Hold Off On Big Purchases For Your New Home During The "Quiet Period'

When you sign papers to buy a new home, your thoughts might immediately drift to what you’d like to buy to turn it into your perfect place. New appliances, new furniture, it all adds up. Before you pull out the credit cards you may want to consider the advice of Tuval Mor, a broker with Keller Williams in New York City, New York who cautions new home buyers about spending during the ‘quiet period:’

Ah, the thrill of purchasing your dream home can inspire you to go out shopping for the perfect living room set with matching drapes, before the closing. If you planned on doing that with credit, best to wait till after the closing. Due to high foreclosure rates throughout the nation, Fannie Mae has instituted a new Loan Quality Initiative which requires that any lender determine that “borrower liabilities incurred up to, and concurrent with, closing are disclosed and evaluated in qualifying the borrower for the loan.”

This period between the approval and the closing is usually called “the quiet period.” Lenders can vary in how they enforce this new initiative that just came into effect, but in many cases what this means is a second credit report pull right before closing. Did you buy a new professional cookware set for your new kitchen on a new Sears’s card that the cashier talked you into for the 10% discount? Well if you use the entire $1000 limit on your purchase, this seemingly innocuous purchase could throw your debt-to-income ratio off.

Fannie Mae and others have done studies and found consumer behavior patterns correlating with mortgage losses and as a result have incorporated sophisticated new credit surveillance systems into the mortgage industry. It is important for home buyers, and also those looking to refinance their mortgage, to be aware that unlike the boom years, today every action that pertains to their credit will be considered until the closing, and that credit splurges during the quiet period are a clear no-no in today’s mortgage environment.

The good news is that if you put those credit cards on ice until your new home is really yours, you should have a smooth closing. And with all the thousands of dollars you’ll be saving with these historically low interest rates (around 4%), you can afford to splurge on the perfect furnishings and accessories… just wait a little bit, until after the mortgage is closed!


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10 Pieces of Paper You Must Round Up to Buy (or Sell) a Home

Home buyers and -sellers alike often bristle with anticipatory irritation at the mere thought of all the paperwork they expect they’ll have to come up with to do their transaction, above and beyond the basic loan application, contract, disclosures and closing docs. And these worries start way in advance; it’s as though, before they even start visiting open houses, buyers begin to visualize - and dread - spending hours upon hours in the dank catacombs of the Vatican (à la Da Vinci Code) combing through ancient files, seeking some rare and precious artifact documenting their childhood dental history or genealogy.

In some respects, this vision of the experience of obtaining a home loan might not be far off - there are oodles of hoops through which to jump and, occasionally, the loan underwriter requests something sort of bizarre. But more commonly, there’s a pretty finite universe of documents you’ll really need to scrounge up to get your home bought - or sold. Here they are:

1. ID (e.g., driver’s license, state-issued ID, passport).  Who must produce it?  Buyers and sellers.  Why?  Uh, hello!?!  Lender wants to know that you are who you say you are, buyers, and the title insurance company wants to make sure, sellers, that you actually have the right to sell the home.  Funny enough, this commonly goes unrequested until you get to the closing table, when the notary requests to see it before signing, but some mortgage brokers and even some real estate brokers and agents may ask to see it earlier on.
2. Paycheck Stubs.  Who must produce it?  Any buyer financing their purchase with a mortgage.  Sellers, usually only in the case of a short sale.  Why? Buyers’ purchase price ranges are determined, in part, by their income. And short sellers have to prove an economic hardship.
3. Two months’ bank account statements. Who must produce it?  Buyers getting financing; sellers selling short. Why? Buyers’ lenders now require proof of regular income and proof that the down payment money is your own.  Short sellers?  It’s all about the hardship.
4. Two years’ W-2 forms or tax returns. Who must produce it?  Mortgage-seeking buyers and short selling sellers. Why? Banks want to see a stable, long-term income. They also limit you to claiming as income the amount on which you pay taxes (attn: all business owners!). And in short sales, again, they want documentation of every single facet of your finances.
5. Updated everything. Who must produce it? Buyer/mortgage applicants. Why? Because things change, and because the time period between the first loan application and closing can be many months - even years! - on today’s market. During the time between contract and closing it’s not at all unusual for underwriters to demand buyers produce updated mortgage statements, checks stubs, and such - and its quite common for them to call your office the day before closing to request a last minute verification of employment!
6. Quitclaim deed. Who must produce it?  Married buyers purchasing homes they plan to own as separate property.  Married sellers selling homes that they own separately, or joint owners selling their interests separately.  Why? With the Quitclaim Deed, the other spouse or owner signs any and all interests they even might have had in the property over the the selling owner, making it possible for the title insurer to guarantee clear, undisputed title is being transferred in the sale.
7. Divorce decree.  Who must produce it? Buyers and sellers who need to document their solo status or the property-splitting terms of their divorce. Why? Again, to ensure that the seller has the right to sell.  Recently single buyers might need to prove that they shouldn’t be held to account for their ex’s separate debts or credit report dings.
8. Gift letters.  Who must produce it? Buyers using gift money toward their down payment.  Why? The bank wants to be sure the gift came from a relative, and is their own money to give.  They also want the relative to confirm in writing that it’s a gift, not a loan - a loan would need to be factored into your debt load.
9. Compliance certificates. Who must produce it? Usually sellers, but sometimes buyers, by contract. Why? Some local governments require various condition requirements be met before the property is transferred, like some cities which require a sewer line be video scoped and repaired, cities which require a checklist of items be met before a certificate of occupancy be issued (usually relevant to brand new and really old homes, the latter of which are often subject to lead paint concerns) and energy conservation ordinances which require low-flow toilets and shower heads to be installed. Ask your real estate pro for advice about which, if any, such ordinances apply in your area.
10. Mortgage statements. Who must produce it?  Any seller with a mortgage. Why? the escrow holder or title company will need to use them to order payoff demands from any mortgage holder who has to get paid before the property’s title can be transferred.

Shopping Tips for Buying a Home Warranty

Home warranties can be attractive to home owners or buyers who are looking at purchasing a property. These service contracts can cover all of a home’s major systems, such as the furnace or air conditioner, and will cover needed repairs if the appliance breaks or damaged.

Some sellers are offering a home warranty to try to lure buyers.

But not all home warranties are the same. Experts say you should carefully weigh costs, policy allowances, and customer feedback before making a decision so that you ensure you’re getting the best deal. Home warranties cost about $250 to $500 a year.

Here are some more tips from experts in shopping for a home warranty:

▪ Find customer reviews. Web sites, such as homewarrantyreviews.com, provide reviews of home warranty companies. You also might check how each company is rated with your local Better Business Bureau.
▪ Check for extra fees. Will you have to pay a fee for service calls?
▪ Check the coverage allowance. Are there any exclusions to coverage? Will the allowance cover the entire cost of a broken appliance or just some of it? For example, if you have older appliances and mechanicals, will the policy cover the full cost of replacing it or just the depreciated value? If the policy only covers the depreciated value when a 20-year-old furnace dies, for example, the reimbursement may not be enough to buy a new one. Also, verify what appliances are all included in the coverage. Some companies will allow you to add coverage for swimming pools, while others won’t.

"The biggest thing is awareness of what the exclusions are," Greg McBride, a senior financial analyst at Bankrate.com, told the Chicago Tribune. "The mere presence of a warranty, by nature, tends to have exclusions. Being aware of that can aid in the decision-making process."

Source: “When Home Warranties Are Worth It,” Chicago Tribune (Feb. 8, 2011)
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