Real Estate ABC’s

Real Estate ABC’S – Buyer Closing Costs

June 24, 2011 by admin

In the stack of papers that a buyer is required to sign at the settlement table, one of the most important is known as the HUD-1 Settlement Statement. The HUD-1 itemizes both the buyer’s and seller’s funds involved in the real estate transaction, and is the standard real estate settlement form utilized today in the United States.

Following is a breakdown of an actual HUD-1 Settlement Statement of a transaction where I represented the buyer, on a property that settled in late May, at a selling price of $310,000. So fees exhibited in blue italics are actual dollar amounts from that closing. The normal charges that appear on the buyer side of the settlement sheet are reviewed below.

Items Payable In Connection With Loan

When a buyer obtains mortgage financing for a home the cost associated with that loan are itemized in this section. The common items found here are:

Origination Charge : this is a category of charges that are levied by the lender as fees connected to the processing of the loan – $2,933.25
Commitment Fee – A borrower pays this fee when he or she accepts the lender’s commitment of the funds. Commitment fees can only be accepted for written commitments. These fees must be fully refunded if the title is not acceptable or the appraisal report is unfavorable – $275.00
Application Fee -Fee paid to a mortgage broker, banker, or lending institution when applying for a mortgage loan. The application fee includes the charges for soliciting, processing, placing, and negotiating the mortgage – $475.00
Wire Transfer Fee – Charge to electronically transfer funds to the Title Company – $11.50
Overnight Delivery Fee – Fee paid for the overnight delivery of mortgage papers to the closing officer – $23.00
Points: a charge which is equal to 1% of the loan amount e.g. 1 point on a $100,000 loan is equal to $1,000, which can be incurred as an upfront payment when the buyer is “buying down” or lowering a stated interest rate, or for participation in custom lender programs. Points are not always paid when obtaining a mortgage but can also be incurred by a buyer who has less than perfect credit, and must pay the lender a premium in order to obtain the loan. Points may also be levied for loan amounts that are under $150,000 – $2,208.75

Appraisal Fee: the fee charged to the borrower for ordering and processing of the property appraisal. Appraisals are required when buying a property that involves mortgage financing – $400.00

Credit Report: the fee charged by the lender to run a Credit Report on the borrower – $11.20

Tax Service Fee: when a buyer is putting less than 20% down on a property the lender will require that real estate taxes be held in escrow, in a separate account to pay future tax bills. This fee is for the establishment of that account – $67.00

Flood Certification: all properties, whether or not they are close to any body of water, must have a Flood Certification. This is to ensure that the home being purchased does not require flood insurance – $13.00

Items Required By Lender To Be Paid In Advance

Daily Interest Charges: the per diem interest charge for the mortgage incurred from the day of settlement until the end of the month. Settlement that occurred on May 26 paid per diem for 6 days from 05/26 until 06/01 in the amount of $44.38/day.

Homeowners Insurance: A lender will require that a paid in full Homeowners Policy be in force at the time of settlement. Most buyers pay the insurance in full prior to closing, but it can be an option to pay the insurance bill at closing – $652.00

Reserves Deposited With Lender

These are payments into the buyer’s escrow account for future obligations. The lender will set the amount of each category that will be “paid forward”.

Homeowners Insurance: 3 months of the annual cost of the Homeowners Insurance – $53.34

Property Taxes: 5 months of the annual municipal taxes – $461.50

County Taxes: 5 months of the annual Delaware County Tax bill – $415.05

School Taxes: 12 months of the annual school tax bill – $5,234.76

Mortgage Insurance: when the borrower is putting less than 20% down there will be an escrow amount withheld for several months of Private Mortgage Insurance (PMI)

Homeowner Or Condominium Association Fees: if the property being purchased is part of a homeowners or condominium association an escrow amount equal to several months of association fees will be collected

Aggregate Adjustment: By law there are limits to the amount that can be placed into escrow at the settlement table on the buyer’s behalf. This adjustment, if applicable, reduces the escrow withholding to the prescribed limits – $1,039.75

Title Charges

Title insurance is protection against loss due to problems of “defects” in the title to a property. Title Insurance is required when purchasing a property involving mortgage financing. Title insurance rates are regulated and uniform within Pennsylvania, and based upon the purchase price of the home. Title insurance is not required when purchasing a home for cash, but recommended.

