Ask About Closing Fees

ask about closing fees
Home Buying Process (infographic from keepingcurrentmatters.com)

To help home buyers understand the costs of buying a home, the Consumer Financial Protection Bureau (consumerfinance.gov) rolled out the Know Before You Owe initiative in 2015.  The intention was to help home buyers understand and ask about closing fees. The project actually has deeper roots in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  Dodd-Frank created the CFPB and mandated that the Bureau “shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so borrowers can understand the financial aspects of their loan. 

Prior to Know Before You Owe the home buyer would receive a Good Faith Estimate from the lender and a proposed settlement statement (which was on the HUD-1 form) from the title company.  The pre-HUD, gave a fairly close estimate of the amount they needed at closing but could change depending on final lender charges.  If the amount was a little short, the buyer would write a check to cover the difference.  Sometimes the buyer would get money back at closing because the amount they needed was less than the amount the title company actually collected.  Regulations dictated when the buyer received a lender’s Good Faith Estimate and settlement costs.  If the HUD-1 was delayed, home buyers didn’t have much time to ask about closing fees.

But in the aftermath of the financial and foreclosure crises, there was concern that home buyers didn’t get accurate and fair closing costs disclosure.  Know Before You Owe changed the process of disclosing closing cost estimates to provide more accurate closing cost figures.  A new Closing Disclosure (CD) was devised to be consumer friendly.  The process of closing cost disclosure changed such that the lender is now responsible for providing the buyer the CD (in lieu of title company’s HUD-1).  However, the role of the title company (or closing agent) is still to conduct the settlement.  The standardization of the closing form allowed time to ask about closing fees.

Unfortunately, title insurance and other title related fees (such as water escrows and the property survey) are still often misunderstood and disputed.  Although the CD does a good job breaking down closing costs to help you understand what you’re getting, it falls short in explaining title fees and options.  For example, in Maryland, the cost for title insurance that is disclosed on the CD is the more expensive enhanced policy.  And it’s not just happenstance, Maryland Realtor purchase contracts require that the lender disclose an enhanced title insurance policy on the CD so you know how much the most expensive title insurance will cost.  But unless you know to ask, you may by default be purchasing the more expensive enhanced policy.  The survey is another title charge that may be charged by default.  Although many feel it’s not worth the expense, it may be relevant to your title policy.

Fortunately, your loan officer will review and help you understand your lender fees.  On the other hand, the title company will be communicating with you throughout the home buying process.  Make sure you read and understand all emails, as they will likely describe your title charges and options.

Life is hectic and it seems as if time is at a premium.  And although buying a home can be exciting, it can significantly add to your daily stressors.  But if you want to avoid surprises down the line, take the time to understand the process.  Ask as many questions as it takes to know what to expect at closing.  Have your real estate agent explain to you your purchase contract.  And, don’t wait until settlement to communicate with the title company, or ask about your CD. 

Original article is published at https://dankrell.com/blog/2019/11/08/ask-about-closing-fees/

By Dan Krell
Copyright© 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home Buyer Beware

home buyer beware
Home buyer tips

Whether you admit it or not, buying a home is a stressful endeavor.  Even if you’ve purchased a home before, the process can be somewhat nerve-wracking and overwhelming.  Taking time out of your already busy schedule to search and visit homes, as well as applying for a mortgage can make life hectic.  So, who needs the added worry that that the home seller and/or listing agent is trying to hide something from you?  Home buyer beware.

Maryland requires the home seller to disclose any known latent defects, regardless if they are choosing the disclosure or disclaimer option. To be clear, the Maryland Real Estate Commission’s Residential Property Disclosure and Disclaimer Statement states that a seller must disclose “Material defects in real property or an improvement to real property that: (1) A purchaser would not reasonably be expected to ascertain or observe by a careful visual inspection of the real property; and (2) Would pose a direct threat to the health or safety of (purchaser and/or occupant).”  Regardless, there is still a “home buyer beware” atmosphere. 

