Home seller credit could save real estate deal

No one likes to give money away, but a monetary credit from the seller to the buyer can solve a problem that might otherwise derail a home-sale transaction. Here's a typical scenario where a seller credit could save the deal.

The buyers are stretching to buy their dream home. Tapped out financially, they panic when they discover during their home inspection that the roof needs replacing. The inspector impresses upon the buyers that the roof must be replaced immediately; it can't wait. But the buyers don't have enough extra cash to cover the cost of a new roof.

One option for the buyers is to back out of the deal, and find another less expensive house, or a house with a roof that's in better condition. But this puts the buyers back in the market searching for a new house. And the sellers have no recourse but to put their house back on the market, and search for another buyer.

Another option is for the buyers to ask the sellers to credit them enough money to take care of replacing the roof. If the sellers are willing, the transaction stays together. The sellers will net less from the sale, but the sale will close. If more time on the market means less money for the seller, this could be an acceptable solution for both parties.

There are other benefits to be derived from this approach to repairing property defects. One is that it relieves the sellers of the burden of having to oversee work while they're in the midst of moving out of the house. Another is that buyers often prefer to oversee the work themselves to make sure that it's done properly. Also, there's often not enough time to have repairs done before closing.

HOUSE HUNTING TIP: Before you ask the seller to credit you money at closing, check with your mortgage broker or loan agent to find out what restrictions your lender might have regarding seller credits. Usually, lenders will only allow a credit for up to 3 percent of the purchase price. Also, most lenders limit the amount of money they'll allow a seller to credit to not more than the amount of the buyer's nonrecurring closing costs.

Nonrecurring closing costs are one-time-only costs that a buyer pays at closing, such as loan origination fees or transfer taxes. Recurring closing costs are those costs paid at closing that are part of ongoing expenses a buyer will pay, such as homeowner's insurance or mortgage interest.

Lenders don't like money to pass from the seller to the buyer if it in some way lowers the amount of the buyer's cash down payment. But they will usually allow a seller credit that offsets the buyer's nonrecurring closing costs. This means that you won't walk away from the closing with a check for the amount of the credit in your pocket. Instead, the seller credit will lower the amount of money you need to bring to the closing. The money you save can be applied toward repairing the property defect.

Seller credits can be useful when buyers are short of the cash required to make an offer. Let's say you have enough saved for a 10 percent down payment. But you are shy the money needed for closing costs. Your purchase offer could include a provision for the seller to credit you an amount at closing to be applied toward your nonrecurring closing costs.

A credit lowers the seller's net proceeds. So, you may need to increase your asking price to cover the amount of the credit if you're in competition, or if the property is attractively priced.

THE CLOSING: Just make sure, before you do this, that the property is likely to appraise at the higher price.

Author: Dian Hymer for Inman News

Do You REALLY Need A Buyer's Agent?

If you are thinking of buying a home, you need to know that the real estate market has experienced some rather dramatic changes in the past few years. Did you realize that Buyer's Agents are available to help you find a home, negotiate the price and terms, and protect your best interests?! Remember that most homes are listed with a realtor®; therefore, they have representation. Unless a buyer enters into an agency agreement with a realtor®, they are unrepresented!

When I represent my clients as their Buyer's Agent, we purchase a home; I do not sell them a house!

WHO DOES YOUR REAL ESTATE AGENT WORK FOR?

Traditionally, real estate agent assisting a buyer un a home purchase process functioned as the agent or sub-agent of the seller and owed allegiance to the seller. Unless the real estate agent and the buyer are working under a 'buyer agency' contract, the agent is legally the agent of the seller and is obligated to work in the best interests of the seller. This means many things, but of greatest importance to buyers is the fact that the agent must always try to obtain the highest price for the seller's property - unless the agent and customer have entered into a Buyer's Agent agreement. This is nothing new. It has always been this way.

What has changed is that today's buyers are demanding representation too. That is why we now have buyer agents. Only a buyer agent can work for and represent the best interests of the buyer.

WHAT DOES A 'BUYER AGENCY' CONTRACT MEAN?

