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Prorations When Buying Or Selling A Home

by Jon Smith, CRB, CRS, GRI

The proration will credit the seller higher and higher depending on the rate of the proration and they will get reimbursed for what they have prepaid for the specific time period. However, the seller will not "own" the property. Every state will base its property tax differently. For example, in California, the calendar year is from July to June whereas it might be different elsewhere. Also, some states collect taxes ahead of time whereas others will make collections after the unpaid balance is expired. There are various kinds of pro-rations each one with its own definition.

Three of the most widely used are Insurance, Rent, and Utility. The Insurance proration has to do with the insurance premiums which will most likely be paid ahead of time buy a buyer. This will insure things like fire insurance. The rent proration is also paid in advance and is typically used as a buyer that is investing in a property that he or she plans to either sell or use for rent purposes. The last one, utility, is not used very often. The reason behind that is because utilities are not usually used as a proration at the end of a closing. For example, in a state such as Pennsylvania, if the seller doesn't pay the county or city utilities such as trash or water, then a roll-over happens and is added to the tax assessments.

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Final Home Inspection Walk-Through

by Jon Smith, CRB, CRS, GRI

Before the purchase of your new home is final, a final inspection of the home will need to be completed, A final walk-through is an inspection performed anywhere from a few hours to five days before closing, and its primary purpose is to make certain that the property is in the condition you agreed to buy. Even if you are pressed for time, it is vital that you inspect the property to  ensure that all agreed-upon repairs have been made and nothing has changed with the property since you last looked at it.

Before you begin your inspection, it is a good idea to make a list of things to look for so you can be prepared.  It is also recommended that you have your Sales Contract with you so that you can review any items that should be included with the house.

Here is a list of items to check on a final walk-through:

  • Did the movers bang up the walls, rip the rugs or scratch the wooden floors?
  • Did the moldings around the doors get damaged when they moved an appliance from a room?
  • Does the heating and air conditioning system still work?
  • Are all of the appliances still working?
  • Have all the items that the seller agreed to remove from the home out of the home?
  • Turn on and off every light fixture
  • Run water & look under sinks for leaks
  • Open and close all doors and doors
  • Flush toilets
  • Inspect ceilings, wall and floors
  • Make sure any repairs that were agreed upon have been made

Unfortunately, things don't always go as planned and you may find that there are some issues that have not been taken care of as agreed. You do have options in case this happens. It is a good idea to work with an attorney to come to a satisfactory arrangement.

 

 

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Pros And Cons Of Fixed Rate Mortgages

by Jon Smith, CRB, CRS, GRI

If you are in the market for a new home, chances are you have researched the different types of financing. There are many types of mortgage products on the market today.  But the vast majority of them are fixed rate mortgages with a 15 year or 30 year term.  These traditional mortgages are amortizing, which means that you pay off the entire loan amount by the end of the term of the loan. While these are still the most common type of loan, there are advantages and drawbacks to these mortgages.  Depending on your financial situation, and the prospects of changes in your financial future, a fixed rate mortgage may or may not be the best product for you.

     Let's look at the pros and cons of fixed rate mortgages:

PROS

  • Interest rate on your mortgage cannot be increased for the life of your loan
  • Monthly payment will remain the same for the life of the loan
  • Loan will be completely paid off by the end of the term

CONS

  • Fixed monthly payment amount may be difficult to make at the start of the loan
  • Large percentage of payment goes to interest payment in first years of the loan
  • Usually has a higher interest rate than a variable rate loan initiated at the same time
  • Interest rate cannot be reduced as in some variable rate programs
  • Maybe harder to qualify for, as higher income may be required

Depending on your financial situation, a fixed rate mortgage may be the best solution for you.  If you can afford the monthly payment required to obtain the loan, then the fact that your interest rate and monthly payments will stay the same for the life of the loan while give you peace of mind and make monthly budgeting easier.

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Common Problems With FHA Loans

by Jon Smith, CRB, CRS, GRI

If you're planning to buy a home and are researching the different types of financing, you might apply for an FHA mortgage.

This type of mortgages are great for first-time homebuyers, buyers, buyers with bad credit as well as those homebuyers who do not have the funds for 20% downpayment.

