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.
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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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Thursday, January 13, 2011
Flipping Okay with FHA, But Guidelines Exist
Some lender have updated their FHA flipping guidelines to allow an FHA flip transaction after only 30 Days. Previous FHA guidelines did NOT allow flip transactions within the first 90 days and required two appraisals for flips from 91 - 180 days. That process has changed
The guidelines still require two appraisals for flip transactions from 31 days - 180 days period. The buyer can only pay for one of the appaisals. The seller in a 31- 180 FHA flip transaction must agree to pay for the second appraisal.
A FHA transaction bought directly from a bank (i.e REO Owned) does not constitute a flip transaction simply because it a foreclosure. A flip transaction is if an investor buys the property at auction or bank, etc. and is trying to re-sell, or "flip" it, for a quick profit.
The guidelines still require two appraisals for flip transactions from 31 days - 180 days period. The buyer can only pay for one of the appaisals. The seller in a 31- 180 FHA flip transaction must agree to pay for the second appraisal.
A FHA transaction bought directly from a bank (i.e REO Owned) does not constitute a flip transaction simply because it a foreclosure. A flip transaction is if an investor buys the property at auction or bank, etc. and is trying to re-sell, or "flip" it, for a quick profit.
Thursday, January 6, 2011
Tighter Credit Parameters Mean Harder-to-get Loans
Fannie Mae published an underwriting guideline update on 12/11/2010 which further restricted underwriting guidelines.A couple of the issues that have surfaced are:
- Debt-to-income ratios are further reduced. Back-end ratios exceeding 45% create a huge stumbling block and ratios greater than 50% are almost certain to elicit a denial. Many banks have instituted "Overlays" which add their own guidelines and make the loan even more restrictive than Fannie Mae's guidelines.
AMEX and 30-day charge accounts are now included in the borrower's debt ratios. Historically, AMEX accounts and other 30-day charge accounts that must be paid in full at the end of each month were NOT counted into a borrower's debt to income ratios. The new update now REQUIRES these type of accounts to be included. The minimum payment will be calculated as 5% of the balance which shows on the credit report.
Historically, medical collections were not required to be paid in full. However, some the Desktop Underwritering programs require 4-year old medical collections to be paid as a condition of the loan. This caveat is a BIG ISSUE.
Short Sales vs. Foreclosure
The current guidelines for a foreclosure state that a person with a foreclosure on their credit report is NOT eligible for financing within the first four years following the foreclosure. Fannie Mae is considering INCREASING the time frame to SEVEN YEARS from the date of the foreclosure.
Short Sales however have the same convention guideline of being four years from the date of the short sale or three years in the case of a FHA loan. If there were NO late payments within the year prior to the short sale, FHA will allow financing after two years.
The bottom line is that if a seller is weighing the options between the hassle of a short sale vs. a foreclosure, SEVEN years from the date of a foreclosure is a considerably longer wait time then 3 - 4 years required for a short sale.
- Debt-to-income ratios are further reduced. Back-end ratios exceeding 45% create a huge stumbling block and ratios greater than 50% are almost certain to elicit a denial. Many banks have instituted "Overlays" which add their own guidelines and make the loan even more restrictive than Fannie Mae's guidelines.
AMEX and 30-day charge accounts are now included in the borrower's debt ratios. Historically, AMEX accounts and other 30-day charge accounts that must be paid in full at the end of each month were NOT counted into a borrower's debt to income ratios. The new update now REQUIRES these type of accounts to be included. The minimum payment will be calculated as 5% of the balance which shows on the credit report.
Historically, medical collections were not required to be paid in full. However, some the Desktop Underwritering programs require 4-year old medical collections to be paid as a condition of the loan. This caveat is a BIG ISSUE.
Short Sales vs. Foreclosure
The current guidelines for a foreclosure state that a person with a foreclosure on their credit report is NOT eligible for financing within the first four years following the foreclosure. Fannie Mae is considering INCREASING the time frame to SEVEN YEARS from the date of the foreclosure.
Short Sales however have the same convention guideline of being four years from the date of the short sale or three years in the case of a FHA loan. If there were NO late payments within the year prior to the short sale, FHA will allow financing after two years.
