How are closing costs split between buyer and seller

Closing costs are the moneys necessary to pay off all expenses incurred by buyer and seller on a property.  This will include an accounting of all funds spent and received in the transaction for both the buyer and seller.  Following is a partial list for items generally paid for by either buyer or seller in San Francisco.

Buyers:

  • Escrow fees
  • Title insurance
  • Loan fees, including points
  • Appraisal fee
  • One year’s hazard insurance premium (if not a condominium)
  • Deed recording fees
  • Notary fees
  • Prorated property taxes split between buyer and seller
  • Pre-paid interest to your lender
  • Prorated homeowners dues is you are purchasing a condominium.

Sellers:

  • Transfer tax
  • Real Estate agent commissions
  • Loans and loan fees (to close out existing loans)
  • Prorated property taxes split between buyer and seller
  • A portion of the taxable gain if above allowed limits
  • Prorated rents and security deposits if an income property
  • Deed and recording fees

The estimate of closing costs is generated when both the agents in the transaction, provided to the escrow officer that reflect the terms and conditions of the purchase contract.  The escrow officer will then compare the two sets of instructions and, if they match, the escrow holder will execute these instructions, disbursing funds and recording the deed which marks your ownership of the property.

What do you mean when you hold title to a property?

The way you own a property is called vesting, or holding title

 

The form of ownership chosen in your purchase, known as the vesting (holding title), will determine who may sign various documents and future rights of the individuals in the transaction; it can have an effect on one person buying as well as multiple people. You may have already heard some of the terms, joint tenancy, community property, tenants in common, sole ownership, or held in trust.

These rights associated with each type of vesting involve such matters as: real property taxes, income taxes, inheritance and gift taxes, transferability of title, exposure to creditor’s claims and significant probate implications in the event of death.

Before you can close escrow (or get loan documents), you must have selected a method of ownership.  Please get started on that process as soon as you begin the search for property.  Living trusts for instance, can take months to set up, so your preparation is important.

I urge you to speak with your attorney and/or tax advisor as soon as possible for vesting questions.  Your advisor may make recommendations which require partnership agreements, trust documents, wills, or other such documents.  Since these decisions and the accompanying documents may take time to be generated, I urge you to start this process immediately so that they may be accomplished prior to close of escrow.

How to get started with financing

Getting started with financing

Property purchases usually include some kind of institutional (bank or savings and loan) financing.  There are many types of financing to consider depending on your long-term financial goals.

Mortgage brokers are popular because they have relationships with multiple lenders.  Mortgage brokers will search for the best loan programs with several lenders, and provide options for you, saving you time and energy.

Direct lenders (such as Wells Fargo or Bank of America) may be the right fit for you if you already have a relationship with a lending institution or credit union, or if the specifics of your situation call for it.  Direct lenders will usually have fewer programs available to them than a mortgage broker, so you’ll be doing your own due diligence to make sure you have the program right for you.

On-line mortgage brokers are available, but I have found that often times these brokerages are not local, nor familiar with our real estate market.

My recommendation will always be to work with a local broker or direct lender that you can meet in person.  If you need a few referrals, let me know.

Brokers and lenders will look at various financial information to get the best snap shot they can of your financial picture.  This will help them establish you as a credit risk and how much of a risk (the amount they will loan you) they will take.  They will look at such things as:

  • income, including documentation about additional income such as alimony, child support, or pension
  • assets
  • debt
  • late payments
  • bankruptcies or foreclosures
  • your work situation, length of employment, and job changes
  • two years tax returns
  • bank statements
  • source of your down payment (will this be your own money, proceeds from a stock or retirement account sale, or a gift from family)
  • reserves and retirement plans
  • credit report and FICO score

Types of Financing

Adjustable Rate Mortgage (ARM)-have a mortgage interest rate that changes over the life of the loan, usually tied to an index and can adjust as often as once a month or as little as once a year.  The type of loan carries more risk to the borrower, as the interest can go up frequently over the life of the loan.

