A home purchase agreement is a complicated legal document. It will include all of the terms and conditions of the sale, most of which are negotiable. Some sellers focus on the price the buyer offers, minimizing the other terms and conditions. This approach can lead to trouble.
It's natural to want to sell for the highest price possible. But, the highest priced offer is not always the best offer. Recently a seller decided to accept the higher of two offers. Two days after acceptance, the buyers backed out. Their inspection contingency allowed them the right to back out for any reason. So, the seller had no recourse but to refund the buyer's deposit money and put his house back on the market.
Evaluate every one of the terms and conditions of the purchase offer before making a decision. Since virtually every term is negotiable, consider your options. You can accept some terms and counter others in order to fine-tune the contract to meet your needs.
Some sellers find it helpful to list the price, terms and conditions of an offer on a sheet of paper. Next to each item on the list, make a note as to whether the term or condition is acceptable or unacceptable.
The terms would include such things as the closing date, when possession will be delivered to the buyer, the specifics of how the buyer will finance the purchase, how closing costs are to be shared, what's included and excluded from the sale and the buyer's various contingencies.
Common buyer contingencies are for inspections of the property, financing, property appraisal and review of the property title record. Usually, buyers can withdraw from a purchase without penalty if they made a good faith effort to satisfy contingencies but were not successful. So you'll want to pay attention to the contingency deadlines. From the seller's standpoint, the shorter the contingency time period, the better. Still, these time periods should not be unreasonably short.
After reviewing an offer, you might feel the price is low, the closing date is too long and you need more time after closing to move out. In addition, you don't want to include the washer and dryer. If the offer is acceptable in all other respects, you might counter with a higher price, shorter closing, and more time to vacate. As an incentive for the buyer to accept your counter, you might agree to include the washer and dryer. A successful negotiation often involves give and take.
HOME SELLER TIPS: No-contingency offers are appealing. But, they can be risky, particularly if the buyer hasn't had a chance to adequately inspect the property before making an offer. You may be wise to counter a contingency-free offer with a short contingency for the buyer to inspect the property. It's far better to have any unknown defects discovered before closing than it is to be drawn into a legal dispute after closing. It's never a good idea to counter a buyer's inspection contingency out of the offer.
There's a definite advantage to a shorter rather than a longer closing. The longer the closing, the higher the likelihood that something might go wrong. For example, occasionally, a buyer who was fully approved for a mortgage subsequently loses his job and can't close the sale. If you need more time to move, ask the buyer to rent the property back to you for a while after closing.
THE CLOSING: Make sure that your contract includes a provision for the buyers to show evidence of their preapproval and verification of the funds needed to close if they haven't already done so.
About Author:
Dian Hymer for Inman News
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
Thursday, June 7, 2007
What are the benefits of piggyback financing?
When a buyer puts 10 percent or less cash down, most lenders require mortgage insurance, known as PMI, which is paid for by the buyer. The cost of PMI is about 1/2 percent of the loan amount annually. So, on a $250,000 mortgage, PMI will run about $1,250 per year.
PMI provides protection for the lender in case the buyer stops making mortgage payments. Buyers don't like PMI because it increases the cost of home ownership. Currently, unlike most mortgage interest paid on a primary residence, PMI is not tax deductible.
Low-cash down buyers can avoid PMI by using piggyback financing. Here's how it works. Let's say you have enough cash to put 10 percent down on the purchase of a new home. If you borrow a mortgage for 90 percent of the purchase price, the lender will likely charge you for PMI.
Instead of taking out one mortgage, you combine two mortgages to come up with 90 percent financing and thereby avoid PMI. You could combine a 75 percent first mortgage with a 15 percent second mortgage. Or, you might combine a 70 percent first with a 20 percent second mortgage. You could save as much as $100 to $150 per month using piggyback financing, depending on the size of the loans involved.
You might wonder why anyone would choose to do financing that requires PMI. For some buyers, there's no other choice. Piggyback financing requires good credit. Second mortgage lenders can be stricter than first mortgage lenders in their qualifying criteria. Typically, borrowers need a credit score of 660 or more to qualify.
Recently, piggyback financing has increased in popularity, even with buyers who have a substantial cash down payment. Many large cash down buyers are electing to establish an equity line second mortgage in order to have access to cash on a moment's notice. There's often no charge for initiating the loan. The annual fee should run around $75. You're only charged interest when you write a check against the credit line. The interest rate is often tied to the Prime Rate. And you can usually make interest only payments for up to 10 years.
