Buying a Home

The Pros/Cons of a Home Sale Contingency for a Buyer

The good & the bad of a home Contingency For buyers.

Most buyers need to sell their existing home in order to purchase a new one. This is especially the case for home buyers that are looking to trade up. The home sale contingency gives buyers the time they need to sell and mitigates their risk to ensure they don't lose their deposit.

In doing this however, it is shouldering the burden of risk on the seller. By accepting a home sale contingency, the seller is losing marketing time and possibly other opportunities in selling their house. It essentially becomes a little of a gamble for the sellers. They are gambling that the buyers house will sell quickly. It’s also a process that the seller’s have very little control over. For instance, the seller can’t make a buyer stage their house a certain way to make it more attractive or force them to reduce the price. They are stuck in a holding pattern doing a little hoping and praying.  

The Pros for Homebuyers are:

  • Avoiding owning 2 Homes & paying 2 Mortgages
  • Being able to "lock'' in the next house so they don't end up homeless
  • No risk to the Buyer’s deposits should they not be able to sell their house.

The Cons for Homebuyers Are:

  • They will still need to move forward & pay for home inspections, Bank fees as well as appraisal fees. Should the deal fall apart, none of those costs are reimbursed to the buyer.
  • A buyer may potentially need to pay more for a property then compared to if they were to make an offer without the Home Sale Contingency. The reason for this is that the seller is taking on more risk of a buyer’s ability to perform. Therefore, they will want to be compensated for that risk.
  • Should it be a multiple offer situation then chances of winning the bid are greatly decreased unless the buyer pays far over and above the next competing offer....

10% Over Asking Isn’t Enough?

10% Over Asking Isn’t Enough?

This is a crazy market. There is little doubt on that fact.

We are seeing shortages in all walks of our life… From chip shortages which are creating shortages in cars and electronics to shortages in lumber and now even Gasoline! So I guess it’s no surprise that it’s no different with Housing.

But is now offering 10% or more over a seller’s asking price not enough? Is 10% the new minimum for many homes for Sale in Boston?

This last weekend we put four offers in for our clients. They were great offers with relaxed home inspection contingency thresholds between $5,000 to $7,5000, flexible closing dates with Suitable Housing Clauses for the Sellers and all of them were 10% or more over asking price.

On one offer we went 20% over asking price. On this house there were 69 other competing offers. 70 offers in total! We did not win this bid…

Another offer we wrote was a cash offer that was 10% over asking price with a flexible closing date and a $7,500 home inspection contingency threshold. But here is the kicker… This house was directly next door to a sewage treatment plant. We lovingly started referring to this house as the “Poo House”. We confirmed that there were no health hazards living next to a sewer treatment plant. Our client was excited about this house and had no issues with the environment. We figured we had this one in the bag…. Cash offer over 10% above asking with a big home inspection threshold! I mean come on! But no, that wasn’t even enough to win the Poo House bid.

And we were not able to secure the other 2 offers either. So, we went 0 for 4 in getting offers accepted. With all the offers at least 10% above asking price and what would be considered very strong terms for the seller.

So why these stories?...

Don’t Get Pre-Approved by These Companies

Don’t Get Pre-Approved by These Companies

The Bank that you get pre-approved with matters.

We recently had a client that got pre-approved with a not to be named internet bank. She started the pre-approval process before we had initially talked. She found a home that she loved and extended a very competitive offer that was far over asking price. It turns out another offer was close and she ultimately lost out… The swaying factor, the bank on her pre-approval.

So why do these banks have such a negative perception? For many reasons… And some are deserved. Some are reputations of a long time ago that are still haunting them. Some might not even be deserved, but that doesn’t matter. Perception is reality.

One of these banks that have a negative reputation provided a loan commitment and told the buyer she was all set to close. But two days before closing they called the soon to be home buyer saying that in final underwriting there was an issue and she needed to bring an additional $20,000 to the closing table. $20,000 is a lot… Let alone 2 days before closing. And them doing this after the mortgage commitment meant that she would lose her deposit. CRAZY

Another bank that you should not get a pre-approval from is known for their delays in underwriting and having to push out closing beyond planned closing dates.

