The term seller concession is commonly used in a real estate transaction during negotiation where the buyer is requesting the seller to contribute funds from the proceeds towards the buyers closing costs. Typically this is determined as a percentage of the purchase price or a fixed dollar amount.

There are a couple of things to keep in mind when discussing seller concession. If you are a buyer it is recommended you have a conversation with your loan officer to determine what are “allowable closing costs” that will be covered in this seller concession amount. Sometimes if you have an agreed upon seller concession amount for example an amount of $5,000 but only have $4,370 in “allowable closing costs” the remainder of those funds is left on the table and cannot be used. All monies within the real estate transaction have to be accounted for on the HUD statement therefore the buyer needs to understand they will not receive any money from a seller credit that isn’t used as that is not legal. It is imperative to know what the allowable closing costs are upfront in order to be best prepared for the transaction.

Transfer tax is a tax on the sale, granting or transfer of real estate or an interest in real estate. The tax applies to both buyer and seller, and each pay tax at the rate of $7.50 per $1,000 of the sales price; i.e, $1500 on a sale of $100,000 with buyer and seller each paying $750. The tax is paid at closing, and stamps are affixed to the deed at the County Recorder’s Office.

Transfer tax is generally tax deductible when paid on your primary residence. As always, consult a tax professional with your specific questions.

For questions regarding transfer tax or any other closing/title question, feel free to call:

Karen Kelley, President
Broker’s Title & Closing, LLC
(603) 434-1414

Discount points are fees paid to a lender in order to purchase a lower interest rate. This process is also known as a “rate buydown” and the net result is a lower monthly mortgage payment over the life of the loan.

One point is 1% of the loan amount. So the cost – paid at closing – for one point on a loan of $100,000 is $1,000. Typically, one point will lower the interest rate .25% to .375%, depending on the type of loan.

Does it make sense to consider purchasing discount points? That depends on a number of factors. Usually, it is best to avoid discount points if you will be in the home less than four years, are applying for an adjustable rate mortgage or plan to refinance within a few years. Discount points are generally a good idea if the homebuyer plans to remain in the home over five years and is not planning on refinancing in the near future.

When considering discount points, it’s best to conduct a break-even analysis. This is done by calculating the monthly mortgage payment with no points, then subtracting the monthly mortgage payment with points. The difference is the monthly savings. Then divide the cost of the discount points by the savings. The result is the number of months until the homebuyer breaks even.

In the most simplistic of terms, it’s almost exactly what it says: a mortgage set up in “reverse”. Also known as HECMs (Home Equity Conversion Mortgages), they are home loans made to individuals age 62 or older, whereby they can tap into the accumulated equity built up over time in their home. Many seniors find it financially burdensome to live on a fixed income and pinch pennies from Social Security check to Social Security check to pay utility bills, cover the cost of groceries and medications. Yet, many of these same retirees own homes valued in the hundreds of thousands of dollars that they never plan, or want, to sell. In years gone by, unless they sold the property, there was no way to get any equity out of it without incurring a mortgage which would just mean yet another monthly payment to deal with. Then along came the idea of the reverse mortgage…

Buying a home is probably one of the largest financial decisions you’ll make during your lifetime. If you are not in a position to pay cash for a home, then you’ll want to be sure you are obtaining a mortgage under the best possible terms.

As a loan originator, I speak daily to borrowers who just want to “shop” for the best rates. Although rates are an important factor in choosing a lender, it shouldn’t be the sole reason for your decision.

In my opinion, the most important factor in choosing a lender is to find someone you are comfortable with. It is not the loan originators responsibility to determine your loan for you. However, they should assist you by providing enough details and options to make an informed and educated decision for yourself. In addition, the person you select should be readily available throughout the process, and be able to supply you with answers and explanations anytime questions arise.

Of course, interest rates will play a large roll in your decision as well. The following are key factors in determining what rates are offered…

Effective 4/18/11, the FHA is again increasing their annual mortgage insurance premiums. Most borrowers who are using the FHA loan for maximum financing (currently only 3.5% down) are paying 90 basis points on a monthly basis. As of 4/18/11, this will increase to 115 basis points. Here is an example.

Today: Loan amount of $200k would have a monthly PMI fee of $150/mo.
4/18/11: Loan amount of $200k would have a monthly PMI fee of $192/mo.

