How Does The Closing Process Work?

closing_processReal estate transactions are complex and involve as many as twenty different players including real estate brokers, buyers, sellers, attorneys, inspectors, appraisers, lenders, and often contractors. Because of this, even the simplest transaction today typically takes between 30 and 45 days to close.

The closing process begins with the acceptance of an offer which is prepared by the parties themselves, a real estate broker, or often an attorney. This process often involves an initial offer or letter of intent from the buyer followed by a series of discussions and or negotiations with the seller. Once an agreement is hammered out the details are typically memorialized in a written form that all parties sign.

Once accepted the offer is typically placed with an escrow company. An escrow company is a depository for legal documents and often acts as a notary and closing agent to process signatures and monies for the parties involved in a transaction. It’s important to note that they do not represent either party in the sale, and because of this they are often referred to as a neutral third party in the transaction. In some states an attorney may act as the closing agent and prepare the closing documents.

Prior to closing, all of the conditions of sale must be met. These conditions are often referred to as contingencies. The most common contingency is the buyer’s ability to secure a new mortgage. Often this is the most time consuming aspect of closing a real estate transaction as the lender must conduct employment verifications, credit report reviews, financial statement reviews, and order an appraisal for the home itself. In addition many buyers and their lenders require an inspection of the home. These inspections can vary by state and local custom but often include pest and dry rot inspections, whole home inspections, or specialized inspections that are area specific like a radon gas inspection.  We can help you define exactly what is included in the state of New Jersey.

While the escrow is opened, a title company may be hired to conduct a preliminary title report. This report will provide a comprehensive review of all of the recorded documents which affect the deed to the property. Examples include easements, liens, tax assessments, covenants, conditions and restrictions, and homeowner association bylaws. The buyer and lender must approve of the preliminary title report prior to closing.

Once the conditions of sale have been met and the preliminary title report has been approved, all parties will agree to sign closing documents. In some states this will mean that all parties will meet together and sign documents at the same time, while in other areas it is customary to sign independently; again, we walk you through the process in the state of New Jersey. Once the documents have been signed, notarized copies will be forwarded to the lender, funds will be released, and the sale will be recorded at the local recorder’s office.

Lost? Not to worry, Patrick Parker Realty experts are happy talk to you about what to expect when closing. We are there, by your side, through closing. We leave no stone unturned throughout the entire buying and selling process. Contact us today for more information.

 

How to Buy a New House When You Already Own One

new-jersey-real-estateShould I sell my house before buying a new one? It’s a question many homeowners ask. In a seller’s market new homes can be hard to come by; therefore, a lot of homeowners decide to buy a new home before selling their old home.

Buying first presents another problem – what if you can’t sell your existing home for as much as you had hoped, or worse, what if you can’t sell your home at all?

Let’s take a look at your options when buying a new house when you already own one…

Extending Your Closing Date
The typical closing date on a home is between 30 days and 90 days. Some sellers prefer a quick close if they’re in the same boat as you (they’ve bought a new house when they already own one). If you’re lucky you’ll find a seller who is willing to extend the closing day to 90 days. If you ask for anything more, you’re probably pushing your luck in competitive housing markets.

By pushing your closing date out, you’ll increase your chances of selling before your new home closes. In a perfect world your closing dates would coincide for both properties, but that isn’t always how it works. It’s important to have a backup plan in place if you’re not able to sell before your new home closes. For example, you may be able to stay at a relative’s house for the time being and put your belongings in storage (although you don’t know how long you’ll be looking, so you don’t want to overstay your welcome). Another option is rent until you find your dream home, but it’s important to ask your real estate professional about the rental market before making this decision.

RELATED: 5 Mistakes Landlords Make

Bridge Financing
If the closing date on your new home is sooner than the closing date on your existing home, you may be able to obtain bridge financing. As long as you have sufficient funds to cover the down payment and closing costs of your new home, your mortgage lender should be willing to provide a bridge loan for up to 90 days. In order to qualify for bridge financing, your existing home must be sold firm and you have to provide a copy of the Agreement of Purchase and Sale to your mortgage lender.