Another Bank is known for their quick pre-approval. And their pre-approvals in the industry are known to be worth less than the TP you wipe your backside with.

We recently had a local Mortgage Broker who disappeared during the loan process. Promised the moon. Let the loan commitment lapse. When it came down to bras tax, they still did not deliver on their promises. Their inability to perform cost that mortgage broker $2,500 and cost our client nearly their entire deposit....

You Are an Idiot if You Don’t Buy a House

You Are an Idiot if You Don’t Buy a House

The Real Estate vs. Stock Market Return on Investment

Historically, over the long run your ROI on your house will be higher than the Stock Market. Plus owning a house has one more BIG advantage… YOU can’t live in Stock Certificates.

Let’s take a look at the average return of the Stock Market for the last 20 years…

(Hyperventilating in a bag) Look at all those swings. Up and down. Up and down. With swings like that, make sure to keep your therapist on speed dial!

The average return from 2000 to 2019 was 7.68% for the S&P 500.

So, $50,000 invested in the year 2000 would have been worth $162,066 at the end of 2020.

THAT’S NOT BAD! That is a respectable return! And if you already own a home, then I think everyone would agree that it is smart to diversify…

But that’s not what we are talking about here. We are talking about the people who rent because they think they are better off financially…

Let’s look at the Home price appreciation over the same time period.

From 2000 to 2020, we have seen a Median Appreciation Rate of 3.85% for homes throughout the United States.

Please do keep in mind that this will vary from Market to Market. For instance in Boston we have seen a 10.5% increase from $222,000 to $690,000 in that same time period.

But let’s stick with this average 3.85% yearly return figure to show why investing in the stock market over buying a personal resistance that you can reside in is dumb.

It’s important to realize that a house appreciates off of the full asset value. Not how much you put down as a down payment. This is one of the major differences between stocks and real estate. Stocks you have to pay for the entire position up front. Real Estate you can...

What Happens if Appraisal Comes in High?

What Happens if Appraisal Comes in High?

So what happens when an appraisal comes in higher?

Essentially nothing. It's a good thing in essentially the buyer has already created equity in the property, but it doesn't really impact the deal.

It doesn't effect the financing because a bank will take the lower of the appraised upon value or the agreed upon price.

Questions people sometimes ask and that we answer:
With the higher appraisal, do I get extra money or can I finance more?
Does the seller find out about the higher appraisal?
Can the seller charge me more?

Transcript of Conversation:

- What happens when an appraisal comes in higher? Hi, I'm Jeff Chubb with the eXp Realty and we're here with Jason Bonarrigo of RMS Mortgage talking to you about what happens when that appraisal comes in higher and make sure you stick around to find out at the end of the video what we're doing with a thousand dollars. So, Jason, tell me first off, what is an appraisal?

- Well, an appraisal is a way that the lenders essentially certify the market value of the property. We don't always put in exact numbers of the purchase and sale. So we have an independent third-party go out there and see what the market analysis is.

- Okay. So we get the appraisal. So comes back, what happens if that appraisal, that third-party opinion of the value, actually comes in higher than agreed upon price?

- So let's just say agreed upon price is 500,000

- mhmm

- and that appraisal comes back 520.

- Yeah. Nothing. No, I mean, essentially it doesn't really impact, it's certainly not a negative thing for the buyer.

- Right. Good thing

- it's a good thing. They, you know, essentially tactically could have picked up maybe 20 grand in equity.

- A hypothetical...

What Happens If Appraisal Comes in Low?

What Happens If Appraisal Comes in Low?

Is the deal completely dead if the value of an appraisal comes in below the agreed upon price?

No, it’s not dead. There are still some options and ways to keep the deal alive.

The first option is for the seller to agree to reduce the price of the agreement to the appraised price.

This is the simplest avenue, but not all sellers are agreeable. We see sellers become even less agreeable in hot seller markets.

The second option is for the buyer to make up the appraisal difference.

