This cheat sheet helps you do your homework, so you know what you’re signing when you close the sale of your home.
You’ve already cleared several hurdles by finding the right home, negotiating the best price, and getting approved for a mortgage. The last obstacle on your homebuying track is the closing, which can be both tedious and tense. By knowing what to expect and doing some legwork, you can smoothly put your closing behind you. These seven steps will guide you.
1. Set a Closing Date
Ask your title company to set a closing date and time that meshes with the end of your lease or the sale of your existing home. Don’t want to skip work? Ask for an evening or weekend closing. Tight on cash? Schedule your closing for the end of the month. That’s when you’ll pay the least amount of interest at the closing table.
2. Gather Your Funds
Buyers usually have to bring money to the closing. Ask the title company what forms of payment it accepts. Chances are you can’t use a personal check.
If you have to move money into your bank account to pay your closing costs, do so a week ahead to avoid last-minute problems. If the title company requires the funds in the form of a cashier’s check, stop by the bank a few days before closing to pick it up.
3. Purchase Title Insurance
If you’re getting a mortgage, you have to buy a title insurance policy. Think it protects you against problems with the title of your home? Nope, it protects the lender in case the sellers really didn’t own the home or someone else had a claim on it.
To cover yourself, you can buy an owner’s title policy from the same insurance company that sells you the lender’s title policy. Or, shop online at Closing.com, EasyTitleQuote.com, or FreeTitleQuote.com. An owner’s title policy insures you against losses from fraudulent claims against your ownership and errors in earlier sales. In some areas, sellers traditionally pay for the buyer’s title policy.
Whether or not you get the owner’s policy, if you buy a title policy from the same company that issued the prior owner’s title insurance, you can ask for a reissue discount or “bring-down” rate. There’s a discount because the title company only has to check the records filed since that prior owner bought the home, not since the dawn of time.
4. Line Up Homeowners Insurance
Get quotes and compare policies to be sure coverage will start by your closing date. An annual policy should run $500 to $1,000, depending on your home’s size, age, and amenities. To get a lower premium, opt for a high deductible or buy your homeowners insurance from the same company that insures your car.
If you live in an area where natural disasters occur, like earthquakes, floods, or hurricanes, you’ll need separate insurance to protect your home from those hazards.
5. Review Your Good Faith Estimate and HUD-1 Settlement Sheet
Your lender already gave you a Good Faith Estimate (GFE) that showed your estimated closing fees. Some of the fees on your GFE can’t change and others can rise by 10%. Before you go to the closing, compare the numbers on your GFE with the numbers on your HUD-1 settlement statement. Question your loan officer about any fees that increased.
6. Do a Walk-Through
Schedule an appointment to walk through the home one last time just before your closing.
- Make sure repairs you requested have been made.
- Look for major changes since you last viewed the property.
- See if the sellers left everything they promised to leave.
- Check to see that the sellers took all their personal belongings.
- Test electronics and appliances to ensure they’re still working.
- Turn on the HVAC and hot water. Are they functioning right?
- Walk the yard to be sure no plants or shrubs have been removed.
7. Resolve Issues Identified in Your Walk-Through
If your walk-through uncovers problems:
1. Delay the closing until the seller corrects them (if your state allows it). But that’s often not feasible because your lease is probably over and you’ve already scheduled movers.
2. Negotiate a discount to your sales price to cover the cost of the work needed. If the air conditioning is on the fritz and a contractor says the repair will cost $500, ask that the sales price be reduced by that amount. If you make that request at closing, however, be ready for a delay while the title company redoes the paperwork.
3. Have the title company hold a portion of the seller’s proceeds in escrow until the dispute is resolved. Once that happens, the funds will be released to you or the seller, depending on the outcome.
- Do You Have the Right Amount of Homeowners Insurance?
- Do You Need an Umbrella Policy?
G.M. Filisko is an attorney and award-winning writer who has endured several property closings, but the easiest was done through the mail. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.
Across Chicago’s near north side, the Average Sale Price has remained stable while market times have dropped to well below 2013 ranging on average from 2 weeks to 3 or 4 months. This suggests what the facts show which is that much of the distressed inventory has been absorbed. Distressed sales have dropped by 50%.
