First Time Home Buyers And Short Sales

Short sales are complicated, so the first time home buyers in Raleigh and the Triangle sometimes shy away from them. A short sale requires the elements of a normal sale where the buyer and seller have to agree on a price and terms. Then, the contract has to be approved by the lender that has a lien on the house i.e. the seller’s lender has to agree to the price and terms. That lender has to agree to take the net proceeds of the sale and allow the sale to close in return for that “short” payment. The payment is short, the time it takes to get the banks approval frequent is anything but short.  So, many Raleigh and Cary first time homebuyers do not have the patience to wait for the approval.

In addition to the time to get the approval, the approval is not guaranteed.  Nationwide, only 27% of short sales are approved.  So, if you focus on the national averages, you have a little over 1 chance in 4 to get your Triangle short sale approved.  However, you should not apply the national average to the Triangle, as our listing agents are better trained so more Raleigh short sales are approved.  The agent who repreresents the seller, called the listing agent, is the biggest factor in getting the short sale approved.  So, the Triangle first time homebuyer needs to look at who has the property listed, as that agent is the one who processes the short sale with the lender.  For example, you can count the number of short sales that I have failed to get approved on your fingers i.e. I get nearly all of them approved.  There are other Raleigh agents with high “batting averages” for short sale approvals.

Short Sales give a buyer the opportunity to get a good home at a great price.  Triangle first time homebuyers need to choose wisely when they are deciding whether to make an offer on a Triangle short sale property and not only look at the property but check the listing agent.

The best summary of this point is presented by Rang, a first time homebuyer. Please let me know what you think of first time homebuyers purchasing short sale properties.

First Time Home Buyers Need to Understand All the Details (Watch Video)

Understand All the Details When Buying Your First Home

The unknown is scary.  When you are a first time home buyer, a great deal of  the home buying process is unknown.  So, having a Realtor who will explain everything, then review all the documents in detail removes the “scary factor” from the purchase. 

It is important that the Realtor focus on what is important to the first time home buyer.  You will notice in this interview that Chris focuses on reviewing all of the papers in detail, because that is what made him comfortable.  As a part of his purchase of a Short Sale, his agents had to get the approval of Wells Fargo for a short payoff on the existing loan on the house in record time.  Otherwise, Chris might not have received the tax credit for first time home buyers.  Next, the Realtors had to get the tenant to move out of the home well before the end of the lease.  Finding another property to rent, getting the existing lease terminated took extensive negotiation.  Then, the Realtors even helped the tenant move to meet the time table for the closing.  So, the Realtors took care of all of this without making it seem difficult, making Chris so comfortable that they would take care of everything that he was free to focus on what was important to him: understanding all the materials in detail.  In other words, a good Realtor takes care of everything that needs to be done, then focuses on what is important to the first time home buyer.

Here is Chris’ description of the process:

What is important to you? Be sure to find a Realtor who will focus on what makes you comfortable as well as take care of everything else.

Watch this Video about the Triangle

How Much Cash Does a First Time Homebuyer Need?

money-deposit-stack70

True or False –First Time Homebuyers can’t get 100% financing.
True or False – First Time Homebuyers pay 20% down or pay Private Mortgage Insurance
True or False – 100% Financing means you don’t have to pay anything up front

You may be surprised, but the answer is all three statements above are false. And there is no “one size fits all” answer to how much cash is needed – it depends on a lot of things. Such as:

- Loan programs vary in their down payment requirements. FHA loans now require a minimum of a 3.5% “contribution” by the buyer. Not a 3.5% down payment, but a 3.5% contribution towards the total cost of purchase. FHA loans are available to most buyers who can qualify. USDA loans are available to a restricted group of buyers (based on credit score and income) on a restricted selection of homes (based on location) – but USDA will loan up to 100% of the purchase price. Some credit unions will also loan up to 100% of the purchase price. And surprise, so will some banks, again, under some very restrictive conditions. So talk with your Realtor and several lenders to see what will work best for you.
- Closing costs vary. When you buy a home there are a variety of fees that must be paid. These are in addition to the home price, and are not related to the down payment. So even if you can borrow 100% of the purchase price, you still have closing costs to pay. Your lender can provide a Good Faith Estimate that will list most, but perhaps not all of those fees and costs, so talk to your Realtor too. Somebody has to pay them. It does not have to be you. Perhaps your Realtor can negotiate with the sellers to have them pay some or all of your closing costs. Perhaps a parent or other friendly party will agree to give you funds to cover those costs. Some costs can be “rolled into” some loan programs. For example, the USDA loan program charges a 2% “funding fee”, but you can roll it in – effectively borrowing up to 102% of the purchase price!
- Mortgage Insurance requirements vary. Some loan programs require the buyer to pay for insurance for the loan. It insures the lender, not you. On FHA loans, it is called Mortgage Insurance Premium, or MIP. On conventional loans, it is called Private Mortgage Insurance, or PMI. FHA loans will have an upfront MIP fee and a monthly MIP charge. Since we are talking about cash needed at closing, that just includes the upfront fee, or 1.75% of the purchase price. Conventional loan PMI usually only involves monthly payments; none of it is “upfront”. MIP and PMI can be avoided entirely if you only borrow 80% or less of the appraised value of the home. But there are a few conventional programs that charge no PMI even if you borrow more than 80%.
- Don’t forget your earnest money. If you write a check for an earnest money deposit when you submit the offer to purchase, that money is available for your use at closing. While rare, it is possible, such as when the seller pays all closing costs and you borrow 100% of the purchase price, that you can even get some or all of it paid back to you at closing!

