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What Are Closing Costs?
What Are Closing Costs?
Closing costs are fees paid in connection with the refinance or transfer of ownership in real property. They are paid by either the buyer or the seller on the settlement date.
These fees will always vary. What you pay for one refinance or property transfer will not be the same as another. This is due to the different parties involved, different types and locations of property, the financial capacity of a buyer and many more factors.
The law requires lenders to give you a loan estimate within three days of receiving your application. This document sets out what your closing costs will be. These fees, however, are not set in stone and subject to change.
Your lender should provide a closing disclosure statement at least three business days before the closing date. This is a more reliable estimate of your closing costs. Compare it to the loan estimate you’ve received and ask your lender to explain the fees and the reasons for any changes.
What Is Included in Closing Costs?
Your costs will differ depending upon the transaction. Types of costs include:
Credit report fees (the cost of checking your credit record)
Loan origination fees (which consists of the cost to your lender for processing your loan)
Attorney fees
Inspection fees (for inspections requested by either you or the lender)
Appraisal fee
Survey fee (so that both you and the lender know where your property boundaries lie)
Escrow deposit which may cover private mortgage insurance and some property taxes
Pest inspection fee
Recording fee paid to a county or city authority to file a record of the property transfer and/or new mortgage lien against the property
Underwriting fee to cover the cost of processing a loan application
Discount points (money you pay your lender to get a lower interest rate)
Title insurance (protection for you and the lender should there be any issues with title to the property)
Title search fees (costs incurred by the company who checks the title on the property)
These fees can range anywhere from 2% to 5% of a property’s selling price. It’s smart to get estimates from two or three lenders so that you can take these costs into consideration before making an offer. For the easiest way to compare lenders who may use different terminology to describe their fees, simply ask for a loan estimate from each.
Can I Negotiate These Costs?
Some fees, such as document, processing, service, underwriting and courier charges are open to negotiation. However, third party fees such as an appraisal or survey, are not.
If you’re worried about how much you’ll need at closing you can find a bank that doesn’t escrow real estate and homeowners insurance. Often, banks will escrow six months of real estate taxes and several months of homeowners insurance premiums. When added to the other closing costs, this can be quite a large sum.
Keep in mind, however, that you will be responsible for paying your homeowners insurance and property taxes when they’re due rather than relying on your lender to pay them for you.
Where allowed by law, you can negotiate with the seller to have them pay some closing costs normally attributed to the buyer.
Can I Add my Closing Costs to the Loan?
Most loan programs will allow for a percentage of the purchase price to go towards closing costs. The easiest way to do this is to ask for a seller credit towards the closing costs.
The seller credit means that the seller will receive a smaller ‘net’ amount at closing, however there is a way to make a seller credit more palatable to the seller. If you can qualify for a higher purchase price – say 2.5% over list – the seller won’t lose any money and you can use the seller credit towards the closing costs.
In this scenario, what you’re doing is financing your closing costs over the life of the loan.
You can also do a lender credit. Like a no-cost refinance, you agree to a higher interest rate so that the lender will pay some of the closing costs. You can potentially get a lender credit of $2,000 to $4,000 – a sizeable amount of fees.
Keep in mind, however, that should you continue paying the same mortgage over the life of the loan, you could end paying more than if you were to pay up front.
What Can I Expect?
Before closing day arrives, contact your agent to confirm that he or she has everything for the transaction to go as smoothly as possible. Pull together any paperwork that you have received and keep it on hand for easy reference on closing day.
Be prepared to take your time reading through all of the closing documents. Make sure you completely understand all of the terms you’re agreeing to. If some of the terms are missing or incomplete, don’t sign until they are resolved to your satisfaction.
Your lender will send money to the closing agent via a wire transfer and may require that you set up a new escrow account with them to pay your property taxes and homeowners insurance together with your monthly mortgage payment.
You should be advised before closing day how much money you’ll need to have for closing, so bring your checkbook with you to cover any necessary escrow and/or closing costs.
