Many are taking advantage of this year’s lower mortgage rates to purchase a home. Pent up with excitement, many families, who have scrimped and saved for a down-payment, jump for joy when the mortgage lender finally approves their application. But, they should realize that there’s a whole new set of expenses that must be covered before actually closing on the sale.
New homeowners are often taken aback by up-front closing costs such as mortgage and title insurance, attorney fees, recording fees and loan points, which can run into the thousands of dollars. But there is no need to be afraid of these charges. With a little background on their purpose and shrewd financial foresight, closings can be a breeze.
A lender’s charge for processing the loan can be determined at the beginning of your buying process. Referred to as “points,” these charges are expressed as a percentage of the total loan. For instance, three points are equal to 3 percent of the borrowed amount. “Points” can also become a tool for negotiation with the lender and seller. In a buyer’s market, home sellers will often agree to pay mortgage fees in order to close a deal.
Title insurance can be a substantial expense. The policy covers any financial set-back caused by unforeseen defects in the purchased property and home. The one-time title fee, including search and examination, averages around $400-700 for a $100,000 home, but it’s recommended that you check with a local title insurance agent ahead of time to effectively determine what you’ll owe before closing.
Additional costs, such as attorney charges, and recording, transfer and inspection fees, can also be predicated ahead of time by the buyer. Most often pest and survey inspections, although included in the official closing statement, are conducted and paid for long before the closing date. However, buyers should consider them as additional up-front costs.
Some closing costs, such as “points,” are fully tax deductible that tax year if you show proof of a separate lump sum payment. They are not deductible in a few cases when the loan is the result of re-financing rather than a home purchase. Application, appraisal, documentation and broker fees can not be deducted.
Some states require payment of property taxes at closing. In some instances, buyers and sellers are asked to put money into an escrow account that will cover any past and future tax obligations. Be sure to check with an attorney or real estate agent before the closing to determine your property tax commitments.
Also, be prepared to pay any assessments if buying a condominium or into an association-governed property. Fees for credit reports, notary public seals and assumptions, which includes the processing of official documents, may also arise.
Knowing what total closing costs will be before starting your home search can help you better understand what price range is right for you. In the end, the process of closing on a mortgage will be easier than you think, leaving more time to plan for your new home.
Thursday, March 17, 2011
Thursday, March 10, 2011
The Contractor Agreement: 7 Steps to an Iron-Clad Contract
Follow these seven tips to make sure your contractor agreement works in your favor—not your builder’s.
Step 1: Hire a lawyer
Contractors use their own forms, which are drafted for their benefit, not yours. You’ll benefit from hiring an attorney to review your contractor agreement or draft one that’s you-friendly. Even though this may cost around $250 to $500, it can save thousands of dollars later if there’s a dispute.
Step 2: Take the home court advantage
Add a “choice of law” or “forum selection” provision, which says that disputes will be litigated on your turf. This provides protection against out-of-town contractors or suppliers—you don’t want to have to drag yourself across multiple state lines for a lawsuit.
Step 3: Create an incentive to finish
Define when the contactor will deliver on his promises, and when he’ll get his money. Within the contractor agreement, create a payment schedule in your favor by holding money back until the work is fully completed and you’ve verified the final payments to subcontractors. Maintain control by holding the purse strings.
Step 4: Reeling in a runaway contractor
The most common problem you’ll encounter is a general contractor who gets paid, but doesn’t pay his subcontractors and suppliers—possibly leaving you on the hook, according to Craig Robelen, a home builder in Boca Raton, Fla.
Robelen advises protecting yourself upfront by requesting the names of all professionals your builder will work with. Verify that your contractor has paid his subcontractors by requesting conditional partial lien releases during the construction term, and a final lien release at completion. (Have the general contractor collect them and present them to you.) These are essentially formal acknowledgments from subcontractors that they are being paid for work done.
Also, see if your contractor has a “payment bond” that guarantees subcontractors will be paid.
