Can You Still Get a Seller to Pay Your Closing Costs in Today’s Housing Market?

closing costs

By: Credit.com

Home prices have risen across the country, and in many areas, the hot market has transformed a buyer’s haven into a seller’s market. With that change, buyers may have less leverage than they did during the market’s down years. Despite that, here is how you may still be able to obtain a seller credit for closing costs.

A credit for closing costs involves the seller of the property you’re interested in purchasing receiving less net proceeds in exchange for crediting you monies at closing. For example, if you’re making an offer to buy a home at $450,000 and you’re asking for a $10,000 closing costs credit your offer is really $440,000 as the additional $10,000 transfers from the seller to you. Also known as a seller concession, a credit for closing gets your foot in the door with less of your own funds needed.

Let’s rewind the clock to three years ago for a moment. In 2012 unemployment topped 8%, consumer confidence was bleak, and doom and gloom rattled the housing market. Home buyers were in the driver’s seat, and sellers were practically begging for offers. During this time, obtaining seller credits were not only reasonable, but also very common. Banks holding foreclosed inventory would often offer concessions to offload homes to meet year-end goals for shareholders. Fast-forward to 2015: Unemployment has dropped significantly, and consumers are feeling more optimistic about their financial health. What can you do now?

How to get a seller concession

Buying power is a big factor here. The more house you can qualify for on paper, the more wiggle room you have in supporting a higher price, possibly generating a seller kickback toward your cash to close. Essentially, you are financing the fees by paying more for the home. If successful, you pay more for the home in these areas:

  • Final sales price
  • Loan amount

 

Generally, you will pay less for the house without a seller concession of any kind. This also means your fixed housing costs will be lower in such a scenario, since your mortgage will be smaller.

If you don’t have the cash to get the home, you can debt service the difference with the seller concession strategy, but the cost of that debt servicing can be costly in terms of your monthly payment as well as total interest charges on the life of the loan, especially if funds are tight going in. This is why it is important to be as strong as possible on paper when getting pre-approved. Your credit is a major factor in your borrowing power, and improving your scores even slightly can make a major difference in the loan amount your lender can offer. You can check your credit scores for free on Credit.com to see where you stand.

When to ask for the concession

If you want to ask for a seller credit for closing costs, there are two optimal times to make that request:

1. Upfront

You can request a seller credit upon submitting your offer with the guidance of your real estate agent. This strategy is more effective on homes with longer days on market. If a home has been sitting for a while without offers, the price may be too high. It’s generally more difficult to ask for a concession on brand-new listings as other strong offers may be coming in, possibly exceeding yours.

2. After inspections

Most buyers and sellers are opportunistic by nature. The buyer wants the best deal on the home, while the seller wants the maximum it can obtain for the home. Both objectives are at odds with each other. A seller may be more inclined to pay closing costs than to lower the cost of the home if there’s a “surprise” from the inspection that makes you want to run.

It’s important to understand that while you can ask for a credit for closing costs, you can also request a reduction in the house price. Say you’re in agreement to buy that $400,000 home, and your appraisal comes in at $385,000. You could ask for a credit for closing costs, but asking to reduce the total price to match the appraised value might be a better approach because it will lower your monthly housing payment. The sky is the limit. You can ask for a credit for closing costs and a reduction in the purchase price, but in most cases it’s usually one or the other. Talk to your mortgage and real estate professional about which is the most beneficial for you.

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This article was written by Scott Sheldon and originally published on Credit.com

 

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10 Home-Buying Costs You Need to Know About

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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4 Traits of Successful VA Home Buyers

veterans

By: Veterans United

Veterans and service members have access to a $0 down loan program created to expand access to homeownership.

However, being eligible for a VA loan and actually getting one aren’t the same things. Satisfying the program’s eligibility requirements is a key step, but prospective buyers still need to meet credit, income and other benchmarks.

