Bridge Loan in Real Estate

What is a “bridge loan”?  It is a temporary loan used while permanent financing is being secured. Bridge loans often have higher interest rates. They allow a homebuyer to take out a loan against their current home to make the down payment on their new home. This may be a good option for you if you want to buy a new home before your current home has sold.

A bridge loan is dependent on the equity of your current home. Your equity is the difference between the value of your home and what you owe on your current mortgage. Many lenders provide the borrower with the difference between their current loan balance and up to 80% of the current home’s value.

With this new loan, borrowers can cover the down payment and closing fees on their new home.

Pros of a Bridge Loan:

  • You don’t need to have selling contingencies of your current home to make an offer on a new home.
  • Application and closing are often quicker than other loans.
  • Depending on the lender, the bridge may not have any payments until the deal is closed. Some lenders may require interest-only payments until the deal closes.

Cons of a Bridge Loan:

  • You must have excellent credit and a low debt-to-income ratio.
  • There are often origination and legal fees.
  • Paying two closing costs – one on the bridge loan as well as the new home.
  • Lenders charge higher interest because these loans have such a short lifespan. The work involved for the lender is equivalent to a comparable longer-term loan.
  • Terms are generally 6 months to 2 years.
  • While some bridge loans have fixed interest rates, others can have a variable rate that may rise before the loan is paid off.
  • If your primary home doesn’t sell, you could end up with three mortgages: one on the primary home, one on the new home, and the third being the bridge loan.
  • Bridge loan lenders can be difficult to find.

The Bottom Line: Bridge loans are short-term loans that help a buyer purchase a second property when they have not yet sold their primary property. There are tough qualifications and some challenges for someone to be able to obtain two mortgages at once, thus the bridge loan offers a solution. Bridge loan borrowers will have more freedom and flexibility, but will also face some negatives like high interest rates and closing costs. It’s important to compare all the benefits and the negatives before making a bridge loan commitment.

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Step by Step: Building a House

So you have decided to have your dream home custom-built on a plot of land that you love. What could be better than watching it all happen from the ground up just the way you want it? While you might be better off doing this, it’s not as easy as it seems. There are a lot of details that need to be worked out and you will need to be prepared.

The first thing you should do is hire the most experienced realtor with new home construction knowledge, who will best represent you and your interests during your home search and the home-building process. A realtor that regularly deals with builders, but isn’t affiliated with a builder. Do this before even visiting a builder’s home construction site. Many model homes are represented by a real estate agent who has a relationship with the builder, and many builders won’t allow you to hire your agent once you already visited their sales office without representation. Seeking the help of a knowledgeable professional who regularly deals with builders and knows the local community will save you time and money. Besides, it will cost you nothing as a buyer to be represented by an agent since it is typically the seller who pays for the commission. Many builders are also happy to work with agents.

Do your research on the builders. Search for online reviews, testimonials, and any news and updates you can find. Then check for the validity and trends in those reviews, since many builders will surely have a history of both happy and unhappy clients. If possible, also talk to local homeowners or current residents. Connect with them in online groups or communities through social media to better educate yourself before making a decision. Also, research the location and the community where the new construction is being built and you can learn about your potential neighbors as well. Ask your realtor if they’ve worked with the builder before and gain insights about their reputation.

It’s normal to be fascinated by that picture-perfect model home, but don’t let it blind you. Model homes are, of course, decorated to look desirable and striking. They have been furnished and staged so that rooms will appear bigger. Model homes were often constructed using a mix of standard materials and fixtures and include many upgrades that don’t necessarily represent what you can get, so it’s crucial to note what exactly you will be getting. Enlist the help of your agent to get a list of the standard features and common upgrades, together with their associated costs.

Most builders are reluctant to lower their prices because it may set a precedent for future buyers in the development who may expect similar discounts. The best way to negotiate with a builder is through upgrades. Consider asking for the builder to negotiate “on the back end,” such as paying for closing costs and performing upgrades at no additional charge. This is the less obvious way for builders to sweeten the deal while still maintaining the value of their neighborhood. With the help of your agent, research the builder’s negotiating style so that you can plan for an effective way to make a creative offer.