How can you proceed confidently with your home purchase if there is a sense of distrust?  To counteract the home buyer beware phenomenon, focus on “trust and verify.”  The concept of trust and verify is about taking disclosures at face value and exercising due diligence.  To the best of your ability, confirm the accuracy of what is disclosed, as well as investigate any areas of concern.  Many items can be verified online, or by calling the locality where the house is located. 

Home buyer beware

Of course, you should always conduct a home inspection.  However, prior to hiring your home inspector, ask about their scope and limitations of the inspection.  Home inspectors are considered generalists, such that they are not typically an expert in any aspect of home construction, or the home’s structure and systems.  However, they are trained to identify potential common problems.  They will also recommend that you consult an expert for further information on anything that is outside the scope of the inspection.  And although home inspector licensing laws prescribes minimum inspection standards, there is no guarantee that everything will be inspected thoroughly beyond a visual inspection (e.g., chimney or pool).  Make sure your inspector meets your expectations so as to thoroughly inspect all systems of the home. 

If the home was expanded, verify that additions and/or modifications to the home were permitted by the local jurisdiction.  Unpermitted additions can create a number of issues, including having your lender deny your mortgage.  It’s not uncommon for additions/modified items (such as a deck, and even electrical improvements) in a home to go unpermitted.  This is usually because the home owner did it themselves, or hired a contractor who cut the corner of getting a permit.  The permitting process certifies that repairs/renovations comply with local building and zoning codes.  Making sure any addition or home expansion was permitted and passed final inspection gives peace of mind that the completed project meets local building health and safety standards.

Keeping home buyer beware in mind, due your due diligence. There are many other aspects of the home which can be verified, including (but not limited to) schools and zoning.  If you’re buying a home to go to a specific public school, verify that the house is within the school’s boundaries and if there are plans to redistrict.  If you plan to have an air-b&b in your home, make sure the house is appropriately zoned. You should also check zoning and the local planning office to make sure your potential building/addition plans are not restricted.

By Dan Krell
Copyright © 2019

Original located at https://dankrell.com/blog/2019/09/04/home-buyer-beware/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Great time to buy a home

great time to buy a home
Should I Buy Now or Wait? (infographic from keepingcurrentmatters.com)

If you’ve been waiting to buy a home, now may be your time to jump into the market.  Maybe you’ve been wary of home prices, or concerned about mortgage rates.  Maybe you’ve been attempting to “time the market” to get a good deal on a home.  Regardless of your reason for waiting to buy a home, you shouldn’t ignore the current market conditions.  It’s as if a perfect storm of home buying conditions is lining up to a great time to buy a home.

The big news is that mortgage interest rates continue to drop.  National average mortgage rates have been declining since the fall, moving closer to the historic bottom!  The May 30th U.S. weekly average for a thirty-year fixed rate mortgage provided by the Freddie Mac Primary Mortgage Market Survey(freddiemac.com) dropped to 3.99 percent.  Mortgage News Daily’s Matthew Graham reported on June 3rd that mortgage rates dropped further (mortgagenewsdaily.com).  Graham’s title “Mortgage Rates Continue to Plummet” is telling.

Although economists express confidence in the economy, they attribute the movement in mortgage interest rates to the current trade wars and bond market activity.  The mortgage industry may also be anticipating a Fed rate cut at the next week’s meeting of the Open Market Committee.

Lower mortgage rates aren’t always a reason to take the plunge into the housing market.  But what about moderating home sale prices?  The FHFA Home Price Index (fhfa.gov) indicates that nationwide average home prices increased only 1.1 percent during the first quarter of 2019!  Compared to the year-over-year 5.1 percent HPI increase, the modest first quarter gain may indicate a more affordable housing market.   Locally, the Montgomery County year-over-year average home sale price only increased 0.2 percent, according to MarketStats by ShowingTime (getsmartcharts.com).  However, the average price per square foot decreased 14.3 percent!