VA home buyers who get the most from this hard-earned benefit often share some common characteristics. Here’s a look at four big ones.

1. They Know the (Credit) Score

Most VA lenders will require a minimum credit score. The cutoff can vary, but a 620 FICO score is a pretty good representation. That’s considerably lower than what veterans would need for conventional financing, but it can still be a tough figure to hit.

Get copies of your credit reports for free at AnnualCreditReport.com before starting the home-buying journey. Look for mistakes, bad information or any other issues that could be affecting your score.

2. They Have a Handle on Debt

You don’t need to be debt-free to land a VA loan—not even close. But the relationship between your income and debt will play a key role in how much home you can buy.

Paying down high-interest debt can help strengthen your financial profile and maximize your purchasing power. Lenders will often have caps on how much “derogatory” credit you can have, so work to pay down any accounts in collection.

Judgments and liens will have to be cleared up before a loan can close.

3. They Get Pre-Approved

VA loan pre-approval is critical in the current home-buying market. It also makes a ton of sense for prospective buyers. Getting pre-approved gives you a clear window into what you can afford and how much house you can buy. It also shows sellers and their real estate agents you’re a legit buyer likely to make it to closing day.

You can start looking at homes without loan pre-approval. But that also opens the possibility of falling in love with a home and even getting under contract on one that you can’t actually afford.

4. They Prepare for Upfront Costs

The biggest benefit of VA loans is the ability to purchase with $0 down. But home buying comes with other upfront costs. Savvy VA home buyers have at least some cash on hand for an earnest money deposit and to cover the costs of an appraisal and a home inspection.

These expenses can vary depending on where you’re buying and other factors. The good news is VA home buyers can look to recoup most of these costs at closing.

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This article was written by Chris Birk, Director of Education at Veterans United Home Loans and author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.”

 

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How to Pay Off Your Mortgage Before You Retire

pay off mortgage before retiring

By: Michele Lerner for Realtor.com

For most of your life, preparing for retirement means investing. But as the actual date approaches, you also will need to streamline your budget so your expenses will be as low as possible. If a mortgage payment is your biggest monthly expense, as it is for most people, you might want to try to pay off your mortgage before you retire.

Loan balances for those borrowers also rose, with the median amount rising to $79,000 from $43,400 during those years after adjusting for inflation.

While not everyone can manage it, many older homeowners prefer to pay off their mortgage balance entirely before they retire.

Keep in mind that some expenses of homeownership won’t disappear: you still need to pay for homeowners insurance and property taxes—and if you live in a condo or a home within a homeowners association, you’ll need to keep paying your association dues.

However, eliminating the bulk of your payment, the mortgage principal and interest, can go a long way to smoother cash flow once you stop work.

Ways to Pay Off Your Mortgage

The best way to pay down your home loan depends on your loan terms, balance and budget. In particular, you need to consider your monthly budget and whether you can afford to make larger payments to reduce your mortgage balance.

It’s particularly important to think about how long you plan to keep your home and how far you are into your mortgage.

Refinance

If you’ve been paying off a 30-year fixed-rate loan for 15 or 20 years, you should think carefully about the advantages and disadvantages of refinancing.

In some cases, it’s a smart move to refinance into a shorter term loan of 10 years or even less, but be aware of the transaction fees and closing costs associated with a refinance—typically 2% to 3% of the loan amount. You may be better off applying those closing costs to extra payments on your current loan, especially if you’re near the payoff date.

Early in any home loan repayment you’re mostly paying interest, but by the last few years of your loan, you’re paying mostly principal. If you have refinanced before or bought your home within the last few years, refinancing into a shorter loan term could cause a big jump in your payments.

If you do opt to refinance into a shorter loan, be sure you can comfortably afford the higher payments and that you’ll recoup your costs quickly.

Prepay your loan

Refinancing locks you into a new payment plan, but if you’d rather have some flexibility, you can make extra payments to eliminate your mortgage faster.

