Month: May 2015

This Part of the Home-Buying Paperwork Is Everything, So Make Sure You Get It Right

The prime home-buying season is upon us, and with it, mounds of paperwork. And, let’s be honest—a chunk of that paperwork will be devoted to the real estate purchase contract.

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Here’s how you can sign on the dotted line without losing your mind.

What it is

A real estate purchase contract is a legally binding document that details the sale of the property. Details range from the basics (e.g., how much the property costs) to the specifics ( e.g., what furniture or appliances stay in the house).

How to prepare

Before you even go near the contract, do a walk-through of the property with a professional land surveyor, engineer, or experienced landowner. Call in an inspector to search for anything that might end up costing you extra money: broken gutters or gates, inadequate electrical circuits, outdated plumbing pipes, and more. Get it all down in writing and attach all building and land inspection forms to the contract.

Review the contract

Once all the paperwork is gathered and reviewed, a real estate purchase contract will be drawn up. The following are common items that appear in traditional contracts:

Buyer’s and seller’s list
-Legal description of the property, including zoning information
-Purchase price and terms of the sale
-Down payment to be held in escrow and future payment structure
-Closing date
-Response time frame before the contract is void
-Any items included in the sale such as appliances, furniture, and flooring
-Disclosure of lead paint (for buildings built before 1978) and other defects
-Home and appliance warrantees
-Pest and environmental inspection results
-Home inspection results
-Contingency clauses (for example, you can buy this house only if your other home sells, or certain repairs need to be made)
-Commissions, if any

Signatures

Signing the contract

When you sign this contract—that’s pretty much it. If you come back to the seller and ask for anything else not in the purchase agreement, she or he doesn’t have to do it—and probably won’t. The contract states everything you’re getting and not getting in your new home, so get a real estate lawyer to go over all the details. Ask the seller for clarification on anything you don’t understand, and sign only when you’re certain you understand the agreement.

After signing

Store the contract in a secure area such as a safe-deposit box. Also store the deed and any other documents registered in the local registry office.

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Getting Married? Skip the Fancy Plates and Ask for a Down Payment Instead

They already have the high-powered blender, the 800-thread-count sheets, and the stemless wineglasses. And while they could always register for even more kitchen gadgetry and overstuffed throw pillows, some modern couples have their eyes on a different kind of wedding gift. What many of them want more than anything else is a house—or, more specifically (and reasonably), the down payment that will unlock the front door.

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A growing number of altar-bound lovebirds are rethinking the traditional retail-based wedding registry (or registries, in many cases). Some are nudging their wedding guests toward online crowdfunding-style registries, designed to accept contributions to a couple’s down payment goals. Others are quietly suggesting “money for the house” when asked about their preferred present. Either way, plenty of couples are reconsidering altogether this gift-receiving opportunity in light of what they truly need.

A range of factors is at play here, the most obvious of which is the higher average marrying age—27 and 29 for women and men, respectively—than in past generations. It’s hardly a secret that many 20- and 30-somethings are temporarily sidestepping marriage while they establish careers, travel the world, hit up trivia night guilt-free, and, well, search for the right someone to marry.

Then again, even some younger couples seem to think that receiving a mountain of swanky home accessories before owning a home is putting the cart before the horse. After all, you can’t feather a nest if you don’t have a nest to begin with.

Twenty-five-year-old Daniel Barros and his fiancée, Traci Whiting, 24, of Plano, TX, are getting married in October. When they started thinking about setting up a gift registry, they were struck by the reality of their living situation.

“We live in an 800-square-foot apartment,” Barros said. “Even if we wanted a bunch of wedding presents, we wouldn’t have anywhere to put them. Getting that down payment together is our top priority, and we’re grateful for any amount our friends and family are willing to give to make that happen.”

To help achieve their goal of $5,500, Barros and Whiting set up a registry at FeatherTheNest.com, a Florida-based crowdfunding site that allows “nesters” to register for anything from contributions toward a down payment to funds for home improvement projects. Beth Butler, principal at the site, says crowdfunded registries offer couples a way to involve their friends and family in the most important purchase they’ll ever make.

