7 – Things Every First-Time Home Buyer Should Know!
#1 Refusing To Hire A Licensed Real Estate Agent To Represent You
This one is a real dozy. I have seen first-time home buyers and even some second time home buyers get themselves in a real pickle. Most of them think that they can negotiate a better deal on their own if they go and try to talk directly to the Seller’s Agent.
What the new home buyer doesn’t know is that the Seller’s Agent represents the seller and not them if nothing was put in writing. The new buyer might think they are getting a good deal but the Seller’s Agent is not obligated in any way to represent the buyer unless it is through a written Buyer’s Representation Agreement. Also, if the buyer does not have representation, the Agent’s remarks on the listing can contain pertinent information that the buyer would not have privy to because they do not have an agent.
For example, if the Seller is giving an allowance of $5,000 for carpet or appliance upgrades.
The buyer’s first encounter with a Real Estate Agent will be to discuss the Information About Broker Services (IABS) explained. In summary, it explains the duties of the Broker based on whom they represent. If the broker represents the owner (seller), buyer (client), or if the broker acts as an intermediary and what happens if you choose to represent yourself.
I have seen buyers get themselves in a real serious jam because they did not have a Real Estate Agent. The buyers would not know important dates like option periods, obtaining financing time frames, whether or not they should get home inspections done, how to negotiate if something does not come out good on the inspection report etc.
Thousands of dollars in Earnest money has been lost because important dates had come and past before the buyer knew the importance of the date. I will say that a new buyer should find an experienced Real Estate Agent to help them with completing the contract and negotiations.
If not, you could end up in court because of this legally binding document or lose your earnest money. It is highly suggested and recommended that you seek the advice of an Attorney if you feel uncomfortable with the Real Estate Sales Contract or any other documents before signing on the dotted line.
#2 Entering into a Real Estate Contract Before Obtaining A Pre-Approval Letter
This bounces off the one above no Representation by a Real Estate Agent. Please do not sign a Real Estate Sales Contract until you have seen a licensed Loan Officer and they have checked your credit, assets, income and issued you a Conditional Approval Letter or a Preapproval Letter from the Lender. You don’t get the house under contract first and then run over to the bank and try to get the approval. That’s just doing the process backwards and you run the risk of losing your earnest money because you could not afford to buy the house.
#3 Quick Get Her Fixed Credit Repair Companies
There are a lot of fly by night Fix My Credit companies out there. You need to be very careful here. Some companies will promise to fix your credit for cheap and remove any all derogatory information fast.
This type of transaction can lead to information showing back on the credit report especially when the time comes for you to close on your home loan.
The best advice is to seek out a reputable company that has a track record and get it done right! This will insure that you have no surprises on loan closing day. Most Mortgage Companies work with credit repair companies that know how to help you to understand your credit report and improve your credit scores. Check out this website for additional information and help with your credit and scoring. My Fico.com.
#4 Amending Tax Returns To Reflect More Income For The Sake of Buying A House
This is another good one! And maybe you were truly in the dark and had horse blinders on. In other words, some home buyers take the I didn’t know story to say that they did not know what their CPA or Tax Preparer person was doing when that fake business just magically showed up on their Tax Returns that showed a loss.
Not only does it show a loss for the previous year, it shows a loss for two consecutive years. I find it hard to believe that a CPA or Tax Preparer will make up a business for an individual and place it on your tax returns knowing good and well that he/she could be reported to the IRS for fraud and their business would be shut down!
Anyway, underwriters are well aware that the amendment is being done to show more income in order for you to afford the house you are trying to buy. Generally speaking, you may or may not get the loan if this type of situation is occurring.
Now let me say this next thing because it is very important that I tell you that Lenders, Bankers, or even Loan Officers are not the IRS police. It is not their job to report to the IRS what you make or what you do or don’t do when it comes down to your filing and reporting income on your taxes.
All the lender wants to see is the amount of money you made after all the adjustments. If you made$200,000 and your tax returns after adjustments show a bottom line figure of $18,000, please know that you will not be buying that $150,000 home. The lender does not go buy what you say you made before those adjustments but by what is left after all is said and done. (Check with your Loan Officer).
Bottom line, who in their right frame of mind would want to go to jail because they got a little something extra in their pocket. Better ask yourself is it worth the risk? Would you want to be handcuffed in front of your co-workers and friends for fraud? Do you wear prison clothes well? Do you look good in silver (that is ….. silver handcuffs)?
#5 Making Cash Deposits To Bank Accounts With No Paper Trail
This is a big fat no, no in the home loan world. Each and every deposit must be traceable. You can’t just take cash that Uncle Johnny gave you back from a loan and place it into your bank account.
Especially during the loan process, you will need to have an explanation for the cash deposit or a paper trail of proof as to who gave you the funds and why.
#6 Putting Student Loans In Forbearance Instead Of Deferment
A lot people think that putting their student loans into forbearance is not harmful. The lender looks at the forbearance as negative credit reporting.
It is best to have the student loans in deferment than in forbearance.
#7 Making Large Purchases During Home Loan Process
Do not make any purchases of any kind during your loan process until you have received the keys to your new home.
I repeat “DO NOT MAKE ANY PURCHASES OF ANY KIND DURING YOUR LOAN PROCESS UNTIL YOU HAVE RECEIVED THE KEYS TO YOUR NEW HOME”!
Even though the buyer is told time and time again, they think that they can sneak out over the weekend and catch that really good sale on the refrigerator and washer and dryer. If you do this, your loan will be in jeopardy of being declined.
The lender will pull a final credit report at the very end before they send out your closing documentation to the Title Company. If they see that you have incurred additional debt that is now being reported on your credit report, they will have to recalculate your debt to income ratio (DTI) to see if you have exceeded the maximum limit allowed to obtain the loan.
If you go over that limit, your loan will be denied due to high debt ratios. So please, do not purchase or incur any new debt during your home loan process or you will be sorry!
Making Yourself Qualify for Down Payment Assistance
Down Payment Assistance is not for everyone! Especially for those who can afford to put down a certain amount of money for closing costs and down payment. Sometime people try and do the craziest things to qualify themselves for these programs.
- Trying to hide savings or remove large sums of money from their checking or savings to give the appearance of no money (which by the way keeps people who really needs the assistance from receiving the funds)
- Not wanting to disclosing all income working people who lives in the household
- Wanting to add extra kids to the mix for a higher qualifying income bracket
And the list goes on. The home buyers will literally tell you they want to do these things and I have to tell them that they are committing fraud if they do. Because they are lying on their application which is punishable by law. It seems harmless to them but it is a criminal act once you inform them of the actions they are trying to take.
You might as well say to your Loan Originator, I want to commit fraud to get my assistance will you help me please, so we can both go to jail.