BUYER BEWARE 2: Closing Costs Exposed

Okay, so you've put an offer on your dream house and it's been accepted by an elated seller. Both parties have executed an iron clad purchase and sale agreement with the assistance of legal counsel and the home inspection has been completed and there's no bad wiring or leaky pipes. You may have already received the much anticipated mortgage commitment from your lender. Now you just have to sit pretty and await the closing date, right? WRONG! Now it's time to hustle and get the money together to complete your purchase. You're thinking, "Duh, I know I've got to come up with rest of the purchase price less the loan amount. This lawyer's not telling me anything new."

No, what I mean is that in addition to the purchase price funds, you've got closing costs, prepaids and escrows that most buyers don't even think about and often don't learn about until 24 hours before the closing because of lenders that don't communicate well with borrowers. Most buyers can expect to come up with several thousand dollars to cover these extra items, which typically include: legal fees; title insurance; title examination; private mortgage insurance; lender fees; reimbursement to the seller for home heating fuel and prepaid taxes; mortgage plot plan; courier fees; homeowner's insurance; and interest.

While closing costs really can't be avoided. There are ways to make them a little easier to swallow. One possibility is to ask the seller for a closing cost credit at the time the offer is made. If the seller agrees, the closing cost credit is applied at closing to reduce the closing costs payable by the buyer. Another option is to request that the seller pay for certain of the closing costs such as the homeowner's insurance policy. While a seller doesn't have to agree to give a credit, doing so costs him or her virtually nothing since it doesn't necessarily have to reduce the purchase price and it can help to ensure that the buyer has enough money at the closing table so that the deal ultimately goes through. One caution to buyers has to do w/FHA mortgages, which place limitations on how closing cost credits are applied. For instance, they can't be applied to prepaid annual PMI and often can't result in the buyer getting cash back at closing.

So what's the bottom line - think about your bottom line from day one of your real estate transaction so that you'll have enough money to close the deal or else you'll be left without a roof over your head!

BUYER BEWARE 1: Mortgage Contingency Secrets Revealed*

Caveat emptor, Latin for "buyer beware," are two words every buyer should take to heart when embarking on their first or even subsequent real estate purchase. Since gone are the days when buyers were lining up for overpriced property, when loans were freely given and open houses heavily attended, it's important now more than ever to make sure that the proper mortgage or financing contingency is included in the initial offer and carried through to the Purchase & Sale Agreement.

As an attorney that represents real estate buyers, I can't tell you how many times I'm stuck in the unglorified position of trying to fix a mortgage contingency gone astray in an offer. Often it's a lack of planning and homework that causes the problems like when a buyer hasn't been preaproved and, therefore, doesn't know what they're even qualified to borrow. Other times, a realtor has assisted with the drafting of the offer and instead of specifying that the buyer is going to get a mortgage with 3% down, they do the reverse and specify that the buyer is putting 97% down. It often takes some negotiating on my part to convince the seller or their attorney that there's no way the buyer intended to get a loan for 3% of the purchase price!

Another common error I see buyers make is the failure to include specifics about the type of mortgage they will be seeking. For instance, a buyer trying to get an FHA mortgage should specify that as a possible type of financing they will be seeking and should also require the seller's cooperation with any FHA required paperwork. Since FHA borrowers pretty much always finance mortgage insurance, this boosts the loan amount up. The offer should also include this fact. It's key to include the core terms of the deal in the offer not only because they carry over into the Purchase and Sale Agreement, but also because an accepted offer, depending on its terms, can become a binding contract.

Financing contingies are important to all of the parties. For buyers, they function as an escape valve out of the deal if financing can't be obtained. For sellers, they provide assurance that the buyer is going to be taking the necessary steps within certain timelines to get financing to buy their house. If a buyer fails to takes those steps, they can say "bye, bye" to their good faith deposit. In this economy, I can't imagine anyone wanting to part with what may be tens of thousands of dollars of hard earned money.

The moral - take some time to get the financing contingecy just right when you make your offer. Be sure to communicate with your proposed lender so that you know how much you can borrow and how long it will take to process your application and when a mortgage commitment will be provided. And, don't forget to put the important dates in your calender. You don't want to miss a beat.


*This blog is the first in a series of posts geared toward real estate buyers, applies Massachusetts law, and is for informational purposes only. Always consult legal counsel for guidance.

Happy Thanksgiving!

Wow, I can't believe the holiday season is here. It's amazing how fast time goes by. With two little ones and a busy practice, I have no sense of time anymore. I look outside my window and think it's March. But, the holidays tend to bring me back to center with the focus on family and celebration and embracing the season. I hope that you are also getting a chance to find your center among all that's going on in the world. It seems a little bleak out there right now. But, we are all masters of our domains and can choose to make our realities are little brighter. Instead of thinking about what we don't have and what's missing, we can be thankful for what's right there in front of us. That's what I'm going to be doing this Thanksgiving - taking in what's already on my plate and enjoying it for what it is.

Wishing you and yours a happy and safe holiday filled with relaxation and laughter (and a little pumpkin pie!),

Jen

Welcome to the launch of my blog!

As I embark on this new way of communicating with my friends, colleagues and clients, I welcome you to join me. I am very excited about sharing insight and information as I navigate the legal process. As you probably can already tell, I'm a lawyer practicing in Massachusetts where I've lived most of my life. I handle a range of matters mostly involving real estate in one way or another. These include representing parties in residential transactions, representing landlords or tenants in eviction proceedings, creating estate plans for the young and not so young, and handling divorce actions. I love what I do - especially because I am constantly learning. It's this knowledge that I hope to share on this blog along with the occasional vent. Hopefully you will find it helpful and insightful and maybe sometimes a little amusing. Thanks for coming along for the ride!