WHAT ARE THE WAYS HOME BUYERS CAN AVOID CLOSING COSTS
When you’re buying a home, the last thing you want to worry about is closing costs. But unless you’re paying in cash, they’re inevitably going to be part of your purchase price. So how can you minimize them? Not everyone knows this, but you can Buy a house for the price of a car. At MY SMART COUSIN, we help investors and aspiring homeowners, particularly Black and Brown folks and women, scale their finances and build up wealth by investing in Real estate. As a Real Estate Investment Coach, we specialize in teaching you how to Buy a house for the price of a car and obtain the pride and momentum of starting your real estate investment business or fulfilling your dream of homeownership. Purchasing a house comes with many expenses, but there are ways to minimize the various costs, including closing costs. One often-overlooked way is to negotiate the price of the house down to effectively cover the fees. Another is to investigate programs in your city, county, or state that provide grants and mortgage buydowns that cover the closing costs for first-time homeowners. Let’s continue reading to learn more! WHAT ARE REAL ESTATE CLOSING COSTS? The fees that one pays to the mortgage lender for originating and providing the mortgage are termed closing costs. When you buy a new home, there are many costs involved in the closing process. These include paying your mortgage lender’s fee for structuring and financing your mortgage, taxes on property deeds that will be recorded when it changes hands at the end of the purchase agreement period (also known as “due-on Sale”), appraisal fees for the property, and title search fees which help ensure that the title is properly recorded and any liens against it are identified and satisfied. Your local government may charge additional fees such as for a certificate of occupancy, or if architectural or engineering modifications will be made. When it comes right down to it, it’s hard to say precisely what real estate closing costs include or exclude because there is no standardization. The fees you pay your lender will depend on many factors including your lender’s profit targets and how strong or slow demand is. That said, generally, closing costs include the following: · Home appraisal fee · Loan origination fee · Application fee · Credit report fee · Title search fee · Lender’s title insurance · Owner’s title insurance · Monitoring fees · Tax monitoring fee and tax status research fee · Survey · Attorney and notary fees · Government recording fee · Transfer taxes · Escrow property taxes · Prepaid daily interest charges · Mortgage insurance HOW TO REDUCE CLOSING COSTS In today’s hot housing market, it’s very difficult to eliminate closing costs through having the seller, for instance, pay for them in full. There are, however, a few ways that homebuyers can reduce their closing cost tab. Here are a few tips on how to make it happen. SHOP AROUND FOR A GOOD MORTGAGE RATE The mortgage process is a negotiation, and for that, you need to start with your lender. Shop around to find an offer without any closing costs- most of which can be negotiable! For instance, if you have your checking account, savings account, and credit cards from one bank, don’t expect that bank to necessarily provide you with the best deal. Certainly give your home bank the benefit of the doubt and offer them the opportunity to compete for your business, but spend time researching other lenders as well. Your objective is to line up your roster of potential lenders and compare each on a cost component by cost component basis. This will ensure that there are no hidden fees and that you’re able to negotiate each element of your closing costs. · ASK THE SELLER TO PAY SOME OF YOUR CLOSING COSTS If you are purchasing a home from a seller who is anxious to sell, or are buying a house that has very few interested buyers, then consider asking the seller to pay some of your closing costs. This could include paying for attorney fees and title insurance, which are necessary when buying a home in most cases (but not always). · GET PRE-APPROVED FOR A MORTGAGE BEFORE YOU START SHOPPING FOR HOMES Shopping for a home is an exciting process, but it can be overwhelming too if you don’t know what to look out for. One of the most important things that anyone looking at buying their first house needs is pre-approval letters from banks or other financial institutions. A mortgage lender issues a pre-approval letter only after determining that your credit history and budget fit within their lending profile and options. A pre-approval letter can save you money in the closing process because it minimizes the possibility of last-minute and often unexplained fees to be added to your loan or required at settlement. · ASK YOUR LENDER TO SCHEDULE YOUR CLOSING DATE AT THE END OF THE MONTH A closing date that is scheduled for the end of the month rather than one in the middle or beginning of the month can reduce the amount of cash required at closing. This is because the interest portion of your closing costs will only amount to a day or two of interest if you close at the end of the month rather than at the beginning. · DON’T BUY POINTS IF YOU WON’T BE STAYING IN YOUR HOUSE LONG TERM A point on your loan equals one percent of your mortgage. Meaning, that if your mortgage is $200,000, then one point is a $2,000 cost. Lenders will sometimes suggest that they can reduce your mortgage rate by having you buy points. The costs for points, however, have to be paid at settlement, which increases your closing costs. Also, if you only intend to live in your house for a few years, you won’t be able to benefit from the lower mortgage rate long enough to make up the cost of the points. · VARIOUS GOVERNMENTS PROGRAMS Look into municipal, county, and state government programs, which are often targeted at first-time homebuyers. Such programs offer a range of benefits including
FHA APPRAISAL: GUIDELINES AND REQUIREMENTS IN 2022