Should First Time Homebuyers Buy Now?

first-home-christmas70Is This The Right Time To Buy Your First Home?

 

The old saying “Buy Low, Sell High” sure sounds like obvious advice.  But haven’t you heard Wall Street commentators talk about how hard it is to “time” the market?  The same is true for buying a home.  By the time you know when the market was at a “bottom”, it isn’t any more.   All of the signs indicate that once this market hits bottom, everyone is going to jump in, so that the bidding by buyers will make the prices go up rapidly.   And mortgage loan rates fluctuate, sometimes rapidly.  So how can a first time homebuyer tell when to buy real estate?  

 

There are two fundamental considerations, for all buyers:

-         Can you afford the home now?

-         Will you stay in it long enough to justify the initial costs?

The first point includes consideration of mortgage rates, which in the Triangle have been great for some time now and look like they will continue to be very good in the short run.  But they’ve been really high before and could get there again – we can’t predict them far out. 

This point also means you need to consider your income, assets, and other debt – can you make the commitment to buy and maintain a home now?  The second point recognizes that there are some significant one-time costs when you buy, and when you sell, so doing both quickly is a bad idea.  I typically recommend that a buyer feel sure they will stay in the home 2-3 years, minimum, but situations do vary.  For example, if you will be able to sell with relocation benefits that cover many of your selling costs, it may be easier to buy a home and stay in it a short time.  Both points suggest that you should have a high degree of confidence in your income security.

 

First time homebuyers have two huge advantages right now:

-         You don’t have to sell another home first!

-          You can get up to $8,000 from the government!  Not a loan, but free money!

We are in a slower market than we are used to, meaning there are more homes for sale now than usual, and fewer qualified buyers.  That, combined with the low interest rates available, defines this as a Buyers Market.  As a non-homeowner, that means you get the benefit of buying in a Buyers Market without the penalty of selling in one too.  And, it gives you some clout in negotiations as the sellers don’t have to worry about you being able to sell first.  The second point strongly suggests that now, right now, is the time to buy real estate.  The program requires that you close by Dec. 1, 2009.  Still, the two fundamental considerations apply.  For example, the rules require that you live in the home as your primary residence for three years, or you have to return the $8,000. 

 

So, if you can buy now, should you?

-         Larger than usual inventory of homes for sale means more to choose between

-         Low interest rates mean you can get more home for the same money

-         A Buyers Market means you have more clout than in a Sellers Market

-         The government’s $8,000 gift expires Dec. 1

That adds up to making this an unusually good time to buy a home anywhere from Cary to Wake Forest or any other part of the Triangle in North Carolina.

 

 

Getting a First Time Homebuyer From Contract to Closing

contract-to-closing70The Steps a First Time Homebuyer Takes From Signing a Contract to Getting the Keys 

 

Congratulations – you have a North Carolina Real Estate contract!  What’s next?  As a first time homebuyer, the process will be new to you, and it can be stressful.  A good Buyers Agent can review the main steps and options with you before you go under contract.  The key areas are loan approval, repair negotiations, legal arrangements, utilities/insurance setup, and funding.  We will give you some guidelines here, but every transaction is different, so ask questions!

 

As the buyer, you must stay on top of gaining loan approval, providing required information quickly, paying required bank fees, and keeping in touch with your lender.  If the home does not appraise for at least the purchase price, or if you cannot get a loan as described in the contract, you may be able to walk away from the deal with a refund of your earnest money.  However, you will not get a refund of what you paid the lender to appraise the property.

