Offer Accepted: What Happens During Escrow?

So the past few months you’ve shopped properties, submitted offers on many and gotten your hopes up, only to be let down. But you haven’t given up, and finally you get the call from your real estate agent: Your latest offer has been accepted!
 
You might think it’s the end of the road to property ownership. But really, it’s just the beginning of the hard work.

Once you go into escrow, many items still need to be reviewed, discussed and inspected as you move forward in the process. Here are several that you’ll encounter for the next 40-50 days until you finally close escrow.

Home inspection & renegotiations

First you’ll need to schedule a home inspection and have an independent, licensed and insured inspector go through the property to look for problems. Make sure to join the inspector at the inspection and ask a lot of questions, write down everything that needs to be addressed and get with a contractor to determine how much it will cost to make all those repairs. Then have your real estate professional negotiate with the seller for, hopefully, some additional fixes and/or cash credits at closing.

Mortgage financing

Hopefully you’ve kept your lender apprised of where you are in the process. Now it’s time to get into full-speed motion. Get your appraisal ordered and start resubmitting pay stubs, mutual fund statements and other document the lender requests. And lock in your interest rate, points and loan terms — and get those terms in writing.

Title insurance, plat/survey, schedule of exclusions

You’ll also get a thick packet of documents that you’ll need to review. Most people do not review them, and that’s a really bad idea. You need to look through the estimated HUD-1 costs, the title abstract, the title insurance policy schedule of exclusions and all other documents. Also review the plat or have a survey done and then walk the property to see if there are any encumbrances (get the title company to plot the easements). This is the time, before you close escrow, to figure out if there are title or physical property issues that pose a problem.

HOA documents review

If the property is in a common interest development, you’ll need to review all the relevant homeowners association documents — board of directors meeting minutes and notes, financial statements, state disclosures, reserve study, bank condominium certification, HOA unit demand statement, etc. This is a really time consuming, confusing and tricky process. Many people fail to do even the most basic HOA analysis, and if you don’t adequately review the documents, you might feel some pain down the road when issues occur — and they will occur.

Property and liability insurance

You also need to get with an insurance agent and make sure to discuss and procure the proper type and amount of insurance that you’ll need. This is especially true if you’re paying cash, as you don’t have the bank personnel to double-check that you are properly insuring yourself. Your best bet is to go meet with your insurance agent and get the appropriate coverage.

Sign documents, fund down payment, verify GFE

As items move forward, you will eventually be ready to sign documents, fund the down payment and verify the lender costs match the good faith estimate you were given. Make sure to read and review all these documents before you sign off that they are acceptable to you.

Close escrow

Finally, you will fund your down payment, the bank will fund the mortgage loan, escrow and title will prepare all documents, properly account for all the funds, then go record your purchase documents at the county courthouse. And you are now the proud owner of a nice piece of dirt!
Author:ProfessorBaron.com

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

Refinancing? Avoid these five blunders

Before you jump on the refinancing bandwagon, do your research. Bypassing these refinancing mistakes will save you a lot of money — not to mention headaches — down the line.

Mistake #1: Paying too much in closing costs
Closing costs vary depending on which lender you choose. If you're not careful, you could wind up spending more than you should. You don't have to stick with your current lender when you refinance your mortgage, so talk to a number of different lenders to make sure you get the best rate. Check out a big national bank, a mortgage broker, a smaller local or regional bank and a credit union. You should also check out online lending websites, but stick with bigger names to avoid getting scammed.

Ready to refinance your mortgage? Click to Get Pre Approved.
 

Mistake #2: Not understanding what makes a "home-run refinance."
Just because you're able to refinance doesn't mean you should. To be sure it's the best move you can make, consider whether your refinance does at least two of the following: lowers your interest rate, lowers your monthly payment or shortens the loan term. If you're able to do at least two of these with your refinance, it's probably worth it. And if it's doing all three, plus managing your closing costs, you could be looking at what I call a home-run refinance.