Another factor making it a great time buy a home is the lackluster spring home sales.  Counter to what is expected, home sales have somewhat cooled during the spring.  A May 30th NAR press release titled “Pending Home Sales Trail Off 1.5% in April” indicates that national home sales have been declining.  In fact, the forward-looking indicator based on contract signings dropped 1.5 percent this past month.  The total pending home sales in Montgomery County dropped about 2.8 percent compared to last spring. 

There are increasingly more housing choices.  Although housing supply remains tight, there were about 2.5 percent more new listings this April compared to the same time last year.  Although many of these new listings go quickly, increasing new listings mean that there are more home sellers that are entering the market this year giving you more homes to consider.

Putting all the data points together signify a great time to buy a home.  Housing affordability has increased, partly due in part by increasing family incomes, lower mortgage rates, and moderating home prices.  Home sellers who are listing their homes for sale this spring are adjusting their sale price expectations.  Homes that have been on the market for an extended time may be an opportunity for you to negotiate a lower sale price.  According to mortgage experts, average mortgage rates have “plummeted,” giving you more flexibility and possibly lower housing costs. 

These home buying conditions may not last very long. But before you decide to buy, determine if buying a home is the right choice by consulting a Realtor and other financial professionals.

Original located at https://dankrell.com/blog/2019/06/08/great-time-to-buy-a-home/

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Overpaying First-time Homebuyers

overpaying first-time homebuyers
First-Time Homebuyers (infographic from nar.Realtor)

If you’re thinking of buying your first home, or have already started the process, take note.  First time home buyers tend to overpay when buying a home.  This is the conclusion of a study recently published in the Journal of Real Estate Research (Under What Circumstances do First-time Homebuyers Overpay? – An Empirical Analysis Using Mortgage and Appraisal Data; 2019).  Although the stunning claim of overpaying first-time homebuyers is worthy of discussion, there’s more to the story than what’s implied. 

Considering housing affordability, authors Jessica Shui and Shriya Murthy tested their hypothesis that first-time homebuyers tend to overpay for their homes compared to repeat home buyers. Their conclusions indicate that the overpayment is a little more than one percent.  It doesn’t sound like much, but the overpayment could be a little more than $3,500 on a $350,000 home purchase.  In addition to discussing overpayment, they found that first-time homebuyers typically buy smaller homes with less amenities (which is not a surprise). 

Are home prices increased because of seller closing cost assistance?  Many first-time homebuyers lack cash and savings and typically ask for seller closing cost assistance.  For most first-time homebuyer purchases, the seller credit is already “baked” into the list price.  Anticipating that the buyer will ask for a closing assistance, the home seller typically will increase their asking price from the outset.  However, some home sale prices are negotiated upward to add seller closing assistance to the list price.

Although Shui and Murthy imply that first-time homebuyers are less savvy than their counterparts, they look toward appraisals as the cause and the solution.  Their results indicate that a majority of first-time homebuyer appraisals provide valuations at contract price, and suggest that appraisers are somewhat “biased” to help the house appraise.  Their solution is for appraisers to be neutral, which they believe would mitigate inflated home prices and help first-time homebuyers renegotiate the contract price. 

Although the study takes a circuitous route to the conclusion, the premise and statistics are presented to make it sound as if appraisers are at fault for overpaying first-time homebuyers .  However, if this is your first home purchase, there are many more factors to consider. 

Take for instance the buyer agent.  Research has demonstrated that most buyer agents don’t act in the best interest of their clients.  Most notable is the research that indicates that seller-paid buyer agent commissions actually increase home sale price (which I cited last week).  When hiring a buyer agent, you should take into account how they view their fiduciary responsibility.  Don’t assume the list price is reasonable.  Have your buyer agent provide unbiased comparables to formulate an offer and negotiating strategy. 