“When you’re choosing a gift from a traditional retail registry, you’re pretty much bound to the prices of the items the couple has chosen, and even then, you’re likely giving them something they may forget about at some point in their marriage,” Butler said. “But helping a couple get into their first home, that’s a contribution they won’t ever forget.”

Butler said that her site, which launched in May 2014, now sees 15 to 20 “nests” (as each fund is called) per month.

Other similarly functioning sites—such as HatchMyHouse.com and DownPaymentDreams.com—offer comparable services, typically for the cost of a small percentage of the couple’s gift total.

Rieve MacEwen, president and co-founder of Hatch My House, estimates that the monetary value of the average U.S. wedding registry hovers between $8,000 and $8,500—an amount that, if applied to a down payment (generally at least 20% of a home’s price), could certainly give a significant boost to a couple’s savings efforts.

But not everyone is so enthusiastic. Teresa Krebs, who started Down Payment Dreams in 2009 and has since hosted some 800 registries, said that a handful of users have reported a lukewarm response from family members, some of whom felt that asking for money was tacky. But, as Krebs points out, “a registry is just a suggestion, and a down payment registry is no different. It’s a couple’s way of saying, ‘We’d like your presence at the wedding, and if you choose to bring a gift, this is what would be most helpful to us.’”

Just how helpful? When Sally and Yann Sauvignon married in 2010, they set up a registry at Hatch My House, along with two traditional retail registries. About a year after their 200-guest wedding, the couple was able to use their down payment gifts to cover the closing costs on their new home in the San Francisco Bay Area.

“We weren’t quite sure how it would be received, but I think about a third of our gifts were given through the Hatch My House site,” Sally Sauvignon said. “It was a really neat way to connect our friends and families to a goal that was really important to us.”

To be sure, the concept of a down payment as a wedding gift is still a bit of an outlier. The majority of engaged couples are still filling their conventional registries with flatware and “good” china. But MacEwen—who says Hatch My House has hosted roughly 2,600 registries since its founding in 2009—is confident that the next decade will see a more pronounced shift in the wedding gift tradition altogether.

“What will really change the way people use gift registries is when they look beyond the idea of purchasing an item, and decide they want to be a part of someone’s overall life experience instead,” MacEwen said. “Buying a home and getting married are two of life’s biggest events. Over time, I think people will realize that it makes a lot of sense to connect the two.”

How to crowdfund your dream home

Don’t be sheepish. Wedding registries of any variety are simply a series of gift ideas for wedding guests who are already planning to buy a present. A down payment registry is no different—it’s just a suggestion.

Spread the word. Share the specifics of your down payment registry on your wedding website, on any wedding shower invitations, and when friends and family ask where you’re registered.

Be grateful. In addition to the thank-you notes that you’ll send promptly after the wedding, consider sharing periodic updates about your home-buying adventures with the people who helped make it possible. It’s just another way to show your gratitude.

Leave a paper trail. When applying for a home loan, you’ll need to verify that your down payment is yours, free and clear, and not the result of another loan. Most down payment crowdfunding sites will document the nature of the monetary gift.

My Offer Was Accepted—Now What?

Having your offer accepted feels great—but for most home buyers, it’s just the beginning. There is still a lot more to be done before you’re over the front threshold. Here’s a rundown of what comes next.

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1. Apply for a loan

Unless you’re paying in cash, you’ll need to apply for a mortgage loan (if you’re already pre-approved, good for you). If you’re not pre-approved, meet with at least two or three lenders and compare their loan options. Be prepared to ask questions, and be completely open with the lenders about your finances.

2. Home appraisal and inspection

The next step is getting your home appraised and inspected.

