November 18th, 2012 6:55 PM by Steve Iltis
3 home buying mistakes begin with the purchase contract
1. Including the sale of personal property in the contract
Here’s why-by adding any personal property to the contract items like a washing machine, children’s play structure, or an outdoor patio set, these items become material to the transaction creating a future hurdle for the buyer when it comes time to get a mortgage loan.
The mortgage company will require a bill of sale for each personal property item. The bill of sale will have to be a signed document between the buyer and the seller stating the additional personal property has no dollar value. When the mortgage lender sells the loan on wallstreet, an investor buys the loan under the promise the loan is collateralized by real property only.
2. Including pest reports in the residential purchase contract
Here’s why-if you are a home buyer, obtaining a pest report is always a good idea. It’s up to you and your real estate agent if you want included in the ratified purchase contract. Above all, know this….the mortgage company to require a copy of that that the pest report. Put another way, it will need to “pass clear pest” prior to ordering final loan documents.
3. Including a rent back term in the purchase contract
Here’s why- this only matters on residential primary residence purchase transactions when using mortgage loan financing to acquire the property. When you purchase a home, you expressly tell your mortgage lender, that you will occupy the home upon close of escrow within 30 days. Including a rent back is fine to accommodate sellers, such as when the sellers are closing on a purchase of their own.
If the rent back period exceeds 30 days, this could be a hiccup with your mortgage company. A rent back creates doubt that the property you are purchasing is indeed your primary residence. Simply put, if you are purchasing a primary residence, using primary residence financing, then the property needs to be your own residence. If you are purchasing the property as an investment property, you pay a premium for that (higher rate/costs) and rightfully so, because the lender takes greater risk in making a loan to buyer who won’t be occupying it.
If you and your real estate agent can avoid these common home buyer mistakes on the front end, your home buying process will much easier for you, not to mention the other parties. A sharp real estate agent and diligent mortgage lender can walk you through these obstacles that often times, pop up.