Purchasing a Home

Buying Bank Owned / Foreclosed Property

Bank owned property can present a good opportunity for a prospective homebuyer. These houses are often listed at the low end of the market value in order to facilitate a quick sale. However, you will want to be sure that the condition of the property is acceptable. A professional home inspection can help you assess the condition of a property. If the property needs repair, you need to know the costs of those repairs, and whether the condition of the property will keep you from getting a mortgage loan to complete the sale. Make sure your purchase contract has a contingency period that allows you to have a home inspector inspect the property before you commit to buy it. Banks will generally ask that you buy the property in "as-is" condition. They will usually not make any repairs.

About Home Inspections

A standard home inspection is a visual examination of the physical structure and major interior systems of a residential home. During an inspection, the inspector will check all readily accessible portions of the structure of the home, including the roof, the attic, walls, doors, ceilings, floors, windows, basement, garage, and foundation…as well as the heating/air conditioning systems, interior plumbing and electrical systems for potential problems. The home inspector should be willing to address all of the buyer's questions and provide a full verbal and written report.

While not necessary, it is recommended that the buyer be present for the inspection. The written report will be easier to understand if the buyer was present during the inspection. This allows the buyer to observe the inspector, ask questions directly, and obtain a good understanding of the conditions of the home, how its systems work, and how to properly maintain it. At the conclusion of the home inspection, the buyer should be well informed of the condition of the home. It should be known if there are visible, apparent problems, if repairs need to be made, or whether or not there are any risks of concealed damage, and whether further investigation is recommended and/or required.

The buyer should always be allowed to cancel the contract if the inspection is found to be unsatisfactory. The buyer should also have the option of requesting that the seller make certain repairs as a condition of purchasing the home.

It is important to note that home inspections are not intended to point out every small problem or any invisible or latent defect in a home. Minor cosmetic flaws should be apparent to a buyer without the aid of a professional. Remember, most houses will have some minor imperfections. The condition of the house is also relative to the purchase price. If the house is selling far below market value, expect the house to need some repair work.

When Should a Home Inspection be Performed?

A home inspection should be performed immediately after the purchase contract is signed, prior to executing the final purchase and sales agreement. The buyer should be sure that there is an inspection clause in the contract making the purchase obligation contingent upon the findings of a professional home inspection. This clause should specify the terms to which both the buyer and seller are obligated.

Closing Costs Financed

When purchasing a home, closing costs can be paid by the buyer or the seller. This is part of the purchase contract negotiations. If the buyer pays the closing costs, some lenders will allow the closing costs to be financed into your mortgage. Currently, we are experiencing what is known as a "buyer's market". As such, many sellers are willing to pay for some or all of the buyers closing costs in order to make it easier to sell their home in a timely manner. This means that a buyer can purchase a home with very little money out of pocket. There are two charges that a buyer should prepare to pay out of pocket prior to loan closing. The first is for the appraisal report. An appraisal will generally cost $300-$375. The second cost is for any property inspections that the buyer chooses to perform. It is highly recommended to hire a licensed home inspector to walk through and inspect your house prior to purchasing. Inspections will generally cost $200-$400 depending on the inspections performed and the size of the home. This will be money well spent. Nothing is worse than moving into your newly purchased home and then finding out that the home needs repairs that you were unaware of. Many appraisers and inspectors will accept credit cards as a method of payment.

Earnest Money Deposit

Earnest money is also known as "Good Faith Money". This is money that a buyer deposits into an escrow account when making an offer to purchase a home. It shows the seller that the buyer is serious about purchasing their home. A good rule of thumb is that the earnest money will be between 1/2 and 1 percent of the purchase price. For example, the earnest money for a home selling for $200,000 would usually be between $1,000 and $2,000. This is something that can be negotiated in the purchase contract. Unless otherwise stated in the purchase contract, the money is refundable should the buyer decide not to purchase the home after inspecting the property. Also, if the buyer makes a diligent effort to secure financing, but is unable to do so, the earnest money will be refunded to the buyer (unless otherwise stated in the contract). Upon successful closing of the transaction, the earnest money is either applied to the buyer's closing costs or, in some cases, can be refunded to the buyer.

