Expert: John Hendricks - 1/7/2009

Question
QUESTION: We live in 92376, California. Some things I know about buying. One of those is strict loan companies now since the bubble burst in housing. Need good credit (700+ score) and 15 to 20 percent down for a conventional loan. And the FHA loans (requires less down).

Some of the BIG questions I have. I DO meet the strict qualifications (700+ credit score) and INCLUDING the down payment! I am wanting to get preapproved at Bank of America. With these guys, there is NO closing costs. (What I heard for Bank Of America)

BIG question #1: What will we get as a benifit of First time buyer VS someone who bought before.

Big question #2: How much can we borrow (after down payment) if we are bugeted to not want to pay over $800 monthly INCLUDING propery taxes, insurance, other expense involving the house ONLY (Im bugeted separately for utilities). We get $2500 take home monthly, have only ONE credit card payment of $150 (owe $7500), No car payments.

BIG Question #3: Once we get preapproved. Can we pick out any home (price approved for) from ALL sellers or agents including from a listing from ONLINE or even walking by one in the street? OR can we only pick a house from a certain agent (ie. only Bank of America agent???)

BIG question #4: What fees (if any) WILL we need to expect to come up with, once we close a deal. What are closing/escrow etc etc fees????? What are those fees for (in "english" terms), are these fees sort of like a commission for the service of a salesman finding a home for us???

BIG question #5: Once we find the home we like and want to buy it. What happens from here?



ANSWER: Dear Gilbert;

Thank you for your question… Now is the right time to consider buying a home especially with your credit score of 700+ and a significant down payment. I will answer your key questions with answers that will help you along the way of making a wise investment in your first home.

I want to get preapproved at Bank of America. With these guys, there are NO closing costs. (What I heard for Bank of America)

Answer;
The first step is to get pre-approved for your loan… Don’t be swayed by B of A’s no closing cost loans alone. They do make their profit one way or the other. Mortgage Bankers are one dimensional institutions compared to Mortgage Brokers. Mortgage Bankers have one product only to sell you and will not go to outside sources, while a Mortgage Broker will have a variety of investors including B of A to compare rates, terms and conditions which will be to your best interest. A good Mortgage Broker will help you through the process of getting pre-approved for the highest possible price based on your circumstances, but will provide you with a realistic purchase price with what you are comfortable with paying in terms of your principal, interest, taxes, and insurance. Have the Mortgage Broker compare B of A’s no cost loan especially their interest rate, terms and conditions to other investors as they vary particularly with no cost loans. Sometimes Mortgage Bankers will have some good in house deals that Mortgage Brokers aren’t allowed to market to their clients, but not too often. Your selected Realtor knows of the best Mortgage Brokers in your area and would be glad to refer you.

BIG question #1: What will we get as a benefit of First time buyer VS someone who bought before.

Answer;
Some Mortgage Brokers and Bankers have first time home buyer a programs offering you discounts in your costs for the loan… Don’t be afraid to ask the Mortgage Broker or Banker for a list of their discounted fees for being a first time home buyer. The title company you choose to complete your transaction also has a variety of first time home buyer fees that are waived or discounted as long as you have not owned a home in the last two years. Your Realtor will help you select the right title company based on their first time home buyer plans.

Big question #2: How much can we borrow (after down payment) if we are budgeted to not want to pay over $800 monthly INCLUDING property taxes, insurance, other expense involving the house ONLY (I am budgeted separately for utilities). We get $2500 take home monthly, have only ONE credit card payment of $150 (owe $7500), No car payments.

Answer;
Another good question… Based on the past credit crisis investors have changed the way a potential borrower qualifies for the loan. There are many factors to consider, as it is not as easy as it once was to obtain a loan. You have two great factors in your favor…your credit score and down payment… When you meet with the Mortgage Broker or Banker, you will complete an application which will include all the factors to determine what you will qualify for in a loan. As mentioned earlier, you will be given a high price and a price that will fit into your budget as you requested.

BIG Question #3: Once we get preapproved. Can we pick out any home (price approved for) from ALL sellers or agents including from a listing from ONLINE or even walking by one in the street? OR can we only pick a house from a certain agent (ie. only Bank of America agent???)

