We know there are tons of questions that come to mind when you’re buying a home!
Over the years, we found that buyers we work with ask similar questions. We answer all of those questions below.
Q: Why use local Lenders?
A: As we look at what lies ahead for you in your housing search, the first step is to have you talk with a lender about your possible buying power and what's involved with getting a mortgage (i.e. the process, relative costs, long-term cost breakdown, etc.). We highly recommend that you start this process before you look at houses so that when you do find something that you really like/love/must have, you have a bank standing by you with a Letter of Pre-Approval or Pre-Qualification. This letter will tell sellers that you're a real, qualified buyer and not a poser, which will help you get what you want. :-)
Now, in terms of which lenders to use, we HIGHLY RECOMMEND using a local lender for this process. We find that they are significantly more responsive and customer-focused. For example, many loan officers with national lenders do not share their cell phone #s and do not return calls outside of business hours. It can often feel like you’re just a line item on a spreadsheet that only needs to get filled out before the next workplace deadline. Local lenders are willing to share their phone #’s and take calls throughout the day and on weekends because they understand properties can move very quickly and you may need a Pre-Approval at a moment’s notice to submit your offer.
Local lenders also use local appraisers, which is helpful in a hot market because they understand the highly varied neighborhood-to- neighborhood dynamics and will put much more effort into their analysis to make sure things are priced accurately. Last, but not least, your choice of lender will be a factor that’s considered by the listing agent and seller when evaluating your offer. Local lenders do a lot of business in town and most listing agents will have prior transaction experience with them. This is a plus because listing agents want lenders who are easy to work with, accessible if there are questions or forms that need to be completed in a timely manner, and who limit the number of possible hurdles on the way to closing. If your lender is one of the hundreds at a big, national bank, it’s unlikely they have worked much in this market, and that is something a listing agent will take note of.
We realize you may already have long-standing relationships with outside lenders, so please know that you're absolutely welcome to use whoever you'd like for this purchase. We have a large body of experience working with national lenders and financial groups and will work with whomever you bring to the table!
Q: How do you properly calculate future property taxes?
A: When a home sale happens, the taxable value of a property becomes “uncapped” for that year and most taxing authorities will bring it up to or as close to the State Equalized Value as they can so that it better reflects the current market value. In doing so, they can tax it more. After this initial increase, your taxable value will become “capped” again and you will not see the same jump or anything close to it for the remainder of the time you own the property.
—The State Equalized Value (S.E.V.) is determined by your taxing authority and state law essentially dictates that it should be 50% of the market value of your property. The market value is determined by the purchase price of your property and a post-sale evaluation by your taxing authority. State Equalized Value can be changed yearly depending on the market activity (sales) in your area as well as reported additions, remodels, etc. Basically, if the market is going up, your S.E.V will too.
—Your Taxable Value is the actual # that your property taxes are based off of (Taxable Value x millages) and this is generally capped at a specific % increase per year. In Michigan for example, the taxable value is held at the rate of inflation (CPI) or 5%, whichever is lower. So, one thing to keep in mind, especially if you live at a property for a while, is that if the market is strong and continuing to rise for a long period of time, your property’s taxable value will not be rising at the same rate and you will likely be paying less in taxes than the market would dictate. This thought might not be that comforting since you’re still paying taxes and they’ll be going up (maybe at 2 or 3% a year), but it does mean you won’t have shocking, unexpected increases going forward.
How to calculate possible, UNCAPPED property taxes after your purchase:
1) Take your purchase price and divide it by 2. This is your State Equalized Value (S.E.V.)
2) Divide your SEV by 1,000
3) Multiply the remainder by your local millage rate. (http://www.michigan.gov/taxes/0,4676,7-238-
Q: What closing costs will I see as a buyer?
A: When you close on your new home, there will be a variety of additional costs and expenses that you will see as part of the buying process. We will do our best to outline the vast majority of them below. The specific expenses and costs will vary depending on which lender you work with for your mortgage and the specific property you are buying.
