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Tuesday, December 4, 2007

Buyer mistakes can derail the deal

There was an interesting article today on this topic in one of the news feeds that I get. The story revolved around buyers who make financial mistakes between the time an offer is accepted and the closing. Many of these had to do with foreclosed houses and buyers who were likely marginally qualified to do the deals in the first place.

What these buyers didn't understand about the mortgage process, which is taking place as you move towards closing, is that the mortgage companies will recheck your credit worthiness right up to closing. If anything substantially changes, they'll walk away from the mortgage commitment. One example used in the article that I read was a young couple who were so thrilled to be getting the foreclosed house of their dreams that they went out and bought a brand new truck to put in the garage. Of course the mortgage company saw that new debt on their credit report and all of a sudden they no longer qualified for the mortgage. Another couple celebrated their good fortune by taking a vacation cruise, which just happened to use up the money that the bank had seen as providing them with some emergency cushion. BAM - the mortgage is gone.

I had a case several years back where the buyer got laid off the week of closing. He wanted to go ahead with the closing, assuming that he could find another job quickly (which did not pan out, by the way). He was fairly sure that he had enough in savings to make the payments for months to come and just wanted to keep quiet about the lay off and proceed. Of course, I couldn't let that happen. It would have been fraudulent not to admit to the mortgage company that he no longer had the good paying job that they had evaluated him on for the mortgage. He did not understand (but I sure did) that there is a form that is signed at the closing table by the buyer which essentially is a sworn statement that things have not substantially changed since you applied for the mortgage. Once I explained it all to him, we walked away from the deal, even though he lost a substantial amount of his deposit, since this was a new build.

Another thins that I'm seeing some of is the never ending demands syndrome. Some buyers aren't satisfied to get a good deal. Once they have an agreement in place they start asking for more - fix this, replace that or give me more off the price for remodeling. If it's a foreclosure home the banks vary greatly on how they respond to these requests. NO is a favorite response; but, some will do a few things to keep a buyer on the hook. Private sellers may go along with the first few things, but some buyers just keep pushing to see where the boundaries are. That can quash a deal, too. There is a fine line between getting the best deal possible and crossing the line into greed.

So,the bottom line is that just like for Santa at Christmas, you've got to be good all the way up to the day of closing (or Christmas, for Santa). The mortgage companies are making their list and checking it twice and they will find out if you've been naughty with your money. So be nice and hold off until after the closing to celebrate. Even then, keep in mind that you do need that cushion of money at hand to meet any unexpected emergencies with the home. Memories of your trip to the Bahamas may warm the cockles of your heart, but the rest of you needs to be warmed by that furnace that you had to have repaired or replaced.

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