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Essential Knowledge:
Buying in a Buyer's Market is Easy...Right?? |
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Clients know all too well the challenges their employees are facing in selling their homes these days—even with the help of seasoned relocation professionals and re-tuned policies. With all of the angst transferees are facing as sellers, it would be a relief if they could expect a quick and seamless home purchase process. It’s a buyer’s market, after all!
Like most things in life, though, it’s not quite that simple. With bloated inventories in many markets, transferees will probably have little trouble finding a home that meets their needs. In some cases, though, sellers have yet to adjust to current market realities and are holding out for the frothy price their house might have fetched in 2005—or at least the price they need to avoid writing a check at the closing table. Meanwhile, savvy buyers are likely to drive a hard bargain. Protracted negotiations often ensue, and even once the parties come to an agreement, that’s only the beginning. Financial Conundrum While homes are plentiful, mortgage money may not be. Mortgage rates remain temptingly low, but many transferees will be disappointed to find that their purchasing power has actually declined since their last home purchase.
Spouse’s income no longer considered for qualification
Some lending guidelines that were especially helpful for transferees—such as assuming the spouse’s departure income for qualification purposes—have gone the way of double-digit home appreciation. Unless the spouse has already landed a job at the destination, the pre-approval will be based solely on the transferee’s income, putting a serious dent in the family’s purchasing power.
Lenders have tightened credit score requirements. Transferees with less than pristine credit will find mortgage money costlier and more difficult to obtain, and in some cases, will be pushed out of the home purchase market altogether.
Conventional financing requires 20% down To get the best rates and avoid Private Mortgage Insurance (PMI), transferees will need a 20% down payment. Transferees whose equity has evaporated, or who have moved too frequently to build equity at all, might find this impossible. Another practice that was sometimes helpful for transferees—using first and second mortgages to finance the entire home purchase—is no longer an option. FHA financing might be available with as little as 3.5% down; however, mortgage insurance will be required.
Stricter documentation requirements
With tighter credit, lenders once again require a mountain of documentation. Transferees will need detailed information on all of their assets, W-2s, paystubs, a fully executed buyout agreement (if applicable), an equity statement and more. No more no documentation or so-called “liar loans”.
Appraisals must support the sale price
A hard-fought purchase agreement can collapse if the lender’s appraisal doesn’t support the negotiated price. If the seller refuses to reduce the price to the appraised value, the transferee faces the difficult decision of either increasing the down payment to cover the deficit or starting the process all over again with another property. This would be stressful enough normally, but in a time-sensitive relocation situation, it can be excruciating.
Stricter Underwriting The loan pre-approval is often generated by an automated system. When a real, live underwriter reviews the loan, he might take a different view of the loan risk and potentially reduce the qualification amount. If the home is a condominium, the condo association must meet minimum qualifications (reserves, percentage owner occupied, etc.) for the property to be eligible for financing. New developments, with many unsold units, can also prove problematic.
Truth-in-Lending Statements
New Federal Truth-in-Lending requirements can directly impact the closing date. If any changes are made to loan provisions during the process, a new Truth-in-Lending statement must be generated. This will push back the closing date to meet the minimum timeframe required by law.
Home purchase snafus can throw off a delicately balanced relocation timeline. If the family has already vacated the departure home, expecting to move right into the new home, they’ll find themselves in limbo, suddenly needing to store their household goods and move into temporary housing. The potential for added family stress and significant out-of-pocket expenses is great.
Transferees with equity or credit problems might find themselves forced to abandon homeownership altogether and return to renting. They not only lose a significant tax deduction but also the peace of mind and sense of rootedness that homeownership provides. This is hardly an auspicious way to begin a new assignment, and it may very well have more than just a tax impact to the transferee and relocating family. Anticipating the unexpected is critical in today’s environment, and your relocation partner’s expertise becomes more important than ever. How VISION Can Help Your VISION Consulting Services team focuses exclusively on researching, analyzing and advising on the latest trends in global relocation and human resources. Questions? Dilemmas? Contact us today for a complete review of your current relocation policies. We’ll apply our Better Practices to your unique relocation needs and budget and ensure you’re prepared for success in a challenging market.
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