Consider other sources where you can find a lender who will offer you the best deal. Don’t automatically use the builder’s lender without shopping around for better options. Builders often have their preferred lender so that they can be fully informed of your progress as a borrower. However, they may not work with your best interests in mind. Your agent can also help you by referring to a trusted list of private lenders.

For some instances where the builder’s preferred lender is the only option, find out if there are incentives, special offers, or competitive rates available to you if you agree to use the builder’s lender. In some situations, it can be a cost-efficient option since they are often willing to offer competitive rates and terms, especially if the builder owns the lending company.

Get an inspection! New homes can have problems or defects since construction workers can make mistakes as well. There may be problems with the HVAC or plumbing installation that only a licensed home inspector can detect. Getting an independent inspection is always a good idea since any problems can be identified before a builder’s warranty expires. It will also help you learn more about the home. A home inspection will guarantee that everything is safe and up to code.

Even if you are working with a respectable builder, make sure that everything you have negotiated and agreed upon will be included in writing. They may honor your requests, but verbal conversations are not binding so they may forget about the promises they made to you. Make sure that everything important will be put in binding documents that must be signed by all parties. It’s especially crucial if you are buying a home that is not yet complete. Your experienced real estate agent can help you ensure everything is in writing and that all documents are properly signed.

Lastly: ask about warranties. Find out what is and isn’t covered and for how long, since not all warranties are created equal. Most builders use third-party warranties that cover materials and workmanship. Builders often use construction materials from different manufacturers or suppliers, like for windows or tiles, so those products may have separate warranties. There’s a great chance the builder might refer all issues to the manufacturers instead of handling the issues directly. Get the builder to specify each product’s warranty information so you can prepare your offer documents to address any concerns before closing. Warranties will also help you understand the process you need to follow once something needs to be fixed.

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I Can Get the Same House for Less. Why Would I Want to Buy Your House For More?

Pricing your home too high can be damaging. Overpriced homes sit on the market, day after day and month after month while the price gets lowered. The listing becomes stagnant, and buyers assume there is something very wrong with the house thus avoiding it. Eventually, there will be a buyer out there who knows they can get a deal on the house and make a lowball offer.

The first 30 days on the market are the most important. This is when the most showings will occur. Having a home that is priced too high, will push buyers away and they will choose to ignore it or bookmark it to check on the status of the price later. The longer the home sits unsold, though, the more negatively it is viewed. Buyers believe it is overpriced or there is something wrong with it. Waiting too long to drop the price will mean most likely losing the people who have bookmarked the home as they have probably already moved on and bought something else.

Additionally, if the home is on the market too long, potential buyers will think they are in a better negotiating position and end up tossing out a real lowball offer. Even when the negotiating begins, it will be less than the original asking price. To attract the most potential buyers possible, the home must be priced correctly from the onset of its going on the market.

If by chance a seller is lucky enough to get an offer on their overpriced home, there is still a hurdle to get over. The home may indeed be in a desirable neighborhood and have all the bells and whistles, but for the buyers to get a mortgage, they need to have the home appraised. The dollar amount the bank will lend the buyer is based on the appraised value of the house rather than the agreed-upon purchase price between the buyer and seller. The appraiser will use the prices of recently sold nearby comparables to help determine the value of your house.

If the home does not appraise at the price the buyer offered, the seller will either need to reduce the price to meet the appraisal value or the buyer will need to come up with additional funds to make up the difference. Not many buyers are jumping to ante up more money on even their dream home if the appraised value is not matching. Sadly the home will end up back on the market with additional expenses and adding to the days on the market.

Another issue is that any good realtor who is showing homes to buyers is obligated to do what is best for their clients and showing a well-known overpriced home is something they will steer clear of. Properties shown to buyers will meet the current fair market value. They will wait until the price is eventually reduced. If then, the lowered, overpriced home is shown, the buyers will look for all the things that are wrong with it – because they know there has to be if it’s on the market for a long time. The real problem all along was always the price.

