Tag Archives: purchase agreement

Inspection and Appraisal – Two Peas in a Pod, Right?

The quick answer to this is no, but it helps to understand why they aren’t the same and what purpose they play in your home purchase process.

The inspection is for YOU.  This is the time you can decide to move forward with your purchase, or opt to cancel due to new information, or maybe, you just get cold feet.  The inspection period is the time to reflect on your purchase.

The inspection is NOT a requirement of financing for a home.  It’s optional, but highly recommended.  The cost of the inspection is not part of your loan closing costs.  It is a separate payment made directly to the inspector and can range from $250 – $400.  You choose the inspector, usually with guidance from your realtor.

Most people will make their offer “contingent” on an inspection.  That ID-100270859means, you’re telling the seller you want to move forward, BUT, you first want the home inspected.  Typically, you have a window of time to get the inspection done and that window is defined in the purchase agreement.

The inspector will look for hazards and any immediate concerns, as well as urgent repairs needed after you purchase.    For instance, if the basement shows major water damage or settling of the foundation, this may raise concerns about the soundness of the home.  You may opt to not buy the home knowing that you may be getting into something that you can’t afford in terms of repairs.

The inspector will also look at the positives – let you know what’s good about the house, such as new mechanical equipment or a new roof.  They will also walk you through basic information – how do you shut off the gas or the water in case of an emergency?  How often should you change the filter on the furnace?  They will provide you with great maintenance tips for homeownership.

The appraisal, on the other hand, is for the LENDER.  Of course, you will get a copy of it for your records, but the appraisal is required for you to obtain financing.  The lender wants to make sure that the home used for collateral is not only worth what you paid for it, but also has good future marketability.

As long as you’ve decided to proceed after the inspection, the lender will order the appraisal.  It’s done randomly, meaning the appraiser is not a choice.  This is to protect both the lender and buyer from steering or having influence on the appraiser’s decision.

The appraiser will also look for safety and hazards, but they will also dig a little deeper.  They will compare similar homes – if you’re buying a rambler, they will compare ramblers.  If you are buying a townhome, they will compare similar style townhomes, preferably in the same complex.  They must consider sold and closed properties within a certain radius of the home (typically within a mile) and within a certain time period (typically within 6 months).

There is so much more involved with appraisals and inspections.  Two peas, yes, but not the same pod.  The biggest thing to take from this is that one is optional and for your purposes – the inspection.  From this, you can determine if you want to move forward with the purchase.

The appraisal is for the lender in order to determine if the home is a good risk and will help determine if they can extend credit, as it’s required to secure financing.  In any instance, the hope is that both the inspection and the appraisal are in your favor!

*photo courtesy of hywards/freedigitalphotos.net

And the Kitchen Sink Too!

Are you currently in the financing process?  Does it seem like they’ve asked for everything short of the kitchen sink?  We joke in the industry that somedays it seems we need a DNA sample to approve a loan.  While this isn’t really the case (thankfully!!), the amount of supporting documentation from start to finish may seem like you’ve provided a trilogy of your life!

There are quite a few steps and there are even different levels, if you will, of the process.  The initial level is being pre-qualified.  A pre-qualification is the most basic form of determining what you can afford. We ask questions about your income, assets, debts and employment.  More than likely, a credit report isn’t pulled at this time and if it is, the lender may opt to pull information from one bureau only (there are 3 to pull from).  Not only is it the most basic, it also doesn’t hold any water when making an offer.

kitchen sinkTo really know what you can afford, AND that you can actually get a loan, is to go to the next step, which is pre-approval.  A pre-approval means you’ve completed an application,  had a 3-bureau credit report pulled by the lender, provided supporting documentation and quite possibly, have had your file reviewed by an underwriter.  This is the “key” to making an offer on a home.

