Down payments, Earnest Money, Upfront Appraisal Fees, Homeowners Insurance, and the dreaded Closing Costs are all expenses faced by buyers when purchasing a home. How much money do you really need to buy a house?
The days of Zero Downpayment Loans have been gone for a few years. There are still some programs left which offer down payment assistance but most programs still require a contribution from the buyer. Mortgage officers provide great knowledge of the special programs including the Dakota County Bond Program. Also, the Veterans Loan, known as a VA loan does still offer a true Zero Downpayment loan.
Special down payment assistance programs aside, the standard options for down payments are 3.5% for an FHA loan and 5%, 10% or 20% down payment on a Conventional Loan. The calculation of the down payment is straight forward, simply the purchase price multiplied by the percentage you plan to put down.
Closing Costs are the second portion of money needed to buy a house and the calculation of these costs is more elusive.
Closing Costs are often estimated to be 3% of the purchase price of your home. I like to explain it this way:
The first 1% is usually your Loan Origination Fee. This fee pays the mortgage company for the work they do setting up your mortgage, the loan officer and processor have a share of this fee.
I refer to the second 1% as government and processing fees. Included in this portion are mortgage registered taxes, title updating fees, appraisal fees, title company fees, recording fees and such.
The final 1% is money the mortgage company collects from you to start and fund your escrow account. The escrow account funding is approximately 5 months worth of property taxes, three months of insurance and one full year of homeowner’s insurance.
The % amounts are just estimates and when the price of a home is lower than $200,000 the closing costs are higher than 3%. This happens because many of the closing costs are fixed costs, so as the price of the home goes down the percentage associated with those costs is higher.
Now for some good news! It is possible to ask the Sellers of the property you are purchasing to pay for some or all of your closing costs. Mortgages have certain restrictions and limitations about Sellers paying your closing costs, but most allow up to 3% of the purchase price to be paid by the Sellers of the home.
You are rolling in the closing costs and really self-financing them into your purchase. If a Seller will accept a $200,000 offer and pay 3% ($6000) towards your closing costs, then it’s fair to assume you could have purchased the home for $194,000 if you were to pay for your own closing costs.
Today’s interest rates are at all time lows, making this closing cost self-finance practice very affordable and popular.
If you negotiate the closing costs into the price of the home, the total amount of money needed to buy a home is just 3.5% of the purchase price. Mortgage programs including FHA and VA allow the 3.5% or a portion of it to be Gift Funds. When you receive gift funds it must be from a Parent, Grandparent, or other type of Significant Relationship and the donor must sign a gift letter confirming the funds as a gift.
Buying a home in Lakeville, Apple Valley, Eagan, Rosemount, Burnsville, Farmington, Savage and Prior Lake is more affordable now than ever before. The affordability is based on Home Prices and Mortgage Interest Rates. Get started today!
The question makes my heart *Sigh* each time I hear it. “What should I do with my Burnsville Underwater Townhome?” “How can I sell my Apple Valley Townhome if it’s Underwater?” “I can’t sell my Lakeville Townhome, but I need to move?” “When will my Farmington Townhome be worth more than I owe on it?” “Should I Short Sale my Eagan Townhome?” “What happens if I let my Rosemount Townhome go into Foreclosure?”
Each person’s situation is slightly different and the decisions you make about your underwater property can have long lasting implications for your future. I am happy to talk to you personally to help you analyze the details of your decisions.
The 5 options detailed below are the most common solutions I see homeowners selecting. Some of the ideas may sound scary first, but read through the explanations and give us a call to discuss them if you wish.
1) Stay and live in the townhome. If you do not have to move for a specific reason such as job transfer and the current payments are still affordable, the first option is just to stay put. This can be difficult if you have your heart set on getting a home with more space, a backyard, basement, larger garage, etc… If your family size has increased since you purchased the townhome this option can be especially unattractive. Look for opportunities to better utilize the space. Can you convert the loft into a bedroom? Give the kids the larger bedroom? Get bunk beds, futons, closet organizers or other practical space saving furniture? Build in shelves all along the garage? Think about all the options before deciding if moving is absolutely necessary, especially if your mortgage balance is not that far over the townhome’s value. The market may improve enough in a few short years to allow you to comfortably sell the property.
