If you’ve ever made a bet with a friend, you may have asked a third person to hold the money until the wager was resolved. When you take out a mortgage to buy a home, you’re doing something similar by opening an escrow account. When you put money in escrow it is held by a neutral party (an escrow agent) who works for both the lender and the borrower. The agent’s role is to carry out the instructions agreed upon by both parties. The money is released when all the terms of the agreement are met. Escrow can be involved in anything from multimillion-dollar building projects to purchases made on online auction sites.
When your mortgage closes, your lender will usually requires you to open an escrow account to cover property taxes and homeowner’s insurance. You’ll make an initial deposit, followed by payments to the account every month. (Usually these are added to your regular mortgage payment.) The escrow agent will then release these funds as your taxes and insurance premiums come due.
The idea is to protect the lender by ensuring that you pay your taxes and insurance on time. If you default on your property tax, for example, your municipality can put a lien on the house, which would make it difficult to sell. Or if your house burns down and you’ve neglected to pay the insurance, the lender would be left with no collateral.
Benefits of an Escrow Account
Escrow can benefit borrowers by helping them spread insurance and tax expenses evenly over 12 payments. For example, assume your yearly property taxes are two payments of $1,000 each, and your insurance is $400 annually. If you paid these directly, it would mean three large payments a year; your escrow costs, however, would be a manageable $200 a month.
Your escrow account will have a built-in cushion, if you miss a payment, the lender must still be able to pay your accounts on time. However, federal law prohibits lenders from requiring more than two months. expenses in escrow. And because your tax and insurance costs will change slightly from year to year, the lender will review and adjust your escrow payments annually.
Once you agree to putting funds into an escrow account, however, it is difficult to cancel it, so make sure you fully understand the arrangement before you close on your home.
Buying a home is both fun and stressful. Once price and terms are met between buyer and seller comes the time to take care of a little business. Get that loan finalized, have the home inspection and tests done, and then once the appraisal comes in, it is smooth sailing. Usually…
Once the paperwork is all signed and all conditions have been met it is mostly just a matter of waiting for the money and the “clear to close” from the lender. We like to be excited at this time and start planning the move and imagining life in the new house.
We go about this with a smile, but keeping in the back of our minds the five most common things that go wrong when nobody is looking.
Closing figures are often not available until a day or two before the closing and if any discrepancy in the money is stressful to all parties. Often times the seller’s pay off or closing fees comes in higher than quoted. If the seller cannot come up with the additional money, the deal is potentially off unless the buyer agrees to bump up the sale price.
Sometimes a buyer is qualified to buy the property at the time of writing the offer, but conditions change before closing. Either the buyer makes foolish purchases before the loan is approved or more likely, the property taxes, maintenance fees, interest rate, etc. increases if the loan is not closed by a certain date, bumping the payment out of the buyer’s price range.
Property use… More common in a situation like an owned apartment, if the co-op board or some other ruling entity decides that they don’t want you running your catering business out of your home, they can deny your application at the last minute.
Lien on property discovered. Sellers sometimes forget that they borrowed against the house to pay off a student loan or some other expense and the title company uncovers a lien against the house just before closing.
Personal problems. Cold feet issues, marital problems, or death in the family are extreme conditions that cause buyers to back out of the deal.
The Real Estate Closing
Sometimes these deal breakers can be handled or avoided. The point isn’t to worry and expect the worst all through your transaction. But be aware of their possibility and be proactive in making sure everything on YOUR end is covered.
It is a fact that banks want to dispose of the property that they acquire, but that doesn’t necessarily mean they’ll give it to you without trying to make a profit. If you want to make sure that you get the best deal there is when you buy a foreclosed home it’s best to have some knowledge on the process. Here are some steps to help you make sure that you follow the right procedure the next time you buy a foreclosed home.
Buying a Foreclosure
Do your research. The backbone of closing a good deal when it comes to foreclosed homes is being able to know everything there is about it. It’s standard procedure to publicize and file notices, so everything is open. All need to do is check with your local county sheriff and read the papers. You can also gather other information from the bank that owns the property.
Get an appraisal and home inspection. A lot of sellers would say you should do this after the deal to avoid adding to the expenses; but it can be essential if you want to make sure that you make the right offer. A home inspection will give an idea of how much you need to get the home into better condition and the appraisal will help you find out what it is really worth.
