Top 10 Questions Buyers Ask: #5

30 05 2011

5. How do we approach a Multiple offer situation?

With the market still very good (as opposed to HOT), many of my buyer clients have encountered multiple offer situations. There are 3 options that the seller has with handling multiple offers. For example, if there are 4 offers on the table, they can either accept ONE offer, counter offer ONE offer, or reject ALL offers. For the buyer to handle this situation, there isn’t much you can do in terms of negotiations as the ball is entirely in the sellers court. Buyers can try and reduce the number of conditions they have in their offer by getting a home inspection done prior to the offer presentation (if time permits), so that you can know before hand and make a better decision based on that. If the house/condo is definitely the property of your dreams, you need to determine how badly you want it. In terms of the pricing, there much isn’t you can do but give them your best shot (top dollar you’re willing to go). You want to see how much you’re willing to go up without feeling like you lost out because if you find out someone else bought it at a price that you’re willing to pay, that’s the top dollar you should put in for your offer.

Other conditions that you might normally put into the offer would be conditional on Financing and perhaps status certificate or survey. You can try and get a copy of the status certificate/survey before hand if you have enough time. Talking to your mortgage broker/agent to get a confirmation that you would be qualified for that particular unit. This would be a little more different than a mortgage preapproval because certain properties/buildings/condos require different qualifications from the mortgage lenders. For example, a hotel residence might require a bigger down payment or some lenders don’t even approve a mortgage for that type of unit (Which is also why you would want to put in a financing condition in the first place). So by you getting it confirmed that you can get the financing, you are able to take that condition out of the offer.

In a multiple offer situation, which a lot of the sellers want to get, you might feel like you’re paying “too much” for a particular property (if you consider comparables that sold recently).  If you get to that situation, you need to reassess if that place is what you really want. If the answer to that is Yes, then you definitely need to consider if paying a few thousand dollars more is worth the location, convenience, space, etc for the next 3-5 years or however long you plan on staying there for.

Considering that there is a low supply of real estate, the demand from the number of buyers make the situation hard for some to compete in this type of market with the number of multiple offers that happen daily. Make sure you have an agent who is still looking after your best interests in mind and not go ahead with removing the conditions before you understand what you’re taking out.

For further assistance or questions, feel free to contact me!

 





Buyer’s Closing Costs

28 05 2010

Can Buyers Get Sellers to Cover Upfront Closing Costs?

Buying a home can involve much more money than just the down payment. There are costs that are incurred in the process and transaction of real property. Insurance, title policies, inspections, and lawyer fees, just to name a few.

These “closing costs” are additional to the purchase price of the property. For sellers, its generally deducted from the funds received from the transaction.

These fees can add up fairly quick with taxes and transfer fees, credit reports, appraisals, agent commissions, loans, prepaid interest, etc.

Recurring costs are those that are paid periodically at set intervals such as property taxes or insurance. Hence, non-recurring fees are those that are paid once.

How Much Are Closing Costs?

Generally, closing costs when buying a home can be anywhere between 2-4% of the purchase price. It depends on the loan and stipulations of the loan agreement and what kind of a mortgage loan you got approved for.

The closing costs for a $300,000 home, depending on the type of home, can be anywhere from $3,000 to $12,000 +.

Upfront non-recurring closing costs

One-time charged fees in the closing process can be:

  • Mortgage Loan Insurance Premiums (Depending on how much down payment you put down)
  • Appraisal Fees ($250-$350)
  • Deposit (Part of your Down Payment) (up to 5% of purchase price)
  • Down Payment (Minimum 5% of purchase price, and 20% for investment properties)
  • Estoppel Certificate fee (Status Certificates for Condominiums – $100)
  • Home Inspection Fee (Approx $500)
  • Land Registration Fees (Land transfer tax, deed registration, tariff or property purchase tax – check with lawyer)
  • Property tax/utility bills
  • Surveys ($1,000 – $2,000)
  • Property Insurance (Ask mortgage lender)
  • Water test/septic tank (Can be negotiated with seller)
  • Legal fees (minimum $500+ GST/HST)
  • Title Insurance

Recurring Closing Costs

  • Fire Insurance
  • Flood Insurance (if required)
  • Property Taxes
  • Mortgage Insurance Premiums
  • Prepaid Interest

Can the Seller Credit the Buyer for Closing Costs?

Check with your mortgage lender before you negotiate what would involve the seller’s credit because the lender might not allow it. Depending on your credit score it can be from 3%-6% of the purchase price that the lender might allow a borrower to receive cash from a seller at closing.





Rent vs. Buy

21 05 2010

How do you know if you should rent or if you should buy? Depending on your situation, some people aren’t best suited for home ownership just yet. The following are some why some should just rent and not buy.

Bad Credit?

Do you know if you have good credit or bad credit? Have you done a credit check recently?

If you have a low credit score (FICO score under 620), if you get approved for a loan, you won’t get a good interest rate. You might get a loan from a secondary source with higher interest rate. Not the best situation to get yourself into.

