help you decide what to do.
WHEN YOUR INSPECTION GOES POORLY
Just as with the appraisal and having a mortgage contingency, there will also be contingencies for the outcome of the inspections. However, this time you’re not dependent upon the bank, but instead upon what is uncovered in the inspection and what you’re willing to negotiate or give up in order to get your dream home.
In your offer contract, you’ll include as the buyer how much you’re willing to pay in order to have required repairs or fixes completed. The amount can vary by the type of home and how much you really want it.
But say for example you offer to pay for $5,000 worth of required repairs and the inspection comes back saying that the total problems with the home equal $15,000. There are a number of possible outcomes to this situation:
- You could request that the seller make the repairs that are over and above the $5,000 you originally offered.
- Alternatively, you could request that the seller give you $10,000 off the purchase price of the home in order for you to over the difference in the costs of the repairs.
- You can terminate the contract over the difference in repair costs.
- You can also do options number one and two and if the seller refuses to do either of those things you can then choose to walk away.
Though all of this can seem complicated, it’s crucial that you understand and prepare for the possibility of a bad appraisal or inspection. That way, if either of these situations do occur, you’ll understand what’s going on and what options are available to you.
Roadblock #6: An Extended Closing
Though somewhat less serious than many of the other roadblocks we’ve mentioned, this roadblock can be frustrating.
An extended closing can occur even if the lender issues a closing date after both parties have agreed on a price and the inspection and appraisal results are received. In fact, it’s fairly likely in many instances for the closing date to be extended, which then prolongs your move-in date.
At this point, since you’ve secured the home of your dreams, you generally have to just deal with it and make accommodations. Some of these accommodations may be financial in that you’ll need to reschedule movers or other services which may end up costing you fees.
Either way, at this point you’re so close to the finish line that you’ll likely want to just buckle down and wait it out.
In many cases, dealing with at least one of these roadblocks is unavoidable. However, the best way to handle them is to understand what might happen and to be as prepared for them as possible.
Thankfully, you’re not likely to experience all of them, but you’ll want to keep your expectations in check and be willing to pivot if necessary. During this entire process, emotions can run high and it’s important to have a support system to fall back on.
The emotional component involved in buying a home also makes it all the more important to have the right real estate professional on your side.
Doing this will pay dividends in reducing your stress level while maximizing the efficiency of the process. The right agent will know how to handle whatever may come up all while guiding you toward your ultimate goal: home ownership.