Depending on the economy, you may find yourself in a buyer's market in which the buyers get the best deals, or you may find yourself in a seller's market in which the sellers get the upper hand. Sometimes, you'll find yourself somewhere in between.

 

In a buyer's market, there are a lot of homes on the market, and they may take a while to sell. To sell a house, the seller might need to offer a really good price, plus additional incentives such as help with financing. If you're buying a home in this type of market, you can take your time looking and can usually strike a pretty good deal.

 

In a seller's market, houses aren't on the market for long. In fact, they may sell before they are even listed. Because the market is so strong, many owners will decide to sell their homes themselves; you'll see a lot of for-sale-by-owner (FSBO) homes. If you're selling a house in this market, you're lucky. You'll probably get many good offers and not need to offer any additional incentives. If you're buying a house in this market, you may have to work hard to find a house that you like and can make an offer on before it is sold…To get your offer accepted, you should be financially ready (prequalified). Also, don't expect to submit and have accepted a contract with a lot of contingencies.

These are "MUST DO NOT" things before buying (or even looking) for a home.

 

No Major Purchase of Any Kind:

 

When you get a raise or accumulate some savings, you may find yourself confronted by an innate instinct of modern civilized men and women.  It begins simply, by going out to restaurants, then accelerates to buying clothing, electronic gadgets, and since most Americans have a special fondness for the automobile, you may even buy a "brand new car."

 

If you're married or ambitious, a few months later your thoughts eventually turn toward buying your own home, or a move-up home, if you are already a homeowner.  Next, you contact a loan officer to get prequalified for a mortgage loan. You state your desired price and how much you can put down. You provide your income and may even supply pay stubs and W2 forms. The loan officer methodically crunches the numbers (by telephone, in person, or even over the internet).  "If only you didn't have this car payment…"

 

Don’t Move Money Around:

 

When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs.  Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets.  This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.

 

If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.  The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all the withdrawals and deposits.  You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.

 

Perhaps you become exasperated at your lender, but they are only doing their job correctly.  To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds.  Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document.

 

So leave your money where it is until you talk to a loan officer.  Oh…don’t change banks, either.

 

Should You Change Jobs?:

 

For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money.  For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application.

 
Think ahead.  If you're even beginning to think about a new (or move up) home this year, talk to a real estate broker first.  They can properly advise you as to how ANY purchase now, could affect your ability to get that new home you want, later.

One Month Before Moving

Obtain an IRS Change of Address form, call 1-800-829-1040 and ask for Form 3903 to help deduct Moving Expenses.

Gather moving supplies, boxes, tape, rope.
 
If moving far away, make any necessary travel arrangements like airline, hotel, and  rental car reservations. Or plan your travel route if driving.
 
Call a moving company or make truck rental reservations to move yourself.
 
Finalize real estate and apartment rental needs.
 
Place legal, medical, and insurance records in a safe and accessible place.
 
Obtain a Change of Address form to tell the Post Office of your move.
 
Give your mailers your new address:
           Friends and family members
           Banks, insurance companies, and other
                  financial institutions
           Charge card and credit card companies
           Doctors, dentists, and other service providers
           State and Federal Tax authorities and any
                  other government agencies as needed.
           IRS–see note at the top of this post.
You can do this by sending them Address Change Notification Cards or, for magazine publishers and business mailers, by following their change-of-address instructions.
 

Save moving receipts (many moving expenses are tax deductible).
 
Make maps of your new neighborhood to familiarize yourself and your family with your new area.
 
Plan your moving budget
Two Weeks Before Moving

Inform gas, electric, water, cable, local telephone and trash removal services of your move. Sign up for services at your new address.
 
Line up new cable service for your new home.
 
Inform long distance phone company of your move. Sign up for long distance service at your new address.
 
Recruit moving-day help.
 
Confirm travel reservation.
 
Arrange to close or transfer your bank account, if appropriate.
 
The Day Before Moving

Set aside moving materials like a tape measure, pocket knife, packing boxes, tape and markers.
 
Pick up rental truck.
 
Check oil and gas in your car.
 
If traveling, make sure you have tickets, charge cards, and other essentials.

 

Today, a look at the final three "Things Your Lender Won't Tell You."
8. "You Should Worry About Our Finances Too."

 

The chances that your bank will go under are slim, but it does happen. Shanda and Steve Falcon know all too well. It took Abbey Financial, a lender in Cambridge, Mass., six months to refinance the Falcons' mortgage. Four days later, the deal fell apart and Abbey declared bankruptcy. The Falcons were out no small amount of money, including $1,700 they paid for a rate lock. And they weren't the only ones. Abbey's bankruptcy stranded 867 other homeowners in six states.

 

Think it couldn't happen to you? Think again. Things have calmed down since interest rates have fallen from the highs of 1994. But Mark Thomson, a department of financial institutions assistant director in Washington State, warns that "rates could get bumped back up at any time, and the same situation would replay — if the market dries up, firms that aren't financially stable are going to have a difficult time." The upshot: If your mortgage banker or broker shuts down, your file may land on a trash heap and you'll have to start your loan-hunting-and-gathering expedition all over.
 