A 'buyer agency' contract creates legal fiduciary responsibilities between the buyer and the agent. Those responsibilities include:

• loyalty to the buyer's interests,
• obedience to the buyer's legal wishes,
• disclosure of material information,
• confidentiality,
• reasonable care and diligence,
• accounting on all matters,
• objective presentation of all offers,
• disclosure of material adverse facts, and
• fair and honest treatment.

BENEFITS A BUYER AGENT CAN PROVIDE

A buyer agent can negotiate on behalf of the buyer to work towards finding the right property, and obtaining the price and terms that are in the best interests of the buyer.

A buyer agent is not limited to showing properties only listed in Multiple Listing Service. The agent can also show 'for sale by owner' properties. This capability increases the selection of homes from which a buyer can choose.

A buyer agent can also seek out unlisted properties on the buyer's behalf.

A buyer agent is obligated to provide complete confidentiality to the buyer's personal motives and financial intentions.

A buyer agent can advise and counsel a buyer with unrestricted assistance, providing assistance as needed.

And lastly, a buyer agent can prepare an estimate of value for the property so that the buyer has the market information they need to make an informed buying decision.

ALL THIS SERVICE....WHAT'S THE COST?

In most cases, the buyer pays no more for the services of a buyer agent that he or she would is using a traditional 'seller's agent.' Commissions or service fees usually come from one of three sources:

(1) Out of the total commission being paid to the listing agent; (2) Or as a reduction in the selling price, equivalent to the buyer agent commission, thus enabling a direct payment from the buyer to the buyer agents broker; (3) Or, negotiated in the offer to purchase as a payment to the buyer agent from the seller on behalf of the buyer.

GOING THE EXTRA MILE WITH BUYERS

Buyers always have questions. When the agent is not a buyer agent, yet working with a buyer, answering questions can be awkward because the agent owes allegiance to the seller. While a traditional 'seller's agent' would usually not withhold important information, a buyer agent has a legal obligation to dig deeper into any situation which might jeopardize the best interests of the buyer.

COMPETITIVE EDGE WHEN PROBLEMS ARISE

If an inspection reveals a problem, a buyer agent can make the difference. Should the buyer still wish to purchase the property, the buyer agent will go to bat for the buyer to negotiate a fair and equitable agreement to the problem.

WHAT ABOUT INVESTMENT VALUE?

A buyer agent can offer a professional opinion as to the value of the property, something a traditional agent would hesitate to do, should the property not offer as promising a future as other properties.

SO WHAT'S THE DIFFERENCE?

Both the buyer agent and a traditional 'seller's agent' can answer questions and handle many of the other aspects of the transaction such as arranging for a property appraisal, a title search, a survey, home inspections, and the closing. Both types of agents will be able to provide a buyer with information on the community to help the buyer make a more informed decision.

The difference is that a traditional agent will work with a buyer, but is required to advocate the seller's best interests.

A buyer agent works for the buyer's best interest, most often, at no additional charge. Only a buyer agent can give a negative opinion or critique of seller's property beyond disclosing known defects. Only a buyer agent can recommend or suggest an offering price, or give you an opinion about whether a particular property is priced too high or too low. Only a buyer agent can structure an offer and draft other provisions with the buyer's best interests in mind.

WHICH WILL IT BE?

You have to make the decision, but is the choice really that difficult? If you need more information on this subject, call us. If you have any questions, call me. And, when you're ready to get your own buyer's agent, call me.

REX Agreement - Buyers Beware!!!

Cash in now on your home profit?

REX AGREEMENT: You get paid for giving up share of gain from future sale

March 17, 2008
BY TERRY SAVAGE Sun-Times Columnist

Americans are learning a bitter lesson about the importance of building equity in their homes, instead of withdrawing it for current expenses. Now, along comes another scheme to give Americans access to their home equity -- the Rex Agreement.

Advertised as an "alternative to debt," this plan focuses on your willingness to share the upside growth in the value of your home with a new "partner" -- an investment company that will provide cash now, in exchange for an option on a big piece of the profits when you sell.

