Don’t Be Caught Surprised & Unprepared: Closing Costs

Closing costs add up to anywhere from 3% to 6% of the purchase price. This means if your home is $400,000 and your closing costs are 4%, you’ll owe $16,000 at closing.

Some examples of costs common during a closing:

  • Application fee — The application fee covers the cost of administering the transaction and handling the documentation. 
  • Appraisal fee — A licensed appraiser inspects the home to determine its worth. This appraisal fee typically costs a few hundred dollars. 
  • Credit report — As part of the due diligence to determine your credit worthiness and determine the interest rate for your loan, the lender will pull your credit report. This fee is rolled into your closing costs. 
  • Homeowner’s insurance — Homeowner’s insurance is typically required to protect the home from loss or damage. Up to one year’s worth of insurance is due at the closing. 
  • Private mortgage insurance (PMI) — PMI is designed to protect the lender in case you default on your loan. Until you own a certain percentage of the home, private mortgage insurance may be required by your lender. 
  • Property taxes — Depending on your location, you may be required to pre-pay 60, 90, or 180 days worth of property taxes when you close on your house.
  • Transfer tax — Typically a percentage of the sales price or fair market value of the house, this tax fee is collected and paid when the title passes from the seller to the buyer.
  • Underwriting fee — Also known as a loan origination fee, this fee is charged by the lender for preparing the mortgage loan. 
  • Title search services: A title search verifies the seller’s legal right to transfer the property to the buyer and flags and liens that may have to be cleared before the sale can be completed.
  • Real estate attorney’s fees: It’s customary and advisable (and mandatory, in some jurisdictions) for both buyer and seller to hire attorneys to review sales contracts before a home sale is completed. In more complicated sales—if a home is occupied by tenants at the time of the sale, for instance, or if the sale is contingent on the seller completing certain repairs or improvements—attorneys may play a more active role, crafting contract provisions to protect their client’s interests.
  • Agents’ sales commission: Real estate agents representing the buyer and seller typically split a commission of 5% to 6% of the sales price.

The Bottom Line: There are steps you can take to bring down your closing costs:

  • Schedule your closing at the end of the month. Part of your closing costs is prepaid interest charges on your mortgage for the remaining days of the calendar month. If you schedule your closing toward the end of the month, you’ll only pay these charges for a few days.
  • Ask the seller to cover some of the costs. In a buyer’s market, and/or if your seller is particularly eager to complete the sale, you can ask them to cover some of the closing costs.
  • Compare your loan estimate and your final closing disclosure form. Check for inconsistencies and new charges. If something doesn’t look right, bring it to the attention of your lender.
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Refinancing Your Home

When you refinance, you get a new mortgage to pay off your existing mortgage. Refinancing works just like getting a mortgage to buy a house, but free from the stress of home buying and moving. As a homeowner, you will have the opportunity to choose among all the types of mortgages that are available to home buyers.

Refinancing your home allows you to change the terms of your mortgage to secure a lower monthly payment, rearrange the loan terms, consolidate debt, or even take some cash from your home’s equity to put towards renovations or bills.

Is it worth it? The general rule of thumb says that you’ll benefit from refinancing if the new rate is at least 1% lower than the rate you have. More to the point, consider whether the monthly savings is enough to make a positive change in your life, or whether the overall savings over the life of the loan will benefit you substantially.

Are there any good reasons NOT to refinance? Refinancing loans come with closing costs just like a regular mortgage. Freddie Mac suggests budgeting about $5,000 for closing costs. That will include appraisal fees, credit report fees, title services, lender origination/administration fees, survey fees, underwriting fees, and attorney costs.

If your closing costs are $5,000 and you save $500 per month on your new mortgage, it would take 10 months to break even. However, if you only saved $200 per month, your “break-even point” would be 25 months (just over two years). Stay in the home for less time than that, and you won’t truly be saving money long-term.

There are lenders that offer a “no-cost refinance” but it usually just means that the closing fees are being wrapped up into the amount of your loan.