The biggest complaint about this process is the amount of paperwork that is requested upfront.  If this information is NOT requested prior to issuing your pre-approval, I would question the validity of your pre-approval from that lender.  Without verifying the information from your application, it’s like you’re back to square one, pre-qualification.  You certainly don’t want to make an offer on a home thinking you’re pre-approved and come to find out something was missed.

So here’s the list of all the “stuff” that starts the trilogy for your loan.  As the lender dives into the information, more “stuff” may be requested to provide further clarification.  For instance, if you had a foreclosure in your past, we would ask for the sheriff’s sale papers to prove we are out at least 3 years and may ask for a letter of explanation from you as to why it occurred.

The list:

  1. most recent 2 paystubs
  2. last 3 years federal taxes, all schedules (2 years if you’re NOT doing a first time program)
  3. last 3 years ALL W2s and 1099 forms (again, only 2 years for a non-first time program)
  4. last 2 months bank statements, all pages, all accounts
  5. most recent quarterly statement for retirement or 401K accounts, all pages
  6. any court papers such as bankruptcy schedules | discharge or divorce papers
  7. scan of your valid ID

Again, depending on your situation, more items may be requested for the pre-approval process.  Though it’s cumbersome and other lenders don’t ask for it, this is really in your best interest.  As an example, let’s say your application says you receive overtime or bonus, so the lender uses it for qualifying.  Had the lender dug deeper ahead of time, they would have seen that particular income had been declining year over year.  Now this income isn’t usable, making your qualifications less.  Again, bummer to find this out AFTER you’ve got an offer on a home.

While we really try hard NOT to ask for everything under the sun, we have to.  The CFPB (Consumer Financial Protection Bureau) requires us to prove your “ability to repay” the loan.  Our company had always operated this way, even before it became law.  It’s just good business.

It would be a pleasure to hear your trilogy and help you through this process of pre-approval.  We will really try to avoid asking for the kitchen sink!!

First Time Buyer? Come Learn More at Today’s Seminar!

I can’t believe how quickly the third Thursday of the month came!  Wow.  I’m ready to educate you on the home-buying process.

The FREE seminar starts at 6:30 and ends between 7:30 and 8pm.  This seminar has been presented many times and continues to be a successful avenue for first time buyers to get their feet wet on the process of buying  home.  Be prepared to learn what you need to do starting with the pre-approval from a lender to getting the keys at closing.  There are a lot of steps in-between but if you’re familiar with them, the process will be much smoother. 

Needless to say, the market is a little upside down.  Things have and are changing daily with regards to down payment, credit requirements, as well as documents needed to verify assets or income.  What hasn’t changed are the great opportunities to get into a home at a great value, pay as little as $750 out of your pocket AND take advantage of some great programs made especially for you.

I will be honored with the presence of my first time buyer partner, Steve Howe.  He will address the other “stuff” you need to know about making an offer, inspections and the process in general.

Our goal for the evening is to give you the information you need to feel comfortable about setting foot into the world of buying a home and eventually, home-ownership.  We want to educate and honestly hope you will gain a clear understanding of the process, as well as the great opportunities the market has to offer you right now.

Please RSVP to Cheryl by clicking here.  You can bring as many guests as you want and most importantly, come with questions!  See you tonight.

An Unseen Hazard with Buying a Foreclosure … the Deal that didn’t Close

With so many foreclosures in the marketplace, you are bound to purchase one.  Thing about foreclosures is the process can be a little trying.  There are a few reasons for this.  First, you’re dealing with a bank, so timeliness is not always a priority on their part.  You may not get a decision on your offer as quickly as you’d like.  Sometimes, banks will set a date purchase agreements are due requesting the “highest and best” offers.  This means they’re looking for multiple offers and in this instance, they may have originally priced the home lower than market to create this frenzy.  It is what it is and if it’s a home you want, you have to play by their rules.

