Find an agent you trust. It seriously is that simple for a first time homebuyer. Undue Stress for a First Time Homebuyer boils down to two things. Fear of the Unknown and Fear of Commitment.
Finding the right professionals for you, and then trusting in them to make things as smooth and easy as possible sounds easier than it is. But once you do that, IF you can do that, you choose the Easy Way vs. the Hard Way. The big difference between War Stories and Success Stories is very often the agent.
I know that sounds self-serving, and anyone who reads me on a regular basis knows how hard it is for me to boil it down to that simple fact. But sorry, It's true. It just is.
Let's assume the purchase price is $315,000 and the loan amount is $283,500. Some costs are based on the loan amount, so we need to make some assumptions. Since the costs vary only slightly if the sale price changes, this should be a fair idea of what the costs will be. I will total all of this up at the end after I break it down from the simplest to understand to the hardest to understand. (Note: I round up so that at the end there is a little buffer for variances.)
Total cash needs at time of closing $7,600.00 less any seller credits built into the offer. Add the $900 you already paid for the Home Inspector and Appraisal, and you have $8,500 plus your downpayment of $31,500 and that equals a grand total of $40,000 less the $10,000 you put up front as an Earnest Money Deposit. Before closing $10,900 will be paid and the day of closing you bring your Driver's Licenses and a Cashiers Check Payable to Escrow in the amount of $31,100. Costs $8,500 downpayment $31,500.
Here's a breakdown.
Escrow fees are split 50/50 between the buyer and the seller. These fees are based on Legacy Escrow, and can vary from one escrow company to another. The buyer's half is $539.06 including tax and an additional $108.90 for the second mortgage. The seller pays for owners Title Insurance and the buyer pays for Lender's Title Insurance, which should be about $465.00 plus $40 to record the second mortgage.
Add about $100 for recording fees to record the new deed with the County and $50 or so for misc Delivery fees.
Actually that $1,350 total are the only real COSTS except for your lender fees, which are the largest cost item. You can lower the 1% origination fee, but that usually increases your interest rate. There are loan processing fees, underwriter fees, flood cert, tax service and lots of miscellaneous fees associated with the type of loan you will need. The lender fees alone will be about $4,000, so added to the other closing costs, let's call it $5,500.00.
At $5,500 we are still less than the $6,000 I estimated could be built into the offer, as a seller credit.
But we also have fire insurance, say $600 for a one year policy paid up front. Plus $150 for three months toward next year's insurance policy to be put into the lender escrow account. That's $750 for insurance. Then we have real estate taxes of $270 or so a month. If you closed at the end of November, you would have to pay $270 to the seller who already paid December of 2006. Then you would have to pay 3 months or so to the lender, so he can pay six months worth of taxes come April. So $270 + $270 x 4 = $1,355.00.
So if you build in $6,000 toward closing costs, less $5,500 for costs, equals $500 left. Then $750 for insurance costs equals $250 you would need at closing pus the $1,355.00 equals $1,605.00. Let's call that $1,600 as I rounded the taxes up on the monthly.
$1,350 in costs + $4,000 lender fees + $600 ins + $1500 in Prepaids (prepaid taxes and insurance)
My commission that we discussed up front is not included, as that is paid from the Seller's Net Proceeds.
Let's total that again. $1,350 costs + $4,000 lender fees + 750 ins + $1350 RE taxes + 400 for home inspector + $400 for appraisal equals $8,250 that I rounded up to $8500.00 plus 10% of the Purchase Price for a downpayment. You may be able to build in $8,000 as a seller credit. We won't know that until you find a house and make an offer.
Until we identify the house in question, I cannot firmly determine who will be paying the closing costs. But in the $300,000 give or take price range, many, if not most comparable sales, would have had $6,000 or so in closing costs paid by the seller built into the price. Consequenty, for valuation and negotiating purposes, it will likely be best for Adrianna to request $6,000 in closing costs from the seller in her eventual offer.
Before we get to "cash TO close", let's talk about cash BEFORE close needs. At time of offer, an Earnest Money deposit of $1,000 or $5,000 or $10,000 will be in order. The more you like the house, the more certain you are that "This is the ONE!", the higher the Earnest Money deposit. Since the downpayment is expected to be $30,000 to $33,000, an Earnest Money deposit is simply and advance against the downpayment.
On the one hand, if there are any doubts about the house you should maybe try to get away with $1,000. On the other hand, $1,000 sends a clear message that you may have doubts about the house. It's a catch 22.
Besides the Earnest Money Deposit at time of offer, there are two other out of pocket expenses before you close on the house. One is the Home Inspection fee which is about $400 and the other is the Appraisal Fee which is also about $400. Possibly $900 for both. These monies are gone, once spent, whether you buy the house or not.
Next we will examine how much of the total cash to close is expected to be met by the $6,000 requested of the seller in the offer. Let's see if Adrianna has any questions regarding this part before we move on to the costs at tome of close.
Jul. 16, 2006 - How is a Real Estate Transaction Like a Pregnant Woman?