HOUSE HUNTING TIP: Piggyback financing can be used effectively as interim or bridge financing if you buy a new home before you've sold the old one. Recently a trade-up buyer had enough cash to put 15 percent down on her new home. For the long term, she wanted to have a first mortgage of no more than 60 percent of the purchase price. She borrowed a 25 percent equity line second mortgage to make up the difference.
During the period of time that she owned two homes, she made interest only payments on the equity line in order to keep her carrying costs down. When her old home sold, she paid the equity line on her new home down to a zero balance. However, she didn't close out the equity line. She retained it in case of an emergency. Note that some equity lines do charge an early closure fee during the first few years of the loan. However, if you pay the equity line to a zero balance, but don't close it, there shouldn't be a closure fee.
As long as you qualify, you can borrow up to $500,000 on an equity line second mortgage. And, you can use piggyback financing to finance up to 95 or 100 percent of the purchase price.
THE CLOSING: By using an equity line second mortgage for your piggyback financing, you can achieve a lower blended mortgage rate because the interest rate on an equity line is often substantially lower than it would be on a conventional mortgage.
About Author:
Dian Hymer for Inman News
PMI provides protection for the lender in case the buyer stops making mortgage payments. Buyers don't like PMI because it increases the cost of home ownership. Currently, unlike most mortgage interest paid on a primary residence, PMI is not tax deductible.
Low-cash down buyers can avoid PMI by using piggyback financing. Here's how it works. Let's say you have enough cash to put 10 percent down on the purchase of a new home. If you borrow a mortgage for 90 percent of the purchase price, the lender will likely charge you for PMI.
Instead of taking out one mortgage, you combine two mortgages to come up with 90 percent financing and thereby avoid PMI. You could combine a 75 percent first mortgage with a 15 percent second mortgage. Or, you might combine a 70 percent first with a 20 percent second mortgage. You could save as much as $100 to $150 per month using piggyback financing, depending on the size of the loans involved.
You might wonder why anyone would choose to do financing that requires PMI. For some buyers, there's no other choice. Piggyback financing requires good credit. Second mortgage lenders can be stricter than first mortgage lenders in their qualifying criteria. Typically, borrowers need a credit score of 660 or more to qualify.
Recently, piggyback financing has increased in popularity, even with buyers who have a substantial cash down payment. Many large cash down buyers are electing to establish an equity line second mortgage in order to have access to cash on a moment's notice. There's often no charge for initiating the loan. The annual fee should run around $75. You're only charged interest when you write a check against the credit line. The interest rate is often tied to the Prime Rate. And you can usually make interest only payments for up to 10 years.
HOUSE HUNTING TIP: Piggyback financing can be used effectively as interim or bridge financing if you buy a new home before you've sold the old one. Recently a trade-up buyer had enough cash to put 15 percent down on her new home. For the long term, she wanted to have a first mortgage of no more than 60 percent of the purchase price. She borrowed a 25 percent equity line second mortgage to make up the difference.
During the period of time that she owned two homes, she made interest only payments on the equity line in order to keep her carrying costs down. When her old home sold, she paid the equity line on her new home down to a zero balance. However, she didn't close out the equity line. She retained it in case of an emergency. Note that some equity lines do charge an early closure fee during the first few years of the loan. However, if you pay the equity line to a zero balance, but don't close it, there shouldn't be a closure fee.
As long as you qualify, you can borrow up to $500,000 on an equity line second mortgage. And, you can use piggyback financing to finance up to 95 or 100 percent of the purchase price.
THE CLOSING: By using an equity line second mortgage for your piggyback financing, you can achieve a lower blended mortgage rate because the interest rate on an equity line is often substantially lower than it would be on a conventional mortgage.
About Author:
Dian Hymer for Inman News
Traps all home buyers should avoid
At the beginning of a new year, it's natural to make resolutions. For instance, you may have been putting off buying a home. Now you've resolved to buy before interest rates rise and you're priced out of the market. Before forging ahead, consider the following tips and traps.
The first trap to avoid is buying a home because you think this is your last chance. It may be an excellent time for you to buy, but you shouldn't base your decision on fear. Certainly, if interest rates go up significantly you may not be able to qualify for as big a mortgage. But, higher interest could also have an adverse effect on the home sale market, depress prices and create better buying opportunities for buyers.
Following this line of reasoning, you might decide to wait to buy until you see what the market will do in 2005. After all, if you buy now, you could end up paying too much if rates rise and the market softens. Herein lies the second trap: waiting for a better time to buy. You could wait to buy only to find out that home prices didn't soften; they continued to rise.
