Home Sale Contingencies

Would you like to learn about home sale contingencies?

Home Sale Contingencies

What do you do when you find a home you want to buy, but you need the money from selling your old home? This is a question that many people have. They’ve put their home up for sale, and they’ve found what they want to make their next home. IF only there were a way to tie up the new home while they sell the old one….

It’s called a home sale contingency. Here’s how it works. The buyer and the seller reach an agreement on everything associated with buying a home, except the closing date. The closing date is set for when the buyer sells the old home. Are you still with me?

The Fine Print

A clause is added to the contract to address this situation. It says, in English, that the buyer (buyer 1) needs to sell their existing home to get the funds to buy the new home. If or when buyer 1 sells their existing home, the contract is now valid. However, until that contingency is removed, the seller will continue to show the home to prospective buyers.

In addition, should the seller receive an offer from buyer 2 that the seller wants to accept, buyer 1 will have 24 or 48 hours to remove the sale contingency and proceed with the purchase. If buyer 1 cannot remove the contingency, the initial contract is voided, and the seller can proceed with the new buyer.

The Buyer

Here’s what this does for the buyer. The sale price is locked in, and the buyer will get the home they want to buy. However, if they don’t sell their home in time, they won’t get the home. The price that buyer 2 is paying doesn’t mean anything. They will not need to match or exceed the price buyer 2 is offering.

The Seller

Here’s what this does for the seller. The seller has a buyer, and the price is locked in. The drawback is that an offer from buyer 2 may be better. But if buyer 1 removes the contingency, they need to proceed with the terms in buyer 1’s contract.

A Possible Option for Buyer 1

If buyer 1 has substantial equity in the home, they may qualify for a Home Equity Line of Credit. They can use the funds from the HELOC to buy their new home. Once the old home sells, they can simply pay off the HELOC. However, this is not an option for everyone.

Bottom Line

Our opinion is that a contract with a home sale contingency rarely works out. If you’re the buyer, we do encourage you to search for a home while your old one isn’t yet sold. However, we recommend that you look for a community, not a home. If you find a development, condo complex, or an adult community you like, it will make the search for a particular home easier when crunch time comes. And, if you find a model that you love, it’s even better.

The seller is in a win-win situation. That’s because their house is sold, but they don’t know when. And this makes it difficult to search for a new home. All that a seller can do is the same as the buyer, look for a community. But again, these contracts rarely work out.

When you’re ready to either buy or sell a home, please contact us.
Would you like to look at homes in other Monmouth County towns?

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Buying a Home – The Contract

Home Inspection

Once you’ve found your new home, and you have a signed contract, you’ll need a home inspection.

The Home inspection

So – who should inspect your future home? Your cousin, who used to work as a contractor? An uncle who has bought many homes? Or, just maybe, you should hire a professional. And yes, hiring a professional is the correct answer.

Few people are aware of this, but there are only 3 types of contractors who are required to be licensed in New Jersey. And that list is plumbers, electrician and home inspectors. These home inspectors are required to take continuing education in addition to serving apprenticeships. So don’t trust this important step to a friend or relative who knows a little bit about homes. Additionally, home inspectors are required to have insurance, in the rare case that they miss something big.

What Gets Inspected?

A complete home inspection begins on the outside of the home. The roof and the siding are checked , in addition to the doors and windows. Inside, each window and door is checked to be sure that they open, stay open and close properly. The windows are checked to be sure that the seals are not compromised. Any flaws in the sheet rock are documented, such as holes, settling cracks and water damage stains. The rugs are examined for stains, tears and more. If ceramic tile is present, they get examined for cracks and chips. Hardwood and laminate floors are also examined. Most mortgage companies require a termite inspection showing no damage or activity. Many inspectors are qualified to perform this, however, you may need to get a separate company involved.

Kitchens and Baths

In the kitchen, all cabinets are looked at to ensure the doors and drawers are functional. The cabinet under the sink is examined is checked for both active leaks and prior water damage. All appliances are tested. And all electrical receptacles which require GFCI protection are checked. The same items are checked in the bathrooms and the laundry area.

Electrical and HVAC

In the electrical system, all receptacles and the electrical panel will be checked to see if they’re properly wired. The furnace and the hot water heater will be checked for proper operation. As to the air conditioner, it will be checked for proper operation. However, if the weather is too cold, running the AC can damage the system.

Deficiencies

At the end of the inspection, you’ll be supplied with a copy of the report. Depending on the inspector, you may get it immediately or it may arrive in your email within 24 hours. Once you have the report, make sure your attorney has a copy. Speak with your attorney about which items you want the seller to repair. I always tell my client to save their battles for the important things. Don’t worry about minor, insignificant thins, but if there’s something seriously wrong, insist that the seller either get it fixed or provide a credit so that you can get it fixed.