The real estate transaction, like a pregnancy, breaks down into Trimesters. Also, as in a pregnancy, the first trimester is the most disruptive to the buyer's daily schedule, the second trimester becomes more relaxed and the last trimester involves a final, and sometimes (but not always) intense event, the net result of the intense event being life changing!
Just as the body goes through many changes in the first trimester of a pregnancy, that can leave a woman feeling absolutely nauseous most of the time, the first trimester of a real estate transaction can leave a buyer's head spinning. In succession, and sometimes simultaneously, many things transpire at the beginning and need to be completed about 1/3 of the way through the time frame.
The offer is made, negotiated and accepted.
The buyer applies for their mortgage, supplying all documents needed to process the loan.
The home inspector is selected, appointment made and results negotiated.
The appraiser goes out to check that the sale price represents a good value for the lender.
All parties receive, complete and return escrow instruction paperwork for the closing agent.
In a 30 day escrow, almost everything the buyer needs to do is completed in the first ten days, sometimes all at once. It can leave a buyer with their head spinning, dizzy and sometimes nauseous in that first ten days, the same as a pregnant woman in her first trimester.
Also like in a pregnancy, the second trimester should be the easiest. It's as if everything has settled in and a full 1/3 of the total time is a respite between the first trimester and the last trimester.
The third trimester starts off with a bit of worry that leaves you feeling tired and ready for all this to be OVER! Is everything done? Did I do everything I need to do so that the final event is successful? Am I packed? Am I ready for all this?
Just as a woman heads off to the hospital for the final event, at the end of the third trimester, a buyer heads off to the closing agent's office to complete the final paperwork that results in their owning a new home. Some people are in and out with no major pain, while others seem to agonize and sweat and take forever to get all of those documents signed properly.
The end result of both is a joyous event. A new baby! A new home! Three trimesters, the first the most world shaking and the second the easiest and the third the most eventful!
The good news is, unlike a pregnancy, where each trimester lasts 3 months, most trimesters of a real estate transaction last only 10 days. 3 x 10 = 30 day escrow.
May. 13, 2006 - Waiting for a response to an offer
Waiting can be excruciating for me. I have a symbiotic personality. The same traits that help me to put myself in someone else's shoes and just know somehow what type of property will make them happy, comes back to bite me at times like this. I feel the anxiety of every waiting moment, almost as if I were the one waiting to hear about my new home.
Accepting things once they happen and quickly moving to the next step comes, easy for me. Dealing with the moment given what we have to work with, is easy for me.
But once we've done everything we can and are waiting for the other side to respond, when the ball is just not in our court, I can't imagine the actual buyer feels any differently than I in this moment. Waiting.
Changing your mind in a Real Estate Transaction should FIRST be shared ONLY with the real estate agent who represents YOU and not the seller or the seller's agent. There are many ways for your agent to create a happy ending wherein you do not lose your Earnest Money. Clearly, Timing is EVERYTHING, when it comes to extricating yourself from a real estate contract. Talk it over with your agent as soon as you feel you may not want to proceed with the transaction.
When there are multiple bids, and the price of the property is bidding up over the asking price, the amount of downpayment is sometimes the reason why your offer is not accepted.
Lets say a property is put on the market at $275,000 and the highest offer is $315,000. There is an offer of $310,000 with 50% down and an offer of $315,000 with zero down. Usually the sellers agent will advise the seller not to take the $315,000 offer, because she does not expect the property to appraise. While one can buy a house with zero down, that does not mean that the seller is willing to take the risks associated with a zero down buyer.
It is the sellers agents job to know not only what they can get in the open market for a property, but also what obstacles might get in the way of the sale closing. These days, when an agent lists a property at $275,000, it is likely a price higher than the last few sales in the area and a price that will appraise, with some effort. When it bids up over that amount, the sellers agent must be ready for what will happen if and when it does not appraise. Often that means that zero down buyers will not get the house, if there are other offers with larger downpayments, even if the other offers are for less money. A common result will be that the seller will counter the 20% down buyer with the highest price offered, regardless of escalator clause considerations.
This points back to my post noting that the appraisal is done for the lender. If the property appraises at $300,000 and the sale price is $315,000, the lender does not participate in the shortage. If it is a zero down loan and the buyer has no cash, the buyer will need the seller to reduce the price down to $300,000 for the transaction to close. The lender will only give the buyer 100% of the appraised value, without regard to the agreed upon sale price. If the buyer is a cash buyer, often there is no appraisal at all, since the appraisal is ordered by the lender.
This issue has come up in the last two offers I have presented. In fact, I lost a client who did not get the property because another offer at 20% down trumped her zero down offer. When she asked me to be more aggressive in getting her offer accepted, I explained that the sellers agent made it clear that the 20% down buyer was going to get the property because they had 20% down and the agent knew the property would not appraise. There was just no way to get the seller to accept a zero down offer, with the costs included in the price, no matter what I did.
Buying your first property with zero down and the seller paying the closings costs is clearly possible, and is done every day. But often the zero down buyer, with no cash to pay their own closing costs, is excluded from purchasing the most popular house in the most popular neighborhood that has multiple offers.