Taxes: As part of this purchase, you will be buying-out the previous owner for the property taxes they have already paid for the whole year that they will not be using once you own the house. In Washtenaw County, taxes are broken up into two, separate payments for the year. One is typically at the start of July, the other at the start of December. What this looks like when you reimburse the previous owner depends on your close date. For example: if you purchase your house in May, you will not have to reimburse the seller for much of their previous summer tax payment (which runs through June); you will have to reimburse them for more of their winter tax payment (which runs through November). Another example: if you bought the house on December 15th, you’d have to reimburse the sellers for almost all of the previous payment they made on December 1st, but you wouldn’t have to pay winter taxes until December of the following year. You’d also have to reimburse them for the majority of their summer taxes since they would have been paid in July of the previous summer; you would have a new summer tax bill in July of the following year.
Association/HOA Proration: If the property you are purchasing is part of an H.O.A. or condominium association, you will also be reimbursing the seller on a prorated basis for any monthly dues they have not used. So, for example, if the sales close on the 20th of the month, and there is a monthly association fee due at the start of each month, you’ll reimburse the seller for the 10 days or so of HOA coverage they are not using. If the payment is quarterly or yearly, the amount will be prorated accordingly.
- If the property you are purchasing is in Jackson, Ingham, or parts of Monroe County, property taxes are paid in arrears, so, in this case, the sellers will actually reimburse you for the days they have used this year but haven’t paid for yet. Your agent will be able to answer any questions you have about this.
- If the title company discovers that the seller has been delinquent in their tax payments, to the county, the appropriate amount of money will be taken out of their proceeds at closing to pay for them. You’ll still be reimbursing them for all of the future days they are not using, but this will make sure that you are not responsible for paying for their past use.
- Closing Fees: These fees cover the costs of the title company drawing up all of the relevant documents for a clean transference of title, coordinating with applicable lenders for mortgage initiations, and for the actual closing appointment with a notary.
- Recording Fees: These fees cover recording the signed warranty deed and other applicable documents such as the Principle Residence Exemption with the county once they are complete. Mortgage Specific Fees and Costs: If you are purchasing with a mortgage, there will be additional fees as part of the closing process.
- Lender Fees: These fees cover the costs of applying for and processing the loan. They may also include costs such as the appraisal fee and homeowners insurance for the first year if they have not already been paid.
- Pre-paids: Mortgage payments are paid in arrears except what the lender can collect at closing, as this is the only time they are allowed to collect in advance. Your first payment will be due at the end of the first complete month after closing. For example: if you closed on April 15th, your first mortgage payment would be paid on June 1st. This payment would cover the cost of the mortgage from May 1st – May 31st. The pre-payment you’ll be paying at closing will cover the interest you owe for April 15th – April 30th.
- Escrows: When you make your monthly mortgage payment, it will be covering several things. It will cover your monthly principal and interest payments, but it will also contribute to your escrow accounts for your homeowners' insurance and taxes. As you pay each month, the amount in these accounts will increase and then your mortgage servicer will handle paying your property taxes (summer & winter) and renewal of your homeowners' insurance on your behalf, using the funds in the escrow accounts. A starting (seed) amount for these escrow accounts will be collected at closing. This is your money that’s being held to make sure the payments happen on time. Letting the lender handle the payment makes life easier on you and the lender. Also, down the line, when you pay off the mortgage, your escrow amounts will be returned to you.
- Title Insurance – Lender’s Policy: As part of your mortgage, you will be buying a title insurance policy for the lender protecting them from any issues that could happen with the transference of title into your name. In short, the lender wants to make sure that, in the unlikely event you default on your mortgage, they are the party who can put first lien on the property, and not someone else. The Lender’s Policy will ensure them against any possible claims challenging your title (i.e. from a hidden heir) or errors in the transaction. But how much will it cost? We typically see between 5-8% of purchase price.