Do the math. You need to make sure that you get the numbers right. With the information from the bank you’ll be able to know what the bank’s break even calculation is. From this you’ll want to remove the cost for repairs, cost of the foreclosure process, liens and other expenses. This will give a rough amount of what your bid should be. Compare it to the appraisal and make sure your amount isn’t higher than the actual value.
Make a proposal. Now that you’ve got all the information you need you can make an offer. It is common to write a letter to the bank stating your interest in the property and letting them know what you are willing to pay. You can include some of the computations you’ve made to help support your offer. You can hand this in directly or send it to the concerned department.
Go for a quick close. Banks will usually want the process to be over quickly rather than wait a long period. Make sure that you have all the necessary documents ready. You will also want to have access to an escrow account since this is a preferred method of payment for most bank owned homes.
Getting the Ball Rolling on Buying Your First Home
Buying a house is potentially one of the biggest things you will do in your lifetime and with so much to do it can be tough to know where to start. At the closing table with you at the end of the process will be two people, your loan officer and your real estate agent. If they work well together you will experience a pretty pleasant transaction, with most drama being handled before you even hear about it.
So if you are looking for a place to start, wouldn’t it make good sense to make your first step be hiring your Real Estate Agent and Loan Officer and put your team in place?
Getting an Agent
A Real Estate Buyer’s Agent can make things easier and you don’t have to pay them a dime. They are paid by the seller of the house you buy, based on an amount negotiated between the seller and his listing agent. Your Buyer’s Agent is not just there to turn the key and let you in the house, but to research the market, assist in negotiation, process paperwork coordinate the transaction, deal with home inspections and other pre purchase tasks, and guide you through closing. There is a lot of responsibility and ethic involved on behalf of the Buyer’s Agent so you don’t want to take lightly the matter of choosing one. Referrals from friends and family are good.
If you are familiar with a particular company, call them. Or call the name on the sign of a house you saw that you liked. Upon meeting, if you like him, keep him! If not, call someone else next time until you find the person with whom you have good communication and a genuine interest in your project.
Get Your Mortgage In Place
Now you need a Loan Officer to give you a budget (with and without escrow) , a mortgage approval, and payment scenarios based on your credit and income information. Again, references and association with a reputable company are important factors. Your best referral, though, will come from your Buyer’s Agent who has worked with many lenders and knows which ones deliver what they promise and gets the job done as efficiently and drama free as possible.
Home Buying Should start with finding a Real Estate Agent and Loan Officer, and end with you receiving the keys to your new house. Expect some stress and drama along the way but know that with a good team and that approval in your pocket you will soon be enjoying life in your new home.
Real estate is a great career choice what many people go to when they want a new path in life. While many of these real estate professionals choose to invest in real estate, it is the investor with no career ties to the real estate industry that will need a real estate broker.
The Business of Real Estate
Choosing the best real estate broker starts with the reputation. If others are willing to trust this person with their investment money, that is a boost to the professionalism of the broker. Reputation takes time to build and that means they have been trusted for a long period of time.
Another huge factor in choosing a great real estate broker us experience. Often experience goes hand in hand with reputation. During the years of acquiring experience, the reputation would be built as well. If the real estate broker has been working for many years and still has no reputation or a bad reputation, it is time to find another broker.
Real Estate Teams
Multiple real estate agents working with the broker is called a team. The team will be handling much of the leg work of the real estate buying process. The strength of the broker’s team is a direct reflection on the broker and the services they are willing to offer their clients.
Real Estate Services
The services offered by a real estate broker will vary. Commonly, the broker will have a list of potential homes ready for the client after their first meeting or phone conversation. Organization is key. The homes should be separated by the location, size and price. Depending on the budget, there could be a huge number of homes that fit the needs of the buyer.
The real estate broker will need to match this huge list of homes with the list of wants and needs offered by the client. This will help to narrow down the search for the perfect home. If the list is not narrowed, the client could be visiting homes for months without ever finding the “right” home. After a while, the client may grow tired of the home search and the broker will have lost a sale and time spent on the account.
The real estate broker is the right hand of the client. They are trusted with the search for a dream home and that trust is something that is earned, not given. Once a client finds a great real estate broker, they are more likely to pass that name on to others.