by Daniel E. Giroux, Owner, A-Plus Mortgage
Pre-approval: Not all pre-approvals are created equally. If your Loan officer has not completed a Uniform residential loan application (1003) and collected 2 years of tax returns, W2’s, recent paystubs, and a recent asset statement, there is a good chance your pre-approval is not worth the paper it’s written on. Basically, if you were pre-approved in 5 minutes right over the phone without supplying documents, get a new pre-approval.
Appraisal cost: The average appraisal cost these days is between 450 to 550 dollars. Appraisals are completed by third party management companies. If the appraisal indicates that the property has issues such as peeling paint, missing a hand railing, or other safety issues, you will need a completion report after the issues are fixed. This can cost between 150 to 200 dollars. The value of your home, in the eyes of the lender, is the lesser of the appraisal value or the sales contract. Multi-family property appraisals will cost more. You will be asked for a credit card to pay for the appraisal. Some lenders offer to pick up the cost of the appraisals.
Inspection dates: You typically have 10 days to complete inspection and ask for improvements to the home you are buying. If you will take longer to complete the inspections, you should ask for an extension and get it in writing. You can back out of a contract if you are not happy with the inspections.
Inspection costs: The cost of inspections is your responsibility. This is an out-
of-pocket expense and inspections are not rolled into the mortgage.
Mortgage contingency: This is the date that you should have a conditional approval from your lender. The ”commitment letter” simply states that you have applied and been conditionally approved for a mortgage. If you meet all the conditions, you will receive the money to purchase. This date is also the date that you are now committing to buying the home. If you back out of the contract after this date, the seller may have the ability to keep your deposit. Prior to this date, you can back out and get your deposit back if you are not able to receive financing.
Homeowners insurance: The cost of homeowners insurance can vary quite a bit. It’s always good to shop around. Once your appraisal has been ordered, you should be shopping for homeowners insurance. You will need to purchase 1 years’ worth of insurance upfront prior to your closing. Many lenders can pay the cost of your first year insurance with lender credits or seller-paid closing assistance. Be sure to ask your lender if this is available. Deposits and funds to closing: These funds will need to be verified. Cash is never an acceptable form of down payment or funds to closing. You can use a gift from a family member on some transactions but you should always consult with your loan officer in regards to gifts.
Documents you will need to provide: Come prepared with 2 years of tax returns, 2 years of W2’s, recent paystubs, bank statements, verification of any large deposits; a 1 year homeowners insurance policy; if you receive a pension or social security, you will need 2 years of 1099’s; award letters, proof of receipt of funds; if you are self-employed, commissioned, or 1099ed and you will need a 2 years’ worth of history.
Negotiating your purchase price: Far too often I see buyers not get the home they want because of a few thousand dollar dispute on the purchase price. The seller wants $220,000 and the buyer offers $215,000. In today’s market, sellers are getting the asking price and if you really love the home, you should offer the asking price. On average, it costs about $26 per month for every $5,000. Don’t lose your dream home over .87 cents per day.
Closing cost and settlement charges: Closing costs include attorney’s fees, title, government recording charges, appraisal costs, and lender fees. Settlement charges include pre-paid interest, tax and insurance escrow set up, and the 1 year homeowners insurance premium. There are several ways to pay these costs. You can come out-of-pocket, negotiate seller concessions, or get a credit from your Loan officer. You should discuss these options with your loan officer prior to making an offer on a home.
This easy to follow guide may not answer every question you may have as a new home buyer but hopefully it helps. If you have additional questions or want speak with a professional to be pre-approved, call (401) 603-3646.