Before you decide to refinance it’s important to understand how the process works and to evaluate the pros and cons of your individual situation. For example, many homeowners are surprised at the amount of documentation needed to get approved. And some people aren’t aware that there are some refinance options requiring very little paperwork.

The Bottom Line: During this era of economic uncertainty, refinancing your mortgage can give you some breathing room by lowering your monthly payments and/or saving you money over time. When you refinance, it means you’re essentially taking out a brand new loan on your property, often for the remainder that you owe. While refinancing sounds great on paper, it may not always put you in a better position. It’s best to weigh the pros and cons, taking your personal situation into account.

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Home Upgrades You Should Skip

Don’t expect to recoup most of the money you put into home improvements when it comes time to sell. Do them for you and your family to enjoy because the truth is that some renovations can actually reduce the value of your home.

Here are a few of the most common home improvements that could possibly turn out to be mistakes. While they may add to the house’s appeal, they won’t add value. In some cases, they could even act as a detriment when the property goes on the market.

Swimming Pool

Even living in the hottest climates, a pool can seem like endless hours of entertainment. You can even picture yourself and all your friends and family enjoying a hot day poolside, but unfortunately potential homebuyers may not.  They are possibly thinking of the hours of upkeep, expensive costs and the dangerous liability a pool can add.

Eliminating Rooms

Enlarging a room, for example a master bedroom, by knocking down walls and combining a neighboring room is never a good idea unless you plan on living in the home forever. Even if the other bedrooms are small, you can expect to add 15% more onto your property value with each extra bedroom. Aside from square footage, the total number of bedrooms a home has is a primary driver of the sales price. Generally, people search for new homes based on the number of bedrooms they need.

Expensive landscaping

Upscale, professional landscaping won’t add value to your home. Instead keep your lawn well-maintained with trimmed and pruned bushes, shrubs and trees.

Having to hire a professional landscaping company for monthly upkeep may cause disinterest for buyers. Keep it simple with native plants that require little water and maintenance. Landscaping choices are a personal preference,and some buyers will inevitably see only the money required to keep that beautiful backyard well maintained.

Invisible Improvements

Pricey projects that make your house a better place to live, but that nobody else would notice or care about, like replacing plumbing or the HVAC unit. Most buyers just assume that these systems are in good working order. They will rarely pay extra just because they were recently installed. Necessary, not not showy, improvements, like new paint and carpet, don’t add value because buyers already expect these features to be in good condition. They don’t feel they should have to replace the wear and tear you caused while living there.

If any essential system (like the HVAC unit) needs to be replaced, you should certainly do it—but don’t expect to recover the cost by getting a higher price for your house.

Wall to Wall Carpeting

It so happens that home buyers cringe at a carpet upgrade. People are turning away from carpeting because of the dangerous chemicals used to process it, not to mention the fact that it’s considered an allergen hazard—a serious concern for many people, especially families with children.

Not only will you not recoup the cost of wall-to-wall carpeting, but—if carpet is the primary flooring throughout—it can actually lower the value of your home.

The Bottom Line: Renovations and improvements can improve your home but they come in many different forms. Certain upgrades are worth the investmen and others simply don’t add value when it’s time to sell. When making changes always keep in mind what will appeal to a future buyer when the time comes to sell your home. Before you jump into all the things you’d like to fix or renovate in your home, you need to do your due diligence. Reach out to your favorite Realtor and get her opinion.

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Should You Sell Your House or Rent It Out?

If your home isn’t selling, you might be tempted to ask your Realtor if you should consider renting it out. While it is impossible to predict with perfect accuracy where your housing market is headed, your Realtor can help you to make an informed prediction. If your home’s value will increase in the next few years, so it would be a great idea to consider renting it out now and selling later. But, there are a lot of factors to consider.