Your lender will require your house be appraised by a professional, who is usually provided by the lender. The appraisal gives you a detailed report on the value of the home. If the home’s appraised value is less than the purchase price, you will need to either make a greater down payment or negotiate with the seller to lower the price. A lender won’t give you a loan for more than the appraised value.

A home inspection tells you if the home has any issues. Inspections aren’t always required, but you should absolutely get one even if you’re not getting a loan. Go over the inspection report in detail with the inspector to make sure you’re familiar with any problems, their severity, and the estimated cost to fix them. Additionally, you may also want to get your home checked for radon and pests, which are additional costs.

If the inspector finds problems, you may be able to get the seller to pay for necessary repairs or lower the price to adjust for the cost.

3. Get your funds ready

Make sure the funds you need for closing and in reserves are both accessible. If you need to pull money from an investment, do it right away. Keep the paperwork for the transaction to show your lender you liquidated funds to get your down payment.

4. Find homeowners insurance

In most cases, buyers are expected to pay for homeowners insurance upfront, before closing. Depending on where you live, you might need extra insurance, like flood coverage. Shop around at several different insurance companies for the best rate. Your lender will need proof of insurance before approving your mortgage.

5. Final walk-through

You will be allowed to do a final walk-through of your new home 48 hours before closing.

This allows you to make sure any items that should be there, as per your contract, remain. It also lets you check the condition of the home to make sure no extra damages have occurred. If you find anything different from what you agreed upon, you may postpone the closing to give the seller time to fix the problem.

It’s important that you catch every issue during the final walk-through. If you spot them after closing, they’re going to be your problem.

6. Closing

This is the day when you sign the mortgage documents and officially gain ownership of the property. Most likely your Realtor® will be there, as well as the seller, the seller’s Realtor, the closing officer, and perhaps the mortgage broker.

You will need to bring ID and a cashier’s check to pay closing costs, which you will know in advance (and if they look different, don’t be afraid to walk away). Your spouse will also need photo ID. (In some states, spouses are required to attend and sign papers even if they aren’t on the mortgage.) Check with your Realtor about the details of your closing.

Will You Be Ready When You’re in a Buyer’s Market?

These days, most homeowners trying to sell a home have the upper hand—the seller’s market means home prices are high, inventory is low, and sellers can afford to be choosy with the offers that are presented to them.

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But what happens when that changes? Places such as Boston, paralyzed for weeks by a brutal winter, are already bucking the trend and moving toward a buyer’s market, when potential home buyers hope to leverage their bargaining power.

When the number of homes on the market outnumbers the number of buyers, sellers may be more willing to negotiate on the price of their home and offer concessions to seal a deal. But potential buyers would be wrong to assume they’ll be able to find bargain-basement prices.

Follow these five tips to make sure you don’t make mistakes when trying to take advantage of a buyer’s market.

1. Know the market

It’s important to understand what the market you’re looking at is offering.

When everything is overpriced, you are under-pricing everything.

If you think everything is too expensive, it’s time to move on to another neighborhood. Trying to make offers substantially below market value is usually a waste of time.

If you’re looking for the best kind of deal, do your homework and look for a place that’s been on the market for a long time.

The longer a house or apartment is on the market the more favorable or open the seller will be to making a deal.

2. Lowball the right way

It’s common for buyers to pitch a lowball offer in a buyer’s market—in fact, it’s a good strategy. But keep your expectations realistic. Some can remember an instance in which a buyer wanted to offer $500,000 less for a mansion in Oak Brook, IL, listed at $2 million.

[He] got mad when I told him it would sell much higher than that. He felt like the right Realtor® could get the seller to accept a below-market offer. It then sold within days for $1.9 million.

Check to see what houses have sold for in the area, and pay attention to the appraiser’s assessment.

3. Know when to ask for upgrades and discounts

It’s a buyer’s market, so you’ll have more leverage to ask for things you want. But do you ask the seller to make the repairs, or deduct those repairs from the asking price to shape your offer?

Keep it simple.