Among the many documents you’ll be signing, three of the most important documents will be the:
Hud-1 Settlement Statement – a document which sets out the costs incurred with your closing.
Deed of Trust or Mortgage – a document in which you agree to a lien being placed against your property as security for repayment of your loan.
Promissory Note – a document which can be described as a legal “IOU” which sets out your promise to pay according to the terms of the agreement.
How to Choose the Right Real Estate Agent
It can be a challenge to find the right real estate agent. How do you know if you’ve found the right one? What qualities should you look for when selecting an agent? We’ve put together the ultimate list of 7 critical qualities your real estate agent should possess.
1. Licensed
This sounds basic, but you’d be surprised by how many people market themselves as “agents” when they don’t hold a valid, current real estate license. Licensed agents are held to the standards and responsibilities governed by the state’s real estate commission. The laws for real estate vary by state but make sure that the person handling your sale is a qualified and licensed real estate agent in good standing.
How can you check? Ask for his or her agent number. Then you can double check the name and agent number on your state’s real estate commission website. (You can find your state’s real estate commission website by typing in “real estate commission” and your state on your favorite search engine.)
2. Readily Available
Real estate is an unpredictable business, and you don’t want to lose out on a sale or closing on a deal because your agent wasn’t immediately available when someone showed interest.
Consider hiring an agent who works within a team. If your agent isn’t immediately available to respond to inquiries for some reason, another agent on the team can step in and not leave you hanging without an agent.
Great agents should be comfortable with constant communication and prompt replies. They should be willing to communicate via phone, text, or email, even after business hours.
3. Knowledgeable
Look for an agent who has a successful sales record in your area. Markets vary considerably and great agents know the ins and outs of your particular city or town. Even if an agent has years of experience, she or he may not have the local knowledge to be successful in your particular area.
Also, make sure that your agent specializes in the type of property you’re handling. If you’re buying or selling a residential property be sure to work with a residential agent. Your agent needs to be knowledgeable in the type of real estate you’re dealing with because not all markets are the same.
4. Backed by Local Data
Your agent should know how to retrieve localized data and use it effectively. Local data points, including buyer demographics (who they are, where they are) and housing trends (top regions, average value of similar homes, home improvement spending), can be used to price your home competitively, market appropriately, and negotiate intelligently.
5. Well Connected and Reputable
Look for an agent who already has a list of prospective buyers or who works within a well-known and well-connected real estate agency. The more people and agents that your agent knows, the more likely they’ll be to sell your home quickly.
Similarly, a well-connected agent can promote your listing to their network of out-of-state and international buyers. People buying from afar are more likely to purchase a home if it’s recommended by someone whom they know, like and trust.
In other words, the size and quality of your agent’s network can greatly expand your pool of potential buyers, by putting the listing in front of out-of-state and international prospects.
And don’t forget to read the testimonials from previous clients before hiring an agent.
6. Honest
When it comes to selling your home, you want your agent to be brutally honest about what your home is worth and what you can do to raise the value of your home. Don’t take it personally if your agent tells you to rip out that shag rug or repaint the neon lime walls in your home. They know what sells.
Also, your agent should be transparent about how he or she determined the price. You should be able to see which resources were used to estimate the value and how the amenities of the listing impact the price.
7. Tech Savvy
Gone are the days of people finding home listings through the newspaper or real estate advertisements. You need your agent to know the ins and outs of selling a home online. From Zillow and Trulia and every other real estate website in between, they need to have a strong online presence to sell your home.
Most buyers won’t even come to see a home if there isn’t a great online description, accompanied by both images and videos of the property. Look at your agent’s portfolio of homes for sale to see how they represent their other clients’ properties. You want an agent who creates HD videos and high-resolution images for prospective buyers to see.
Your real estate agent can make or break your home buying or selling experience. Always meet an agent in person before hiring one and ask tons of questions to make sure he or she has qualities of a great agent.