Bottom Line

If you cannot come to an agreement with the seller regarding repairs, don’t be afraid to cancel the contract, because this may not be the home for you.

Any questions, or when you’re ready to either buy or sell a home, contact us.

Would you like to look at homes in other Monmouth County towns?

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Buying a Home – The Contract

FHA 203k Loan

The FHA 203k loan may be a great tool for you to use.

FHA 203k Loan

Can you do work around the house? Do you want to buy a house that needs a lot of work and make it into your dream house? If you’re handy, this is a great idea. However, there may be a speed bump in the way. Many people in your situation can come up with a down payment and get the mortgage to buy the home. However, saving both the down payment and the funds to do the necessary upgrades is a challenge.

How Can You Finance This?

The solution may be the FHA 203k loan. This loan was created to help buyers who want to buy a home with the idea of fixing it up for either a flip or for their own home. Let me explain how this federal government backed loan works.

Let’s assume, as an example, that you found the home you want to buy. However, it needs a new kitchen and new bathrooms. The FHA 203k loan will provide you the money to buy  the home. In addition, the necessary funds to do the renovations will also be provided. As each step in the renovation is completed, the necessary funds will be dispersed.

The FHA 203k loan also is available for a refinance, and works in a similar fashion for a home that you already own.

What Work Can You Do?

What types of repairs or alterations will the FHA 203k provide funding for? You could this financing to add a deck, add a patio, put siding on the house or even add an addition. Inside, you can replace flooring, repair plumbing, bathroom remodels, kitchen remodels, install new heating and air conditioning systems and much more.

Can you use this loan to put it in pool? Sorry, that’s not something allowed from the FHA 203k loan.

Bottom line

With the 203k loan, you can either purchase or refinance a property.Additionally, it will provide the money to make the necessary repairs to upgrade the home. Since it’s an FHA loan, there are restrictions as to how much you can borrow. You can use the funds to pay for materials if you do the work yourself, but there will be inspections. However, any contractors you hire to do the work must be approved contractors. To learn more about the FHA 203k loan, speak with your mortgage professional.

When you’re ready to either buy or sell a home, please contact us. Would you like to search for a home in other Monmouth County towns?

Related Blog Posts:

Did You Save the 20% Down Payment?

 

 

Buying a Home – The Mortgage Application

The Mortgage Application is a complex, but important, part of the process.

The Mortgage Application

Your contract to purchase a home contains many different clauses. And many of them don’t pertain to you. However, one that may states that you must be able to obtain a mortgage in order to actually purchase the home . It’s simple – if you can’t get a mortgage, you can’t purchase the home. The clause in the contract which confirms that you’ll get your mortgage is called the mortgage commitment. This is usually the last part of the contract that makes it a firm, binding contract. In addition, the contract calls for a date when you’ll need to provide a written mortgage commitment.

Mortgage Pre-Approval

Many people think that  the mortgage commitment is the same as the mortgage Pre-Approval. However, they’re very different.

One of the very first steps you should take, even before you begin to look at homes, is to  speak with a mortgage representative to get “Pre_Approved”. This can be done over the phone or in person, and it usually takes 10 – 15 minutes. There’s no charge for this service, and no commitment. The mortgage representative will look at your credit report, and ask questions about your income, debts and assets. After entering your info into the computer, they’ll let you know if, indeed, you can get a mortgage and for how much. A letter saying so will be given to you and possibly your Realtor.

Our recommendation is that you go through this process before looking at homes, because this will allow you to look at homes that you can afford. Then, once we find you the home you want, and write the contract, we’ll include a copy of the letter with the contract. By doing this, the seller knows that you should be able to proceed with the purchase.

The Mortgage Commitment

The mortgage commitment is different than the Pre-Approval.  The process takes time. We recommend that as soon as attorney review is concluded, you should formally apply for your mortgage. The mortgage lender will need copies of tax returns, pay stubs, proof of funds, investment statements and more. If the mortgage lender asks for any paperwork, you should supply it in a timely fashion.

In the contract, it  usually states that you’ll have the written mortgage commitment within 30 -40 days of signing the contract. Sometimes it takes a little longer. Therefore, if you’re unable to get the mortgage commitment by the due date, contact your attorney and request  an extension.

Once you’ve received your commitment, don’t make any major purchases such as a car or anything large. That’s because that will affect your debt to income ratio. Your lender will pull a  final credit report a few days before closing. Also – if at all possible, don’t change jobs until after closing, as this will affect the mortgage also.

When you’re ready to either buy or sell a home, please contact us.

Would you like to see condos in other Monmouth County towns?

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Buying a Home – The Contract

Why Would a Seller Pay Your Closing Costs?