  • How will you respond if your tenant says they can’t afford to pay the rent this month because of more pressing obligations?
  • Because of the economy, many homeowners can no longer make their mortgage payments. What percent of tenants do you think can no longer afford to pay their rent?
  • Have you interviewed a few experienced eviction attorneys in case a challenge does arise?
  • Have you talked to your insurance company about a possible increase in premiums as liability is greater in a non-owner-occupied home?
  • Will you allow pets? Cats? Dogs?
  • How will you actually collect the rent? By mail? In-person?
  • Repairs are part of being a landlord. Who will take tenant calls when necessary repairs arise?
  • Do you have a list of craftspeople readily available to handle these repairs?
  • How often will you do a physical inspection of the property?
  • Will you alert your current neighbors that you are renting the house?
  • How much time do you have? When you rent out your home, you still have obligations as an owner. You need to make sure that you’re able to meet your tenants’ needs, such as repairs or emergencies while following all landlord and tenant laws. It helps to contact an experienced lawyer to learn more about these laws, too.
  • Are you financially prepared? Can you cover the cost of the mortgage if a tenant misses rent or if the house sits unoccupied for a few months? What about the cost of emergency repairs?
  • How much do you need to charge? You may want to charge enough rent to cover the cost of your mortgage, taxes, and insurance. If it’s feasible, you might want to set a rent that can partially cover repairs and earn extra income. Make sure that you’re able to ask for enough to prevent it from costing you money — and ask a real estate agent about fair market values in your area. If your rent amount is above fair market value, you may not find a tenant.
  • Can you afford the upkeep? Before putting your house up for rent, make all the needed repairs. Take care of any other minor improvements that make the home presentable and allow you to get the rent amount you want.

The Bottom Line: There’s no right or wrong answer when it comes to deciding whether to rent or sell your house. Meet with your Realtor and evaluate your unique situation and make the choice that’s right for your needs and your financial future

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What is a CMA in Real Estate?

One of the more challenging parts of selling a home is determining a fair asking price. You need to make sure that you set the price high enough to provide a good return on your investment and low enough to get potential buyers’ attention. To find a price that’s just right, you must know how much your home is worth. To figure out what the fair market value of your home is, your Realtor will run a comparative market analysis (CMA)

Buyers will also use CMAs. Before making an offer on a home, their Realtor will complete a CMA to make sure their offer price is fair. It’s necessary for buyers to have their agents complete a CMA because there is no guarantee that the list price reflects fair market value. And even if the list price was fair on the day the home hit the market, values can change quickly in fast markets.

CMAs determine the value of a home by comparing sales prices of similar homes that sold recently. For example, if your neighbor’s house is similar to your house, and it sold last week for $990,000, the value of your home might be around the same price point. But, all homes are unique.

Look at a subdivision of homes built at the same time that look exactly the same (cookie-cutter homes), one home might be near a noisy street, while another might be near a peaceful nature preserve. So the CMA needs to account for all the factors that are relevant in deciding on home values, including location, size, age, lot size, amenities, views, and conditon.

If you have hired the best Realtor, she will get all the comparable properties to your home and have sold recently. She will then adjust the sale prices of those comps to see what they would have sold for if they had been identical to your house.

The entire process is like science. For the Realtor to get it right, she will need to know how much value an extra bedroom, bathroom, or pool adds to a property in your market. She will find out how much more a buyer would pay for a good view or a quiet street.

A CMA is the best way to quickly find the fair market value of your home. If you want to price your home correctly when you put it on the market, you need a CMA.

The Bottom Line: It’s art combined with science when putting a value on your home. It requires the expertise of an experienced Realtor who will explain how they came up with your list price.  A realtor’s work is understanding the economics of the real estate market and explaining it to their clients. They must show the comparable listings as well as what the seller will earn when they sell for the realtor’s recommended price, including all of the costs incurred when selling, and give a net total that the seller can look forward to.

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Title Insurance

Looking for, “title insurance companies near me?” Look no further than Title First Agency. We offer 20 office locations, are licensed to operate in 32 states and have strategic partnerships throughout the country, allowing us to do business in all 50 states.

