Buyer's Information
A Variety Of Finance Options For Today's Florida Home Buyer By: Tom Beaty
You have explored all that the Florida market has to offer today's home buyer, and you have decided to purchase a home that will be built to your specifications. You have chosen your home builder and the site for your new home. You have explored floor plans and options, and have a good idea of what you want. Now it's time to explore your finance options.
The first step
Today's Florida home buyer has several finance options available. Your first decision will be whether to set up a cash escrow account, or to obtain financing in the form of a loan. If you choose to obtain a loan, you must decide whether to go through a lender, or to obtain a builder's loan from your builder.
Cash funding for new construction
Because you won't be paying any interest on a loan, cash is most cost efficient method of funding your new Florida home. The procedure for cash financing is very simple. First, an escrow account is opened with a licensed Florida escrow company and the cash funding for your new Florida home is placed in this account. During each phase of construction, payments are made to your builder from this escrow account. The escrow company protects your interests and theirs by hiring inspectors to verify that each phase of work on your new home is complete before payment is made to your builder. When you set up a cash escrow account in this manner, the home site and home are deeded to you, the buyer, from the date the home site is purchased.
Obtaining a loan
A Construction Permanent Home Loan is the most commonly used funding method for new home construction. With the exception of cash, it is the most cost efficient method of financing your new Florida home.
The initial stage of this finance method is similar to the cash escrow, wherein payments are made to your builder at each phase of the construction process. When your new home is complete the loan automatically converts (or modifies) to your permanent home loan.
This loan type has all the typical closing costs of a traditional loan, with one key difference. With a Construction Permanent loan you will pay interest on your home site and on the money that is disbursed to the builder for each phase of completed construction. This means the interest paid will start very small and increase with each payment made to your builder during construction.
When one uses this finance method the home and home site are deeded in the buyer's name from the date the home site is purchased. When your new Florida home is complete, this loan will convert to your permanent loan with traditional interest payments.
Finding a reputable mortgage lender and choosing the right loan
If you choose to obtain financing from a lender, you will need to find a mortgage specialist who will go over all of the loan options available to you. This is important because when it comes to home loans, there is no One Size Fits All.
Based on your income level and time you plan to live in your new home, your mortgage specialist can help you decide whether to choose a fixed rate, variable rate, or interest only loan. Be sure to explore each option carefully and choose the best option for your individual needs.
Financing through your builder
This is the most expensive method of funding the construction of your home. Most builders maintain large credit line to offer builder funding to their customers. The credit line has closing costs and interest that has to be paid for each home utilizing this method of construction funding. The builder then passes on the expenses incurred, including closing cost and interest, to the buyer.
In most cases, when you choose this type of funding you will pay higher interest rates than you would pay with a traditional loan. This method costs the home buyer about 1% to 2% more than getting one's own construction permanent home loan. Most builders add 3% to 6% to the price of the home and home site package for this type of funding. The percentage charged depends on the amount of deposit the customer gives the builder and the amount the home site costs. Your construction funding fee will be relative to the down payment you are able to make on the loan. A higher down payment means a lower construction fee.
This type of construction funding is useful to home buyers that for any reason cannot get a construction permanent home loan but can get a loan at the end of construction called an end loan. When one uses this method the home and home site are deeded in the builder's name from the date the home site is purchased and is only deeded to the home buyer after the home is completed and paid for by the home buyer.
Article Source: http://www.thedigitallibrary.com/articles
Tom Beaty is a homebuilder and real estate broker for over 25 years. For free information on Florida home visit; www.favoriteproperties.com
Home Buyer: Negotiation and Communication
The goal in a real estate negotiation is to reach a good agreement - one in which the underlying interests of both buyer and seller are met. The results of a poor agreement often return to haunt the parties after closing. Many of our real estate clients have been experienced negotiators in other industries, and we have learned from their skill and experience. Review these tips as you prepare for the purchase of your home.
What do you want to achieve in the negotiation?
The first step in getting what you need is simply to let the seller know - in a clear and reasoned way. For most people, the highest priority is the price they will pay for the property. The best way to establish this is by a market analysis of the neighborhood. Set an offering price range that makes sense. Knowing your range allows you to balance the price with other needs. Your interests might include:
Buying at the lowest price possible.
Setting a closing date that meets your time frame.
Settling any repair issues fairly.
Having your concerns heard and addressed.
Locking in an acceptable mortgage loan rate.
Clearing any title or survey issues that come up.
Completing your relocation and job change process.
Getting your family settled into a home and neighborhood.
Forging a good working relationship with the seller.