The name "Rex" stands for Real Estate Equity Exchange, and the Rex Agreement is their trademarked product. As the company is quick to point out, this product is not a loan and does not require monthly repayments, unlike a home equity loan. And it does not charge an interest rate, like a reverse mortgage.

Instead, you're granting them an "option" on a portion of the growth in value of your home. The amount of profit you're willing to share determines the amount of cash you'll get upfront -- and will have to share with them when the home is ultimately sold.

Too good to be true? It is, sort of. While this is a legitimate company, with an enticing promo and Web site, the real problem lies in the pricing and the details, not to mention the larger question of whether you really want to share title to your home.

How it works:

The company Web site, www.RexAgreement.com, will walk you through the various scenarios.

Basically, at the start of the process, your home value is independently appraised. The Rex Agreement is only available to owners who have at least 25 percent equity in their homes (based on current appraisal).

Once the current value is established, you grant the company an option on a portion of future appreciation. They give you a cash, upfront "advance" on the value of that option and take the rest of their share out of the profits when the house is sold. If the home declines in value by the time it is sold, they can walk away from the option, and you keep the cash advance you received.

The amount of cash you get upfront as an "advance" on the option you've granted is dependent on the percentage of the future gain that you are willing to share with them. You might agree to share 20 percent, or 35 percent, or 50 percent of the eventual sale price that is above the current appraised price.

(By the way, they get their percentage of the "gross" sale price of the house, not the net price after real estate commissions and fees.)

This agreement lasts for 10 years, and can be extended for an additional fee. But if you end the agreement early by selling the house at a profit within the first five years, there is a "penalty," which reduces the remaining option payment to you.

In the meantime, and until you decide to sell, they have a lien on your title -- and a lot of say in what you do with your home. For example, if you jeopardize the value of the home, perhaps by not keeping it well-maintained, Rex & Co. can exercise their option and sell the home under a limited power of attorney that you grant them as part of the paperwork.

This is just an overview, and I recommend that you consult your attorney to find all of the caveats. I showed the concept to both a top real estate attorney and to the partner of a major accounting firm, who pointed out some of the fine print that I might have missed. And I wasn't allowed to see the actual documentation without signing a non-disclosure agreement!

There might also be some questions about the tax treatment of that initial cash payment, although they have an opinion from a top law firm that it is a non-taxable advance against any ultimate gains (with the exception of a $1,000 option "fee").

Pricing -- who really wins?

Evaluating the financial benefits is the real sticking point. Using the example on their Web site, you'll see that if your home is currently valued at $750,000, and you agree to share 50 percent of the upside, you'll get an "advance" payment of $107,000 (or $75,000 for sharing only 35 percent of the upside, or only $43,000 for agreeing to share 20 percent of the future gains).

When you eventually sell the house, they'll get their fixed percentage of the profits and give you the balance, less the amount they advanced.

Now ask yourself: Why would anyone give me an interest-free check for $107,000 (or $75,000 or $43,000) and wait an unspecified amount of time for me to decide to sell my house, and then take their piece of the profit?

The simple fact is that you aren't getting enough out of this deal, even though that chunk of cash is enticing. (See box.) And you're giving away as much as half of the profit (above current prices) when you sell your home!

The "smart money"-- the Rex guys -- are betting that they've found a way to share in the upside potential of $11 trillion dollars in home equity that Americans own at today's discount prices. Do you want to bet the house against them? I think not. And that's the Savage Truth.

Terry Savage is a registered investment adviser.
Distributed by Creators Syndicate.

RESPA Disclosures

One of the purposes of RESPA is to help consumers become better shoppers for settlement services. RESPA requires that borrowers receive disclosures at various times. Some disclosures spell out the costs associated with the settlement, outline lender servicing and escrow account practices and describe business relationships between settlement service providers.

Good Faith Estimate of Settlement Costs.

RESPA requires that, when you apply for a loan, the lender or mortgage broker give you a Good Faith Estimate of settlement service charges you will likely have to pay. If you do not get this Good Faith Estimate when you apply, the lender or mortgage broker must mail or deliver it to you within the next three business days.