2)Refinance the townhome using one of the new programs. There are several new mortgage programs designed to allow refinance even if the value of the property is not as high as the mortgage balance. Read the blog post, Can I refinance my Underwater Mortgage for more information about this option. New programs are being introduced this next Month, check back here as I will write an update post about new refinance options starting in March.
3)Rent the townhome and buy a new house. We can refer you to a great mortgage officer, see if you can qualify for a loan to buy your new home while still owning the townhome. There are some very practical steps and financial considerations you should consider before doing this option. Consider things such as; “Can I pay the payments on both properties if my renter moves out unexpectedly?” “Can I keep up on the maintanence and repairs of two properties?” “Do I want to deal with the work of being a landlord?” Don’t worry about the work of being a Landlord, Laura Kvas, an agent with Selling South of the River, can handle all your rental needs. She does a fantastic job, read about her helpful rental program on our Rental page.
4) Short Sale the Townhome and rent for three years. If the townhome is hugely underwater this might be a wise option. If the balance on your mortgage is $80K-$100K$ over the current value of the townhome, it’s time to think about the long term picture. I see so many young families still in a property on which they owe $100,000 more than the current value. Looking at the long term picture means to ask yourself; “If we stay and keep the property, paying on it for 9 more years, will we still be $20K underwater? How long can you truly live in the townhome? “What other aspects of your financial future will be effected by this decision such as Retirement Savings? Kids’ College Expenses?”
5) Foreclosure. If there is no significant hardship to warrant a short sale, the last option might be going through a foreclosure. I am not suggesting you decide on Foreclosure, Short Sale, Rental, Refinance or Staying in your Townhome, because I do not know your specific situation. I am suggesting that it’s very smart and necessary to become familiar with all the options and to evaluate each one based on your current and future financial interests. Remember, many people can get a new mortgage just 3 years after a short sale or a foreclosure. For more information on that, read Where will homebuyers in Dakota County come from next?
We are here for you, call anytime 612-889-6496, I’ll be happy to confidentially discuss your situation. Remember…
“The absence of making a decision…is, in and of itself, a decision about your future.”
Great news for South of the River Homeowners, it may be possible to lower your interest rate, even if your mortgage is underwater! This is a huge change in policy and procedure. Previously under the HARP guidelines, the amount of mortgage you could refinance was capped at 125% of the Appraised Value of your home.
The big change is, appraisals will no longer be required. You can re-finance your mortgage without worrying about the value of your home. Wow!
• Home owners with loans backed by Fannie Mae or Freddie Mac can participate. (Home owners can visit: freddiemac.com/mymortgage or fanniemae.com/loanlookup to determine if their mortgage is owned by either).
• Home owners must be current on their mortgage.
This program allows homeowners who are current on their mortgage to take advantage of today’s lower interest rates, even if their homes have lost significant value. The money saved from lowered house payments should help Homeowners avoid the need to do a Short Sale or lose their home to Foreclosure. Traditional homesellers will benefit because they won’t have to compete with as many Short Sales and Foreclosures on the Market. Today, there are 665 active Foreclosure and Short Sale Homes on the market in Savage, Prior Lake, Lakeville, Farmington, Apple Valley, Eagan, Burnsville and Rosemount combined.
There may be some economic stimulus as homeowners purchase more goods and services with the extra money saved from refinancing.
Do you need to know if you should refinance? There is a formula used by mortgage companies which helps guide your decision. You can call me 612-889-6496 or use the Ask a Question form to request a personal evaluation of your situation. We are always happy to hear from you and will put you in touch with the best industry professionals.
