10 Home-Buying Costs You Need to Know About

On February 22, 2015   /   Home Finance  
Tags: , , , , , , , , ,
home finance

By: Craig Donofrio

If you’re a first-time home buyer, you might get a little queasy when the last line of your good-faith estimate comes in at several thousand dollars. And after the color returns to your face, you might also be a little more than perplexed by some of those fees.

Knowing what you’re paying for—like these 10 common costs—can ease that check-writing pain.

1. Earnest money

To prove you’re “earnest” in your purchase commitment, expect to plunk down 1% to 2% of the total purchase price as an earnest money deposit. This amount can change depending on market factors. If demand in your area is high, a seller could expect a larger deposit. If the market is cold, a seller could be happy with less than 1%.

Other governing factors like state limitations and rules can cap how much earnest money a seller can ask for.

2. Escrow account

An escrow account is basically a way for your mortgage company to make sure you have enough money to cover related taxes and mortgage insurance. The amount you need to pay varies by location, lender, and loan type. It could cover costs for a few months to a year.

Escrow accounts are common for loans with less than a 20% down payment and mandatory for FHA loans, but it’s not required for VA loans.

3. Origination

The origination fee is a hefty one. It’s the price you pay the loan officer or broker for completing the loan, and it includes underwriting, originating, and processing costs.

The origination fee is a small percentage of the total loan. A typical origination fee is about 1%, but it can vary. Use your good-faith estimate to shop around.

4. Inspection

You want to be assured your new home is structurally sound and free of surprises such as leaks or pests living in the walls. Those assurances come with a price.

  • Home inspection: This is critical for home buyers. A good inspector will be able to notify you of structural problems, flooding issues, and other potentially serious problems. Expect to pay $300 to $500 for a home inspection, although cost varies by location.
  • Radon inspection: An EPA-recommended step, this inspection will determine whether your prospective home has elevated levels of the cancer-causing agent radon. A professional radon inspection can cost several hundred dollars.
  • Pest inspections: Roaches are one thing. Termites are a whole different story. Expect to pay up to $150 for a termite inspection.

5. Attorney

Some states, such as Georgia, require an attorney to be present at closing. In some other areas, this is optional. If you use a lawyer, expect to cover the costs, which vary by area and lawyer.

It’s typical for mortgage companies to have a lawyer on their end, although they should cover the bill.

6. Credit check

Just because you can get your credit report for free doesn’t mean your lender can (and it will actually pull all three). You have to reimburse the lender, usually around $30.

7. Extra insurance

If you live in a hazard-prone area, you might need to purchase extra insurance, like for flood.

8. Appraisal

Your lender won’t loan you money for a home without knowing what its fair market value is. An appraisal will cost $200 to $400, depending on location and property size.

9. Title company

You pay this to the title company to make sure the property’s title is free and clear. Your lender will recommend a title company, but you can also shop around for one.

10. Survey

It’s not required in all instances, but your lender may require a professional surveyor to determine exactly where your property lines are drawn. Prices vary widely, but expect to pay at least $100.

Remember: You have bargaining power. Shop around to get a feel for what rates and fees apply in your area. If you aren’t sure what a lender is charging, ask for an explanation—the charge might not be set in stone. If you’re unhappy with a charge, negotiate.

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Can You Buy an REO With a VA Loan?

On February 8, 2015   /   Home Finance  
Tags: , , ,
bank owned

By: Craig Donofrio

Veterans Affairs loans, or VA loans, carry excellent terms and conditions and are available to most military personnel and veterans. With no down payment required and no private mortgage insurance, these loans are great for anyone who is eligible. But could they be used to buy real estate owned properties?

REO problems

A real estate owned property, or REO, is a home that has been reclaimed by the bank after it failed to sell at foreclosure auction. Often, REOs are sold at a good price. However, that’s often because REOs are sold in “as is” condition, and usually come with problems as the house has been neglected by a homeowner unable or unwilling to make repairs and updates.

That can present a problem when trying to buy one with a VA loan.

VA requirements

While VA loans are flexible on many accounts, one requirement is that the property must be in livable condition. Often, REOs are in poor condition. It is unlikely that a homeowner who was unable to make mortgage payments might have put a lot of money into home improvements and left the home in pristine condition. These homes went into foreclosure, and the foreclosure process can take several months to a few years, depending on the state. The more time the house has been vacant, or sat through the foreclosure process, the more time it has had to break down.

Also, owners who anticipated losing their homes might have taken out the oven, boiler, refrigerator, bathroom fixtures, and other basic amenities. Houses lacking basic amenities, or that have been gutted of wire or have busted plumbing, are not considered livable and would not be approved for a VA loan.