Buying a Home – The Contract

There are many steps to buying a home. Let’s discuss, in depth, the contract, which is one of those steps.

Buying a Home

I’ve heard people say that buying a home is one of the most stressful things you’ll ever experience.  Since Bunny and I have purchased nine homes of our own during our life together, we can personally attest to that.  And even though you may have done this before, it can be a daunting experience. As Realtors, we’ve also sold more than 400 homes.  Consequently we’ve helped many people through the process. As a result, we can use our experience to help make your home buying experience as smooth and stress free as possible.

Write the Contract

Once you’ve found your dream home,we’ll need to write a contract. Typically, your Realtor will prepare a contract for you to sign, using a standard form approved by the NJ Association of Realtors. The pertinent information about the transaction will be entered into this standard contract. Information entered in the contract will be the purchase price, deposit amounts and the time frame for the deposits will be made. If a mortgage is involved, it will include the mortgage amount, the payment schedule and the mortgage commitment due date. In addition, it will list what’s included in the sale, such as appliances or other personal property.

What is not included in the purchase price is also in the contract. This could be lighting fixtures, window treatments or other items. This ensures that no mistakes are made as to what is or isn’t included in the purchase price. Time frames for inspections are also included, as well as the closing date.

Once your Realtor has prepared the contract, your agent will explain what the contract entails. However, should there be parts of the contract that you don’t understand, don’t be afraid to ask questions. Next, all of the buyers will sign the contract. Once that’s complete, your Realtor will then forward the contract to the seller’s Realtor, who will present it to the seller. After some negotiation, hopefully you will come to an agreement with the seller and you have completed the next step towards purchasing your home.

Standard Disclaimer

I’m not an attorney, nor do I play one on TV. For legal advice, do not ask me, consult with your attorney. However, I am a Realtor, and I can help you buy or sell a home. I’ve come to an agreement with the attorneys I recommend. They don’t sell homes, and I don’t give legal advice. This has been working well for us. So – when you’re ready to either buy or sell a home, please contact us.

Would you like to search for condos / townhouses in other Monmouth County towns?

Related Blog Posts:

Why Would a Seller Pay Your Closing Costs?

 

Homeowners Insurance for Condos

Do you need to get homeowners insurance for condos?

Homeowners Insurance for Condos

Watch this video to learn about Homeowners Insurance for Condos.

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Would you like to see condos in other Monmouth County towns?

When you’re ready to either buy or sell a home, please call us.

Recent Blog Posts:

Surprise! You’ll Need More Cash

Computerized Home Valuations

Bunny Art Reiman Homeowners Insurance COndo

Do you have questions about insurance? While we do have some knowledge, we’re not experts. In fact, you should speak with an insurance agent.

Did You Save the 20% Down Payment?

Did You Save the Necessary 20% Down Payment yet?

20% Down Payment

Are you getting ready to buy your first home? You do realize that you’ll need to save  a 20% down payment, right? In addition, you’ll need to save the closing costs. In fact, closing costs will run as much as $8,000 – or more.

If you haven’t saved up all that cash yet, I have some good news for you.

You Don’t Need 20% Down

It’s a matter of fact that there are many mortgages written in this country right now that require considerably less than 20% down. Of course, if you put down less than 20%, you’ll probably need to pay some kind of mortgage insurance. But don’t let that stop you from taking advantage of these low interest rates. Get into your own home now!  Because this is way to get into your dream home now without waiting to save up all that extra money.

FHA Mortgage

First is the widely known FHA mortgage. The Federal Housing Authority guarantees these mortgages. Mortgage insurance is required, but if this is what it takes to get your own home, it is what it is. You can get an FHA loan with as little as 3.5% down.

Veterans Administration Mortgage

If you are a veteran, my thanks for your service. You deserve any benefits you can get, and this is a good one. With a VA loan, you can purchase with a down payment of ZERO. That’s right, nothing down. There are restrictions however, speak with a loan officer to see if you qualify. Yes, you will pay mortgage insurance, however, this can be paid up front and added into the mortgage.

Conventional Financing

There are numerous mortgage programs for qualified borrowers. Many of these allow for down payments of less than 20%. Speak with a mortgage lender to learn what you’ll qualify for. And yes, you will need to pay mortgage insurance if you have less than 20% down.

Other Options

There are some other programs available, the US Department of Agriculture and others, which allow for the low down payment. Again, speak with a loan officer for details.

Closing Costs

Now – what can you do about closing costs? They still need to be paid. Hey – here’s an idea. Let’s ask the seller to pay some, or all, closing costs. It can happen. But the details are for another blog post, so stay tuned.

Bottom Line

Speak with your mortgage professional to find out exactly how small a down payment you can get by with. And do it soon, because interest rates may rise.