Title Service And Lender’s Title Insurance: the cost of the Title Insurance for the property – $2,138.75

Notary Fees: the fee paid to the Notary, the Closing Officer, who conducts the closing – $55.00

Closing Services Letter: the charge for the letter to the underwriters stating that the Title Company conducting the closing is in good standing, and that the settlement clerk will follow all the instructions contained in the lender’s mortgage package – $75.00

Government Recording And Transfer Charges

Government Recording Charges: the mortgage and the deed, as well as other documents such as a Power Of Attorney, condominium association documents associated with the closing, must be recorded at the County Courthouse. Each county establishes a base fee for recording these documents. In Delaware County the base amount is $80.50. The recording of a standard 4 page deed costs an additional $82.50. Mortgage documents are recorded at the cost of $4.00 per page. FHA mortgages are 12 pages in length, and Conventional mortgages are 18 pages in length – $233.00

Transfer Taxes: buyer and seller must pay a 1% transfer tax of which 0.5% is remitted to the State of Pennsylvania, and the other 0.5% is paid to the local municipality. – $3,100

Additional Settlement Charges

Conveyancing Fee: the brokerage charge for the processing or conveyancing of the transaction – $195.00

Adjustments For Items Paid By Or In Behalf Of Borrower

These items cover taxes that have been already paid by the seller that are being reimbursed. On the day of closing there will always be credits to the seller for tax payments that the seller has already paid. The buyer assumes the tax payments for the day after settlement forward. Municipal and Delaware County taxes operate on a calendar year basis – 01/01 to 12/31, and school taxes operate on a fiscal calendar that runs from 07/1 to 06/30 of the next year. Tax reimbursement are pro rated depending on the day of the settlement. In this example settlement which occurred on 05/26/2011 the buyer reimbursed the seller for Municipal and Delaware County taxes that had already been paid for the period of 05/27 until 01/01/2012 – the start of the the next tax year. School taxes had been paid by the seller through 07/10/2011 and were reimbursed by the buyer for that time period.

City/Town Taxes 05/27/11 to 01/01/2012 – $771.06

County Taxes 05/27/11 to 01/01/201 – $597.64

School Taxes 05/27/11 to 07/01/2011 – $485.75

Total settlement charges to the buyer in this example came to $14,924.72. This is an amount that is almost equal to 5% of the purchase price of the home, 4.8% to be exact. As a buyer you can expect closing costs of 5% to 6% of the purchase price of the home. Remember that these closing costs are in addition to the down payment that you have made. To offset closing costs it is not uncommon to ask the seller to provide a Seller Assist in order to reduce this amount.

Real Estate ABC’s – FHA Mortgages

May 20, 2011 by admin

A FHA insured loan is a Federal Housing Administration mortgage insurance backed mortgage loan which is provided by a FHA-approved lender. FHA insured loans have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford. To obtain mortgage insurance from the Federal Housing Administration, a mortgage insurance premium (MIP) equal to a percentage of the loan amount at closing is required, and is normally financed by the lender and paid to FHA on the borrower’s behalf. FHA loans will also involve a monthly premium as well. See updated information regarding the new PMI guidelines.

The program originated during the Great Depression of the 1930s, when the rates of foreclosures and defaults rose sharply, and the program was intended to provide lenders with sufficient insurance. Some FHA programs were subsidized by the government, but the goal was to make it self-supporting, based on insurance premiums paid by borrowers. Over time, private mortgage insurance (PMI) companies evolved, and now FHA primarily serves people who cannot afford a conventional down payment or otherwise do not qualify for PMI.