Be aware that the amounts listed on the Good Faith Estimate are only estimates. Actual costs may vary. Changing market conditions can affect prices. Remember that the lender's estimate is not a guarantee. Keep your Good Faith Estimate so you can compare it with the final settlement costs and ask the lender questions about any changes.

Servicing Disclosure Statement.

RESPA requires the lender or mortgage broker to tell you in writing, when you apply for a loan or within the next three business days, whether it expects that someone else will be servicing your loan (collecting your payments).

Affiliated Business Arrangements.

Sometimes, several businesses that offer settlement services are owned or controlled by a common corporate parent. These businesses are known as "affiliates." When a lender, real estate broker, or other participant in your settlement refers you to an affiliate for a settlement service (such as when a real estate broker refers you to a mortgage broker affiliate), RESPA requires the referring party to give you an Affiliated Business Arrangement Disclosure. This form will remind you that you are generally not required, with certain exceptions, to use the affiliate and are free to shop for other providers.

HUD-1 Settlement Statement.

One business day before the settlement, you have the right to inspect the HUD-1 Settlement Statement. This statement itemizes the services provided to you and the fees charged to you. This form is filled out by the settlement agent who will conduct the settlement. Be sure you have the name, address, and telephone number of the settlement agent if you wish to inspect this form. The fully completed HUD-1 Settlement Statement generally must be delivered or mailed to you at or before the settlement. In cases where there is no settlement meeting, the escrow agent will mail you the HUD-1 after settlement, and you have no right to inspect it one day before settlement.

Escrow Account Operation & Disclosures.

Your lender may require you to establish an escrow or impound account to insure that your taxes and insurance premiums are paid on time. If so, you will probably have to pay an initial amount at the settlement to start the account and an additional amount with each month's regular payment. Your escrow account payments may include a "cushion" or an extra amount to ensure that the lender has enough money to make the payments when due. RESPA limits the amount of the cushion to a maximum of two months of escrow payments.

At the settlement or within the next 45 days, the person servicing your loan must give you an initial escrow account statement. That form will show all of the payments which are expected to be deposited into the escrow account and all of the disbursements which are expected to be made from the escrow account during the year ahead. Your lender or servicer will review the escrow account annually and send you a disclosure each year which shows the prior year's activity and any adjustments necessary in the escrow payments that you will make in the forthcoming year.

Shopping for a Loan

Your choice of lender and type of loan will influence not only your settlement costs, but also the monthly cost of your mortgage loan. There are many types of lenders and types of loans you can choose. You may be familiar with banks, savings associations, mortgage companies and credit unions, many of which provide home mortgage loans. You may find a listing of some mortgage lenders in the yellow pages or a listing of rates in your local newspaper.

Mortgage Brokers.

Some companies, known as "mortgage brokers" offer to find you a mortgage lender willing to make you a loan. A mortgage broker may operate as an independent business and may not be operating as your "agent" or representative. Your mortgage broker may be paid by the lender, you as the borrower, or both. You may wish to ask about the fees that the mortgage broker will receive for its services.

Government Programs.

You may be eligible for a loan insured through the Federal Housing Administration ("FHA") or guaranteed by the Department of Veterans Affairs or similar programs operated by cities or states. These programs usually require a smaller downpayment. Ask lenders about these programs. You can get more information about these programs from the agencies that run them. (See Appendix to this Booklet.)

CLOs.

Computer loan origination systems, or CLOs, are computer terminals sometimes available in real estate offices or other locations to help you sort through the various types of loans offered by different lenders. The CLO operator may charge a fee for the services the CLO offers. This fee may be paid by you or by the lender that you select.

Types of Loans.

