Thursday, April 27, 2017

Hot, hot, hot

I have been writing lately about estate planning.  Let’s shift back to real estate.  The real estate market is hot, hot, hot.  Multiple buyers are vying for the same property, even offering more than the asking price in an effort to secure their purchase.  Homes for sale are staying on the market only a very short time before they are scooped up by anxious buyers, and sellers are just sitting back and cooling their heels while the buyer insanity continues.

If you are a potential buyer, you must be prepared to move quickly not only financially but in all other respects as well.  It is important to honor the dates set forth in the offer, and to keep the seller under agreement (by the Offer) so that you don't lose the deal.   Some buyers write personal letters to the sellers advocating for why the sellers should choose their offer.  Other try to make their offer more attractive by foregoing a mortgage contingency—this is a personal choice, but it is important that buyer have sufficient financing to purchase the property.  Essentially it is an allocation of risk that sits squarely with buyer from onset.  Generally the mortgage lender will do what is necessary to approve buyers’ application and meet the closing date, but once in a while (rarely, fortunately) things don’t work out with the lender as the buyers hope.  If buyer does not get mortgage approval, the buyer is still contractually bound to purchase the property, (with funds from other sources, if necessary), and if they don’t or can’t buy, they will be in default and the seller will be entitled to keep the deposits paid as damages. 

If nothing goes wrong, things will move along in the normal course, and the lender will finally approve the loan to close.  At least three days before closing, lender must give buyer a Closing Disclosure which will set out all of the terms and costs involved in the transaction.  At that time, the buyer will be informed of the total amount necessary to close.  That figure will include not only the balance of the price due, but also all closing costs associated with the transaction.  The buyer will be instructed to provide those funds at closing, either by wire transfer or cashier’s check.

So what are the closing costs that are added to the balance of the price due?  They will include fees paid to the lender for processing your loan, funds for escrows if the lender will be maintaining escrow accounts for taxes and insurance,  legal fees, registry of deeds recording fees,  and perhaps some other small fees charged by the lender or the attorney.  Depending on the closing date, the lender may also charge “prepaid interest”—this is the amount of interest due on the principal for the balance of the month in which closing occurs.  On the first of each month thereafter, you will make your usual monthly payment.

You will be obligated to put homeowners insurance into place and provide a binder to the lender.  Often the lender requires that the full year’s premium must be paid for closing.  You will obligated to pay for a loan policy of title insurance on behalf of the lender.  As I have stated in earlier posts, you absolutely should purchase the optional owners policy of title insurance, which is available at a discount at closing if it is purchased at the same time as is the loan policy.  The closing attorney takes care of just about all of the processing on behalf of buyer.  Buyer should be sure to be responsive to any lender requests, but a good lender’s attorney should manage all pieces of this in a smooth manner leading to a successful closing.

So, buyers, put on your running shoes and go after the house you want.  But remember one thing: there is no such thing as just one perfect house.  There are many, many houses available for sale, and odds are you will be happy with any of them.  Kind of like online dating.