News
If you have never been through the process of obtaining a home mortgage and making an offer on a piece of real estate, you need to know a few things. Being that it will the first time may seem a little nerve-wracking but remember you are not the first one to go through the process, and you will not be the last.
Probably the one item that confuses the first-time homebuyer the most is the number of people involved in the transaction. Generally you have someone like me, a mortgage broker, your real estate agent, the seller's real estate agent, the appraiser, the title company, the investor and their underwriters and maybe even a land surveyor. Plus, all of these people have some fee involved in the transaction. So the price you agree to with the seller is not all of the funds you will need to close the deal.
First let's look at the money aspect of the purchase. Assume the purchase price is $400,000. At the time you make an offer on the property, you will write out a check to go along with the offer. This is called “earnest money” and it, along with the contract shows you are really interested in the property. Say the earnest money check was $5,000. This is cash that will go toward the down payment but is at risk if you decide to back away from the deal at the last minute, and for no good reason. So right up front you need to have money available for the earnest deposit.
The second time you will need cash is for the inspection of the property. I always recommend all buyers have an independent inspector inspect the home from top to bottom. Hopefully if there is a problem with the home, such as a structural defect, the inspector will detect it and you and the seller can negotiate a solution. If no agreement can be reached you should be able to cancel the contract and get your earnest money back.
The third time you will need to have cash available is for the appraisal of the property. The appraiser is a trained professional whose job is to give an expert opinion as to the value of the home. If the appraisal comes in equal to or more than the contract price, we are in good shape. If the appraisal value comes in for less than the contract price, we have a problem. If this does occur, you and your real estate agent need to determine if you will cancel the deal or go back to the seller and ask for a price reduction. If the seller does not agree to the price reduction, there are a couple of options. You could walk from the deal. The seller could find another appraiser, at their expense, to try to get an appraisal of higher value, or the seller can drop the purchase price. By the way, the appraisal ordered on your behalf is yours and you will need to pay for it.
The next time you need cash is for your credit report. Some mortgage professionals collect some cash right up front; some do not. But you will pay for the report up front or at the closing.
Now if everything goes right, the next time you will need cash is at the real estate closing. The closing is generally held at a local title company. The title company not only researches the history of the property to determine that when you close the deal it is yours but also that no one shows up later with a lien from the old owner. The title makes sure the real estate agents are paid, the mortgage broker is paid and all the numerous others involved in the deal are paid. Plus, they file the legal paperwork with the county so official records show the home is yours.
From a buyer's perspective, plan on 1-2 percent of the purchase price to cover all the involved costs. Now add that to the downpayment and subtract out you earnest money deposit and you have the approximate amount of cash you will need on hand to buy your dream home.
And finally, prior to looking for real estate get pre-qualified or better yet pre-approved for a home mortgage. Know the various programs that may be best for you and have your mortgage professional fully familiar with your situation so if there are any problems they can be rectified prior to getting into a rush situation.
Probably the one item that confuses the first-time homebuyer the most is the number of people involved in the transaction. Generally you have someone like me, a mortgage broker, your real estate agent, the seller's real estate agent, the appraiser, the title company, the investor and their underwriters and maybe even a land surveyor. Plus, all of these people have some fee involved in the transaction. So the price you agree to with the seller is not all of the funds you will need to close the deal.
First let's look at the money aspect of the purchase. Assume the purchase price is $400,000. At the time you make an offer on the property, you will write out a check to go along with the offer. This is called “earnest money” and it, along with the contract shows you are really interested in the property. Say the earnest money check was $5,000. This is cash that will go toward the down payment but is at risk if you decide to back away from the deal at the last minute, and for no good reason. So right up front you need to have money available for the earnest deposit.
The second time you will need cash is for the inspection of the property. I always recommend all buyers have an independent inspector inspect the home from top to bottom. Hopefully if there is a problem with the home, such as a structural defect, the inspector will detect it and you and the seller can negotiate a solution. If no agreement can be reached you should be able to cancel the contract and get your earnest money back.
The third time you will need to have cash available is for the appraisal of the property. The appraiser is a trained professional whose job is to give an expert opinion as to the value of the home. If the appraisal comes in equal to or more than the contract price, we are in good shape. If the appraisal value comes in for less than the contract price, we have a problem. If this does occur, you and your real estate agent need to determine if you will cancel the deal or go back to the seller and ask for a price reduction. If the seller does not agree to the price reduction, there are a couple of options. You could walk from the deal. The seller could find another appraiser, at their expense, to try to get an appraisal of higher value, or the seller can drop the purchase price. By the way, the appraisal ordered on your behalf is yours and you will need to pay for it.
The next time you need cash is for your credit report. Some mortgage professionals collect some cash right up front; some do not. But you will pay for the report up front or at the closing.
Now if everything goes right, the next time you will need cash is at the real estate closing. The closing is generally held at a local title company. The title company not only researches the history of the property to determine that when you close the deal it is yours but also that no one shows up later with a lien from the old owner. The title makes sure the real estate agents are paid, the mortgage broker is paid and all the numerous others involved in the deal are paid. Plus, they file the legal paperwork with the county so official records show the home is yours.
From a buyer's perspective, plan on 1-2 percent of the purchase price to cover all the involved costs. Now add that to the downpayment and subtract out you earnest money deposit and you have the approximate amount of cash you will need on hand to buy your dream home.
And finally, prior to looking for real estate get pre-qualified or better yet pre-approved for a home mortgage. Know the various programs that may be best for you and have your mortgage professional fully familiar with your situation so if there are any problems they can be rectified prior to getting into a rush situation.
