Another Type of Financing Concession


Price, condition and terms are factors that any owner must consider when marketing their home. Price is usually the easiest to adjust to compensate for shortcomings in location or condition of the home. Improving the condition of the property is more time consuming but updates to kitchens, baths and other things can appeal to a buyer.

One of the most overlooked marketing factors are terms which are also referred to as financing concessions.

Paying part or all a buyer’s closing costs is the most common financing concession. By doing so, the buyer doesn’t need as much cash to get into the home which can be attractive to more buyers.

There is another financing concession that is not used very often in today’s market but it is still allowed and can increase the marketability of a home. A temporary buy-down of the interest rate makes a lower payment for an initial period.

It is still a fixed-rate mortgage that the buyer must qualify for at the note rate and there is no negative amortization. The seller pre-pays the interest in advance at closing so the buyer has lower payments in the initial period.

Instead of lowering the price of the home, let’s say the seller has decided to offer $6,875 worth of financing concessions that the buyer can apply any way they want. One way might be to get a 2/1 buy-down which means that the first year, the payment would be based on 2% less than the note rate of the mortgage and the second year, it would be 1% less than the note rate. The third through thirtieth years, the payment would be the actual note rate.

On a $275,000 home with a 3.5% down payment at 5% for 30 years, the first year’s mortgage payment would be figured at 3% which would be $305.76 less than normal. The second year’s payment would be figured at 4% and would be $157.65 less than normal. The third through thirtieth years, the payment would be the normal payment of $1,424.59.

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It would save the buyer $5,560.90 in interest in the first two years and there would still be $1,314 of the financing concession to apply toward the buyer’s closing costs.

The financing concessions paid by the seller give the buyer lower payments for the first two years and less money needed for the closing cost. An added bonus for the buyer is that the buyer can deduct the pre-paid interest the seller paid as qualified mortgage interest.

Some lenders may tell you that temporary buy downs cannot be done. They’ve been around for over thirty years and can still be done today on FHA, VA and conventional loans. Call (503) 289-4970 if you need a recommendation of a trusted mortgage professional or check out a 2/1 Buydown with your own numbers.

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Is There a Dispute Note on Your Credit Report?


Ask Carolyn Warren

If you sent a letter of dispute to Experian, Equifax, or TransUnion stating that something was not 100 percent correct about an account, then there might be a notation that says account in dispute or disputed by consumer.

If you hired a professional credit repair service that disputed on your behalf, then the same thing applies.

There’s a Good Reason for the Dispute Notice — and It Helps You

If a negative account (late payments, collection, anything bad) is on your credit report, it lowers your score. If the negative account is false, it would penalize you unfairly. Therefore, the credit bureaus remove the disputed account from the mathematical scoring system. Interesting, as this opens a door of opportunity!

This was a strategy credit repair services used in the past. They would send a dispute, your score would increase, and then you could quickly apply for a mortgage while…

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Loan Limits Increase, Saving Buyers Money


Ask Carolyn Warren

BIG NEWS!

Conforming loan limits have increased to $484,350.

High balance loan limits have increased to $726,525.

Conforming Limits

If you want the best loan, a conventional loan, you can now borrow up to $484,350 without paying a higher interest rate for a jumbo loan. If you have not owned a home in the past three years, you can do as little as 3 percent down payment (5 percent down for previous home owners).

High Balance Limits

If you live in an area where the median price of homes is higher than the national average, such as much of California or in Western Washington, then you can borrower up to $726,525 without paying a higher interest rate for a jumbo loan.

Advantages of the Mortgage Broker

  • Your mortgage broker (myself in CA or WA) can get you these loans now, today. The banks and other lenders are trailing…

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44 Times More Than a Renter


The Federal Reserve Board’s Triennial Survey of Consumer Finances recently revealed the net worth of a homeowner was $231,400 compared to $5,200 for a renter. The net worth of homeowners increased 15% from 2013 to 2016 while renters’ decreased by 5%.

Appreciation and principal reduction are the two dynamics that affect a homeowner’s equity. Each payment is applied to the interest for the previous month and the principal reduction to retire the mortgage.

A $300,000 home purchased with a $294,566 FHA mortgage at 5% for 30 years has an average monthly principal reduction $362 in the first year. Two percent appreciation would benefit the buyer by $500 a month. In this example, the equity grows by $860 a month for the homeowner. A tenant would have to invest $660 a month over and above the rent they’re paying.

Based on the assumptions listed above, the $10,500 down payment would become approximately $85,000 of equity in seven years. Leverage and forced savings contribute to the difference in addition to the appreciation and principal reduction.

The rent paid by tenants help the landlord recoup their investment in the home and a return on their investment. Some people say, regardless if a person rents or buys, they pay for the house they occupy. The choice is whether to buy it for themselves or their landlord.