A buyer could make up the difference by bringing additional funds to closing, but can sometimes also be able to adjust the percentage the buyer is putting down without requiring them to bring additional funds to closing.

The third option is a mix between the two where the seller agrees to reduce the sales price and the buyer brings additional funds to closing. As an example, if there was a $20,000 difference between the agreed upon value and the appraisal then the seller would agree to reduce the price by $10,000 while the buyer brought an additional $10,000 to closing.

The fourth option is terminating the deal and all parties moving on. If this is the case and the buyer had a mortgage contingency and all dates were met in the mortgage contingency then the buyer would (most likely) get their deposit back.

Transcript of Conversation:
- What happens when an appraisal comes in below agreed-upon value? Hi, I'm Jeff Chubb with EXP Realty. We're here with Jason Bonarrigo of RMS mortgage and make sure that you stick around...

What Is An Appraisal?

What is An Appraisal?

An Appraisal is an independent 3rd party professional that certifies the value of a property.

An appraiser does this valuation to ensure that the market value and the agreed upon purchase price match.

The lender orders the appraisal; however, they do not do it. It is an independent party that is not tied to the buyer, seller or lender.

The bank will pay for the appraisal up front; however, they will collect this fee from the buyer eventually.

The point of the appraisal is to make sure that the deal is above board and that the buyer is not over paying for the property. These appraisals can create issues; however, they are in the best interest of not only the bank, but the buyer as well.

The appraisal is a way to qualify the real property if you will.

The bank secures the mortgage against the asset (the house). The bank needs to know that should a buyer not be able to pay back the loan, that the asset will be able to cover the loss.

An appraisal will look at comparable houses within a one-to-two-mile radius. They specifically look for recent sales within the last 6 months. There are exceptions that can be made in more rural areas where there are no recent sales.

The appraisal happens once the Purchase & Sale Agreement has been signed.

There can be appraisal delays based on how busy the marketplace is. Generally, this should not be an issue that holds up closing, but can hold up the mortgage commitment.

Other Blogs & Videos May Interest You:
What Happens if Appraisal Comes in Low
What Happens if Appraisal...

Buying a House With No Down Payment

BUYING A HOUSE WITHOUT SAVING FOR A DEPOSIT

Haven’t saved for a down payment to buy a house? Or need a little more in order to make your dream of buying a home possible? You may still have options.

Don’t be sidelined from the real estate market continuing to stash small amounts away in the form of savings for a down payment.

You have options of receiving a Gift or borrowing against your 401k.

A buyer can receive a gift from a person that the buyer has a strong relationship with (this is for most programs). Gifts are not acceptable for all programs so this is something that you would want to reach out to a mortgage banker to discuss more with.

A gift of cash (actual dollar bills!) can difficult the gift process. This is an example where the funds would need to be seasoned.

In most cases a buyer can pull from their 401k. This is something where the buyer will want to check with their provider or HR department to see what the plan offers. A lot of times this is an interest free loan that is in most cases have no tax implications.

Saving 20% for a down payment is near impossible for a lot of first-time home buyers… Especially those located in expensive markets! It’s important to know that you always have options!

Transcript of Video:

- Can I still buy a house without saving for a down payment? Hi, I'm Jeff Chubb. We got Jason Bonarrigo here today. Today we're talking about down payment options with 401ks and gifts. And be sure you stick to the end of the video in order to figure out what we're gonna do with this thousand dollars with your help. So Jason, do I have to save for a down payment in the traditional sense? Do I have other options?

- You always have options. A lot of times clients don't know that,...

Biggest Mistake Buyers Make in a Hot Market

Biggest Mistake Buyers Make in a Hot Market

A Seller's market is where there is more demand for houses then supply. This creates an imbalance where a seller has pricing power.

This imbalance is making it where many houses are going far above a seller's initial asking price.

If a house is marketed at $500,000 but really sells for $575,000 then the true market value of that house is $575,000.

So the biggest mistake a buyer is making is looking at houses that initially seem to be at the top of their price range when in reality they are not really in their price range.