If you have a low/bad credit score and still want to buy, you should try and fix your credit before applying for a loan. If you have 4 late payments it can mean that you won’t be approved for a loan. Not sure what your credit is? You can order your credit report online for free.

High Debt Ratios

When applying for a loan, creditors consider 2 ratios to determine your risk rating (how likely you are to default on a loan payment): Gross Debt and Total Debt. Your mortgage (Principal) payment, Insurance, Taxes, Interest payments divided by your monthly salary to obtain your Gross Debt Ratio. The total debt ratio adds your monthly debt payments to your PITI payment before dividing the total by your salary. A high debt ratio is 50%, which mean that you may not qualify for the loan, depending on the lender’s requirements. If you find a lender who is willing to give you a loan whilst having such a high debt ratio, you may not be able to afford anything (ie. food).

Job Security?

Is your job secure? If you lost your job, would you be able to make your loan payments? If you go into default, you risk losing your home. Would your job require you to move within the next 2 to 3 years? If you had to sell because you were relocating, your property would need to appreciate at least 10% for you to not lose money from the closing costs of selling. When you buy a home, you should plan to stay put for a while.

Maintenance Issues

When you buy a property, it will require maintenance and repairs. Not everyone is a handyman to handle renovations or repairs for their house. Many first-time buyers can’t afford to hire a professional to fix or repair things around the house. A generous rule of thumb is to set aside 5% of your property value to cover maintenance and repairs.

Is Renting Cheaper?

How much are your mortgage payments? If they are triple the amount or more of the amount you would pay for rent, it might not be the best idea for you to buy. This would depend on the house you want to own and the loan you are approved for. If it costs you $1,500/month to rent a house that would cost you $5,000/month to own, does it make sense for you to pay that much to own? Please consult an expert (Accountant, Financial Advisor) to determine what’s the best economical sense for you and your family.





How is Your Credit Score Calculated?

13 05 2010

Understanding Your Credit Score and How it Affects Buying Real Estate

Credit score plays an important part in the home buying process because it determines the interest rate and mortgage terms that a lender is willing to offer you.

What is a credit score?

Everyone has a credit score which is a number that lenders use to estimate perceived risk. Credit score is the rating that determines how “well” you pay your loans. Borrowers with higher credit scores are less likely to default (miss a payment) on a loan (credit card, mortgage, car loan, etc).

How are credit scores calculated?

Credit scores are generated by looking at your credit history and other data from your credit report, analyze it and then generating a number. Credit reporting agencies have been keeping track of how well you pay your bills (credit cards, phone bills, car payments, etc.).

Which parts of my credit history are most important?

A general breakdown of what your credit score is composed of. The value of each aspect in your credit report determines your credit score as a whole.

    • 35% – Your Payment History (How well you have been paying your bills, any missed payments?)
    • 30% – Amounts You Owe (How much credit you have available, how much do you owe?)
    • 15% – Length of Your Credit History (Did you just move into the country? Do you have bills under your name?)
    • 10% – Types of Credit Used (Credit card, mortgage, car loans)
    • 10% – New Credit (When was the last time you applied for credit?)

Payment History

Includes:

  • The number of accounts paid accordingly and on time
  • Any negative public records? Has your account gone to collections?
  • Delinquent accounts:
    1. the total number of items you have past due
    2. how long you’ve been past the due date
    3. how long it’s been since your last payment past due

Amount You Owe:

  • How much you owe on accounts and the types of accounts with balances past due
  • How many revolving credit lines you’ve used, how big of a balance are you carrying? (Any indications you are over extending your credit)
  • Amounts you owe on outstanding loans compared to their original balances. Are you paying the loans down consistently?
  • Number of active accounts with no balance

Length of Credit History:

  • How long is your credit history? Total length of time tracked by your credit report
  • Length of time since your last accounts were opened
  • Amount of time that’s passed since the last activity
  • The longer your accounts are in good standing (credit history), the better your credit score

Types of Credit:

  • Total number of accounts and types of accounts (installment, revolving, mortgage, etc.)
  • A combination of different account types usually generates better credit scores than reports with only numerous revolving accounts (ie. credit cards)

New Credit:

  • Number of accounts you’ve recently applied for and the proportion of new accounts to total accounts
  • Number of recent credit inquiries (applications for credit, loan, etc)
  • The amount of time since recent inquiries or newly-opened accounts
  • If you’ve re-established a positive credit history after encountering payment problems (Bankruptcy)
  • Checking to make sure you aren’t credit seeking by trying to open numerous new accounts

Credit scoring only considers items on your credit report. Lenders generally look at all factors including those not in the report, such as income, employment history and the type of credit you are seeking.

What’s a Good Credit Score?

Credit scores usually range from 340 to 850. The higher your score, the better you are at paying your bills, the less risk a lender believes you will be, the better the interest rate you will be offered.

Don’t be discouraged if your scores are lower, because there’s a mortgage product for almost anyone.

Multiple Credit Scores

Your bank will pull credit reports and scores from the major credit reporting agencies. They’ll probably use your average credit score to work your loan application. Ask your lender to explain which credit scores will be used and how they affect your loan application.