Answer;
A Mortgage Broker or Banker does not represent the buyer in the purchase of a home. At one time Mortgage Brokers only represented a buyer for the purchase of a home while representing the buyer with their loan as well. This did create a conflict of interest as the Mortgage Broker would stand to lose a great deal of money since they represented the buyer on both ends. Sometimes the advice given was not always to the best interest of the buyer under those circumstances. Very few Mortgage Brokers operated in this manner even in the past as they referred their clients to quality Realtors to find and negotiate the right home for their clients.

I would highly recommend you contact the best Realtor you can get to represent you in the purchase of the home. You do not pay them for their representation, as there is an agreement by the listing Realtor and Seller of the home you decide to buy to pay your Realtor’s fees for representing you. That’s right! No cost to you for having the best Realtor in town represent you in buying your first home.

If you need help in finding the right Realtor to help you, don’t hesitate to contact me… I refer many people throughout the country to the best Realtors available in their community. Once again there is no cost to you for my service if you choose to use it.

BIG question #4: What fees (if any) WILL we need to expect to come up with, once we close a deal. What are closing/escrow etc etc fees????? What are those fees for (in "english" terms), are these fees sort of like a commission for the service of a salesman finding a home for us???

Answer;
Your closing cost usually equals 2-3% of the purchase price of the property. I believe that FHA allows you to accept a credit from the seller at the close of escrow of up to 3% for non-reoccurring closing costs. Those are costs that are onetime costs like loan fees, title fees, recording fees and a variety of other costs that are onetime costs only. Re-occurring closing costs are insurance, property taxes, etc that occur after the close of escrow… Your Mortgage Broker or Banker will provide to you prior to buying a house an “Estimated Closing Cost Statement” that usually is close to the actual closing costs including credits if applicable you will be expected to pay for at the close of escrow.

BIG question #5: Once we find the home we like and want to buy it. What happens from here?

Answer;
After you are pre-approved for your loan, you understand the closing costs involved, and you have selected your Realtor, the search for your home will start… Your Realtor will select and usually preview a number of homes for you to view based on your price range and make arrangements with you to show the properties at a convenient time. Once you find the right home, you will have the Realtor write an offer to purchase the home and negotiate the contract for you…. Your Realtor will advise you as to what you should offer for a home based on market conditions, the pricing of the home compared to other homes in the neighborhood, and the motivation of the seller. These three areas are a key to making an offer that will be acceptable to the seller or at the very least getting the Seller to respond to your offer with a counter offer.

Once you come to an agreement, and all the contracts are signed, your Realtor will open escrow with the title company that will provide you the best terms for first time home buyers. The title company does not represent the buyer or the seller, but the transaction only. At the close of escrow which is usually 30 to 45 days (earlier the better for negotiation purposes) from the acceptance of an offer, the title company will issue title insurance for your new home, (ask your escrow officer to explain what title insurance is) and make sure that both the seller and buyer’s agreed upon terms and conditions are included in the closing documents for the transaction.

After you get into escrow though, you will have certain time contingencies in the contract to adhere to such as your formal loan approval, a satisfactory appraisal for the property, and property inspections. These are usually time frames from 10 to 14 days from the acceptance of an offer. Depending on the how the offer was structured you may have to increase your deposit to the full 3% of the purchase price upon the removal of all contingencies. Your original deposit can be anywhere from $1000 to $5000 and is not at risk until you remove all your contingencies. It is also applied to the increased deposit for a total of 3% and considered liquidated damages if agreed upon in the offer. This is a security for the Seller if you breach your contract and decide not to buy the home after you have released your contingencies. Your deposit obviously applied to your down payment and closing costs at the close of escrow.

This is one of the most important financial investments you will add to your financial portfolio. Make sure Gilbert you get the right Realtor and Mortgage Broker to help you with the process of securing your first home. Once again, if you need my help, please do not hesitate to call me. I will make sure you have the best Realtor available in your area. You can reach me at 415-259-4518 or email me at JohnHendricks@Marin1.com

I know this was lengthy, but you need to have this detailed information to make the right decision in buying your first home. I hope this has been of help to you, and I look forward to hearing from you shortly.