Check out some of the benefits using your own numbers with this fill-in-the blank Rent vs. Own.

Three Things To Do When You Want to Buy a House in the Near Future


Ask Carolyn Warren

Is buying a home in your near future? If so, you will probably be asking to borrow $200,000, $300,000 or even $500,000. That’s a lot of cash!

Certain requirements come along with lending large sums of money. Here’s what you can do now to improve your chances of getting approved.

Buying a House?
Here’s Your “Must Do” List

1. Save money like a squirrel saving nuts for the winter. Stop buying $5 coffee drinks, another pair of shoes (when you already have pairs with no holes in the soles), clothes on sale, restaurant meals, and all those other seemingly small — but honestly — unnecessary items. The underwriter wants to see your bank balance increasing every month to show that you will be able to afford a house payment that’s more than your rent.

2. Say no to offers to open new credit. Getting a new credit card to…

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Gift of Equity


There is a little-known mortgage program that could provide the vehicle for the right person to get into a home. If a person sells their home to another for less than the fair market value, the difference in the appraised value and the sales price is considered a gift of equity for the buyer.

FHA requires that borrowers receive gifts of equity only from family members transferring title to the borrower.

An appraisal is required to determine the value of the home. The sales price is subtracted from the appraised value to determine the equity to be gifted. If a home appraises for $300,000 when the owner will sell it for $250,000, the gift is $50,000.

The gift is applied to the down payment. In this example, the borrower would have to qualify for a $250,000 mortgage which would require private mortgage insurance because a 20% down payment on a $300,000 home would be $60,000. If the buyer had an additional $10,000 in cash to put down, the PMI would not be required, and the monthly payments would be lower.

The seller would need to provide a gift letter stating the amount of the gift, the date the gift, and that no repayment is expected or required. It also needs to have the donor’s name, address, phone, email and relationship to the buyer. In addition, the settlement statement will need to show the gift being credited from the seller to the buyer. The lender may require additional documentation.

Beginning in 2018, the annual gift tax exemption is increased to $15,000 per person per year and lifetime exemption to $5.6 million. The fact that the $50,000 exceeds the individual amount doesn’t mean there will necessarily be any gift tax due now. The seller should consult their tax professional.

Do You Know the Way?


It may be natural for first-time buyers to be unsure of the process of buying a home because they haven’t been through it before but even repeat buyers need to know changes that have taken place since the financial housing crisis.

The steps in the home buying process are predictable and generally follow the same pattern. It certainly makes the move stay on schedule when you know all the different things that must be done to get to the closing.

  • In the initial interview with your real estate professional, you share the things you want and need in a home, discuss available financing and learn how your agent can represent you in the transaction.
  • The pre-approval step is essential for anyone using a mortgage to purchase a home to assure that they’re looking at the right price of homes and so they’ll know what they can qualify for and what the interest will be.
  • Even with lower than normal inventory, it is difficult to stay up-to-date with the homes currently for sale and the new one just coming on the market. Technology has simplified this process, but the buyer needs to implement them.
  • Showings can be accommodated online through virtual tours, drive-bys and finally, a personal tour through the home. Your real estate professional can work with you to see all the homes in the market through REALTORS®, builders or for sale by owners.
  • When a home has been identified, an offer is written and negotiation over price, condition and terms takes place.
  • A contract is a fully negotiated, written agreement.
  • Escrow is opened to deposit the earnest money from the buyer as a sign they’re acting in good faith. The title search is also started so that clear title can be conveyed from the seller to the buyer and that the lender will have a valid lien on the property.
  • 88% of home sales involve a mortgage. The lender will require an appraisal to be sure that the home can serve as partial collateral for the loan. If the buyer has been pre-approved, the verifications will be updated to be certain that they’re still valid. The entire loan package when completed, is sent to underwriting for final approval.
  • When the contract is completed, at the same time the title search and mortgage approval is being worked on, the buyer will arrange for any inspections that were called for in the contract.
  • After all contingencies have been completed, the transaction goes to settlement where all of the necessary papers are signed, and the balance of the buyer’s money is paid. This is where title transfers from the seller to the buyer.
  • Possession occurs according to the sales contract.

One of the responsibilities of your real estate professional is to make sure that things are done in a timely manner so that the transaction will close according to the agreement on time and without unforeseen or unnecessary problems.

Even if you’re not ready to buy or start looking yet, you need to be assembling your team of professionals. Let us know and we’ll send you our recommendations, so you can read about them on their websites.

If you have any questions, call us at (503) 289-4970; we’re happy to help. Informed buyers lead to satisfied homeowners and that is better for everyone involved.