When you’re ready to either buy or sell a home, please contact us.

Would you like to search for homes in other Monmouth County towns?

Computerized Home Valuations

Watch this short video to learn about Computerized Home Valuations.

Computerized Home Valuations

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There’s one thing that we find it interesting  about these computerized valuations. One of the companies which touts that feature states, right on their website, that their valuations are not accurate. In addition, they suggest that you get a Comparative Market Analysis from a Realtor. Furthermore, they recommend that you get a professional appraisal.

Yet, we often have clients tell us that a web site tells them a home is worth $xxxxx. Yet, as local Realtors, we know better. A Realtor knows the local market. In addition, a Realtor knows which homes are similar. And we know which homes are not.

If a web site says, their estimates aren’t correct, why believe them? After all, you do want accuracy, don’t you?

You may want to read some related blog posts.

Did You Save the 20% Down Payment?

Surprise! You’ll Need More Cash

 

 

Looking for homes in other Monmouth County towns?

Surprise! You’ll Need More Cash

Surprise, you need more cash!

Surprise!

Most buyers are aware that a down payment is required (most of the time) when you purchase a home. Typically you’ll be looking to save 3.5% of the purchase price for a FHA loan, or 20% for a conventional loan. Yet, there are other variations – 5%, 10% or 0%, but usually it’s either a 3.5% or 20% down payment.

But what about closing costs?

And here’s where the surprise comes in. Most buyers are aware that there will be closing costs involved. However, not many buyers have a good idea of how much. Let’s take a look at costs in closing costs in New Jersey.

As a general rule you can figure on 2% to 7% of the purchase price. That’s a wide range, so let’s look a little further.

Cash Purchase

First let’s let’s look at the costs if you purchase cash.  Here are some of the services you’ll need to pay for.
Attorney fees Title Company Fees – Title Search, Title Insurance, Misc Services
Survey
Home Inspection
Well and septic system inspection – if applicable
Homeowners Insurance
Flood Insurance – if applicable
You may need to prepay a certain number of monthly payments If there’s a homeowners association.

Also, if you’re purchasing in an active adult community, many have fees (with various names) which you’re require to pay the association when you close. We’ve seen that these fees can range from $300 to $3000 or more. Ask your Realtor before making an offer

Financed Purchase

Now let’s look at costs if you’ll be getting a mortgage. Additional costs will be incurred If you’ll be getting a mortgage. In addition to the costs when purchasing cash, here are some additional ones.

Bank fees / Origination fees Note – these fees vary according to the lender. Banks fees can be as low as $300, however, we’ve seen fees considerably higher! Don’t be afraid to ask your lender, and it may be worth you time to shop around.
Prepaid Interest – this is the interest due between the closing date and the first payment
Taxes will need to be prepaid into an escrow account
With conventional financing, if you’re putting less than 20% down, you’ll usually need to pay Private Mortgage Insurance. Typically you’ll pay the first months premium at closing
FHA Financing – there’s an Up-Front Mortgage Insurance Premium. Usually, it’s possible to roll into the mortgage
VA Financing requires the VA Funding Fee. However, this can usually be rolled into the mortgage.

Miscellaneous COsts

These are the major expenses. However, there will be many small costs that will add up. Our suggestion is to speak with your attorney and your bank early and often to find out what their fees are. Don’t be afraid to shop around for attorneys and banks. You have the right to do that. And be wary of fees that are too low, because there may additional fees that will make the total costs higher.

When you’re ready to either buy or sell a home, contact us.

Rent or Buy?

Should I rent or buy?

Rent or Buy ?

There is a severe shortage of rentals available in our area. Due to increased demand rental rates have risen.  And as those rental rates go up, the difference in cost between owning a home and renting a home lessens.

When you rent your home, you have a stack of cancelled checks at the end of the year. But when you own the home,  you have hopefully built up equity.  Your mortgage interest and your real estate taxes are tax deductible which will save you even more. But will the monthly payments cost you more if you rent or if you purchase a home?
Here’s an Example

Let’s look at an example. An average condo in Freehold Township will rent for approximately $2,000 per month. The average condo in the same town sells for about $234,000.

If you were to buy this average condo, you would need a 20% down payment of $46,800. The mortgage amount of $187,200 will cost, at today’s interest rate, $921. You would also have the Homeowners Association Fee of $250 – $300  per month. The property taxes will be $500 – $600 per month. A few complexes are FHA approved so you would have a lower down payment but pay more in the mortgage payments.

Bottom Line

One way or another, you will be paying the mortgage. It’s up to you to decide if you want to pay your mortgage or your landlord’s mortgage
When you’re ready to become a home owner instead of a tenant, contact us.

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