Q–We are in the market for a larger home. Recently we saw a large new “spec house” under construction. It is ideal for our growing family. We talked to the builder and he said we should sell our old home first.
But we are worried that this one-of-a-kind house will be sold by then. What should we do?
A–That home builder gave you good advice to sell your old home before buying another home. But you can try making a purchase offer contingent upon sale of your old home within 90 days.
Most home sellers will not accept such a contingent purchase offer, but if your old home is priced reasonably and listed with a top-quality realty agent, the home builder might accept your offer–especially if you include a large deposit check with your purchase offer. It’s worth a try.
Q–We’ve been reading your columns for about the last six months because they gave us so much valuable information for buying our first home. Now that we’re happily settled, we realize there is one topic we don’t recall your ever explaining.
We bought our home with 80-10-10 financing, meaning we paid 10 percent down, the seller carried back a second mortgage for 10 percent of the sales price and we got a new 80 percent mortgage.
But we were shocked to discover the closing costs equaled about 50 percent of our down payment. We had to pay a loan fee, mortgage interest for almost a full month, prorated property taxes into an escrow account, a mortgage warehouse fee (whatever that is), a loan underwriting fee and recording fees.
Why don’t you warn about the high closing costs?
A–It sounds like your mortgage lender stuck you with unnecessary “garbage fee” closing costs. I thought most lenders had eliminated these outrageous charges, which are virtually pure profit for the lender.
A loan origination fee of 1 or 2 percent to the lender is reasonable. But borrowers should not be asked to pay additional loan charges such as the mortgage warehouse fee and loan underwriting fee you paid. I’ve never paid such fees and you shouldn’t either. If they were not disclosed to you on the lender’s written good-faith estimate of loan charges, you should demand a refund from the lender.
The other closing costs you paid, such as prorated property taxes and mortgage interest for the remaining days in the month of purchase, are normal.
In the future, you can save interest costs by waiting to close your home purchase until the last business day of the month (except Monday). For example, if you closed your home purchase on Friday, Nov. 29, you would only have to pay November interest for the 29th and 30th at the closing. The reason you don’t want to close on a Monday is that most lenders charge interest for the funds over the preceding weekend.
Q–We foolishly followed the advice of our Realtor and let our buyers move into our vacant house before the sale recorded. They were living in a motel so were very grateful.
After they moved in, the wife said the house wasn’t clean and she had to spend over $300 to hire a cleaning crew. (The house had been vacant about four months, so I imagine it was a bit dusty.) Then she said she didn’t realize how badly it needed painting, so she hired a painting contractor who charged almost $1,450 to paint the interior. She also paid $275 to have the carpets cleaned. (We had them cleaned about six months earlier.)
Also, the family decided our 30-gallon water heater wasn’t big enough, so they had a 50-gallon water heater installed and expected us to pay the $575 cost.
These buyers refused to close the sale unless we credited them for these amounts, which we reluctantly did. Why don’t you warn home sellers not to let their buyers move in early?
A–I’ve given that advice many times here, but apparently you missed it. Your story will convince more Realtors and home sellers than I can that home buyers should never be allowed to move in early because they will find real or imagined defects and refuse to close the sale without compensation.
Q–My wife has moved out of our home on a temporary separation and is buying a home on her own. I will be taking her name off our jointly owned home mortgage to put it in my name only and will pay her about $65,000 for her half of our home equity.
If I sell our home for about $250,000 and then buy a smaller home for around $170,000, will I have any tax liability since I bought a home of lesser value?
A–Before you do anything, please consult your tax adviser and a divorce attorney. Interspousal divorce transfers are usually tax-free. But you mentioned nothing about a divorce, so I am concerned you will be acquiring a tax liability if you sell the house.
Also, your wife might be incurring a tax obligation when you pay her the $65,000 for her equity. If you plan to sell the house, why bother taking your wife’s name off the mortgage (which requires the lender’s approval)? You both need expert advice to avoid unnecessary tax consequences.
Q–Recently you advised a do-it-yourself home buyer, “If you buy direct from the seller (without a realty agent), you’re on your own.” I am a real estate attorney. I draft real estate contracts; assist in negotiations; obtain title insurance; draft mortgage notes and trust deeds, conveyance deeds and close transactions.
In the interest of accuracy, you should explain that real estate attorneys can provide a buyer or seller the same benefits as a real estate agent, except for active marketing.
A–Thanks for the excellent advice. When a buyer purchases a home direct from its seller, without the benefit of a realty agent, a real estate attorney can prevent the buyer from making serious mistakes.