3, 5, 7, or 10-year fixed rate loans-have a fixed interest rate for a period of time usually three, five, seven or ten years, then turn into an ARM which adjusts once a year.  Once the loan changes to an ARM the payments fluctuate and the loan is amortized-meaning set to pay off for the remaining duration of the loan.  This type of mortgage gives borrowers a steady payment for a period of time, usually with an interest rate lower than a 30 year fixed rate mortgage.  This is a good option for borrowers who plan to sell or refinance their home within 5-8 years who want some stability in their payments.  Some of these loans also offer an interest only option, meaning that no principal is paid on the loan for a period of time.

Fixed Rate Mortgage-has a fixed mortgage payment for the loan’s entire duration-usually 30 years.  A portion of the mortgage payment goes to interest and the other to principal (the amount borrowed).  Payment to principal is smaller in the earlier years, and increases over time.

Loan Limits

You’ll hear the term ‘loan limits’ as you talk more and more about financing. There are three types of loan limits: conforming, super-conforming and jumbo.  This is important, because the government buys loans in the secondary market, which puts more money back into lenders’ pockets to lend out even more money.  The government has limits on the size loans they will buy, so they will only buy conforming and super-conforming loans.  The loans that fall outside these categories are jumbo loans.

The conforming loan limit is a permanent limit (subject to change by the government) and the super-conforming limit is temporary, based on median income in a region.  Interest rate pricing for the conforming loan limit is generally the lowest of the three.

Jumbo loans are financed through private investors, and not eligible to be purchased in the secondary market.  When financing tightens, it’s generally in this category, as there may be fewer investors willing to risk their money to people borrowing money at this level.  Pricing for this financing is generally higher than it is with conforming.

http://www.fanniemae.com/aboutfm/loanlimits.jhtml

Questions to Ask Your Lender or Mortgage Broker

  1. What loan programs and options are available to me?
  2. Will my loan be Conforming, Super-conforming, or Jumbo?
  3. What type of loan is available to me?  Adjustable, Fixed, or a hybrid?
  4. What loan program would be best for my situation?
  5. So I qualify for any special programs such as Below Market Rate Units, Mortgage Credit Certificate Programs, Mayor’s Office of Housing Programs, or FHA programs?
  6. Will private mortgage insurance be required in my loan?  How much will it cost?
  7. How long is the approval process?
  8. What information is necessary to get my approval?
  9. What documents are necessary from me to approve my loan?
  10. How much will be closing costs be?  What will they include?
  11. How much are your fees, and who pays them?
  12. How much is a loan lock, and how long is it good for?
  13. If rates go down during the escrow period, will I be able lower my rate?
  14. How long will it take to close my loan?
  15. Is there are prepayment penalty on my loan?
    1. Why?
    2. How long?
    3. How much will the penalty cost if I pay my loan off early?
  16. Who will service my loan?

Finding the right financing for you does not have one answer; there are many different options which may work for your situation.  The above is broad in scope, and may not cover your specific situation; please consult a mortgage broker and/or accountant to help you in your financing goals.

Get your home ready to sell with this property prep checklist

 

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Property Exterior

  • Property painted, repaired
  • Front door & door area freshly painted, polish the door knob and house numbers.
  • Put a seasonal wreath on the front door.
  • Porches, stairs, and walkways swept at all times
  • Nice door matt at front and back doors
  • Trim freshly painted
  • Doors work easily and silently
  • Doorbells operate
  • Windows in good repair; clean
  • Consider a new mail box or slot

Yard

  • Fence in good repair
  • Walkways and driveways in good repair; swept
  • Clear leaves, newspapers, litter
  • Hedges trimmed-at windows, trim so windows are exposed
  • Trim low hanging tree branches
  • Eliminate dead branches, stalks and blooms
  • Add colorful flowers around the home
  • Weed flower pots and beds
  • Lawn cut & green
  • Plantings have been watered and look healthy
  • Put away toys, bikes, lawn tools, etc…
  • Upgrade or add exterior lighting for the property to sparkle at night showings
  • Clean gutters
  • Fences, gates and hardware in good repair

Living Room

  • Walls and ceiling freshly painted; clean; free of smudges, fingerprints and dents.
  • Window coverings clean and in good condition
  • Furniture aesthetically arranged
  • Fireplace clean; consider a fire in the fireplace for open houses
  • Appropriate temperature

