Home Buying

You find a home you love, but there is one unusual feature. Maybe the previous owner started adding a bedroom and never finished it. Perhaps a bathroom is partially remodeled, a garage conversion is incomplete, or a new section of the house is still visibly under construction.

Buyers may see opportunity in unfinished space, but a mortgage lender may need to evaluate the property as it exists today.

Financing Is Based on the Current Property
It is easy to walk through an unfinished addition and imagine what it could become.

The mortgage transaction, however, generally has to consider the property’s current condition rather than simply the buyer’s plans for completing it later.

The appraiser may need to identify unfinished areas and determine how they affect the property being valued.

Not All Unfinished Projects Are Equal
Missing cosmetic finishes are different from major incomplete construction.

A room awaiting paint or updated flooring presents a different situation than an addition with exposed framing, unfinished electrical work, missing plumbing fixtures, or other incomplete components.

The extent and type of unfinished work can influence what questions need to be answered.

Permits Can Become Part of the Conversation
An addition also raises another important question: Was the work properly permitted when required?

Buyers should understand what was added, who performed the work, and what information is available through the seller or applicable local records.

An attractive partially completed space should not automatically be assumed to be recognized living area.

Do Not Assume You Can Finish It After Closing
Buyers sometimes approach an unfinished project with a simple plan: purchase the property now and complete everything later.

That may ultimately be possible, but it should not be assumed before the financing has been reviewed.

Depending on the property condition and mortgage program, incomplete work could require additional evaluation or affect available financing options.

If you are seriously considering a home with an unfinished addition, show the details to your mortgage professional as early as possible. Photos, listing information, disclosures, and information about the work can help start the conversation.

A half-finished room may look like an opportunity to create exactly what you want.

Just remember that before you can finish the project as the homeowner, you first have to successfully purchase the property in its present condition.

Having enough money in the bank is an important part of buying a home, but during the mortgage process, the amount in your account may not be the only consideration. In certain situations, lenders may also need to understand where funds came from. That can surprise buyers who assume that once money reaches their account, its history no longer matters.

Mortgage Funds May Need to Be Documented
During the mortgage process, buyers may provide bank or asset statements showing money available for the transaction.

If an account contains certain recent deposits that are not easily explained by the documentation already provided, additional information may be requested.

The purpose is not to question every dollar a buyer spends or receives. Mortgage guidelines may require lenders to verify certain funds being used in connection with the purchase.

Moving Money Can Make Things More Complicated
Buyers sometimes reorganize their finances before purchasing a home.

They may transfer money between checking and savings accounts, move funds from an investment account, deposit proceeds from selling personal property, or receive money from another person.

Even when the funds are legitimate, multiple transfers can create more documentation because the movement of money may need to be traced.

Keeping records can make that process considerably easier.

Gifts Have Their Own Requirements
Some buyers receive financial assistance from an eligible family member or another permitted source.

Depending on the mortgage program, gift funds may be allowed for some or all of the money needed for the transaction. However, there can be documentation requirements regarding the gift, donor, transfer, and source of funds.

Do not assume that depositing a large check into your account is all that is required.

Avoid Unnecessary Financial Shuffling
Before closing, simplicity can be valuable.

If you are considering moving a large amount of money, making an unusual deposit, changing bank accounts, or receiving funds from someone else, ask your mortgage professional what documentation may be needed.

Save statements, transaction confirmations, deposit records, and other relevant documentation rather than assuming you will never need them.

Money being available and money being properly documented are not always the same thing during a mortgage transaction.

You do not need to stop using your bank accounts normally while buying a home. But understanding that certain funds may require a clear paper trail can help you avoid scrambling for documentation when closing day is getting close.