A lot of costs beyond price of your home

This was originally published on Monday, July 17, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Once you decide to purchase your home, there’s more to consider than just the purchase price or your monthly mortgage payments. It’s easy to let emotions get in the way of reality, especially if it is something we want.

There may be some things you need to consider before signing for that dream home. Some of concerns may be financial, while others require a little investigating on your own.

Down payment. The amount you contribute to your home will determine how much your total mortgage loan will cost. Depending on the type of loan you get, you can pay anywhere up to 20 percent of the home’s sale price.

Private mortgage insurance. Depending on how much of a down payment you make, you may be required to purchase private mortgage insurance. In most cases, it will be rolled into your monthly mortgage payment. Your loan provider usually requires you to have private mortgage insurance to protect lenders against loss if a borrower defaults.

Homeowner’s insurance. Many banks require a homeowner’s insurance policy be purchased before closing on the home. The policy covers personal liability and hazard insurance to cover the home and the contents within it. It may also cover special conditions to which your house may be exposed, such as flood or earthquakes. Ensure you read your policy carefully and understand exactly what it covers.

Title insurance. On Guam, it’s common for property to be passed down from generation to generation without being recorded or going through the proper legal channels. Title insurance ensures the property you are buying is free and clear of any claims, taxes or property disputes.

Appraisal fees. Lenders will require a potential buyer to hire an appraiser to determine the value of the home. They take into account similar properties in the area, market trends, house amenities, square footage, defects and structural concerns. The fee is usually paid by the buyer prior to the sale being finalized.

The appraised value could greatly impact your down payment, loan terms, monthly payments and, in some cases, even your ability to buy that particular house.

Home inspection fee. Although not common on Guam, you may decide to hire a home inspector to look at electrical wiring, plumbing and cooling systems to determine if there are any defects. As a buyer, you can request the price be lowered or that the seller fix the defect before you purchase the home.

Escrow fees. An escrow is a third-party that will hold the money while the buyer and seller finalize the contract. Generally you’ll have a portion of the monthly mortgage payment held in escrow to pay for property taxes and insurance.

Credit report fees. Some loan institutions will charge a fee to check your credit worthiness.

Survey fee. A survey is a drawing or map showing the precise legal boundaries of a property and other details. If an existing survey of the land can’t be obtained, a new survey will have to be conducted. Your lender may require you to have the land surveyed to ensure the boundaries are where they are supposed to be and there are no legal issues.

Loan origination fee. This fee covers the lender’s administrative costs of preparing the required documents for the loan and the closing paperwork. Average cost of the fee is usually 1 percent to 2 percent of the loan amount.

Recording charges. The state and local governments charge this fee to record your deed, mortgage and loan documents regarding the sale.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Steps to becoming a homeowner

This was originally published on Monday, January 25, 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

The process to buying a home can be lengthy. Preparing your finances, securing an agent and then finding a home you want can take months. At this point you are almost in the home stretch. Although you can see the light at the end of the tunnel, be prepared for a lot of paperwork.

Your agent will draft an offer letter to present to the seller’s agent. This can be one of the most stressful steps in the home buying process. Using information that your agent has on the property, you and your agent will decide on how much you want to offer the seller. Remember the seller wants to get the most from you and you want to give the least amount possible. Somewhere there is a happy medium and your agent will try to find it. Some of the information to consider are:

  • The housing market. Is it a seller’s or buyer’s market? If there are many houses in the area to choose, the seller is usually at a disadvantage due to competition. If there are a fewer homes then the seller has the upper hand.
  • How long the property has been for sale? If the house has been on the market for a while, the seller is incurring costs with the property just sitting there. They may be more inclined to sell. Just the opposite if the house is new to the market, the seller may want to test the waters and see what top price they can get and may hold out for a while.
  • Why is the house being sold? If the house has been foreclosed and the bank is trying to recoup its money , the bank may want to sell it quickly. If the house has been deeded to the seller without a mortgage, the house may stay on the market longer. If the seller is leaving island or has purchased a new home, they may be willing to sell faster.