When I put my ear to the ground, I swear I can hear hoof beats. The sound is distant and faint but steadily pounding and slowly advancing! It’s music to our ears, what is it?
It‘s the future buyers, they are entering the market as a trickle now and will grow steadily in the next 3 years!
Today I received another call from a past client letting me know they are pre-approved for an FHA Loan and ready to purchase a home. We sold their home as a Short Sale in 2008 and they now qualify for a new mortgage! I can hear the excitement, enthusiasm and relief in their voice, it’s so nice to hear. All the Realtors I know will welcome these joyful transactions back into their business for sure, it’s what keeps us going in this marketplace.
It is possible to get a mortgage after Short Sale or Foreclosure. The requirements differ between an FHA loan and a Conventional Loan. Adam Farrell, a very smart and skilled loan officer with RMG Mortgage, a division of Alerus Financial kindly provided the information detailing the requirements. You can access Adam’s document, “What you need to know about getting a home loan after foreclosure, short sale or bankruptcy.”
Many factors will combine to bring the Real Estate market out of this slump, among those factors will be:
1.Significant reduction in the amount of foreclosures on the market
2.Some adjustments to make financing more readily available for buyers
3.Stabilizing prices to assist homeowners currently battling ‘underwater mortgage’ positions
4.Increased Buyer demand for housing
Nearly 50% of the homes sold in 2010 in Dakota County were foreclosures or short sales, together they are commonly called distressed properties. Homeowners who lost their homes in this fashion became renters, resulting in a very robust rental market and increasing rents.
Short sales and foreclosures surged in number in 2008 and 2009 and have continued steadily in 2010 and 2011. Many previous homeowners are now reaching the magic 3 year mark and will soon be eligible for an FHA, Rural Development or VA loan.
It will be a pleasure to assist these buyers as the once again become homeowners. Additional buyers in the marketplace is great news for Home Sellers in Dakota County too! Thanks to Adam Farrell, for the timely and concise information.
If you have questions about your personal situation, you can call Adam directly at 952.417.8473 , email your Question, or stop by during our Walk-in Wednesday Hours. We are always happy to assist you.
Short Sales are anything but short, actually they take a long time. A short sale means the Seller will be ‘short’ of enough money to pay off their full mortgage balance.
All mortgage balances need to be paid in full to pass on a clear title to the new buyer. Enter, the short sale. The sellers’ own mortgage company agrees to accept an amount short of what they are owed and release the lien on the house. The process takes anywhere from 4 to 12 weeks and sometimes more.
There are 3 main reasons the process takes so long.
1. The Seller’s mortgage company will do a thorough analysis of the Sellers’ current financial hardship before making a decision. This analysis includes lots of paperwork from the Seller. Quicker progress can be made if the Seller has everything ready, or turned into the bank at the time of the offer. If the Seller does not have a clear hardship, a short sale may be denied.
2. Many Seller’s have two mortgages, a First Mortgage and a Second Mortgage. This further complicates the process because both Mortgage Companies must agree to settle for less than they are owed. Second Mortgage companies can hold up the entire shortsale if they refuse to agree with the very low amount offered to them. I have seen First Mortgage companies offer the Second Mortgage company $2000-$4000 to settle a loan balance of $40,000 or more.
3. Understaffing at the mortgage companies forces the files to wait for weeks and weeks before they are reviewed. A mortgage company needs to expand their space, hire staff, buy computers, invest in software, and train employees to accommodate the number of short sale requests. The problem is, designing and creating a new, Short Sale department costs lots of money and the entire department exists only to lose money. It’s no wonder mortgage servicers haven’t rushed to expand.
When considering a short sale purchase, ask your agent to find out if the Seller’s Hardship has been recognized by the bank, if the paperwork has been submitted, how many mortgages are on the home and most importantly, ask if the Listing Agent is CDPE certified and how many Short Sales they have completed.
As always, you are welcome to contact me if you need assistance negotiating a Short Sale purchase.