Posts Tagged ‘How to buy a house and not lose sex’

Getting Around Closing Costs: Yes You Can!

Wednesday, July 22nd, 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 past weeks I’ve covered the down payment, the cost of a Realtor, earnest money deposits, prepaid closing costs, flood elevation certificates, insurance, escrows, title insurance, lender fees, PMI, funding fees, add-on fees, sales tax, and last week (for the second time in this series), freaking out about closing costs! This is the LAST installment of this series and it covers getting around closing costs, your credit, and why bad credit will keep you from getting a loan.

Getting Around Closing Costs

You might have enough to make the down payment on a house, and based on your income you might qualify for the loan. But once you factor in the closing costs, it might put you over a line where you can’t afford the house you want.

Or let’s say you have enough for the down payment and closing costs, but it wipes out your entire savings.*

If you find yourself in that situation, you might be able to ask for the seller to pay for your closing costs.

“Is this really possible?” you gasp. “Someone else paying for my closing costs?”

Of course it’s possible; you just have to ask.

Let’s say you want to buy a house for $140,000, but in order to not wipe out your savings, you need $5,000 in closing costs.

So you make an offer of $145,000, and in the terms of the offer you put in something like “Seller agrees to pay $5,000 in buyer closing costs and prepaids.”

It’s as simple as that, but there are a few caveats.

The first is that you are going to pay really close to full price, or even over full asking price.

The seller has you over a barrel, you see. If you want to buy his house, you need closing costs. He’s not going to give you a low price and closing costs.

The second thing to consider is that the home has to appraise at the higher amount for the seller to give you back the closing costs. In the example above, the house would have to appraise for $145,000.

If it doesn’t, you go back to the drawing table.

Let’s say the home appraises for $143,000. The seller might accept the $143,000, but to preserve his bottom line he might only agree to pay for $3,000 in closing costs (meaning you have to come up with the extra $2,000).

In theory, the seller could still give you the full $5,000 (it’s his decision), but typically sellers tend to overvalue their home no matter the amount at which it sells.

In this example, it would be normal for the seller to start thinking he could have sold his house for $145,000 without paying the closing costs (even if it was only priced at $140,000 to begin with). He would start thinking he’s getting ripped off somehow by paying the closing costs.

He would think this even if the home had been on the market for six months and you were the only person who viewed it, and the only person who made an offer on it. This is typical seller behavior.

Whatever the decision, it will take the buyer and seller working together to make it happen.

And that’s why you will need a Realtor: It’s their core role to help you negotiate these things.

*You want at least six months of mortgage payments saved up as a safety net in case something happens. You do not want to move into a new home with an empty bank account.

“I Have Enough Money to Put Down, but Nobody Will Give Me a Loan!”

I got a call once from an irate buyer who just wanted to vent. This wasn’t a customer of mine, just someone who saw one of my YouTube videos and thought I might lend a sympathetic ear.

The gist of the complaint was this: “I have thousands of dollars to put down, and no one will give me a loan!”

The person was self-employed, which can be an issue. Lenders want to look at net taxable income, for example, instead of the gross income or the cash flow a self-employed person generates.

With some questioning, I was finally able to get to the root of the problem: The person on the phone was, shall we say, credit challenged.

Should this be an issue if a person has a significant down payment? In this case, it could have been that their credit was a lot worse than they let on.

Credit vs. Income

There are two basic things a lender looks at when you apply for a loan: income and credit.

Income represents your ability to pay. In other words, do you have enough money to make the loan payment every month?

Credit represents your willingness to pay. In other words, if you have the money to pay off the loan, will you pay it off?

Credit measures how timely you’ve been with things like credit-card payments, car payments, rent payments, house payments, etc. If you’ve been late on payments (regularly), it’s going to make a bank less willing to work with you. Would you loan money to someone who paid you back late all the time?

Then there are these things lenders call “charge offs.” A charge off is where a bill gets sent to collections because it never got paid.

Chances are, even if someone is willing to give you a loan, you have to take care of any charge offs first before they will actually lend you the money.

If you have a lot of charge offs, you’re going to need to be patient, rebuild your credit, and try again in a year or two.

Then there are foreclosures, bankruptcies, and the nuclear bomb of credit ratings—eviction.

In the wake of the housing crash and the Great Recession, lenders, to a degree, understand foreclosure and bankruptcy. In fact, if you are a veteran eligible for a VA loan, you might only have to wait two years past a bankruptcy or foreclosure to get another loan.

