Phew, okay, we went over a lot in the previous section. The following questions and answers section is my favorite part of the the guide. It will clear up a lot of common misconceptions and confusion that can arise when talking about buying a home. I go over topics such as agent commission, HOAs & deed restrictions, buying vs renting, and much more.
• Cash to close: Cash to close is the amount of money you bring to closing, which includes your down payment, closing costs, and escrows for property taxes and homeowners insurance.
The following costs will be due on the day you close. Your title company will help set up closing and money wiring.
o Down payment (3-20% of sale price)
• Example: If you bought a home for $250,000, your closing costs could be anywhere from $7,500 to $50,000.
• Your lender will help you decide what makes the most sense for you financially.
o Closing costs (2-5% of sale price)
• These are costs associated with your home that need to be paid in advance when getting a loan that will accrue between the closing date and month-end.
o Property Taxes
o Homeowner’s Insurance
o Mortgage Interest
Other Potential Costs
• Appraisal Fee
• Credit Report Fee
• Loan Origination Charge
• Title Services & Lender’s Title Insurance Fees
• Owner’s Title Insurance
• Recording Charges
• Wire Transfer Fee
• Prepaid Mortgage Interest
• Property Taxes
• Prorated Taxes
• Homeowners Insurance Reserves
• County Property Tax Reserves
• Monthly Payment
Make sure you’re prepared to make moves fairly quickly if you want a home in a very hot neighborhood.
There can be multiple reasons a seller chooses another offer over yours, and you can never know exactly what the seller is thinking or know who your competition is. One of the tricks I tell my clients is to write a note to the seller, explaining why you will love and cherish their home and attach a picture of yourself. This could put you ahead of the competition! Put in the effort to make this “business transaction” more personal. This isn’t just money and cement; it’s your future home. Maybe you will raise kids here! Maybe you will grow old here! The seller may not care, but it could tug their heartstrings. That being said, no matter how much you play on the seller’s emotions, you won’t win a bidding war with a low-ball offer and a cute picture of your family. You need to be a strong buyer and also add a few personal touches to make yourself relatable and more than just a source of cash.
In Austin, while you need to be prepared to pay full price or over-asking price, don’t assume you always do this. A lot of sellers get caught up in the hype they hear about Austin’s hot market and they may think they can list their home for over market value. These homes will not sell quickly and these homes will not be sold for over the asking price, or even near the asking price! Properties that will go into multiple offer situations are priced according to market value and in high demand neighborhoods.
When you put an offer on a home, it may be a good idea for your loan officer to call the seller’s agent, not only as a friendly introduction but to also reassure the seller’s real estate agent that you’re a qualified buyer. There are a lot of “over promise, under deliver” situations that I’ve seen from lenders. If a potential buyer’s lender is the type of person to call and communicate well with me—major brownie points in my book! Everybody wants a smooth and easy transaction, and this will happen with a team who communicates well and often.
Other tactics to consider if you are in a multiple offer situation are:
• Offering over-list price
• Shortening your option period
• Using conventional loan instead of FHA loan (Federal Housing Administration)
• This will be discussed in more detail further along
• A quicker close. Make sure to clear this with your lender first
• Getting “conditionally approved” and waiving your financing contingency in your offer. Discuss this with your lender first
• Don’t ask the seller to pay for closing costs
• By waiving your financing contingency, when submitting an offer, you are stating that you do not need or expect a refund in the event that financing is not approved by your lender.
• If you ignored crucial dates in the contract
• Items to look over in your contract that have dates attached to them include: option period, financing, title, survey, and seller’s disclosure.
• If you randomly decide, nah, this home isn’t for me.
• If there’s nothing wrong with the property or your financing, and you are past your option period, chances are you’re NOT getting that earnest money back.
When a seller and an agent review offers, a buyer’s financing is considered up front along with the down payment amount. A better loan is a better offer, if all the other contingencies are equal, a better loan has the best chance of closing. All FHA concerns mainly stem from these questions: Will this person be approved? Will we actually close on time, or at all?
• How or if you can rent out your home
• The number of additional rooms
• The style of homes allowed
• If you can run a business from home
• Rules about pets
• Exterior paint colors
• Fees for road maintenance or amenities
• How many homes is the builder working on at once? How are the projects managed?
• How many homes does the builder complete in a year? Include start and completion times.
• Does the builder use the same sub-contractors?
• How does the builder bid your homes? Fixed cost? Cost plus?
• How is client communication handled through the process?
And many more! Your real estate agent will help you pick the right builder for your wants and needs. It’s very important to have them by your side to make sure timelines are being met, and somebody is looking out for your best interests.
Even if you have owned a home before, you may still be eligible. For example, the federal government’s definition of a first-time homebuyer is someone who hasn’t owned a personal residence in the past three years.
Another common tax exemption is a home sale exclusion. To qualify, you need to live in your primary residence for at least 2 years out of the 5 years leading up to the sale. Up to $250,000 of profit from the sale of your home can be tax free; $500,000 if you are married.
Some people avoid paying capital gains tax on their home by doing a 1031 exchange. This is when you use the proceeds from your house to buy another house that is of equal or greater value of the home you’re selling.