Tag Archive for 'Financing'

The Price of Selling Your Home

Published by Louise on August 1, 2005 in Selling. Closed

First-time sellers take note. Sunday’s Seattle Times ran an article by Ilyce Glink outlining potential closing costs for sellers (also available here, at the author’s website). Not all of the items mentioned apply to Washington residents, however many of them do. A good rule of thumb to remember is that it can cost up to 9% of the purchase price to sell your home (when listing with a full service real estate brokerage): generally 6% for both the listing and buyer’s agents’ commissions, 1.78% excise tax, and other costs such as title insurance and escrow company fees. Remember, though: that 9% does not include any mortgage pay offs, home equity lines of credit, or credits paid to the buyer.

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The Importance of Pre-Approval

Published by Louise on July 11, 2005 in Financing. Closed

I was happy to see the issue of pre-approval addressed in yesterday’s Seattle Times. As most real estate agents will tell you, buyers need to get pre-approved for a loan before looking for a home. Now, I know that letting a lender pore over your financial records isn’t nearly as sexy as mentally arranging your furniture in a new house, but the consequences of skipping this vital step can be costly and frustrating for everyone involved.

According to Barron’s Dictionary of Real Estate Terms, “Pre-approval is the practice by a lender of authorizing a borrower for a certain loan amount.” In essence a lender says, “this is how much money we’ll loan this buyer.” When pre-approvals are correctly done, the mortgage broker or loan officer verifies the borrower’s income, assets, debt ratio, and so on, by examining the borrower’s W-2s, bank statements, and credit score, among other items.

However, some lenders are quick on the draw, offering pre-approval letters without thorough verification. Naturally, this can be enticing to buyers who are shopping in a fast-moving market, like ours here in Seattle. But postponing the verification process can have serious consequences for both the buyer and seller. A buyer who thinks he has authorization for a certain amount may submit an offer on a house and have it accepted, only to open the door to a mess of trouble. As the Times article states,

“What sort of troubles? Mainly an inability of the buyer to pass the lender’s underwriting tests for the amount needed to fund and close the loan. Then the deal often goes off the tracks, and the seller has to put the house back on the market - a huge waste of time for everybody involved.”

So, it behooves both buyers and sellers to be sure that the buyer is fully pre-approved. By doing so, there is much less risk of a transaction falling apart because of financing.

Remember, if a lender is willing to write a pre-approval letter without asking for any of your financial information, shop around a bit for a more attentive lender.

Have you ever been burned by a worthless pre-approval letter? We’d love to read your story. Just click on the Comments link below this post and tell us all about it.

The secret is out: You can buy a home with very little down

Published by Joanne on July 10, 2005 in Featured Articles and Financing. 2 Comments
Contributed by:
Joanne Rocheford
Mortgage Loan Consultant
PH: (206) 242-0800 FAX: (206) 225-2017
Rocheford@msn.com

 

Editors’ Note: Seattle Real Estate Talk is pleased to welcome guest contributor, Joanne Rocheford.

I recently spoke to a senior citizen who shook her head and lamented, “The poor young people today. I don’t know how they’ll ever to be able to afford to buy a home.” I understand why she feels that way. Coming up with a 20% down payment and thousands in closing costs is a daunting proposition for most folks. With the median house price in Seattle hovering around $350,000, few buyers would be able to afford to buy a home if they had to meet those terms.

The good news is that there are ways to buy a house with no down payment these days. And there are ways to reduce your out-of-pocket expenses for purchasing a house – your closing costs – to almost nothing. Would-be homeowners watching late night TV infomercials pay thousands of dollars for audio tapes and CDs that claim to have the “secrets” for buying a home with no down payment. But you, lucky reader, can put your wallet away and go to sleep early tonight, because the secret is out.

Getting your down payment down

There are three ways to get 100% financing, or no-down-payment loans. The first way is to get a 100% loan. This means that if you buy a house for $250,000, you obtain a loan for $250,000, or 100% of the value of the home. In this instance, because you are putting less than 20% down, the lender will typically require you to purchase mortgage insurance, which protects the lender should you default on the loan. On these types of loans, the mortgage insurance can run around $200 per month.

