First Time Home Buyer Tax Credit: Who is eligible?

First time home buyers purchasing any kind of home - new or resale- are eligible for the tax credit. Top qualify for the tax credir, a home purcvhase must occur on or after April 9, 200+8 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

Tomorrow, I will cover who first home buyer is...

Closing vs. Settlement (Once Again)

Once again this is a very confusing item, especially to first time home buyers. Lots of buyers make a mistake thinking they would get up from closing table, signing paperwork, get the keys and go move in.

Your Agent should explain to you up front on the day of the offer. Pull out a calendar, look at the dates yo are proposing. If you settle/close on Friday, the Buyer will not get the home until Monday or Tuesday, that is if Monday is not some type holiday. If you want to move on a weekend, I recommend to close on Wed. or Thurs.

There are lots of items to consider which is beyond Agent's control, for instace non conforming loan may ake even longer to close.

If I represent sellers, I do not recommend to give a possession to buyer before the house closes. Does it happen? yes. Is it risky? yes.

Settlement and Closing...Settlement vs. Closing

Settlement shall take place on the Settlement Deadline.

If the date is being moved earlier or later, not to be in default, both parties should agree in writting, creating an addendum. See you agent on that or me.

What is Settlement?

1. Seller and Buyer have signed and delivered to escrow/closing office all documents required by this Contract, by the Lender, by written escrow instructions or by the applicable law
2. any monies required to be paid by Buyer under these documents (except for the proceeds of any new loan) have been delivered by Buyer to escrow/closing office in the form of collected and clear funds
3. any monies required to be paid by Seller under these documents have been delivered to escrow/closing office in the form of collected and clear funds
4. Seller and Buyer shall each pay 1/2 of the fee charged by the escrow/closing office for its services. Taxes and assessments for the current year, rent, and interest on assumed obligations shall be prorated at Settlement as set forth in this Section. Tenant deposits (including but not limiting to security deposits, cleaning and prepaid rents) shall be paid or credited by Seller to Buyer at Settlement.

The transaction will be considered closed when Settlement have been complete...So, Settlement is not the same as Closing. And, for seller, it is not recommended to give possession after settlement because the house is not sold yet.

What does it take to Closing to be complete?

1. the proceeds of any new loan have been delivered by the Lender to escrow/closing office
2. the applicable closing documents have been recorded in the office of county recorder.

How long does it take?

Two actions descibed above shall be completed within 4 calendar days; otherwise, seller can cancel the contract and keep the earnest money. (Usually it takes about 48 hours)

In Summary, Settlement=everyone has signed the paperwork
Closing=moeny is there and transaction is recorded

Closing Costs

Especially, as a first time buyer or seller, people do make mistake budgeting for the house they can afford, forgetting about closing costs. Today I would like to touch base what closing costs are and what usually seller and buyer responsible for.

Depending on how strong the market is for sellers and buyers and how well your negotiation goes on, you can ask pther party to pay for your closing costs. Keep in mind though, it may no be always beneficial, so please call me if you consider doing that...

Please keep in mind that numbers below are only estimates, and they may depend on your agent and Title Company. I recommend my clients no matter if it is Buyer or Seller to call around and choose the best Title Company out there.

What Closing Costs Seller usually responsible for and why?

As a seller, you final paperwork should look something like this:

Contract sales price: let's say $275,000
minus closing costs-------about ??
minus paying off the mortgage(s) you have
minus (adjusting items you have not paid for)....let say you are closing on June 04, county taxes are due once a year in Utah, so final amount will get adjusted, in other words you would be responsible for county taxes from January 01-June 04 (assuming June 04 is recording date)

All of this is pretty easy except what is closing costs?

1. Seller is responsible for commissions, seller would pay for Buyer's and Seller's Agent. This number should not be a mistary because if you are a seller, you should already have agent agreement which discussed how much it is...
2. That Title company would charge settlement or closing fee, usually about $75-100
3. Title Company would also charge document preparation free: about $25-35
4. Seller is responsible for Owner's Coverage. In other words, Title company at seller's expense buys insurance which covers Lender and Buyer/Future Owner covers from any undiscovered liens, claims, house upgrades with no city permit, etc. It is not an option item for seller, it is a requirement for seller to purchase. If you house costs $275,000, you are looking at about $900
5. and, lastly recording fee- to make sure you would be removed as a owner of this property-$20.00

What Closing Costs Buyer usually responsible for and why?