The amount of bridge financing you qualify for is based on the selling price of your existing home, less your closing costs (prepayment penalties, real estate commission, real estate lawyer fees, etc.). If you’re not able to secure a bridge loan for whatever reason, going to a private lender or using your line of credit are options you should consider.

Conditional Offer
If you’re buying a new home, you can make it a conditional on your existing home selling. Although this seems like a good strategy in principle, a lot of sellers will balk at your offer. In fact, you’ll probably have to end up upping your offer price significantly for a seller to even consider your offer.  In a seller’s market, this condition probably won’t fly.

The clock is still ticking with a conditional offer – you’ll usually have up to 90 days to sell your existing home. If you’re unable to sell, you can choose to walk away from your new home (not a situation buyers want to find themselves in).

Contact a Patrick Parker Real Estate professional for more tips and tricks on how to balance selling and buying simultaneously.

mortgage-broker-or-bank-patrick-parkerChoosing Between Mortgage Broker and Bank

Disparaged by some as the bogeymen of the housing crash, mortgage brokers have taken a beating over the last few years.

With many having been dropped by the big banks in favor of in-house sales channels, and with their industry much more tightly regulated, brokers have seen their ranks so drastically thinned that, instead of controlling the origination market as they did a decade ago, they account for a slim 9.7 percent, according to Inside Mortgage Finance, an industry publication.

Yet mortgage brokers are still a worthwhile option for borrowers, who now have some protection from the shady practices of the past. New federal regulations forbid brokers to pocket premiums from lenders in return for steering customers into higher-priced, high-risk loans. And under the SAFE Mortgage Licensing Act of 2008, brokers have to pass state licensing exams in order to prove they know the rules of the financing game.

“The nice thing that the SAFE act has done is we’ve weeded out a lot of those bad people that everyone likes to talk about,” said Donald Frommeyer, the senior vice president of Amtrust Mortgage Funding in Carmel, Ind., and the president of the National Association of Mortgage Brokers.

Why a Broker?

A mortgage broker is basically a middleman. Brokers work with a variety of lenders to find loans for clients, but do not lend out money directly. That’s the role of a mortgage lender, the entity that supplies the funds going to the closing table. The lender could be a mortgage bank, which specializes in mortgages; it could be a large commercial bank, a community bank or a credit union. The largest mortgage lenders, by share of originations, according to the publication Mortgage Daily, are Wells Fargo, JPMorgan Chase and Bank of America. Ask a broker what he or she can offer that a bank can’t and the response will almost certainly be variety. Because brokers are not tied to any one lender, they have the ability to shop around on behalf of their clients. As Mr. Frommeyer explained, “I have 20 companies I can go to — everybody has a different program.”

In reality, these days, the variation in lenders’ products and rates is much more limited than in the era of easy credit. “When it comes to a 30-year fixed, the rate of pricing is pretty darn tight,” said Bob Walters, the chief economist for Quicken Loans, a major online mortgage lender. “We’re not talking about huge differences.”

But a borrower might still save time and irritation by having an experienced broker shop around for the best mortgage deal. Borrowers who might not be shoo-ins for a loan, perhaps because of lagging credit or other circumstances, might find that a broker with lots of lending contacts will have a good sense of what the financing possibilities are, if any.

Another plus for busy borrowers: Brokers handle the paperwork and interactions with lenders. And they may be able to head off problems. “The broker understands the guidelines of the lender, and has the chance to look at your information before it is sent to the lender,” said Tim Malburg, the president of the Capstone Mortgage Company, a brokerage in Wilton, Conn. “Anything that raises a red flag, I’m going to ask you about.”