Mistake #3: Being afraid of a shorter loan term.
You're in a 30-year loan term now, but that doesn't mean you need to lock in your next loan for another 30 years. This is especially true if you've already paid off seven or eight years of your loan, since stretching the new loan out over 30 years will actually cost you more money. Instead, consider a 15-year loan or even a 10-year fixed-rate loan. While the shorter term might seem scary, and it could even boost your monthly payments slightly, you could wind up saving yourself thousands of dollars in interest and mortgage payments over the life of the loan.
 
Mistake #4: Ignoring prepayment penalties.
Prepayment penalties are due when you pay off your loan in a shorter time period than the one stipulated by your lender. Since refinancing pays off your first loan and rolls you into a new one, you could incur prepayment penalties on your original loan upon refinancing. Be sure to read the terms of your loan and call your lender if you have any questions.

Also, while they are extremely uncommon today because most new mortgages are backed by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA), ask if there are any prepayment penalties in the new loan you're considering. If you lock into a new 30-year loan assuming you'll pay it off in 10 years, you may end up owing the lender more in prepayment penalties than you saved in the refinance. In this case, you're better off going with a shorter loan term.

Mistake #5: Re-re-re-refinancing.
It's great to take advantage of low interest rates with a refinance, and it's possible that today's low rates could go even lower. But that doesn't mean you should refinance every time rates drop. Instead, when rates are lower than the one you're currently locked into, calculate how long it will take you to benefit from the savings and refinance when it makes sense for you. You'll incur more in closing costs than savings if you refinance countless times over the life of your loan, so lock into a rate you're comfortable with and start paying it down.

Remember, mortgage interest rates are at 50-year lows. If you wait to refinance thinking that you'll get a better deal next year, you might be surprised to see interest rates move off of their lows and start climbing in the wrong direction. Ilyce Glink

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

Secrets of Successful House Flippers

Despite improvements in the housing market, there are still plenty of foreclosed or bank-owned properties ripe for house flippers--professionals who purchase distressed properties to renovate and resell. According to RealtyTrac.com, an online marketplace of foreclosed properties, investors flipped close to 100,000 homes in the first half of the year, making almost $30,000 per flip, on average.

However, experts warn that house flipping isn't as easy as it looks on TV. "You gotta be careful, really do your research, and know what you're doing," says Mike LaCava, a real estate investor outside Boston who founded the House Flipping School to teach others about the trade. 

Spending too much on repairs or on the property itself means losing money, as does choosing the wrong finishes or general contractor.

In Pictures: 10 Ways Your Home Can Pay You Money.

Here's a look at the best practices of successful house flippers, as well as tips on avoiding common pitfalls:


Look for potential. Flippers often invest in properties that don't appeal to conventional home buyers, since they know how to look beyond an outdated kitchen or moldy basement to spot potential. Chaz Shively, founder of New Alchemy Ventures, a real estate investment company in Denver, says, "If you walk in and it smells like somebody had 30 cats in there, it means there's opportunities to improve the place." House flippers typically find deteriorated properties through auctions or relationships with local real estate agents.

Do the math. Many house flippers focus on single-family homes because they appeal to more potential buyers. Plus, the financing on multifamily homes is more complicated, because mortgage lenders have stricter criteria for those. Either way, comparing the purchase price of the property to the after repair value (ARV) is critical. Flippers only earn a profit when the ARV is higher than the original purchase price plus repair costs, so accurately predicting repair costs and the ARV can make or break a deal.

The ARV is derived from similar properties sold in the area, says Peter Souhleris, cohost of Flipping Boston on A&E and cofounder of CityLight Homes, a Boston house-flipping company. "You have to know your market and compare apples to apples," he says. "A lot of novice flippers really want the deal to work, so they'll fudge the number of bedrooms. If you go in and start speculating, that's where you can get hurt." When calculating the ARV, Souhleris and his business partner and cohost Dave Seymour build in a 10 percent buffer for miscellaneous costs, such as attorney fees, taxes, and commissions.

Read: The Best Home Improvements to Please Picky Buyers.