 

Your agent will schedule the inspections called for by the contract and help you draft a repairs request.  The seller may or may not agree to make all requested repairs, so be prepared for another negotiation.  And depending on several factors (contract alternative 1 vs. 2, cost of repair contingency, repairs needed, seller’s response to repair request, and more) you may be able to walk away from the deal and get your earnest money deposit back if things do not work out as specified in the contract.  Again, you will not get a refund for what you paid the inspectors.

 

You will need a closing attorney, who will review the contract, initiate a title search, order a survey (optional), work with you to schedule the closing meeting, work you’re your lender to properly record all related costs, conduct the closing meeting including explaining lots of documents, record the deed, answer questions, and a abundance of other services.  You may have special needs, such as if you need to be out of town and need to grant Power of Attorney to someone else to attend closing and sign for you.  Discuss those needs with your agent and your attorney well in advance of closing.  Again, if the deal falls apart, you may still incur some expenses, such as for the title search and survey services.

 

You will need to select a company to provide home owner’s insurance a couple weeks before closing, in order to allow the attorney and the insurance agent to communicate.  At least a week before closing you will need to contact appropriate utilities and arrange for the electric, water, gas, cable, and other services to be turned on in your name.

 

No surprise here – buyers usually have to bring some money to the closing meeting!  How much?  The attorney will provide a document, called a HUD Statement, detailing all your costs and all the funds available to you – and you’ll have to pay the rest, with a certified check typically.  But you get that right before closing.  So you need to have an estimate of how much you will need in advance, and make sure you have the funds in a checking account well in advance.  Don’t expect to move money from a stock account or other source just before closing – the bank may insist on a few days to let a deposit clear before letting you use the funds for a certified check.  And don’t expect the Good Faith Estimate you lender gives you to be an exact estimate of what you will need – those documents typically have to leave off several non-bank costs and credits.  Talk with your agent to get the best picture of the amount of money you need to bring to the closing.  Then, bring your checkbook, just in case there are some extra charges.

 

the bottom line is that when you are buying real estate, think of moving from the point of signing the contract to a successful closing as a project, and select a Buyers Agent who will act as a good project manager – one with the communication skills, work ethic, and attention to detail to handle all the things that come up. 

 

First Time Homebuyers and Open Houses

open-house70Open Houses Can Help, or Hurt, First Time Homebuyers

On any given weekend, a first time homebuyer can find a large number of open houses in the Triangle area.  Houses are open from Zebulon to Hillsborough, with Knightdale, Garner and Cary in between.  While they can be fun to visit and get ideas, attending open houses probably isn’t the best way to find the right house for you.  First, remember that the agent on site represents the seller’s best interests, not yours.  So, whatever you say “can, and will, be used against you.”

You cannot always tell if a home meets your criteria by what you can see riding by, or by reading an ad.  Also, only a small percentage of the homes that meet your criteria are going to be open at any time and you will be deciding to look at them with a limited amount of information.  So you can spend a lot of time looking at homes that don’t fit your needs, and miss the ones that do.  Searching the computerized MLS for homes with the features you want, then looking at twelve pictures on the computer screen is a much more efficient way to pick the homes you want to see.

 

It just makes sense to work with a Buyers Agent, one with your best interests in mind and who can identify those homes that meet your criteria.  If you are already working with a broker, it is important to make that clear as you attend open houses.  If your real estate agent cannot attend the open house with you, take along a business card or otherwise let the agent at the house know, so that you will be given the proper respect for being properly represented.

Closing the Purchase of Your First Home

keys70A first time homebuyer closing should be a celebration

After all the looking, the offer, the contract, inspections, getting a mortgage, finally you are going to close on your first home. What happens at closing? It can seem very daunting especially to the first time home buyer.  However, if the closing has been properly prepared, you will sign a number of documents and celebrate the purchase of your first home.

 Closing can occur anywhere, but it normally happens at the closing attorney’s office.  There the sellers and  the first time homebuyers will sit at a large table with the closing attorney who will review the final paperwork to complete the sale.  You will sign multiple copies of the the HUD statement.  This form is two pages long and documents the exchange of ALL the money involved in the transaction, from where the money comes from to where it goes. You will sign at least 6 copies so that you, the seller, both real estate brokers, the attorney’s office and the lender all have originally signed copies of this statement.