Picking the right realtor is the key to a successful sale of a home. Interview several agents before choosing one and have them write out how much they think they can sell the home for. If one gives a significantly higher number than the others, be wary. It’s unfortunate but some realtors will throw a high number into the ring just to get hired. The realtors should come armed with the comps (competitive market analysis) and be able to back the number they came up with.

Some sellers mistakenly believe that Zillow’s pricing estimates, called Zestimates, and other online valuation tools can be used as a good barometer for estimating the price of their home. Beware of these tools and websites as they will never replace a good real estate agent who knows the local market and their estimates are usually far off the the actual selling price of a home.

The Bottom Line: When a house starts overpriced, it almost always ends up selling for less than market value. By pricing it high to drop the price later, you are completely bypassing the best candidates for buyers. They will look for homes for sale that are more accurately priced. Experienced real estate agents know that pricing a home appropriately from the start is critical to getting it sold quickly and at the best price.

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We Buy Home For Cash Scam

Homeowners who are facing foreclosure, can’t afford home repairs or need to sell their home quickly and “as is” can get easily tempted by the “We Buy Home for Cash” offers. While some accredited companies will come in and buy a home quickly for cash, there are more scammers out there taking advantage of homeowners in destitute situations. It’s important to keep an eye out for common scams so as not to fall victim to extortion.

Some Red Flags

Unsolicited Offers: Legitimate cash homebuyer companies will advertise their business and enable you to contact them directly rather than send a postcard, an email, or a call making an unsolicited offer on your home. You should expect to talk to a real person, meet them, and walk through the home together. When the conversations are only over the phone or digitally, it’s easier for the scammer’s identity to be hidden and take advantage of you.

Strange Company: The common thread of these scam homebuyer companies is that they don’t want to be tracked down. Their website is commonly cheap looking and often has typos, and grammatical errors and comes with a phone number that traces back to nothing / no physical address. Real companies are transparent about their process and in their communication. They will likely have a social media profile and other presence online. There will be a digital footprint.

Proof of Funds: These cash-buying companies should be able to provide proof that they have the funds before any signatures on the dotted lines. If they can’t verify the funds by providing you with said verification, it’s probably a scam. Successful cash buyers will show you all you need to know to ensure there is no risk of the deal falling through.

Money Wiring: A big sign that you are doing business with a scammer is if they want you to wire money to them. Be very skeptical if the company is unwilling to use a standard and secure payment method.

Personal Information: If the cash-buying company asks for personal information such as your social security number, bank account, or other financial information, it’s likely a scam.

Behavior: Reputable cash-buying companies are professional at all times. They won’t seem overeager or not respond to reasonable requests you might have. If the person you are speaking with seems to be rushing you, please know that they can’t possibly have had enough time to collect the proper amount of information to even make a legitimate cash offer. Especially if they have not even inspected the property to see the condition. If they are slow to give you any documentation such as proof of funds it’s a good bet they are trying to scam you.

The Bottom Line: There are established, reliable, trusted companies with a good history. Unfortunately, some criminals will take advantage of home sellers by using the cash offer scheme. The best way to prevent becoming a victim is to know the signs of a scammer, know the correct way the process should work, and do your due diligence. If it seems too good to be true, it probably is.

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HOA or No?

Homeowner associations are organizations that oversee a group of homes by setting and enforcing rules as well as maintaining the grounds. They are common in planned developments. Those who purchase homes and agree to their terms and fees at the closing of the home in these communities.

Owning a home in these communities binds the owner to the association’s covenants, conditions, and restrictions (CC&Rs). The HOA also has legal powers, such as placing a lien on the home, imposing fines, or suing the homeowner for not complying with the rules. The HOA creates the CC&Rs and strictly enforces them.

When buying a home in a community with an HOA, it’s important to ask your realtor or the HOA for the CC&Rs to make sure it is up to date and is satisfactory to you as the buyer. Rules of the HOA are different and may be unique in each community so never assume from previous experience or hearsay from others in different communities with an HOA.

For the HOA to operate, there needs to be funds collected through fees paid by the homeowners. Often these fees are high, they can differ even within a development due to variations in square footage, location, and orientation. 