Step 5: Corral unauthorized costs
Your contract should state that any changes that will affect the price of construction should be in writing and countersigned by both you and your contractor. This protects you from unauthorized charges.
Step 6: Avoid kickbacks
Protect yourself from kickbacks—where contractors gets bonuses from their subs for referring business—by requesting that builders sign affidavits that they’re not getting any “fees” from subcontractors as a prerequisite for doing business with them. Keep costs well-defined by asking for a “bid summary,” which should show a minimum of three quotes in every cost category of your budget.
Step 7: Binding words
If you’d like to avoid going to court in case of a dispute, add a clause in the contractor agreement for binding arbitration. If there’s a problem, you and your contractor will plead your case in front of a non-biased arbitrator, whose decision will be final.
If your contractor balks on any contract point you feel strongly about, do some more research. Maybe what you’re asking isn’t typical for that kind of job. Talk with neighbors who have had similar work done and sound out other contractors regarding their policies on the disputed issue before you sign anything. This helps you determine what’s customary for your particular area.
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Article written for National Realtor Association by Barbara Eisner Baye. She has written about personal finance for the past 17 years. She recently completed a home renovation on time, on budget, with the aid of a cold compress on her forehead.
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Step 1: Hire a lawyer
Contractors use their own forms, which are drafted for their benefit, not yours. You’ll benefit from hiring an attorney to review your contractor agreement or draft one that’s you-friendly. Even though this may cost around $250 to $500, it can save thousands of dollars later if there’s a dispute.
Step 2: Take the home court advantage
Add a “choice of law” or “forum selection” provision, which says that disputes will be litigated on your turf. This provides protection against out-of-town contractors or suppliers—you don’t want to have to drag yourself across multiple state lines for a lawsuit.
Step 3: Create an incentive to finish
Define when the contactor will deliver on his promises, and when he’ll get his money. Within the contractor agreement, create a payment schedule in your favor by holding money back until the work is fully completed and you’ve verified the final payments to subcontractors. Maintain control by holding the purse strings.
Step 4: Reeling in a runaway contractor
The most common problem you’ll encounter is a general contractor who gets paid, but doesn’t pay his subcontractors and suppliers—possibly leaving you on the hook, according to Craig Robelen, a home builder in Boca Raton, Fla.
Robelen advises protecting yourself upfront by requesting the names of all professionals your builder will work with. Verify that your contractor has paid his subcontractors by requesting conditional partial lien releases during the construction term, and a final lien release at completion. (Have the general contractor collect them and present them to you.) These are essentially formal acknowledgments from subcontractors that they are being paid for work done.
Also, see if your contractor has a “payment bond” that guarantees subcontractors will be paid.
Step 5: Corral unauthorized costs
Your contract should state that any changes that will affect the price of construction should be in writing and countersigned by both you and your contractor. This protects you from unauthorized charges.
Step 6: Avoid kickbacks
Protect yourself from kickbacks—where contractors gets bonuses from their subs for referring business—by requesting that builders sign affidavits that they’re not getting any “fees” from subcontractors as a prerequisite for doing business with them. Keep costs well-defined by asking for a “bid summary,” which should show a minimum of three quotes in every cost category of your budget.
Step 7: Binding words
If you’d like to avoid going to court in case of a dispute, add a clause in the contractor agreement for binding arbitration. If there’s a problem, you and your contractor will plead your case in front of a non-biased arbitrator, whose decision will be final.
If your contractor balks on any contract point you feel strongly about, do some more research. Maybe what you’re asking isn’t typical for that kind of job. Talk with neighbors who have had similar work done and sound out other contractors regarding their policies on the disputed issue before you sign anything. This helps you determine what’s customary for your particular area.
--------
Article written for National Realtor Association by Barbara Eisner Baye. She has written about personal finance for the past 17 years. She recently completed a home renovation on time, on budget, with the aid of a cold compress on her forehead.
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