The National Association of Realtors published a study on ‘Foot Traffic’ which is an indicator for the number of buyers in the market which rose to 57.0 in August. Google released a report at the end of August a report that shows that the number of people looking online at homes is higher at this time of year than it has been in six years and that number demonstrates a growing number. There will be seasonal fall off as the holidays approach, but these are good indications of stability returning to the market.
By knowing how much mortgage you can handle, you can ensure that homeownership will fit in your budget.
Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget.
Why not just take out the biggest mortgage a lender says you can have? Because your lender bases that number on a formula that doesn’t consider your current and future financial and personal goals.
Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?
Consider those lifestyle issues as you check out these four methods for estimating the amount of mortgage you can afford.
1. Prepare a detailed budget.
The oldest rule of thumb says you can typically afford a home priced two to three times your gross income. So, if you earn $100,000, you can typically afford a home between $200,000 and $300,000.
But that’s not the best method because it doesn’t take into account your monthly expenses and debts. Those costs greatly influence how much you can afford. Let’s say you earn $100,000 a year but have $1,000 in monthly payments for student debt, car loans, and credit card minimum payments. You don’t have as much money to pay your mortgage as someone earning the same income with no debts.
Better option: Prepare a family budget that tallies your ongoing monthly bills for everything — credit cards, car and student loans, lunch at work, day care, date night, vacations, and savings.
See what’s left over to spend on homeownership costs, like your mortgage, property taxes, insurance, maintenance, utilities, and community association fees, if applicable.
2. Factor in your downpayment.
How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which protects the lender if you default and costs hundreds each month. That leaves more money for your mortgage payment.
The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.
But, if interest rates and/or home prices are rising and you wait to buy until you accumulate a bigger downpayment, you may end up paying more for your home.
3. Consider your overall debt.
Lenders generally follow the 43% rule. Your monthly mortgage payments covering your home loan principal, interest, taxes and insurance, plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 43% of your gross annual income.
Here’s an example of how the 43% calculation works for a homebuyer making $100,000 a year before taxes:
1. Your gross annual income is $100,000.
2. Multiply $100,000 by 43% to get $43,000 in annual income.
3. Divide $43,000 by 12 months to convert the annual 43% limit into a monthly upper limit of $3,583.
4. All your monthly bills including your potential mortgage can’t go above $3,583 per month.
You might find a lender willing to give you a mortgage with a payment that goes above the 43% line, but consider carefully before you take it. Evidence from studies of mortgage loans suggest that borrowers who go over the limit are more likely to run into trouble making monthly payments, the Consumer Financial Protection Bureau warns.
4. Use your rent as a mortgage guide.
The tax benefits of homeownership generally allow you to afford a mortgage payment — including taxes and insurance — of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.
Here’s an example: If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.
However, if you’re struggling to keep up with your rent, buy a home that will give you the same payment rather than going up to a higher monthly payment. You’ll have additional costs for homeownership that your landlord now covers, like property taxes and repairs. If there’s no room in your budget for those extras, you could become financially stressed.
Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.
Related: More on Mortgages from HouseLogic
G.M. Filisko is an attorney and award-winning writer who’s owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.
What you need to know about rates & down payments…
A person “can get a conforming, conventional mortgage with a down payment of as little as 5 % (sometimes with as little as 3 % coming out of their own pockets)”.
Freddie Mac’s purchase of mortgages with down payments under 10 % more than quadrupled between 2009 and 2013.
More than one in five borrowers who took out conforming, conventional mortgages in 2014 put down 10 % or less.
The money experts at Freddie Mac, Fannie Mae, and the Mortgage Bankers Association as well at the National Association of Realtors all expect mortgage rates to climb up to one point over the next year. [Read more…]
End unit DePaul townhouse that lives like a single family home in the Oscar Mayer school district! [Read more…]
Lobbying for change in your homeowners association’s rules requires procedure, compromise, and perhaps joining the board.
If you live in a newer suburban community or planned unit development, you — like some 63 million other Americans, according to the Community Associations Institute — are probably a member of a homeowners association. It’s also a good bet that you haven’t given your HOA much thought until you have a problem.
Since HOAs make and enforce the community rules, it’s smart to understand what you can do if you can’t or don’t want to follow them.