Offering the highest price is of no consequence to the seller, if you can't close.
Mar. 1, 2006 - Is Your Earnest Money Protected by the Finance Contingency?
While the purpose of the Finance Contingency is to protect the buyer in the event they are not able to obtain a mortgage, more and more the buyer is not covered all the way to the day of closing.
In a perfect world, the buyer submits an offer with a Finance Contingency that runs through the day of closing. If the buyers loan is rejected, the sale becomes null and void and the Earnest Money is returned to the buyer. The seller puts his property back on the market and finds a different buyer.
Finance Contingency addendums are two pages long and much more complicated than the simple explanation above, and much more dangerous to the buyer than they often expect. I have not met a buyer in 15 years who did not expect to get their Earnest Money returned if their loan is not approved. I also have not had a buyer client in 15 years whose loan was not approved
It is becoming common practice in the last few years for the seller to counter the offer by shortening the timeframe on the Finance Contingency. Often this is deemed a minor date change, when in fact it is a major change for the buyer. I have even seen buyers agents write offers with a 30 day escrow and a 15 day finance contingency because that is common practice :0
If you have a 30 day escrow and a finance contingency that expires in 15 days, you are not likely covered if the loan is rejected on the 23rd day. You are also not covered if you did not apply for your loan on time or if you did not submit the documents to the lender in a timely manner.
VERY IMPORTANT, you are also not covered if you do not have enough cash to close.
Suffice it to say that just because you have a Finance Contingency, that does not mean that you will automatically get your Earnest Money returned if you can not close due to financing issues.
Some of the most Frequently Asked Questions in a Real Estate Transaction involve the Earnest Money Deposit. The Earnest Money usually follows with the transaction from day one all the way through to the last day, as in follow the money.
The buyer usually writes a check for the Earnest Money deposit at the same time that they sign the offer and they hand it to their Buyer Agent. The check can be made payable directly to the Escrow Company they chose in the contract, or to the Buyer Agents Company if they have an in house Trust/Escrow Account. More and more these checks are made payable to the closing agent.
When the seller accepts the buyers offer, the check gets deposited. Lets assume the check was made payable to escrow and went directly to the escrow company for deposit.
At close of escrow this money comes back to the buyer as a credit against his costs or downpayment. If it is a zero down loan and the seller is paying the closing costs in full, this $1,000.00 can be returned to the buyer at close of escrow.
If you know you really want the house when you make the offer, and you have no problems at all throughout the transaction, the Earnest Money just slides like butter from your hand and back into your hand. Whether it actually goes into your hand at the end or is paid against your costs varies from transaction to transaction. But it still simply comes back to you like a boomErang.
The only time you should be worried about handing over an Earnest Money check, is if you are not sure you want the house at the time you make the offer
Feb. 10, 2006 - Condo Conversions are not New Construction
Given the popularity of condo conversion communities in the Seattle area, I think it is worth noting what these are, and what these are not.
I have heard both buyers and escrow companies refer to condo conversion communities as new construction. Please know that these are not new construction, but remodels, for the most part asthetic remodels, of older, rental communities. While you are buying the interior, and the interior is remodeled, you are also buying a fractional interest in the exterior. If there are 100 units, you are taking on a 1/100th responsibility for the new roof or exterior paint and all of the major components shown in the reserve study.
If you are buying into a condo building or community that has always been a condo community, the monthly dues for the last 15 to 20 years should have provided for an accumulation of reserve funds to replace the roof. If you are buying into a condo conversion, make sure the developer has contributed enough monies into reserves, to compensate for the fact that there were never before unit owners putting monies into the reserve account toward future replacement needs.
The roof may be OK today. But if it is a 20 year shingle and a 15 year old complex, there should be 15 years worth of accumulated monies set aside by the developer before he turns over the complex to the Home Owner Association. This is to insure that when the roof needs to be replaced in 3 to 8 years, there will be sufficient funds in reserve to buy the new roof. Also make sure that the monthly dues set by the developer include a sufficient amount for reserves. In five years when you need a new roof, you will need five years of owner contributions, plus the 15 years worth of reserves set aside by the developer, so that the roof can be replaced without a special assessment.
Understand that if a condo community or building functions as it should, there should never need to be a special assessment. Every owner, via their monthly dues, should be paying their fair share of future repair and replacement costs each year. Its a simple calculation which assures that the monies will be in the reserve fund at the time the Major Component item needs to be replaced.
So I leave you with this warning. Find those things that are not new when buying into a condo conversion, and make sure the developer is contributing an amount into reserves reflecting that portion of useful life, used to date.
ARDELL
DellaLoggia
On Seattle Real Estate including Kirkland, Bellevue, Redmond, Green Lake and most areas around Lake Washington North of Downtown Seattle.
Phone: 206-910-1000 - Mailto:Ardell@RainCityGuide.com
You can find many great Seattle real estate agents and loan officers on ActiveRain.com ARDELL DellaLoggia is a proud member of the ActiveRain Real Estate Network, a free online community to help real estate professionals grow their business.
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