Inspired by recent conversations, I want to make sure that my clients are prepared for all of the costs that one will have to stomach when buying a house. For a while it will feel like you're shelling big money out constantly--especially if the house that you're buying needs repairs. So let's go over the upfront costs that you need to have prepared:

Buyers Agent Fee: Guess what? I have good news! This one is a freebie & won't actually cost you anything! I highly recommend that you work with an agent that works directly for you rather than working with the agent that represents the seller. The commission for the sale of the has already been established & in most cases that number doesn't change regardless if you use your own agent or not. You are better off having someone that 100% works for you, negotiates on your behalf, & is on the hook for fiduciary responsibility.

Customized MLS Search: Ok--here's another freebie just to make you feel good! Sure, you can use zillow or realtor dot com or any of the other syndicate sites for free but I can set up a customized search for you that is more efficient to use, allows for communication/notes, & is more accurate. And I can make changes to that search so that we really hone in on exactly what you're looking for. All of those sites pull the info directly from our mls site so go to the source!

Down Payment: This one is straight forward. What's the amount that you can put towards the house that will pay down the principal balance. There are loan options that you may qualify for that start at 0 down payment up to twenty-five percent down. Certainly you can put as much down as you want but the loans will determine the minimum down payment. Your lender will be able to go over the various loan options that you qualify for & I can certainly weigh in on the pros/cons to help you decide what works best for you. Your down payment will not be due until closing day.

Escrow Deposit/Good Faith Deposit: In order for a contract to be valid (or in order to "bind" a contract), you have to put down some cash & this is your deposit. These funds will go towards your cash due at closing (down payment + closing costs). Typical deposits range from 1-3% of the purchase price. A higher deposit may be more appealing to a seller because you have more "skin in the game"--meaning it would be easy for you to walk away from a contract if you only put down $100 for a deposit versus if you put down $10,000 as your deposit. At a minimum you should have $1000 available to put down as a deposit. The deposit is due when you sign a contract to purchase a house so this is the first amount of money that will be required upfront. The deposit needs to be submitted as soon as possible---we don't have a valid contract until your deposit has been submitted. The listing brokerage will hold your deposit. A personal check or bank check is fine for a deposit but note that it needs to come from the bank account of the person(s) who is applying for the loan. Your lender will need a photocopy of the deposit check.

Inspections: Once you have a contract in place to buy a property you will have 10 business days to conduct any & all inspections. The buyer is responsible for paying for these inspections. A general structural/mechanical inspection costs around $500-700. Separate inspections will include Lead, Radon, Water Quality, Septic/Cesspool, Mold/Air Quality--these would all be additional costs if you choose to have any of these.

Appraisal: Your mortgage lender will require an appraisal of the property except in cases where you're putting 25%+ down or in other rare cases. You should plan on needing an appraisal & that's a fee that you'll pay for upfront. In some cases the lender may be able to wrap this fee into your closing costs but you'd need to discuss that upfront. The appraisal is ordered through the lender & the fee is $500-700.

Home Owners Insurance Binder: Your mortgage lender will require that you have a home owners insurance policy in place before they will issue a commitment to fund the loan. You will pay for the first year upfront & subsequent payments will be made by your mortgage company each year. Part of your total monthly mortgage payments will include payments into your escrow account, that' essentially a savings account your mortgage company sets up & sets aside a portion of your monthly payments to pay for your property taxes & your annual home owners insurance policy. But you'll need to pay for that first year upfront. Like the appraisal, some lenders may be able to wrap this into your closing costs so you should discuss this upfront with your lender. Single family insurance policies average $1200 per year in RI, multi family properties range from $2-3k depending on the number of units. 

Closing Costs: These are a bunch of fees/costs bundled together. They consist of the fee the lender charges to underwrite the loan, the attorney fee, the fees to record the deed with the City, & any property taxes that are due upfront or that will be put into your escrow account. They may also include any Private Mortgage Insurance (PMI) that you pay upfront, any points that you pay to lower your interest rate, & potentially your appraisal fee & home owners insurance. Rule of thumb---plan on $6-8k for closing costs. Here's a blog post I wrote all about Closing Costs that will go over this in a lot more detail.