FHA allows first time home buyers to put down as little as 3.5% and receive up to 6% towards closing costs. Specific FHA lender overlays may be tighter. FHA guidelines will allow a blood relative, such as a parent, to co-sign for the loan without requiring them to reside in home with first time home buyer. This is called a Non-Owner-Occupied Co-Borrower. Specific FHA lender’s underwriting guidelines will have their own standards.

To meet FHA loan credit criteria, a prospective borrower generally needs a FICO credit score of 620 or above. The credit score used for FHA loan qualification is determined by obtaining the borrower’s scores from each of the three major credit bureaus, then eliminating the highest and lowest scores. This score is referred to as the “middle score” or “mid score”. Although the FHA has set its minimum credit score requirement at a 580 for many of its programs, individual lending institutions can add additional requirements and raise the minimum score as they see fit.

A home must have an FHA appraisal performed by a certified appraiser to be an acceptable property for an FHA loan. To satisfy the FHA appraisal requirements, the home must be in reasonably good condition. Certain disqualifying appraisal conditions may include but are not limited to structural problems, leaking roofs or missing exterior paint or siding. The property appraised value is extremely significant in the FHA loan process and the home must appraise for at least the purchase price.

One of the biggest myths associated with FHA loans is that they are only available to first time home buyers. This is not true, FHA financing is available to any borrower, provided they meet established FHA and lender specific guidelines.

The highest FHA mortgage amount changes from county to county and metropolitan areas throughout the United States. The smallest maximum FHA loan amount in any county is $271,050, but can reach as large as $729,750 in particular high-cost locations.

FHA FINANCING IN WALLINGFORD

Based upon the last full year of sales, 2010, in which there were 125 transactions, FHA financing was utilized in 26 transactions, or 20.8% of sales reported in the MLS. The full breakdown of financing for 2010 was:

4 – Private Financing

4 – Veterans Administration (VA) Financing

22 – Cash

26 – FHA Financing

69 – Conventional Financing

Wallingford PA Real Estate – Wallingford, PA 19086

Reals Estate ABC’s – Title Insurance

April 5, 2011 by admin

One of the large numbers you see on your HUD-1 sheet at the closing table is title insurance. Many people ask just what is title insurance and why do I have to have it?

Title insurance is an insurance policy that protects the insured against financial loss rising through defects in the title to real property. Before a home is purchased it most likely has gone through several ownership changes, and the land on which it is built went through many more. At any point in that ownership chain there may have been a situation that occurred which can cause a title issue. For example, an owner may have forged a signature in the transfer of title, or there may be unpaid tax or mechanic liens against the property. Title insurance covers the insured party for economic loss that is the result of such title issues, which are known as title “defects”. When the title for a property has been verified as insurable, the title company will guarantee against loss due to any title defects, and pay expenses incurred in defense of any lawsuit which challenges the title.

The premium for title insurance is paid once at the time of closing, and is based upon the purchase price of the property. The insurance protects the insured for as long as they or their heirs maintain an interest in the property. Coverage protects against losses that arose prior to the issuance date of the policy, and ends on the day the policy is issued and extends backwards in time for an indefinite period of time. This is a marked departure from most insurance policies, which protect the insured against future events that occur after the policy is issued.

Insurance is mandatory and required by the lender when purchasing a home that involves a mortgage. The purchase of title insurance is not required when purchasing a property with cash, but it is strongly recommended that the buyer do so.

Title insurance rates are set by the Pennsylvania Insurance Commission, and all policy pricing is uniform across the state. For example, a Wallingford home that is being purchased for the average average 1st quarter price of $287,006, the title insurance would be $1,798.75.

Wallingford PA Real Estate – Wallingford, PA 19086

Considering A Property Tax Appeal?