With an FHA loan, it helps banks mitigate this risk by insuring otherwise risky borrowers' mortgages. The FHA agrees to pay the difference between what a home gets at a post-foreclosure auction and what's still owed on the home when a borrower defaults.

With the sluggish economy and problems with the real estate market, the FHA may soon begin tightening its loan standards, leaving some borrowers without the financing they need.

Below are a few of some potential roadblocks you might encounter if you are applying for an FHA loan, and how to get through them.

  • The FHA requires a new property to be livable from day one. As a result, the agency has a strict inspection requirement intended to catch any potential health or safety hazards. You should make sure everything is in working order and address things like a broken window, or a broken fire alarm, as these can create significant delays in the buying process. It is of course difficult to repair these issues if you are not yet the property owner but you will need to communicate with the seller and negotiate the necessary repairs.
  • The FHA also has limits for how high a borrower's debt-to-income ratio can be. It will be more difficult for homebuyers who have more than 30 percent of their monthly income on a mortgage payment or 43 percent on all debts combined. Below are also some additional requirements borrows will need to face:  Show consistent or increasing income, have a steady employment record (at least 2 or more years with the same employer) as well as have no bankruptcies in the last two years.
  • Another issue is that if the property appraisal comes in below the price you've negotiated, the deal is off. A possible solution is that the buyer could try to come up with a larger down payment to help to make up the difference between the appraisal and the negotiated price or possibly negotiate a new price based on the appraisal. Buyers have the advantage in today's real estate market, so the chances of a motivated seller accepting a lower price is good.            

 

First Time Homebuyer Tips

by Jon Smith, CRB, CRS, GRI

Every new homeowner will feel the sense of excitement and pride once they turn the key in their lock in their new home for the very first time. There are some thing that first time homeowners should try to follow to help make the transition into homeownership successful.

1. Don't Overspend on New Furniture and Remodeling 
Buying a home and moving is expensive, there is no argument on that. First time homebuyers can typically have an eye opener when it comes to all the costs involved as well as the increase in monthly utility expenses that may be substanically more than when they rented.  It can be very tempting to spend more money on new furniture, furnishsing for the home and remodeling projects. However, give yourself time to adjust to the expenses of home ownership and rebuild your savings - the projects and that new sofa will still be waiting for you when you can more comfortably afford them.

2. Address Important Maintenance Items 
New homeowners will need to budget for the new expenses that accompanies home ownership-  making repairs. It can be a shock to realize that you will need to address all maintenance issues that come up like plumbing problems, a leaky roof as there is no landlord to call!  It is important to not neglect any problem that could get worse over time, turning a relatively small problem into a much larger and costlier one.

3. Seek Professional Tax Advice When Filing Your Tax Return 
Even if you hate the thought of spending money on an accountant when you normally do your returns yourself, and even if you're already feeling broke from buying that house, hiring an accountant to make sure you complete your return correctly and maximize your refund is a good idea. Home ownership significantly changes most people's tax situations and the deductions they are eligible to claim. Just getting your
taxes professionally done for one year can give you a template to use in future years if you want to continue doing your taxes yourself. And remember, tax preparation expenses are tax deductible, so whatever your marginal tax rate is, think of that as a discount on the cost of the service.

4. Get Properly Insured 
Your mortgage lender will require you to purchase
homeowners insurance, enough to fully replace the property in the event of a total loss. However, you will also need to consider obtaining insurance coverage to help pay your mortgage should you be unable to make the payments.  If you share your home with anyone who relies on your income to help pay the mortgage, whether it's a spouse or a child, you'll need life insurance with that person named as a beneficiary so he or she won't lose the house if you die unexpectedly. Mortgage insurance is another option to help safeguard your home in the event you cannot make your monthly payments.

Owning a home is wonderful but also comes with great responsibilities. It can be difficult to manage your finances well enough to keep the home and maintain the home's condition well enough to protect your investment.

Tips For A Successful Negotiation

by Jon Smith, CRB, CRS, GRI

If you are buying a new home or selling the one you have, you want a successful negotiation and sale. The negotiation process can be both complex and confusing for both sides. Each party wants to have a fair transaction and achieve the best deal. Below are some tips to help you get the most from the negotiation transaction.

