Homebuying Horror Story #4: Escrow Error
At Clear Title, we help people make one of the biggest financial decisions in their life: purchasing a home. The closing process can be complex and challenging, so we have developed this Homebuying Horror Story Series to bring to light some of the situations that can arise during this process. Last month we covered closing at the beginning or ending of the month; this month we are focusing on what could happen if you make a big purchase during escrow.
Fictional Situation: Robert
- 32 years old, single, no children
- Inherited money from his deceased aunt
- Purchasing his first home
Robert had been saving up money to finally say goodbye to apartment life and purchase his own home. When his aunt passed away, leaving him with an inheritance of $100,000, Robert was able to get serious about the process. After looking at many different options, he found the perfect downtown condo that would complement his active social life. He had his down payment and got the homebuying ball rolling.
Part of the escrow process was listing out all of his current debts. In addition to lingering student loans, Robert also had a hefty credit card balance. Luckily, these debts did not preclude him from applying for a mortgage and having the approval process move forward.
Unfortunately, the $100,000 inheritance began to beckon him to spend, spend, spend! In anticipation of his new home, he began to purchase furniture and new clothing to project his new downtown living image. Those purchases alone were nothing too extravagant. However, because the condo came with a dedicated parking space, he realized that having a car downtown – a very nice car – would be no problem.
The situation got messy when Robert took out a loan for a $55,000 car during the escrow period. He had essentially spent all of his inheritance and increased his debt-to-income ratio. When this information reached the mortgage company, they were forced to reject the mortgage loan because this added debt changed the formula for approval.
Robert was unable to purchase the downtown condo. Instead, he had to wait several years until he had paid off more of his debt and was more financially stable.
Homebuying can be a stressful process, but it doesn’t have to be – especially when you have trusted experts on your side, ones who keep the homebuying wheels turning and advise you on the dos and don’ts of homebuying.
Clear Title is a title company in Pensacola, Florida, led by Board Certified Real Estate Attorney Stephen R. Moorhead. For over 30 years he has honed his skills in real estate closing and built a team of experienced, trustworthy experts to keep the horror out of homebuying. When you trust Clear Title, you’re getting 100s of years of combined experience in your homebuying court.
To schedule a meeting with our experts and explore our Pensacola title services, contact us today at (850) 202-8518 or visit ClearTitlenwfl.com.