But eviction is a situation where a renter failed to pay the rent, and then failed to move.

In an eviction, a renter fails to move so much that the landlord has to file a case in a court of law, pay legal fees, get a judge to order the renter to move, and then have a sheriff’s deputy physically go to the property and remove the renter. And then the landlord has to move the renter’s stuff to the curb.

Eviction is bad. Everybody understands when someone falls on hard times. What people don’t understand is when a person screws someone else because they fall on hard times.

One more thing that could be as potentially bad as eviction?

A criminal conviction for writing bad checks.

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.

How Is It Possible That There Are MORE Closing Costs!?!

Wednesday, July 15th, 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, prepaid closing costs, flood elevation certificates, insurance, escrows, title insurance, lender fees, PMI, funding fees. This week I cover add-on fees, sales tax, and (for the second time in this series) freaking out about closing costs!

How Is It Possible That There Are Still MORE Closing Costs?

Yep, there are just a few more closing costs. I know; how is this possible?

Well, if you want to buy a house, the people in government know you’ll pay just to get through it. They know if they charge just enough, but not too much, they can fill the county or state coffers just a little bit more. All so they have enough money available to steer that sodding contract for the US 1 median to a certain county commissioner’s brother-in-law.

Anyway, these last closing costs are going to be the minor add-on fees that counties, states, and cities might add to your transaction.

In my home state of Florida, buyers pay recording fees to the clerk of courts, and something called an “intangible tax” based on the value of the loan.

That’s right, someone loans you money on a house that you have to pay back with interest, and the state taxes you on it.

F*ckers.

F*cking F*uckers!

To be fair, the intangible tax is never much more than a few hundred dollars. But really, charging someone tax on a loan they’re already paying interest on? Charge the bank, not the buyer!

Doubtless there are these little add-on taxes in your state too. Make sure you are aware of what they will be as you head into closing.

Is There Sales Tax on My House?

Like you need one more tax.

I do not know of any specific state that charges regular sales tax on the sale of a house. But I have not checked all 50 states specifically, so there might be one out there. It is a good question to ask your Realtor or lender when you get to the point of hiring one.

One indirect way you might pay sales tax on a home purchase is when you build a new home. All those building materials that go into your new home will have sales tax levied on them at the time of purchase, and those costs will be built into the costs of your new home.

What To Do When All These Fees Wig You Out

You’re still freaking out, aren’t you?

You’re freaking about all these fees that you never heard of until this moment.

You’ll freak again at some point during the sales process. Maybe something weird comes back on an inspection, or the seller is acting like a royal arse, or something.

And you’ll freak in the days before closing because your bank paperwork is late and, by the way, you aren’t packed yet, and you’re moving at the end of the week.

Hang in there.

You’ll have a real estate agent, a lender, and even a title company you can use to ask questions.

Communicate with these folks to get a handle on these things as they evolve.

They will love you for it. Why? A lot of buyers disappear after a contract is signed—for real! Sometimes they don’t even bother to show up for the home inspection.

Then they yell at closing because of the costs.

Don’t let that be you.

True story: One of my aunts emailed me this year while she was selling her home in Indiana. She was having her freak-out moment because there was something called “title insurance—owners policy” that she was paying for on her settlement statement.

Her Realtor should have given her a heads-up on title insurance when a net sheet was prepared at the time of offer. But title insurance is something we Realtors deal with every day. It’s so woven into the closing process that we forget about it. And the truth is, sellers usually don’t look at the itemization on an offer sheet anyway; they just look at the net. It’s not until closing that they actually look at each individual charge.

So I emailed back: “You need it. You want it. It’s a normal charge, and if there are any endorsements, pay for them. I can explain why you need it and what it is, if you want me to.”

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.

More Closing Fees You Never Heard Of!

Wednesday, July 8th, 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, prepaid closing costs, flood elevation certificates, insurance, escrows, title insurance, lender fees, and, of course, freaking out about closing costs! This week I share the joy of PMI and funding fees.

One More Closing Cost You’ve Never Heard Of: PMI

If you put less than 20% down, you have to pay something called “private mortgage insurance,” a.k.a. “PMI.”

PMI is basically insurance that you pay in case the bank has to foreclose on your loan.