Loans can have a fixed interest rate or a variable interest rate. Fixed rate loans have the same principal and interest payments during the loan term. Variable rate loans can have any one of a number of "indexes" and "margins" which determine how and when the rate and payment amount change. If you apply for a variable rate loan, also known as an adjustable rate mortgage ("ARM"), a disclosure and booklet required by the Truth in Lending Act will further describe the ARM. Most loans can be repaid over a term of 30 years or less. Most loans have equal monthly payments. The amounts can change from time to time on an ARM depending on changes in the interest rate. Some loans have short terms and a large final payment called a "balloon." You should shop for the type of home mortgage loan terms that best suit your needs.

Interest Rate, "Points" & Other Fees.

Often the price of a home mortgage loan is stated in terms of an interest rate, points, and other fees. A "point" is a fee that equals 1 percent of the loan amount. Points are usually paid to the lender, mortgage broker, or both, at the settlement or upon the completion of the escrow. Often, you can pay fewer points in exchange for a higher interest rate or more points for a lower rate. Ask your lender or mortgage broker about points and other fees.

A document called the Truth in Lending Disclosure Statement will show you the "Annual Percentage Rate" ("APR") and other payment information for the loan you have applied for. The APR takes into account not only the interest rate, but also the points, mortgage broker fees and certain other fees that you have to pay. Ask for the APR before you apply to help you shop for the loan that is best for you. Also ask if your loan will have a charge or a fee for paying all or part of the loan before payment is due ("prepayment penalty"). You may be able to negotiate the terms of the prepayment penalty.

Lender-Required Settlement Costs.

Your lender may require you to obtain certain settlement services, such as a new survey, mortgage insurance or title insurance. It may also order and charge you for other settlement-related services, such as the appraisal or credit report. A lender may also charge other fees, such as fees for loan processing, document preparation, underwriting, flood certification or an application fee. You may wish to ask for an estimate of fees and settlement costs before choosing a lender. Some lenders offer "no cost" or "no point" loans but normally cover these fees or costs by charging a higher interest rate.

Comparing Loan Costs.

Comparing APRs may be an effective way to shop for a loan. However, you must compare similar loan products for the same loan amount. For example, compare two 30-year fixed rate loans for $100,000. Loan A with an APR of 8.35% is less costly than Loan B with an APR of 8.65% over the loan term. However, before you decide on a loan, you should consider the up-front cash you will be required to pay for each of the two loans as well.

Another effective shopping technique is to compare identical loans with different up-front points and other fees. For example, if you are offered two 30-year fixed rate loans for $100,000 and at 8%, the monthly payments are the same, but the up-front costs are different:

Loan A - 2 points ($2,000) and lender required costs of $1800 = $3800 in costs.

Loan B - 2 1/4 points ($2250) and lender required costs of $1200 = $3450 in costs.

A comparison of the up-front costs shows Loan B requires $350 less in up-front cash than Loan A. However, your individual situation (how long you plan to stay in your house) and your tax situation (points can usually be deducted for the tax year that you purchase a house) may affect your choice of loans.

Lock-ins.

"Locking in" your rate or points at the time of application or during the processing of your loan will keep the rate and/or points from changing until settlement or closing of the escrow process. Ask your lender if there is a fee to lock-in the rate and whether the fee reduces the amount you have to pay for points. Find out how long the lock-in is good, what happens if it expires, and whether the lock-in fee is refundable if your application is rejected.

Tax and Insurance Payments.

Your monthly mortgage payment will be used to repay the money you borrowed plus interest. Part of your monthly payment may be deposited into an "escrow account" (also known as a "reserve" or "impound" account) so your lender or servicer can pay your real estate taxes, property insurance, mortgage insurance and/or flood insurance. Ask your lender or mortgage broker if you will be required to set up an escrow or impound account for taxes and insurance payments.

Transfer of Your Loan.

While you may start the loan process with a lender or mortgage broker, you could find that after settlement another company may be collecting the payments on your loan. Collecting loan payments is often known as "servicing" the loan. Your lender or broker will disclose whether it expects to service your loan or to transfer the servicing to someone else.

Mortgage Insurance.

