11.
What is a "seller
contribution?"
A sale agreement typically includes both a purchase price
for the property as well as terms and conditions. It sometimes
happens that a buyer will make an offer subject to certain
terms I'll buy your house but I want to keep the washer and
dryer or whatever.
One possible condition concerns "seller
contributions." For example, I'll buy your house if you
will pay the first $x of my closing costs. Lenders will
generally accept seller contributions as part of a transaction
providing they are written into the sale agreement, fully
disclosed and only represent a limited fraction of the sale
price. Different loan programs have different contribution
caps. Lenders and brokers can provide specific advice.
A seller contribution can be a useful bargaining chip in
slow markets - buy my house and you can have a credit of $x at
closing. It's a thought that goes a long way with
cash-strapped buyers.
12. Can
I rent out a room to help me qualify for a loan?
Generally no. Lenders have no assurance that such income
will be regular and continuing.
13. Can
we use private financing to buy real estate?
In theory, yes. In practice, not really. The odds against
private financing are substantial. In 1997, according to the
NATIONAL ASSOCIATION OF REALTORS®, 74% of all first-time
buyers obtained financing from mortgage companies, 19 percent
from commercial banks, 1% from S&Ls, 1% from
"other" sources, 1% from credit unions, and 1% from
private investors.
14. We
have stock that has significant value and we think its price
will increase. How can we come up with a down payment without
selling our shares?
This is an increasingly-common, and delightful, problem. A
home purchase typically requires either a sizable down
payment, say 20%, or some form of backing by a third-party,
perhaps the FHA, VA, or a private mortgage insurance (PMI)
company to buy with less down. With a third-party, loans with
15, 10, 5, 3 and even nothing down are possible. So, one
choice is to look for financing with as little down as
possible. A second choice is to look at RAM financing - a
reserve account mortgage.
With a RAM loan you might get 100% financing. At the same
time, you would deposit an asset with the lender, say the
stock you do not want to sell. The lender then holds onto the
stock until the property has a certain level of equity caused
loan amortization (reducing the size of the loan through
payments) and, hopefully, increasing property values. The
borrower has 100% financing.
RAM financing raises important questions: Who gets the
interest on the account? What if the value of the securities
declines? How is the new value for the property determined?
What is the monthly payment? Is all interest deductible?
Mortgage lenders and securities brokers can provide additional
information.
15. What
is "MCC" financing?
Because states have better credit than people, they can
borrow money at low rates. Under Mortgage Credit Certificate (MCC)
programs, a state lends money to first-time buyers and
low-income buyers (usually) at below-market rates (but at
rates that cover the interest cost of floating bond issues)
and with little down (say 1% to 5%).
MCC’s allow you to borrow money and to then write off a
portion of the interest, up to 20%, as a tax credit. The
remaining interest deduction is just a write off.
For example, suppose your interest cost for a year is
$5,000 and that 20% can be used as a tax credit. On your
federal taxes, you would deduct $4,000 as an itemized expense,
and you would deduct $1,000 (20% of $5,000) from your tax
bill. See a tax pro for details.
Speak with local lenders to see if MCC financing is now
available - because funding is limited these programs often
run out of money quickly.
16. How
quickly must I apply for a loan?
Many sale agreements require buyers to apply for a mortgage
within a specific time period, say 7 days after the contract
is signed. This is a negotiable item, however, and can be any
period agreeable to both parties.
This is an important matter because if an application is
not made, then a buyer may be in violation the sale agreement.
A violation of the sale agreement, in turn, could be grounds
to forfeit the deposit. Thus, buyers should go through the
sale agreement with great care before signing to assure that
all obligations are known and understood. Work with an
appropriate professional such as a buyer broker when reviewing
a sale agreement.
When you meet with a lender, be certain to obtain a letter
stating that you met and showing when. Immediately provide
this letter to the seller's broker in the manner required by
the sale agreement.
17. Can
I buy a house with an award from a lawsuit?
Sure - if the money is there. But, until the matter is
finally resolved, appeals run out, and a check is cashed, how
does anyone know that there will be money available for a
realty purchase?
What if someone contracts to buy a home today with $20,000
in cash due at closing in 60 days money to generated from the
settlement of a suit. And what happens if the suit is delayed?
Money at closing is still required and if the buyer does not
close there could be substantial damages - and maybe another
suit....