You will also sign the loan documents for your mortgage, starting with the note that says you will pay back the loan, how much the loan is and the interest rate.  You will also see the payment schedule and the escrow amounts that are collected each month to pay for your property taxes and homeowners insurance.   The Truth In Lending form will also show the final amount you will have paid at the end of the term of the loan – that can be a scary looking number!  After the attorney reviews all the paperwork with you and you sign everything, you will give the attorney the certified check that you brought to pay your down payment and closing costs.  The closing attorney will give you copies of all the documents.

When everything is signed and all the lender requirements are satisfied, your lender will wire the money to the attorney for your mortgage.  So, the money from your check and from your lender funds the sale, and  the attorney’s office will be in charge of dibursing all funds associated with the transaction.  Most of the time you will receive the keys to your new home, so you walk out of the closing with the keys to your first home. However, the home is not technically yours until the deed has been recorded at the courthouse, so some sellers, such as relocation companies and banks,  will not let you have the keys untill after confirmation of the recording. The attorney’s office sends someone to the courthouse to record deeds one or more times a day to do a final check on the title and record the documents.  One reason that you will want to close earlier rather than later in the day is that you need time for the loan to fund and for the documents to be recorded.  In North Carolina, the recorder’s office  closes at 5:00 pm and they wait for no one, so you must have completed all of your paperwork and have time to get recorded before closing time.  In Wake County, the Registrar/Recorder has started a new program where you can record documents electronically, so that recording is easier and there are no delays for driving and traffic.

Once you complete this step, you are now a homeowner.   Congratulations!

I Have No Kids, So Schools Are Not Improtant- Right?

kids-walking-to-school70Schools are Important to First Time Homebuyers

If you have children and are moving into a new home, one of the things you are often most concerned about are the schools.  You will make it your business to find out about the schools and the school district.  You may even rule out certain homes based on the schools your children would go to.

Often first time homebuyer are young, and have no children.  Or, the first time homebuyers have young children that are not in school yet.   When this is the case, they assume that the  school district is not an important part of the process of locating a home.  This may not be true, especially for the first time home buyers. 

 Statistics say that a first time home buyer will purchase another home within 5 yrs.  So, resale value of the first home will be an important factor.  With this in mind school districts will matter to you whether or not you have children.  Finding out about the school district or districts in the area you are searching can be easy especially if you use local Realtor.   A local Realtor should have the names and contact information for all the school districts in the area that you are searching.  Or, the Realtor may have set up a website just to provide information about schools, like our http://www.FreeSchoolinfo.com

Contacting the school administration or at least looking at their websites will give you valuable information on test scores, school calendars and other vital statistics about the schools.  For example, Wake Count Public School System maintains http://www.WCPSS.net that will tell you everything about the schools .  Frequently, there will be more than one school district and they each will work differently.  For example, in the Triangle, Orange County has its own schools, Durham County has its own schools and Johnston County has its own schools.  So, if you want to live in Cary, check the Wake County schools for that area.

Homeowners Insurance For First Time Homebuyers

tree-on-houseFirst Time Homebuyers Need Homeowners Insurance

As a first time homebuyer, you might not know that your lender will require you to obtain homeowners insurance when you buy your first home.  You will be required to insure your home continuously until the mortgage is paid off.  When you consider that the largest single investment most consumers make is in their home, it is a good idea for you to maintain insurance even when you own a home outright.

When you purchase homeowners insurance, you buy a package that combines several types of insurance into a single policy, typically—dwelling and personal property protection, protection from personal liability, medical payments coverage, and coverage for additional living expenses in the event that the home is damaged. You can purchase additional coverages and riders also, like coverage that will protect you from the cost of flood damage.  There are a lot of choices, so you should have an insurance agent explain the policy in detail to ensure it offers adequate protection for all of your needs.

First time homebuyers need to be advised that they should purchase a policy which includes replacement cost coverage.  Replacement cost is the amount it would take to replace or repair your home with materials of similar kind and quality, without deducting for depreciation.  Note this does not normally include the price of land since it remains even if the structure itself were totally destroyed.  If you do not purchase this type of coverage, the insurance company is only obligated to pay a certain total amount, which may not be enough to replace what you lost. 

A first time homebuyer should shop around when purchasing homeowners insurance.  It is possible to get different rates from different agencies, even when different firms underwrite a policy from the same insurance company.  Be sure to ask about discounts as well.  For example, you can usually save money by purchasing both your homeowners insurance and car insurance from the same company. The good news is, the rates in the Triangle are fairly reasonable compared to many areas.

Insurance is a requirement to buy your first home, whether it is in Cary, Wake Forest or Chapel Hill.  So, shop around before the date of closing so you can be ready to have your first home protected the minute you own it.

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