Closing costs

calculatorFirst time home buyers are often surprised when they find out about closing costs. Those pesky fees are in addition to the down payment. Lenders will provide detailed information about what those costs are but here are a few examples:

1. Loan origination fee

2. Appraisal fee

3. Pre-paid homeowners insurance.

4. Property taxes prorated from the day of closing and for the rest of the year.

5. Mortgage registration tax

Typical closing costs are about 3% of the purchase price which is usually not the same as the loan amount. In addition to closing costs most home buyers will make a down payment. The down payment can be as little as 3%. There isn’t any truth to the rumor that home buyers need to put 10 to 20% down to buy a home. There are some down payment assistance programs too.

Home buyers often ask sellers to pay their closing costs. Typically that means that the buyer borrows 3% more and those funds are applied to closing costs rather than going to the seller. I encourage buyers to do the math and understand that the closing costs come off of the sellers bottom line. I encourage sellers to pay attention to the bottom line and I let them know that paying the buyer’s closing costs is common and often necessary.

 

Down payment assistance

The friendly folks at down payment resources, also known as DPR, alerted me that they have a new logo. I have had a link to the service on this site for many years. ThPMT_Square_FindHelp_125is week I sent the link to a client and she is able to get up to $6000 in down payment assistance.  The assistance usually isn’t a grant but  low interest or no interest loan that has some strings attached in that they have to be paid back in full if the home is sold in the next few years and often home buyers are required to take a home buyer’s course which is actually helpful in understanding the home buying process.

With most home loan programs a down payment is required. Sometimes as little as 3.5%. When my husband and I bought our first home we took advantage of down payment assistance and paid off the loan when we refinanced several years later.

Down_Payment_Resource

Contacting a lender

The first step in the home buying process isn’t looking for homes that are for sale. Getting pre-approved by a lender is the first step in the process. Offers on homes for sale need to include some kind of a letter indicating that the potential buyer might qualify for financing.

Like most real estate agents I can not afford to spend a lot of time helping people find a home if they can not buy one. I only get paid after a successful closing of a home sale.

Getting pre-approved also helps buyers determine which price range they want to be in. Sometimes people come to me and tell me they can spend X amount a month on house payments. I am usually able to do the backwards math that I need to do to figure out what price range we need to look in. I have not seen any houses with a listing price of X amount a month.

There is more than just a house payment that needs to be factored in. There are property taxes and homeowner’s insurance and additional costs like heating, cooling, electric, garbage pick-up, and water.

 

Before meeting with a lender I always suggest coming up with a monthly payment amount that seems comfortable and reasonable. In most cases people are pre-approved for more than they want to spend.

Making payments on anything can be a stressor. Lower monthly expenses can feel liberating and free up more money for opportunities and experiences.

Mortgage_Rates_Survey_-_Freddie_Mac

How fast can a cash sale/purchase close?

coin_wI am currently working on a cash purchase with a home buyer. She made the offer about a week ago and wants to close today. Usually closings occur at least 30 days after we have an accepted offer because that is how long it takes to get the home loan fully approved.

When a buyer pays cash there is no approval process but we still have a bunch of hoops to jump through. For instance because the home being sold is on St. Paul the seller needs to provide a truth in housing inspection. As for last night it wasn’t done and may delay the closing.

The property is also a condo which means the buyer has ten days to review condo documents and rescind the offer if he/she doesn’t like the rules, financials or most anything about the condo association. The buyer will need to waive that right because there were not 10 days between the time the documents were received and the closing.

The closing is all scheduled and there is a list of closing costs for the buyer. Yes there are closing costs even when the offer. Like title insurance and prorated taxes, association dues and filing fees and taxes.

Personally I am not a fan of less than two weeks between the offer and the closing because it just isn’t enough time especially when buying a condo to really understand the property and the purchase unless the property is being purchased by a business or an investor.

What about interest rates?

When I look at interest rates I like to look at the big picture. I do remember when interest rates were in the double digits and the last time my family had a mortgage the rate was 7%. Our highest interest rate for a mortgage was 8.38. Rates have gone up almost half a percent from a low of 3.59% last February.

Mortgage rates
Mortgage rates – Freddie Mac

 

Low unemployment

I know there is underemployment in the Twin Cities but unemployment is fairly low. My recruiter friends tell me there are jobs in I.T. that are going unfilled  See [Minnesota HeadHunter]

The government and the many local hospitals, and the University of Minnesota are huge local employers. We also are the home of some corporate headquarters for some really huge companies.

The best way to find a job in Minnesota is by talking to your contacts. There is a Minnesota Jobs site that looks like it would be useful. I look for work everyday but that isn’t at all like looking for a job.

Minnesota unemployment rates
comparative unemployment rates

I always like to look at numbers from California when I compare unemployment rates because the weather in California is nicer than it is in Minnesota. Where we live isn’t just about the weather or maybe we would all be living in paradise.

 

Living expenses in the metro
BLS Midwest summary

As a rule homebuyers will need an income of at least $47,000 to buy the average priced home in St. Paul. That number is always fluctuating. The numbers in the Bureau of labor statistics table show what kind of wages a Twin Cities worker can expect.