As a Real Estate Investor or home buyer, you’re probably familiar with FHA appraisals. Appraisals are important because they help to protect both the lender and the borrower. Lenders like appraisals because the appraisal confirms that the property is worth enough to cover the loan. Likewise, borrowers like appraisals because it reassures the borrower that they aren’t overpaying for a property. If you’re looking to buy a house for the price of a car, FHA financing can be used to finance both single-family houses as well as small multifamily investment properties, as long as the house serves as your primary residence. MY SMART COUSIN specializes in helping aspiring property investors and homeowners, particularly people of color and women, buy a house for the price of a car. As a seasoned Real Estate Investment coach, we take budding entrepreneurs and property investors from idea to action, help you scale your financing, and walk hand-in-hand with you to develop and put in place your customized Real Estate Investment strategy. FHA BACKGROUND The Federal Housing Administration, or FHA, has been around for nearly a century and was founded in 1934. The FHA is a government-backed mortgage insurance company that insures mortgages for people who can’t afford a large down payment. Stepping in as a mortgage guarantor of sorts makes it easier for people to buy a home, as the lender knows that if push comes to shove and the borrower defaults on their loan, FHA will pick up the tab. With inflation and mortgage interest rates reaching new heights, it pays to stay current on lending practices. In this blog, we’ll take a look at what’s changing with the FHA appraisal process in 2022. Keep reading to learn more! WHAT IS AN FHA APPRAISAL? An FHA appraisal is required by lenders to ensure that a potential property is a good investment. Although, as mentioned earlier, FHA guarantees repayment of a large portion of the loan if a homeowner defaults, banks prefer not to find themselves in this situation. After all, the lender makes money by collecting interest payments on the mortgage, so having the loan paid off early by FHA runs counter to this. One of FHA’s top concerns when evaluating an appraisal is ensuring that the property itself is durable, safe, and fit for habitation. The hired appraiser will look at the property inside and out and check for health and safety issues— for instance, the structural integrity of the property, electrical wiring, and mold or mildew issues. Additionally, the appraiser will look at factors that impact the house’s value— for instance, a swimming pool, a garage, and the condition of the home, and major systems such as the roof or furnace. Appraisers also evaluate the features of comparable homes that were recently sold. So even if you have no interest in keeping up with the Joneses, FHA takes an active interest in them from a valuation perspective! BASIC COMPONENTS OF AN FHA APPRAISAL The FHA appraiser looks for the good, the bad, and the ugly regarding the value of the home and any factors that could prevent it from being occupied long-term, as these factors contribute to the property’s longevity and marketability. Two key areas of focus for the appraisal are pests and paint type. Pests don’t refer to an ant or spider here and there, but rather whether there is an infestation or any damage to the property— for instance, damage to supporting wood beams caused by termites or carpenter ants. Paint refers less to the color or style of paint and more to its safety, specifically, if there are areas of the house that have lead-based paint. Houses built before 1972 are more likely to have used lead-based paint versus newer houses. Other areas on the appraiser’s checklist include the following: · THE PHYSICAL CONDITION OF THE BUILDING ° The foundation, roof, and exterior must not be damaged. ° A big NO to insect infestation ° The wiring and the electrical systems must not be exposed. ° Sufficient ventilation of attics. · THE LIVABILITY OF THE BUILDING ° The utilities must be in good working condition including heat and clean water. ° A shielded sanitary sewage disposal system must be present. ° Lead paints should not be used. ° Fire codes and applicable safety codes should be met. · THE CONDITION OF THE PROPERTY SITE ° The soil should not be contaminated. ° The route of the drain pipes must point away from the home. ° The property must be accessible and safe. Market Comparables ° The appraiser evaluates the price of two comparable properties that have sold within the last 90 days. ° In a volatile market, a period of 30-60 days will be used and three comparable properties will be selected. ° Additionally, market comparables will be selected for properties that have not closed yet and are still listed for sale. Typically the appraiser will select two properties for this analysis. ARE THERE ANY POTENTIAL ISSUES THAT COULD ARISE DURING OR AFTER THE FHA APPRAISAL PROCESS? A clean FHA appraisal puts you one step closer to owning a home, but what happens if the appraisal report raises issues or has a lower than expected value? ° IF THE FHA APPRAISAL REQUIRES REPAIRS In some cases, the lender will conditionally approve a loan if the appraiser states that renovations or updates to the home are required to bring it into compliance with safety standards. In such instances, the buyer can negotiate with the seller to determine whether these renovations will be paid for by the seller or will instead be paid in whole or in part by the buyer. ° A LOW-PRICE APPRAISAL If the appraised value of the home comes in lower than the sales price, then, much as with the renovation scenario above, the buyer and seller will need to negotiate to determine how this lower value will be split. Buyers sometimes despair in the face of a lower appraised value, but this decreased value can force a seller’s hand to provide a price that while lower, is closer to market. FINAL THOUGHTS An FHA appraisal is an evaluation