One couple who had saved enough for a 10 percent down payment, waited one year to buy in order to save a 20 percent down. During that year, home prices in their area increased by so much that the additional money they saved still only enabled them to make a 10 percent down payment. They would have been better off buying earlier and earning home price appreciation for the year.
HOUSE HUNTING TIP: It's impossible to time the real estate market, so it's better to make your home buying decision on factors other than whether you think the market will peak or dip. You can't know this with certainty except through hindsight.
The first question you should ask yourself before buying is if you're ready for home ownership? Owning a home is a big commitment of time and money. In addition to mortgage and property tax payments, homes need to be maintained, which requires even more money. First-time buyers often overlook this fact, and are caught short of funds when the roof needs repairing or the water heater goes out.
Before you make a home purchase, make sure you're in a position to buy for the long term. The real estate market fluctuates. You can insulate yourself from swings in the market as long as you're not caught having to sell in a down market. Historically, residential real estate prices in this country have increased over time. But, if you had bought a home in the 1989 and were transferred and sold in 1991, you would have lost money in many areas of the country. If, on the other hand, you were able to stay put until 2000, you would have realized a significant profit. Ideally, you should have at least a 5 to 10 year time frame in mind when you buy a home.
Just as it's risky to buy for the short-term, it is also risky to stretch to buy using an interest-only mortgage. These loans are popular because the initial payments are. This makes loan qualification easier. But, at some point, the loan is amortized over the remaining loan term. This can result in a significant jump in your monthly mortgage payments.
Some buyers figure they can always refinance for payment relief. But, if interest rates are much higher when the interest-only payment period expires, you might not be able to qualify for a refinance.
THE CLOSING: Buying a home using an interest-only mortgage may be worth the gamble if you're sure that your income will be higher when your monthly payment increases.
About Author:
Dian Hymer for Inman News
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
The first trap to avoid is buying a home because you think this is your last chance. It may be an excellent time for you to buy, but you shouldn't base your decision on fear. Certainly, if interest rates go up significantly you may not be able to qualify for as big a mortgage. But, higher interest could also have an adverse effect on the home sale market, depress prices and create better buying opportunities for buyers.
Following this line of reasoning, you might decide to wait to buy until you see what the market will do in 2005. After all, if you buy now, you could end up paying too much if rates rise and the market softens. Herein lies the second trap: waiting for a better time to buy. You could wait to buy only to find out that home prices didn't soften; they continued to rise.
One couple who had saved enough for a 10 percent down payment, waited one year to buy in order to save a 20 percent down. During that year, home prices in their area increased by so much that the additional money they saved still only enabled them to make a 10 percent down payment. They would have been better off buying earlier and earning home price appreciation for the year.
HOUSE HUNTING TIP: It's impossible to time the real estate market, so it's better to make your home buying decision on factors other than whether you think the market will peak or dip. You can't know this with certainty except through hindsight.
The first question you should ask yourself before buying is if you're ready for home ownership? Owning a home is a big commitment of time and money. In addition to mortgage and property tax payments, homes need to be maintained, which requires even more money. First-time buyers often overlook this fact, and are caught short of funds when the roof needs repairing or the water heater goes out.
Before you make a home purchase, make sure you're in a position to buy for the long term. The real estate market fluctuates. You can insulate yourself from swings in the market as long as you're not caught having to sell in a down market. Historically, residential real estate prices in this country have increased over time. But, if you had bought a home in the 1989 and were transferred and sold in 1991, you would have lost money in many areas of the country. If, on the other hand, you were able to stay put until 2000, you would have realized a significant profit. Ideally, you should have at least a 5 to 10 year time frame in mind when you buy a home.
Just as it's risky to buy for the short-term, it is also risky to stretch to buy using an interest-only mortgage. These loans are popular because the initial payments are. This makes loan qualification easier. But, at some point, the loan is amortized over the remaining loan term. This can result in a significant jump in your monthly mortgage payments.
Some buyers figure they can always refinance for payment relief. But, if interest rates are much higher when the interest-only payment period expires, you might not be able to qualify for a refinance.
THE CLOSING: Buying a home using an interest-only mortgage may be worth the gamble if you're sure that your income will be higher when your monthly payment increases.
About Author:
Dian Hymer for Inman News
Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.
How to protect yourself in a real estate transaction
It's no wonder that buying or selling a home ranks high on the list of the most stress-provoking events one can experience, up there with the death of a loved one and divorce. There's a lot at stake financially when you buy or sell a home. A good or bad outcome can affect your net worth, as well as your sense well being.