Q: How many houses will we need to see before we find "the one?"
A: Now that you’re officially buyer clients, we can go full-steam on seeing houses and finding your home! This is an exciting process, but it can also be nerve-racking. You might be wondering “How many houses will we have to see before we find the one for us?” The answer, honestly, varies. Sometimes we find it on the first try and sometimes we have to see 30+ houses. It really depends on what you’re looking for and current market conditions. If we’re in the busy season (March-August) there will be more inventory and options on the market. If we’re in the slow season (September – February), there will be less. From our experiences, most clients will need to see about 10 houses before they find one they like. Let us know if you have any questions. We’re excited to get started!
Q: How do I write a strong offer?
A: As we close in on your next home, let’s cover some of the different aspects of writing a strong offer. There are a lot of different components that go into an offer and being strategic about what you are comfortable offering will help yours stand out in a crowd of competitors. Your buyer’s agent will be your prime resource for crafting each offer, but here are some pieces to start thinking about: Writing Over List Price: if you really like a house, and feel that it’s priced fairly, then you can send a strong signal of serious interest by offering above list price. Escalation clauses, which are covered below, can raise your offer price in the face of competition, but a seller might take your escalations less seriously if your starting price is at or below list.
Escalation Clauses: writing an escalation clause into your offer gives your offer the competitive edge of being able to increase your offer price in the face of verifiable competing offers. The basic format involves picking an interval to increase your offer price by (i.e. $3,000 over any other verified offer) as well as an escalation cap, which is the highest you’re willing to offer under any circumstance. An escalation cap is not required but often comes in handy if you have a specific budget. Think about using an odd number (i.e. $3,275 over any other offer).
Appraisal Gap Coverage: if you’re purchasing with a mortgage, the bank will send an appraiser to evaluate the property to make sure that they are not over-investing in it. The dollar value they determine is called the appraised value. If the appraised value is below the sales price, we will have an appraisal gap that will need to be addressed in order for the loan to be approved.
Appraisal Gap Coverage is a binding promise from you, the buyer, to bring a certain amount of money to the table if an appraisal gap occurs. If the gap is smaller than the amount you promised, then the sale will move forward and you will bring that specific amount to closing. If the gap is bigger than the amount you promised, we will need to have a conversation with the sellers about accommodating the remaining amount through either a price reduction or you bringing more money to the table. In our very busy market with raising prices, sellers look very favorably on appraisal gap coverage. It continues to show seriousness and commitment in your offer and gives them some comfort to move forward with an offer if your offer price ends up being very high. This is particularly helpful if you are competing for a cash offer, which does not involve an appraisal as a condition of the purchase.
Free Rent Back: a seller may request occupancy after closing as a condition of the purchase. This is an arrangement where they stay in the house for a period of time (anywhere between 1 to 59 days), even though you are the owner. This is common if they are getting ready for a move, having kids finish school, etc.
In such an arrangement, the seller will often pay you as the new owner for the period in which they are staying. This provides a competitive opportunity in your offer for you to give them the ability to stay for free. If the seller has two similar offers in the base price, but one of them will not charge them for the period they are staying after closing, they will likely choose you since you’ll be saving them money.
Quick Close: if the sellers are looking for a quick close, the sooner you can close the better. If you’re purchasing with a mortgage, make sure to talk to your lender about the quickest turnaround they feel they can do with the loan. You want to make sure that they can deliver on dates you promise the seller! If a seller has two similarly price offers, but one can close in 4 weeks instead of 6, they will likely choose the quicker closing date.
Limited Complaints on Inspection Contingency: Last, but not least, you also have the option to tell a seller that you will only bring up concerns you’d like for them to address in the inspection if they are above a certain dollar amount (i.e. no concerns if they are below $5,000 to address). This shows the seller that you are aware of and willing to address the small item wear-and-tear of a house and won’t hold up the sale over paint smudges, floor scratches, etc.