Where Does My Earnest Money Go?

Many homeowners who want to buy property offer a certain amount of earnest money or hand money to the property sellers. Typically, earnest money is the deposit that a buyer pays to the seller so that the latter will hold the property he/she intends to buy. Depending on which state the deal is taking place in, the earnest money deposit check might be kept in escrow accounts that are non-interest-bearing. They will be held here till the related deals reach closure.

Generally, the earnest money check is applied to down payments for the property sale & closing costs requirements. A real estate earnest money deposit check & the manner in which it is applied is based on the purchase agreements that the deposit supports. Generally, real-estate purchase agreements have all the details noting what will happen to the earnest money deposit that the buyer has made, under different scenarios.

Earnest Money Amounts

In very hot markets, most real estate agents recommend that the earnest money deposits should be for 2-3% of the actual offer that is being made. In slower markets, the earnest money deposits that sellers ask can be significantly lower. Deposits of $10,000 and above come with bank & lender reporting requirements & are not really advisable. It must be understood that when you tie up a large amount of money in this manner, you will not be earning any interest on it.

Earnest Money Refunds

At times, property sellers & buyers make incorrect assumptions about these deposits. Some property sellers also mistakenly believe that if a sale fails, it automatically gives them a right to the earnest money check. Similarly, some buyers presume that even if the deal fails, they will get back all their earnest money. The fact is that in most real estate deals that fail, earnest money deposits that the buyers have made; end up with them, but the cancellation fees get deducted from the amount. Most property purchase agreements make note of when this money is refunded & to whom.

The Considerations

It goes without saying that when a real estate transaction fails, both the buyer and seller end up hotly disputing the earnest money deposits. Real estate experts always recommend that a property seller should not be permitted to hold the buyers’ earnest money deposit. The title company, real estate broker or settlement/escrow agent involved in the property sale holds these earnest money deposits. For more details about earnest money and mortgages, contact ResMac Home Loans.

 

What Does Title Insurance Protect Me From?

Whenever you buy a home/property, you expect to also enjoy some benefits from that ownership. For instance, you expect to be able to actually occupy & use the property as you like, and to be free from debts/obligations that are not created/agreed to by you. You also want to be able to pledge or freely sell your property as a security for any loan, if required. A title insurance is specifically-designed to cover all these rights that you bargain for.

How it Works

When title insurance is included in the purchase of a property, your title insurer becomes accountable for all the legal expenses incurred to defend the property title, in the event that someone challenges it. There are a number of situations in which you might require title insurance and the company that is responsible for it then takes on all the legal expenses to effectively defend that property. The condition being that you must own an interest in that property. In the event that the defense is unsuccessful, you are reimbursed for any value-loss of that property.

What is Covered?

Title insurance is also referred to as an Owner’s Policy. Generally, it is issued in the actual amount of the real-estate purchase. You pay a one-time fee at the time of closing & it is valid for the entire time that you/your heirs have an interest in that property. Only this kind of an owner’s policy provides full protection to the buyer in case any problem arises in the title. Title Insurance generally covers:

  • Forged deeds, undisclosed heirs, wills, mortgages, releases & other documents

  • Deeds by minors

  • False imprisonment of that land owner

  • Documents that are executed by any revokes/expired power of attorney

  • Fraud

  • Probate matters

  • Deeds & wills by a person who is of unsound mind

  • Rights of any divorced parties

  • Conveyances by any undisclosed divorced spouses

  • Adverse possession

  • Forfeitures of the property on account of criminal acts

  • Defective acknowledgments because of improper/expired notarization

  • Tax record errors

  • Mistakes & omissions that result in improper abstracting

Though these are the general things that are covered, certain coverage might not be available in a specific area/transaction on account of regulatory/legal/underwriting considerations. For more information about title insurance and how it works, speak with experts at ResMac Home Loans.

 

Calculating The Net Benefit Of A Refinance Transaction

Calculating the net benefit of refinancing can be a challenging task if you do not understand what to calculate. We are going to focus on the net benefits of refinancing from the standpoint of lowering your interest rate.

Although there are several reasons to refinance, lowering your mortgage rate to save on interest payments over the term of the loan is the most popular.

