Earnest Money – an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.
When a buyer makes an offer to buy residential real estate, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.
An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.
Calculating the net benefit of refinancing your boise idaho mortgage can be a challenging task if you do not understand what to calculate. We are going to focus on the net benefits of refinancing from the standpoint of lowering your interest rate.
Although there are several reasons to refinance, lowering your mortgage rate to save on interest payments over the term of the loan is the most popular.
Calculating the actual savings can be a tricky chore unless you know the difference between cash flow savings and interest savings. If your refinance objective is to only save on the interest by lowering your rate, then the interest savings should be done with the calculations below.
Calculating Interest Savings:
(Loan Amount x Interest Rate) / Months in year = Interest paid per month
($200,000 x 6% or .06) / 12 = $1,000.00
*Remember to do the calculation in the parentheses first*
We now know that you are paying $1,000.00 per month in interest. You should take the new interest rate you are getting with your refinance and calculate what your new interest payment will be.
($200,000 x 5% or .05) / 12 = $833.34
Now we need to find out the difference between the two interest rates.
Current Interest Payment – Proposed Interest Payment = Interest Savings
$1,000.00 – $833.34 = $166.66
Now you have figured out that by dropping your interest rate 1% on $200,000 you will be saving $166.66 per month or about $2,000 per year.
Anyone would want to save $2,000 per year, where do I sign… right? Not so fast, you’ll want to calculate the break-even point to find out how you will benefit after your closing costs.
If you kept the mortgage for 120 months (10 years) you would save $15,000.
Okay, now you can find out where to sign.
Calculating the net benefits of a refinance is crucial in determining if it is strategic for you to refinance. Keep in mind that each mortgage is slightly different and you may need to adjust calculations accordingly.
Frequently Asked Questions:
Q: I heard that I should only refinance if I drop 1% on my mortgage is that true?
Some people say ½% , 1% to never. Every mortgage is different.
For Example: A no cost loan can have a 1 month break-even point with only a .25% drop in interest rate. Now that you know how to calculate your net benefit, you are able to figure out what may be best for your situation.
Q: Why can’t I just compare my current payment to the proposed payment and figure out my net benefit?
You could just compare just the two payments if you wanted to find out your cash flow savings, but the current and proposed loans may have two different amortizations.
Let’s assume you currently have a 15 year mortgage and you’re comparing it to a 30 year mortgage. If both loans have the same interest rate and loan amount but the amortization is different, your interest savings per month would be $0. However, you are going to show a cash flow savings with the 30 year mortgage because of the longer amortization.
Need help figuring out if a refinance is the right move for you? Feel free to call or email me.
Boise Idaho borrowers, providing proper asset documentation and the actual source of the funds is a critical element of the loan closing process.
There’s nothing worse in a real estate purchase than making it all the way through the hoops and hurdles just to have a loan denied after the final documents have been signed due to the borrower using the wrong checking account for the down payment.
Seasoning of the down payment money is just as important as the source, which is why underwriters typically require at least two months bank / asset statements in the initial mortgage approval process.
A Few Acceptable Sources Of Down Payment Include:
Bank Accounts – checking / savings
Investment Accounts – money market, mutual funds
Retirement Funds – keep in mind that borrowing against a 401K plan will require a repayment, which will be calculated in the Debt-to-Income Ratio
Life Insurance – Cash value and face amount
Gifts – Family members can gift down payment funds with certain restrictions
Inheritance / Trust Funds
Government Grants – Many state, county and city agencies offer special down payment assistance programs
It is extremely important to make sure your loan officer is aware of the exact source of your down payment as early in the process as possible so that all necessary questions, documentation and explanations can be reviewed / approved by an underwriter.
A good rule-of-thumb to remember is that whatever funds you’re using as a down payment have to be pre-approved by an underwriter at the beginning of the mortgage approval process.
Basically, if you accidentally forget to deposit money in your checking account on the way to the closing appointment, it is not acceptable to get a cashier’s check from a friend’s account until you have a chance to pay them back later.
Frequently Asked Questions:
Q: What if I don’t have a bank account and cannot properly source my funds to close?
Cash on hand is an acceptable source of funds for some loan programs, but make sure you bring that detail up at the application stage
Q: Can I use a bonus from my employer for my down payment?
Yes, but generally this needs to be a bonus you regularly receive
Q: Can I borrow the money from a friend?
No, any money that needs to be repaid is typically an unacceptable source of funds
According to Wikipedia, a home inspection “is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. This is usually conducted by a home inspector who has the training and certifications to perform such inspections.
The inspector prepares a written report, often using home inspection software, and delivers it to a client, typically the home buyer.
The buyer uses the knowledge gained from the home inspection to make informed decisions about their pending real estate purchase.
The home inspector describes the condition of the home at the time of inspection but does not guarantee future condition, efficiency, or life expectancy of systems or components”.
It is not the job of the home inspector to estimate market value or to let you know you got a good deal on the price of the home. This is done typically through an appraiser.
Why Have A Home Inspection?
Buying a home is the single most expensive investment many of us will ever make.
A home inspection is designed to provide the home buyer with the information they need to make a more informed decision about the property.
