Tag Archives: earnest money

What to Expect when You’re Expecting to be a Homeowner

A little play on a book title, but if you’re like me, you feel better about taking on something new when you’re prepared –whether it’s going to college, starting a new job, becoming a parent or buying your first home. When you understand the process, the task itself isn’t so daunting.

The first thing to realize, as you leap into home-ownership, is the need to get pre-approved for financing. The lending industry is under scrutiny in an effort to protect you, the buyer.  Due to this, lenders are required to prove you have the ability to repay the loan.  This means you will be required to provide supporting documents.  This can become quite cumbersome, and frankly, frustrating.  We understand – believe me!  Our goal is the same as yours … help you get a loan.

The first step is the loan application. To make this convenient, we can gather this

courtesy of Stuart Miles|freedigitalphotos.net

information over the phone, on our internet site or in-person, whatever is best for you.  We need information such as your name, contact information, addresses and employers for the last two years, income, assets and your debts.  The application enables us to obtain credit to determine if you meet today’s credit guidelines, which vary by program and financing type.

From there, if all looks good, we gather supporting documents, such as paystubs, bank statements, etc. This information will initially be reviewed by the loan officer for validity and to determine if income matches what’s on the application, among other things.  It’s important to meet with your loan officer to discuss your options, the costs of buying a home, and most importantly, your comfort level in terms of a payment.

Once pre-approved, you’ll look at houses, and hopefully, will find one you want. At this point, you and your Realtor will draft a purchase agreement stating the terms of your offer – price, closing date, what you may want the seller to pay toward closing costs, earnest money amount and any contingencies you desire, such as having a home inspection.  Assuming you get the “your-offer-was-accepted” call, we move on to the next steps.

You may have chosen to do a home inspection. You will pay the inspector directly; this is not part of the closing costs the lender would have gone over with you.  The inspection will help you determine if you want to move forward on the purchase or not.  Hopefully, you are full speed ahead!

Now that you have a property address and aren’t just a TBD (to be determined) anymore, there will be disclosures that are generated for you to sign. Your lender may mail these, email you a link or sit down with you to sign depending on their process.  At this point, you will receive a loan estimate, which will outline all your costs, including down payment and seller paid costs or down payment assistance, if applicable to your situation.  Your lender most likely went over a similar type estimate at your pre-approval meeting so you had an idea what your costs would be.  The loan estimate is still an estimate but is much closer to actual figures now that we know the price, taxes, rate (if you locked) and closing date.

 

At this point, you can lock in an interest rate. Your loan officer will check to see what rates are for the program you’ve decided to use.  Keep in mind, if using a first time buyer program, they publish their interest rates right out on their sites – so the rate is the same with any lender.  Rate locks have expiration dates – that means we must lock the rate long enough to cover you through your closing date.  And something very important – once locked, you’re locked.  If rates go down after locking, you cannot get a better rate and if they go up after locking, the lender must honor that rate.

Depending on how long the time-frame was between your initial pre-approval and the accepted purchase agreement, the lender may ask for updated paperwork – items that get old, like paystubs and bank statements. Eventually, when your earnest money clears, we will prove that left your account.  And, if your credit report has, or will, expire before your closing date, new credit will need to be pulled.  The life on the report is 120 days.

The lender will process your file, order verifications of income, flood certification, appraisal on the home and title work, among other things. Depending on the lender, the file may go directly to the underwriter, or may hang back while the ordered items come in.  The best advice here – if the lender needs any additional information from you, please provide it in a timely manner to keep your process going as smoothly as possible.

Once all documents are in, including an acceptable appraisal and title work, your loan will go back in for final approval. Either after this, or prior to this, the lender will provide you with a closing disclosure, which you must have in your hands three business days (includes Saturday) prior to closing.  Some lenders require you sign this to acknowledge receipt in that time frame.  This will give you the final figures for your closing.

