Why Should I Pay the Home Buyer's Closing Cost?

Why Should I Pay the Home Buyer's Closing Cost?

Question: I received an offer on my home that I have for sale, and in the purchase contract the buyer is asking me to pay for his closing costs. I don't think I should have to pay any of the buyer's costs. When I purchased this home the previous owner didn't pay any of my costs. Why should I pay this buyer's cost?

Answer: It is very typical these days for a buyer to ask a seller to pay for closing costs. In fact, probably around 30% of  buyers will include it in their offers. It's usually worded in the Purchase Contract similar to this: "Seller to pay for Buyer's closing costs, points and/or prepaid expenses" 

Let's first explain what these items are. Closing costs include the attorney fees, title insurance, bank fees, etc. Points are funds that the buyer pays at closing to get a better interest rate. Prepaid expenses include insurance, taxes and interest. The total amount of the cost varies with the purchase price, down payments, loan program and the day of the month that the property closes, but typically run 2% to 5% of the mortgage amount.

Now that we know what closing costs are, why should you, the seller, be responsible for paying them? What we really want to look at is how much will you be actually receiving after paying the closing costs. For example, if someone offers you $300,000 but they want you to pay $5,000 in closing costs, you are actually going to receive $295,000 at the closing table ($300,000-$5,000=$295,000). If you are happy with receiving $295,000 then what's the problem with paying it to make the deal work? If you're not happy with the bottom line you can always give a counter offer. Just don't take away the buyer's closing costs. So say, if you really looking for $310,000, then counter at $315,000 and say you'll pay the $5,000 towards closing costs (for a net of $310,000).

A home buyer has to come up with the down payment, plus additional expenses once he moves in. Not to mention moving costs. It's in the buyer's best interest to try to keep as much cash in the bank as possible to cover these and any unforeseen expenses. Really, what the buyer is actually doing is financing his closing costs, because you would have accepted $310,000... and he is buying it for $315,000. So, even though it says in the contract that the seller is paying the closing costs, in reality the buyer is paying for them himself (over the life of the 30 year mortgage).

So, don't get hung up on paying a buyer's closing cost. If you can come to an agreed upon price, concentrate on doing what you can to get the buyer to the closing table. Paying for closing costs is a no brainer that doesn't affect you as long as you look at the bottom line.

Jim Armstrong

President/Broker

Armstrong Field Real Estate

What do I mean when I say “MLS”?

Understanding an MLS (Multiple Listing Service)

Odds are you’ve spent a little time online searching for homes. After all, most home searches begin online. You may have even used a broker’s website or a site like Trulia or Zillow to help you browse listings.

But where does listing information come from?

Way back in the day, prior to the Information Age revolution, brokers used to gather and exchange information about their properties. The idea was fairly straightforward: I’ll help you sell your properties if you help me sell mine. It’s a “private offer of cooperation and compensation.” Cooperation meant the real estate industry could thrive and buyers and sellers could enjoy smoother transactions.

 

This spirit of cooperation gave rise to Multiple Listing Service(s) (MLS). By consolidating information about housing inventory in an MLS, listing brokers and buyers’ brokers can easily share up-to-date information about homes on the market. Though an MLS is typically a private database available to brokers, much of the information is syndicated to outside sites in the interest of casting wider net for buyers and sellers.

As an MLS is the primary source of information about a property, it tends to be the most accurate. It may also contain private information for use by brokers only, such as times the home is available for showings and seller contact information.

There are upwards of 850 MLS databases in the U.S. alone, and to a certain extent, there is market pressure to centralize these into a national MLS database. We’re sure to see changes in how Multiple Listing Services are used in the future, but the core benefits to home sellers and buyers is sure to remain.

Ready to put the power of an MLS to work for you? Search with me today for homes on the market right now. I’d be happy to help you find your next home.

Search the MLS for all homes currently on the market

on the north shore of Massachusetts

Jim Armstrong
Armstrong Field Real Estate
www.armstrongfield.com
978-394-6736

Median Home Sale Prices are Up, Number of Homes to Choose From Still Declining

Real estate sales in Essex County were strong in the 2nd quarter of 2014, with median prices up 1.9% over last year. The number of closed sales is down, but that's a reflection of the drop in inventory from 2013 - ie: the number of homes on the market for buyers to choose from. 