The home inspection report should clearly identify any potential significant defects, and give the home buyer a realistic estimate of the costs of repairs so that they can be negotiated in an updated purchase contract. An inspection should also highlight any areas or features that need to be addressed in the near future which may be reaching the end of their useful life span.
What Do Home Inspections Cost?
The home buyer generally has to pay for the inspection up front, but there may be an agreement in the purchase contract for the seller to reimburse those fees at the time of closing.
Home inspection fees vary from state to state. An estimated cost of a home inspection is around $250-$400, depending on what services have been selected, as well as where the house is located.
In addition to the general home inspection, there are many common services that home buyers also choose to have preformed when having a home inspection. These additional services are not typically included in the general home inspection fee.
Optional Home Inspection Services:
Wood destroying pests
Lead base paint (homes built before 1978)
Pools, spas, barns, or other external structures
Docks and sea walls
Underground sprinkler systems
Once the inspection is completed, the buyer generally has seven days to put in writing the “request for repairs” required by the seller to make prior to taking possession of the home.
The sellers may not be obligated to make every repair, so make sure you read the purchase and sales contract carefully to make sure the agreement does not state that the home may be sold in “as is” condition.
The Home Inspection Process:
A home inspection should include examination of all major systems, including the plumbing, heating, air conditioning, electrical, and appliance systems.
The home inspector will also look at the structural components, such as the roof, foundation, basement, exterior and interior walls, chimney, doors, and windows.
It is recommended that the home buyer and/or representing buyer’s agent be present at the time of the home inspection.
A typical home inspection can take between 1 ½ hours to 3 hours, depending on the size and condition of the home.
Remember you are paying for the home inspection. Follow the home inspector around and ask questions about the condition of your home and how to maintain it.
The attached link will help give you a better idea of what happens during a home inspection provided by the American Society of Home Inspector’s visual home inspection demonstration video. CLICK HERE FOR VIDEO
Knowing what questions to ask your lender during or before the loan application process is essential for making your mortgage approval process as smooth as possible.
Many borrowers fail to ask the right questions during the mortgage pre-qualification process and end up getting frustrated or hurt because their expectations were not met.
Here are the top eight questions and explanations to make sure you are fully prepared when taking your next mortgage loan application:
1. What documents will I need to have on hand in order to receive a full mortgage approval?
An experienced mortgage professional will be able to uncover any potential underwriting challenges up-front by simply asking the right questions during the initial application and interview process.
Residence history, marital status, credit obligations, down payment seasoning, income and employment verifications are a few examples of topics that can lead to stacks of documentation required by an underwriter for a full approval.
There is nothing worse than getting close to funding on a new home just to find out that your lender needs to verify something you weren’t prepared for.
2. How long will the whole process take?
Between processing, underwriting, title search, appraisal and other verification processes, there are obviously many factors to consider in the overall time line, which is why communication is essential.
As long as all of the documents and questions are addressed ahead of time, your loan officer should be able to give you a fair estimate of the total amount of time it will take to close on your mortgage.
The main reason this question is important to ask up-front is because it will help you determine whether or not the loan officer is more interested in telling you what you want to hear vs setting realistic expectations.
You should also inquire about anything specific that the loan officer thinks may hold up your file from closing on time.
3. Are my taxes and insurance included in the payment?
This answer to this question affects how much your total monthly payment will be and the total amount you’ll have to bring to closing.
4. Will my payment increase at any point after closing?
Most borrowers today choose fixed interest rate loans, which basically means the loan payment will never increase over the life of the loan.
However, if your taxes and insurance are included in your payment, you should anticipate that your total payment will change over time due to changes in your homeowner’s insurance premiums and property taxes.
5. How do I lock in my interest rate?
It’s good to know what the terms are and what the process is of locking in your interest rate.
Establishing whether or not you have the final word on locking in a specific interest rate at any given moment of time will alleviate the chance of someone else making the wrong decision on your behalf.
Most loan officers pay close attention to market conditions for their clients, but this should be clearly understood and agreed upon at the beginning of the relationship, especially since rates tend to move several times a day.
6. How long will my rate be locked?
Mortgage rates are typically priced with a 30 day lock, but you may choose to hold off temporarily if you’re purchasing a foreclosure or short sale.
The way the lock term affects your pricing is as follows: The shorter the lock period, the lower the interest rate, and the longer the lock period the higher the interest rate.
7. How does credit score affect my interest rate?
This is an important question to get specific answers on, especially if there have been any recent changes to your credit scenario.
There are a few key factors that can influence a slight fluctuation in your credit score, so be sure to fill your loan officer in on anything you can think of that may have been tied to your credit.
8. How much will I need for closing?
*The 2010 Good Faith Estimate will essentially only reflect what the maximum fees are, but will not tell you how much you need to bring to closing.
Ask your Loan Officer to estimate how much money you should budget for so that you are prepared at the time of closing.
Your earnest money deposit, appraisal fees and seller contributions may factor into this final number as well, so it helps to have a clear picture to avoid any last-minute panic attacks.
Now that you have the background to these eight important questions, you should feel more confident about finding a mortgage company that can serve your personal needs and unique scenario.
Remember, the more you understand about the entire loan process, the better your experience will be.
Most frustration that is experienced during the home buying and approval process is largely due to unclear expectations.