Archive for June, 2015

Flood Certs, Escrows, and Freaking Out About Closing Costs!

Wednesday, June 24th, 2015

by Sean Hess (Sean@StAugTeam.com) 904-386-8327 , Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com). Join us on Facebook.

How to Buy a House and Not Lose Sex by Sean Hess

How to Buy a House and Not Lose Sex by Sean Hess

Author’s note: This is a selection from my new book, How To Buy A Home and Not Lose Sex: Find the Best House, Make the Best Offer, and Keep Your Love Life, which you can purchase on Amazon by clicking here.

In the next few weeks I’m going to cover all the closing costs I can think of. In past weeks I’ve covered the down payment, the cost of a Realtor, earnest money deposits, and prepaid closing costs. This week I’m going to hit flood elevation certificates, insurance, and escrows. Oh, and freaking out about closing costs too!

Flood Certs and Homeowners Insurance

I’ll cover flood-elevation certs first.

For many homes (or a first-floor condo or townhome) near water, rivers, lakes, streams, creeks, swamps, and the ocean, even if the body of water doesn’t exist anymore, you might need a flood-elevation certificate (“flood cert”) to get an insurance quote. And you need insurance if you want a loan.

You will probably need the flood cert before you can even shop for insurance. Insurance companies almost won’t talk to you (at least not in Florida) if you don’t have a flood cert.

Once you’ve decided on your insurance company, you can “bind” the insurance by paying for it immediately in full. You always have to pay for a full year of insurance up front, but you can choose to do it right away or wait until closing.

But understand, whether you do it now or do it at closing, you have to pay for a full year of homeowner’s insurance up front.

And this full year does not include the insurance escrows, which I’ll cover in the next section.

Quick tip: It’s a good idea to have a survey done at the same time as the flood cert because they are both done by surveyors; if you do them separately, it will cost more because the surveyor has to come out twice.

Sometimes a survey is required by a bank to get a loan, and sometimes the bank will accept an old one. It can be a really good idea to have a new survey done early in the process so you know exactly where fences and buildings sit on a lot, just in case something is over the line and needs to be dealt with—especially if the existing survey is several years old, and fences or outbuildings have since been added.

Escrows? What the Hell Are Those?

Tax and insurance escrows are the time bombs of closing costs.

They are easy to miss.

Why?

While your lender will include escrows on your monthly payment estimate, they are often forgotten or overlooked for the closing-costs estimate.

This can lead to sticker shock on the day of closing.

I’ll explain.

Your monthly mortgage payment will have one month’s worth of property taxes and one month’s worth of homeowner’s insurance tacked on.

The money for taxes is put into one escrow account. The money for insurance is put into another escrow account.

An escrow account is basically a holding account. It has one purpose: to hold enough money to pay your taxes or insurance when they are due.

At tax time, or when your insurance bill is due, these escrow accounts will have enough money to pay the bill. You don’t have to remember to pay it. You don’t have to write a separate check. It happens automatically.

Here’s where the time bomb comes in.

At closing, they will charge you two to four months’ worth of taxes, and two to four months’ worth of insurance, to “build up” these accounts for the first time.

If the taxes are $4,000 a year, three months’ worth of taxes would be $1,000. If you weren’t preparing to pay that extra thousand at closing, or if you weren’t aware of it, you are going to freak out a bit. Many people do.

So if you are heading into a real estate closing, take a good look at your closing-costs estimates. Find the tax and insurance escrow estimate. If you don’t see it, call your lender.

Note: Starting on August 1, 2015, the Loan Estimate provided when you shop mortgages will have estimates of your monthly payment and closing costs that will be fairly accurate. It will still be a “time bomb” if you put the Loan Estimate aside, however, and don’t look at it until a few days before closing.

Get Your Freak On (Freaking Out About Money)

Feels like you’re being fed by a fire hose right now, doesn’t it?

“What the hell,” you say. “I just wanted to pay for the house!”

“What are escrows?!” you continue, wide-eyed and exasperated. “Who said anything about inspections? Pests and wood rot? I need those? I am so NOT buying a house!”

It’s cool. Something you need to know right now: Every buyer in every home purchase has a freak-out moment.

Have your freak out, take your mind off it for a day or two, and you’ll feel better. It’s all good.

If you are thinking about buying a home, please consider hiring myself and my team as your Realtors. We can help you find the best house and make the best offer. Contact me at Sean@StAugTeam.com or my partner Kate at Kate@StAugustineTeam.com.

Yes You Need Money Up Front to Buy a Home! Binder Deposits and Prepaid Closing Costs

Wednesday, June 17th, 2015

by Sean Hess (Sean@StAugTeam.com) 904-386-8327 , Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com). Join us on Facebook.

