Powered by RealTown Blogs

Archives

August 2008

What Buyers Need To Know About Contract Offers When Buying A Home_Part III

Date: Aug. 21, 2008
Tags:

A contract offer to purchase real estate includes sales price, mortgage to be obtained and down payment.

Down Payment

The buyer’s down payment is somewhat fixed. It is generally that amount of money they have saved, or have available, for the purchase of a home. However, there are minimum down payment requirements depending on the type of mortgage to be obtained.

When applying for a mortgage loan, the lender does verify the buyer’s assets. Commonly referred to as deposit verification, this occurs during the mortgage application process to insure that the buyer has the funds for the down payment as well as additional monies for closing cost expenses.

In making a contract offer to buy a home, it is highly recommended that a buyer be aware of the various costs involved with their purchase and obtain a reliable estimate of closing costs either from their Selling Agent, Mortgage Lender or Attorney. Some of the costs related to closing title are directly related to the home being purchased, others are fees paid for services provided and then there are the costs related to the mortgage.

It is quite common for buyers to get assistance for the down payment, or closing costs, from family members. The mortgage lender will require a “gift letter” from the donor, and will also verify that these monies are available. While it is great that a family member says they will help in the home purchase, it is very important that a buyer in this situation obtains a commitment for an exact amount they will be given and explain the verification process in advance to the donor in order to avoid any complications later. A mortgage lender can provide specific details.

There are times when the family provides the gift money in advance of the home purchase and mortgage application. It is important that the buyer creates a paper trail with a copy of the check received, and the deposit slip depositing the money in their bank account. During the mortgage application process, the lender will ask for an explanation on any recent large deposits.

 Mortgage Payment

The mortgage amount, and monthly mortgage payment, is determined by the buyer’s income qualifications. There are buyers who choose to maximize the amount of the mortgage as it relates to income qualifications, while there are other buyers who choose to mortgage less in a mortgage than their income warrants in order keep the monthly mortgage payment at a more affordable amount. That is all about personal choice.

When applying for a mortgage loan, the lender does verify the buyer’s income, and requires copies of current pay stubs and prior income tax returns. Commonly referred to as income verification, this occurs during the mortgage application process to insure that the buyer has sufficient income to qualify for the mortgage loan requested.

A monthly mortgage payment includes principal, interest, real estate taxes and home insurance, commonly referred to as PITI, and is what is estimated in the pre-qualification process. During the mortgage pre-approval process, mortgage lenders calculate mortgage qualifications based on the current mortgage interest rate, estimated real estate taxes and estimated homeowners insurance. However, mortgage pre-approval for a specific mortgage amount is only an estimate.

There are situations where the pre-approved mortgage amount and price range is beyond affordability for a buyer. This can occur if the mortgage interest rate increases during the home searching process, or during the mortgage application process and the interest rate was not locked in. Likewise, if the home to be purchased has higher real estate taxes than what was estimated in the pre-approval process, the monthly mortgage payment will be higher and may be beyond affordability.

It is highly recommended that a buyer knows what the monthly mortgage payment will be based on their contract offer and match that payment to their mortgage pre-approval.

It is not purchase price which determines affordability, it is the monthly mortgage payment!
Comments (0) :: Post A Comment! :: Permanent Link :: Email This Entry

What Buyers Need To Know About Contract Offers When Buying A Home_Part II

Date: Aug. 8, 2008
Tags: None

Buyers should be educated and informed when making an offer to purchase a home.
Surprises are for birthdays, not buying a home!

Initial Deposit
 
Be prepared to write a deposit check when making a contract offer to purchase real estate. Commonly referred to as a Binder, this is the check made out to the Selling Real Estate Office when submitting a contract offer. In simple terms, it is a good faith deposit to express interest in purchasing real estate.
 