You can’t shop rates for PMI (the bank chooses), and PMI runs anywhere from .3% to 1.15% of the original loan amount per year.

Let’s say the PMI is .5% and the loan amount is $180,000. The PMI every year will be $900. The bank will divide this into each monthly payment; thus you will end up with $75 more tacked onto your payment each month (remember, you already have tax and insurance escrows tacked onto your payment as well).

When you pay down the loan amount to 78% of the original purchase price, the lender is required to remove the PMI.

Back in the days of the housing bubble, homes appreciated really fast, so people would get an appraisal to “prove” that they had more than 20% equity in a home and get the PMI dropped.

You can’t do that anymore. You have to put 20% down at the time of purchase or get the principal down to 78% of the original purchase price to avoid PMI.

Another thing people used to do during the housing bubble was get an 80% loan and a 20% loan at the same time to essentially get 100% financing.

Does anyone remember how that worked out?

Some kind of housing crash, I believe?

The worst housing crash in American history, actually, and a boatload of bad loans that helped trigger the Great Recession.

So they don’t do 80/20 loans anymore, either.

You have to put money down these days, and to avoid PMI, the down payment has to be above the 20% mark.

One last thing: Some, but not all, PMIs have a funding fee that is paid at closing. This could be 1%–2% of the loan amount.

Funding Fees for Government-Backed Loans (Like FHA and VA)

Government-backed loans (FHA, VA, and USDA loans) do not have PMI.

Instead, they have something similar to PMI called a “mortgage insurance premium” or “MIP.”

MIP for FHA is currently listed at .85% of the loan amount, and it essentially works the same way as PMI. Please note, that number is current as of this writing but it has changed nearly every year since 2007.

There’s also an FHA “funding fee” (sometimes called a “guarantee fee” or “Upfront MIP”) equal to 1.75% of the loan amount at closing.

So if you have an FHA loan of $150,000, you will have an extra $2,625 in closing costs for the Upfront MIP and an additional $106-ish tacked onto your monthly payment for the MIP.

The funding fee can be rolled into your loan if you’ve met the 3.5% down-payment threshold for FHA.

MIP for a USDA loan is .4%, with a funding fee of 2.0%.

USDA recalculates the MIP every year based on the current principal balance, not the original loan balance. So USDA costs a bit more on the front end but is less costly on the monthly payment.

There is no MIP or PMI for a VA (veterans) loan. However, there is a funding fee of 1.25-3.3% for a VA loan depending on the veteran’s eligibility. If a vet puts over 5% down, the funding fee can be reduced.

If you don’t know what these loan types are, don’t worry; I’ll cover them later in the book. I only mention them now so you can get an idea of what type of cash you might need to bring to closing.

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.

Ugh! More Closing Costs: Title Insurance and Lender Fees

Wednesday, July 1st, 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, prepaid closing costs, flood elevation certificates, insurance, escrows, and, of course, freaking out about closing costs! This week I’ll wig you out with a few more: title insurance and lender fees.

Title Insurance: Ugh! More Closing Costs!

Closings generally take place at a title-insurance office or an attorney’s office. In the case of new construction, they are sometimes held at the builder’s office.

The people that put all of the paperwork together, corral your funds from the bank, pay off the house for the seller, prepare the deed and file it with the clerk or courts, and generally put a bow on your closing charge a nominal fee (a few hundred dollars, usually) for doing this.

Well, some attorneys charge more than a few hundred dollars for doing this…

Anyway, these firms also issue the title insurance. What is title insurance?

In a nutshell: Title insurance pays you monetary compensation for a loss if it turns out that the seller didn’t have the right to sell (and someone else still has a right of ownership to the property), or, in some cases, if you are not able to use or access the property as intended.

In a more practical sense title insurance is used to ensure, as much as possible, that the seller has the right to sell the property before you buy it. It ensures that a chain-of-title search was done, and that there are no other sellers or owners lurking out there in the weeds with a legal claim to the property. If there are other legal owners out there after the fact, the title insurance will defend your claim.

There are two title-insurance policies issued at closing: an “owners” policy given to the buyer, and a “lenders” policy given to whoever is lending the money.

If it’s a cash deal and there is no lender, there is no lenders policy.

Depending on what state you live in, you could be paying for both the lenders policy and the owners policy. In my market, the seller pays for the owners policy (essentially putting the money where his mouth is and proving he has the right to sell it), and the buyer pays for the lenders policy.