Take the property as is and discount all the issues you have. The seller just wants to walk away from the property and if you start complicating it, you may end paying more than you would if you just addressed those issues yourself.

Plus, if the seller fixes it, you may not like the way they fix it.

Keep in mind this strategy won’t work for some loans, such as those offered by FHA, which can have stricter qualifying requirements than other loans. If that’s the case, the repairs need to be made before the loan can be approved.

4. Show you’re serious

When you’re factoring the price of repairs into the cost of the home, don’t talk in generalities.

Be specific. This helps everyone understand you are serious and not just floating guesses.

Discuss with your Realtor or builder how much certain projects will cost to fix or update and use those numbers. If you can provide a quote, that’s even better.

5. Talk closing costs

Closing costs typically amount to about 1% to 2% of the sale price. But when it’s a buyer’s market, you might be able to get those costs reduced. You might ask your lender to reduce costs that seem too expensive, and you might ask the seller to pay for certain home-selling fees. For example, if there’s a flip tax for co-ops in New York City, you could ask the seller to pay for it.

Bottom line: Don’t be afraid to negotiate. And don’t be afraid to drop the deal.

Be willing to really walk away. Once you emotionally have to have that house, the seller has additional leverage.

APR Comparisons Can Be Deceiving—Here’s Why

When you’re shopping for a mortgage, don’t fall into the trap of comparing only APRs. The APR, or annual percentage rate, is an estimate of how much you will pay on your loan during an entire year’s time. The APR lenders advertise is more than an interest rate—it has to include other fees and costs involved in the loan.

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Despite that, lenders can still offer deceptively low APRs by not including every fee involved in closing. For that reason, you need to compare the entirety of the APR’s details, not just the rate itself.

Fees included in the APR

The APR takes into consideration the following aspects of mortgage loans:

Discount points: These points can lower your interest rate by a small amount, and you have to pay them at closing.
Origination fees: These fees are charged by lenders for the work they put into producing your loan.
Mortgage insurance: If you provide less than a 20% down payment, you will most likely have to pay monthly insurance premiums on your mortgage to protect the lender in case you default on the loan. If you have an FHA loan, mortgage insurance is required regardless of your down payment.
Prepaid mortgage interest: If you have to pay mortgage interest, you will probably have to pay some portion at closing to cover the gap between the time of closing and the time of your first mortgage payment.

Fees not included in the APR

The APR does not include certain fees, like those for the credit report, appraisal, title insurance, and inspection. So a lender might offer an enticingly low APR but then inflate those fees for a bigger profit.

Borrowers might compare APRs to find the best deal, not realizing how other fees can increase their payment amounts significantly.

Be wary of advertised rates

When lenders advertise APRs, they display the rates they offer under ideal conditions. That is, the rates apply to borrowers with excellent credit and spotless documentation. Depending on your circumstances, the rates can—and probably will—be higher.

Go beyond advertisements. Speak to several lenders about your particular financial circumstances, and then compare the loan conditions they offer.

Low APRs can hide high fees

Lenders that offer low APRs often require high upfront fees. Their points requirements, origination fees, and insurance payments might be unusually high in order to justify their lower rates.

If you sell your property too soon after taking on your loan, the high upfront fees and lower APR will cost you more than a loan with fewer fees and a higher APR. Spreading loan payments throughout many years allows you to offset the upfront fees. Know when your break-even point is, and use that to determine if the fees are worth it.

Comparing accurately

When you are seeking a mortgage lender, carefully consider all aspects of the loan. Look at loan structure, rates, and closing costs. Think about how long you plan to remain in the home, as well as whether you prefer to make higher payments up front or defer many of your payments.

To help you compare—and negotiate—present each lender with a competitor’s offer. A good loan officer will review each aspect of the loan and explain how his or her offer fares in comparison. Asking the lender to explain costs, instead of comparing APRs, is a more effective method of determining mortgage costs. Once you are approved for a loan, the APR cannot change by more than 0.125% without the lender disclosing this information.