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Seller Credits: How They Work, How They Benefit you in the Home Buying Process, How Much you Really End Up Spending on Your New Home?

September 30, 2019September 30, 2019 loansbyjoanna

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Imagine trying to buy a Starbucks Frappuccino and having to separately compute what it costs to make the coffee, to pay for the coffee bean collectors, distribute the inventory, and stock the store. Wouldn’t it be nice if houses came with a bottom-line price tag, from upfront fees to ongoing monthly expenses, so that a buyer could easily compare “all-in” costs?

The costs of buying a home can very quickly add up. After you decide that homeownership is your best bet, you’ll need to convince a lender of that too. That means that your credit is in good shape, you aren’t struggling with debt, and you have a sizeable cushion for expenses that may arise.

For financed deals, in addition to a down payment, you pay loan-acquisition costs and for services used during the escrow process. You may ask the seller to credit you a specified amount at closing to help with many of the expenses.

Homeowners anxious to sell their homes will sometimes entice buyers with seller credits. These credits are a loan option that allows buyers to finance their closing costs and be able to purchase their home with less cash down. The seller concession must be included in the sales contract, and the amount and terms of the credit can be negotiated.

Homeowners anxious to sell their homes will sometimes entice you with seller credits. These credits are a loan option that allows you to finance your closing costs and be able to purchase their home with less cash down. Here are 4 things that you should do (and know) as a buyer:

1.) Review closing costs

To settle the transaction, you and the seller will pay your own share of closing costs including escrow fees, title insurance, and property taxes. The allocation of fees depend on market customs. Buyers are typically required to pay only the fees that are considered customary and reasonable for a particular market, and the seller credit covers fees that fit the description. Lenders cap the amount of fees a seller credit may cover at 3-9% of the loan amount.

2.) Negotiate the terms

If you are the buyer, you and the seller will typically negotiate the terms of a seller credit early in the transaction. You will request an amount, as a percentage or dollar amount, in the offer to purchase. The seller may accept, reject, or counter the seller credit. The seller pays the credit as a lump sum at closing, and limitations to what the credit covers may apply.

3.) Enjoy The Benefits

Seller credits can be beneficial to both sides of the transactions. As a buyer, you may be offered seller credit that can reduce your out-of-pocket expenses at closing. You can even request a seller credit, and increase the sales price to entice a seller to accept. A seller credit allows you to finance your closing costs into the new loan amount, however, your lender must approve the credit, and the value of the home must merit the increase in sale price.

4.) Know The Limitations

Limitations on what the buyer and a seller credit can pay for are placed by lenders. Prohibited items are known as non-allowable fees. If you overestimate our closing costs, a credit surplus may occur. Then, you should renegotiate the sale price for the unused amount so that the seller does not end up with more net proceeds at closing for the unused portion.

Whether the seller markets the home with an offer to credit some of your closing costs, or you request that the seller assists in your offer, the process for applying the credit is generally the same: the amount of the credit is noted in the sales contract as a dollar amount or as a percentage of the offer price, then, it’s added to the offer price.

Because the buyer adds the concession to the offer price, he increases the amount he pays for the home. For example, a buyer who needs $3,000 in concessions for a $100,000 home requests 3 percent seller assist and offers $103,000 for the home. Although the buyer is paying $103,000 for the house, the seller nets only $100,000 – the remaining $3,000 is loan money the buyer applies to his closing costs.

Sellers often feel as though they’re “giving” the buyer the amount of the assist. However, the assist amount is built into the offer price. The buyer is offering the seller $100,000 but asking the lender to originate a loan based on a $103,000 purchase price.

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Five Golden Keys… to Purchasing a Second Home

November 24, 2018November 24, 2018 loansbyjoanna

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It’s hard to believe that the Holidays are already upon us. I know that buying a home right now is one of the furthest things on many of our minds right now. We’re thinking instead about Christmas gifts, decorating the house to get it ready for company, and not breaking the bank. I’m here to tell you that although mortgage rates are rising, they are still historically low, making this a great time to think about buying a second home. To make sure that your end-of-the-year-home-shopping a smooth process, instead of added Holiday stress, I’ve put together some key steps for you to follow:

1. Find an Agent (Who Knows the Area)

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The best way to start the search for a second home is to hire a proper professional, and one who is familiar with your desired location. The necessary steps in the real estate process change over the years, so you might as well have someone on your side who’s well-versed in the nuances and can help ensure you get the best possible deal.