Private mortgage insurance and government mortgage insurance protect the lender against default and enable the lender to make a loan which the lender considers a higher risk. Lenders often require mortgage insurance for loans where the downpayment is less than 20% of the sales price. You may be billed monthly, annually, by an initial lump sum, or some combination of these practices for your mortgage insurance premium. Ask your lender if mortgage insurance is required and how much it will cost. Mortgage insurance should not be confused with mortgage life, credit life or disability insurance, which are designed to pay off a mortgage in the event of the borrower's death or disability.

You may also be offered "lender paid" mortgage insurance ("LPMI"). Under LPMI plans, the lender purchases the mortgage insurance and pays the premiums to the insurer. The lender will increase your interest rate to pay for the premiums -- but LPMI may reduce your settlement costs. You cannot cancel LPMI or government mortgage insurance during the life of your loan. However, it may be possible to cancel private mortgage insurance at some point, such as when your loan balance is reduced to a certain amount. Before you commit to paying for mortgage insurance, find out the specific requirements for cancellation.

Flood Hazard Areas.

Most lenders will not lend you money to buy a home in a flood hazard area unless you pay for flood insurance. Some government loan programs will not allow you to purchase a home that is located in a flood hazard area. Your lender may charge you a fee to check for flood hazards. You should be notified if flood insurance is required. If a change in flood insurance maps brings your home within a flood hazard area after your loan is made, your lender or servicer may require you to buy flood insurance at that time.

June Watson is not a mortgage banker and strongly advises you to seek the assistance of a professional for financial advice.

Offer to Purchase Terms

Your REALTOR® will probably give you a preprinted form of a sale agreement when you are ready to make an offer to purchase a piece of property. You may make changes or additions to the form agreement, but the seller must agree to every change you make. You should also agree with the seller on when you will move in and what appliances and personal property will be sold with the home.

Sales Price.

For most home purchasers, the sales price is the most important term. Recognize that other non-monetary terms of the agreement are also important.

Title.

"Title" refers to the legal ownership of your new home. The seller should provide title, free and clear of all claims by others against your new home. Claims by others against your new home are sometimes known as "liens" or "encumbrances." You may negotiate who will pay for the title search which will tell you whether the title is "clear."

Mortgage Clause.

The agreement of sale should provide that your deposit will be refunded if the sale has to be canceled because you are unable to get a mortgage loan. For example, your agreement of sale could allow the purchase to be canceled if you cannot obtain mortgage financing at an interest rate at or below a rate you specify in the agreement.

Pests.

Your lender will require a certificate from a qualified inspector stating that the home is free from termites and other pests and pest damage. You may want to reserve the right to cancel the agreement or seek immediate treatment and repairs by the seller if pest damage is found.

Home Inspection.

It is a good idea to have the home inspected. An inspection should determine the condition of the plumbing, heating, cooling and electrical systems. The structure should also be examined to assure it is sound and to determine the condition of the roof, siding, windows and doors. The lot should be graded away from the house so that water does not drain toward the house and into the basement.

Most buyers prefer to pay for these inspections so that the inspector is working for them, not the seller. You may wish to include in your agreement of sale the right to cancel, if you are not satisfied with the inspection results. In that case, you may want to re-negotiate for a lower sale price or require the seller to make repairs.

Lead-Based Paint Hazards in Housing Built Before 1978.

If you buy a home built before 1978, you have certain rights concerning lead-based paint and lead poisoning hazards. The seller or sales agent must give you the EPA pamphlet "Protect Your Family From Lead in Your Home" or other EPA-approved lead hazard information. The seller or sales agent must tell you what the seller actually knows about the home's lead-based paint or lead-based paint hazards and give you any relevant records or reports.

You have at least ten (10) days to do an inspection or risk assessment for lead-based paint or lead-based paint hazards. However, to have the right to cancel the sale based on the results of an inspection or risk assessment, you will need to negotiate this condition with the seller.

Finally, the seller must attach a disclosure form to the agreement of sale which will include a Lead Warning Statement. You, the seller, and the sales agent will sign an acknowledgment that these notification requirements have been satisfied.

Other Environmental Concerns.