Title insurance is something that can protect owners of real property events and matters that can be brought up from the past. Imagine spending your nest egg on a down payment, closing costs, and a few years of mortgage payments. Suddenly, an heir to a former owner is suing to obtain the home, arguing that it never should have been sold to you in the first place. There is no reason to worry if you have title insurance, yet many homeowners decline it. Once they know how it is created to protect them from unknown claims against their property that can pop up years down the road they are less inclined to resist.

Title insurance is much more than a lender requirement. It’s knowing that what you are buying is free of any third party claims to ownership or use of any part of it. It assures the homeowner that they are clear of anything that would affect the ability to sell or borrow against their new property.  After thousands of real estate closings here at Title First, we can give you a rundown of the most common issues we can save you from:

Mistakes on titles, especially lately, that are transferred through a sale of foreclosure without certain rulings met, thus making the transfer of the title invalid.

Mistakes within all the paperwork brought to the closing. Somewhere along the line, there may be a forged signature or recorded documents that have been signed by people without legal authority.

Mistakes made during the probate process for the previous owner that overlooked someone else’s rightful claim (undisclosed heirs) to the property of someone else’s interest in the property. Misinterpretation of wills and deeds.

Mistakes that were made in the description of the property.

Mistakes that were made where claims, tax information, or easements had not been recorded properly in the public record.

Mistakes missed of liens on the property or judgments against the previous owner.

Mistakes in unpaid taxes or mortgages and unpaid debts.

Investors need to be alert when protecting their investments. Title insurance assures the homeowner that the title to the property purchased is free of any defects and is “clear to close”. It is a guarantee that all matters of record that could harm the title of the new property have been disclosed and resolved. Title insurance protects the homeowner against any potential claims should an undisclosed event threaten the ownership of the property. Give us a call today at Title First Agency: 1-866-320-8400

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Is It Time To Reduce The Price of My Home

Every seller wants to get the best possible price for their home but after some time on the market, you and your Realtor should have a discussion on whether it’s time to reduce the price. No one wants to lower their asking price for their home, but in some scenarios, it’s a necessary step if you want to sell your home. Some of the reasons it might make sense:

No showings. The market right now is so hot that you should be getting showings, even if your price is on the high end. If you’re getting no showings – or an abnormally low number – this tells you that you’re way off base and buyers don’t even want to waste their time seeing the property.

Lots of showings, no offers. Perhaps you have the opposite problem. You’ve had dozens of showings, but not a single offer. This tells you that your house meets the criteria of buyers, but something is off. Price could be the issue.

Shifting market. The real estate market changes on a daily basis. Depending on the sale price of other houses in the area, it’s possible that the valuation of your property has changed since you put it on the market. Maybe you need to lower the price in order to match up.

However, although the market usually plays a role, there are many reasons why houses don’t sell. So before you lower your asking price, you and your Realtor should discuss if everything is being done to sell your home. Some questions you should consider:

How has the Realtor been marketing your home? When a house sits on the market, ineffective marketing is often to blame. Does your listing include high-quality images, and does the written copy clearly highlight your home’s best features? Is it being promoted on social media? Has a direct mail campaign been launched? If buyers don’t know your home is for sale (or they haven’t seen it in the best possible light), you don’t yet know whether they’re willing to make a great offer.

Has your Realtor gotten any feedback from the buyers that have visited your home? Asking the right questions can help you figure out how to make a better impression moving forward. Ask a family member or friend to stop by and give you an honest, objective opinion of how your home looks. Sometimes, we need a fresh pair of eyes to see anything you and your agent may have missed. Find it, and fix it; it might be the sole reason your house is still on the market.

Have there been many showings? If so, your home is making a positive impression online. Buyers aren’t being turned off by the asking price, which is a good thing. But if you’ve had many showings and no offers (or no reasonable offers), then there might be something about your house that needs to change. 

