Good News! Uncle Sam wants to give
1st time home buyers like you up to $8,000
in the form of a tax credit
just for purchasing a home before the end of the year!
Click on the picture of Uncle Sam for more info.
Consult your tax professional for exact details
on your specific tax situation.
Today's real estate market can be a scarry place for first time home buyers. Understanding the three basic kinds of real estate transactions and how they are handled will go a long way to help relieve the stress and that sense of being overwhelmed many first time home buyers experience.
So here are some of my thoughts... It is quite a bit of information, but certainly not absolutely everything you need to know (that would fill a book)! Yet, it is a pretty good start.
And because this is Minnesota, we have to be different from most other states, so if you are from somewhere else, this may or may not apply to your situation. Ask me and I'll help you find someone who is an expert in your state and city.
As a first time home buyer, you are likely to encounter short sales and bank owned properties in addition to the more familiar type of real estate transaction that I will call "traditional" for lack of a better word. There are major differences between these three types. Here are some things first time home buyers in Minnesota need to know:
- A short sale is when the home is in foreclosure, but the foreclosure is not final yet.
- The homeowner is still involved in the sale and they may or may not be very motivated.
- There may be multiple mortgages and all lenders must approve the sale (it is not uncommon to have 2 or even 3 mortgages involved) so there are multiple decision makers and they may not all agree.
- The list price is not necessarily the price that the lender will approve.
- The listing agent and homeowner select the price and "hope" the lender will approve it, but very often, even on a full price offer, the lender will submit a counter-offer which is higher than the home's current list price.
- It can take 100 to 120 days (3 to 4 months) to get an initial response to an offer from the lender(s).
- Only about 30% to 40% are successful because often, the Buyer gets frustrated with the long response time and cancels.
- There may be other lien holders involved (contractors, city, county, unpaid utilities, unpaid taxes, homeowners' associations, etc).
- Many of these homes will need work, some may not qualify for financing due to their condition.
- These homes are often sold "As Is" and "Where Is".
- Often, these are still occupied by the homeowner or a tenant.
- A Bank Owned or REO is when the foreclosure is final and the home is now owned by the bank.
- Since the primary lender owns the home there are no other mortgage holders nor homeowners that must approve the sale. The approval process is generally much quicker because there is only one decision maker.
- The lender will usually "clean" the title before placing the home on the market for sale and they will generally transfer ownership via a "Special Warranty Deed".
- Since the lender determines the list price - the list price is a price they will sell it for if you don't ask for them to pay closing or other costs.
- Banks will always look at the "net" and not the "gross" price. If you are asking for closing costs, a home warranty, title insurance or other out-of-pocket costs for the lender, then you may want to increase your offer price by the same amount.
- They have had the property appraised and have figured the cost of repairs into their list price.
- Lenders will generally reject low-ball offers without even looking at them.
- Many of these homes will need work, some may not qualify for financing due to their condition.
- These homes are vacant.
- These homes are sold "As Is" and "Where Is".
- Some of these homes may have been frozen, had their copper stripped, contain mold, or have been vandalized.
- The competition for these homes this spring is fierce. Many end up in multiple-offer situations.
- Traditional Sales
- If there are any in your price range, they are worth looking at! Some people forget that there are many homes for sale that are not in foreclosure.
- The homeowner is the decision maker as long as the sale price is enough to cover their costs.
- The homeowner will be required to furnish the property disclosure documents that describe the condition.
- Many homeowners offer warranties.
- While some of these are sold "As Is" most are not.
- Some sellers may agree to make some repairs.
- With most of these, you will still have the right to take legal action or seek arbitration with the previous homeowner if you feel they withheld information from the property disclosure documents.
I have heard some people use the term pre-foreclosure, but in Minnesota, that term really has no meaning. For more detailed information on the foreclosure process in Minnesota, check out these links:
• Foreclosure Part 1 • Foreclosure Part 2 • Foreclosure Part 3
In any case, whether your purchase is a traditional sale, short sale, or REO, there are also some up front costs you should be aware of so that you can start saving up for your new home (I know how you hate last minute surprises)!
- Earnest money - on a short sale or bank owned property, they will generally want this in the form of a cashier's check. Many lenders will insist on a minimum of $1000, but I have seen some as high as 2.5% of the sale price. This varies in different price ranges. This becomes part of your down payment at closing.
- Down payment - you may need between 3.5% and 5% down. More in some cases (talk to your loan officer).
- There are a few exceptions, like the Rural Development program, but not all homes or locations will qualify.
- With some programs, you will be required to live in the home for a specific period of time or pay back the down payment if you move before completing your committment.
- Inspections - everyone should get an independent third party inspection. They generally cost between $300 and $500. Lenders will not add this into your loan.
- Stucco / Moisture Testing - this can start at $400 and go up from there. This is at your discretion, but it is recommended for homes with stucco, especially those built in and around the 1990's. Lenders will not add this into your loan.
- Appraisals - these can run between $300 and $500. Many lenders will let you add this into your loan; ask your loan officer to be sure.
- Repairs - with a few specific exceptions, repair costs cannot be added into your loan.
- There are exceptions like the FHA 203K Rehab loan and a few others.
- Many rehab loans require multiple quotes and only accept quotes from licensed and insured contractors.
- You may have to escrow (set aside) 150% of the repair costs at the time of closing.
Here is some good information from the Minnesota Attorney General's Office about Mortgages in general. It also briefly discusses rent-to-own when it is part of an equipty stripping scheme. If you are a first time home buyer, you don't have any equity to strip, so that part doesn't apply to you, but most of this is very good information for first timers.
Of course, there are other types of sales: Contract for Deed (CD) for example is a good alternative to some of the "Rent to Own" plans because it is more clearly defined in Minnesota law, but they are not always available.
By the way, if you ARE thinking about a "Rent to Own", you may want to have an attorney look at the contract or at the very least, read everything you sign and make sure you understand it. That's not to say they are bad, its just that Minnesota law recognizes a buyer or a tenant, but when you combine the two, that muddys up the waters a little bit. Tenants rights and a buyers rights are completely different.
For more information, call me at 763-548-1418 or check out these helpful links:
• Foreclosure Part 1 • Foreclosure Part 2 • Foreclosure Part 3
• Short Sales and REOs
• Minnesota Housing Finance Agency
• Links: REO Links, Green Links, Government Links
• Get YOUR $8000 from Uncle Sam!
For more information about my services, guarantees, or how I can help you find your next home, sell your home, buy a business or investment property. Just call Patti Ann Kasper today at 763-548-1418!
To view my interactive on-line real estate magazine with listings, select the banner below:
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Patti Ann Kasper, Your Minnesota, North Metro Minneapolis / Saint Paul Twin Cities, and Blaine MN Real Estate Expert! Associates of Science Degree in Geographic Information Systems and Cartography from Anoka Ramsey Community College in Coon Rapids, Minnesota.
© Copyright Patti Ann Kasper 2009 All Right Reserved.
For more information about my services, guarantees, or how I can help you
find your next home, sell your home, buy a business or investment property.
Just call Patti Ann Kasper today at 763-548-1418!
To view my interactive on-line real estate magazine with listings of homes for sale
in the Minneapolis Saint Paul Twin Cities Metro Area, select the banner below:
Patti Ann Kasper, Your Minnesota, North Metro Minneapolis / Saint Paul Twin Cities, and Blaine MN Real Estate Expert! Associates of Science Degree in Geographic Information Systems and Cartography from Anoka Ramsey Community College in Coon Rapids, Minnesota.
© Copyright Patti Ann Kasper 2009 All Right Reserved