How to Buy a House and Not Lose Sex by Sean Hess

How to Buy a House and Not Lose Sex by Sean Hess

Author’s note: This is a selection from my new book, How To Buy A Home and Not Lose Sex: Find the Best House, Make the Best Offer, and Keep Your Love Life, which you can purchase on Amazon by clicking here.

Last week I covered the down payment and the costs of hiring a Realtor. Over the next few weeks I’m going to cover all the closing costs. This week I continue with the money you need upfront and prepaid closing costs.

How Much Money Do I Need Up Front?

If you are getting a loan, a good rule of thumb for all closing costs, including your “prepaids” (more on what those are later), is 3%–4%.

So if you are buying a $200,000 house and getting a loan, regardless of what you put down you still might see $6,000–$8,000 in closing costs in addition to your down payment.

Most closing costs are generated by loans. If you are paying cash for the home, your closing costs will be minimal (compared to what they would be with a loan).

Fees for a cash closing might include fees the closing company or closing attorney charges for their services, possibly the owner’s title-insurance policy, and any taxes your state charges to buyers.

Let’s take a more exhaustive look at closing costs right now.

Note: In my part of the country, it’s called “closing”; in other parts of the country, it’s called “settlement.” Regardless, it refers to the day you actually sign the papers to buy the house.

The Binder Deposit (a.k.a. the Good-Faith Deposit, EDM, or the Earnest-Money Deposit)

When you make an offer on a home, the first check you’ll probably write is for something called the “binder deposit.”

Note: In my part of the country, it’s called “making an offer”; in other parts of the country, it’s called “putting in a bid.”

The binder is also called the “earnest-money deposit,” the “EDM,” or the “good-faith deposit,” interchangeably.

The binder is simply the money you put down in good faith when you make an offer. It tells the seller your offer is serious, and that they can have peace of mind if they take their home off the market so you can buy it.

The binder can be a nominal amount like $500, but if you offer $500 don’t expect your offer to be taken seriously. Typically it’s more like 1%–3% of the offer on a resale home. So if you were buying an $100,000 home, for example, for your offer to be considered at all expect to put down $1000 to $3000. Just this week I had some buyers put down 5% because they wanted the seller to know just how serious they were.

The binder deposit goes toward the purchase price and your total down payment at closing.

For example, if you are planning to pay a down payment of $20,000 (before any closing costs), and you put down a binder of $5,000, you will have an additional down payment at closing of $15,000, exclusive of any other closing costs.

In a later chapter, I’ll cover getting back your binder if the sale falls through.

Prepaid Closing Costs

At the time you make your offer, you’ll also be making a formal loan application. Loan applications in my market run around $400–$500 right now, of which $50 or so pays for the credit check, and the balance pays for the appraisal on the home you are buying.

From there, you move on to inspections. In my market, buyers typically do a general home inspection with a licensed inspector, a pest and wood-rot inspection with another licensed inspector, and now we’re even having a surveyor come out early in the process to get a flood-elevation certificate (because of recent increases in flood-insurance costs).

In your market, and depending where you live, you might not do the flood and pest inspections, but you might need an engineer to come out and inspect the structure, or an environmental company to come out to check on things like old heating-oil tanks.

The cost for these inspections could range from the hundreds to the thousands of dollars depending on how many you do. In my market, many of the general inspectors are dually licensed to do pest and wood, which saves customers money; thus total inspection costs here might be less than $500 for just the basics.

The loan application and inspections are called “prepaids” because they are considered closing costs that are paid before closing.

The other big prepaids are homeowner’s insurance (or the condo and townhome equivalents), the tax escrow, and the insurance escrow.

If you are thinking about buying a home, please consider hiring myself and my team as your Realtors. We can help you find the best house and make the best offer. Contact me at Sean@StAugTeam.com or my partner Kate at Kate@StAugustineTeam.com.

Buying a Home? Yes, You Need Money!

Wednesday, June 10th, 2015

by Sean Hess (Sean@StAugTeam.com) 904-386-8327 , Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com). Join us on Facebook.

How to Buy a House and Not Lose Sex by Sean Hess

How to Buy a House and Not Lose Sex by Sean Hess

Author’s note: This is a selection from my new book, How To Buy A Home and Not Lose Sex: Find the Best House, Make the Best Offer, and Keep Your Love Life, which you can purchase on Amazon by clicking here.

In the next few weeks I’m going to cover all the closing costs I can think of, starting with the down payment (though it’s not really a closing cost) and the cost of hiring a Realtor.

Yes, You Need Money

You’ve been in the dreaming stage, hunting online and educating yourself. Now it’s time to start shifting gears toward the reality stage. It’s time to take stock and look at your finances to see if you can really pull this off.

This actually comes as a shock to some people, but yes, you actually need money to buy a house.

So in this chapter—before we even talk about shopping mortgages and applying for a loan—I am going to give you some idea of what it will cost over and above the purchase price of a home. This is the money you will need to spend out-of-pocket before you close, and money you will need at closing (known as “closing costs”).