Simplifying the Home Closing Process
The home closing process is the final hurdle in the race of buying a house and becoming an official homeowner. You are probably anxious to complete the process, and the last thing you want are last-minute surprises. Here are several ways you can ensure the closing goes smoothly.
Understand the Closing Process
Before you enter closing negotiations, it is crucial to fully understand the process. When you know what to expect, you can ask the appropriate questions and clarify anything that may be confusing. This also ensures that all parties are kept in the loop. Human error is natural, but forgotten details can lead to delayed or canceled home sales. For this reason, it is important that you do the following:
– Speak with the professionals who represent the home seller. Ask them what you should expect.
– Identify and gather all the documents that should be brought to closing negotiations.
Review All Loan Documents When Buying a Home
Missing details in loan documents can either lead to mistakes in the paperwork or result in a product or payment scenario that can leave you unhappy. Reading loan documents may seem time-consuming, but it’s the best way to resolve potential problems or misunderstandings before they occur. Generally, Lenders are required to provide you with the appropriate loan documents, by request, at least 24 hours before the closing. When you have received the final version, reread the contents to make sure you know what you are signing. You may want to consult with a lawyer.
Finally, make sure you have the following materials from the home buying checklist on the morning of closing:
– A check. The loan documents should spell out the amount that you are required to bring to the closing. You may also need to certify the check so that the lender will accept it. You may have the option to wire transfer the funds, but this can take longer and delay closing
– Copy of your photo ID
– Homeowners insurance policy
– Good faith estimate
– Loan documents
Contact Cori Hamilton if you have more questions about the home buying process.
First Time Home Buyer Tips
As I approach my four year “home-aversary” I decided to take a moment to reflect on all that I had on my mind as my husband and I prepared to make the biggest purchase of our lives. Here are some of the things I wish I had known sooner that I hope will help you, or someone you, know on their journey toward home ownership.
You Don’t Pay The Agent’s Commission as the Buyer
So many first time buyers wonder, “do you have to pay a real estate agent if you are buying a home?” For some, the thought of having to shell out extra cash when they are already doing all they can to save for their down payment is enough to make them walk away from the entire process before they even get going. Many are surprised to find out that the answer is actually no. A home buyer does not pay their agent, rather the agent earns their commission from the seller side of the transaction.*
Need help finding an agent? Take a look here.
Focus on Your Monthly Mortgage Payment, Not the Entire Thing
Getting pre-approved for a mortgage is generally the first step you should take as a first time buyer. A common mistake that people often make is focusing on the total price of the home they can afford instead of the monthly payment they will be making. You may get approved for a $350,000 home, but this may not necessarily be what you can truly afford. Think of the amount your advisor suggests you can afford as a range. There is a high end and a low end and it is your job, not the mortgage advisor’s, to figure out what you are comfortable paying each month. It is crucial that you work with your advisor to understand how your down payment amount, credit, and the current mortgage rate affect your monthly payment.
Make the Jump!
To steal a line from Nike®…Just Do It™! From agonizing over the down payment to finding the “perfect” home there are a ton of moments in the first time buying process that are going to make you feel nervous. Know that it is natural and that similar to having a baby, there is never really a 100% perfect time. You are always going to wish you had more money in the bank, hope that the home had a backyard that was just a little bigger, or that you were just a little more sure what direction your life will be taking in the next 5-10 years. My advice: if you feel comfortable with the payment, love the location and “bones” of the house and will feel proud to make this house a home, then take the leap and don’t look back. That’s what we did almost four years ago and it was one of the best decisions we ever made.
Tax Breaks for First Time Home Buyers
Buying a home can sound like an intimidating undertaking if you’ve never done it before. The thought of relocating and the sheer level of financial investment gives many people anxiety. Luckily, the government wants to make the process easier and less scary, with a range of tax breaks for first time home buyers.
To get the most out of your purchase, don’t settle for the standard deductions and write-offs. Instead, make sure you take advantage of the many tax breaks available to you. So, what exactly is tax deductible when buying a house for the first time?