Eating Areas

  • Set the table with pretty dishes, placemats, flatware and candles 

Kitchen

  • Range and oven clean and in working order
  • Clean kitchen hood
  • Fix slow drains
  • Kitchen cabinet faces clean and in good condition.  If they appear worn, painting them is a cost effective to make them look fresh and new.  New chrome hardware makes them sparkle.
  • Walls and ceiling freshly painted and/or clean
  • Sink and counters clear of dishes and kitchen appliances
  • Cupboards neat
  • Floors clean and in good condition-repair or replace if necessary-I can help you pick finishes if necessary.
  • Clean seals at oven, refrigerator and dishwasher doors

Bedrooms

  • Walls and ceilings freshly painted; clean
  • Beds made-curtains and bedspreads neat and attractive
  • Clothing put away and hung neatly
  • Closets neatly arranged-remove extra items, make closets look like there is room for additional items
  • Toys, belongings put away
  • Window coverings clean and in good condition

Bathroom(s)

  • Walls and ceilings freshly painted; clean
  • Floors/tile clean and in good condition
  • Replace or repair grout and caulk as necessary
  • Curtains/window treatments clean and in good condition
  • Shower or tub tile clean
  • Shower glass clean or new shower curtain
  • Faucets in good condition; no leaks
  • Fix slow drains
  • Toilet lids down
  • Vanities, sinks, and shelves cleared of personal items
  • Your best guest towels out
  • New soap in the soap dish

Basement

  • Stairways clear, painted and with handrail
  • Windows in good repair; clean
  • Floor clean, clear of obstacles
  • Area neatly arranged

Garage

  • Door(s) open easily and quietly
  • Paint fresh and/or in good condition
  • Workbench and tools neatly arranged
  • Floor clear of debris and free of grease

In addition:

  • Have presale inspections such as structural pest inspections, roof
  • inspections, and sewer inspections.  Get estimates of repair costs to present to the prospective buyer as part of your disclosures.  This will be a good way to pre-negotiate with buyers, making sure they are serious at the start of your contract.  I can help you coordinate this.
  • Pull together all warranties, appliance, and operating manuals to remain with the property to pass along to the new purchaser.
  • Tighten loose door knobs and hardware
  • Clean mirrors, picture frames and glass.
  • Electrical items, such as lamps, are plugged in and usable
  • Fix warped drawers
  • Tighten loose banisters
  • Turn on lights; make sure burned out light bulbs are replaced
  • Lamp shades in good condition
  • Make sure light switches and outlets work; replace damaged or discolored covers
  • Lubricate squeaky or sticky doors
  • Consider hiring a cleaning service; this will relieve pressure and have a more professional look.  Keep everything extra clean; for example, clean fingerprints from switch plates, mop and wax floors, clean the stove and refrigerator.  A clean property looks like a well-care for property.
  • Wash all windows, clean window sills, wash blinds
  • Have carpets cleaned
  • Consider replacing out of date light fixtures
  • Get rid of all items you will not be moving-reduce clutter, have a garage sale, donate to charity or hire a hauler to take unusable items to the dump.  Store seasonal closing, pre-move-consider a storage facility.
  • Remove some furniture to make spaces look bigger
  • Remove damaged or badly worn furniture
  • Consider taking on minor repairs that can make a bad impression.  Sticky doors, torn screens, cracked, or moldy caulking, or dripping faucets.  These are easy items that when not done, make the property look uncared for.

 

Preparing for showings

  • Heat or cool the property appropriately
  • Remove or isolate pets-they may be a problem for visitors
  • Air out the home; if there are any offending odors, like litter boxes, or pet stains, eliminate them
  • Hide valuables such as cash, jewelry, or other small valuable objects; it is not possible to watch everyone in the property.  If there are tenants, please notify them of this as well.
  • In general, consider how you would perceive your home if you were a prospective buyer
  • Open shades and blinds.  Consider changing to shear window coverings that allow more light into the property.
  • It is best to show your property if you are not present.  Buyers will feel more at ease to check out your property completely if you are not there.
  • At night, please light property appropriately for viewing and safety
  • Additional touches such as a fire in your fireplace or quiet music are always nice
  • Neatly arrange, or stack magazines and newspapers

Vote NO on Prop G on Nov. 4th

 

no on g

This coming Tuesday, please vote. If you are going to vote on one thing, please vote NO on Proposition G.