As you can see, this increase is fairly significant, and may ultimately decrease a buyer’s purchasing power… especially if they are shopping at the upper end of their qualifying range. Using more of the monthly payment towards principle and interest puts buyers in a higher price range, and may give them a better tax advantage.

Also remember that as this date nears, you’ll want to be sure that you re-visit your numbers with your lender to be sure they are still appropriate.

If you would like any additional information, or are interested in getting pre-approved, please contact me. I’m happy to help!

Tammy Verani
Senior Loan Consultant
Prospect Mortgage
One Verani Way, Suite 1C
Londonderry NH 03053
Office: (603) 552-9801
Fax: (603) 218-6288
Cell: (603) 505-5752
Tammy.Verani@Prospectmtg.com

Mortgage rates are the lowest they have been in decades. What does that mean for you?

It means that in the current market you could qualify for more than you think. First time home buyers could be spending what they pay in rent on a monthly mortgage payment that leads to equity and ownership!

There are several loan programs out there, and some, like VA and USDA Rural Development, require no money down. The Rural development loan covers most towns in the state of New Hampshire with a handful of exceptions, and of course veterans always have the option of a VA loan. Don’t forget about grants from New Hampshire Housing which can go toward a down payment or closing costs. Things are very affordable and favorable to buyers right now, and this may not last long as pundits have said rates may start rising.

So what can John and Jane Doe hope to qualify for if they make a combined $60,000 a year, have average debt, and a fairly good credit rating? Today, that average couple would be able to qualify for about $180,000 in a 30 year fixed rate mortgage. With the current interest rates hanging around 5 percent, that means John and Jane might be paying the same for their mortgage as they are for their current rental. Does this mean you should max out your borrowing capacity? No, but let’s say you do borrow the $180,000…

Purchasing a home can be a complex process, but knowing what you need before you apply for your mortgage loan can help make the process smooth and stress-free. Here’s what you will need to have ready when applying for a mortgage loan:

• Driver’s license and social security card
• For home purchase loans:
  • Sales contract with original signatures, along with a copy of the earnest money check
• Credit card for payment of appraisal and credit report fee
• For refinance loans:
  • A copy of the warranty deed and any current mortgage and/or bill payoff information (copies of last statements)
  • A copy of the current tax and home insurance expenses, along with a copy of the survey and owner’s title insurance policy

Just recently in the second half of 2010, I have noticed that mortgage underwriters are requiring second appraisal opinions more frequently to support the valuation done on a property appraisal. Called desk reviews or field reviews by second appraisers, they serve to support or change the value arrived at by a property appraisal. Since the recession started in 2007/2008, there have been sometimes steep declines in market values throughout the country, and in some areas that decline is still evident.

The government entities that purchase mortgage loans, Fannie Mae, Freddie Mac and Ginnie Mae are more carefully scrutinizing mortgage applications and property appraisals in particular. The rules that they apply to appraisals are not always able to be supported by the market sales in the area surrounding a property. The goal is to have the comparison sales, a minimum of three recent sales, that are: 1.) within 1 mile of the subject property, 2.) similar style, size and age to the subject property , and 3.) sold within 90 days of the appraisal. When these criteria are not met satisfactorily in an appraisal, the underwriter can require a second opinion/second valuation by a desk review – a second appraiser reviews the original appraisal and may use on-line sales data to evaluate the original appraised value, or a field review – where a second appraiser goes out to the property and produces a new appraisal opinion, or supports the original appraised value. The underwriter then uses the lower of the two appraised values to determine whether the loan will be granted in the amount applied for.

Are you banking on a large seller closing cost credit from your seller?
If so, you should know that:

• FHA financing allows up to 6% seller concession and conventional financing no more than 3%;
• Not all closing costs are allowed; i.e., FHA insurance, VA Funding Fee, tax prorations;
• FHA requires that the buyer invest 3 ½% of their own money;

All of this means that you may not be able to use the full concession, and money will be left on the table.

Further, you should know that:

• Sellers cannot write you a check outside of closing for the difference between the concession and what are allowed costs.
• You should not count on the concession for furniture, appliances, or repairs.

For questions concerning Seller concessions or any other title/closing concerns, call us.