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Personal Finance

The primary risks to understand during the home purchase process

2016-10-20

Military families can avoid losing money by understanding the four primary risks involved with the home purchase process:

1. Earnest money and due diligence deposits (cash the buyer pays directly to the seller, as well as cash held in escrow);

2. Time wasted (opportunity costs);

3. Actual costs of property appraisals and inspections; and:

4. Poor decisions in determining the real value of the property.

In buyer beware states, like North Carolina, home buyers bear the brunt of any mistakes made during the home buying process. The home buyer's vendors and entities hired rarely are responsible for mistakes, and therefore the consumer must make sure the vendors hired are licensed and professional. AAFMAA Mortgage Services (AMS) state-licensed loan officers can assist military families in protecting earnest money and due diligence deposits.

The process of purchasing a home typically involves hiring a Realtor. Before the military home buyer signs a contract with a Realtor, speak with AMS regarding the above four risks. Some Realtors have controlled business arrangements (CBA).  A CBA may be the buyer’s first indication of an underlying risk. Military home buyers should always ask the Realtor or mortgage company if a CBA exists. Before signing a contract with a Realtor, please contact an AMS state-licensed loan officer who can explain the impact of such arrangements.

When a home buyer makes an offer, they give due diligence money to the seller from the buyer. The seller cashes the check from the buyer and keeps it, as payment for entering into the home purchase contract. Two to three weeks after entering the home purchase contract, the seller "vests" in the buyer's earnest money check and may keep this money as well. Earnest money, which can be as high as 1% of the purchase price, and due diligence monies are typically returned to the home buyer at time of closing. However, in unfinished transactions, the seller may keep the buyer's due diligence and earnest monies. On a $200,000 home this can equate to $2,000.

Finally, the military buyer will encounter general home risks, which includes maintenance, price decline and upkeep. Military home buyers can stay ahead of the complexities involved in purchasing a home and reduce stress through education and information. AMS state-licensed loan experts can help the military family before they encounter these pitfalls.

Andy May, a licensed loan officer (MLO 103418) and COO of AAFMAA Mortgage Services, proudly represents military families interested in purchasing or refinancing residences. AMS competes on rates and service and takes pride in continuing its tradition of zero BBB complaints to date. Get the most value out of a home refinance or purchase by working with state-licensed mortgage professionals with significant experience and education.


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