I am sure you have heard the adage, "There's no such thing as a free lunch." In lending this is particularly true-even with 100% financing programs such as VA and USDA. However it is not unusual for a borrower who is using one of these programs to expect that there will be no expense to him or her.
Nothing could be farther from the truth. It is true that with these loans there are no down payment expenses-but there are costs incurred before the loan closes. Typically these can range from $800-$1200.
The first item that the borrower will encounter is what is known as earnest money. This isn't money for the lender, rather this is a deposit that is given at the time the borrower writes the purchase agreement with his Realtor to put the property under contract. Typically the earnest money ranges from $500 to $1000 though I have seen it as low as $100 or as high as several thousand dollars. This money is put into the listing broker's trust account to be held until the loan closes. At that time it is applied to the closing costs or down payment of the loan if there is one. The money itself is a token-a gesture if you will, to the seller to let him know that the buyer is "in earnest" or serious about their offer.
It is true that this money may be at risk if the buyer decides for no good reason to default on the contract. Within the body of the contract are many different reasons why the contract may be declared void, but if a buyer changes their mind for no discernible reason the seller may be able to keep the money. This decision is made by a judge in a small claims court (in the state of Indiana anyway) so the Realtors involved and the real estate companies are not a part of the decision as to whether or not to release the money to either party.
The second expense that the borrower will incur is for any inspections that they wish to have performed on the home.
The cost of a whole house inspection will run anywhere from $250-$500 or more depending on what all is inspected. Today's inspectors have been schooled in detecting many of the common problems that come attached to real property including well, septic and termite inspections, radon gas, and a variety of other whole house issues. While a buyer doesn't need to feel they have to act on everything the inspector cites, often safety hazards and potentially expensive repair items are found in the inspection. It is well worth the money.
It is not uncommon for a borrower to ask me if they need to go to the expense of an inspection. Not if you don't mind if you end up like this:
Even a brand new house is worthy of an inspection-I have know of one or two that have burned down due to an electrical wiring error. More than one set of eyes never hurts.
The third major expenditure you will have does have to do with the lender. That is for the appraisal.
Many buyers assume that the appraisal is a closing cost and can be paid at closing. It is a closing cost-but ever since 2010 when appraisers were required to work from third party companies known as Appraisal Management Companies, it is pretty much a rule of thumb that appraisal money must be collected up front. As a lender we do not deal with individual appraisers or appraisal companies anymore. In fact we are blind in the process. While we do collect the money for the appraisal and we order it and pay for it from the Appraisal Management Company that serves a particular lender, that is the end of our participation in the process. The AMC sets the pricing for an appraisal and handles all the communication with the appraiser. As a lender we can send messages through the AMC for the appraiser but we are not allowed to speak directly to any appraiser. So if the money isn't paid-the appraisal doesn't happen. A credit is issued at closing for the appraisal-but it will have already been paid for. Once the appraisal has been done no matter what the result, the appraiser has done his work so is entitled to be paid.
Depending on what the appraiser finds, while unusual, the appraiser may feel there is cause for further inspections to assure the lender that the home is sound and in decent condition. The most common of these might be a roof or structural inspection. Those additional inspection costs are incurred many times by the buyer-though it is not uncommon for the seller to pick up the tab for those as well.
Other costs that may be incurred are moving expenses or the cost of temporary housing if your lease is up prior to being able to take possession of the home.
100% financing sounds great-and it is but 100% financing shouldn't be confused with no money out of pocket. Buying a home for nothing is a fantasy that is sold by late night hucksters.
Be sure to have some money set back no matter how much you intend to put down. You will need it.
No comments:
Post a Comment