The Bottom Line: Make sure you have the top agent in your area. Because of their constant engagement in local markets, Realtors are an invaluable resource for determining price, marketing your home, and managing all aspects of a sale. Before lowering your price, consider if you and your Realtor have exhausted all avenues to sell the house for what it’s worth. If your price is perfect, your home looks its best and your marketing is reaching its targeted audience, showings should increase, and, hopefully, offers will follow.

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Accepting the First Offer Because it is the Best Offer is Not Cliche

Often, when a seller has taken the time to properly prepare their home for sale, and they’ve hired the best Realtor who takes pride in presenting and marketing that home well a seller will receive offers right away. And, it’s not just a cliche, “your first offer is the best offer”, it’s more often than not, the truth.

So that first early offer? Sellers tend to reject it because they felt it happened too quickly and they want to hold out. They’re feeling adamant and confident because there is some good activity. Real Estate agents see good offers rejected early because the seller thinks they can get more.

Then, days, weeks even months later, the owners find themselves settling for less. That first offer should always be taken seriously and it’s probably the best opportunity to control the price and terms. It might not be what the seller was hoping for but, a good Realtor will walk the seller through a counteroffer, and even the ability to negotiate for other details can work for the seller.

The time a home is on the market to sell decreases its value. The longer it is listed the less interested buyers and Realtors are in the property. People will begin to wonder what is wrong with the property. Sellers are in the best position to get a good price for their home when it is new to the market. If the home does not sell buyers become suspect.

With a “for sale” sign in any yard too long, no matter the reason, it makes it more difficult to stir up interest. As the days go on, the home becomes less desirable. The market could change and take a downturn leaving the home that is priced on the comps when it was listed, now priced too high. An identical home could enter the market at a lower price. 

The Bottom Line: The first three weeks are usually the most active. If an offer is made during that time, there are three possible outcomes:

1. After some negotiation, the offer is accepted

2. After some negotiation the offer is rejected as being too low and the home continues to be marketed. Eventually, the home is sold for a better price

3. After some negotiation, the offer is rejected. Months later the Realtor is asked if the original buyer is still interested only to find out they have purchased elsewhere. The owner ends up reducing the price and sells for less than the original offer.

It’s worth working with that offer unless it’s ridiculously low.

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Experienced Realtors

Be sure to vet and find the best Real estate Agent before you set out to look for your next home. They have a huge role in one of the most important financial decisions you will make. When it comes to buying, selling, leasing, or renting, they will lead us through a sometimes bumpy and overwhelming process.

Websites can help you find the area you want to live in, even some of the houses that you want to see. But, an experienced Realtor can offer a level of expertise in the market that you won’t be able to get without her.

1. Advice. Expect your Realtor to provide advice relating to homes even before you tour them. A good agent will have already learned from you about what you want & need, what your preferences are and what your budget is. She will be able to help you narrow your search and identify your priorities.

2. Educate. Your Realtor will be able to provide data on the local home market and comparable sales. The home-buying process can be complicated. A good agent will explain the steps involved and make sure that you understand them and provide counsel to you.

3. Network. An agent who is familiar with the neighborhoods that you are interested in and will often know about pocket listings. Experienced agents tend to know other agents in the area and have good working relationships with them; this can lead to smooth transactions. Your agent may also be able to refer you to trusted professionals including lenders, home inspectors and contractors.

4. Advocate. When you work with a buyer’s agent, their fiduciary responsibility is to you. That means you have an expert who is looking out for your best financial interests, an expert who’s contractually bound to do everything in their power to protect you.

5. Negotiate. Your agent will handle the details of the negotiation process, including the preparation of all necessary offer and counteroffer forms. Once your inspection is done, the agent can also help you negotiate for repairs. Let the agent do the “dirty work” and ask for things to be fixed. They know how to negotiate from experience and what will and will not work.