Mortgage Interest Deductions
Mortgage interest is the second half of your monthly mortgage payment—the rest goes toward the principal balance. Though interest rates are hovering near historic lows, they can still be a financial burden unless you take advantage of the option to deduct mortgage interest on up to $1 million of debt.
Claiming this tax break is easy. Each year, your lender will send you Form 1098 listing the interest you paid during the previous year. Simply enter this number on Form 1040 Schedule A—under itemized deductions—and claim your tax break.
Mortgage Points Deduction
Beyond the typical interest deduction, you’re eligible for a tax break based on mortgage points—prepaid interest that represents 1 percent of your total mortgage. You are allowed to deduct Discount Points, or the fees paid directly to the lender in exchange for a reduced interest rate. This is also called “buying down the rate.”
Mortgage Credit Certificate Program
A tax credit for buying a house is more valuable than a deduction because it cuts back on your taxes owed, dollar-for-dollar. For low-income home buyers, the Mortgage Credit Certificate program gives back 20% to 30% of the interest you pay every year as money back in your pocket.
You will need to qualify for the Mortgage Credit Certificate program before purchasing your home to claim this credit.
Real Estate Taxes
Each year, you can deduct your local property taxes on Form 1040 Schedule A. To find the amount you can deduct, check Form 1098 if you pay through an escrow account or check your records if you pay directly to the municipality.
Additionally, for the first year in your home, you should earn an even bigger tax reduction. If you reimbursed the seller for their prepaid real estate taxes, you can take those as itemized deductions as well.
IRA Payouts
If increased investment opportunity is one of the reasons for buying a home, then you’ll appreciate this benefit for your IRA. If you pull from your IRA to cover your down payment and other purchasing costs, first time home buyers do not have to pay the $10 penalty fee for early withdrawals.
Additional First Time Home Buyer Advantages
Home Improvements: If you purchase a fixer-upper, all improvements you make to your home from landscaping to new doors and windows can be deducted when you sell your home.
Energy Efficiency: Upgrading your home with energy-efficient appliances and home improvements—such as an insulation system—can offer an energy tax credit of up to $500.
Home Sale Profit: If you own and live in your home for at least two years before selling, much of the profit you make is tax-free. Up to $250,000 for single returns and up to $500,000 for married, joint returns.
Mortgage Insurance Premiums: This tax deduction ended in 2016 but is currently under legislative review for renewal. It offers a write-off for the premium paid if your down payment was less than 20% of the home’s cost.
The First-Time Homebuyer Credit is no longer available. It ended in 2010 and has not been renewed.
Now that you know the many tax breaks for first time home buyers, contact Cori Hamilton to learn how to take advantage of all the perks of being a first time home buyer.
First Time Home Buyers Use 401k For Down Payment
Coming up with a down payment to purchase your first home can feel like a herculean task. How can you possibly save twenty, thirty, fifty thousand dollars—approximately 11% of your home purchase price in 2016 (National Association of Realtors)—to pour into a house? For most individuals, it can be incredibly tough to save enough, particularly if you’re strapped for cash. What can you do?
The good news is that if you’ve been consistent about saving for your retirement, you have a leg up thanks to the two 401k first time home buyer options. These options allow you to supplement your down payment with cash from your 401k. However, not everyone qualifies to use money from a 401k. There are strict rules, so it’s vital that you understand how the process works before you move forward.
Borrowing from 401k
When it comes to borrowing from your 401k to help with your down payment, there are two ways to go about it:
Get a 401k loan for home purchase
Make a 401k withdrawal
Each of these options comes with its own costs and rewards. Remember that everyone’s financial situation is different and the best way to make the right choice for your situation is to contact a financial advisor and a skilled real estate agent.
401k Loan
First, let’s talk about getting a 401k loan for home purchase. The good news is that, when getting a loan, you don’t owe income taxes or the 10% early withdrawal fee. The bad news is that when you take a loan, it has to be repaid with interest even if you’re just paying the money and interest back out of your own pocket.