The Benefits of an HOA

  • Property values remain high. With an HOA, homeowners can expect the community will hold to all the standards, regulations, and processes that are put in place to manage all home exteriors and landscaping.
  • Access to amenities. Often, appealing and rewarding advantages to an HOA membership are increased amenities. Having Exclusive access to well-maintained swimming pools, walking trails, parks, playgrounds, fitness centers, golf courses, gardens, and clubhouses is well worth the cost.
  • Standards of compliance. Because of the guidelines that must be complied with, the HOA will not tolerate unruly behavior—whether it’s a rambunctious late-night party in someone’s backyard or a clear disregard for architectural rules. There’s a board set in place to mediate neighbor disputes and set forth consequences when things go wrong.
  • HOA leaders live in their communities and better understand the needs of the homeowners and residents, from the delivery of core services and amenities to decisions that affect the future of the community.

The Downside of an HOA

  • The cost. Being a part of a community with an HOA means regular monthly fees that can be expensive depending on where it is and what type of amenities are available. This bill is not tied in with a mortgage and if not paid, the HOA may place a lien on the home and possibly foreclose on it. The fee can increase over time.
  • An excess of restrictive rules and regulations. An HOA probably won’t let homeowners personalize their homes the way they have always dreamed. Owners must adhere to paint colors, the number of cars in a driveway, fencing, pets (size & breed), the length of their grass, and the composition of a garden.
  • Loss of freedom. Because homeowners are automatically required to agree to the HOA’s strict rules and regulations, there are few avenues to dispute a rule that the owner may disagree with.

The Bottom Line: An HOA has a significant impact on a community with CC&Rs. Maintaining a home can consume a lot of an owner’s time and with an HOA in place, there are plenty of benefits to reap. When it comes to selling a home an owner can feel confident as an HOA exists to maintain the community to increase property values. The rules in place are to protect the property value of the home by ensuring that your home and the homes around your property remain beautiful and desirable all year round. On the flip side, paying a monthly fee and abiding by their restrictive rules that the homeowner may not agree with might not be worth it.

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MYTH: You Don’t Need Title Insurance

MYTH: You don’t need title insurance

Everyone needs title insurance. You may think you know the entire history of the house you’re purchasing, but it’s impossible to know everything. Title insurance protects your right to the property if a previously unknown heir claims ownership of the property if it is later revealed that the “sellers” were not the rightful owners, or if liens against the property resurface. If you have an owner’s title insurance policy, you will not be responsible for paying any of the fees associated with protecting your right to the property, should these types of issues arise.

MYTH: New construction homes don’t need title insurance

Your home could be brand new, but the land on which the house is built isn’t. Chances are, the land had several previous owners before construction began. Buying property on such land opens you up to certain risks tied to ownership issues from previous owners.

Disputed wills, easements, and property liens are just a few of the issues common to land ownership. You could get caught in the mess and end up losing your resources or, worse still, your new property as well. Title insurance is crucial even for a new home and should be on your list of priorities during the closing process.

MYTH: If no one challenges ownership, then the title policy is a waste

At the closing, when you purchase a title insurance policy, the closing company does the bulk of the work behind the scenes. The title company goes through many steps to make sure that everything is in place by that time, including conducting a comprehensive title search and identifying any potential issues. The team investigates the entire history of the property to ensure that you, the buyer, will be aware of any problems that will need to be addressed before closing. By the time the closing comes around, the title company has completed a great deal of research and legwork for you.

MYTHTitle insurance offers only minimal protection

When you purchase a home, you receive the “title” to the property. This title is your legal right to own it. Early in the home-buying process, a title search is conducted to review the history of the property and uncover any issues that could limit your right to ownership. Even after the most meticulous search of public records, there can be hidden title defects, such as tax liens, forged signatures, claims by ex-spouses, and recording errors. These title defects can remain undiscovered for months or even years after you purchase the home.