Each HOA, a volunteer group of neighbors who manage common areas and community property, creates its own covenants, conditions, and restrictions (CC&Rs). These CC&Rs cover:
- Resident behavior (no glass containers around the pool)
- Architecture (no fences higher than 8 feet)
- Common responsibilities (fee schedules and fines for non-compliance)
Average annual dues for a homeowners association is $396, according to the U.S. Census Bureau. And there’s value in the fee. A 2005 study, which appeared in the Cato Institute’s “Regulation” magazine, compared a group of Washington, D.C., area HOA properties with similar homes without community benefits — a total of about 12,000 homes. The HOA house values were found to be 0.54% higher. That’s $969 on the average U.S. home value of $179,500.
When You Don’t Like the Rules
Some boards can impose what some homeowners believe are invasive, silly, or elitist rules. In 2014, a Myrtle Beach association decided homeowners could have only two pets. A couple who’d had three dogs for the past 14 years were threatened with a $100 a day fine unless they got rid of one of their dogs.
There’s even an older story some years back, reported in news outlets, about a homeowner in an upscale gated community in Frisco, Texas, who was threatened with fines for parking his new Ford F-150 series truck in his driveway overnight. The board made exceptions for several luxury brands, but his mid-range truck was ruled “not classy enough.”
Related: The 7 Craziest Local Laws and HOA Rules
Even if you disagree with the rules, keep paying your dues. HOAs have broad legal powers to collect fines and fees and regulate activities. If you don’t respond to letters from the board, property manager, or a collection agency, the HOA can and will turn to small claims court or file a lien against your property.
You can handle some issues with a phone call. For example, adding recycling to the garbage collection route is a budget, not a rules, issue. Call the board member who oversees trash collection to find out if there’s leeway in the budget. If you want to do something that’s against the rules — like flying the American flag in your yard — start by:
- Making a written request for variance, using the appropriate HOA form in your CC&R documents. A variance gives you permission to be the exception to the rule. Submit your request to the board and property management company.
- Seeking a compromise: That you’d like to fly the American flag, but only on national holidays.
Don’t Expect a Quick Solution
Some HOA boards meet as little as twice a year. If the board decides the issue is worth pursuing, it may require a community vote. If it passes a majority, the board will adopt it. Board members also may consult the HOA attorney to see if there’s a legal liability if they rule against you.
If you don’t get a timely response, request a hearing and resubmit your request for variance with as much support for your cause as possible.
If the board rules against you without a community vote, you can appeal the ruling with a petition signed by a majority of other homeowners.
But if you fly your flag without permission, expect to get fined. Fines can range from a nominal $25 to a painful $100 or more depending on the issue. Your CC&Rs will indicate the fine schedule — per day, per incident, etc. Interest for nonpayment can accrue, and the HOA can sue you in small claims court.
If you feel the ruling or the fines are unjust, the last resort is to hire an attorney and sue the HOA, as a flag-flying couple did in 1999. They battled their HOA in court for nine years before the case was settled in their favor.
Become the Rule-Maker
If you don’t like the rules, the best way to change them is to become part of the process.
1. Know your CC&Rs, annual budget, and employee contracts. Do you see areas where expenses can be cut? Are service providers doing their jobs?
2. Volunteer for a committee or task. If the board needs to enforce parking rules, for instance, you can volunteer to gather license plate numbers of residents’ vehicles. In addition, put your professional expertise to work: Assist the board with data entry, accounting, or website design.
3. Stand for election to the board. When a position becomes open, the board notifies the members, and you can put your name forward. New board members are elected at the annual meeting by member majority vote. Many boards are three to nine members large, with terms of one to two years.
As a board member, be prepared to spend two to four hours a month:
- Reviewing property management reports
- Monitoring budgets
- Talking to other board members and residents
Most boards meet quarterly; small boards only meet twice a year for a couple of hours.
Accept that you might become less popular if homeowners don’t like your decisions. In the worst case, you could be sued, along with the rest of the association.
But there are rewards. You’ll feel more in control of your community’s fate. You may find that some rules you didn’t support have merit after all. But most of all, you’ll know you’re doing all you can to protect your quality of life and your home’s value.
Related:Can You HOA Tell You Not to Post Political Signs?
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