A Financial Roadblock Doesn’t Always Mean Your Home Plans Are Over

One of the biggest mistakes I see homeowners and buyers make is assuming that a problem automatically means the entire plan has to change.

Your windows are drafty, so you think you need to replace every window in the house.

Your student loan payment is killing your mortgage qualification, so you assume you can’t buy a home.

Your son started a successful business but doesn’t have the tax-return history a lender wants, so you figure the family has to buy the house for him.

A closing company suddenly wants another document, and everybody scrambles because nobody addressed it 2 weeks earlier.

Sometimes the problem is real.

But the solution is often smaller, simpler, or completely different from what you first assumed.

Before you spend a lot of money or give up on a goal, find out exactly what the obstacle is.

One Bad Window Doesn’t Mean You Need 20 New Ones

As winter gets closer, homeowners start noticing the same things they noticed last year.

That bedroom feels colder than the rest of the house.

There’s a draft around the front door.

A window has some discoloration underneath it.

You can see a little daylight around the bottom of the door.

The instinct is often to assume a major replacement project is coming.

Not necessarily.

If you have one or 2 bad windows, you may be able to replace only those windows. There’s no rule saying the entire house has to be done at once.

In fact, phasing a window or door project can make a lot of sense when the budget is tight.

The important part is figuring out whether you have a cosmetic issue, a maintenance problem, or an actual failure.

Start by looking for water.

Check the drywall and trim underneath the windows. Look for stains, bubbling paint, soft wood, or evidence that moisture has been getting inside.

If the windows crank or slide open, operate them and inspect the bottom portions of the sash.

Some aluminum-clad wood windows can develop damage behind the exterior cladding where it isn’t immediately obvious. Moisture gets behind the aluminum and the wood underneath can deteriorate.

Also pay attention to drafts.

A draft doesn’t automatically mean the entire window or door needs replacement. Weather stripping can wear out. Doors can settle slightly. Adjustable thresholds may be able to close a small gap underneath an otherwise perfectly good door.

If you need replacement weather stripping, try to identify the manufacturer first. A replacement part designed specifically for the door is usually a better solution than grabbing a generic piece and hoping it fits.

The lesson is simple: diagnose before you replace.

If the window is rotting, leaking, stuck shut, or no longer functioning properly, replacement may be the right answer.

But if the problem is a $50 piece of weather stripping, I’d rather see you solve a $50 problem than create a $20,000 project.

Student Loans Can Affect Much More Than Your Student Loan Payment

Student loan debt can become a major obstacle when somebody tries to buy a house.

I recently dealt with a borrower who worked as a nurse for nonprofit organizations and had approximately $150,000 in federal student loans.

She and her fiancé wanted to buy a home.

The problem wasn’t just the total amount of student debt. The monthly payment being attributed to that debt dramatically affected how much mortgage they could qualify for.

That’s where understanding the loan program matters.

Someone working for qualifying public-service employers may be eligible for Public Service Loan Forgiveness, and prior qualifying employment may potentially count toward the required period.

The payment plan matters too.

If the student loan payment can legitimately be reduced under an available federal repayment program, that can change the borrower’s monthly debt calculation and potentially improve mortgage qualification.

That doesn’t mean everybody with student loans can magically lower their payment and buy a house.

It means you shouldn’t assume the number you see today is necessarily the only number that can ever apply.

The same issue affects people who are approaching retirement.

Parents sometimes took out federal student loans to help children or grandchildren through school and are still carrying those balances years later.

Depending on the type of loan, the borrower’s circumstances, qualifying employment history, income, disability status, and available federal programs, there may be options worth reviewing.

This is one of those areas where guessing can get expensive.

Before deciding that student loans make homeownership impossible, understand exactly what kind of loans you have, what repayment program you’re using, and whether you qualify for another option.

Then run the mortgage numbers again.

Being Self-Employed Doesn’t Mean You Have to Wait Forever to Buy

Another common obstacle is self-employment.

Someone starts a business.

The business is growing.

Cash is coming in.

Everything looks great from the owner’s perspective.

Then the mortgage lender asks for tax returns.

That’s where things can get interesting.

A new business owner may have perfectly legitimate deductions that reduce taxable income. The owner sees a successful business generating $100,000 or more.

The mortgage underwriter may see something very different.

That doesn’t necessarily mean the family has to abandon the purchase.

One caller had an adult son who had started a carpet-cleaning business approximately 2 years earlier. The son was doing very well, but his earlier tax returns didn’t yet show the income necessary to qualify for the house he wanted.

The parents were considering buying the house themselves and eventually selling it to him.

There may be another approach.

Depending on the loan program and everyone’s qualifications, a parent may be able to participate as a non-occupying co-borrower while the adult child purchases and occupies the home.

That potentially allows the son to own the property from the beginning while the parents help strengthen the financing.

Later, if the son establishes sufficient qualifying income and refinancing makes financial sense, there may be an opportunity to refinance the parents off the loan.

Of course, that creates a completely different conversation if the buyer is married and there are concerns about what could happen to the property in a divorce.

That’s when you stop guessing and get the appropriate real estate and estate-planning attorneys involved.

Mortgage strategy can solve the financing problem.

It shouldn’t pretend to solve a legal ownership problem.

The Last Minute Is the Most Expensive Time to Discover a Requirement

The same principle applies at the closing table.

A recent borrower had a large gift from family members being used toward the purchase.

The lender had the gift letter.

The underwriter reviewed it.

The mortgage was approved.

Then, shortly before closing, the title company requested another affidavit from the people providing the gift stating that they would not have an ownership interest in the property.

That request came far too late.

The parents providing the gift were older and not comfortable with electronic documents. The borrower ended up driving approximately 90 minutes each way to get the paperwork signed before closing.

The document itself wasn’t the real problem.

The timing was.

If a title company, attorney, lender, or other party knows a particular document will be required, that information should be communicated early enough that everybody can deal with it without creating a crisis.

The same goes for property tax prorations and final closing figures.

Nobody should discover the day before closing that the amount needed has changed significantly because somebody finally completed a calculation that could have been handled earlier.

Buying a home is stressful enough.

There’s no reason to manufacture an emergency because somebody waited until the last minute to ask for something.

Solve the Actual Problem

A lot of expensive decisions become easier once you stop treating the first obstacle as the final answer.

One bad window doesn’t mean replacing the entire house.

A high student loan payment doesn’t automatically mean you can’t qualify for a mortgage.

A new business doesn’t necessarily mean your adult child has to wait years before buying.

And a complicated transaction doesn’t have to become a last-minute disaster if everybody does their job early enough.

Slow down.

Figure out what’s actually preventing you from moving forward.

Then solve that problem.

If you’re trying to buy a home, refinance, or figure out how debt or self-employment income affects your mortgage options, contact me through 56david.com. We can look at the entire situation before deciding what the answer should be.