The issue with looking at a house that is above your price range is that you become attached to areas or finishes of the more expensive houses. It's natural for a buyer to compare one house to another house. If a buyer is constantly looking at houses that are out of their price range then this will create a level of disappointment for the buyer.

In this market, a buyer doesn't necessarily want to look at the brand new listings at the high end of their price range. They should wait until after the weekend to view the property to ensure that it hasn't received multiple offers with the bid price going above the seller's initial marketing price.

Transcript of Conversation:

- Biggest mistake when searching for a house in a hot real estate market. Hi, I'm Jeff Chubb. We got Jason Bonarrigo with us today. And make sure you stick around for the end of the video to find out what we're gonna do with this $1,000. So...

- Jeff, talk to me, what is a hot market? What's going on right now?

- So a hot market, a hot sellers market, is basically where sellers have all pricing power, all the advantages of a hot market place, if you will. So, and that's really what we're seeing...

What Happens to the Deposit When Buying a House?

What Happens to the Deposit When Buying a House?

Know that all deposits are negotiable. Many will say that the required deposit is 5% and this is not true. If you are putting 3% down or 0% for a VA loan, then most likely a buyer wouldn’t have 5% to put in deposits. Another example is a home buyer who is selling their house and utilizing the equity in their current home for the next purchase. They may not have the large lump sum available.

Massacbhusetts Home Sellers like to see 5% of the purchase price in deposits, but again this is not a requirement. This is negotiable.

How/When Do the Deposits Work?

Normally there are two deposits throughout the offer process. The number of deposits however is also negotiable. Recently we put a property under agreement where the buyer had three deposits with the third being when his current house sold. We have also put properties under agreement with just the initial deposit. Everyone’s situation is different.

To the Massachusetts Home Seller, the deposit is what ensures that the buyer will perform in the transaction. The deposit is what holds a buyer’s feet to the fire. If they don’t perform or decide to walk away, then they could lose the deposit.

The first deposit is due at the time of the acceptance of the offer. This is called the binder. In order for an offer to be valid there must be some type of consideration to "bind" the agreement. It could be $1, but generally when buying a house in Masscahusetts, we see this initial deposit as a $1,000.

In most transactions, the second deposit comes at the time of the signing of the Purchase and Sale Agreement. This is generally about two weeks after the initial offer has been signed and after a home inspection has been performed with any inspection issues having been negotiated.

In a successful transaction, the deposit...

Can You Use Cash For a House Deposit?

Is a Cash Deposit Bad When Purchasing a Home?

This is really about the Seasoning of Funds for the deposit. Seasoning of Funds means the time of which the money has been in your possession in your bank account.

Cash isn’t necessarily bad when buying a home, but it can make things a lot more difficult when not dealt with properly. It comes to a documentation of the cash.

If you are planning on using mattress money to buy a new home, then it’s best to start planning before you find a place to buy. If you can start depositing the money in bank accounts before it will save you a lot of hassle. Speak with your mortgage banker as you start the process for some best practices.

A mortgage lender will not be able to verify cash, however they will need an explanation as to where it came from. The rule of thumb is that any cash deposits that are over half of a person’s normal pay will be flagged for needed explanation.

A mortgage lender will ask for bank statements for the two prior months. If the cash is already in the account and has been “seasoned” then no questions will be asked.

Companies like Venmo are turning out to be a huge benefit to this process as people become more used to electronic transfers over cash payments to friends, family members and vendors.

...

What to Look For When Choosing a Home Loan


What to Look For When Shopping for a Loan

Rate isn’t everything when you are shopping for a home loan. Rate is a massive factor, but it isn’t everything. Things that a buyer should consider when shopping for a loan are Rate, Closing Costs, Working with Someone Local (or really in the same time zone) and the Reputation of the lender.

Rate

Rate is important. Your interest rate is actually VERY important. An 1/8 of a point can save you thousands of dollars throughout the life of the loan. The interest rate should be a major concern, but sometimes the lower interest rate can because they are charging a point (WHAT IS A POINT CLICK HERE FOR ARTICLE) which effects the closing costs.

Closing Costs

Many times, a buyer can be quoted a lower interest rate only to find out their closing costs are higher. These closing costs are higher due to them paying an up-front cost to reduce the rates.