The bottom line is that if a seller is weighing the options between the hassle of a short sale vs. a foreclosure, SEVEN years from the date of a foreclosure is a considerably longer wait time then 3 - 4 years required for a short sale.
Friday, December 17, 2010
Mortgage Rates Make Abrupt Move Upward
The 30 Year Conventional mortgage rate has moved above 5% from a low of 4.250% a few weeks ago and the 15 Year Conventional rate is above 4% for the first time since the end of July. This is attributable to many things (read my 'Mortgage Rates Make A Move' post from December 3). Also, economic news in the last few days has brought market concerns over stronger economic growth that could lead to an increase in inflation. This has added fuel to the fire in the rise in mortgage rates.
This is a very strong move in just a few days to say the least. It looks like the bond market is VERY oversold at the moment. I still think rates will dip again in late January or mid February when bargain buyers enter the market. Do I think we will see a 30 Year at 4.250% again? No. I do think we could see 4.500% though.
There are definitely a lot of people who missed the opportunity to refinance. When mortgage rates are at or near record lows for so long people seem to get complacent that the rates will continue to stay low. The bottom line is those looking to refinance are late to the party at this point and may have to wait a few months. When and if rates drop they need to lock immediately!
Those looking to purchase a home should not delay based on higher rates. What should be most important to potential buyers is whether they have a job, are confident they’ll keep it and are sure that the home is affordable to them. Not only will rates probably increase later in 2011 underwriting will also become more stringent. Those who qualify for a mortgage today may not qualify in a few months. Rates are still at great levels and it is a Buyers market.
Thursday, December 16, 2010
Money Available for Purchasers of Distressed Properties
Money remains available through the REALTOR® Association of Greater Fort Lauderdale’s Broward Home Improvement Program (B-HIP) to help buyers improve their homes.
Up to $500 per household is available to assist moderate and lower income families that have purchased distressed properties with the purchase of missing or damaged household appliances or costs associated with exterior improvements to their property.
Up to $500 per household is available to assist moderate and lower income families that have purchased distressed properties with the purchase of missing or damaged household appliances or costs associated with exterior improvements to their property.
This program presents a great opportunity for the RAGFL REALTOR® community to help homebuyers, reduce blight and improve the curbside appeal of local communities.
Friday, October 22, 2010
Broward County New Mortgage Credit for First Time Homeowners
Currently, Broward County offers a Mortgage Credit Certificate (MCC) to first-time homeowners. An MCC is a federal income tax credit designed to assist a person seeking affordable homeownership. With an MCC, the qualified home buyer is eligible to write off a portion of the the annual interest paid on the mortgage as a special tax credit, not to exceed $2,000, during each year in which they occupy the home as their principal residence. The portion or amount of the tax credit is equal to the annual mortgage interest paid multiplied by the mortgage credit rate (30%. This credit reduces the federal income taxes of the buyer and has the potential of saving the MCC holder thousands of dollars over the live of the loan.
How does a Home Buyer qualify and apply?
the Home Buyer must purchase a home with Broward County, Florida and may not have owned a home as their primary residence in the last three years. There are exceptions that apply to target areas. Home buyer's household income and the purchase price must not exceed the maximum limits set by the program. The Home buyer must occupy the home as a principal residence and must apply for the MCC through a participating lender. In addition, the buyer must complete a pre-purchase home buyer education course.
Home buyers should apply for the MCC at the same time they make a formal application for a mortgage loan. Funds are available on a first-come, first-serve basis.
Information provided by Jim Monniger, First Trust Mortgage.
How does a Home Buyer qualify and apply?
the Home Buyer must purchase a home with Broward County, Florida and may not have owned a home as their primary residence in the last three years. There are exceptions that apply to target areas. Home buyer's household income and the purchase price must not exceed the maximum limits set by the program. The Home buyer must occupy the home as a principal residence and must apply for the MCC through a participating lender. In addition, the buyer must complete a pre-purchase home buyer education course.
Home buyers should apply for the MCC at the same time they make a formal application for a mortgage loan. Funds are available on a first-come, first-serve basis.
Information provided by Jim Monniger, First Trust Mortgage.
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