Your agent takes this and other information and deduces a price. The agent offers the price to the seller’s agent. If the seller disagrees, they may counter with a different offer. This process can go on for a while. During the negotiation, those repairs you were asking for may also be included.

You should also take into consideration that the seller may have multiple offers. Once a price is agreed upon the next step is to go through escrow.

Escrow clears property

Escrow is when a third party steps in and ensures that the steps to closing are done properly. The escrow company handles all the money that is exchanged and sees that all conditions are met. At some point, the property will have to be appraised. This could be a condition of your offer.

You may also want to have the house inspected, especially if it is an older house or if the house is in a special zone such as flood or tidal. You may also require that the house be inspected for pests. A house infested with pests could have structural damage. The seller is required to mention any major damage to the home.

If the property is a foreclosure and the bank is selling it, it may be sold as is. An important step a title insurance company takes is to check if the title of the home is free and clear. In other words, there are no outstanding lawsuits as to who owns the land and all property taxes have been paid.

Once the escrow company is done clearing the property for sale, the next step is getting the home insured. Most banks require that insurance be purchased before the house is occupied. Majority of the time the bank will ask you who you want to insure your home with, and will work with that insurance company. The monthly payments for the insurance may be included in your monthly payments.

The last step is signing the multiple copies of documents at the bank. Once the documents are completed, the keys are handed over and you are now a homeowner.

Take pride in the steps you accomplished and enjoy your new home.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Selling a home usually will cost you some money

This was originally published on Monday, March 23, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

When you sell your home the money from the sale will help pay certain costs and fees. This should be factored in, especially if you plan on using the money to purchase another home.

• Commission: Real-estate professionals work on commission. It is the seller’s responsibility to pay the commission on the sale of the home. A typical commission is usually 4 to 6 percent.

• Mortgage: Unless your home is paid off and is free and clear of any liens, you are responsible for paying off all debts on your home. You cannot sell your home unless the property has a clear title. The money from the sale will pay off your original loan first. If you have a second mortgage, any money left will be used to pay it off. If the sale of your home is not enough to cover the complete amount of the second mortgage, you have several options.

The first option is a short sale. A short sale happens when both lending agencies agree to accept less than what is owed. Another option is converting the balance of your second mortgage into a line of credit or an unsecured loan.

Because you paid your loan off early you may have to pay a prepayment penalty. Your lending agency may also charge you a loan payoff fee for all the administrative work associated with the sale

• Recording fees: After your debts have been cleared and you have sold the property you will record this with a government agency. This agency may charge a fee to record and document these changes.

• Escrow fees: Escrow is when a third party is used to complete a monetary exchange between two parties. The buyer and seller sign a purchase agreement and the escrow starts. The escrow ensures all terms are met. The fees usually are paid based on a percentage of the sale price.

• Title search fees/insurance: To ensure that the title is free and clear of any past liens or debts, a title company will research the property’s history through public records. A clear title gives you the legal right to sell the home. The title company offers insurance that their work is free of errors. If a lender is used to help buy a home, the buyer pays for a lender’s title insurance policy. A buyer or property owner may also purchase an owner’s title insurance policy. If an error occurs, the title company is responsible for compensation. Title fees and insurance costs are a onetime payment. A small payment now can save you big in the long run.

• Taxes: Because the selling of your home is an exchange of money for goods there may be taxes that you pay when transferring ownership of the home. If your property tax is not up to date you will have to pay the delinquent taxes and maybe late fees before you can sell the home.

• Notary fees: During the sale of your home you will be inundated with paperwork. Most are official documents and may need to be notarized. If you want official copies of all the paperwork have the documents notarized.

• Other expenses: As a seller you want to make your buyer happy. Sometimes it may mean going the extra mile. Buyers may ask for termite treatment and certification to empty a septic tank or new appliances. These requests must be met before the exchange of money happens so it will be out of pocket. Most of our homes may require painting or minor repairs even before you start the selling process. A little money spent sprucing up the home can translate into more money in your pocket later.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.