Another thing you can expect with a foreclosure is an “as-is” addendum.  This means that you are buying the house without a seller’s disclosure and in most instances, the bank won’t fix anything if there are any issues with your inspection or appraisal.  Oh, and speaking of inspections … just because it’s sold as-is does not mean you can’t get one or make your offer contingent on one.  It’s still highly recommended.  Let me give credit to some banks out there.  Some WILL do repairs which can be beneficial to you.  Also, just because it’s bank-owned doesn’t mean you can’t ask the bank to cover some or all of your costs.  A good Realtor will be able to advise you on this aspect of your purchase agreement.

guy with houseThe reason a bank completes an as-is addendum, is they have no knowledge of the home.  They’ve never lived there and I’d be shocked if anyone from the bank has even been to the house.  So, if there was previous water damage, storm damage or anything that may negatively affect the home, they won’t know about it.  Typically, there is no personal property offered in these deals.  For instance, if the kitchen still has the appliances, they cannot guarantee they will be in the home when it transfers to you.  If they happen to be there when you move in — woohoo — extra bonus!

When working with the banks on these foreclosures, you can expect, in most cases, that the bank will require you to close with a title company they have chosen.  The bank will run all their transactions through this title company for ease and for familiarity.  Typically, the bank will offer to pay your owner’s title policy.  So you know, the bank may require you to close with their chosen company, though by law, you technically CAN choose your own company.  I would highly recommend you get a solid recommendation from your agent or lender.  Many title companies will adjust their fees to compete with the bank’s company.  I deal with title companies all the time and I know who performs and who could use a little work.  Those that can use a little work are not all bad.  There may be delays in getting paperwork or closing scheduled, but it eventually gets done.

Sometimes, it doesn’t.  Here’s what happened that should have never happened.  A recent transaction I had didn’t close on it’s desired close date and then didn’t close a week later.  It wasn’t the client’s fault.  It wasn’t due to financing — package and funds were there.  It wasn’t due to the Realtors not doing their job — they did all they could.  It ALL had to do with the title company.  This “title company” had no presence in MN.  The people were slow to answer emails and rarely answered phones.  They didn’t meet with clients, but sent a notary — very impersonal.  Not only that, the title work was “outsourced” which made matters worse.

Needless to say, we needed some paperwork, which took a few weeks to get after persistent emails and calls.  We needed the closing to be scheduled so we knew when to date the closing paperwork and the buyers knew when to be available — never was set.  Since we finally had the necessary paperwork, the agents and client set a date; we sent the package and wired funds.  It’s typical for the title company to provide a HUD to the lender for approval.  The HUD is the itemization of the settlement charges.  We spent the morning of the “rescheduled” closing date burning the phones up to the closer, as well as emailing.  Nothing.  Right after lunch, we requested the wire be sent back since there was no response or HUD.  Low and behold … a response with a request to give them some time as they are working on the HUD.  That was it, the last communication.  I am not sure why an extra week wasn’t enough time.  Come Monday we still didn’t have the wire back.

Seems pretty bad, huh?  It is unacceptable to have such poor communication.  In the 16 helpyears I have originated loans, I have NEVER experienced such disregard to all the people involved.  If you think the above is bad … the following is worse.  The family moved from their apartment, had their lives in a truck, their kids hours away with family and no place to go expecting to close on the date set in the purchase agreement.   So, that week the buyers had to pay to store their stuff and live in a hotel, with many days of frustration and uncertainty.  Who wants to go through this?  They didn’t deserve this.  The day the funds were at the title company, we waited … and waited … and the return calls never happened nor did the HUD arrive.  The buyers moved on and are now renting month to month.  They had to, had to provide a home for their children and stop waiting for a closing that wasn’t happening.  Why?  Because a title company couldn’t get their ducks in a row, didn’t have the same customer-focus as the others involved and didn’t have the desire to make it happen.