Calculating the actual savings can be a tricky chore unless you know the difference between cash flow savings and interest savings. If your refinance objective is to only save on the interest by lowering your rate, then the interest savings should be done with the calculations below.

Calculating Interest Savings:

(Loan Amount x Interest Rate) / Months in year = Interest paid per month

($200,000 x 6% or .06) / 12 = $1,000.00

*Remember to do the calculation in the parentheses first*

We now know that you are paying $1,000.00 per month in interest. You should take the new interest rate you are getting with your refinance and calculate what your new interest payment will be.

($200,000 x 5% or .05) / 12 = $833.34

Now we need to find out the difference between the two interest rates.

Current Interest Payment – Proposed Interest Payment = Interest Savings

$1,000.00 – $833.34 = $166.66

Now you have figured out that by dropping your interest rate 1% on $200,000 you will be saving $166.66 per month or about $2,000 per year.

Awesome!

Anyone would want to save $2,000 per year, where do I sign… right? Not so fast, you’ll want to calculate the break-even point to find out how you will benefit after your closing costs.

Net Benefit Formula (Break-Even):

(Closing Costs – Escrows) / Interest Savings = Month of Break-Even

($6,000 – $1,000) / $166.66 = 30 Months

In other words, it will take 30 months for you to recoup the cost of your refinance. If you plan to keep your mortgage for at least 30 months then you might want to consider this deal.

Okay, now we can calculate your net benefit for refinancing with one more calculation.

(Monthly Savings * Months you plan to keep mortgage) – (Closing Costs –Escrows) = Net Savings

($166.66 * 120 months) – ($6,000 – $1,000) = $14,999.20

If you kept the mortgage for 120 months (10 years) you would save $15,000.

Okay, now you can find out where to sign.

Calculating the net benefits of a refinance is crucial in determining if it is strategic for you to refinance. Keep in mind that each mortgage is slightly different and you may need to adjust calculations accordingly.

……

Frequently Asked Questions:

Q:  I heard that I should only refinance if I drop 1% on my mortgage is that true?

Some people say ½% , 1% to never. Every mortgage is different.

For Example: A no cost loan can have a 1 month break-even point with only a .25% drop in interest rate. Now that you know how to calculate your net benefit, you are able to figure out what may be best for your situation.

Q:  Why can’t I just compare my current payment to the proposed payment and figure out my net benefit?

You could just compare just the two payments if you wanted to find out your cash flow savings, but the current and proposed loans may have two different amortizations.

Let’s assume you currently have a 15 year mortgage and you’re comparing it to a 30 year mortgage. If both loans have the same interest rate and loan amount but the amortization is different, your interest savings per month would be $0. However, you are going to show a cash flow savings with the 30 year mortgage because of the longer amortization.

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Related Article – Refinance Process:

Making Sure Your Cash-To-Close Comes From The Proper Source

The loan closing process is very important and there are a number of aspects that have to fall into place. It is crucial that you provide all the proper asset documentation as well as information about the source of the funds. If you use the incorrect checking account for your down payment, there is a possibility of your loan being denied, even if all the final documents have been signed; and this can be a truly frustrating situation to be in.

Acceptable Sources

Seasoning of your down payment money is almost as important as its source. This is exactly why underwriters need a minimum of 2 months of bank or asset statements right at the start of the approval process. These are some of the acceptable sources of a down payment:

  • Bank Accounts- either savings or checking

  • Investment Accounts- mutual funds or money market

  • Retirement Funds- It’s important for you to keep in mind that when you borrow against a 401K plan, a repayment will be required. This will be calculated based on the Debt-to-Income Ratio

  • Gifts – It is possible for family members to gift the down payment funds (certain restrictions apply)

  • Trust/ Inheritance Funds

  • Life Insurance- Cash value & face amount

  • Government Grants- A number of state, county & city agencies offer certain special down-payment assistance programs

Things to Remember

As a borrower, it is important for you to make sure that your loan officer has been provided complete information about the down payment. This information should go to him very early in the process. This ensures all the required questions, documentation & explanations are reviewed or approved by the underwriter. A good rule to keep in mind that all the funds you are using for the down payment should be pre-approved by the underwriter right at the start of the approval process.

