Contract Pitfalls - Part One of Many
- By Josh Turpin
When it comes to writing a purchase contract to buy a new home, many borrowers rely heavily upon their real estate professional's guidance. I believe it is always wise for a buyer to use and agent. This provides a level of protection for the buyer and a second set of eyes to help make sure all of the T's are crossed and I's are dotted. However, it never ceases to amaze me how many real estate agents fail to write a contract correctly the first time and, because of very small technical errors, have to amend the contract one or more times before the final draft is complete. Don't get me wrong, I am not saying that these agents don't know their stuff. On the contrary, many of the agents we work with are top of their field and write several contracts each month. The problem lies in the structure of the contracts they are writing. Most of these issues can be avoided with a bit of foresight and just a little communication
Here is where the problem lies: In most real estate transactions there is some sort of financing involved. It is typically one of the most vital components of the deal. Whether it be a government backed loan or a standard conventional loan, it is important to know how to structure the contract around the borrowers specific type of loan. When it comes to financing the rules are very clear cut. There are things you can do and things you can't. As loan originators, we don't set the rules, that is up to Fannie Mae and Freddie Mac (for the most part). We do however, have to follow them. Below are a couple common contract errors related to financing made by agents that, if avoided, will help them close more deals faster with fewer issues.
Don't List Personal Property on The Purchase Contract
Quite frequently a real estate purchase contract will list a variety of unattached, personal property as a part of the transaction. Mortgage loans CAN NOT be used to finance unattached, personal property. For the most part things like appliances, window treatments, and fixtures can be included and not create a problem with the loan. However things like patio furniture, inside furniture, and things like recreational vehicles cannot be added to a purchase contract (yes, I have seen RVs in contracts). If they are, they will have to be removed via an addendum. Your best be is to simply write a separate, simple bill of sale for $1, subject to (but not part of) the real estate contract closing. This will prevent you from having to amend the contract later on.
Don't List Specific Inspections or "Repair Work" To Be Completed
This may sound strange but we recently had an FHA purchase loan where the loan underwriter asked for a copy of the home inspection because it was dictated that some "minor repairs" be completed within the real estate purchase contract. It also listed that the seller would pay for a home inspection. The property had passed the FHA appraisal inspection but the property condition inspection reported a few things that raised the question of the property's soundness. Had this not be listed in the contract, it wouldn't have been required as a condition of the loan. Fortunately we were able to get this completed by simply showing some paid invoices from the contractor that completed the work. But, it definitely slowed down the transaction.
Be Cautious of Addendum and Amendments
Frankly as a lender we really only care about the numbers within the contract. Anything else is really not too important to our side of the transaction. That is not to say that the attachments to the original contract that doesn't have any numbers cannot foul things up from on the loan. For instance, an addendum that is added to the contract which requires some additional work to be completed, as long as it doesn't affect the appraisal value, is not a real concern of ours...if you get my drift.
Finally, be certain to know what type of financing the borrower is getting prior to writing the contract. Make sure they are actually APPROVED and not just pre-qualified (more on this later). Some lenders will dole out pre-quals like handbills. They do this to try to capture the client early on Then, once they get a complete loan file, they may have to switch the loan program. This is predominantly because they do not gather the proper information or documentation needed to properly approve the client. It can be detrimental to a client. This causes more work for the realtor and the borrower as additional disclosures and addendum may be needed specific to that loan program. A good loan officer will earn the business, not capture it, and get their borrowers approved prior to sending them out on the streets to look for houses.
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Home Refinance – “How to get rid of PMI or private mortgage insurance when you don’t have the 20% Equity”
By Jordan Randa
If you're like most people, you bought a home by putting less than 20% down. Perhaps you used an FHA government backed loan (which, nowadays, requires monthly mortgage insurance regardless of how much you put down...sometimes for the life of the loan!). You've been paying this monthly premium to the benefit of nobody but the lender for months (or perhaps years). It is expensive and quite frankly you are not even sure what it is for. You want it gone! So, the question is; how do you get rid of the expensive, unnecessary, mortgage insurance...or better yet, how can you stay away from it in the first place? No need to get worked up, the answers to your questions are all right here!
One very simple solution for this is to utilize a relatively new product called Lender Paid Mortgage Insurance (LPMI). That's right, let the lender pay the mortgage insurance! (Talk about turning the tables eh?) Sort of. This is a unique loan program where the mortgage insurance premium is basically financed. This program can help eliminate costly mortgage insurance while at the same time reducing your current interest rate.
How To Learn More:
Everyone knows the saying, “Your home is your biggest investment.” With that being said, it’s imperative to have an experienced loan officer to give you the right financial product when making one of the biggest financial decisions in your life. The staff at United Fidelity Funding is a great team. We strive to not only understand your short and long term goals, but also get to know you unique lifestyle. For more information on removing your mortgage insurance Contact Us and get a free consultation today!
Home Purchase – “You don’t need the 20% down!”