As a buyer, you final paperwork should look something like this:

Let's say you contract price is the same: $275,000
minus closing costs-------about ?? about $8,000
__________+
so the gross amount due from Borrower/Buyer is now $283,000

Then amounts paid by or in behalf of the buyer will be deducted:

such items as Deposit or Earnest Money (so here, you would see that your deposit did not get lost it simply became your downpayment)
principle amount of your loan
2nd loan if you have one
again, because county taxes are paid only once a year, and you did not live in the house from January 1 to June 4-you will receive this prorated amount as a discount

This is how Title Company calculates how much many you would need to bring...

Again, All of this is pretty easy except what is closing costs, what is $8,000 in this case:

1.Loan Origination Fee, this amount is traditionally 1% of you loan amount and is payable to your Mortgage Company. It should not be a mistary, and you should know up front how much moeny your mortgage person is planning to charge.
2. Whoever is providing you mortgage may also charge such items as tax fee, processing fee, underwritting fee, flood certification fee, appraisal review fee, assignment fee, courier fee...please get a good understand what and why these fees are charged...Appraisal and Inspection Fees, if you did no pay them yet, will be charged here
3. Now, let's sy again you are closing/recording on 6/04. Your first payment will not be due most likely until 7/01. So, your interest rate proration will be added to you, in othr words, based on your interest rate, it is calculated that it is about $37 a day, so you will be charge about $980, from 6/05-7/01
4. Harzardous Home Insurance: I recommend you shop around or ask your existing car insurance for discount if you do both car and huse with them. Your Home Insurance will be added here, about $650, let's say
5. Then the lender may request some reserve to have money at all times for such things as 2 months of hazard insurance at all times, some months of county property taxes, mortgage insurance, etc.
6. Now, title charges: Settlement/Closing fee $125, document preparation $35
7. If you are a cash buyer, you would not be resposible for the next, highest number: Lender's Coverage. If you borrow money, you are required to buy this Title insurance which is described above.
8. Wire and Courier Fee to Title Company
9. Recording fee- to make sure you are certified as a new owner of the property

As a side note to remember, most of thi fees are the same if you refinance the house, so please remember to do the refinancing only if it is beneficial.

I am back: Purchase Price in Real Estate Purchase Contract

I am back from Moab. Our friends had a reception in Wilderness House. Amazing view. Take a look at my picture.

Going back to business, and continue the discussion about one of the most important real estate document-Real Estate Purchase Agreement.


What is Purchase Price? If I represent buyers, I always recommend and do House Comparison before we submit our offer.

Keep also in mind that purchase price may be only one of few money terms in the agreement. Buyers may ask Seller to pay their closing costs. Buyers may ask for some repairs to be completed even before the inspection is done...In other words, if I represent Seller, I recommend patiently review the whole offer before making the decision if the offer is good or not.

For seller, it may be important Method of buyers Payment....you would think why? Seller will be paid cash after closing and recording anyway...the answer is time...b. If Buyer is applying for conventional mortgage for instance, seller is at assumed risk that buyer either would not get qualification, something can change in buyer's financial ability and the process usually takes about 30 days (that is why houses are usually under contract for about 30 days), some other mortgage make take only several days especially if buyer is already pre-qualified, if the buyer has cash, the closing can happen very quickly, and seller will get money probably within 2-3 days...

Tomorrow...I will review which closing costs buyer and seller usually pays...

EM (Earnest Money)+Loan+Balance in Cash=Offering Price

The right or obligation to do appraisal depends on Financing Condition

If Buyer applies for mortgage, the bank will require to do the appraisal. In my practice, I saw only once when bank waived its right (buyer had very large downpayment). Otherwise, buyer must agree to do the appraisal...It is buyer's obligation...