Having no future problems after closing.
Is an adversarial or cooperative approach more effective?
Effective negotiation does not result from stubborn demands. There is nothing more destructive to the negotiation process than combative behavior. Professional negotiators try to preserve the relationship between the principals. The goal is to avoid an impasse in which neither seller's nor buyer's goals are met. In many cases, the contract negotiation process begins with some initial distrust between buyer and seller. Effective negotiators move in the direction of trust as quickly as possible.
In preparing your offer, let the marketplace establish your price, while remaining very complimentary of their home. Buyers sometimes submit a letter to the seller pointing out deficiencies and explaining why their house is not worth what they are asking. This will always backfire and start the negotiation off with a defensive seller. Sellers have an emotional attachment to their home, and will have a strong negative reaction to a critical buyer.
How do you handle an adversarial strategy by a seller or agent?
You may find that you have to work with a combative seller or agent. Their strategy may include: defensive arguments, emotional statements, snide remarks, threats to terminate, ego involvement, and stated positioning. Creative solutions are difficult to find in this environment. Good control over your own emotions is critical when working with a combative style negotiator. Here are some pointers:
Do not argue. Arguing will position them more strongly and drag the negotiation off course.
Do not respond emotionally. An angry or defensive response will escalate the negotiation into a no-win battle.
Do not accept or reject their arguments. Listen and show that you understand their points.
Accept the fact that strong emotions are present. Strong emotions arouse fear and anger in others. They may be a negotiation tactic.
Avoid an "us-against-them" strategy. Attach cover memos to your responses in order to communicate with the seller and break down barriers.
Show that your proposals were not been made unreasonably. Firmly anchor pricing, repair requests and other points to outside data.
Be careful not to allow hazy proposals to stand. Put everything in writing. An emotional negotiator will often produce an unclear agreement.
Make your offer as attractive to the seller as possible. Look for ways to meet their underlying interests.
Offer some wins on some of the terms. Face saving is important. Do not try to win every point.
Keep your long term goals in mind. The seller may have a beautiful home that meets your needs.
Is every point in the contact negotiable?
Yes. However, one of the most effective ways to come to an agreement is to rely on accepted norms when possible. For example, it is common practice in our area for the seller to pay for the title policy, and buyer to purchase the survey. Using consistent standards reduces the need to haggle over every point. However, every term in a contract can be used to help structure the deal. By trading off, both parties can come closer to getting what they need.
How do you move in the direction of "trust"?
Keep in mind that contract negotiation is a sensitive area, and anxiety can be high. All parties are under pressure, with future plans at stake. It is possible that the buyer or seller may have had a previous bad experience. Acting with integrity does not mean that all cards have to be put on the table. It is not proper to discuss your personal strategy or needs. A high level of trust raises the level of cooperation between the parties and forwards the negotiation. The seller will be much more cooperative if the he feels that the buyer and agent are acting with integrity. Here are ways to develop trust:
Listen and understand what the seller has to say.
Express appreciation for the seller's home, gardens, decorating.
Respond within a reasonable time to counter offers.
Reassure the seller of your ability to close.
Reveal some personal information about yourselves.
Finding common ground with the seller can be a very powerful tool in the event of multiple offers. Sellers often choose their contract for personal reasons. For example, the buyers reminded them of their own family when they moved in with young children. Or, they were of the same religion. Or, the new owners would care for their gardens or feed the birds.
How much leverage do you have?
A crucial part of your strategy in a negotiation is an accurate perception of the real estate market. You must know the underlying market condition. If you are in a sellers' market you must act quickly, and be willing to present an offer at the top of the range. This is most important if the home is in a hot area and has strong appeal. If the seller has multiple offers, you must make your very best offer up front.
In a buyers' market your prospective home may have been on the market for months. There may be a small buyer pool for the home because of economic conditions or due to repair or updating needs. In this case you have a lot more leverage than you would with a new listing. Some knowledge of the sellers' needs may help you improve your leverage. If you can meet some of their needs you have gained leverage for a lower price.
It is important to make your offer as straightforward as possible. Contingencies will reduce your leverage for a lower price in a buyer's market, or for any consideration in a seller's market. Be proactive about showing the seller your desire and ability to close. Here are some possible contract contingencies:
1. Contingent on sale of your home: Usually, the seller will not accept a contingency to find a buyer for your home. It is more likely to be accepted if your home is under contract. Attach a copy of the contract and status report.
2. Contingent on inspections: In our area this is covered by an option period. Keep the option time within accepted norms. This contingency can be removed to strengthen your offer. Do this only if you are knowledgeable about the property condition.