Warmest Regards;
John Hendricks
Frank Howard Allen Realtors
415-259-4518
JohnHendricks@Marin1.com  


---------- FOLLOW-UP ----------

QUESTION: Thanks for the GREAT answer. Though I really needed to go through some of those words and phrases!!! I never heard of before, WOW! Those phrases are a different language to me!!!!! But anyway, this is enough detail for me.

So for the OVERVIEW of what you said is (what I got from your answer):

So you say: First get find a good mortgage broker. Brokers are more recommended than morgage bankers cause brokers work with "all" banks (sort of speak). The broker will find the right bank/ loan etc for my circumstances etc. This step is where the basics of benefits of "first time buyer" lie in, right? And should mention this to broker? They will provide an estimate closing cost etc?

Then after preapprovement, find a good realter (salesman sort of speak, right). No needed for paying them any sort of "commission"??? Its the SELLER of house who pays this?? Realtor will show homes to us. Once we find one, we have realtor write an offer.

Once agreed, Realtor will open escrow with title company. 30+ days. But during this time something COULD come up, requiring me to to do this or that (pay this or that), before it closes, right? This kind of thing happened many times with my family members. IE. My mom, at the last minute, they made my mom pay off a certain credit card. Another IE. My brother, at the very "last minute", they told him he had to pay off his truck before they close the escrow.

Then we will be expected to come up with the closing cost at this time, right?

Now for QUESTIONS about THIS overview!!

1) It looks like to me that there are a total of 3 people involved in process of buying a home. First the Broker (loan), then realtor (salesman), then the title company (the "pink" slip of house), right?

2) about picking out a house. Realtors come in many names. Like Century 21, REMAX, Inland Cities Realtor, etc etc. Are realtors from one of these ONLY? What if the house we really like has those realtor signs from a different realtor. IE. Our realtor is from Century 21, and the house we want is from REMAX. What happens?

WHAT ABOUT FORCLOSURES????????? Is is less hassle with the "seller" for getting negotiation???

3) FOR MANY YEARS, I have ALWAYS been puzzled by the phrase that is a totally DIFFERENT language to me. Its the "escrow" thing! WHAT IS THAT??????? When you guys say "Home is in escrow." What is it that is ACTUALLY happening. What is being done exactly, when escrow happens. And how come it takes SO LONG. 30+ days.

4) about the money I will need to come up with. (Do you know?) Will I need to come up with all the money BEFORE or AFTER everything "closes"

Would you know this? Or in your experiences in realty. What have you seen happening with money involved.

For an example. Lets say the home we want is $100k. Property taxes is $1200 yearly. Im required 15% ($15K) for down payment. So besides the $15,000, AT THE END of the buying process, what can I expect to need to come up with all AT THE END!!!!!!!!!! You told me 2-3% closing cost. But is this everything. What about FHA loans?

5) Do you know this? So lets say I get a loan of $85,000 at lets say 5.5%, what can I expect to pay monthly. Is property taxes and insurance the only other bills involving owning a home???


Answer
Now for QUESTIONS about THIS overview!!

1) It looks like to me that there are a total of 3 people involved in process of buying a home. First the Broker (loan), then realtor (salesman), then the title company (the "pink" slip of house), right?

Answer:
You are correct… I would first establish a relationship with the Realtor… The Realtor will provide you the names of some great Mortgage Brokers to get pre-approved…

2) about picking out a house. Realtors come in many names. Like Century 21, REMAX, Inland Cities Realtor, etc etc. Are realtors from one of these ONLY? What if the house we really like has those realtor signs from a different realtor. IE. Our realtor is from Century 21, and the house we want is from REMAX. What happens?

Answer:
Realtors are considered independent contractors who work for the Brokers like C-21, Remax, Coldwell Banker, etc... Realtors who are associated with another company who represent a home listed and as long as the property is listed in the local Multiple Listing System which 99.9% are, they will be cooperative in working with your chosen Realtor. You as the Buyer will be solely represented by your Realtor, and the Seller will be their Realtor…

WHAT ABOUT FORCLOSURES????????? Is is less hassle with the "seller" for getting negotiation???