The second way is to obtain a first and second mortgage at the same time. On that same $250,000 house, you would take out a first mortgage loan for $200,000 and a second mortgage loan for $50,000. This in known in the mortgage industry as an 80/20 loan. The interest rate on the second mortgage is a higher interest rate, but you don’t have to pay mortgage insurance with this option. Closing costs are higher on an 80/20 loan because you are actually getting two loans. Most lenders require a credit score of at least 680 to qualify for this type of financing.

The third option is an FHA loan. Although an FHA loan requires 3% down, FHA allows you to use gift money for the down payment. If you don’t have a wealthy great aunt Gertie, you can ask the seller to participate in a gifting program. (I’ll talk more about this in future articles.)

Lowering your closing costs

Now you’ve got 100% financing available to you. What about closing costs? Well, lenders require you to obtain an appraisal, to get title insurance, to use an escrow company, and so on… and they expect you to pay for all this! You can also plan to pay your first six months of property taxes and first fifteen months of homeowner’s insurance. These are known as your “prepaids,” but are often quoted as closing costs.

The easiest way to get your closing costs and prepaids taken care of without breaking your piggy bank open is to ask the seller to pay them. In today’s market if you ask a seller to pay your closing costs, he’ll say no; so here’s what you can do: If a seller is asking $250,000 for his house, you might offer him $256,000 and ask him to pay $6,000 of your closing costs. In essence, you just gave him $6,000 and asked him to give it back to you. Now you have the full amount of the price of the house in financing and all of your closing costs are being paid as well.

So it’s just that simple? Well, almost. When you find a home to call your own, you will write up a purchase and sale agreement offering to buy the property. At this time, you will need to write a check for earnest money to show you are serious about purchasing the home. You will want to have a home inspection done to make sure the house isn’t going to fall in immediately after you purchase it. Most lenders will ask for a deposit of $500 and up to get started.

Now, here’s the beauty of it all: Most lenders will allow you to get cash back at closing up to the amount you put in. In other words, we’ll give you back your earnest money and deposit on the day you close. [This policy varies by lender. Be sure to check with your loan officer or mortgage broker. -Ed.]

Here’s a real live example of a transaction I put together recently. The house was listed for $200,000. The buyer offered $207,000 and asked the seller to pay $7000 of her closing costs. The buyer wrote a check for $500 for earnest money, she paid $400 for a home inspection, and she paid me a $600 deposit. Thirty days later she got $1100 back at the closing table. How much did it cost her for closing? Just $400 for the inspection and the lender doesn’t even require it. (Although we ”definitely” recommend it.) You can see that she had to come up with some up-front costs, but but she got it all back.

Can you afford $400 to buy a home?

Risky Mortgages

Published by Louise on July 7, 2005 in Financing. 1 Comment

Here’s an editorial from The New York Times on how risky mortgages — such as adjustable-rate mortgages and interest-only loans — are influencing the housing boom across the nation. According to this editorial, “The rates on half of all adjustable-rate mortgages reset [i.e., go up] within three years of being issued!” If you’re like many first-time buyers today who are barely able to afford buying a home now with such low interest rates, will you be able to afford your house payments if the interest rate on your mortgage goes up?

First-time buyers especially should take the opportunity to read what the Times has to say. Make sure to thoroughly explore all your borrowing opportunities with your mortgage broker or loan officer, ideally before you begin house hunting.

How to avoid predatory lenders

Published by Louise on June 12, 2005 in Financing. Closed

Are you working with a lender you haven’t met or know very little about? Here’s a useful site from the City of Seattle’s Office of Housing regarding predatory lending practices. It includes topics such as “Warning Signs”, “Questions to Ask Your Lender”, and “Where and How to File a Complaint”. With its no-nonsense reminder “If it sounds too good to be true, it probably is”, this is a helpful bookmark especially for first-time buyers. Click on the language of your choice to read the brochure.