There are a lot of factors involved in buying or selling a home that are beyond your control. For example, interest rates could jump unexpectedly, or an inspector might uncover a defect that you were unaware of. However, there are steps you can take to maximize your chances for a successful real estate endeavor.
The first step is to hire the right professionals to help you accomplish your goal. If you don't already have a real estate agent, mortgage broker and closing agent that you've worked with successfully before, ask friends and associates for recommendations. Take the time to interview each referral carefully to make sure that there's a good fit. Make sure to check references. If you have any doubts about a candidate, continue the search until you find qualified professionals with whom you have good rapport.
A common mistake home buyers and sellers make is to underestimate the time it takes to get the job done. Resist the urge to pile additional work on yourself while you're in the midst of a home purchase or sale. By doing so, you'll be better able to manage stress.
HOUSE HUNTING TIP: One of the keys to ensuring that your real estate venture will have a happy ending is to make a commitment to stay involved in the process every step of the way. Even though you hire professionals to assist you, they aren't the decision-makers. You are. Problems can arise if you relinquish control and let your real estate agent or mortgage person make decisions for you.
Let your agent know that you want to be kept informed of developments as they arise. The sooner you know about a problem, or potential problem, the sooner you can work on resolving it.
Don't be shy about asking for an explanation of a facet of the business, or your transaction, that you don't understand. If you don't buy and sell real estate on a regular basis, you shouldn't expect yourself to know the ins and outs of the business.
As tedious as it might be, it's important to read and understand every document before you sign it. Make sure you receive copies of everything you sign. It's a good idea to retain these documents, even after the transaction closes. If there's a problem during or after the transaction, this documentation could prove invaluable in proving your case.
It's also wise to keep a transaction log. This can be something as simple as a notepad on which you record important transaction-related conversations. Keep the log with your other transaction documentation in case you need to substantiate who said what later and when.
Be nice, but let your real estate team know what you expect from them. This should include periodic written or verbal updates. If you're not receiving the service you need, let this be known. Don't expect the people working for you to be mind readers.
You should expect that problems of some sort will arise during the course of your home purchase or sale. How you work through the problems has everything to do with the parties involved and how well you communicate with one another.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=205
There are a lot of factors involved in buying or selling a home that are beyond your control. For example, interest rates could jump unexpectedly, or an inspector might uncover a defect that you were unaware of. However, there are steps you can take to maximize your chances for a successful real estate endeavor.
The first step is to hire the right professionals to help you accomplish your goal. If you don't already have a real estate agent, mortgage broker and closing agent that you've worked with successfully before, ask friends and associates for recommendations. Take the time to interview each referral carefully to make sure that there's a good fit. Make sure to check references. If you have any doubts about a candidate, continue the search until you find qualified professionals with whom you have good rapport.
A common mistake home buyers and sellers make is to underestimate the time it takes to get the job done. Resist the urge to pile additional work on yourself while you're in the midst of a home purchase or sale. By doing so, you'll be better able to manage stress.
HOUSE HUNTING TIP: One of the keys to ensuring that your real estate venture will have a happy ending is to make a commitment to stay involved in the process every step of the way. Even though you hire professionals to assist you, they aren't the decision-makers. You are. Problems can arise if you relinquish control and let your real estate agent or mortgage person make decisions for you.
Let your agent know that you want to be kept informed of developments as they arise. The sooner you know about a problem, or potential problem, the sooner you can work on resolving it.
Don't be shy about asking for an explanation of a facet of the business, or your transaction, that you don't understand. If you don't buy and sell real estate on a regular basis, you shouldn't expect yourself to know the ins and outs of the business.
As tedious as it might be, it's important to read and understand every document before you sign it. Make sure you receive copies of everything you sign. It's a good idea to retain these documents, even after the transaction closes. If there's a problem during or after the transaction, this documentation could prove invaluable in proving your case.
It's also wise to keep a transaction log. This can be something as simple as a notepad on which you record important transaction-related conversations. Keep the log with your other transaction documentation in case you need to substantiate who said what later and when.
Be nice, but let your real estate team know what you expect from them. This should include periodic written or verbal updates. If you're not receiving the service you need, let this be known. Don't expect the people working for you to be mind readers.
You should expect that problems of some sort will arise during the course of your home purchase or sale. How you work through the problems has everything to do with the parties involved and how well you communicate with one another.
http://www.americanhomeguides.com/homebuying_tips_view.php?RowID=205
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