The great news about closing costs is that whatever a bank estimates for closing costs in the GFE (Good Faith Estimate), they must come within 10% of that amount otherwise they are required to eat the cost. In other words, if a lender quotes you $5,000 for total closing costs then anything over $5,500 they are going to have to absorb.

Working with Someone Local

Working with a local mortgage banker is something that should be a large factor for consideration when choosing a bank. And it isn’t necessarily just the mortgage banker, but where the underwriter located as well.

The time zone issue matters a LOT, especially if you are on the East Coast. If your underwriter or loan officer is on the West Coast (which is the case often times with these internet banks), then that means they aren’t getting in the office until noon our time. This can create delays in the process as well as create issues when...

Can You Buy a House After Bankruptcy?


Can You Buy a House After Bankruptcy?

Yes, you can still buy a house if you have declared bankruptcy. The length of time as to when you can buy a house after bankruptcy depends on what was discharged in the bankruptcy.

How Long After Bankruptcy Can I Buy A House?

A person can buy a house two years after a mortgage is discharged. The two years is after the discharge, not when the bankruptcy is filed. A bank will ask for a copy of the discharge papers. If a potential buyer has been foreclosed on then this time line will be different.

Does Declaring Bankruptcy Wipe Out My Credit

No. Often times in the long run and when done right it can a lot of times increase a credit score. The actual bankruptcy clears the debts. After the discharge, a person should get one of the minimal credit cards and charge a couple hundred dollars that they pay off at the end of each month. This will quickly rebuild credit history.

Need 2 Years Post Bankruptcy & What Else to Buy a House?

You still need the Big 3 when it comes to buying a house. Credit which the Bankruptcy if done right has helped, employment and down payment (equity). If you have those three pieces and two years (provided that you have not been foreclosed on), then you should be able to purchase a home. Remember that each person’s situation is different and they should consult a mortgage banker to help create a game plan to achieve your real estate goals.

What Does a Bankruptcy Do to my Interest Rate?

A bankruptcy can effect your interest rate based off of your credit score. If your credit score has gone up then it will affect your interest rate in a positive way.  There is not an additional risk layer where because you have declared bankruptcy they add a premium onto the rate.

...

What is PMI on a Mortgage? – Everything You Need to Know

What Does PMI Stand For?

PMI stands for Private Mortgage Insurance.

When is PMI Used?

The golden rule is that Private Mortgage Insurance is used when a buyer puts down less than 20% on a house. Generally we see Fannie Mae, Freddie Mac, FHA and VA loans utilize Private Mortgage Insurance.

All homeowners do not get PMI.

What is PMI?

Private Mortgage Insurance is essentially a risk layer that has been created by the banks to help mitigate their risk and thereby make them wiling to lend to buyers that are putting less than 20% down. PMI protects the lender – not the buyer – if they stop making their mortgage payments on the loan.

Why is it Important to Know About PMI?

Many potential home buyers don’t factor in the cost into their budget. Most people that don’t do this day in and day out don’t realize this is an expense (and how could you blame them!). When potential buyers start digging into the process they generally factor in Principal, Interest, Taxes and Homeowners Insurance into their monthly budget.

No one ever thinks about PMI. It is a rather hidden expense that can cost hundreds of dollars per month.

How Do You Pay For PMI?

A person can pay the PMI Insurance Premium upfront. Most homeowners however choose to pay the Private Mortgage Insurance premium monthly.

There are options to how PMI is paid for which a potential home buyer should talk to their mortgage banker about their specific situation and what is the most cost effective way.

How Much is PMI Insurance?

This is a loaded question as the cost is not a uniform cost or a specific PMI rate if you will. The cost of PMI is based off a potential buyers credit and the amount of they are putting down.

Broad strokes the rate...

How Much Does it Cost to Buy a Home? Know Your Closing Costs.


How Much Does it Cost to Buy a Home? Know Your Closing Costs.

What are the costs to expect from going under agreement to signing the closing paperwork and having keys in your hand?