However, unlike a typical FHA loan, borrowing from 401k is fairly limited. Your max loan is limited to a specific dollar amount OR one-half of your account balance, whichever is smaller. This means that you need to know your current vested balance.
As for repayment, your 401k loan must be repaid within five years, and payments are required on a quarterly basis—both principal and interest. And your loan payments DO NOT count as contributions to your 401k.
Please note, not all plans permit loans. You’ll need to check with your particular plan to see what is allowed. Additionally, before moving forward with this option it’s advisable to check in with a financial advisor to ensure this option is right for you.
401k Withdrawal
The second option for a 401k first time home buyer is a withdrawal. Compared to a 401k loan, it’s much simpler. The money is yours once you take it out and it does not have to be repaid. But there are a few more details. To withdrawal money from your 401k, you have to meet a few criteria including age restriction and financial hardship.
Only if your employer allows withdrawals and you can prove to the IRS that you are experiencing financial hardship can you even consider withdrawal. From there, your withdrawal has a certain dollar limit, and you must pay income tax on the full amount.
The other option for a withdrawal is to cash out on an old 401k. However, if you use this option, you’ll be required to pay both the 10% early withdrawal penalty as well as income tax.
Before you pursue this path or cross it off, be sure to get the opinion of a financial advisor who has access to your personal financial details.
401k Loan vs. Withdrawal
In most cases, a 401k loan may be easier to obtain and doesn’t come with the penalties associated with an early withdrawal. Of course, the downside is that you’ll eventually have to pay it back in five years.
So, why would you use your 401k to help purchase your first home?
Depending on your financial circumstances, this option may be more financially feasible than paying private mortgage insurance, and the interest goes back in your pocket. Another option is to use your IRA to avoid the 10% penalty. IRA withdrawals up to $10,000 are allowed without the 10% early withdrawal penalty, though you’ll still owe income tax.
If you need help figuring out the best option for you when it comes to putting together your down payment with your 401k, contact your personal financial advisor.
Stages of Buying a Home
It may be a goal you have had since childhood. Perhaps, you have rented for most of your adult life and now want to experience the joys and satisfaction of home ownership. Buying a home is a big step and requires a lot of important decisions along the way. With some advanced planning and research, you can be sure your home purchase is something you feel good about for many years ahead. Here are the basic steps that lead you to a successful transaction.
Understanding What You Can Afford
This is different from qualifying for a loan. This is calculating how much of your budget you will devote to your home and how much money you want for other things. For a person who values travel, they can afford more house than they should buy. Some of their money will go toward accommodations on the road or other travel expenses. If you love fishing, boating, or a hobby such as restoring classic cars, factor the required budget for your preferred pastime into your overall household budget. With that in mind, think twice about buying a home the bank says you can afford. You will be happiest in the home that allows you to enjoy life to its fullest.
Review Your Credit Report
Know your credit score prior to meeting with any loan officers or mortgage brokers. A lower score will result in a higher interest rate and possibly prevent you from qualifying for the loan you want. It can take several months to correct any errors in your report. By reviewing your report a few months before home shopping, you could save yourself several thousands of dollars over the life of your loan.
Choosing Your Professionals
The U.S. Department of Housing and Urban Development (HUD) advises potential home buyers to attend a homeownership education class prior to choosing a mortgage. The Consumer Financial Protection Bureau was established to help protect consumers from predatory lending and mandates all required information about your loan and real estate transaction be written in clear, easy to understand wording. It is an excellent resource for home buyers.
Take time to interview several loan professionals before signing with one. You can be pre-qualified by your bank or any loan company. That does not obligate you to choose them for your home loan. Discuss your goals with a Coldwell Banker® brand agent. They are here to consult with you at each step of the process. Also, it is a good idea to know who will be your attorney for the closing. Many builders want you to close the transaction with their attorney. As the home buyer, it is your right to choose the attorney who will represent you in the closing.