You may not have even heard of it. It’s a very poorly written and thought out ordinance that would increase the transfer tax on the sales of property.

I lovingly refer to the transfer tax as a ‘get out of your house’ or ‘get out of San Francisco’ bill. It ranges from .5% to 2.5% of your sales price (sliding scale depending on the amount of your sale) and is one of your expenses of sale. This legislation among other things, would increase the cost of selling your house for your first five years of ownership. The most you would pay (at this point) is 24% of your sale price. That is not a typo. 24%.

For example, you’ve just bought an affected property (not all are) and you get transferred for a job offer within the first year. Let’s assume you paid $750,000 for your property. Your transfer tax would be $180,000. Again, not a typo. $180,000. I hope you’ve put down 30%, because we’ll need that to close your transaction. Without Proposition G, you would pay $5,100 in transfer tax.

This legislation does not affect all properties in San Francisco. Neither did rent control when it was enacted in 1978. My fear is that if this passes, all properties could become affected over the coming years.

Please vote NO on Proposition G. Someday, you’ll be glad you did.

Selecting how to hold title to your new property

The form of ownership chosen in your purchase, known as the vesting (holding title), will determine who may sign various documents and future rights of the individuals in the transaction; it can have an effect on one person buying as well as multiple people. You may have already heard some of the terms, joint tenancy, community property, tenants in common, sole ownership, or held in trust.

These rights associated with each type of vesting involve such matters as: real property taxes, income taxes, inheritance and gift taxes, transferability of title, exposure to creditor’s claims and significant probate implications in the event of death.

Before you can close escrow (or get loan documents), you must have selected a method of ownership.  Please get started on that process as soon as you begin the search for property.  Living trusts for instance, can take months to set up, so your preparation is important.

I urge you to speak with your attorney and/or tax advisor as soon as possible for vesting questions.  Your advisor may make recommendations which require partnership agreements, trust documents, wills, or other such documents.  Since these decisions and the accompanying documents may take time to be generated, I urge you to start this process immediately so that they may be accomplished prior to close of escrow.

Should I remodel, or sell my property?

Personal circumstances generally will lead you to the decision between remodeling the home you’re in or buying a different, more suitable home. Perhaps a career or familial change is creating the need for more space.  You may be in a larger home already, and you don’t need the space, or taking care of it has become a burden. You may be on the track of accumulating properties as part of a retirement portfolio.

To help you move you forward with the decision between staying or selling, you should first obtain an understanding of the cost, time, and discomfort involved in the remodel; the second is learning how much you can afford in a new home, taking into consideration your current equity, and how your financial picture may have changed since you last purchased a property.

Here are some reasons you may want to stay in your location and remodel:

Remodeling may be easier than moving to another property.

You may love the location of your property and may not be able to find a better replacement.

You have an established property tax rate you want to keep.  There are options to keep you tax rate if you want to scale down and are over 55 years old.

You may be preparing your home for sale.

Before beginning, consider what you are doing to the property:

  • Are you creating value; i.e. adding a bedroom, bathroom, or updating the kitchen?
  • Are you building for yourself; i.e. are you doing improvements that are specific to your needs, not taking into consideration future resale?
  • Are you overbuilding; i.e. spending too much money that you will not get out of the property when you finally do sell it?
  • The bottom line is to do the things that are right for you; just do it with your future goals in mind.  Remodeling always costs more than you think, so make sure you have a good, reliable contractor who lives up to their promises.  You may have to pay more for a good contractor, but it will pay off in less stress and problems for you.
  • Get an outside opinion from an architect, home designer or design build contractor on things you can do to your home.  You may be surprised at options you may not ever have considered.   You may spend some money for this opinion, but the result could be a better project and money saved in the long run.
  • At the end of the information-gathering phase, you may find remodeling is not the answer, and a move up property may be a better option.