MYTH: Title insurance is the same thing as homeowner’s insurance

Homeowners insurance protects you so you have the resources to pay for any damage that might occur to your property. Title insurance protects you from anyone else claiming your home is theirs or for some prior owner’s back taxes or encumbrances or any other real property dispute

Title First Agency: Dedicated to innovation and passionate about service, Title First Agency is your comprehensive, nationwide resource for title and real estate settlement services. Headquartered in Columbus, Ohio, Title First has branch offices throughout the Midwest and a robust virtual partner network throughout the country. Title First got its start in 1956 as an affiliate of a local law firm and has since emerged as one of the largest independent title agencies in the nation. Proudly servicing Realtorslendersbuildersdevelopers, law firms, buyers, and sellers, Title First is equipped to serve your residential and commercial title and settlement needs.

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Seller Concessions

Seller concessions are an agreement within a real estate contract whereby the home seller agrees to pay for some or all of a home buyer’s closing costs.

Concessions can be offered by the seller as an incentive to encourage buyers to purchase their home. Closing cost fees can add up quickly and the expense of this, on top of adown payment could be a big reason preventing someone from buying a home. Offered concessions may be more appealing than a lower price as some of the financial strain can be offset because the seller agrees to financially contribute to the closing costs.

If the home has been on the market for an extended time, or it is a buyer’s market, a seller might be motivated to offer concessions. To officially ask for seller concessions, your real estate agent will write out an offer to the seller, indicating a specific amount you hope for them to pay.

Seller concessions are a useful tool in real estate. Used correctly by the seller, it increases the marketability of their home. Buyers often can’t afford to put more money down than they have allotted which turns them away from considering a home. With a concession from the seller in the form of either paying the buyer’s closing costs or paying points to get an FHA or VA loan, (for example) a deal could be done.

Always work with an experienced realtor who will be able to give you all the information about the market, local sales, and the regional housing market. The realtor will be the one doing the negotiating and depending on the condition of the market they will guide you in the right direction.

The Bottom Line: When asking for concessions, the buyer should use the best realtor to help negotiate with the seller. Since they might not be willing to offer everything asked for there will need to be a compromise and a solution that works for both the buyer and the seller. In the end, this can save a lot of money as well as making the entire process of buying a home more affordable and attainable.

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Appraising a Home

An appraisal on a property intends to determine the fair market value. It’s one of the final steps in the home-buying process that happens once the seller has accepted your offer and you have started the work with a lender. A financial institution will not lend money without an appraisal. The appraisal value of a home can make or break a sale, leaving this part of the real estate process a critical step.

The home appraisal is different from the home inspection even though both an appraiser and an inspector will walk inside, outside, and around the property to check everything with a fine toothcomb. The appraiser is finding the value of the home and the inspector is looking for problems or defects with it.

During an appraisal of a home, the appraiser will look at the state of repair, the features, the square footage, as well as the number of bedrooms and bathrooms. Give a list of repairs and improvements made such as a new roof, water heater, air conditioning, etc. The owner of the home should bring forward anything and everything that will help the appraiser decide the general market value.

The appraiser will research all the comparables (“comps”) in the area with features similar to the home. Also provided should be whether the values of homes are on the rise, decreasing, or stable. If there are any concerns that he feels will harm the property’s value, it will be noted. Additionally, he will flag any bigger problems he may see in the foundation, the roof, or any noticeable water leaks in ceilings or floors.

Again, an appraisal can make or break a sale of the home so it’s a stressful time. If the appraisal comes back higher or lower than the sale price, there will need to be more negotiating. If the seller isn’t happy with the outcome, a good realtor will discuss with the appraiser why certain decisions were made. With the help of a realtor, the seller can put together a valid argument as to why the appraisal is not correct.

Appraisals are valid for six months unless the home is in certain markets where homes are selling fast and prices continually change. At this point, lenders usually like an appraisal every three months. The real estate market changes from year to year and even month to month.

The Bottom Line: The process of home appraisal and final valuation might seem beyond your control. But, you can take charge by making some improvements to your home to up the appraisal outcome. Ask your realtor to help you understand what the appraiser will look for so that you can update and make sure your home is ready for show!

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Earnest Money

To show you are serious about buying a home, “earnest money” is a good-faith deposit you would make. This money is deposited after the seller has accepted your offer and is usually kept in an escrow account. When the sale closes, you can keep the cash or apply the money toward the purchase.