Your city or state may have laws requiring buyers or sellers to test for environmental hazards such as leaking underground oil tanks, the presence of radon or asbestos, lead water pipes, and other such hazards, and to take the steps to clean-up any such hazards. You may negotiate who will pay for the costs of any required testing and/or clean-up.

Sharing of Expenses.

You need to agree with the seller about how expenses related to the property such as taxes, water and sewer charges, condominium fees, and utility bills, are to be divided on the date of settlement. Unless you agree otherwise, you should only be responsible for the portion of these expenses owed after the date of sale.

Settlement Agent/Escrow Agent.

Depending on local practices, you may have an option to select the settlement agent or escrow agent or company. For states where an escrow agent or company will handle the settlement, the buyer, seller and lender will provide instructions.

Settlement Costs.

You can negotiate which settlement costs you will pay and which will be paid by the seller.

10 Tips for Homebuyers

What You Should Know Before Buying a Home

1. Before you start looking for a home, get pre-qualified for a loan.
   
   Banks, Credit Unions, Mortgage Bankers, and Mortgage Brokers make home loans. These lenders will take an application, process the loan documents, and see the loan through to the funding stage.
   


2. If you have marginal or bad credit, consult your lender.
   
   You may be able to qualify for a loan depending on how long ago and what reason(s) caused the bad credit.
   
   A lender should be able to advise you on whether your credit history will prevent you from qualifying for a home loan.
   


3. You will need a downpayment.
   
   Downpayment requirements vary between 3 to 20% or more depending on the type of loan. Many downpayment assistant programs exist. These programs may loan or grant you the funds necessary for the downpayment. Consult with a lender about programs available in your area.
   


4. You will need funds for closing costs
   
   Closing costs are charges for services related to the closing of your real estate transaction. They include, but are not limited to:
   
   
• Escrow fees charged by company handling the transaction


• Title policy issuance fees charged by the title insurance company


• Mortgage insurance fees


• Fire and homeowners insurance


• County Recorder fees for recording your deed


• Loan origination fees
  
  Consult your lender for an actual estimate of these costs, as well as information about loan programs which can assist in financing your closing costs.
  
  
5. Some loans have "points" and some do not.
   
   A point is a loan origination fee equivalent to 1% of the loan amount. Together with the interest rate they constitute the yield on your loan for the lender. Some lenders charge a higher interest rate to compensate for charging no points. It is important to comparison shop lenders to make sure your loan is at a competitive yield.
   


6. Should you select a mortgage with a fixed rate or an adjustable rate?
   
   The answer to this question depends on whether mortgage rates are at a high or a low point when you purchase, and on how long you plan to live in the home. If rates are high, an adjustable rate might be attractive since subsequent rate drops could reduce your monthly payments.
   
   Additionally, lenders may offer a below-market rate during the first few years of an adjustable mortgage to make it appealing to you. However, many people who got these loans years ago are now having their homes foreclosed on because the banks are refusing to refinance the loans and large payments are now due. If interest rates are low you might want to take a fixed rate to protect yourself against the possibility of rising interest rates.



7. Be aware of the two main types of loan categories.
   
   
• Conventional Loans.
  
  Conventional mortgage loans are available up to a maximum of 97% loan-to-value. Interest rates may be fixed or adjustable for the term of the loan. Loans with high loan-to-value may require mortgage insurance.


• Government Loans.
  
  These include Federal Housing Administration (FHA) fixed and adjustable rate mortgage loans, and Veterans Administration (VA) fixed rate mortgage loans. FHA loans are available up to 97.65% loan-to-value. Eligible U.S. veterans can receive up to 100% loan-to-value financing through VA loans.
  
  
8. If you are a low or moderate income homebuyer, there are special programs designed to help you.
   
   Most lenders specializing in real estate mortgage loans are
   aware of these types of loan programs.
   


9. Why might I have to pay mortgage insurance?
   
   Mortgage insurance protects the lender from potential loss if you should default on your mortgage loan payment.
   
