Less Real Estate Drama With Home Inspections Before Listing

In a typical real estate transaction in the Rochester area, the buyers find a house, write an offer, comes to term with the seller,both sides celebrate, and then the home inspection happens.  Often there are surprises, both for the buyer and the seller and that's when the real drama can begin.  Buyers get frighten and sellers get angry.  It's no fun for anyone.

Last year I sold a few homes in which the property was inspected before the house went on the market.  Sellers have the opportunity to make repairs before the house is listed. And buyers receive the report before writing an offer with a pretty clear understanding of what's been repaired and what they will need to address as the future owners.  Buyers can make a fairer offer when they have all the facts and there is no re-negotiating the contract after the inspection.

Inspecting a home before it goes on the market is not cheap.  Expect to pay between $300 and $400 for a home inspection.  Plan on another $100 or so to make sure the furnace or boiler and in top working order and if there is a fireplace, you will also want to do a chimney safety check for approximately $75 to $100.  These fees add up but rarely is a buyer's request for a repair credit less than $1000.

Last year alone, I was involved in 3 transactions in which buyers made an offer based on there being an old furnace.  During the course of the inspections, cracked heat exchangers were discovered and guess what, each buyer ended up with a band new furnace.  Happy buyers for sure, but very angry sellers.

I'm all for less drama in real estate and believe that less surprises equals less drama.  I'd love to see all Rochester area sellers have there home inspected before going on the market, or at a minimum, have the furnace serviced.  If you'd like more information, don't hesitate to give me a call or send me an e-mail.

Multi-Family Units & the Federal Tax Credit

I learned something new today regarding the Federal Tax credit for first time home buyers (defined as not owning a home in the past 3 years.) If you purchase a 2-family unit as your primary residence, you are only eligible for half of the tax credit and only a third of the credit if you purchase a three-family unit, etc.



There are still no local mortgage lenders that are providing a short term loan so that the tax credit may be used for closing costs. Since Labor Day weekend is the realistic cutoff to have an offer accepted in order to close before the November 30th deadline, I'm no longer optimistic that this loan is even going to be offered. Most lenders are now advising that buyers get a gift from a family member and give a gift back after closing.



Sales are still brisk in Rochester, with houses in the North Winton area selling within hours of being listed. If you'd like more information about buying in the Rochester area, consider signing up for my Buyer Seminar scheduled for Wednesday, June 24, 6 to 7:30 pm.

Cash for Buying a House

For the past two weeks or so, there have been rumors galore that first time home buyers will be able to borrow their federal tax credit in order to use that money for closing costs and down payment towards the purchase of a home. The details have not yet been worked out but I think this is going to happen. There are some technicalities that have to be worked out because basically you are not suppose to borrow money in order to have the funds necessary to qualify for a mortgage. Hopefully this will be worked out soon because there is not a lot of time left in order to qualify for the tax credit. The purchase must be closed before December 1, 2009.


I have also heard rumors of homebuyers amending their 2008 tax returns to claim the credit before they close on a home in order to get the money early and use it at closing. I’m not a lawyer and this is not legal advice BUT I don’t recommend you doing this. Lying to the federal government so that they will send you thousands of dollars doesn't seem like a prudent advice for individuals that enjoy the simple things in life, like freedom.

Anyway, I’m working with plenty of first time home buyers right now and questions keep coming up about the disbursement of money, i.e., when and how much. Here are some general guidelines.

When you write a purchase offer for a property, you need to be willing and able to make a good faith deposit within 48 hours of when your offer is accepted. Deposits are a minimum of $1000 and are made payable to the listing broker. That money is held in escrow (not given to the seller), is refundable if the contract is canceled due to contingences, and is used towards the closing costs or down payment of the property.

Generally, the buyer has up to one week to conduct inspections of the property and these are done at the buyer’s expense. Inspections include a home inspection ($300 to $500), radon test ($150 to $200), mold inspection ($200 - $500), chimney inspection ($125 0 $200) ect. In addition, if the house is on septic system and/or has a well, they will need to be inspected. It is not unusual for the seller to pay for these inspections but occasionally the buyer will prefer to pay for these themselves just so that the inspector works strictly for the buyer. Well inspections and water testing can run from $35 to $250 and septic pumping and inspection is $200 to $400.

The next outlay of cash is usually to the mortgage lender. Some lenders will collect an application fee at the time the mortgage application is made ($200 - $300). Nearly all lenders will require that the appraisal be paid up front ($250 - $400).

Things get quiet after mortgage application and the next big expense is homeowner’s insurance. Mortgage companies require that you pay for the first year of insurance up front and that the insurance binder is faxed to your attorney before closing. Insurance premiums are based on the replacement cost of the property plus there is consideration of personal possessions, so I won't dare to quote a range for homeowner’s insurance, but do encourage you to shop around.

The day before closing, you will receive a call for your attorney’s office telling you how much money to bring to closing. Hopefully, any surprises with this phone call are good ones, as you will have received and signed a “Good Faith Estimate” at the time of mortgage application. Some of the language on the GFE is confusing to the layman. The GFE will give a total of closing costs, prepaid items which includes interest and mortgage insurance and the down payment. The GFE should include “Total Estimated Funds Needed to Close” and this should be fairly close to what you are asked to bring to the attorney’s office.


