LOS ANGELES—With interest rates at record lows and a rebounding real estate market may make it seem like it’s easier than ever to buy a home or rental property. The truth, however, is a little more complicated.
Even those in the midst of a purchase sometimes see their deal fall right out of escrow and down the tubes for good. It’s sad, but true. The reasons are many, but with some planning, due diligence and a little luck, you can avoid these and other scenarios that would thwart your home buying plans.
Income is especially important when it comes to buying. Your debt to ratio, or the amount you pay on your monthly mortgage other recurring debt which is divided by your gross monthly income, should be above 45 percent in order to qualify for a loan. If you’re unable to meet this requirement, things can get difficult if not downright impossible to qualify.
Problems can also crop up if you make large cash deposits or transfers into your bank account – even those from family members – if you don’t have a paper trail to account for the income. Lenders need an accounting of these funds to prove your income. Make sure all your deposits and transfers from other accounts are properly sourced.
It’s important if your relatives transferred money into your account to purchase a home that they sign a letter indicating that the money is a gift. They should also be ready to provide a bank statement that shows that they were able to gift those funds.
If you own your own business or are self-employed you must show positive cash flow by providing your Schedule C federal tax form that outlines your profits and losses. It’s especially important to show positive income or a net profit to a potential lender.
Other problems that can cause your purchase to fall through the cracks are structural damage or problems with pests in your potential home. Whether it’s cracks in the foundation, which can sometimes be irreparable, or severe termite damage to the structure, the deal could be off for good. So have a well-qualified inspector go inch-by-inch through the house before you close the deal.
Sometimes, buyers have unrealistic expectations when it comes to the purchase price. It’s a common occurrence and it can get complicated before you can reach a compromise on the sale price. But it sometimes takes multiple offers on a number of homes before you close the deal. So be patient or it could all fall through.
But finally, let the experts help you understand and evaluate the information that you need instead of surfing the Internet through mounds of statistics, graphs and charts. It can be a blur even for the most well intentioned.
A real estate agent not only searches and examines listings, but also provides guidance on market conditions and more importantly on risk so you don’t make bad choices. Remember, there is no perfect home or property so be informed and be a smart buyer.
David Rosenfeld is a Real Estate broker and president of Advantage Real Estate, a Real Estate and investment firm in Santa Monica, and a Rotary Club member. He has more than 20 years experience in commercial and residential property investments and financial counseling. He can be reached at 310 450-4488, at dr@advantage-realestate.comand at www.advantage-realestate.com.
By David Rosenfeld