None of this is to suggest that borrowers should blindly trust a single broker to work on their behalf. After all, brokers get paid by closing loans. The borrower might check with two or three.

Why a Bank?

If brokers offer clients variety, mortgage lenders have the advantage of control. Because the bank is the one lending the money, the bank makes the decisions. That can make a big difference in situations “when you need a small exception, or a subjective decision is needed,” said Mr. Walters of Quicken Loans. “A banker can say, ‘I’m going to fund this loan,’ while a broker might get jammed up.” Mistakes might also be resolved more quickly.

Borrowers who have a long-term relationship with a bank for other services might be offered favorable terms on a home loan. And they might find that some mortgage products, like “jumbo loans,” are available only through a bank. (A jumbo loan exceeds the conforming-loan limits set by Fannie Mae and Freddie Mac, which in New York City and other high-cost areas is $625,500.)

Because the secondary market for mortgages has shrunk so markedly, “what’s happened is more of the mortgage products available are available only through banks that have the capacity to hold those loans on their balance sheet,” said Malcolm Hollensteiner, the director of retail lending sales at TD Bank.

For example, he said, although TD Bank can offer borrowers jumbo loans, brokers have far less access to jumbo products than they did before the housing crash.

Better to Compare

The bottom line is that borrowers should compare offerings from both brokers and banks (whether online or at a bricks-and-mortar location). Mr. Malburg of Capstone recommends contacting three or four mortgage sources, and keeping track of their interest rates, lock-in fees and points on a spreadsheet. (Try to stick with a specific kind of loan, like a 30-year fixed, to simplify your comparison.) Then, he said, narrow it down, and call back to get details about closing costs, including lender origination fees, and whether there is a prepayment penalty.

Keep in mind that interest rates change constantly, so you may find that rates are different when you call back. “You’re chasing a moving target,” Mr. Walters said.

When comparing loan costs, be sure to ask how the broker is being compensated. The broker fee is set as a percentage of the loan amount (1 to 2.5 percent is customary), and is paid either by the borrower or the lender. Brokers are required to disclose their fees upfront, and they are not permitted to earn any more than the disclosed amount. On a $500,000 loan, a 1.5 percent broker fee would total $7,500. If due from the borrower, it could either be rolled into the loan amount or paid upfront by check.

Mr. Walters urges borrowers to look beyond cost considerations and also pay attention to how the broker or loan officer responds to their request for information. “People say, ‘How do I know if I’m talking to a good mortgage banker?’ and I tell them, ‘It’s the person who asks you the most questions,’ ” he said. “Someone who is just quoting you rates, well, you might as well be buying gasoline.”

Source: The New York Times

 

Higher mortgage rates won’t hurt recovery, Fannie Mae finds

By Les Christie, CNNMoney July 18, 2013

If history is any indication, the recent spike in mortgage rates is going to have little to no impact on home prices, according to a new report from Fannie Mae.

mortgage-rates

After looking at mortgage rates going back to 1990, Fannie Mae’s researchers came to the surprising conclusion that while rising rates were likely to hurt the number of home sales, they had virtually no impact on home prices.

“History suggests that interest rate increases at the level recently witnessed will not stop the current housing recovery,” the report said.

The study, which compared historic mortgage rates with home price and sales data, focused on two time periods when rates soared. The first, from October 1993 through December 1994, when rates rose to 9.2% from 6.8% and the second from October 1998 to May 2000 when they climbed to 8.5% from 6.7%.

During the rate spike in the early 1990s, home prices leveled off, then fell only slightly. During the second rate climb, there was no impact on homes prices at all.

“What we see through the ups and downs of rate changes is that sellers are reluctant to lower prices,” said Mark Palim, who led the Fannie Mae study. Homebuyers were also willing to find ways to stretch their resources, often by switching to adjustable rate loans, which kept payments affordable for the first few years then were adjusted higher.

In addition, rates and home prices both track economic trends, said Palim. So when the economy is hot, rates rise and so do hiring and income, which means more people are able to buy homes and pay higher prices for them.