   Generally, conventional loans that are less than 80% loan-to-value do not require mortgage insurance. For FHA mortgage loans, mortgage insurance is always required. It is referred to as a Mortgage Insurance Premium (MIP) and is collected regardless of the Loan-to-Value.
   
   
10. Many organizations offer home loan counseling to prospective homebuyers.
    
    These organizations provide classes for homebuyers to cover the steps
    to homeownership. They will cover home selection, realtor services, lenders, loan programs, homeownership responsibilities, saving for a downpayment, and other important pieces of information. Many first-time homebuyer programs require homebuyers to attend this type of class to be eligible for selected programs.

June Watson is neither a banker nor an attorney and strongly advises everyone to seek advise from these qualified professionals.

Tips for 1st Time Home Buyers

It's not uncommon for a first-time home buyer to say to me, "Gosh, just last week I called you about buying a home and now I'm in escrow! How did this happen so fast?"

The answer is it didn't. First-time home buyers start the search long before most even realize it.

Here's what you can expect from your home shopping experience.

Figuring Out the Benefits

"You should buy a home." That's what you've been hearing from friends and family, right? So, by now you have likely already weighed the benefits and decided that home ownership was the best decision for you. That's a major hurdle now passed. You are focused and certain. Good.

Defining Search Parameters

Almost 80% of all home searches today begin on the Internet. With just a few clicks of the mouse, home buyers can search through hundreds of online listings, view virtual tours, and sort through dozens of photographs and aerial shots of neighborhoods and homes. You've probably defined your goals and have a pretty good idea of the type of home and neighborhood you want. By the time you reach your real estate agent's office, you are halfway to home ownership.

How Long Should It Take to Find What You Want?

In seller's markets, often I show only one home. After all, how many homes does one family need? A few buyers will look for years, but buyers who do that aren't motivated. A motivated buyer will find a home within two weeks. Most of my buyers find a home within two days. Good real estate agents will listen to your wants and needs and arrange to show only those homes that fit your particular parameters. Your agent should preview homes before showing them to you as well.

How Many Homes Will You See?

Studies show that the your memory dramatically improves after consumption of carbs and slows upon consuming sugar. So, layoff the soft drinks and have a hearty meal of carbs before venturing out to tour homes.

The average number of homes that I show to a buyer in one day is seven. Any more than that, and the brain is on overload. Therefore, don't expect to see 20 or 30 homes; although it's physically possible to do so, you probably will not remember specific details about any of them.

The "Red Shoes" Experience

Women will relate to this. Say, you need a new pair of red shoes. You go to the mall. At the first shoe store, you find a fabulous pair of red shoes. You try them on. They fit perfectly. They are glamorous. Priced right, too. Do you buy them? Of course not! You go to every other store in the mall trying on red shoes until you are ready to drop from exhaustion. Then you return to the first store and buy those red shoes.

Do NOT shop for a home this way. When you find the perfect home, buy it.

How to Rate Inventory

• Bring a digital camera and begin each series of photos with a close-up of the house number to identify where each group of home photos start and end.
• Take copious notes of unusual features, colors and design elements.
  Pay attention to the home's surroundings. What is next door? Do 2-story homes tower over your single story?
• Do you like the location? Is it near a park or a power plant?
• Immediately after leaving, rate each home on a scale of 1 to 10, with 10 being the highest.

View Top Choices a Second Time

After touring homes for a few days, you will probably instinctively know which one or two homes you would like to buy. Ask to see them again. You will see them with different eyes and notice elements that were overlooked the first go-around.

At this point, your agent should call the listing agents to find out more about the sellers' motivation and to double-check that an offer hasn't come in, making sure these homes are still available to purchase.

Making the Selection

I'll let you in on a little secret. I generally know which home a buyer is going to choose, and I suspect most other agents operate the same way. It's an intuition. But I make it a practice not to steer buyers, and I insist that buyers choose the home without interference from me. It's not my choice to make.

Real estate agents are required, however, to point out defects that would affect your health or safety as well as known known structural defects; and, should help buyers feel confident that the home selected meets the buyer's search parameters.

- Elizabeth Weintraub