About Private Mortgage Insurance (PMI)

PMI is insurance that a lender typically requires when a borrower puts less than 20% down on their home. If a borrower defaults on their loan, the mortgage insurance company pays the lender for the loss that is incurred. Without PMI, banks generally would not be willing to lend money without a large down payment from the borrower. Before PMI existed, it was not possible to purchase a home with no money down. Government backed loans typically offer reduced mortgage insurance rates, thus making monthly payments lower. Other programs don't require mortgage insurance premiums at all. Still other programs offer reduced premiums for first time homebuyers. If you have very high credit scores, PMI can sometimes be paid by the lender or the premiums can be reduced to extremely cheap levels. Your lender will help you determine the best overall loan product for your given situation.

Manufactured Homes

Certain Manufactured homes are eligible for 100% government-insured financing. They must be doublewide and on a permanent foundation. They must be constructed after 1976 to qualify.

Leave Collections Unpaid at Closing

If you owe money on one or several unpaid collection accounts, some lenders will allow you to purchase or refinance a home with no requirement to pay off the collections. Different loan products have different rules regarding unpaid collections. You will want to talk to your lender to determine in advance whether or not any of the collections will need to be paid prior to or at closing. While collections can sometimes remain open and unpaid, legitimate court judgments will always need to be settled prior to (or at) closing. In many cases, these debts can be settled for approximately 50% of the balance owed.

Pay Creditors at Closing - Collections / Charge Offs / Tax Liens / Judgments

When purchasing or refinancing, most lenders allow any creditor to be paid at closing; including collection accounts, charge offs, tax liens, judgments and/or other creditors. When timely closings are required due to purchase contracts or agreements between a Buyer and Seller, this can help meet those time requirements.

Prior Bankruptcy

Having a prior bankruptcy does not prevent one from purchasing a home or refinancing their mortgage. As a general rule, a chapter 7 bankruptcy will need to be discharged for 2 years in order for a borrower to obtain the best loan terms. A chapter 13 will need to be 2 years from the filing date…and discharged prior to loan closing. If the bankruptcy is more recent, offers with higher rates and larger down payment requirements (or more equity in the case of a refinance) can be expected. If there were extenuating circumstances that caused the bankruptcy, a borrower can qualify for a low rate government-backed mortgage sooner than the standard 2 year waiting period. Talk to your lender regarding your specific situation.

Prior Foreclosure

Having a prior foreclosure does not prevent one from purchasing a home or refinancing their mortgage. As a general rule, if the foreclosure is over 3 years old, a borrower can obtain the same low rate as a borrower who never had a foreclosure. If the foreclosure is more recent, offers with higher rates and larger down payment requirements (or more equity in the case of a refinance) can be expected. If there were extenuating circumstances that caused the foreclosure, a borrower can qualify for a low rate government-backed mortgage sooner than the standard 3 year waiting period. Talk to your lender regarding your specific situation.

Home Loans after Divorce

Home Loans can usually be obtained by either spouse after divorce for a fresh start for purchasing a new home or refinancing an ex-spouse off of the deed.

Credit Damaged by Divorce or Ex-spouse

Everybody's life situations are personal, individual and rarely are any two divorce annals identical; nor are they often uncomplicated. The right lenders view divorce as an acceptable reason for credit problems. It's well known that a divorce can damage the credit of a credit worthy person.

Some lenders understand this; and unfortunately, some say they understand it-but actually do not understand it at all. Many lenders do not see the "whole picture" and therefore take the position that a borrower's credit was not damaged as a result of divorce because the derogatory history stretches over too long of a time period prior to the actual time of the divorce. Some say the interest rate offered should be high due to the risk factor. Others refrain from making an offer.

However, the right lenders do understand that although sometimes a divorce can be triggered by a seemingly "overnight" situation, it is usually not caused by an overnight experience. As such, when divorce is a factor and a long term credit damaging history prevails, the right lenders may increase interest rates moderately to offset some lender risk, but not do so abusively. Success in dealing with these situations can be simplified by knowing which lenders understand divorce and which do not.