Fannie’s research may shine some light on what will happen to the housing market in the months ahead, but some housing experts are skeptical.

How to Prepare for Higher Interest Rates

With rates for 30-year mortgages spiking by more than a percentage point to 4.51% since early May, some economists say rates will most definitely have an impact on home prices and, ultimately, the housing market’s recovery.

Mark Zandi, chief economist for Moody’s Analytics, examined more than 20 years of mortgage rate and home price data and found that, on average, for every percentage point increase in mortgage rates, the pace at which home prices grew was lowered by half a percentage point.

“If sustained, the current rate rise will take some of the steam out of the market,” he said.

However, he noted that current rates are still quite low and mortgages still very affordable compared with the historical average of more than 6%. “Buyers can live with 4.5% rates,” he said.

Jay Brinkmann, chief economist for the Mortgage Bankers Association, said the recent rate increases will have a bigger impact on how much buyers will be willing to spend on a home.

People buy homes for personal reasons, he said: They need more room, they relocate for work, they fall in love with a house. Rate hikes usually don’t stop them from buying.

“It impacts which house they buy, not whether they buy a house or not,” he said.

Instead of a five bedroom, they’ll choose a four-bedroom house. Or they’ll purchase in a less expensive neighborhood. Either way, it should result in lowering median price — not sales volume.

Lawrence Yun, the chief economist for the National Association of Realtors, disagrees: He believes mortgage rates will indeed impact sales volume and that home prices will ultimately follow.

“The dynamics of the housing market is that it affects home sales first and [then] inventory increases,” he said. And when supplies go up, he said, prices must go down.

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home-buying-tips7 Things Every New Jersey Buyer Must Know

1. Attorney Review Period
This is a three day period in which buyers and sellers can have their contracts reviewed by a local real estate attorney. It is important to remember this review period is three business days from the date the last buyer or seller signs, not when the real estate attorney receives the contract.

2. Contingencies
This means the contract is contingent or dependent upon something happening first. In New Jersey, it’s customary that all real estate contracts are contingent on the buyers getting their mortgage, home inspections and a clear title.

3. Mortgages
A mortgage is a lien put on the property by a lender. There is a great difference between a buyer getting a 90% mortgage from a lender and 80% mortgage from a bank.

Learn more about the important difference between a Mortgage Broker and a Bank Loan Officer.

4. Home Inspection
When you buy a house, there are hundreds of items (often hidden) that can be wrong. Did you know that New Jersey has the oldest housing stock in America? If you buy or sell a house in the area, it might be over 50 to 100 years old! Problems with the major systems are often very expensive to fix, particularly with older frame houses.

5. “As Is”
This means you only get what’s there, nothing less and nothing more. It produces more real estate litigation than any other clause in a contract, which is why we recommend to get the help of a local real estate lawyer if you want to buy a home. A seller has to ensure that the house, the structure, and its operating systems (heat, electrical, plumbing, etc.) are in good operating condition at closing. This has now become more important than ever given the large amount of “As Is” properties available listed at rock bottom prices after damage caused by Hurricane Sandy.

This can be a problematic area if not handled properly.  Buyers don’t want to put thousands of dollars into a new plumbing or heating systems, and seller’s don’t want to pay for improvements they didn’t have at contract time. New Jersey law doesn’t interpret “As Is” to mean buyers get stuck if major systems don’t work. The sellers have an obligation to disclose any hidden defect they know about.

6. Closing Date
This is put on at the beginning of a contract and is only a guess at when the closing will take place. The closing date is set by the borrower’s lender and not by the seller or buyer.

7. Escrow
Escrow assures that the lender releases the home purchase funds at or about the same time that the deed is recorded to reflect new ownership. Escrow includes depositing, with a neutral third party, funds, documents and instructions necessary to complete the transfer.