Until there are more sellers taking advantage of this great selling market, the number of sales will continue to suffer. 

The Median sale price is up more than $100,000 over the 1st quarter of 2009.

- Jim Armstrong

President/Broker

Armstrong Field Inc

Click Graphic to Enlarge

Guidelines For Determining Your Home Purchase Price Range

Shopping for a home, especially your first one, can be tough when you’re not sure how much you can afford. If you've wanted to live the dream of owning your own home, but haven’t been sure where to start, I've put together a few tips that can make it easier to get a handle on where to start.

The American Dream

1. Tax benefits usually mean you can afford more than your rent. Interest deductions on taxes typically translate into significant savings. Many people find they can afford about 33% more than their current rent. To get an idea of what this might be for you, multiply your current rent by 1.33.

2. A home price three times your gross income is usually a reasonable place to begin. For example, if your household made $75,000 last year, you could begin looking in the $225,000 range to start.

3. Know how much you can put down. Ideally, you’d want to have 20% of the home’s price set aside for a down payment. On a $200,000 home, this would be roughly $40,000. You can definitely put down less money, as low as 3%, but it may result in higher interest rates (which translate to higher monthly payments). It will still be better and most likely less expensive than renting. If you are a veteran, you can buy a home with no money down, and still get the lowest interest rates.

4. Determine your “debt factor.” Lenders will often cite the 28/41 rule when it comes to your debt. This means that your mortgage (plus taxes and insurance) shouldn't exceed 28% of your gross monthly income. Your total payments (credit card, car loan, etc.) plus your mortgage shouldn't come to more than 41% of your gross monthly income.

The Realtors at Armstrong Field Real Estate specialize in helping first-time home buyers getting themselves lined up for home ownership. Contact one of our Massachusetts Realtors today.

7 Tips for Buying Your First Home in the U.S.

Article From BuyAndSell.HouseLogic.com

By: Dona DeZube
Published: April 09, 2013

Help finding your way through the complex U.S. real estate market.

Nothing says you're truly an American like owning a home. And just over half of all foreign-born households living in the U.S. own their own home. If you're ready to join them, try these seven tips for American-style home buying success - the process here may be quite different from what you're used to.

1. Be ready to prove who you are. You don't have to get your citizenship, a green card, or any particular type of visa before you buy a home. But you do need:

          •An Individual Taxpayer Identification Number. (http://www.irs.gov/Individuals/General-ITIN-Information) That's a number assigned by the Internal Revenue Service to foreign nationals who need to file income tax returns. 

         •A valid foreign passport, or two or more current photo identifications, such as a driver's license, to show who you are.

Although property ownership isn't tied to immigration or visa status, there are rules about how long you can stay, so if you're not a citizen, check out U.S. visa requirements before you purchase.

  

2. Plan to get a mortgage, so you don't have to save your money for years to become a home owner and start building equity. The U.S. home loan market offers many safe, affordable mortgages, including ones that allow Muslims to buy a home without violating Islamic laws against paying interest.

To get a U.S. mortgage, you must establish credit and earn a good credit score (http://www.houselogic.com/home-advice/home-loans-mortgages/how-fico-credit-scores-work/). To boost your score:

          •Open U.S. bank and credit card accounts.

          •Report all your income on your tax returns. Lenders use tax returns to verify your income and decide how much you can afford to borrow to buy a home.

When it's time to apply for a mortgage, you'll find major banks with global operations have experience working with foreign buyers and tend to have a process for verifying credit established in other countries.

3. Work with a REALTOR® who is a Certified International Property Specialist (CIPS) and who has experience, training, and education in helping foreign-born home buyers. An experienced real estate or title attorney can help you protect your interests, too.

Tell your REALTOR® how the home buying process works in your native country and ask her to explain U.S. home-buying customs to identify any differences. Even within the U.S., local differences exist in how people buy and sell homes. Knowing how homes are sold here and what to expect with closing costs, inspections, and the negotiation process (http://www.houselogic.com/articles/negotiate-best-house-buy/) reduces your stress and helps you get a good deal on your first home.

4. Don't be shocked by Americans' casual attitudes toward buying or selling real estate; it's a byproduct of the relaxed U.S. business culture. Although real estate contracts must be in writing, the process leading up to the sales contract signing may be more informal and casual than it would be in your home country.