Why didn’t I put this chapter way back at the very beginning of the book?

Even if you can’t buy the house you want right this second, with proper planning you will be able to do it in the future—very possibly the near future.

What stops most buyers short is the need for a down payment, so it’s simply a matter of reprioritizing some things and socking away some money until you have the down payment you need.

Credit issues are the second biggest stop for buying a house. I’ll cover those a little later in this section.

Let’s start with real estate agents…

How Much Do Real Estate Agents Cost?

Realtor services to buyers are normally free. You heard that right: Free.

As in no bill, no check to write, no credit card to swipe. The Realtor takes you out and shows you properties.

Except when they aren’t free.

Some companies will charge you a “transaction fee” or other BS fee on the back end. Actually let’s just call it what it is: a bullshit fee. Sorry, these things get me worked up…

Moving on.

In my market, the fees can range anywhere from $200 to $600, to even a percentage of the transaction, and they are paid at closing.

There are two ways you can get roped into paying these things.

The first? You sign a buyer-broker agreement before you go out, and it stipulates you have to pay one of these fees.

The second? If there is no upfront paperwork, the real estate agent will take you around to look at houses. When you go to write an offer, you will sign a company disclosure (as part of the offer paperwork) that says there will be a transaction fee at closing. Most buyers just sign the paper and don’t read it.

To be fair, real estate agents hate these things. It’s the companies they work for that mandate the fees, and if the agent wants to work for the company, he has to charge the fee (none of which goes to the agent, by the way). If you don’t pay the fee, most companies force the agent to pay the fee out of their commission.

Not every company charges these fees, but many do. Some brokerages have dropped the fee from the buyer side but still hit the sellers with it.

The only way to find out about these fees is to ask up front, when you are interviewing, and to read any paperwork before you sign it.

There are a few ways to get around these fees (if you haven’t already signed on the dotted line).

The first is to find an agent in a company that doesn’t charge one.

The second is to read the paperwork you are being asked to sign, and if there are any extra fees in there, simply refuse to sign that paperwork.

I might be wrong, but my guess is that there is no law in any state that will compel you to sign anyone’s company-specific paperwork.

And there is no real estate agent in the United States who will lose a sale over a transaction fee.

If the agent does refuse, walk into the next real estate brokerage and ask if they will present your offer. You might have to sign something that says your past agent refused to deliver your offer (in order to protect your new agent).

In Florida, the law specifically requires all agents to present any and all offers and counteroffers (unless the seller puts in writing that they don’t have to), so if you make the offer and then refuse to sign off on a buyer fee, by law they still have to present the offer.

Now, there are some buyer fees you won’t be able to avoid in any situation; you will run across them in auctions and foreclosure sales.

In the case of auctions, before you can register for the auction, you generally have to agree to pay a buyer premium if you win the auction. This means you might pay, for example, an extra 10% on top of the winning bid.

In the case of foreclosures, the bank that actually owns the foreclosure provides its own contract. These bank contracts will specify what fees you will pay, sometimes including a buyer fee. Because the bank is the seller, it has the right to refuse any contract that isn’t its own.

For example, say I bring an offer on a foreclosed house on a standard Florida contract. The agent who has the property refuses to take it, citing instructions from his seller (the bank) to refuse any offer that isn’t on its own bank contract. He then provides me with the bank contract if I don’t already have one (they are usually provided with the listings in MLS) and instructs me to make the offer on that contract, or don’t bring one.

If that’s the only way the bank will permit you to make an offer, your only choice will probably be to pay the fee and sign the paperwork. Banks can do this because the prices on foreclosures are typically lower than market; thus they never have to wait long for an offer.

Some things to think about…

Is it worth the time to go find another Realtor? Will you lose the house if you take the time to do it? Has the agent you’re working with been so good that it’s worth paying a few hundred bucks to keep working with him or her?

It is critical to ask about fees upfront, and even ask for the paperwork you’ll be making an offer on so you can verify that the fees are as stated.

Down Payments

There are some forms of financing (the VA loan and the USDA loan, for example), where 100% financing is available under the right circumstances. But even with these loans, you need money upfront for inspections, insurance, and so on, which I’ll cover in later posts.

Otherwise, FHA loans allow you the lowest down payment of any loan (3.5% of the purchase price).

With FHA, you have to put that 3.5% into the transaction regardless. It can be as a down payment, or for closing costs, inspections, and so on, but you have to have at least 3.5% of your own money into the transaction.

For a conventional mortgage, you are generally looking at a minimum of 5% down, and that is exclusive of any closing costs.

If you are thinking about buying a home, please consider hiring myself and my team as your Realtors. We can help you find the best house and make the best offer. Contact me at Sean@StAugTeam.com or my partner Kate at Kate@StAugustineTeam.com.