Mortgage Finance Blog

Home Buying 101 - Part 2 of 3

February 12th, 2009 11:32 PM by Diego Quintero

Part one of this series dealt with pre-approval, finding a realtor, choosing a location, and finding the right home. With these steps in mind, you have located the home of your dreams - now, what? If the home is listed for sale at or near the same price as your "comfortable" approval amount, then you should make an offer. Consult your realtor and get his/her expert opinion, since each transaction has its own variables to consider. I will provide a typical scenario, but if you have additional questions, please take the initiative to ask.

In this buyer's market, the buyer can be somewhat aggressive in the offer price. After all, if it does not work-out, there are plenty more homes to choose from and the level of motivation differs from one seller to another. We are seeing lots of "low-ball' offers, and most are getting accepted. It is important to maximize the benefits from your offer, right? So, talk to your agent about the possibility of having the seller cover your closing costs or purchase a home warranty. Those are two ways to get a little more out of the purchase.

Once the contract is approved, and all disclosures are made to both parties, the realtor must open escrow. It will be opened with your earnest money deposit. The escrow account is a trust account that is opened at the Title company or attorney's firm. It is designed to collect all of the funds for the transaction and disburse them at the close of escrow. This 'third-party' will be in a position to decide how and when to disburse the funds whether or not the transaction is consummated.

For example, when the escrow is opened, the buyer has a ten-day inspection period. During this inspection period the buyer may order a home inspection, a termite report, a mold inspection, an appraisal report, and a contractor to quote some of the repairs. Now, while this is an extreme case of inspections ordered during this time period, a buyer may find that the investment is not suitable. The result is a cancelled contract and the attorney/title agent must decide if it is appropriate, per the contract, to give the money back to the buyer. If the inspection period has expired and the buyer cancels, the monies may be awarded to the seller. Make sure to expeditiously order services during that time period and take the time to 'walk' the property with your family. Your earnest money is at risk and time is of the essence, beware!

While a buyer may cancel the contract during the inspection period, he/she may also provide the seller with a "BINSR." This form is the buyer's inspection notice and the seller's response. The buyer may identify items that need repair or address the method of resolving the costs of the repairs. The seller has the option to accept making the repairs or provide the buyer with the funds to do-so afterward. This is a critical point in the negotiations and basically sets the rest of the transaction in a position to close, once the bank funds reach the escrow account.

If you require financing, the bank will help protect your interests as they are trying to protect their own. For example, if you are buying a home that is in a Homeowner's Association (HOA), the bank will ask for their yearly budget, their current financial statements, and an additional questionnaire. These items will indicate the level of stability of the HOA. If the bank does not approve of their position, they will deny the loan. While this may upset you, you need to make sense of it. If they disapprove the financial position of the HOA, do you want to take the risk of living in such a community? The same example goes for the appraisal report. If the sales price is greater than the appraisal value, you may want to reconsider your offer. You may ask the seller to accept the appraised value as the purchase price or cancel the contract. Again, the details may need to be evaluated by your Realtor. Make sure to ask for his/her professional opinion on the matter, your earnest money is still at-risk.

The final blog of this series will entail discussion on; obtaining final loan approval, locking rates, and signing the closing documents. Read on!

As always, I am here to help with all of your real estate, development, and financial needs. Take care.

Your mortgage broker,

Diego L. Quintero

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Posted by Diego Quintero on February 12th, 2009 11:32 PM

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