Answer:
There are basically four types of properties in this market to consider buying…

A)  Homes that are for sale under normal situations… people who want to sell either to upgrade their living conditions, relocate to another area, or something similar. No duress is noted….

B)  Properties that are in foreclosure that will be sold on the courthouse steps. In this type of market, these properties are not as lucrative as it would be in an up market. The market value to money owed is upside down… You also need to pay for these homes in cash… No loans allowed and you buy the property usually sight unseen except for from the street. (Not for You)

C)  Short Sale properties…  these are properties still owned by the seller, but as an example, the seller bought the home for $500,000 and owe $500,000 but now the property is worth only $400,000 and the seller does not have the money to make up the difference in order to sell the home. The seller is now asking the investor, if they attract a buyer and enter into a contract conditioned on the lenders approval, will the investor forgive the $100,000 difference? There are too many problems opting for this type of property to consider buying. When you select your Realtor, they will explain in detail further reasons for not pursuing a short sale property.

D)  REO’s… These are bank owned properties which have been foreclosed upon and are treated like regular properties for sale. You usually will be able to negotiate an attractive deal with the investor with little loss of time and effort. Unlike short sales, the bank will respond to your offer within days not weeks or months like short sales. Your Realtor will be able to advise you further about REO’s…

3) FOR MANY YEARS, I have ALWAYS been puzzled by the phrase that is a totally DIFFERENT language to me. Its the "escrow" thing! WHAT IS THAT??????? When you guys say "Home is in escrow." What is it that is ACTUALLY happening. What is being done exactly, when escrow happens. And how come it takes SO LONG. 30+ days.

Answer:
When escrow is opened, it means both the Buyer and Seller have a ratified contract to purchase the property in question. The company that oversees the sale and provides title insurance for the Buyer is the Title Company. As mentioned before, the title company does not represent either the Buyer or Seller, they represent the transaction. The usual timeline to close escrow is 30 days due to your inspections, loan approval, time it takes to draw loan documents and delivery times for the documents back to the bank but could close escrow earlier if all parties are in agreement…

4) about the money I will need to come up with. (Do you know?) Will I need to come up with all the money BEFORE or AFTER everything "closes"

Answer:
The down payment and closing costs will have to be deposited into escrow/title company for distribution at the close of escrow. The Mortgage Broker will provide you with what you would need as a down payment based on the loan you will apply for. The Mortgage Broker will also provide you with an estimated closing statement including all costs including your down payment.

Would you know this? Or in your experiences in realty. What have you seen happening with money involved.

For an example. Lets say the home we want is $100k. Property taxes is $1200 yearly. Im required 15% ($15K) for down payment. So besides the $15,000, AT THE END of the buying process, what can I expect to need to come up with all AT THE END!!!!!!!!!! You told me 2-3% closing cost. But is this everything. What about FHA loans?

Answer:
The 2-3% cost estimate of the purchase price just gives you a general idea of what the closing costs will be when purchasing a home. This does not include your down payment. This 2-3% cost estimate can vary usually down, not up depending on the terms and conditions of the loan.

5) Do you know this? So lets say I get a loan of $85,000 at lets say 5.5%, what can I expect to pay monthly. Is property taxes and insurance the only other bills involving owning a home???

Your principal, interest, taxes and insurance would be estimated at
Principal and Interest $480.42
Property Tax $95.83
Insurance $75.00 (This is just an estimate on a home and not the purchase price).
$651.25 Total Estimated Monthly Payment on a purchase price of $100,000 and a loan of $85,000

Gilbert, I can’t stress enough to establish a relationship with the best Realtor available to start the process of buying your first home. Again if I can help you select your Realtor, please call me or email me… I will help you through the process of selecting the right Realtor. There is no cost to you for this service if you would like to take advantage of it… Call me at 415-259-4518 or email me at JohnHendricks@Marin1.com

I hope the information in this response was as helpful as the first one was… As you get into the process of buying a home, the lingo will become more familiar…don’t worry… Good luck in buying your first home and I look forward to hearing from you soon.

Warmest Regards;
John Hendricks
Frank Howard Allen Realtors
415-259-4518
JohnHendricks@Marin1.com