3. Contingent on financing: Strengthen your offer by obtaining credit approval. An approval letter with your offer improves your leverage, and is crucial in multiple offers. If you are making a cash offer, get a letter from your banker stating that the resources are available.
How much under list price should you offer?
Unless there is a strong seller's market, buyers usually offer less than list price. Establish your price by a market analysis. It is usually counter-productive to offer so low that the seller will automatically reject the offer. This will set a negative tone from the beginning. In a recent deal the seller responded to a low offer with an above-list-price counter.
How are multiple offers handled?
The listing agent and seller will decide how they will handle multiple offers. They may disclosure to all parties, or disclosure to none, that multiple offers have been received. By disclosing that there are multiple offers, the seller is not "shopping your contract." Shopping occurs when the seller discloses the terms of an offer to induce a buyer to submit a better offer. This can have a negative result by creating distrust of the process by all parties, and possible loss of the buyers. The standard procedure is to notify each potential buyer that there are multiple offers, and give each a chance to raise his offer by a certain time. When all are received, the seller will review the offers and choose one to work with.
Article Source: http://www.thedigitallibrary.com/articles
Roselind Hejl, CRS, is a Realtor with Coldwell Banker United in Austin, Texas. Her website: Roselind Hejl's Austin Texas Real Estate Guide www.weloveaustin.com offers a wealth of knowledge about the City of Austin, homes for sale, market trends and buying and selling tips.
Balloon Mortgages? Are they for You? By: Tabitha Naylor
Contrary to popular belief, mortgages are meant to fit into one’s life either for better or worse. Before locking yourself into a certain type of loan, it is best to know what qualifies you for the loan, and more importantly, what the regulations are on receiving this money. One of the most misunderstood types of mortgages is known as a balloon loan.
In simple terms, a balloon payment is one where there is a large, lump sum payment due at the end of a series of smaller periodic payments. These are usually included in loans or leases at the end of the term in which you are paying them for. Most balloon payments are taken when refinancing or when one is expecting an increase in cash from something such as inherited money, a large tax refund, or expected dividend. There are several different advantages and fall backs to balloon payments. Depending on the type of loan that you need and how you wish to pay this loan off, balloon payments may or may not be the right choice in taking out a loan.
The first advantage to this type of benefit is that the down payment will often be lower than it would normally be. Another advantage is that balloon payments often come with lower interest payments, which causes little capital outlay. If you choose this loan, you will be able to have more flexibility to advance capital during the loan. A third benefit is that the monthly payments will be lower than they would if you didn’t have a balloon payment. It is also possible to convert a balloon payment into smaller payments at any time during your loan if the money that you may receive is not going to come through. It is important to make sure that this is an option before you begin a balloon payment. Another benefit to balloon payments is that the interest rate will not adjust when rates go up on a national level. Once the first rate is set, it will stay in that category.
One of the problems with a balloon payment is that the payment at the end will be fairly large. You will have to be careful to decide on whether to make an investment if you do not know if there will be money coming in at a certain time. Another disadvantage is that the refinancing cost could become a larger challenge and cost more than expected in the end. If the interest rates increase while you are in a balloon payment, you will end up paying additional costs when wanting to refinance at the end. If rates rise more than five percent above the balloon interest rate that you began with, you will have to re-qualify for a loan and have your home reappraised. This will end up costing you more money in the end than you were trying to save. This is risky because of the fluctuation that happens with rates on a consistent basis. If you catch things at the wrong time, you will have to start the process of taking out a loan from the very beginning, which will end up costing more.
Before getting a balloon investment it is important to check on a number of factors, including the interest rate which you will start out with, when you will owe the balance, the refinance options available, whether you will be able to change your balloon payment to a regular payment and whether you will have to re-qualify for a mortgage when the final payments are due. If you get into a balloon payment, it is important to know that you will be able to get the fixed amount by the time the final balance will be due. It is also important to look into what will happen after this payment is due so that you don’t get caught in an endless cycle of having to take out loans for your home. If these factors will fit, then the disadvantages will be of no importance.
In my professional opinion, a balloon mortgage is suitable for you if you know that you will have end money, are looking for lower interest rate,s or know that you will be in the home for a defined period of time. If these factors don’t fit, or it seems like a risk to get into a balloon payment, than other mortgage and loan options are better to look into.
Article Source: http://www.thedigitallibrary.com/articles
Tabitha Naylor is an experienced mortgage broker/consultant with Apex Financial Mortgage. For more information, or additional resources on home loans, visit www.apexfinancialmortgage.com
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