You may want to add money to every payment, make an extra payment each year or even make a lump sum payment if you receive a tax refund or bonus.

Not only will you pay off your loan faster, but you’ll save thousands in interest payments.

For example, if you took out a $200,000 loan in 1999 at 4.5%, your principal and interest payments are about $836 per month—and your loan payoff date is 2029.

If you add $250 per month to your payment, you can eliminate your loan in 2025 and save about $13,630 in interest. If you can manage $500 more per month, you can save $21,300 in interest and be mortgage-free in 2023.

Put Mortgage Payoff Decisions in Context

It’s important to consider any decision about your home loan in the context of your other financial goals and commitments. Be sure you are contributing as much as you should to your retirement funds and eliminate non tax-deductible debt before you begin to pay down your mortgage.

Consult a lender and a financial planner to discuss your options on an individual basis.

This story was originally posted on SeniorHousingNet.

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How to Negotiate Your Closing Costs

negotiate closing costs

By: Craig Donofrio for Realtor.com

At the end of the home-buying process, you will be faced with closing costs, the fees due at signing required to complete a home sale. Closing costs can be expensive, but some of those fees may be negotiable.

Check the Market Temperature

The nature of the housing market may dictate whether the buyer or the seller picks up various closing costs.

If it’s a buyer’s market—a bit cold and homes aren’t selling well—sellers may be more willing to bargain and take on some closing costs.

If it’s a seller’s market—the market is hot and homes are selling quickly—the seller has the advantage and little incentive to give the buyer a break.

However, you shouldn’t accept any fishy-looking fees without asking first.

Which Closing Costs Are Negotiable?

When you apply for a loan, your lender or mortgage broker must provide a good faith estimate (GFE) of fees due at closing.

This is a very useful tool, but bear in mind these are estimates—not guarantees. Compare the GFE to the final closing costs statement and the HUD-1 settlement statement to look for big differences.

Some fees are generated by third parties and typically don’t change very much, no matter where you find your loan. Then there are additional expenses you can’t control, like taxes and government fees.

Other fees may be junk fees—costs that are put in by the lender to pad out the bill. These fees should be able to be negotiated or waived.

Negotiable fees are generally found in the 800s section of the GFE. They may include the following:

  • Title Insurance: The lender will recommend one, but you don’t need to accept it. You can shop around, compare fees, and go with the one that suits you best. However, you can’t have this waived.
  • Commitment fee: These are just there to make sure you don’t jump to another lender. Ask to have it waived. If you can’t, negotiate that if the loan falls through due to the lender, the fee will not be charged.
  • Application fee: Some loans have an application fee. Ask your lender if they will waive or credit this fee towards closing costs.
  • Miscellaneous fees: Ask exactly what these are for, especially if they are high.
  • Courier and mail fees: With almost everything being digital, your lender should provide evidence these fees were necessary.
  • Discount points: These increase your closing costs but reduce your interest rate. If you have discount points and your closing costs are too high, you may want to eliminate them. Talk it over with your lender and be sure to figure out the new monthly mortgage payments if you do.

Just Ask If You Have Questions

It is your right to question anything on your HUD-1 and GFE documents, so do ask questions if you feel a cost is too high or doesn’t make sense.

Simply asking the lender to explain certain fees might be enough for the lender to waive them, particularly if they were junk fees to begin with.

Don’t Get Intimidated by Closing Costs

Even if your closing costs rise significantly beyond your GFE, you may feel pressured to accept them to avoid losing the home to another buyer.

Don’t!

Many lenders would rather close a deal instead of going through the process again with another buyer. Use that to your advantage and be prepared to walk away from the table.

As you review your closing costs, be your own advocate. It’s a good idea to visit a few different lenders and compare GFEs.

Always make sure you receive a thorough explanation for any fees that seem unusual, unnecessary or just too costly.

Updated from an earlier version by Emmet Pierce.

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