Cash Due at Closing: Your attorney will let you know the final total amount that you have to bring to the closing. Usually that's in the form of a Bank Check. Your lender will provide you with an Estimated Closing Disclosure a few days after you've formally applied for the loan--this goes over everything & you have to sign it. It will go over your down payment, the interest rate that is locked in (sometimes they will wait to lock in a rate but you need to understand if it isn't locked in & why), and this will also include the estimated closing costs. I can go over this form with you if you have questions. It can be overwhelming to look at & to try & figure out. The cash due at closing will consist of your down payment plus closing costs minus the deposit and minus any seller credits. 

Other Costs: Depending on the loan that you are applying for you may need a certain amount, called "Reserves" in your bank account in order to qualify. This is especially common for FHA loans for multi family properties. The lender will want to show that you have at least 3-6 months worth of mortgage payments available in your bank account. I will help you to identify things about the property that you will need to address right away---perhaps there's a hot water tank that's beyond it's life expectancy (which is only 6 years btw)--people use houses differently so inevitably there will be something that goes awry pretty quickly after you buy the house. It's not bad luck! It's just that you use the house differently. So I'll do my best to identify things upfront, the home inspection will be really helpful for this, so that you can set aside funds to make these repairs right away. I always encourage my clients to keep a house fund of at least $4-6k set aside for emergencies. Work the math backwards from all of this & it gives you an idea of what you need to save & keep in your savings in order to be prepared to buy a house. 

Questions? Comments? Reach out! I'm always here to help! 

​​DO:

• Keep originals or be able to access on your employer/bank sites all pay-stubs, bank statements and other important financial documents. 
• Provide your Earnest Money Deposit from your own personal bank account or acceptable gift funds. Please talk to me directly for additional clarification. This will present a very difficult problem if not managed properly in the beginning. 
• Provide all documentation for the sale of your current home, including sales contract, closing statement, employer relocation/buy-out program if applicable. 
• Notify your me if you plan to receive gift funds for closing. Gift funds are acceptable only if certain criteria are met. Advances from credit cards for down payment / closing costs are never acceptable. 
• Notify me of any employment changes such as recent raise, promotion, transfer, change of pay status, for example, salary to commission. 
• Be aware that a new credit report could be pulled just prior to closing.

DO NOT:

• Close or open any asset accounts or transfer funds between accounts without asking me about the proper documentation required for your loan. For example, before transferring all funds from your savings to your checking, check with me.
• Deposit any monies outside of your automated payroll deposits, particularly cash or sale of personal property, without notifying your me. Many guidelines require substantial documentation as to the source of these deposits.
• Change jobs/employer without inquiring about the impact this change might have on your loan. 
• Make major purchases prior or during to closing such as new car, furniture, appliances, etc. as this may impact your qualifying amount.
• Open or increase any liabilities, including credit cards, student loans or other lines of credit during the loan process as it may impact your qualifying amount.

“Refinancing” is a scary word for many people, but that shouldn’t be the case for you. For many homeowners, refinancing can not only lower your monthly payments and help with your monthly budget, but it can save you thousands of dollars in the long run.

YOU’RE NOT TOO LATE.
For years now, we’ve been hearing that interest rates will be on the rise, and although there have been some small increases, you’re still in a great position to drastically lower your interest rate. The general rule is if your mortgage interest rate is more than one percent above the current market rate, you should consider refinancing.

​T’S NOT TOO TIME CONSUMING.
Don’t brush off refinancing just because it seems like a long and daunting process. An informational call with a lender to see how rates compare will only take a few minutes. There are also some programs for streamlining the application process. And besides, isn’t the amount of money you could save worth the time and effort?

ARMS CAN BE REFINANCED, TOO.
Seeing your Adjustable Rate Mortgage (ARM) increase after the introductory period can be incredibly stressful and place a squeeze on your budget. Many people assume they’re stuck, but ARMs can be refinanced, just like fixed-rate mortgages. You can even switch to a shorter term fixed-rate mortgage, such as 15 or 23 years. The longer you’re planning to stay in the home, the more sense it makes to look into refinancing.

Looking for a lender to talk to? Reach out & I'll share my preferred lender contacts with you! I'm always here to help!

