While there has been somewhat of a slowdown in real estate sales in 2018, the market remains hot. Some neighborhoods are in-demand commodities, garnering multiple competitive offers on homes that are priced properly. This is great news for sellers, but maybe not for buyers.
Buying a home in this market can be difficult due to issues such as rising mortgage interest rates, closing cost expenses, approval issues from homeowners and condominium associations, inspection and mold issues, and other matters that make purchasing a home more difficult than ever before. Because of this, buyers need to be proactively prepared before embarking on a house hunt so as to avoid the most difficult issues.
Below, we’ve listed some elements to keep in mind as you consider purchasing real estate.
Paying Cash vs. Financing a Purchase
Most buyers need to finance the homes they intend to purchase. However, many sellers are wary of allowing a financing contingency on a home sale, preferring a cash buyer over a higher-priced buyer whose purchase is contingent upon loan approval. Many people think that they cannot get a mortgage if their contract says it is a cash purchase. However, this is simply incorrect.
The only difference is that on a cash contract, the closing is not contingent upon the buyer obtaining financing. If you can get loan approval in advance, and you are comfortable with the small risk that financing may not be available at the time of closing, you can make a “cash offer” on a purchase and still finance a majority of the purchase price with a loan secured by the property. This will make your offer more attractive to sellers, especially if there are competing offers for the home.
Interest Rates on the Rise
Rising interest rates have also become an issue in some home purchases. Most lenders only allow rates to be locked for a period of up to sixty days. It is anticipated that quarterly raises in the Federal Reserve rate will continue to occur for the foreseeable future, driving up mortgage rates.
A rate lock that expires before closing means that a buyer will potentially face higher interest rates, which may make qualifying more difficult if their debt-to-income ratio is tight. Rates are now also more attractive if you can afford a 15- or 20-year term mortgage, with interest rate savings of almost one point for a 15-year mortgage and half a point for a 20-year mortgage.
Home Inspections and Repair Costs
Giving the aging population of many of the homes in Florida, it is crucial that a good home inspection is obtained before purchasing. This inspection should be thorough and include an inspection of the roof, permits, air conditioning system, structure, and pests, plus a separate mold inspection.
Most contracts are designed to be sold “as-is,” with the buyer having a fixed time period to make all inspections and then either proceed to close—waiving claims for defects discovered in the inspection—or canceling the contract.
However, there is always a third option: see if the seller will credit some of whatever repair costs are found during the inspection in lieu of canceling the contract.
Homeowners’ Associations: Approval and Other Issues
Association approval has also become a somewhat contentious issue. If you have a low credit score (below 700 or even below 650), there are some Homeowners’ Associations that will not approve your purchase. These restrictions need to be carefully reviewed before you even make an offer. Some options include providing a guarantor to the Association of your obligations as an owner, submission of a common area security deposit, or even posting a large sum of money in escrow as a source for payment of assessments.
In addition, Associations in no-pet buildings continue to challenge the legitimacy of emotional support animals. If you have an emotional support animal, your contract should be contingent upon the Association agreeing to allow the emotional support animal to live at the property with you. Despite proper documentation, many Associations will refuse to grant approvals to purchasers with emotional support animals. While this can frequently be overcome, the time and costs can delay closing and make the purchase more difficult.
Have a Plan
All in all, preplanning is the key to a successful home purchase. Never rely on the seller for information regarding square footage, rooms, and permits. Always do independent research to ensure that you get what you expect. Many sellers simply do not know the correct information, and there are plenty of online resources that can assist you in learning more about a property. However, even these are not infallible, as many sites will list a home with incorrect information regarding the number of bedrooms and baths.
Thus, you should always do your own research before investing in the purchase of a home or property. Of course, we’re always here to consult or help answer any questions or issues that arise as you embark upon the purchase or sale of real estate.
Michael J Posner is a partner at Ward Damon, a mid-sized real estate and business-oriented law firm serving all of South Florida, with offices in Palm Beach County. Michael focuses in real estate law and business law and can assist buyers and sellers in loans and purchases/sales. He can be reached at 561.594.1452 or by e-mail at firstname.lastname@example.org.