In the Northeast, it seems to be common for the buyer to pay for both. I know this because I can’t tell you how many sellers I’ve had, originally from the Northeast, freak out about paying for it. “In New York, the buyer pays for it!” they say. And I say, “This ain’t New York; this is Florida.” Who pays for what is always specific to the market where you are buying or selling.

In new construction sales, the buyer almost always pays for both title-insurance policies.

In my state, the cost of title-insurance policies is based on the price of the home. Different states will have different forms of pricing, but I deal with a lot of customers who come in from different parts of the country, and nobody has remarked that the title insurance here is any higher or any lower than anywhere else.

There might also be a few hundred dollars tacked on for “endorsements,” which are basically riders that cover things the title insurance won’t reveal in a normal title search (zoning violations or homeowners-association violations, for example).

Some people complain about paying for the endorsements, but they are cheap compared to the cost of the home and really are something you want.

So with that in mind, in my market, as of this writing, an owners title policy would be around $1,400 on a home costing $200,000. The lenders policy is about half of that because of something called “simultaneous issue,” which basically is a discount you get because they are issuing the same policy twice. And the endorsements will be a few hundred dollars (they run about $125 each and in my market there are generally two or three added to the policy.

Note: Starting in August 2015, the “simultaneous issue” discount might go away for buyers. Here’s why: Per federal law, the closing paperwork has to jive with the original Loan Estimate given to the buyer. At the time the Loan Estimate is given the bank will estimate the lenders policy at the published rate (without the discount). If the two are different, then the bank may face severe penalties, so the buyer may not get the discount if they want the loan.

My understanding is that if the closing costs are lower than what the bank quotes at the time of Loan Estimate, then things can move forward without being synced or rewritten. However, the title people are telling me that giving the discount is an issue so I’ll defer to them right now until things shake out.

The discount is law in certain states. The discount is also very common. So there is every expectation that the discount will be worked out at some point, but it hasn’t happened yet and there is no time frame for it to be worked out, as of this writing.

Paying Money to Get Money: Lender Fees

There are the closing costs that your lender will charge (origination fees, tax service fees, points, etc.). In the business we call these “lender fees.”

At the start of this chapter I mentioned that closing costs run about 3%–4% of the purchase price when you have a loan. Well, it’s the lender fees that make up the lion’s share of those costs.

Current banking law states that origination fees (basically the fee to do the job) plus points (more on those in the “buying down the loan” section later in the book) can’t be more than 3% of the total loan amount.

Beyond origination fees, I am not going to detail all of the possible charges that a lender could add. They are different for every lender, and are called different things by every lender.

I am also not going to defend lender fees, but you do have to pay them to get a loan.

Before you go crazy, I have to ask you a question. Would you work for 60 days for just a few hundred dollars?

Well … your loan officer or mortgage broker will not see much of these lender fees. He will get paid, but it might be only a few hundred dollars per loan. And he’s probably been working with you for two months or more.

In light of that, if he’s been a good lender who answered your phone calls and emails, I reckon you got a bargain. If he was not so on-the-ball, you can at least take heart that he’s heading to Taco Bell instead of Ruth’s Chris after closing.

So how do you shop around to find lenders with the best closing costs?

I’ll cover something called “APR,” which is what you use to shop lender closing costs, in the next chapter.

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.

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.

3 Easy Steps to Finding the Best House!

Wednesday, May 13th, 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.

We have a new video inspired by the title of my new book, How To Buy a House and Not Lose [Blank]: Find the Best House, Make the Best Offer, and Keep Your Love Life. You can buy it at Amazon by clicking here.

There are 3 easy steps to finding the best house. You start by dreaming big and looking online (to educate yourself). Then you get prequalified (so you know how much money you have to spend). Finally you hire an expert (your friendly neighborhood Realtor … choose us!) to help you see all the homes and make the best offer.

Part of the online search will include wading through Zillow. My book actually teaches you how to do that. The book also covers things like finding a lender, how much money you need upfront, and things a Realtor can do that you can’t do yourself. Bonus … if you are a member of Amazon/Kindle Unlimited it’s currently a free download!

Click on the image below to see the book, and use the “look inside” feature to preview it. I guarantee you won’t be disappointed! And remember, the next time you go to buy or sell real estate, hire me, I’m the guy that actually wrote the book on the subject!

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

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