I hope this helps clarify how much money is needed when in the home buying process. If you’d like more information or a consolation, don’t hesitate to give me a call.

A Hedge Against the Economy

Several weeks back CNN Money Magazine predicted Rochester's housing prices to increase 2.7%, ranking it second in the country for fastest growing markets. And while that is very good news for the Rochester real estate market, there are a few things to keep in mind. First off, this is only a prediction. Second, this is a cool off of the 4 to 6% appreciation we've been seeing in recent years.

As I work with buyers, especially first time buyers, I urge them to consider shorter term financing, even if it means purchasing a less expensive property. In my opinion, that is the greatest hedge against today's uncertain economy.

Case in point, consider 137 Boardman St (www.RochestersBestHomes.com/811190 ) listed at $96,500 with property taxes of $2,285 per year. Let's suppose we come to terms with a purchase price of $93,000 and we plan to put 5% down ($4,650) which means we are financing $88,350. Let's say our interest rate is 6.125%.

For a 30 year mortgage, consider the following:

Monthly principle & interest is $536.82 (Of course, that does not include taxes of $190.42 which would make the payment $727.85) After five years, the balance of your loan will be approximately $81,500. That means, of the nearly $35,000 you send to the mortgage company over the period of 5 years, only $6,850 is used to pay down your loan.

Now, let's look at a 15 year mortgage. Sometimes you can get a better interest rate on a shorter term loan but for the sake of comparison, let's stick with the 6.125% Monthly principle & interest is $751.52 and at the end of five years, you will have paid down your loan to nearly $65,000. Instead of having $7000 in equity, you will have approximately $23,000!

Most banks also offer 20 and 10 year mortgages. Often buyers will not even inquire about a shorter term mortgage because they assume they can't afford it. In my opinion, they can't afford not to! When shopping for a mortgage, ask your lender to also provide a good faith estimate for a 20 year and 15 year mortgage and go with the shortest term mortgage you can possibly afford.

Closing Costs Take 2!

Hello again! Hope everyone had a great holiday season. Lets jump right in, and finish this little mini-series on "Closing Costs". Today we will focus on the actual cost of getting a mortgage. As you may recall from "Take 1", this is the area where you want to focus on when shopping for a mortgage. Some of the fees will be the same regardless of where you get your mortgage, and some will vary from lender to lender.

Lets first look at the fees that would remain the same between lenders. Title insurance and mortgage tax are based on the loan amount, and would only change if the borrower were to put more or less money down on the house. The recording fee is the cost to put the mortgage on record at the county clerks office. The recording fee is not one thats dependent on the actual loan amount. Again, when looking at multiple good faith estimates, these three fees should be the same.

The other fees associated with the cost of getting a mortgage, is where we see a lot of variation bewteen lenders. Heres a list of the fees that are specifically from the lender and the average cost of each fee: appraisal fee ($275 for a single family house and $450 for 2-4 unit house), tax related service fee ($80), flood certification fee ($18), Admin fee/underwriting fee/commitment fee ($495), application fee ($200), courier fee ($30), and Bank attorney fee ($450). To give you an idea of the variation, I totaled these fees up from four lenders I work with, and here are the results: $1516, $1571, $1545, and $1539. As you can see, there is some difference between these four, but the difference is minimal.

Well that will just about wrap it up for closing costs for now, but if you have any questions, feel free to call or email me anytime. Also, if theres a specific topic you would like me to cover here in the blog, just let me know and I would be happy to write about it.

Closing Costs Take 1!

Hi everyone! Today I'd like to take a moment to talk about a topic that can be confusing for first time home buyers. Many times home buyers will mistake the term "closing costs" with the "Total Money Required to Close". When in fact "Closing Costs" are just one of two or three components of whats required at closing. I say "two or three" because sometimes home buyers are not coming up with a "Down Payment", which would eliminate your first component. Some mortgage products offer 100% financing, but most often, home buyers are putting down a certain percentage of the purchase price. In summary, component 1 is the down payment.

The 2nd component is the "Closing Costs" or the actual cost to get the mortgage. This includes the banks junk fees, such as the; application fee, underwriting fee, tax related service fee, flood certification, and so on. Lender fees are not dependent on the actual loan size, compared to title insurance and mortgage tax. Those two fees are state specific and based on the loan size. Mortgage tax can differ from county to county. When shopping different lenders this is the area or component to keep your eye when comparing, as well as the rate of course.

The final component is the "Prepaid Items". This is the property taxes, home owners insurance, and interest on the loan for the closing month. In NY, when escrowing your taxes, you must come to closing with at least 1 full year of the property taxes. Some of that will reimburse the seller, and the rest will go towards setting up your escrow account for future tax bills. Home owners insurance must always be paid in full before closing whether you escrow or not.

Well hopefully that clears up some confusion about "Closing Costs". Stayed tuned for "Closing Costs Take 2" when I go into detail about the cost to get a mortgage, and what an average amount you should pay per fee.