5. Learn to convert from the U.S. standard measurement into metric, or pick up a metric converter app so you can better estimate room and home sizes while shopping.

6. If you're not fluent in English, or prefer speaking in your native language, choose inspectors, mortgage bankers, and REALTORS® fluent in your own language. Although it's possible to get translated copies of standard real estate documents, you'll likely have to sign the English versions during your home purchase.

7. Consider all the real-estate related expenses you'll have as a home owner, including property taxes, home owners insurance, and maintenance costs. Set up a financial plan for your home (http://www.houselogic.com/home-advice/home-loans-mortgages/home-financial-planning/) so you know how much money to set aside for ongoing expenses.

Seller’s Market Developing in Much of the U.S.

DAILY REAL ESTATE NEWS | FRIDAY, FEBRUARY 22, 2013

Existing-home sales edged up in January, while a seller’s market is developing and home prices continue to rise steadily above year-ago levels, according to the National Association of REALTORS®. Sales rose in every region but the West, which is the region most constrained by limited inventory.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.4 percent to a seasonally adjusted annual rate of 4.92 million in January from a downwardly revised 4.90 million in December, and are 9.1 percent above the 4.51 million-unit pace in January 2012.

Lawrence Yun, NAR chief economist, said tight inventory is a major factor in the market. “Buyer traffic is continuing to pick up, while seller traffic is holding steady,” he said. “In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country.”

Total housing inventory at the end of January fell 4.9 percent to 1.74 million existing homes available for sale, which represents a 4.2-month supply at the current sales pace, down from 4.5 months in December, and is the lowest housing supply since April 2005 when it was also 4.2 months.

Listed inventory is 25.3 percent below a year ago when there was a 6.2-month supply. Raw unsold inventory is at the lowest level since December 1999 when there were 1.71 million homes on the market.

“We expect a seasonal rise of inventory this spring, but it may be insufficient to avoid more frequent incidences of multiple bidding and faster-than-normal price growth,” Yun explained.

The national median existing-home price for all housing types was $173,600 in January, up 12.3 percent from January 2012, which is the 11thconsecutive month of year-over-year price increases; that last occurred from July 2005 to May 2006. The January gain is the strongest since November 2005 when it was 12.9 percent above a year earlier.

Distressed homes — foreclosures and short sales — accounted for 23 percent of January sales, down from 24 percent in December and 35 percent in January 2012. Fourteen percent of January sales were foreclosures and 9 percent were short sales. Foreclosures sold for an average discount of 20 percent below market value in January, while short sales were discounted 12 percent.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 3.41 percent in January from a record low 3.35 percent in December; it was 3.92 percent in January 2012.

See the rest of the article at: Seller’s Market Developing in Much of the U.S.

Short Sale Bargains Are A Thing Of The Past

My short sale negotiator told me the other day that some lenders are approving short sales... but only at 20% ABOVE the BPO (agent appraised) value. I believe they are looking at the recovery of the real estate market and thinking that they don't have to accept the offers that the bottom feeding buyers are giving (not that they ever made it easy for that to be done).

So far, though, we have been very successful with selling short sale properties. If you need to sell you home but owe more than it is currently worth, please contact me to discuss it (confidentially, of course). We are THE short sale experts -http://www.afshortsaleteam.com/

Short Sale Bargains Are A Thing Of The Past

A Heads Up on Down Payment Gifts

Ready to buy your first home? Have a down payment ready to go? Before you apply for that mortgage, here’s something you should know about disclosing the source of your down payment.

Q: Part of my down payment was a gift from my parents. How will this impact my mortgage application?

A: It depends on the type of mortgage you’re applying for.

You should be prepared to explain your gift with documentation. While FHA loans typically will permit a down payment from a family source, your more conventional mortgage will expect at least 5% of the funds to have come from you.

One of the keys to ensuring this process goes smoothly is having documentation to back up your claim. Bank statements showing the source of the money (and when you received it) are a good place to start, along with a letter signed from your generous benefactor declaring the gift.

As a rule, you should be careful of any large deposits to your account (besides your regular pay).

I urge you to talk to a mortgage professional for complete details as they pertain to your specific situation.