Now the fun — going to closing and getting the keys to your home! You will sign a bunch of documents, get a check or send a wire for money needed at closing (dependent on your program, down payment, etc) and will possibly have a chance to chat with the sellers to find out more about your new home, and maybe the scoop on your new neighbors!

For most people, this process, starting with the application, will take you 60-120 days depending on your situation and motivation. And for some, it may take nine months or longer J  Either way, hopefully this has given you a little more information on what to expect when you expect to be a homeowner!

Tips & Tidbits: Earnest Money

So, what is it?  How much will it cost me?  When do I pay it?  Is this money in addition to all the costs on my good faith?  All very good questions that I plan to answer.  If you’ve owned a home in the past, this term isn’t new to you, though the information may still be important.  As a first time buyer, this information is VERY important to know.  Let’s start by saying “earnest money” should have been something that was explained to you by your Realtor or lender in the first meeting.  If not, then it’s time to move on.  Here’s why.  Earnest money is money you will need prior to closing on a house.  It’s real money you need to have saved or gifted.  It’s not just play money that goes with a purchase agreement.

Here’s the answer to those questions above.  It’s a check you write that is presented with your offer to show the seller you’re “earnest” in buying their home.  The amount can vary from $500 and up, the most common amount being $1000 or $1500.  You DO need to have this money in your account.  Once your purchase agreement is accepted and all contingencies have been cleared — i.e. inspection on the home passes and you plan to move forward — the check is cashed.  Here is the crucial thing.  If you’re doing a first time buyer program that requires you to have some of your own funds into the transaction, this money CAN be applied as such.  This means that the money does need to be yours, not a gift and not a deposit from somewhere else that can’t be traced.  The earnest money IS part of your down payment.  It will come off the bottom line at closing for the funds you need assuming we, the lender, can prove it cleared your bank account.

Can you get it back if you bail?  Ha, good question.  If you choose not to buy due to an unacceptable inspection, then yes, you can.  If you cannot secure financing, more often than not, this would also qualify to get it back.  If you don’t perform in a timely manner on the purchase agreement, back out or otherwise, I wouldn’t count on getting it back.  Plus, the seller could sue for damages — like time off the market.  Working with a knowledgeable Realtor will help you understand the ins and outs of getting it back if necessary.

There you have it — earnest money.  When going out to look at homes, don’t leave home without it — your checkbook, that is!  You never know when you will come upon the house you want to make an offer on.

Getting a Gift for Down Payment?

Lucky you!  There are many buyers these days getting financial  help from family.  I want to give you a few tips on getting gifts for your home buying process.  Not all programs allow gifts or have the same “rules” on the process.  In this tips & tidbits, I will address gifts for FHA loan types since these make up over 75% of my current business.

  • gifts can only come from family members
  • gifts CAN cover all of your down payment and closing costs, unless the program requires a minimum investment, like the Dakota County Bond Program
  • don’t deposit gift money into your accounts until you’ve discussed this with your loan officer
  • the funds for the gifts WILL be tracked — not only into your account, but proof will be requested from your family to prove they had the money to give you (there are specific guidelines to follow)
  • cash is not an acceptable gift
  • if demonstrated, gifts could come from a non-family member, i.e. fiance or partner (certain documentation will be required)
  • unsecured, borrowed funds are not acceptable sources of gifts

These are a few things that come to mind when advising on gifts.  Maybe you’re asking why even address this?  Here’s the thing, in the 16 years I’ve done this, I’ve seen way too many times when a loan file gets hampered by doing the wrong thing with gift money.  It’s my goal to give you the best advice possible so this doesn’t happen to you.  It’s already a stressful situation buying your first home, it certainly doesn’t need to be worsened by having to create a paper-trail for something that already happened.  Better to know what is expected of you on the FRONT end of your home-buying process then coming to you and your family at the end asking for more paperwork.  Oh how fun!

Moral of this tip — please be upfront with your intentions to get a gift and hopefully you will be given the right advice the first time!