March 12, 2011 by admin

2011 County And Township Tax Bills

Tax season has arrived, Nether Providence Township and Delaware County tax bills are in, and the 2% discount period expires on April 1, 2011. As home values have decreased over the past several years the question if often asked – What is involved in appealing my taxes? There is a misconception that you need a lawyer, and that is an option, but the process is not that complicated.

As a homeowner in Wallingford, Nether Providence Township you have the privilege to pay tax bills on an annual basis. You also have an opportunity to appeal their assessment once a year. By appealing, the property is open to the re-valuation process in which the property assessment may be lowered, raised or remain the same. An assessment is a percentage of the market value of the which is the foundation that taxing authorities use to determine the amount of real estate taxes based on their tax rates.

Remember, in the case of an annual appeal, the Board decision does not take effect until tax bills are issued the following tax year – an successful appeal in 2011 will be reflected in your 2012 taxes. Annual appeals – an Appeal Of Total Assessment – may be filed from March 15 through August 1.

The process is relatively simple. The first step is to obtain an Annual Appeal Form. The form is available beginning March 15, 2012 in one of the following ways:

Calling the Assessment Office at 610-891-4879
Visiting the Office at 201 West Front Street Media, PA 19063
Download the form – 2012 Annual Appeal Form

Complete the form, and mail – Faxing is not permitted, remember this is the government – or drop off the form and an $50.00 check.

Mailing Address:

Board Of Assessments And Appeals

Government Center Building

201 West Front Street

Media, PA 19063

The Process

A residential Annual Appeal hearing lasts about 5 minutes. The hearings are held in the Board Of Assessment Department Board Room, located on the ground floor of the Government Center Building. The property owner has the opportunity to present such information as a recent appraisal or recent sales documentation for sales of similar homes in their area. The property owner may also present other information that may have an impact on the value of the property.

The property owner should provide front and rear photographs of the home. Photographs should be within the last 6 months, and are to include any recent physical changes to the exterior of the property. Failure to bring these photographs on your appeal date may result in an unnecessary delay in processing the appeal.

Applicants are requested to attend but if unable to do so, may send someone to provide the representation with a letter of authorization. If more than one person owns the property jointly it is not necessary that all the owners appear at the hearing. The hearings are held in September and October. Notification of the hearing date and time is mailed at least 20 days in advance of the scheduled hearing.

The Board consists of 3 members appointed by the County Council and generally renders a decision within 3-4 weeks of the hearing date. The results of Annual Appeals are mailed to the property owner on November 15.

Based upon the documentation provided by the property owner, the Board will determine a fair market value for the property. The Board will then by statute, apply the appropriate Common Level Ratio or CLR, to the fair market value to arrive at the new assessed value.

By law all properties within the County must be “uniformly” assessed at a similar ratio. All taxes must be uniform on the same class of properties within the geographical limit of the taxing authority. The guiding principle in matters of valuation is that no one taxpayer should pay anymore or less than their proportionate share of the cost of government.

So the formula used to arrive at the Assessed Value is:

Market Value x Common Level Ratio = Assessment

All properties in Delaware County are assessed at the same ratio to market value. Currently assessments are set at 100% of 1998 base year value.

So what do Common Level Ratio and Market Value mean?

Common Level Ratio

The CLR is created by the Pennsylvania State Tax Equalization Board – STEB – on an annual basis for each county. The CLR is an average of assessments to sale prices, based upon valid sales activity in Delaware County for the prior calendar year.

The Common Level Ratio for Delaware County is currently 1.56

Market Value

The Pennsylvania Supreme Court has defined Market Value as:

the price in a competitive market a purchaser, willing but not obligated to buy, would pay an owner, willing but not obligated to sell, taking into consideration all the legal uses to which the property can be adapted and might reasonably be applied.

In other words market value represents the what a buyer would be willing and able to pay for a home in the current market.