Need a referral to a qualified mortgage broker? I’d be glad to share with you the names of people I know and trust. Contact me today for a referral: Jim Armstrong - 978-394-6736

or email me

Why Do People Actually Buy a Home?

It seems that every time we talk about real estate today the conversation immediately goes to the financial aspects of buying a home. Where are prices headed? Where are interest rates headed? Should I wait to try and get a ‘better buy’? Should I wait until I can get a ‘steal’?

The odd thing about all these questions is that survey after survey keeps telling us that price is not the reason families actually buy a home. When money is considered at all, it is in light of not paying rent to a landlord. Let’s look at two recent surveys as examples:

National Housing Survey

The top five reasons given in the survey for buying a home, in order, are:

§                      It means having a good place to raise children and provide them with a good education

§                      You have a physical structure where you and your family feel safe

§                      It allows you to have more space for your family

§                      It gives you control of what you do with your living space (renovations and updates)

§                      Paying rent is not a good investment

The Myers Research and Strategic Services Survey

The top five reasons given in the survey for buying a home, in order, are:

§                      Home ownership provides a stable and safe environment for children and other family members

§                      Home ownership means the money you spend on housing goes towards building equity, rather than to a landlord

§                      Home ownership creates the opportunity to pay off a mortgage and own your home by the time you retire

§                      Home ownership creates the opportunity to live in a neighborhood that you enjoy

§                      Home ownership allows you the right to decorate, modify and renovate your home as you see fit

Bottom Line

Price dominates conversation when we talk about buying a home. However, when it comes down to it, we actually buy for the same reasons our parents and grandparents did – we want a better lifestyle for ourselves and our families.

See the original article here: http://kcmblog.com/2011/07/19/why-do-people-actually-buy-a-home/

For Sale, But Not For Long

Karen Daly headed out Sunday to tour a renovated Natick house, confident she would be one of the few home hunters on a cold afternoon during which people were prepping for Super Bowl parties.

But when Daly arrived at the three-bedroom, $449,000 Cape, she found herself among a half-dozen other disappointed prospective buyers who learned that the seller had already accepted an offer. It wasn’t Daly’s first real estate letdown. Last month, she bid more than $20,000 above the asking price for a house in Framingham -- and lost out.

“If you are a buyer, you have to be very decisive, you can’t hesitate,’’ said Daly, 55, who sold her house in two days last summer and has been renting in Newton. “You are looking at very low inventory and very steep competition.’’

See the entire article at Boston.com: http://www.boston.com/business/articles/2010/02/13/for_sale_but_not_for_long/

Do I need a REALTOR? A Question From a Home Buyer.

Question: I'm paying cash for a home, so I don't need a REALTOR, right?
- Rachel from Texas

Answer: Paying cash would be even more of an incentive to use a REALTOR. You will not have any other professionals, other than the closing attorney, to help protect your interests and investment. Our job isn't just to show a person properties, but to help out in all aspects of a home purchase. The last thing you want to do when buying a home is to deal directly with the listing agent. That agent represent the seller of the home, and is trying to get the best deal for his/her client. That means he/she is going to try to get as much of that cash from you as possible. A REALTOR Buyer Agent, on the other hand is there to protect you and help you pay the least amount for a home. Your REALTOR also provides a host of other services, also. Best of all, there is no cost to you for the service!

For more information on the advantages of using a REALTOR, please go to:
http://armstrongfield.com/buyers_files/whyrealtorbuying.html

Jim Armstrong

First Time Home Buyer Tax Credit a Hit!

$8000 Tax Credit is a Hit With First Time Home Buyers!

Preliminary figures from the Internal Revenue Service suggest that 1.4 million home buyers are taking advantage of the $8000 tax credit that the government is giving to people to purchase their first home, and claiming it on their 2008 tax return. It looks like the program will meet and most likely surpass the goal set by lawmakers of providing 2 million home buyers with the credit. The tax credit expires on November 30, 2009.

A first time buyer buyer is defined by the IRS as someone who has not owned a primary home in the last 3 years. Someone who owns a vacation home or income property may still qualify for the tax credit.

IRS Form 5405 will allow qualifying buyers to claim the credit on either their 2008 (through an amendment) or 2009 tax returns, so many people purchasing homes this year won't be claiming the credit until next year. The credit is equal to 10 percent of the purchase price of the home, and is capped at $8,000 for homes purchased this year.