Although you have the right to choose your lender and title company (among other real estate professionals), you may be steered toward a professional affiliated with your buyer broker/agent.  Before deciding, compare costs and ask for references.  (Knowing your rights as a real estate consumer is crucial, see: https://dankrell.com/blog/2014/02/27/respa-empowers-home-buyers-and-consumers/)

Overpaying first-time homebuyers is not just about home sale price.  There are other areas where you may not negotiate well. The home inspection is one of those issues, and can also reveal that the home is need of repair.  You probably would like to negotiate repairs to be completed by licensed contractors.  Sometimes, the seller will offer a credit in lieu of making repairs. Before accepting the credit, make certain the amount is adequate by checking with your licensed contractor.

Finally, understand that buying your first home is emotional.  Don’t fall prey to agent sales tactics.  Stay focused on the facts and use the data to help you formulate your offer to negotiate the best price.

Original located at https://dankrell.com/blog/2019/06/03/overpaying-first-time-homebuyers

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Home buying process simplified

home buying process
Traditional Home Buying Process

An article by Tracey Barbour for the Alaska Business Monthly (Younger buyers partial to homeownership, home-buyer education, online resources: akbizmag.com; September 2017) describes the growing phenomenon of millennial homeownership.  Not surprisingly, many millennial home buyers are taking advantage of home buyer assistance programs.  Because millennials grew up with the internet, you might think that they would rely less on professionals when home buying.  But the opposite seems to be true.  A majority of millennials prefer to connect with a single point-of-contact when applying for a mortgage (and likely when dealing with real estate agents).  However, millennials do rely on the internet when it comes to understanding the home buying process.  They spend copious amounts of time doing their own research on the home buying process.

It’s not just millennials, but most home buyers are taking advantage of online and digital resources to learn about the home buying process.  Maybe it’s because we live in an era of information overload that home buyers are more aware of the many factors that need to be considered before buying a home.  Regardless, the abundance of “home buying process” resources are helping home buyers decide if they are suited to buy a home, assisting with financial planning of buying a home, finding down payment assistance, mortgage application information, and so much more. 

It used to be that if you were a first-time home buyer, you relied heavily on your real estate agent for the education of the home buying process.  You placed a great deal of trust on their guidance.  The home buying process was envisioned as a step-by-step formula to purchasing a house.  The purpose of explaining the home buying as a process was to reduce the major aspects of home buying into distinct parts and make it seem simple and trouble-free.

The home buying process is a big ball of stuff…

Today, the standard “home buying process” as explained by real estate agents seems nebulous and lacking detail.  Maybe even a little pedestrian.  Maybe it’s because real estate agents tried to make their job easy and have control, but the word “process” incorrectly suggests that there is an exact order that is “one size fits all.”  However, the home buying process is more aptly described by adapting the “timey-wimey” quote of the 2007 episode of Dr. Who (Blink) to say “People assume that home buying is a strict progression of cause to effect, but it is more like a big ball of home buying stuff.”

Moreover, all home buyers are different.  Not just in their preferences, but also in their needs and expectations.  And thus, home buyers will experience the process differently.  One thing I can confirm from eighteen years of listing and selling homes is that all transactions are different. 

But don’t discount the value of the traditional “home buying process” meme.  Consider it a framework of mini-processes that are critical to buying a home.  Each mini-process will be proceeding at its own pace parallel to other processes. 

Choose your buyer agent well.  The role of your buyer agent should go beyond helping you visit homes and writing an offer.  Your agent should be there every step of the way to settlement helping you maneuver through the “big ball of home buying stuff.”  When going through home buying process you can encounter pitfalls and setbacks that are time consuming and emotionally draining.  Your agent should be able to offer guidance on coping and resolving any potential issues.

Original published at https://dankrell.com/blog/2019/05/06/home-buying-process-simplified/

By Dan Krell
Copyright © 2019

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.