Assemble a team of experts. Successful flippers know their strengths and aren't afraid to tap other experts, especially technical workers like plumbers and electricians. According to Shively, some novices "understand the cosmetic side of things, but they miss the fundamental structural elements like roofing." (For example, never buy a home with a flat roof in Denver, he says, because it snows a lot.) Shively recommends having the sewer line checked by a professional before purchasing a property, as sewer issues can be costly to fix, and soliciting multiple bids and references from contractors to help ensure the job runs smoothly. Building relationships with local real estate agents can also be useful for finding properties and getting accurate ARVs.

Design for buyers, not yourself. Selecting cabinets and paint colors for a flip is different from decorating your own house. The design elements need to appeal to a broad group of potential buyers. "We try to be conservative in our color selections," says LaCava. "We try to keep it basic like an antique white. When we go to a little higher-end home, we go with features like when you close a drawer, it won't slam, and nicer crown molding on the cabinets." Installing features that buyers in the area want, like a wall-mounted TV, higher-quality cabinets, or a built-in wine cooler, can make a property stand out and sell more quickly.

Read: 6 Tips for a Budget-Friendly Home Makeover.

Don't put it on the market too soon. "A lot of rookie people are in such a rush to get a property on the market, and it's not ready yet," says Doug Clark, a house flipper in Salt Lake City and cohost of Flip Men on Spike TV. "I used to do it and every time I did it, I started feeling like a builder, getting all these special requests from buyers. Wait until the absolute end, when it looks right, smells right, and it's staged with furniture."

Get a good, qualified buyer. If a buyer falls in love with the property but can't afford the mortgage, you'll waste precious time, so it's a good idea to get pre-qualification from a reputable mortgage broker. "Get to the point of sale knowing the person you're selling to is qualified to purchase the property," says Seymour. "Otherwise, that slows down the selling time, and it seasons the property on the market. It makes the whole project stale, and people start looking for price drops." Plus, the longer a property sits on the market, the greater the likelihood that profits could get eaten by carrying costs.  By Susan Johnston | U.S.News & World Report LP

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010

Mortgage Rates: Who and What to Believe?

Mortgage rates will open higher this morning based on early trading action for mortgage-backed securities and indications from pre-market activity in the equity markets.  But are they likely to stay higher?  I suppose it depends on who you choose to listen to and what other news you find meaningful.

Early trading activity is focused on Secretary of the Treasury, Timothy Geithner’s statements over the weekend that Republicans would ultimately accept the Administration’s plan for higher taxes on top earners (and all investors).

This would enable the country to resolve the so-called “fiscal cliff.”  The trouble with focusing on these statements by Secretary Geithner is that they are completely contradicted by statements made by the leaders of the Republican Party in Congress.  I do tend to agree that Republicans in the House of Representatives will ultimately decide to accept higher rates on top earners, but I don’t think it will happen soon or without specific spending cuts put forth by the president.

In real economic news today there are several important developments.

First, China reported the first growth in its manufacturing sector in over a year.  This is a sign that worldwide demand is beginning to increase, which will likely show up in US data as well.  

We will find out at 10 AM ET when the monthly ISM Index of US manufacturing activity is released. Expectations are for a slight drop from last month’s levels, but this could simply be a function of the after-effects of Hurricane Sandy. An upward surprise could cause rates to rise even more.

Also at 10 AM this morning will be the monthly construction spending report. Much like with the ISM report the forecast is for a slight decline.  But again a surprise higher could fuel a spike in mortgage rates as it would signal stronger economic activity than anticipated.

This week is crucial for mortgage rates and most of the potential pressure is for higher rates.

If the data on manufacturing, services and employment this week come in as expected we will buy a little more time with all-time low mortgage rates.  If however we get a surprise to the high side a sudden spike in rates could occur.  It really boils down to whether Hurricane Sandy had the impact on the economy that the experts believe it had.  We’ll know very soon.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.

First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256

Visit FirstCapital Online or call: 310-458-0010