Shop for an REO

If you want to use a VA loan to buy an REO, you’ll want to shop for a livable home. Search realtor.com® for foreclosure listings. A Realtor® can also help search in your area. If a house in town just went into foreclosure, he or she should know about it—that way, you can make an offer soon, instead of letting the house sit for even longer.

When you find a home that looks livable, it’s important to hire a professional building inspector and contractor to let you know what problems the house has. Figure out what repairs are needed and get an estimate for how much they will cost to fix, and compare that to your budget.

Don’t be surprised if a seemingly cheap REO needs thousands of dollars in repairs. Ask yourself if you’re ready to put the time, energy, and money into this home.

Finally, make sure the title is clear. Banks and lenders usually clear the title from liens or judgments, but it’s worth knowing for sure, so perform a title search on the property.

Negotiate

While banks don’t typically want to invest in a foreclosed property, they may be willing to make some repairs if it means selling the property to a capable buyer. It’s no guarantee, but it doesn’t hurt to speak with the lender and see if some contingency repairs can be made.

Updated from a previous version by Gilan Gertz

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Mortgage Brokers vs. Banks: Who Gets Your Business?

On November 9, 2014   /   Home Buying, Home Finance, Mortgage  
Tags: , , ,
mortgage

By: Angela Colley

When you’re looking for a mortgage, you can use a mortgage broker or deal directly with the bank.

Each choice has pros and cons, and depending on your personality, you’ll have to decide which is right for you.

Going it Alone

If you go it alone, you deal with the bank directly. If you’re a regular customer and have a great relationship with your bank, you might receive better terms and interest rates.

If you don’t have a good working relationship with a particular bank, you should shop around. Even if you do have a bank you’ve worked with, you should consider shopping around anyway—don’t trust your bank is automatically giving you the best deal.

Keep in mind that when you’re on your own, comparing rates and terms can be time consuming and complicated. You may not know how to compare mortgage products correctly or be savvy enough to slice through all the financial jargon.

Each bank typically offers just a few mortgage options, so in order to find the best one, you will have to research them each individually.

Pros of Using a Broker

Brokers are mortgage experts. They know the market, follow trends and know which institutions offer which mortgages products. They’ll also know which lenders are offering discounts or deals.

Importantly, brokers can save you time. A smart broker can identify the most appropriate lender for your specific circumstances and know which mortgages will be most appropriate. They also handle the hassle of paperwork and interaction with lenders, which can help relieve stress from the process.

This saving of time, work and stress is a big factor for many individuals who use a mortgage broker. Some brokers develop personal and professional relationships with lenders, which may accelerate the application process.

However, these relationships aren’t always a good thing.

Cons of Using a Broker

You may want to use caution if you pick a broker. Here are three reasons why.

1. Mortgage brokers aren’t free. Broker fees typically range between 1% and 2% of the mortgage. You also need to consider who pays the broker’s fee. While many mortgage brokers receive payment from the lender, some charge sizable fees to the borrower. This is especially true if there’s a situation involving credit issues or other financial hurdles.

2. A bad broker can favor lenders, not you. The deep relationships that some mortgage brokers develop with particular lenders can work against you. For example, a broker might steer you toward a lender with whom they have a long history—and not the one that offers the best terms. Likewise, if a broker is more concerned with netting the highest commission, they won’t have your best interests in mind.

3. They’re not all created equal. Mortgage brokers aren’t equally skilled and knowledgeable. Some brokers may not know of all the deals and options, which means you won’t get the best deal out there. To find the best broker in your area, ask around. Recent home buyers and a REALTOR® may be able to steer you toward a broker who can get you better rates.

Updated from an earlier version by Moshe Pollock.

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Help! I Lost My Job While I Was Buying a Home

On September 28, 2014   /   Home Finance  
Tags: , , ,
purchase home

By: Credit.com

Help! I Lost My Job While I Was Buying a Home

Losing a job is tough enough. But what do you do if you find yourself out of work when you’re weeks or even days from closing on your dream home?

Brutal, but it happens.

Employment isn’t a requirement for getting a home loan—just ask retirees. The issue is ensuring there’s stable, reliable income that’s likely to continue. For most homebuyers, the source of that stream is a steady 9-to-5 job.

Needless to say, losing your job unleashes a wave of uncertainty into the loan process. It doesn’t automatically kill your deal. In fact, it may not even delay things. Whether you can salvage the purchase often depends on your overall income picture and how quickly you land a new gig.

And even then, you’re still at the mercy of an eagle-eyed underwriter already on high alert. Success in these situations comes on a case-by-case basis. Here are a few things to know.

Should You Tell Your Lender?

Your first inclination might be to see if you can sneak one past the goalie. That’s a bad idea for a couple reasons.

One, lenders verify your employment and income early in the loan process and again near the time of closing, sometimes just hours before. They’re almost always going to hear it straight from your (now former) employer.