6. Paperwork. A real estate transaction can be exhaustive, not to mention all the federal, state, and local documents required. If you forget to initial a clause or check a box, all those documents will need to be resubmitted. A good real estate agent understands the associated deadlines and details and can help you navigate these complex documents.

7. Knowledge. Plenty of issues can kill a deal right before the closing; perhaps the title of the house isn’t clear, the lender hasn’t met the financing deadline or the seller has failed to disclose a plumbing problem. An experienced real estate agent knows to watch for trouble before it’s too late, and can skillfully deal with challenges as they arise.

The Bottom Line: You can buy a home without a Realtor. People do it all the time. But, going at it alone can be a risky bet. There can be a lot of legal loopholes that can be overwhelming and confusing for someone not experienced in the real estate business. Buying a home is a long and often very emotional process. The Realtor will handle all the stress for you that goes with finding financing, negotiation, and closing.

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Contingent Offers

Contingencies are conditions that must be met to finalize a real estate transaction. They are in the contract to protect the buyers and sellers. A contingency is an opportunity to cancel the sale if issues develop with the property and/or transaction process. Removing or not including contingencies can make an offer more attractive to a seller but it can also leave the buyer unprotected.

5 Home Contingency Clauses:

The home inspection contingency clause is the most critical. It should be done by a neutral professional inspector to assess the major systems of the home. This will include electrical, plumbing, roofing, and structure. Without this contingency, the buyer has no recourse to issues and problems with the house. This is also true for waving the buyer’s ability to request the seller to make repairs. This is an important secondary negotiation between the parties. Many are selling “As Is” sales and there are buyers also that agree not to ask for repairs.

The home appraisal contingency clause tells the value of the home you want to buy. It will tell you whether you’re offering a fair price for the home or offering to pay too much. If the appraisal is too far below the price you’ve offered for the home, you can change your offer or back out of the deal altogether, if you wish.

The appraisal is also what the banks use to determine the amount and terms of the home loan to offer you. If the appraisal comes in too high, the bank loan you’re offered may not be enough to cover your costs to buy the home, and, to proceed with the transaction in spite of that, you’ll have to come up with the difference on your own.

The financing or mortgage contingency clause is another extremely common clause in real estate contracts. This clause states that your offer will be contingent on your ability to obtain financing. The financing clause will specify the type of financing you wish to obtain, the terms of the financing, and the amount of time you will have to apply for and be approved for a loan.

The financing contingency can be helpful for buyers because it protects you if your loan or financing falls through at the last minute and you are unable to secure financing at the last minute. This contingency will allow you to back out of the transaction without facing any legal consequences or losing the money you put up as part of your earned deposit. The financing contingency is one reason why sellers prefer working with all-cash buyers who will not need financing in order to buy.

The financing contingency protects the buyer because the buyer will only be obligated to complete the transaction if they are to secure financing or a loan from a bank or other financial institution.

The home sale contingency clause you can add to an offer to protect you in case your current home doesn’t sell. It states that you won’t purchase the home unless your existing house successfully closes within a certain time period—usually between one and two months. 

After that, you may be able to extend the contract with the seller’s permission. But if the seller doesn’t want to wait any longer for your home to sell, the contract will be void.

The title contingency clause will investigate the title of a home to make sure there are no problems with the ownership of the home. The title serves as a record of homeownership and is essential to the sale of the property. In most cases, any issues with the title can be resolved before the closing process. However, this situation could lead to several challenges for the potential new homeowners in some cases. A few examples include a lien on the property that must be paid before the sale or perhaps an ownership dispute if the seller cannot legally prove they own the property. A title contingency protects potential owners from these situations by allowing them the opportunity to walk away if these issues are not resolved before closing.

The Bottom Line: As a buyer, contingencies are vital: They provide you with an escape hatch from the property purchase if, for example, your mortgage financing falls through or other uncontrollable events or discoveries create barriers to your finalizing the deal. However, they make your offer less attractive to the seller. In hot markets with competitive bidding situations, buyers sometimes omit or waive certain contingencies altogether.

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