To establish the “actual” value of property, the county may use current year market values or it may adopt a base year for market values. For the most part, properties are assessed at a set percentage of a base year value, which in Delaware County is 1998. Property is only assessed at current market value when a countywide reassessment has been conducted and implemented. Unless the County reassesses all properties every year, the property assessments will be predicated upon the base year value.

The assessment laws state that “the price at which any property may actually have been sold in the base year or the current tax year is to be considered but is not controlling. Such selling prices can be increased or decreased as part of the valuation process to accomplish equalization with other similar property within the taxing district.” Recent sales of comparable properties are persuasive but not conclusive in helping to establish the market value. The properties selected need not be identical. Sale prices are useful in showing relative values by bringing out similar or dissimilar traits.

Tax Computation

With all that said, the bottom line in computing taxes involves the millage rate for the taxing authority. The millage rate is the amount of tax that is applied to every $1,000 dollar of assessed value:

Assessed Value x Millage Rate = Tax

The Nether Providence millage rate for 2011 is 4.090 – for every $1,000 increment of assessed value of your home you will pay the Township $4.09.

For an assessed value of $149,490:

149.49 x 4.09 = $611.41

The millage rate for Delaware County is 5.180 mills. For every $1,000 increment of assessed value of your home you will pay the County $5.18.

For the same assessed value of $149,490:

149.49 x 5.180 = $774.35

So if you are considering a tax appeal, it is recommended that you order an appraisal for your home, and examine what the taxes and assessments are for your area. I would be glad to provide information on both.

Real Estate ABC’S – Deed In Lieu Of Foreclosure

March 8, 2011 by admin

If a homeowner with a mortgage is no longer able to make payments and unable to get refinancing to lower monthly payments, there are several options: loan modification, short sale, foreclosure and deed in lieu of foreclosure.

With a deed in lieu of foreclosure, the homeowner requests and receives permission from the lender to sign the deed of the home over to the lender. The lender accepts the deed, absolves the debt and waives the right to seek additional money from the homeowner if the sale of the home doesn’t cover the loan.

The lender marks the borrower’s note as “paid” and provides the borrower with two documents – one which states that the debt is canceled and the other waives the lender’s right to a deficiency judgment (the lender’s right to ask for the amount of the debt they are unable to recover from the sale of the home).

In most cases, a deed in lieu of foreclosure is better than foreclosure for the borrower and the lender. The borrower gets out of debt that he cannot afford to pay and avoids foreclosure. Even the borrower’s neighborhood benefits as news of foreclosures, which are public record, lower surrounding home values. For the lender, a deed in lieu of foreclosure avoids the hefty costs of foreclosure proceedings .

While a deed in lieu of foreclosure can help relieve an immediate threat of default or foreclosure, a homeowner considering it should be aware of the following points:

You must approach the lender and the lender must agree. Even if it is a good option, a lender cannot approach a homeowner about giving up a home. Both parties must enter into the transaction voluntarily and in good faith.

Your equity is lost. Lenders are most likely to accept a deed in lieu of foreclosure when there is positive equity in the home. In a foreclosure, you remain the owner of your equity if there is value left over after the loan is paid. In a deed in lieu of foreclosure, it all goes to the lender.

There could be tax consequences. If the sale of the home does not cover the loan balance, you are being forgiven that amount. If the home is not your primary residence or the forgiven balance is above set amounts, you might face taxes on it.

Your credit history is affected. A short sale does not affect your credit standing. It is simply a sale of the home. And while a deed in lieu of foreclosure is not as big a black mark on your credit report as a foreclosure, it is still reported and still a part of your credit score calculations.When you go for deed in lieu of foreclosure, it affects your credit score. Your score could drop by as much as 250 points and will stay on your credit report for 7 years. After 7 years, you can have the deed in lieu removed from your credit report and start to rebuild your credit. At the end of the 7th year, you can request the bureaus to remove it from the report.

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FHA FINANCING IN WALLINGFORD

The Process

Common Level Ratio

Market Value

Tax Computation

S. Clark Kendus