Patrick Parker Realty Agents and Brokers are here to walk you through every stage of the buying process.  We will help you obtain title insurance, set closings, guide you through inspection, supervise, work closely with attorneys and coordinate with the seller’s agents.

You can continue to familiarize yourself with commonly used terms you’ll come across during your real estate transaction in our Mortgage Glossary.

home-selling-tips7 Things Every New Jersey Seller Must Know

1. How much is the buyer borrowing?
If the buyer is buying cash, it is a great situation for any seller. However, the chance of this happening is very slim. If the buyer is borrowing 90%, sellers will have problems they wouldn’t have if the borrowers were borrowing 80% and using a bank.

If someone is borrowing more than 80% it becomes a problem for sellers because credit is at risk.  When credit is at risk, lenders are more stringent and will look at the property value critically as far as condition. This means you will hear about sellers paying for closings costs or buyers credit for $5,000.00 or $10,000.00 to help the buyer get the loan. While this is legitimate, any buyer without the standard 20% down takes longer to close, has mortgage rejections more frequently, and experiences many problems with home inspections and appraisals. These all become seller’s problem, especially when you’re stuck making definite plans to move.

2. Sellers and Home Inspections
Most sellers want to shy away from making significant improvements into a house that can sell “As Is,” which means buyers are only getting what the sellers have. In other words, if the buyers want a new roof, they can feel free to put a new one on, but at their own expense. Home inspectors will often say the roof is at the end of its useful life or that the hot water heater, air conditioning, etc. is at the end of term. However, all sellers are responsible for at the closing is that these appliances work. For example, they must ensure the roof doesn’t leak or that the hot water heater works, but not that it will last another ten years. Therefore, sellers shouldn’t be intimidated by home inspections or pressured into thousands of dollars of buyers’ credits for repairs.

3. Advance Home Inspections
Ordering your own advance inspection, like the proverbial ‘stitch in time,’ can alert you to deferred maintenance items that might conk out just as you’re preparing a big showing. Think Murphy’s Law; the remarkable tendency for things to go wrong at the most inconvenient times. Even more likely, maintenance items that you have long accepted but which might sour a buyer will be spotlighted early. Curing them before your buyer insists upon it prevents receiving demands for overly extensive cures for simple problems.

In addition, Advance Home Inspections can make your listing more marketable.  Learn more about the benefits of Advance Home Inspections.

4. “As Is” Cautions
“As Is” can produce more real estate litigation than any other clause in a contract, which is why we recommend to get the help of a local real estate lawyer if you want to sell a home in less than ideal condition.  This is particularly relevant now as many sellers wish to sell homes at a reduced price after damage left by Hurricane Sandy.

You must keep in mind you are still responsible for ensuring that the house, the structure, and its operating systems (heat, electrical, plumbing, etc.) are in good operating condition at closing.  New Jersey law doesn’t interpret “As Is” to mean buyers get stuck if major systems don’t work. Sellers have an obligation to disclose any hidden defect you know about.

5. Closing Date
This is put on at the beginning of a contract and is only a guess at when the closing will take place. The closing date is set by the borrower’s lender and not by the seller or buyer.

6. Escrow
Escrow assures that the lender releases the home purchase funds at or about the same time that the deed is recorded to reflect new ownership. Escrow includes depositing, with a neutral third party, funds, documents and instructions necessary to complete the transfer.

7. Protecting Deals from Falling Through
Patrick Parker Realty agents are working with only your best interests in mind.  We do not want your deal to fall through.  Our commitment to you is to bring you through closing, make it happen and handle unforeseen problems. We protect sellers with time limits for getting the financing and to ensure sellers aren’t taken advantage of with home inspections. We are skilled at matching buyers to your listing, with this strong foundation we’ll get your deal closed, and get you your money as soon as possible.

You can continue to familiarize yourself with commonly used terms you’ll come across during your real estate transaction in our Mortgage Glossary.

 


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