HELPFUL INFO FOR BUYERS
Description of earnest money, down payment, closing costs and escrows. In this market we are seeing sellers contribute! We negotiate all these things for you !J
Earnest money is money you provide at the time of the offer and is kept in an escrow account until closing. Usually 1% of purchase price.
This is your money and is applied to your closing costs, escrows, down payment etc or returned to you at closing if you choose a no money down option. If you need to bail out of a contract within the dates allowed your earnest money is returned. Offers consist of: Contract, earnest money and lender letter.
Down payment is money that goes directly toward the purchase price and therefore reduces the loan amount. $200,000 purchase price with $40,000 down will have a loan amount of $160,000.
Closing costs typically include: loan origination fee, how the lender gets paid, underwriting fee, processing fee, and appraisal. Underwriters, Processors and Appraisers work independently from the loan originator, your mortgage person. These costs are normally added or rolled into your loan. Added to the $160,000 in this example.
We often negotiate these costs to be paid by the seller in this market.
Escrow costs at closing include prorated interest for day of closing until the end of that month. Most title companies will then collect 3 to 4 months taxes also at closing to go into your escrow account. One year of Homeowners insurance will also be collected at closing. In Colorado water and sewer is also collected up front. Usually 2 to 3 months. You will have this escrow account as long as you own the home. When you sell or refinance this escrow account is closed and any reserves will be refunded. We often negotiate these costs to be paid by the seller in this market.
Pre-Qualified means a lender asks what you make, what you owe and what assets (savings etc) you have to determine your debt to income ratios and can give you a general idea of what you are approved for.
Pre-Approved means all the above AND they collect, bank statements, W-2’s or 1099’s and pull all 3 credit bureaus to determine a middle FICO score. Only after that can they get it into underwriting and get you a REAL approval. It will still be subject to acceptable Title, Appraisal and fully executed contract to buy and sell.
Mortgage Banker works for one bank and usually one set of underwriters. They are often limited in what they offer.
Mortgage Brokers work with many banks; even the big ones like Wells Fargo, Bank Of America etc and have more options for you.
As of Jan 1, 2007 all Mortgage lenders must be registered, background checked and fingerprinted with the Real Estate Commission and CBI (that’s a good thing!)
100% or NO MONEY DOWN options
Sometimes buyers will choose to finance their down payment via a concurrent second loan and then combine them at a later time or pay off the second when funds are available, however, as of Oct 1st 2008 most 100% bank financing programs are gone. There are CHFA (Colorado Housing and Finance Authority) loans that offer low interest down payment assistance to borrowers who make $85,000 or less per household. We also see sellers offer to pay the buyers closing costs, points and/or escrows in a buyer’s market. VA Loans also offer no money down but have a few fees involved.
FHA Grant Programs
There are several FHA programs out there were the seller may “contribute” to the buyer for their entire down payment and then deduct a portion of that contribution from their taxes. Check with your lender to see which programs are available and appropriate for you. There are restrictions / requirements.
Short Sales / Pre-Foreclosures (short payoff)
The word “short” has nothing to do with time! Sellers ask their bank to take less than what is owed on their mortgage in order to avoid foreclosure. They often take up to 20% off what is owed to them (the bank) if there is a qualified buyer and are under contract. These deals are subject to bank short sale approval and may take up to six months just to get under contract. These require a bit of patience as communication within the different bank departments is slow or nonexistent. Short sale sellers owe more than their house is worth so even with a reduced or “short payoff” the deal is not always so sweet for the buyer even after the long wait.
HUD’s and Bank Owned Properties REOs
A HUD home is one that had an FHA or VA (government backed) loan and sellers defaulted. It becomes government property. They offer the property “as is” which means they are not obligated to fix anything. You still have a right to inspect it and terminate if not satisfied with the property. There are also HUD addendums protecting them from future liability. We can show you any HUD.
Bank Owned properties are Conventional loans (not government backed) that were defaulted on and are now owned by the Bank. They too have “as is” addendums. Banks have to charge attorney fees and extra charges they acquired after the “short sale” period but have them priced to sell !!! HUDs and REOs don’t take as long to close as short sales. Usually just 45-60 days.
Can I just rent my house out now and purchase another ?
It is also possible to purchase a home without selling your current home but you must be aware of a few risks. People will sometimes buy a home with 90% financing for example 80/10 loan. With the first mortgage being 80% there is no need for MIP (mortgage insurance premium) because you are putting 20% down. (10% 2nd and 10% down).The 80% mortgage lender does not care where you get the 20%. In this case you are borrowing 10% and bringing the other 10% to the table. You may put a renter in your current home but know that debt will be on your debt to income ratio. In other words when that lender is considering you for a loan and sees that you already have a house payment on your current home you must qualify for both. You must have a one year lease with a “real” person and As of Oct 1st 2008 you must have 30% equity in your existing home to do this. This is a great strategy if you are a disciplined person because you have two properties making you money in equity! This is a great investor and buyers market but be careful! We recommend that you talk to your lender for the latest regulations.
Ok, What does this COST???
Our job is to legally protect YOU! but we get paid by the seller at closing for bringing the buyer. YOU get full representation at
NO COST TO YOU! It’s called Exclusive Buyer Agency and
Colorado was the first to offer it!
We have been helping buyers like you for over 14 years !!
We can help! Tony and Cindy Anderson 303-810-8382 Cell
1-800-707-1087 ext 1 Office