September & October are the times to get your home ready for a New England winter. Get your furnace serviced! Heating Specialists are already booked into October---I just scheduled my annual cleaning service for my Navien furnaces & the soonest available was October 6. I'm happy to share my referral network so reach out!

I especially like tip number 2) Switch the direction of your ceiling fan! Your ceiling fan should rotate counterclockwise in the summer. so the blades push cooler air down in a column. This is the best ceiling fan direction for air conditioning since it makes the air feel cooler than it is. It allows you to turn your thermostat up a few degrees. Then in the cooler months switch directions & you can save on your heating bills!

An offer needs to include the following information:
Offer Price
Deposit/Amount of Escrow
Financing Details
Closing Date
Included or Waived Contingencies: sale is contingent upon securing financing (this is called the Mortgage Contingency), property appraising at purchase price, Inspections. These are all items you can include with your offer or state that you choose to waive any of these options.
Additional Terms to include: ex any property or items that are included in the sale (pool equipment); or if you're buying a multi family property do any of the units need to be vacated by the time of the closing.

OFFER PRICE
How do you know how much to offer?
Here are questions that need to be answered:
​1) How long has the property been listed & what's the condition of the property? If it's new to the market it's unlikely that the price is negotiable--especially if it's in pretty good condition. If it's a sellers market that will mean that there will likely be a lot of people looking at the property & it's highly likely there will be multiple offers. You and I will discuss how in demand this property is--if I think we can offer lower than the list price I'll certainly tell you that.
2) What are the neighborhood comps (comparable homes that have sold)? I may send you an overview of similar homes that have sold in the area. I'll advise you on what I think the market may be able to bear in terms of offering more than the list price. It's important that you also do your own research to understand the markets in particular neighborhoods as well--I'm certainly here to guide you and also share my expertise.
3) Does the math work? If you don't know how to use a mortgage calculator let me or your lender know. Or ask your lender to run the numbers for you. What's the difference in the down payment amount & total monthly mortgage when you offer $220k vs $230k? If the house is listed at $220k and you love it but there are multiple offers what's the difference in payments at $230k or $240k? You need to understand real estate math so that you can decide what's best for you. 
4) Is there anything that you can do to increase your equity in the property--a basement that can be finished? A bathroom vanity and light fixtures that can be updated? When you purchase a property in a sellers market you should look for a property that has one or two things that you can do to increase or maintain its value in the future. That can impact how much you decide/are willing to offer.

Escrow Deposit
What is an Escrow Deposit & how much do you have to submit?
I have a video on this topic that you can review. If you haven't subscribed to my channel please do so! You have to have some skin in the game, & it has to be substantial enough that you're not going to just walk away from the transaction. Typical escrow deposits (aka Good Faith Deposit) are 3-5% of the purchase price. A higher escrow deposit will be more appealing to a seller so that may be something to consider when crafting a competitive offer.
Here are common questions that I get:
Who holds the escrow deposit: The listing brokerage or the sellers Attorney
Can the seller keep the deposit: If the buyer breaches the contract then yes, the seller can keep the deposit but there are very specific ways that would happen.

Here's how a buyer can get their deposit back.
1) Terminate the Purchase Agreement during the inspections contingency. If you do not waive your right to the inspection then you will have 10 business days to have any inspection, at your cost, that you choose. I have a list of inspectors that I can recommend to you. If you're not satisfied with the inspection then you can terminate the Purchase Agreement & you will get all of your deposit back--as long as we're within the 10 business days. If we try to renegotiate with the sellers but cannot come to an agreement you can decide to terminate the contract.

2) Loan Denial.  Known as the 'Mortgage Contingency', the Purchase Agreement will set a specific deadline that you will need a 'mortgage commitment' from the lender. You have a preapproval but you cannot actually apply for a loan until you have a specific property under contract. In order to issue a mortgage commitment, thereby satisfying the mortgage contingency deadline, you have to apply for the loan, submit paystubs, bank account info, tax documents, verify employment, go through an extensive credit check, & the appraisal has to be complete.  The underwriter will review all of the information & determine if the bank is willing to underwrite the loan &, if so, will issue a mortgage commitment & then will submit for Clear To Close. If for some reason the bank issues a denial we want that on or before the commitment deadline. This is a date that both you & I will monitor. If we need an extension for that deadline we can make that request, in writing, & the seller needs to agree. If the denial is issued we can terminate the agreement & your deposit will be returned. If you waive the mortgage commitment but end up getting denied for the loan then you would be in breach of the contract because you would not be able to close & the seller would be able to keep the deposit.
When would someone be denied a loan: job loss while in the process of trying to get a loan, submitting incorrect information during the preapproval (this is why you should get a full pre-qualification), making a major purchase during the loan application (like buying a car---no new loans!!), etc. Your lender will give you a list of things NOT to do & it's important that you understand those guidelines.