You always have the option to purchase a home without an agent’s help or put your house on the market as for sale by owner, however, if you’re not familiar with the buying or selling process, you may skip over necessary steps. An agent could provide you information about neighborhoods, market prices, and the pros and cons of particular properties. With their eye for the long-term value of a property, the agent could fill you in on price histories and how comparable sales have fared, as well as resale prospects.

As you may have found in purchasing your first home, agent services vary depending on the area you live in, price point, experience and availability of the agent and your ability to communicate your needs. While some agents will only help you get from point A to point B when finding and purchasing a house, others will attend inspections, tidy up the house in question, or even facilitate your entire move.

#2 – Determine Whether You Can Afford Two Mortgages

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First off, you have to qualify for a second-home mortgage, which will be an addition to any mortgage debt on your primary home. When you’re buying a home, mortgage lenders don’t look just at your income, assets, and the down payment you have. They look at all of your liabilities and obligations as well, including auto loans, credit card debt, child support, potential property taxes and insurance, and your overall credit rating.

You will need to make a down payment of at least ten to twenty percent, meet credit standards and debt-to-income requirements, and provide documents for income and asset verification. If you have a good relationship with the mortgage lender on your first home, that may be a good place to start in your quest for a second-home mortgage.

You can use a loan qualification calculator to check mortgage rates in your area. Also, if you are thinking of tapping into your home equity you have built up on your primary residence to help pay for the second home, keep in mind that if you need that equity for an emergency, you may not be able to access it.

#3 – Factor in All Costs

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With trends like it is today, many second-home buyers are more interested in enjoying their property rather than simply obtaining a quick return on their investment. It’s important that you consider that you may still be away from the property a lot of the time, which usually entails additional costs, such as having a management company check the place in your absence for water leaks, frozen pipes or other problems.

Getting insurance for a second home may be more challenging than it is for a primary residence. This is because there are taxes that come with owning a second mortgage, and costs that will only apply to your second home.

You should factor in costs that you may not have had to worry about with your first home. For example, if you are considering a second home on the beach, you’ll need flood insurance, in addition to regular home insurance. It has become more difficult to get flood insurance in coastal communities, and the cost has increased exponentially in some markets.

#4 – Consider Taxes and Tax Implications

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You may want to forget about deducting mortgage interest on a second home. If the home you were planning to buy is a vacation home, tax reform means you’ll pay more for your getaway.

While you could previously deduct mortgage interest on a second home as well as on a primary home — as long as your combined mortgages were under the $1 million cap — this is no longer permitted under the new rules.

The Tax Cuts And Jobs Act caps to the mortgage interest deduction at $750,000. So if you already have a $750,000 mortgage and get a loan for a vacation home, you won’t be able to deduct the interest on the second mortgage. If you rent out your second home, you will have to consider additional tax ramifications, particularly if the rental period extends beyond 14 days a year.

The ban on deducting interest on a mortgage for a vacation home affects only new purchases, so if you already have a vacation home, you may want to hang onto it.

#5 – Consider Your Goals

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Whether you’re considering buying a second home to rent out, to move to and rent your old home, or what have you, there are some great benefits.

For one, you can sell your investment home and use the proceeds to buy another rental property without paying a capital gains tax. A rental property is a long-term investment, you could pay the mortgage with the rent income each month and pay off the mortgage without spending any of your own money. You will still be able to write-off the interest paid on your second home which is a huge plus.

When you’re ready to purchase a home, it may be beneficial to write out the goals you have for you and your family. Determine whether the second home will be a vacation home for you and your family, an emergency or guest home, or an additional income and for what purposes.

Know that writing down your goals isn’t the challenge. After all, with a word processing system, your laptop or even just pencil and paper, you can write down all the goals you like. The trick is coming up with effective goals you can realistically accomplish. Write down your needs (an adequate credit score, a substantial down payment and gross income that leaves enough for the house payment, etc.) and how you plan on going about fulfilling those needs.