The Buyer may have a right to choose or not to choose to do the appraisal only if the buyer is a cash buyer.

Price the House Correctly...

Knowing how much you can get for your house is very important...



First of all, you have only one chance to price it correctly. Certainly, you can argue that if no buyers come, you can lower the price...But, the fact is pricing incorrectly results in



1. Asking too little

2. Asking too much and loosing money (mortgage payments) and time...



Let me give you an example:



In Summer 2007, I got clients/listings on 2300 N / 3186 W, Clinton, Davis County, UT. Back them (since market changes monthly, and daily sometimes), I recommended them to price it for $243,000. The house in front of us (I believed in a clearer condition) got sold for $245,000 few months prior. Being on the market for less than 2 weeks, we got an offer (1st offer) for $238,000 with all other conditions and buyers' financial situation, I recommended to take. My clients informed me than less than $245,000 they would not consider anything. Knowing and informing my clients that it is quite difficult to get what you ask for, back in summer 2007, it was not impossible yet; however, if we were beoynd summer/early fall selling season, it can be late. Too more weeks later, we got offer (2nd offer) for $250,000 with $5,000 concessions/seller would pay $5,000 towards buyers' closing costs. I had more doubts about financial situation of these buyers, but having full price offer on hand, my clients wanted to take it.



At the end, this offer did not go through because of buyers' financial situation. I started loosing faith that in late September and changing market, I can bring someone else for full price offer. I suggested buyers to hire someone else if they think $245,000 is the only price they intend to receive. (they should have ask for $250K if they wanted to get $245K) In early September, I cancelled my contract and relationship with these clients for this and few more reasons. Letting go is smarter sometimes that keeping something which is not working.



In early October, 2007, clients hired some other agent. Asking price started decreasing slowly from $245,000 to $238,000. Only in late January, 2008, (4 months later), they got an offer (3rd offer). And, a week ago (2/20,2008), it was finally sold for $237,000 and 7,110 concessions.



So, the moral of this story is compare what would have been better for them. $238,000 was more money than $229,890 no only because it is more, but also because it came sooner with other better conditions. And, if the goal was to receive $229,000, we could have achieved it faster than 4 months.



1. Offer number 1, which came in 2 weeks OR 1. Offer number 2, which came in 4 mos

2. $238,000 no concession=$238,000 2. $237,000-7,110 = $229,890

3. No more mortgage expense, and ability to reinvest 3. mortgage expense for 5 months

the money same summer before school year started no money to move. rent in a new place

(these clients needed to move either way before in addition to mortgage expenses.

school started)



It is important to be realistic about your goals when pricing the house, and very important to estimate other possible expenses and time, plus stay informed what is happening with market during your listing.

Financing...

Before you start looking at Salt Lake City homes, it’s a good idea to know how you will finance the purchase of your new home and how much of your own money you will need to accomplish this. Keep in mind that the better your credit is, the less you will need in most cases.
The costs are listed below:

• Down Payment : Most houses are bought with 0% to 20% down. There are many loans for a variety of needs. If you put 20% or more down, there is no private mortgage insurance.
• Closing Costs : Closing costs and prepaid taxes & insurance will typically be another 2%-4% of the purchase price. However, the Buyer can negotiate with the Seller to pay for the Buyers closing costs and add them to the price of the house. The lender allows this, so the Buyer usually doesn't need to save this amount to buy a home.
• Inspections: A home inspection will cost $300 or more and is worth it. The Buyer should plan on paying for this at the time of inspection.

Other concerns for down payment:

• Your Credit: If your credit is good you will have more options.
• Once you’ve saved some money, what other things beside the purchase of real estate will you need that money for?
• The type of house you are buying (If you're buying a fixer-upper, you'll need money to fix it after you buy it)
• 20% down. No private mortgage insurance (PMI) if you put 20% down. This matters more if you will be staying in the house for a long time. However, it usually makes sense to buy homes with little down if the price of real estate is going up, and try to eliminate the PMI later as a result of your appreciation
.• Interest rate. Some low down payment (0% down) programs have higher interest rates, but many are quite competitive.