The scenario looks something like this: You are pre-approved, find a home, make an offer and the offer is accepted. Everything has been going OK up to this point but all of the sudden trouble arises. The problems can stem from the home not appraising, to loan approval issues in Underwriting, to the property taxes increasing substantially because the property is in city limits. Whatever the issue, it is extremely important to pay attention when things start going wrong. Sometimes things go wrong and work out fine in the end BUT sometimes things go wrong to show you this isn't either the right time or right home for you to purchase.
When trouble comes, many consumers push forward despite the warning signs. I believe this is due to several reasons.:
- There is an emotional attachment - The Borrower has envisioned this new house as home.
- There is time and money invested - Often times the earnest money. appraisal, inspection money, etc has been paid and it is not unusual for problems to arise after the finance contingency has ended. The Borrower understandably does not want to lose the money already invested in this home.
- Pressure to buy - Maybe a real estate agent, family member, or friend is telling the Borrower that this is a great deal and they will be foolish to walk away from the purchase.
- Fear - The Borrower has fears - fear of the unknown, fear to admit failure, fear of what people will think, fear of being sued by the seller to name a few.
- Lack of concern for the health of their financial future - The Borrower is living in the hear and now, not thinking about how this purchase will affect them in the future.
Just because things go wrong doesn't mean it is time to bail on the purchase. It is fairly normal to experience a level of drama when financing a home and most of the time, the issues are resolved. So how do you know when to walk away?
- Pay attention to your gut instinct - The instinct is very powerful and if it is screaming at you that this home is too expensive for you, then pay attention. your gut is more than likely right.
- The numbers are key - If the numbers change in the process for whatever reason (this is MOSTLY due to unknown city taxes, a raise in county taxes, flood insurance requirements, home owner insurance prices or HOA payments) and you are panicked about the house payment before it is time to pay, then it is time to reevaluate. Owning a home is expensive and you need room in your finances for upkeep, decorating and just every day living. The numbers tell the story. Pay attention to them and if they do not work for your budget, then find something that will fit your budget.
- Ask the question - "What will I have to sacrifice to make this payment?" Will you have to forgo paying for life insurance or stop contributing to a 401K? Will the payment cause you to be unable to pay down other debt you have? Will you have to dip into savings for your child's college education? Will you be unable to put money aside for savings?
Perhaps you lose your earnest money and other money invested in a property but I guarantee that loss will be pennies compared to moving forward with a home you cannot afford. You can always make up for that loss by buying smart the second time around. I have had several customers who have made this gut wrenching decision during the process and each one found that the second time around was a charm. They loved the second home far more than the first and did make up for the monies lost either through upgrades, location, size of home/yard or seller paid closing costs.
Here is the good news: The "when everything goes wrong" scenario does not happen very often. It is certainly the exception and not the rule, but f you do happen to find yourself in this situation, don't ignore the signs and by all means, take action before it is too late.