Choosing Your Home
Once you are pre-qualified, you are ready to begin shopping for your new home. For most buyers who plan to purchase with a standard 30-year fixed-rate mortgage, there are few restrictions on the houses they view. If you will be using a FHA loan, USDA home loan, or other special financing, you can only consider homes that qualify for these programs. HUD has incentives for first-time buyers and community servants like firefighters, teachers, and law enforcement officers. To see if you qualify for special financing, and to learn if there are any Good Neighbor Next Door homes available in your area, consult with a Coldwell Banker® brand agent.
Take your lifestyle and future plans into consideration as you view homes. If you plan to move in a few years, you may want to choose a simple, easily affordable home that will always be in demand and fairly easy to sell. It is best to have a second and third choice in mind that you can go to if you have to walk away from negotiations on your first choice.
Negotiating the Contract
Buying a home is an emotional experience. Trust your home buying expert with Coldwell Banker Real Estate LLC for guidance. They work with lenders, home sellers, and other real estate agents every day. They will advise you on negotiation strategies and be there to provide objective advice that protects your best interest in the transaction. Most contracts have contingencies, and the negotiation is not complete until all contingencies are met.
Home Inspection
A thorough home inspection by a certified professional is crucial for any home purchase. You should attend the inspection and feel free to ask questions about any areas of concern. Once you have received the home inspection report, your Coldwell Banker brand agent will review it with you. You may choose to ask the seller to make some needed repairs, negotiate a lower price, or accept the report and move forward with the transaction as it is.
The Closing
The Real Estate Settlement Procedures Act (RESPA) requires that lenders provide home buyers with as accurate of a good faith estimate as possible and that they disclose the nature of all cost. It also prohibits kickbacks and other unlawful payments among real estate professionals and lenders. The TILA-RESPA Integrated Disclosurerule combines forms required by the Truth in Lending Act, also known as Regulation Z, and the Real Estate Procedures Act, known as Regulation X, into one simple form. This new document replaces the final document required by the TILA and the HUD-1. You have three days to review and discuss it with your Coldwell Banker brand agent.
For any changes in amounts before or after closing, the lender must provide you with a corrected Closing Disclosure showing the actual amounts. All financial figures must be documented in writing and not delivered verbally. With sufficient communications prior to closing, you know the amount of certified funds (if any) you need to bring to closing. You can relax, sign the necessary paperwork, and receive the keys to your new home.
How Much House Can You Afford?
HOUSE POOR [adjective | hous – poo·r] A person who can afford his or her home mortgage payments, but can’t afford much of anything else. Discretionary spending on restaurants, furnishings, travel and clothes are severely cut back, due to a large proportion of his or her income going towards the mortgage payments, upkeep costs, and energy/utility bills.
You don’t want to find yourself stuck at home while your friends are out having fun. Buying more home than you can afford comfortably will place serious restraints on your financial life. This doesn’t sound like fun, does it?
Sure, you want a nice home. But you also want to make sure that it fits in the landscape of the rest of your life.
Here are the ABC’s of finding a dream house that you can reasonably afford.
Assess Your Ratios
Finding that magic mortgage number of how much home you can realistically afford.
Front-End Ratio: A front-end ratio is also known as the mortgage-to-income ratio. You can find this ratio by using a debt to income calculator or simply by dividing your projected monthly mortgage payments by your gross monthly income. For example, if your monthly mortgage payment would be $1,500 and your monthly income is $6,000, your front-end ratio would be 1500/6000 or 25%This projected mortgage payment should include the principal, taxes, insurance, and interest payments. Many lenders have limits on the maximum front-end ratio that they’ll permit. If you’re seeking an FHA loan, the federal cap on front-end ratios is a 31% percent limit.