Home Inspection

The first cost we generally see prospective home buyers occur is the home inspection cost. Not all buyers do a home inspection and it is not required, but this is something that we highly recommend. The home inspection itself will cost around $500, however there are other inspections other than the traditional home inspection that a prospective home buyer may occur.

We have seen these other inspections (which cost additional money) include a Radon Inspection, Pest Inspection and Well Water Inspection.

Application Fee

The Application fee is a fee that is paid upfront when applying for a loan. This application fee is used to cover the cost for a 3rd party independent appraisal of the property that the prospective buyer has an accepted contract on. This application fee is generally in the range of $500 to $700.

Title Insurance

There are two types of Title Insurance. There is lender’s title insurance and the homeowner’s title insurance. Title insurance is one of the most expensive parts of a home buyers closing costs. Title Insurance insures against financial loss from defects in title to reap property and from the invalidity or unenforceability of mortgage loans. This insurance will defend against a lawsuit attacking title or reimburse the insured for the actual monetary loss incurred up to the dollar amount of insurance provided by the policy.

The Lender’s Title Insurance is a requirement by the lender in order for them to give the mortgage. The Owner’s Title Insurance policy is optional to a homeowner. Like most insurance, it is...

What Should a First Time Home Buyer Know?

Things to Know When You are a First Time Home Buyer

The first thing to consider is the ‘Big 3”. The Big 3 is Credit, Employment and a Down Payment or Equit. In order to buy a house, a person needs to have a good credit score (what is a good credit score? We will talk about this in a couple seconds), employment and the down payment or equity in a current property that would be used as a down payment.

Down Payment

Most home buyers believe in the myth that in order to buy a house you need 20% as a down payment. This could not be further from the truth! The minimum down payment for a Fannie Mae or Freddie Mac loan is 3%. FHA loans have minimums of 3.5% while VA loans (Loans for active or past military) are able to put 0% down. These programs are used for Single Family homes as well as 2 or 3 family properties that are going to be owner occupied.

Credit Score

Know your credit score. Don’t be afraid! A great tip is to go to Experian.com. Experian is one of the three credit agencies that will give you a free credit score once per year. Your mortgage banker can also pull your credit score. It’s important to find out the credit score in order to be able to evaluate where you are and areas for possible improvement. If the credit score comes in a lower, then talk with your mortgage banker about creating a game plan that will help increase it.

Keep in mind that a Mortgage Credit Inquiry will not hurt your credit score. Now, if you were to make multiple mortgage credit inquiries then that would begin to affect your score. The credit agencies know what type of inquiry is being made and looks at a mortgage inquiry as favorable debt. A mortgage is considered secured debt vs. a credit card which is unsecured debt.

Know your Budget / Closing Costs

Many are focused on...

Is buying a condo different then buying a Single Family? Things to know when buying a condo.

Is buying a condo different then buying a Single Family home? Jeff & Jason discuss some need to know items when buying a condo.

The mortgage market is always constantly changing which is why it's so important to talk to Jeff and/or Jason about your real estate goals when buying a condo in Massachusetts.

Things to think of:
- The buildings Owner Occupancy Rate
- Investor Concentration
- A condo association budget and Reserve Account
- Condo Document Restrictions
- A condo association approved by FHA/Fannie Mae
- Adding the condo fee into the monthly payment obligations

In this video, Jeffrey and Jason breakdown the main points of consideration when buying a condo. Each transaction is always different, but these generalities are a great starting point.

Should you have any questions, then reach out to Jeffrey at 617-480-2600.

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How Long Does It Take to Buy a House? The Buyer Timeline

How long does it take to buy a house when you are getting a mortgage? This is a question that we hear quite often from clients who are looking to buy a home.

Each state is different, but here in Massachusetts the average is about 45 days from offer accepted to closing. It is important to remember that closing dates are always negotiable between a buyer and seller, however a bank does need a certain amount of time to process a loan in order to be able to close.

Jeffrey and Jason breakdown what happens throughout the transaction and what a buyer (or seller) can expect and when. Each transaction is always different, but these generalities are a great starting point.

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