How could this have been prevented?  Bucking the system with the bank and choosing their own title company.  Does this mean everything would have been rosy?  Not necessarily, but it would have meant familiarity by those who matter — the buyers, agents and mortgage company.  It would  have meant the personal touch of having a person to talk to, someone to depend on and someone to sit across from who knows the programs and can explain the paperwork — not just a notary to stamp after each signature — which is how they planned to handle the signing.  These people could have saved hundreds, not to mention all the time lost in work, on the phone and away from their children.  How do they get that back?  How can they be compensated for what they lost?  They can’t and that is a shame.

Working with the right people doesn’t just mean your Realtor and loan officer.  EVERYONE involved in the transaction needs to have the same goals in mind … YOUR goals in mind.  This obviously includes the title company.  As you can see, they can make or break a transaction — a preventable situation.  I am hopeful that this family can get their lives back in order and I truly hope they can trust again to take that magical step of owning their first home.  They actually gave the title company one more shot and … of course, they still didn’t close.   I pray homeownership happens, as everyone deserves to own a home and more importantly, everyone deserves to be treated fairly, like they matter and be given the common courtesy of great communication.

Federal Tax Credit — Things You Need to Know

The last few years have been plagued with first time buyer programs.  This is a very good thing.  In 2008, the first time buyer tax credit was first introduced.  It was quite a bit different than the tax credit now.  “Back then” the program wouldn’t let the buyer take advantage of the federal tax credit AND a first time home buyer program, such as one with a lower rate or down payment assistance. 

Then the second credit was introduced in 2009.  Every year, it’s been getting better.  In 2009, the two programs could be combined which gave buyers the best of both worlds.  Money for purchasing and money to help after the fact.  Thousands of people took advantage of this credit and quite a few of them “took advantage” of the credit — meaning, people cheated the system — there weren’t enough stop guards in the system.  I even heard someone had their child apply for the credit.  Hmmm, think you need to be 18 to buy a home.  In any case, people scrambled to take advantage of the credit by closing on their home prior to December 1.  First time buyers were coming out of the woodwork.  It was a mad rush to buy, close and amend the 2008 taxes to get the money. 

Psych!  Guess you really didn’t have to buy and close by the end of November.  Hail to the government; they extended the credit.  Not only that, they made it current homeowner “friendly”.  The new rule, as you probably know, is you must have a signed/accepted purchase agreement by April 30th and must close on the house by June 30th.  The credit is equal to 10% of the sale price or $8000, whichever is less, for a first time buyer.  The current homeowner can qualify as long as they have owned their primary residence for a consecutive five of the last eight years.  Similar situation — 10% of the sale price or $6500, lesser of the two. 

Here is what you NEED to know.  We all like to get our refunds as quickly as possible!  Who wouldn’t?   So, e-filing is the way to go.  And many people have done that.  First, you can amend your 2009 taxes anytime after you close on the home.  You’ll need to file a 1040x (form for amending) and the 5405 (form for the credit).  The urgent piece of information is you CANNOT e-file.  Here is information from the Minnesota Homeownership Center:

“Because of the documentation requirements for claiming the credit, taxpayers who claim the credit on their 2009 tax return must file a paper — not electronic — return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit”

So, thanks to people falsifying taxes and taking advantage of free money, you’ll have to do the lengthy step of filing by paper.  And timing on these refunds?  I have heard anywhere from 14-16 weeks.  It doesn’t help that it’s tax time.  Oh and thoughts about whether they’ll extend the tax credit.  I really don’t think so.  But, hey, I could be wrong.  If they do extend it, you can count on a new blog!

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.

City Living Program BACK for Minneapolis & St. Paul

If it wasn’t great enough that we just got a new issuance of money in the Dakota County area; we now have NEW first time buyer money in the Minnapolis and St. Paul area under the City Living Program. This money is just available in the geographical limits of the Minneapolis and St. Paul area, so no other areas of Hennepin County or Ramsey.  Having this program available is such good news.