Back-End Ratio: Your debt-to-income ratio is your back-end ratio. The back-end ratio can be found by adding all of your monthly debt payments, including your car payments, credit card payments and any other outstanding debt, then dividing this number by your gross monthly income, which is the amount earned before taxes or other deductions.The higher your back-end ratio is, the more difficult it is to meet your monthly mortgage payments. Lenders will also have maximum caps on this. The absolute highest back-end ratio you can have and still qualify for an FHA mortgage is 43%.
Pause and reflect on whether or not you should borrow as much as you qualify for.Consider your own ratios. Do you want to allocate your money elsewhere besides your mortgage? What percentage of your income do you feel comfortable spending on your mortgage?
Bet on Life
Are you starting a new career? Returning to graduate school? Do you plan on growing your family? If you don’t expect any big changes to your life or finances, then you may be able to afford a larger mortgage payment. If you do have life plans that will impact your finances in the near future, it may be best to secure a more manageable mortgage payment.
Also, job security is critical when deciding how much home you can afford. How long have you been working? Do you suspect any major upheavals in the company anytime soon? Have there been any major layoffs?
You never know what the future holds, make sure that you have an emergency fund that can cover all of your necessary expenses while you get back on your feet. An emergency fund should cover at least three to six months of your living expenses.
If you haven’t built this fund yet, plan out how you can put some dollars towards creating these reserves before you decide how much you want to spend on buying a house.
Calculate Other Monthly Expenses
Your total monthly expenses will affect how much home you’re able to afford.
Calculate all of your expenses, such as groceries, gas, dining out, clothes, miscellaneous goods, toiletries, cosmetics, utilities, and car expenses. Don’t forget to include line-items for travel, holidays and other annual expenses. Forgetting to calculate these annual or biannual expenses can have a reverberating impact on your ability to afford your home.
Once you’ve added these numbers, look at how much wiggle room you have left. Think about how much you want to spend on your home, while still leaving a buffer for any other costs that might creep up. After all, more savings is always a good thing.
How to Sell a House That Still Has a Mortgage
Most people won’t live in the same home for 30 years, the typical life of a mortgage loan. So, when it comes time to sell, many homeowners still have mortgage debt to deal with. Is this a problem? What happens to your mortgage when you sell your home?
Once you sign your name on a mortgage loan, you are responsible for the money—no one else. This means that you must pay it back, which you can do with the money you gain from selling your home.
The truth of the matter is that selling a house with a mortgage is a common occurrence. Consult with your mortgage lender and your real estate agent to find out how you can sell a home with a mortgage. Here are a few tips that they might share with you.
Check Your Mortgage
The first step to selling a house with a mortgage is to contact your mortgage lender and ask about your current mortgage. You want to know:
Your current mortgage payoff amount
Your due-on-sale clauses
Your mortgage payoff amount is the exact amount of money, including accrued interest that you owe to the bank. This amount is typically good for 10-30 days and represents the outstanding loan balance that you must pay. The last thing you want to do is default on your mortgage.
The due-on-sale clauses reveal the exact rules of how to sell a house you still owe money on. It covers such information as when the paid-in-full loan is due and what the process is, including any fees. The clauses won’t tell you who you can or can’t sell your home to, but they may need some additional information about the buyer’s mortgage lender. Be sure to ask any questions you might have about these clauses, so you have a full understanding before you take the plunge and start your sale.
Selling Your Home
Once you know the ins and outs of your loan terms, it’s time to get to selling a house with a mortgage, which can get slightly complicated. First, you’ll want to work with a title company.
If your current lender doesn’t set you up with a title company, you can hire an agent on your own. This agent will be responsible for ensuring that there are no issues with your property’s title, and act as the intermediary throughout the entire purchase and sale process.
Here’s what happens to your mortgage when you sell your home and use a title company:
The title agent holds the money from the new buyer during the sale
After you sign all the documents at the closing table, the title agent uses the sale money to pay your current mortgage holder
Once the amount has been paid, the title transfers to the buyer and you, as the seller, are given the leftover money (minus various fees)
If the sale covers the full cost of the current loan, it’s a fairly smooth process. However, if you owe more than your home is actually worth—negative equity—there could be some trouble. In that case, you’ll have to work out a deal with your lender for a reduced payoff amount, or you may need to refinance and stay in your home for longer than you planned.