What is the required amount of a Binder deposit? There is no law as to a required amount, but local real estate practices may determine what is acceptable. Common sense should prevail in determining the amount of the Binder deposit however. Writing a check for say $100.00 shows good faith, but what kind of statement is that making to the owner when the offer is presented to them? Would a more substantial Binder, say $1,000.00, make a stronger statement? More will follow later in discussing strategies in structuring a contract offer.
 
The Binder is generally not deposited by the Real Estate Broker until there is offer and acceptance, a signed contract of sale. However, there are State Real Estate Licensing Laws which regulate how long a Real Estate Broker can hold a deposit check without depositing it into the Company’s Trust Account. In cases where contract negotiations are prolonged, perhaps beyond five business days, most Real Estate Brokers will either deposit the check into their Trust Account during the negotiations,or ask the buyer to write a new check as contract negotiations continue.
 
If the contract offer is not accepted, the Binder is returned to the buyer. If the contract offer is accepted and signed by the owner, the Binder will then be deposited in the Broker’s Trust Account and will be applied to the buyer’s down payment and the purchase price.
 
Earnest Money Deposit
 
Commonly referred to as the second deposit, this is the additional upfront deposit made in the purchase of real estate and is also part of the buyer's total down payment. Depending on the real estate market the home is being purchased in, the price range and the total amount of the down payment, the earnest money deposit could be 10% of the purchase price.
 
More often than not, especially with first time buyers, homes are purchased where the total down payment is less than 10% of the purchase price. In those circumstances, the earnest money deposit will generally be some portion of the total down payment or perhaps the entire amount of the down payment in a transaction where the buyer is using a down total payment of 3% to purchase a home. As with most aspects of purchasing a home, the earnest money deposit is something that may be determined in contract negotiations.
 
The earnest money deposit is generally paid within a certain time frame after completion of Attorney Review, and is generally paid to the Selling Broker, unless there is a change made during the Attorney Review process where the Seller’s Attorney may request to hold all deposit monies in their Trust Account.
 
There are times when a contract of sale is terminated after Attorney Review, such as a home inspection revealing problems with the home or mortgage denial. In those situations where a contract to purchase is cancelled in accordance with the terms of the contract, all deposit monies previously paid by the buyer are refunded.
 
More will follow later in discussing strategies in structuring a contract offer.
 
Mortgage Considerations
 
A contract to purchase real estate will include a mortgage contingency clause which provides a time period for the buyer to apply for a mortgage of a specific amount and obtain mortgage approval in order to complete the purchase. The time frame for mortgage approval varies, and is determined by the type of mortgage being obtained (Conventional, FHA, and VA). A buyer’s Real Estate Agent or Mortgage Representative can help in providing more information about this.
 
It is recommended that a buyer reviews their Mortgage Pre-Approval when submitting a contract offer, and provide a copy to their Agent. Review is necessary to verify that that the mortgage amount in the sales contract offer is the amount in the Mortgage Pre-Approval, or less.
 
All too often buyers begin their home search in one price range and later find that they need to increase that price range, and increase the mortgage amount, to find a home they like. Obtaining an updated and revised Mortgage Pre-Approval to reflect the mortgage amount in the contract offer is highly recommended.
 
Mortgage Interest Rates and Mortgage Rate Lock-Ins
 
Another important consideration is mortgage interest rates. Mortgage interest rates fluctuate from day to day and from one mortgage lender to another. Buyers should obtain a current interest rate quote when making a contract offer as this rate may be different from the interest rate quoted when the Pre-Approval was issued. The interest rate affects mortgage payments, mortgage qualifying and price range.
 
When submitting a contract offer, a closing date is filled in and is included as part of the contract offer and perhaps contract negotiations. The closing date in the contract can be a consideration as it relates to the mortgage interest rate lock-in. Mortgage lenders have various interest rate lock-in policies. Consult with the Mortgage Representative to obtain more information on interest rate lock-in policies and length of interest rate lock-in period.
Comments (0) :: Post A Comment! :: Permanent Link :: Email This Entry

Page 1 of 1
David@DavidFialk.com www.DavidFialk.com David Fialk's Profile
RSS Blog Feed