How do you qualify for this?  First, you must be a first time buyer, someone who has not owned a primary residence in the last THREE years.  There are income limits you must fall under and HOUSEHOLD income is calculated off all members in the household over age 18.  Here are the limits:

83,900   1-2 person household

92,290   3+ person household

There is also a purchase price limit of $376,870.  You cannot go over $1 above this!  I don’t think you’ll have any problem since this limit is quite sufficient to handle any properties that are perfect for first time home owners.  The sale price/purchase price limit is $376,870.  Another thing to know is NO personal property can be included in your purchase agreement.  That means anything that isn’t attached to the home — applicances are the most commom.  Don’t panic though — you will still be able to get these things agreed upon.  You definitely want to make sure you’re working with a knowledgable agent in this area.  I have a few partners that I can highly recommend!

Want the REALLY, REALLY good news?  Rates … and it’s all about rates isn’t it?  It shouldn’t be; but again, that’s another post.  Please note that you still must qualify for a regular loan.  Here’s the way I like to explain this.  As a buyer, you need to qualify or meet the guidelines for an FHA, VA or conventional loan.  Let’s call this the “Cake” you’re dying to eat!  Once you’ve got this qualification, then we can see if you meet the guidelines for the City Living program, which we’ll call the “Icing”.  If you’re like me — cake is ONLY good with icing!  So, again, you have to qualify for the cake and then have to meet the qualifications to get the icing drizzled all over it.  Nummy.  The “Sweet” taste of this is a rate under 5% on a 30-year OR a similar rate WITH 2% of the loan amount to be used toward down payment or closing costs.  Another important point, you DO need $750 of your own  money into the transaction, which cannot be a gift.

They will FORGIVE this second loan if you occupy the home for 7 years.  If you sell under this time, the full amount you got for the second loan is due.  Fortunately, this loan is 0% interest and NO payments are ever due during your loan.  It’s like getting a “loan” from Mom and Dad — “just pay us back when you’re done with it”.  So, you sell, you pay back.

Since this is a first come first serve program, you definitely want to make sure that you’re not only pre-approved with a lender that knows these programs, but also knows how to explain the important nuances of them.  I can help you navigate the waters and make sure you’re sailing strong  during your trip as a first time home owner!!!!!!!

Dakota County Buyers — First Time Buyer Program is Back!

Can you say FINALLY???  We have been waiting patiently, or maybe for some, impatiently, for more money to come available.  It’s here.  And a week later, you will see money come out in the cities of St. Paul and Minneapolis for the City Living program — very similar to this.

The skinny on this first time buyer program?  Well, you need to be one, which means you could not have owned a home in the last 3 years.  Because this is a bond program, you will be offered a lower than market rate and good news … it doesn’t change with market volatility.  Depending on your household income, you could qualify for up to $10000 in down payment assistance.  The first time buyer assistance isn’t forgivable, meaning you need to pay the zero interest, down payment money back when you sell.  If you get $7000, then you pay back $7000.  It’s pretty cool — here’s money to help and just give it back when you’re done using it.  Oh is this awesome!

There are sale price and income limits for this program, as with all bond programs.

$83,900 1-2 person household

$92,290 3+ household

Maximum Sale price is $276,683

This isn’t like the other first time program they had called Silver Lining.  It’s not as restrictive.  No crazy strings like the house needs to appraise at 1% higher than the purchase price and there is no requirement for a special home inspection.  One thing that IS required is you have to attend the Homestretch class where you can sign up at http://www.hocmn.org .  If you’ve taken this course, it’s acceptable to use your current certificate of completion pending it’s not over a year old from the date of closing on a house.

So, now you have the AFTER closing tax credit up to $8000 and you can get up to $10000 BEFORE your purchase to use toward down payment and closing costs.  By all means, please call if you have any questions or want to take advantage of this program.  It’s first come first serve, so get out there and buy some of those great deals in Dakota County.  Oh and one important point, you DO need $750 of your own  money into the transaction.  This cannot be a gift.

By the way, not all lenders have access to this program.  Make sure you’re working with an expert in first time buyer programs.  It’s important you’re educated on how the program works, what the recapture tax is and other parameters for the program.