1. Time the market right. At this time, we are in a "buyers" market, where most sellers are very motivated to sell, this can give a buyer the upper hand. On the other side,  a "sellers" market, or a market where housing supply and demand are roughly equal might give the seller an advantage. If possible, you want to be in the market at a time when it favors your position as a buyer or seller.

2. Pay attention to the details. Buyers and seller pay a lot of attention to the transaction price. It is a good idea to consider other perks or benefits that can add to the overall worth. For example, if you negotiate that the roof be replaced or perhaps having the seller pay some of the closing costs this can sweeten the deal. Don't be stuck with the idea that the purchase prince is the only financial gain to the transaction.

3. Don't forget about financing. Keep in mind that there are several factors that can impact the final sale:

• Has the buyer been pre-qualified or pre-approved by a lender?  Having buyers that are "pre-qualified" or "pre-approved" are more likely to pose less risk than a buyer who has never met with a lender. This also shows the seller that they are serious about the offer and will give the seller more confidence. that they are a qualified buyer.

•If there is a low interest rate, then there will be a larger selection of potential buyers. More buyers equal more potential demand, which is good news for sellers. On the downside, high interest rates will cause buyers to be more selective or cause them to withdrawal from the market all together.

•The traditional 20% downpayment is not standard anymore. If the buyer has good credit, loans with 5 percent down or less are now widely available. Many loans where 100 percent financing are still available, although not as much as a few years back.

Negotiation is an important tool of the real estate transaction. To be a successful home seller or buyer you should have a basic understanding of negotiation methods, knowing the motivation of the other party and adapting to their style.

Spring Is A Great Time To Buy

by Jon Smith, CRB, CRS, GRI

Spring has officially arrived! If you are selling your home, the spring and summer months are traditionally the busiest times of year for the residential real estate market. Eventhough the current real estate market has sellers dealing with fierce competition, buyers are getting some amazing homes at great prices.

If you're in the market for a house this spring, below are some tips you can take to give you the advantage to get the best deal.
  • If you're going to work with a real estate professional, be sure to research and interview a few to make sure you are comfortable with them. Be sure to get references and be honest to let them know what your expectations are.
  • Make sure to get your loan pre-approved. This will give you the upper hand in several ways. You will know upfront how much you will be able to finance and it shows the seller that you are serious and ready to buy when you make an offer.
  • Be flexible. If your Realtor calls with a listing that matches your criteria and wants to show you the home right away, beady to make an offer -- quickly.
  • Don't forget to look at the potential in homes. Of course there are only so many thing you can change, but if minor things are standing in your way, such as paint or carpet color or flooring, don't forget that these are easy changes to make and could create a whole different space!I

Now is a great time to buy and spring only makes your choices more plentiful! Check out the latest lstings and contact me to view them!

The Escrow Process Explained

by Jon Smith, CRB, CRS, GRI

During the process of purchasing a home you will need to enter into escrow. Many first time homebuyers have many questions about the escrow process. 

What exactly is an escrow?
An escrow is an arrangement in which a disinterested third party, called a escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions. The escrow becomes the depository for all monies, instructions and documents pertaining to the purchase of your home.

How does the escrow process work?

The escrow is a depository for all monies, instructions and documents necessary for the purchase of the home, including  funds for the down payment, lender’s funds and documents for the new loan. The duties of an escrow holder include: following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with instructions; paying all bills as authorized;  closing the escrow only when all terms and conditions have been met; and, distributing the funds in accordance with instructions.

Do I need documentation?
Receipt of your deposit is generally included in your copy of your purchase contract. Your funds will then be deposited in your separate escrow or trust account and processed through your local bank.

What information will I have to provide?
Typically you will be asked to complete a statement of identity as part of the necessary paperwork. Because many people have the same name, the statement of identity is pucused to identify the specific person in the transaction through such information as date of birth, social security number, etc. This information is kept confidential.

How long is the escrow?
The length of an escrow is determined by the terms of the purchase agreement and can range from a few days to several months. Typically an escrow often takes an average time of 30 to 45 days.

When does the escrow process end?