Disclose your Financing Details 
This info needs to be disclosed in your offer. Are you going with an FHA loan, VA (Veteran), or Rhode Island Housing (RIH) loan program? Or are you applying for a conventional loan & if so what is the down payment amount (3%, 5%, 10%, 20% etc). I also need to include a copy of your preapproval. Not only will a seller need to consider the offered Purchase Price, the type of financing is also important as it can impact the appraisal as well as indicate your ability to purchase. FHA loans & RIH loans take longer--45-60 days and have specific items that will not pass the appraisal: ex, a house that has peeling paint on the exterior or windows will not pass & those would have to be fixed before the loan would be approved; Knob & Tube wiring would not pass VA, FHA or RIH & would have to be removed prior to closing; Asbestos Wrapped heating pipes may need to be removed or wrapped prior to closing. These are all things that a seller may not be willing to address & that needs to be taken into consideration. In a sellers market you may want to improve your credit or save more for your down payment so that you can qualify for a 3% or 5% conventional loan as that may inhibit getting an offer approved. All things equal, a buyer with a conventional loan will have a competitive edge over FHA/RIH/VA loans simply because they can close sooner or have less hurdles. I don’t tell you this as a deterrent but simply that we will need to discuss your financing in the context of presenting your offer & the pros/cons of certain loan programs.      

Disclose your Closing Date
Your offer will state your closing date. It's important that we understand the sellers motivation for moving & what their plans are. Do they have to find suitable housing or do they already have someplace else to go? Do they want a quick close or is a flexible timeline more appealing? 

Once you & I have answered all of these questions I will draw up the offer. In certain instances I may decide that we should submit an executed Purchase Agreement rather than the one page offer. In some cases this may show that we are very serious buyers & that we're ready to go! In addition to your preapproval I will also have you sign the disclosures to include in the package. 

The seller will respond in one of three ways: Accept, Counter, or Decline.
If your offer is accepted we will sign a Purchase & Sales Agreement, the formal contract, & you will submit your deposit right away--just like the offer we want to do this as quickly as possible because we don’t actually have a contract until both parties have signed & your deposit is submitted. If the seller makes a counter offer you can either accept, counter with a different offer, or decide to walk away. If the seller declines the offer (or your counter offer) you can try again to make a more appealing offer or move on to find another house.
  
Does a personal letter make a difference? Sometimes! It’s certainly worth submitting along with our offer. If it's a house that has been "flipped" I don't usually think it makes a difference--the sellers sole intent in that case is usually to maximize their profit.

Check out my video below to watch my video about the offer process! 
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Since moving to Rhode Island in 2001 I have grown to deeply love this small, quirky state! I love that all it takes is a quick 20 minute drive & I can be somewhere that seems very different. For example, it's twenty minutes for me to drive from rural Scituate, RI to be in the city center of Providence. Or I can drive twenty minutes to East Greenwich, a very quaint, New England-esque seaside community. Or thirty minutes to get to the beach! I've started this neighborhood series to help people that are considering moving from another state to RI & to give some insight into the unique aspects, & real estate market insights, to make the move a little easier! Plus! I love sharing all the things I love about Rhode Island. So far I've focused on two distinct areas in Providence: East Side & West End/Federal Hill. Next up: Elmhurst, Edgewood, East Greenwich (the E's are just a coincidence, lol!).
#federalhillprovidence #movetorhodeisland #rirealtor #rirealestate #providenceri

Owning a multi family property can be a GREAT financial decision but it's not ALL rainbows, butterflies, sparkles, & Unicorns! Check out this video to learn more about what you should keep in mind in you're thinking about buying a multi family property. #multifamilyproperty