I hope that all of this was helpful. If you have any questions or concerns, leave a reply below, as I’m always here to help.

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10 Signs You’re Ready to Purchase Your First Home

October 6, 2018October 6, 2018 loansbyjoanna

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We’ve already talked about how to prepare for your first home loan. Like I’ve mentioned before, buying a home will be one of the biggest and most important purchases of your life. That said, it’s important to consider whether it’s the right time for you. Here are 10 signs that may tell you you’re ready to buy into the American dream of owning a home.

#1 You’ve Wiped Out Your Student Loan Debt

First time home buying can be expensive. Being debt-free means that you can now cover your new homeowner expenses, property tax, insurance, and maintenance with that extra cash flow not going toward your debt.

It’s also about knowing yourself. Since you’ve have destroyed those outstanding credit card bills, slayed that disgusting car payment, crushed that horrendous student loan, you have proven to yourself that doing the work that goes into owning a home isn’t an impossible feat. Go you!

#2 You Have a Job (That You Actually Enjoy)

Experts say that you’re more likely to stay at a job that you enjoy doing, though we all know, it doesn’t take an expert to know that. While it’s important that you have a steady income in the present, knowing that you’ll have a steady job in the future, and that what you’re doing now is something you’ll be able to maintain long-term, is validation that you’re ready to make an ownership commitment.

#3 Your Credit Score has “Glowed Up”

You just pulled your credit score and found it strangely high. Can this be right? Has all of your hard work really been paying off? Then, great! Congratulations! This process will be much easier for you.

If you aren’t in this boat, there are steps you can take to change this. Before applying for a mortgage, request a copy of your credit reports — Experian, Equifax, and TransUnion are credit report agencies you can use. You’re entitled to a free credit report from each of the agencies once a year. Review them for inaccuracies or incomplete information. You can also check you credit score (for free) on CreditKarma.com. Then, make your payments on time and pay down your debt. Once you have done this, you’re in a much better position to purchase. Increasing your credit score means that you can now get a better interest rate, enjoy a lower monthly mortgage, and have the financial freedom to own a home.

#4 You Got That Raise You Finally Asked For

A rise in income can make the option to become a homeowner an affordable prospect. With a higher paycheck, you don’t have to put as large of a percentage into your mortgage budget. In fact, you never want to put more than 38-43 percent of your monthly income toward a mortgage payment (some loans go as high as 50%). The extra income can erase your financial vulnerability and make it possible to afford that home.

#5 Your Future Plans Aren’t Up in the Air

Not that you shouldn’t reach for very dream you have, but it’s important to be realistic in how many things you can accomplish at once. If your future goals involve any larger expenses than your new home does, you may want to regroup or determine which goal is most important to you.

Make sure that goals like starting a family, starting a business, or buying a hot air balloon to travel the next two years in, actually align with you owning a home. Having too many ideas can turn into too many expenses and may lower your chances of being able to afford a mortgage payment.

#6 You’re Thinking Long Term

If you’re planning on moving to a new city in a year, or your job likes to move you around from place to place, you may want to consider holding off on the house buying. Buying a house is a massive investment and considering most mortgages are 30 years, a home purchase is meant for the long-term.

I’m not saying that you have to decide to plant your roots firmly in the soil, but it’s definitely not something to take lightly. You should be able to reside in a place for at least five to ten years so as not to lose on your investment. Also consider what the rental market is in your neighborhood. Could you manage any negative rental cashflow if you did need to move? If you have a career that you enjoy, a relationship where you’re both able to stay planted, and kids who are grounded in a school and friends, this could be the perfect time to buy a home.

#7 You Know What You Want (and What You Can Afford)

Here’s the truth. People who get what they want tend to be the people who put in the effort to know what they want. At least, that’s what Oprah says. She calls it steps to the “aha” moment.

Knowing what you want is important because it can help remove some of the emotional stress that home ownership consideration can cause. It’s certainly exciting to fall in love with a home, but it’s crucial to have as much information going in as you can to prepare you for anything and keep you grounded about what you want in a home.