Two, you could be committing mortgage fraud by failing to disclose your job loss. Borrowers usually sign documents requiring them to notify the lender about any significant changes to employment or income.

Three, even if you could keep it a secret through closing, would you really want to? Unless you’re hopping into another job, making those new mortgage payments might be a real challenge. Defaulting on a home loan can wreck your credit and hamper your financial profile for years.

In fact, missing payments on any debt can hurt your credit, and if your job loss results in late payments on other debts in the lead-up to your mortgage closing, your credit score will reflect that.

Monitoring your scores can help you keep up with what’s going on with your credit so you can address any problems with your creditors and your lender (and one way to monitor your scores for free is through Credit.com).

New Employment

You may be able to hang onto that new home if you swiftly land a new job. It’ll need to be similar to your old one, in terms of the field, the type of work and the pay. Written details and confirmation from the new employer can help.

Lenders may require you to be back to work for 30 days before moving forward, a wait that could affect everything from your closing date to your interest rate and more. In some instances, you might be able to convince the lender to move forward without delay, especially if you get a new job posthaste.

So much depends on your specific situation.

Depending on the loan type, you could also look to add a co-signer and count that person’s last-minute income. That person would need to meet the same credit and underwriting requirements you did.

Also, you should both fully understand the implications of being a co-signer, i.e. what happens if you miss a payment.

Talk with your loan officer and your real estate agent about your options. Remember that continuity is critical regarding the new job. Jumping into a new career will usually require a significantly longer wait before lenders are willing to count that income.

Other Income

Most people need their employment income to qualify for a home loan. But some borrowers may have other sources that can satisfy the lender.

Retirement income, disability income and rental income can all be considered. Lenders will want to verify these sources and have confidence that it’s likely to continue for at least the next three years.

—

This article was written by Chris Birk and originally published on Credit.com.

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Is an Assumable Mortgage a Good Idea?

On September 21, 2014   /   Home Finance  
Tags: , , ,
home buyer

By: Michele Lerner for Realtor.com

Looking for an alternative to a traditional mortgage?

An assumable mortgage is a loan that allows a buyer to take over a seller’s current loan, typically with no change to the terms or interest rate.

When interest rates are low or falling, borrowers aren’t interested in taking on a loan with a higher interest rate than what a broker could offer.

But, if you’re purchasing a home with an established loan at 3.75% and mortgage rates have risen to 5.5%, you may want to consider an assumable loan.

Why consider an assumable mortgage

The top benefit to assuming a loan is a lower interest rate than you could get by applying on your own. In addition, your closing costs will be reduced. You’ll still have to pay some fees for the loan qualification process.

If you’re assuming an FHA loan, you won’t need to pay upfront mortgage insurance costs—just the ongoing mortgage insurance payments for the life of the loan.

One other advantage of an assumable loan is that you’ll be paying only the remainder of the seller’s loan.

Some simple math gives you a good example: if a seller borrowed $200,000 for their home purchase in 2011 at 4.2% with a 30-year loan, their monthly principal and interest payments are $978. If you were to borrow $200,000 at 5.2% with a 30-year loan, your monthly principal and interest payments would be $1,098.

In addition, because the seller has already repaid the initial three years of the loan, you would only need to make payments for the remaining 27 years of their loan. The sellers will have paid down $24,562 in interest after three years of payments.

By assuming the loan, you’d save $43,268 over the 30-year loan thanks to the difference in interest rates—plus the interest that the owners have already paid ($24,562)—for a total savings of $67,830.

Assumable mortgage options

Conventional loans are rarely eligible for assumption—most typically require the loan to be paid in full when the property is sold or transferred to another owner. VA and FHA loans are eligible for assumption, but there are a couple of additional requirements:
?FHA and VA loans both require the borrower to be approved for the loan.
?VA loans allow a non-veteran to take over the loan, but the sellers are still responsible for the loan if the new borrower defaults. If a veteran assumes the loan, the sellers are not responsible for the loan after settlement occurs.

Obstacles to an assumable mortgage

Before you run out to capitalize on someone else’s favorable loan, realize that a loan assumption isn’t always on the table.

In addition, you’ll typically need significant cash or to take out a second mortgage if the current home price is more than the remaining mortgage.

For example, if the sellers have made three years of payments as in the example above, their remaining principle due is $189,353. If the home appreciated in value and you buy it for $250,000, you’ll need extra cash as your down payment in order to assume the loan.

Alternatively, you can make a smaller down payment and finance some of the additional cost with a second loan, but be aware that second mortgages are more difficult to qualify for and typically have a higher interest rate than a first mortgage.

A good lender will help you decide whether a loan assumption or a traditional finance makes the most sense for your home purchase.

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