18. I
am getting married in two months. I have lousy credit, but my
spouse-to-be has excellent credit. Can a home be bought by my
future spouse individually?
Yes. However, he or she can only borrow on the basis of one
income and his or her credit standing. Together you might have
far more income. Lenders, incidentally, will probably want
both parties on the property title even if you are not on the
mortgage this removes a barrier should foreclosure be
required.
19. What
rules prohibit discrimination in real estate sales and
financing?
The Fair Housing Act is the major legislation prohibiting
discrimination in real estate it provides that there can be no
offer to sell, rent, buy, or exchange property that contains
any preference, limitation, or discrimination based on race,
color, religion, sex, national origin, handicap, or familial
status, or an intention to make such preference, limitation or
discrimination.
This
federal law applies to the sale and rental of housing,
residential lots, advertising the sale or rental of housing,
real estate financing, the provision of realty services, and
the appraisal of real property. It also prohibits the practice
of "blockbusting."
Other federal laws that offer protection include:
The Civil Rights Act of 1866
The Civil Rights Act of 1968
The Americans with Disabilities Act
The Equal Credit Opportunity Act
State and local laws may also identify additional
discriminatory factors that are prohibited.
Brokers, lenders, and attorneys can explain such matters in
detail.
20. If
the appraised value and the sale price of a home are
different, what will lenders use when granting a mortgage?
Whatever is lower.
Lenders want as little risk as possible, so they will look
at both the sale price and the appraised value and then make a
loan based on the lower of the two numbers.
21. What
is "buyer's remorse?"
With some frequency it happens that buyers often have a
sense of remorse after contracting to buy a home. Why?
A home is a very large purchase. Not just in terms of
dollars, but also in the sense of status, ego, and commitment.
And because it is such a transforming event, it naturally and
reasonably causes some concern.
But, not to worry. Buyer's remorse typically passes in
quick order.
22. Can
I buy a house after a bankruptcy?
Probably. There are two issues to consider.
First, lenders like to see two years of good credit after a
bankruptcy is resolved. However, there are instances where
lenders will finance with a year of good credit.
Second, lenders want to know why you have gone bankrupt.
There is a substantial difference between a bankruptcy that is
caused by reckless financial habits and simple financial
disasters a car wreck, medical costs, the plant closed after
30 years, the town was underwater for three weeks, etc. In
other words, not every bankruptcy is a by-product of financial
negligence.
23. What
is a "stigmatized" property?
There are properties that are in flawless physical
condition but may nevertheless present unusual marketing
issues. For instance, homes that have been the site of
murders, suicides, or that are reportedly inhabited by ghosts
are known as "stigmatized" properties. This is a
home with a condition that is psychological in nature rather
than a matter of bricks and mortar.
The subject of stigmatized houses is complex. While some
people may want a house with a ghost, others do not. The
subject gets tangled even further when one is asked whether
murders and suicides at a property must be disclosed.
The rules on this matter vary by state some say a given
condition must be disclosed, others say "no," some
say disclosure is not necessary after so many years, and some
states say nothing one way or the other. For specifics, please
speak with a broker or real estate attorney in your community.
24. What
is the difference between a co-op and a condo?
In general terms: A co-op is a corporation that owns real
estate. If you belong to a co-op, you own stock in the
corporation and the exclusive right to a given unit. There is
usually an underlying mortgage on the property and your co-op
fee includes some or all mortgage payments as well as other
costs.
With a condo, you own real estate and you have access to
certain common facilities. The condo is typically responsible
for exterior maintenance and you pay a monthly condo fee. You
have your own title and mortgage, so mortgage costs are not
part of the condo fee.
25. What
are some of the basic questions to ask when looking at a
co-op?
Co-op ownership raises a number of issues that should be of
concern:
1. What is the value per unit of the underlying mortgage?
2. What is the voting scheme - one vote per unit or voting
based on unit size.
3. Is there a reserve fund for repairs? If so, is it
adequate?
4. Are major repairs anticipated in the next two years? If
so, how will they be funded?
5. Is the co-op now facing or likely to face a lawsuit
for any reason? If yes, what are the possible damages?
6. What pricing trends are associated with the co-op? Are
prices rising? Falling? Can you review all sales for the
past year?
7. Is a property tax rise known or expected?
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