Proportional to knowing what you want, is knowing what you can actually afford. You can budget your mortgage payment, but other factors such as it being close enough to your job, what the neighborhood is like, weather and the wear and tear that could occur are all factors that should be considered when determining what you want.

#8 You Aren’t Struggling for Cashflow & Living Paycheck to Paycheck

Owning a home is not worth not being able to do some of your favorite things. If you can’t eat out once in awhile, go out with friends, take weekend vacations, or spend money on day-to-day items, purchasing a home is probably not something you want to do just yet. In fact, you need to factor in the hidden costs of owning a home. Put away a good amount of savings to ensure that you’ll still be able to take care of yourself before you tackle on the extra financial stress.

#9 You Can Afford that Hefty Down Payment

That savings you put away should be enough to cover your day-to-day and provide the deposit for the down payment. It’s important to meet with a mortgage professional to determine whether a minimum downpayment program will work for you. There are programs that require a minimal down payment (government down payment assistance grants).

Once you understand what you will need to invest in a down payment, there are closing costs and reserves, for your savings and emergency fund, to consider. Once you do, you are ready to buy a house. If you want to put 20 percent down, it can be even more beneficial because you can avoid the PMI (private mortgage insurance)* requirement.

#10 Your Emergency Fund Isn’t Starving

Your emergency fund should not be hungry. Like I said before, there are always hidden, or unexpected costs that come with owning a home, that’s just life. It only makes sense to plan for this with a savings account and emergency backup.

It’s important that you consistently feed your emergency fund before owning a home. In other words, you don’t want to have to rely on a monthly income to cover those unexpected costs–your monthly income has already been calculated and is needed for the mortgage and your day-to-day bills and expenses. Having an income set aside that is the an equivalent of at least a year of monthly bills is a good position to have before buying a house.

If, after reading this, you can still answer “yes” to each of these factors, then congratulations–you may be ready to move on to the next steps of getting prequalified, realtor, and visiting potential homes. However, it’s always a good idea to consider letting a Mortgage Professional help you determine whether you are actually ready to buy. If you have any questions regarding any of the steps above, contact me and I will be happy to help.

**Private Mortgage Insurance: what borrowers have to pay when they take out a mortgage from a commercial lender and pay a down payment of 20 percent or less. PMI insures the mortgage for the lender in the event that the borrower defaults.

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Prepare for your First Home Loan (Mentally, Spiritually, and Emotionally)

September 14, 2018September 14, 2018 loansbyjoanna

There’s no disputing that a home will be one of the biggest and most important purchases of your life. It’s an exhilarating, taxing, wonderful event. However, armed with the knowledge you need to begin the home loan process, it can be a satisfying experience.

Many advisors will inform you of what documents you’ll need to prepare. There are countless articles and workshops about collecting your checks, paystubs, W2s, and receipts, and they aren’t incorrect, however I’d like to offer you a few conceptual, and maybe uncommon, steps that you’ll need to shop for a home, apply for a mortgage, and close with the confidence that you got your money’s worth.

1. KNOW YOURSELF

First time home buying is about knowing yourself, what your life goals are, your priorities, and knowing how to use your income, assets and/or credit in a way that works for you.

I don’t say this lightly, but for some, getting a home might not be the best thing to do right now. I’m not trying to discourage you, but not everyone is at a place in their life to be able to afford a home. Let me explain.

I have a friend (I’ll call him Joe) who grew up in a household where his single father lived life paycheck to paycheck, and not necessarily because he had to, but because his father had been taught by his mother who happened to take life as it came, without thinking too hard about saving.

Consequently, as great a woman as Joe’s grandmother was, Joe has never been able to spend money smartly. In fact, every month he spends more money than he has.

Now, for Joe, he’ll need to first practice paying off small purchases now, until he is able to work his way up to affording to owe on a home loan. Otherwise, he may find himself biting off more than he can chew.

Before applying for a loan it’s important to know yourself, know what type of spender you are, what type of payment plan would work for lifestyle, and if it’s a good plan for your life right now.