The escrow process ends when you actually close on the home, during the closing procedure. This is when all funds are transferred accordingly, when all documents are signed, and when you get the keys to your new home.

 

Common Mortgage Terms

by Jon Smith, CRB, CRS, GRI

If you are purchasing a new home, most likely you will be researching a mortgage as well. This can be a confusing process, especially if you are first time homebuyer. You will hear many different terms when dealing with lenders, agents and brokers. Below are some of the common terminology used so you can become familiar when going thru home buying process.

Annual Percentage Rate (APR): The APR for your home loan is an annual cost that includes the interest rate quoted by your mortgage company plus additional home loan costs such as origination fees and points.  Required by law, this amount is to be disclosed to the homeowner by the lender under the federal Truth in Lending Act. This amount includes up-front costs paid to obtain the loan but does not include the PMI,  title insurance, appraisal, and credit report.

Closing Costs: These are the expenses aside from the price of the property that are incurred by buyers and sellers when transferring ownership of a property.  These costs include origination fees, property taxes, charges for title insurance, escrow costs, appraisal fees etc.  Many times these costs are shared by the buyer and the seller.

Escrow: During the home loan process, a neutral third party known as Escrow holds documents and money (including earnest money deposits) for safekeeping until the real estate transaction is complete.

Points: The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount. This means that, to lower your interest rate by one point on a $300,000 mortgage, you’ll need to pay an additional $3,000 at closing.

Private Mortgage Insurance (PMI):  If you are purchasing a home and you do not have a the traditional 20 percent down payment,  lenders will require you to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee depending on your loan’s structure.

Title Insurance: This type of insurance protects both the buyer and the seller against legal issues that may arise with a  home’s title. If a problem occurs, the title company pays the associated legal fees to correct the situation.   

There are  many different terms out there that will come up when you buy a home and apply for a loan. If you are ever confused or have any questions about a particular term or contract be sure to ask your realtor or real estate attorney for clarification before signing any legal documents.

Tips When Househunting

by Jon Smith, CRB, CRS, GRI

Even if you know exactly what you're looking for, searching for a new home can be a time consuming and frustrating process. You may look at several homes so making the most of your time is key to finding the house of your dreams. Below are some tips to help you make the most of your search.

  1.  Start by concentrating on a few neighborhoods first.  Decide what's most important to you about the neighborhood you want. This can greatly narrow down your search.  
  2. Allow yourself plenty of time. When househunting be sure to dedicate an entire day or weekend. It is important to not rush, you want to be able to spend enough time at the home, especially if you if you find one you really like. Keep in mind you might just find one that you want to act on quickly and make an offer!
  3. Bring a checklist. Create a realistic checklist of the aspects your idea home should have. When looking at homes you can check off and make notes on which homes have or don’t have what you are looking for. This will help you analyze your needs and wants and focus on the properties that you can get serious about. 
  4. Be prepared to look at the potential of a house rather than what you see in front of you. Set your needs versus your wants so you can decide on some items that can be sacrificed. It's more important that the layout of the house and the number of bedrooms you need fit your needs and that all major systems are functional versus your dislike for the carpeting or outdated stove. Keep in mind that those types of cosmetic shortcomings can be easily remedied once you buy the house.
  5. Dress comfortably. Wear comfortable shoes but it is a good idea to wear slip on shoes as many homes might have a posted  “please remove shoes” sign to help keep the flooring clean. Having to untie and tie your shoes at every house can be a huge waste of time. Wearing comfortable clothing will allow you to focus on the aspects on the home and enjoy your experience.
  6. Bring a Digital Camera. Digital cameras are ideal for house hunting. You can take pictures of the homes you visit and save them in labeled folders on your computer. Which home had the huge walk in closet? Which one had the great backyard? Just look at the photos and you’ll remember!

Displaying blog entries 1-10 of 12

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Contact Information

Photo of Jon Smith, CRB, CRS, SRES, SFR Real Estate
Jon Smith, CRB, CRS, SRES, SFR
Iowa Realty
3521 Beaver Ave.
Des Moines IA 50310
515-240-2692
Fax: 515-453-6404
 

 

 

Licensed in the State of Iowa