9. "You're 'Prequalified'? Don't Bank on It."

 

Lenders will tell you that prequalified borrowers practically have their mortgage in the bag. But they often don't mean it. Sometimes they will pre-approve you based on what you have written or verbally stated with no verification. These are called "wastebasket" approvals. When it comes to actually getting a mortgage, they don't mean anything. That final approval is dependent on verification of that information. This can mean trouble all around. Once a client of Ray Rizio, a real estate attorney in Bridgeport, Conn., went into contract with a buyer who had been pre-approved by a local lender. "Three other deals went into contract based on this pre-approved buyer — it was a sure thing," he says. It wasn't. The buyer wasn't a U.S. citizen, he had five different employers, and he had horrible credit. "The lender didn't even pull his credit report," says Rizio.

 

Happily, lenders are adopting tougher pre-approval rules. But get it in writing before you make any plans based on a lender's word.
 
10. "What Happened to Your Prepayments? Can't Be Sure."

 

Many homeowners pay down their principal early, bit by bit. It's a great way to reduce your interest payments over time. But often those extra payments will sit in an escrow account — and won't be credited toward your principal — because your lender doesn't know what to do with them.

 

In 1993 Kathleen and Hal Aaron paid an extra $1,017 on their $117,000 one-year adjustable-rate mortgage for their New York City pied-a-terre. But when they got their year-end mortgage statement, there was no record of that payment. Where was the money? The Aaron's lender had stashed it in a savings account. Only after two months of phone calls and irritation was the bank able to find the cash and put it where it belonged.

 

Why aren't lenders on the ball? It confuses payment schedules, for one thing. But lenders also make money on the interest you pay — income that's eliminated when you prepay your principal.
We hope you gained some useful insight in to the world of mortgages with this series.

Here are two more (in our series of 10) things your Lender Won't Tell You…
6. "We're in Cahoots With Your Real Estate Broker."

 

When shopping for a product, it's always best to get a recommendation, right? That depends on who's doing the recommending. A real estate agent who directs you to his or her favorite lender is not necessarily offering you the best deal. In fact, there's a chance the lender paid your broker a fee for the referral — a practice that is illegal.

 

In a handful of states, such as California and Minnesota, real estate brokers can negotiate mortgage loans. Depending on how well this area is regulated in your state, this could be cause for worry. Is the loan offered going to be the best deal you could get? Peter G. Miller, a former agent and author of The Mortgage Hunter (HarperCollins, $13.50), raises another concern for the buyer. "The second issue is, will my confidential financial information be transmitted to the seller? And will that give the seller a negotiating advantage?" He points out that the real estate broker is often obligated to get the seller the best possible price for the property. If the broker knows your financial background, that could prove very useful to the seller.   One way to avoid this pitfall is to hire your own agent, one that will be representing you as a buyer's agent, and preferably one that will act as an Exclusive Buyer's Agent.  In other words, an agent that never lists property for sale, but only represents buyers.

 

Other types of lending partnerships are cropping up around the country. For instance, computerized loan originators, which allow borrowers to scan selected lenders' deals on PCs, are up and running in many real estate offices. The U.S. Department of Housing and Urban Development is currently trying to revise its regulations in this area to address issues like disclosure of the relationship between the real estate broker and the lender. The aim is to ensure that consumers can benefit from this kind of system, but are protected from any possible abuse. In the meantime, you don't necessarily want to avoid these offers. They may be the best deals around. But "may be" are the operative words.
 
7. "Once You Buy Mortgage Insurance, Good Luck Canceling It."

 

You need to buy mortgage insurance because you can afford only 15% of your down payment, but your lender assures you it's no big deal. Once your equity grows to 20%, he says, you can bag the insurance payments. Good decision? Nope.

 

Lenders make it sound easy to get rid of your mortgage insurance, but when that time comes, they often balk. "It's not true that the borrower can just stop paying," says Linda Washing, a Manager of Housing Programs at Consumer Credit Counseling Services Southwest and a former loan officer. "It's the lender's prerogative."

 

That can be expensive. On a mortgage on a $200,000 home, with 15% down, a buyer's mortgage insurance will cost about $43 a month, or $516 a year. With just 5% down, the cost goes up to $120 a month, which is almost three times as much, according to GE Capital Mortgage Insurance. Depending on which insurer you go with, it can cost even more. Some require an additional fee upfront — on top of the monthly payment — of as much as 1% of your loan if you put only 5% down. Since your lender typically chooses your insurer, this is probably going to be beyond your control as well.

 

The key is to understand the terms of your mortgage insurance obligations before you close your loan. Get your lender to explain what conditions you have to fulfill before you can stop paying for insurance. Some lenders simply require an appraisal to prove you've paid down 20% of the home's value.

 

Next time, a look the final 3 items in our list of 10…