In the end, selling a home with a mortgage shouldn’t be a problem. The most important thing is to know your options, so that you can make the right decisions.
Oahu’s housing market sails into uncharted waters
Oahu’s housing market sails into uncharted waters. According to resales figures by the Honolulu Board of Realtors®, the median sales price for single-family homes and condos rose slightly to $809,000 and $450,000, respectively. Closed sales for single-family homes and condos dropped more than 20%, and new listings decreased by 42%, compared to this time last year. The full impact of the virus, job losses, and drop in consumer confidence will be seen in the May figures. One factor to keep in mind is that this is a pandemic and not an economic crisis like what we experienced in 2007-2009 so the effect on home price may not be as significant compared to what we saw a decade ago.
“We still haven’t seen the full effect of COVID-19 on the real estate market in Hawaii,” says Kalama Kim, principal broker at Coldwell Banker Pacific Properties. “May closings will portray a more accurate picture of what happened during the months of March and April, because transactions take 30 to 60 days to close and be recorded.”
The bulk of sales activity for single-family homes occurred in mid-range price points — between $500,000 to $999,999, however even in this market segment, closed sales were down 28%.
At the end of April and into May, the City and County of Honolulu lifted some restrictions on real estate operations, allowing for limited in-person showings. Property showings must be by appointment only, buyers must be pre-qualified, and no more than three individuals (including the agent) are allowed at one appointment. HBR still recommends all open houses be conducted virtually.
There continues to be a slowdown in the number of new listings coming onto the market due to stay-at-home orders that went into effect on March 23.
New single-family home and condo listings in the $1 million-and-up range saw the largest declines at 51.4% and 58.1%, respectively, when compared to this time last year.
“Eighty-eight percent of the offers accepted by seller’s during the month of April were under $1 million,” adds Kim. “This may be due to first-time homebuyers and those in temporary housing driving demand, while the higher-priced segment of the market are taking a wait-and-see approach.”
Although mortgage rates have dipped to all-time lows, lenders are tightening credit standards, thereby limiting the pool of buyers who can leverage this opportunity in their favor.
Yet, despite the challenges, Realtors® continue to help serious buyers secure their perfect home.
Not surprisingly, with the entire state under stay-at-home orders since March 23, closed sales in April were sluggish. The number of single-family homes closed in April was down 22%, from 318 a year ago, to 248 last month.
Condo sales were even less active — down 27.9% — from 476 units closed in April 2019, to 343 closings last month.
Possibly due to a large reduction of inventory, demand for the remaining listings was strong, and median sales prices — single-family and condo — were up.
Single-family home MSP gained 5.5%, from $766,760 in April 2019 to $809,000 last month. And the MSP for a condo was up 7.4%, from $418,950 a year ago, to $450,000 last month.
“While accepted offers dropped almost 40% as compared to last year, new listings on the market dropped by 45% in April, reducing overall inventory by 24%,” says Kim. “That explains why many of our listings were receiving multiple offers.”
After the first four months of 2020, the MSPs in both segments are up, year-to-date. MSP for SF homes is at $788,500 and for condos is at $434,000 gains of 1.7% and 4.6%, respectively.
NEIGHBORHOOD MARKET STANDOUTS
HBR reports statistics on a monthly basis. Island-wide stats are based on figures from the previous month, however, individual neighborhood stats are from two months previous. The most recent neighborhood report is from data collected in March, and does not reflect the current environment — April data may likely be radically different.
This month’s standouts, for continuity, will be taken from the Island-wide April statistics — the most recently gathered. The following table reflects the price points where sellers received the highest percentage of their original list price, and where most of the number of closed sales took place.
SOURCE: Honolulu Board of REALTORS® , compiled from MLS data.
