GRAND RAPIDS HOME BUYER TIPS
Buying a home can be one of your most significant investments in life. Not only are you choosing your dwelling place, and the place in which you will bring up your family, you are most likely investing a large portion of your assets into this venture. The more prepared you are at the outset, the less overwhelming and chaotic the buying process will be. The goal of this page is to provide you with detailed information to assist you in making an intelligent and informed decision. Remember, if you have any questions about the process, I’m only a phone call or email away!
Tip #2: Important Things To Avoid Before Buying a Home
Don’t Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.
If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.
The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.
Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it “easier,” could make it more difficult for the lender to properly document.
So leave your money where it is until you talk to a loan officer.
Oh…don’t change banks, either.
The Effect of Changing Jobs
For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some home buyers, however, the effects of changing jobs can be disastrous to your loan application.
How Changing Jobs Affects Buying a Home
- Salaried Employees: If you are a salaried employee who does not earn additional income from commissions, bonuses, or over-time, switching employers should not create a problem. Just make sure to remain in the same line of work. Hopefully, you will be earning a higher salary, which will help you better qualify for a mortgage.
- Hourly Employees: If your income is based on hourly wages and you work a straight forty hours a week without over-time, changing jobs should not create any problems.
- Commissioned Employees: If a substantial portion of your income is derived from commissions, you should not change jobs before buying a home. This has to do with how mortgage lenders calculate your income. They average your commissions over the last two years. Changing employers creates an uncertainty about your future earnings from commissions. There is no track record from which to produce an average. Even if you are selling the same type of product with essentially the same commission structure, the underwriter cannot be certain that past earnings will accurately reflect future earnings. Changing jobs would negatively impact your ability to buy a home.
- Bonuses: If a substantial portion of your income on the new job will come from bonuses, you may want to consider delaying an employment change. Mortgage lenders will rarely consider future bonuses as income unless you have been on the same job for two years and have a track record of receiving those bonuses. Then they will average your bonuses over the last two years in calculating your income. Changing employers means that you do not have the two-year track record necessary to count bonuses as income.
- Part-Time Employees: If you earn an hourly income but rarely work forty hours a week, you should not change jobs. There would be no way to tell how many hours you will work each week on the new job, so no way to accurately calculate your income. If you remain on the old job, the lender can just average your earnings.
- Over-Time: Since all employers award overtime hours differently, your overtime income cannot be determined if you change jobs. If you stay on your present job, your lender will give you credit for overtime income. They will determine your overtime earnings over the last two years, then calculate a monthly average.
- Self-Employment: If you are considering a change to self-employment before buying a new home, don’t do it. Buy the home first. Lenders like to see a two-year track record of self-employment income when approving a loan. Plus, self-employed individuals tend to include a lot of expenses on the Schedule C of their tax returns, especially in the early years of self-employment. While this minimizes your tax obligation to the IRS, it also minimizes your income to qualify for a home loan. If you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay that until you purchase your new home.
No Major Purchase of Any Kind
Review the article title “Don’t Buy a Car,” and apply it to any major purchase that would create debt of any kind. This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings…
…and automobiles, of course.
More Home Buyer Tips
Tip #1: Benefits of Owning Your Own Home
- The Best Investment
- Income Tax Savings
- Stable Monthly Housing Costs
- Forced Savings
- Freedom and Individuality
- More Space
Tip #2: Important Things To Avoid Before Buying a Home
- Don’t Move Money Around
- The Effect of Changing Jobs
- No Major Purchases of Any Kind
Tip #3: Don’t Buy a Car – or Did You Already Buy One?
- When Income Grows and You Want to Buy “Stuff”
- Debt-to-Income Ratios and Car Payments
- How Buying a Car Reduces Your Purchase Price
Tip #4: The Business Cycle and Buying a Home
- Recession and Expansion
- Supply and Demand
- Should You Try to “Time the Market”?
Tip #5: Comparable Sales and Your Offer Price
- Determining Your Offer Price
- Comparable Sales in the Public Record
- Comparable Sales in the Multiple Listing Service
- Comparable Sales – Pending Transactions
- Other Factors Influencing Your Offer Price
Tip #6: Major Factors Influencing your Offer Price
- How Property Condition Affects Your Offer
- How Home Improvements Affect Your Offer
- How Market Conditions Affect Your Offer
- How Seller Motivation Affects Your Offer
- The Final Decision on Your Offer Price
Tip #7: Offering to Purchase Real Estate- the Basics
- Introduction and Overview
- Contingencies in a Purchase Offer
- Earnest Money Deposit
- The Closing Date
- Transfer of Possession
Tip #8: Writing an Offer – Safeguards Regarding the Property
- Disclosures From the Seller
- Condition of the Property Upon Transfer
- Inspections You Should Require
- Final Walk-Through Inspection
Tip #9: How Financing Details Affect Your Offer
- Down Payment
- Interest Rates
- Closing Costs and Financing Incentives
- Seller Financing
- Cash Offers
- Other Financing Details in Your Offer
Tip #10: How FHA and VA Financing Affects Your Offer
- Extra Costs for the Seller
- VA and FHA Appraisals
Tip #11: Selecting Service Providers
- You and the Seller Must Agree
- Escrow and Settlement
- Title Insurance
- Termite and Pest Inspection