The earnest money you pay when purchasing a home can vary widely. Some home buyers pay as little as $500, while others pay several thousand dollars. The amount is negotiable between you and the sellers. It can depend on various factors, including the price of the home, the strength of the local real estate market, and your financial situation.

As a general rule, the earnest money deposit should be enough to show the seller that you’re indeed very serious about purchasing their house, but it shouldn’t be so large that it puts a strain on your finances. In most cases, earnest money deposits are a small percentage of the home’s purchase price, typically ranging from 1% to 3%.

The purpose of earnest money is to provide the seller with compensation if you were to back out of the deal through no fault of the seller and in violation of the agreements in the purchase contract. If that happens, the seller will keep the earnest money.

However, if you were to back out of the deal because a contingency in your contract was not met, in most cases, you’ll get your earnest money back. Most contracts include four common contingencies that allow you, as the buyer to terminate the agreement and remain entitled to a refund of the earnest money deposit:

  • The home inspection contingency: As the buyer you will determine the period to conduct due diligence on the condition of the home, including the home inspection. If the inspection discovers issues that are not acceptable to you, the contract may be terminated and your money will be returned as long as it is within the specified time in the contract.
  • The appraisal contingency: Applies to any offer that requires a mortgage to purchase the home. You would decide a date by which the lender conducts an appraisal. If that appraisal comes in below the purchase price in the contract, you would be able to back out and get your money back.
  • The financing contingency or mortgage contingency: This is used when the offer will require a mortgage to purchase the home. It’s a time that you would set to secure financing approval from your lender. If the financing should fail, you would be able to get out of the contract and your money would be returned as long as it is within the timeframe you had set in the contract.
  • The home sale contingency: You would have the ability to back out of any contract if your current home does not sell in time. As long as you had this included in the contract, you will get your earnest money back.

The Bottom Line: Earnest money exists for two primary reasons: to help a potential buyer strengthen their offer on a new home and to protect the seller from losses if a buyer isn’t able to follow through.

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Home for Sale? Don’t Forget Tik-Tok!

Whether you’re working with an agent or selling your home on your own, how your home is listed and marketed is crucial. MLS will get you the most exposure for your home because it reaches other websites and most people online. Ask friends and family who they know, and look online for the busiest Realtors using all the social media platforms, and then set up an interview to see how she will take advantage of all the opportunities to get your home in front of people.  It is now more important than ever that the person hired to sell any home utilizes the Internet and social media for promotion. Most American adults are online. More than 1 billion people in the entire world log in to Facebook on any given day. The potential to reach a huge number of people is exceptional.

Photographs:  The very best Realtor should help stage and prepare the home for professional pictures. All rooms should be clear of any clutter. The pictures MLS displays are usually grainy and poor quality. Homebuyers more times than not, begin the search for their new home online. Take advantage of this. Stand in the doorway to rooms and snap the photo shooting into the room.  There are never too many photos!

Facebook:  Now those beautiful photos need to be posted and announced, showcased, and marketed. A good Realtor might even host open houses via Facebook LIVE and interact with people who are watching. Another option is to make a targeted ad and pinpoint people by location, interests, behaviors, age, and more.

Instagram:  The world’s largest photo-sharing platform is the perfect place to showcase the photos taken of the home.  A good Realtor should know how to use hashtags because that is how Instagram helps users find relevant content. Spread the pictures throughout the day.

Tik-Tok: This is a can not miss for social media marketing! TikTok has a fast-growing real estate industry presence. The real estate agents on TikTok feature videos of luxury home tours, inspection fails, wealth management, and real estate agent tips. These short-form videos help homes stand out by essentially giving a virtual tour of the home for sale.

The Bottom Line: Everyone wants a Realtor who can be trusted and will do everything she can to get the most money for a home in the least amount of time. The Realtor is the homeowner’s advocate. The marketing of the home should be exceptional.  Beyond using the MLS (Multiple Listing Service) there should be professional pictures to use on websites and every social media platform available.

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