On the North Shore of Massachusetts we are seeing a incredible increase in activity from home buyers, with properties under agreement up 32% over last month. The driving force is the bottoming of home prices combined with mortgage interest rates in the 4's and the fact that the $8000 tax incentive will be gone before you know it.

Smart home sellers are placing their properties on the market now, knowing that after November 30th most home buyers will have already made their purchase and will be living in their new home with their $8000 tax credit check in hand. If you have a home on the market after November 30, 2009 - Good Luck! It will be a tough sell unless you have a home that is not something that a first time home buyer would purchase. That would mean most properties priced above $400,000. The most active properties are those that are priced below $325,000.

Jim Armstrong

http://www.armstrongfield.com/

http://www.salemmasscondos.com/

http://www.northshorefinerhomes.com/

Still Waiting to Buy a Home?

6 Reasons Why Now is the Ideal Time to Jump!

1. The number of homes available on the market is dropping significantly.


2. Home prices are lower than they have been in the last 3 years, but seem to be bottoming out.


3. Interest Rates are still historically at their lowest.


4. The Home Sellers are very motivated.


5. You can deduct your mortgage interest (plus other costs) on your tax return, something you can't do with rent.


6. There is a limited time $7500 tax credit for first-time homebuyers.

Many potential homebuyers have been sitting on the sidelines waiting for the real estate market to bottom out. It's not a bad plan, as long as you have perfect timing. The experts can't even agree among themselves as to whether prices have reached the floor, so trying to time the market can be tricky. Though there are plenty of people who are buying properties right now, it will be nothing like it the rush there will be once prices start to rise again and everyone decides to jump into the mosh pit of buyers making offers!

OK, so there will be more competition in the next 6 to 12 months, but you want to make sure that you don't overpay for a home that you may be able to get for less in 6 months. So if you wait, you will get a better deal, right?

Not necessarily. First of all the inventory (number of properties on the market) has gone down considerably in the last few months, giving you less choices. When supply goes down, demand goes up. When demand goes up, prices tend to rise. It's a basic law of economics. Compared to last year, there are 23% fewer property on the market today, and the number of sold listings are up. The good news for you is that the median on-market home price is down 5.8% compared to October 2007 (for Essex County). But with selection dropping, can it be long before the market turns around?
Mortgage rates are still historically low (take it from someone who paid 14% in the early 90's), with rates hovering around the 6% mark. But rates are extremely volatile, especially with the shape of the financial market and everything that is happening with Wall Street lately. A couple of weeks ago the rates dipped into the 5%'s, but that only lasted a week before jumping up to 6.5% (they have settled a little since). It is likely that rates will trend up, according to most experts. With each jump in interest, you will be paying more in your monthly payment, which would negate any (potential) savings you would make by waiting to buy.

Another reason to buy now is that you are losing all your potential tax benefit of home ownership. You are able to deduct all of your mortgage interest, PMI & closing costs when you buy a home. This would result in a significant tax savings for you. On a $250,000 mortgage that could mean $4600 in tax savings, or about $380 per month over renting. Try out the Rent vs. Buy and Tax Savings calculators here.

One of the recent incentives initiated by the Feds is the First-Time Homebuyer Tax Credit. It gives a 1st time buyer up to a $7,500 credit on your taxes when you buy any home purchased between April 9, 2008 and July 1, 2009. This is not a deduction, this is an actual credit. So if you owed $6,000 in taxes next year, not only would you not have to pay them, the IRS would give you an additional $1,500 refund. If you don't owe any taxes and you are expecting a refund, then the $7,500 would be added to your refund. How cool is that? The caveat is that this is really a refundable credit, so it would be repaid, but only at the rate of around $500 per year starting in 2011. It is basically a no interest loan payable over 15 years. Everyone should take advantage of this credit! Go here for some FAQ on this credit.
One thing I want to point out about what you hear in the media. All real estate conditions are local. What is happening in another part of the country has no bearing on what's the market is like here in Massachusetts, and especially the North Shore.

*All mortgage calculations and tax savings are estimates and are examples for informational purposes only. Please contact your financial, tax or mortgage advisor for more information.