Very simply, if you forget to deposit the required money in your checking-account while you are heading to the closing appointment, it will not be acceptable to get any cashier’s check from a friend, for this purpose. Always make sure that your cash-to-close has come from the proper source. It will save you a lot of trouble and frustration during the closing process. Contact ResMac Home Loans for all mortgage-related information.

 

What You Need To Know About The Home Inspection Process

So you have finally identified the house you want to buy and you have but a few days left before the home inspection takes place. In most cases, when the real estate agent makes the offer, it is contingent upon a satisfactory home inspection & obtaining mortgage financing.

Home Inspection- What is it?

The home inspection process is a non-invasive and limited examination of the current condition of the home- in most cases; this is conducted when that home is being put up for sale. The home inspector handles the home inspection process and this person has the necessary training & certifications to conduct these inspections. Once the inspection has been completed, the inspector uses home inspection software to create a written report that is given to the home buyer.

The buyer then uses the information from this report to make an informed decision about buying that property. The report will make note of the condition of that property at the time of the inspection, however it does not guarantee its future efficiency and condition or even the expectancy of the components and systems in it. The home inspector’s sole job is to evaluate the condition of the house and if you need a market value estimate, an appraiser will handle that for you.

Home Inspection Checklist

The home inspection checklist should include:

  • Heating

  • Air conditioning

  • Plumbing

  • Electrical

  • Appliance systems

  • Basement

  • roof

  • Exterior & interior walls

  • Doors and windows

  • Chimney

In addition the basic components of the home inspection checklist, you can also request for some optional services such as wood destroying pests, asbestos septic etc.

Home Inspection- The Cost

Generally, the home buyer has to make an up-front payment for the inspection. At times the purchase contract may have an agreement which states that the seller will have to reimburse the home inspection cost at the time of closure. The home inspection cost varies from one state to the next but can be in the $250-$400 range based on the services that the home buyer has opted for and the location of the house.

As a buyer, it is important for you go through the purchase & sales contract very carefully to ensure that the agreement doesn’t state that the house may be sold-off in an “as-is” condition and that the seller takes care of the requested repairs before the sale is finalized. To learn more about the home inspection process, contact ResMac Home Loans.

 

Top 8 Things To Ask Your Lender During The Application Process

The mortgage approval process is a very complicated one. But asking the right questions and getting satisfactory answers is important. Failing to do so in the course of the mortgage pre-qualification stage can end up hurting or frustrating you, because all your expectations were not met. Here is a list of 8 priority questions you should ask your lender during the application process:

What are the documents I will have to keep ready to ensure that I get full mortgage approval?

An experienced mortgage professional can identify all the different challenges that a buyer may face, just by asking all the right questions in the course of the interview and initial application process. Some of the things that your mortgage professional will need to know are:

  • Residence history

  • Credit obligations

  • Marital status

  • Down payment seasoning

  • Employment & Income verification

  • Others

The questions you should be asking are:

How long will the entire process take?

A number of factors have to be taken into consideration in the overall time-line and this is exactly why communication is important. As long as all the questions are addressed in time and the documents are in order, your loan officer will be able to provide you with a time estimate for processing and closure of your mortgage.

Does the payment include taxes and insurance?

Getting the answer to this one will help you understand the impact to the total monthly payment as well as the total amount you have to bring to the mortgage closing.

Are there any chances of my payment increasing post closure?

In the current economic landscape, most homeowners opt for the fixed-rate loans and their loan payment stays the same over the life of that loan. However, if taxes & insurance have been included in the payment, then any changes to these will also increase the home loan payments.

In addition to these questions, you should also ask your loan officer:

  • How to lock-in your interest rate

  • The duration for which the rate will be locked

  • How your credit score impacts your interest rate

  • The amount you will need for closing

Expert and Professional Assitance

Once you get the answers to these 8 basic questions, you will feel a little more confident about finding a lender who will be cater to your specific requirements. The more clarity you have about this entire process, the smoother the approval process will be. We can provide you with complete guidance and assistance with the mortgage loan application process- contact ResMac Home Loans today.