2. FIND WAYS TO SIMPLIFY

We’re marketed to everyday. Everywhere we go, there are people telling us what our life should be or what life that we should have. As soon we turn on our TVs and our devices, we receive messages: If you buy this, you’re going to have that life. Go here or buy this and it’ll be worth your while, your taste buds will dance, your kids will be happy, you will be popular, admired and attractive!

I like to tell people to consider living a minimal lifestyle. Minimalism can be a tool in helping you find simplicity and subsequently, freedom. Most people hear that M word and immediately think they’ll have to downsize their possessions. In reality, minimalism is about making all of your decisions more consciously and deliberately.

We want to be able to spend more time with our kids, family or friends. We want to spend our time in a more balanced way. For instance, we all know that we should be exercising. In January, we all go out and buy these gym memberships. This is good news for fitness and nutrition companies, they capitalize on this want for a better life.

I’m not saying not to buy that gym membership. I’m not saying to empty out your home and get rid of that beautiful collection of books. In fact, if you’re happy and it doesn’t cause stress, then continue to do that thing.

If any aspects of your life IS causing you stress (not the good stress where you’re learning and growing, but the type where you’re not sleeping at night because you feel like you didn’t make the right decision) cut it out of your life.

I’ve been working on this aggressively, because I’m a collector, shopper and all around early adopter of anything electronic! And I can tell you, when you simplify your life because you want to align your life to support your values, that’s when happiness occurs. When minimalism is coming from a place of fear, and you’re throwing things out because you think some type of Zen will magically occur if you empty out your house, it won’t work.

3. REEVALUATE

To start simplifying your life, you need to reevaluate what your life is. The first thing you have to do is stop and consider what your grand, massive, colossal life-goal is. This is the thing that keeps you going—maybe it’s to become the CEO of an international clothing design company, or to have a non-profit historical museum. Perhaps it’s just to have a happy, stress-free, intentional life. Now ask yourself what is standing between you and your goal.

I like tell folks to identify their pain points. Maybe you have a hour-and-a-half commute to work every day. People can spend 1000 a month or more on transportation because of extra costs, they need need a better car, gas millage, maintenance, they need to house the car, parking, etc. When really, maybe they should live closer to work.

I understand, sometimes you look at your life, you want your kids to be in a certain school district, you want to be close to your parents, you like a certain coffee shop. Ask yourself if the lifestyle you’re maintaining is worth anything you’re giving up, including your financial freedom.

It’s important to be authentic. When you’re trying to be inauthentic, trying to impress others, not being honest with yourself about whether you can afford all the credit cards that you have, or whatever the case may be, it’s very hard to take a step back and evaluate your day-to-day choices and not judge yourself. You can start this new life anytime!

I am going to tell you now that you will need to collect your important papers, your paystubs, and documents, documents, documents, but really, the first step is to realize how you want to live, what lifestyle you want, what works for your lifestyle right now, and what works for your eventual goal.

Letters, Uncategorized

Hello from HomeLoansByJoanna.com 🏠

September 5, 2018September 5, 2018 loansbyjoanna

WELCOME, READERS!

Thanks for stopping by! My name is Joanna Busalacchi-Caudill and I am a native San Diegan, born and raised in the charming community of Mission Hills. This is my introductory post, so I’ll keep it short and sweet.

Let me guess. You’re wondering if this is going to be worth your time.

With everything going on in the world, who has time to read a blog anymore?

You just want to make good mortgage decisions, understand loan costs and fees, find a lender that you trust. You don’t want to make it a whole…thing.

I get it.

I’m here to help, and have dedicated over 30 years of my career to becoming a mortgage expert.

Would you like to know a secret?

Nobody makes it on their own.

I myself am the daughter of Italian (Sicilian) immigrants. In fact, I didn’t learn English until I attended kindergarten—and with the help of “I Love Lucy!”

I believe that both my personal background and professional experience uniquely position me to be a resource, real estate cheerleader and partner to help the real estate community bring home ownership to more people.

I’m a firm believer that we’re all in this together, and my life focus is to be the best person, wife, mother, family, and friend I can be and help other improve their financial life. I have started this blog to do just that.

Now, let me ask you this. What do YOU want to read? (Let me know in the comments).

Happy Reading,

Joanna