Posts Tagged ‘first time home buyers’

One or the greatest frustrations for home buyers is when they decide on a monthly payment they are comfortable with only to come to find out that there are several other charges included in their monthly payment that significantly reduces the amount of home they can afford.  When we talk about monthly home payments in the industry we are referring to PITI (principal, interest, taxes and insurance).  Two charges that we don’t discuss in PITI are home owners dues if you are purchasing a condo or home in a development with HOD’s, and Private Mortgage Insurance or PMI. 

PMI is a charge that the underwriter of your loan will insist on you having if your loan is greater then 80% of the purchase price of your home.  Why?  Well look at it from the banks perspective.  They aren’t giving you hundreds of thousands of dollars just because you seem like a nice person.  They expect to make money on the loan over time.  If for some reason you default on the loan, they want some reasonable belief that they will be able to take possession of the home and sell it to make back the money they have loaned on the home.  If you have been able to pay 20% of the value of your home up front, there is enough equity in the home (difference between what is owed and what the home is worth) so that the bank can feel comfortable lending the money.  If however you only put 3.5% down, which is typical these days, the bank assumes a greater risk.  If you default on the loan, chances are you will not have the money necessary to cover what it will cost to sell the home.  Even worse if the home goes down in value then you need even more money to cover the loan, and most likely would short sale the home or simply let it go into default. 

To help the bank feel comfortable about the loan they are requiring PMI.   It is an attempt to not repeat the blunders of the past few years where banks are taking an enormous hit to their bottom line for 0% down loans and interest only loans.  PMI is literally an insurance policy that you are paying for that says that if the bank needs to foreclose on the house and you are unable to pay the difference between the proceeds of the sale and what is owed on the loan, the policy will help pay the difference.

PMI can cost anywhere from less then a hundred dollars to several hundred dollars depending on the amount of the loan and how close you are to the magical number of 20% of the value of your home compared to the loan amount owing. 

If you are paying PMI and make a significant payment toward your loan or for any reason in the future believe that your LTV (loan to value ration) is now below 80%, you can contact your bank and ask them to wave the PMI. 

There is no incentive for the bank to remove the PMI voluntarily, so be vigilant and check back with them if you think you should not be paying it.

Give me a call if you need help.  I really do want to be your agent.

Rob Graham, Accredited Buyers Representative

Windermere Real Estate

206-321-6349

robgraham@windermere.com

Popularity: 3% [?]

A few days ago I wrote a post about what earnest money is and how much Seattle Home Buyers should offer in earnest money when making an offer on a home.  If you would like to read that post here is the link:

Earnest Money: How much should a Seattle Home buyer offer?

The next question my home buyers always have is:

After I make the offer, what are the situations that I can get my earnest money

back if I decide not to buy?

Seattle home buyer’s, in particular first time home buyers have a lot of fears around loosing their earnest money.  Fair enough.  Lets talk about the kinds of things you can include in your purchase and sale agreement that would allow you to get your earnest money back.

The biggest opportunity to walk away from a real estate transaction with no strings, is the inspection addendum.  The inspection addendum, allows you a period of time of your choosing, (usually a week to 10 days) to do any inspections on the home you like.  This can include, a whole house Inspection, pest inspection, sewer scope, lead based paint inspection, neighborhood review, etc.  During this time you can literally walk away from the home for any "subjective" reason of your choosing and have your earnest money returned to you.   The inspection addendum allows the greatest flexibility for a buyer.  This is why many of the other aspects of a real estate transaction don’t even kick into motion until this part of the purchase and sale agreement has been satisfied.

The next most common out for a buyer is the financing addendum.  The financing addendum specifies the nature in which you expect to pay for the home.  This is valuable information for the seller to know so they can have some confidence that you will be able to purchase the home.  It also allows you the opportunity to walk away from the sale if for some reason you don’t qualify for the specified financing prior to close.

So for example, if you state that you will be putting 3.5% down and qualifying for an FHA loan, and will be asking the seller to pay $8,000 in closing costs, but 10 days prior to the closing you find out you no longer qualify for the FHA loan, you can walk away from the offer and your earnest money will be refunded to you.

Title Addendum:  When property changes hands a title search will need to be done.  The results of that title search will show all parties that have any legal interest in the property.   If you include an title addendum in your purchase and sale agreement, you have the right to review that title report and if anything shows up on the report that you are not happy with, you have the right to ask the seller to correct it, or walk away from the home and have your earnest money returned to you.

If you are planning to purchase a condominium, townhouse or single home that includes a homeowners association, you also have the right to review what we call the CC&R’s. CC&R’s stand for the covenants, conditions and restrictions.  They specify the rules for living in a given community.  They include pet restrictions, restrictions on remodeling, painting, quiet hours, etc.  If you are purchasing a condo these will include recent minutes of the board meetings, and a spreadsheet showing where all the money from home owner dues are being kept and any special projects that are planned for the future.  This is all valuable information you will want to review and be comfortable with.  If you find that you can’t have your dog in your condo, you can rescind your offer and have your earnest money returned to you.

So there you have it.  Keep in mind that if something happens unexpectedly to you or your family and you need to walk away from an offer prior to closing, we can always request that the seller return your earnest money to you out of the goodness of their heart.  they are under no obligation to do so , but I have seen it happen.

Give me a cal if you need help.

Rob Graham, Accredited Buyer’s representative

Windermere Real Estate

206-321-6349

robgraham@windermere.com

Popularity: 3% [?]

Ok gang.  So we were all holding our breath to hear what the stimulus package was going to mean for Seattle home buyers.  And here is the result.

The former $7,500 tax credit for first time home buyers that needed to be repaid has been upgraded.  It is now an $8,000 tax credit for first time home buyers that does not need to be repaid.

The credit only applies to home buyers who purchase in the 2009 calendar year.

Now, that is a lot better for first time Seattle first time home buyers (have not owned a home in the past three years), but is far from the $15,000 tax credit for all home buyers that the Senate passed unanimously last week. 

Still, lets not loose hope yet.  This round of legislation will be signed into law tomorrow.  There are still two opportunities to improve the situation.  The government is so convinced that the housing situation is key to the recovery of the country, that there will be a separate spending package announced to attempt to jumpstart the housing market.  Also, there is still half of the TARP bank bail out money that needs to be assigned.  Both of those bits of legislation will be aimed at helping banks in particular as they relate to the housing industry. 

No idea what they will hold, but stay tuned.  There is talk of bringing back the tax break for all home buyers.  There is also talk of a repeal of mark to market accounting which would go a long way to freeing up home financing for the banks.  One final option that will  be kicked around is the federal government setting the mortgage rate well below where they currently are and guaranteeing them. 

In the mean time, believe me, banks are doing all they can to get bad debt off their books and also invite home owners with more risky mortgage products such as 3-1 and 5-1 ARMs that are due to reset in the near future, to refinance. 

All this means that things are percolating to entice Seattleites to make the move to buy your first home, or upgrade.  

I’ll keep you posted. 

As always, if you have a question, don’t hesitate to ask, and if you need help, don’t hesitate to call.

Rob Graham, Accredited Buyer’s Representative

Windermere Real Estate

206-321-6349

robgraham@windermere.com

Popularity: 3% [?]