Costs that come with the Purchase of a Property

In a previous post, I shared the 5 steps in purchasing a property – 1) Forming & Presenting an offer 2) Acceptance, Attorney Review & Inspection 3) Appraisal 4) Commitment Letter from Lender and 5) Last Walk Through and Closing. Before you reach the last step, you want to make sure you are aware of all the costs associated with purchasing a property in Chicago. As a buyer, you are also responsible for the following costs:

  1. Closing Points – this is a percentage of the loan value charged by the lender at the time of closing.
  2. Private Mortgage Insurance (PMI) – this is additional insurance required by the lender if the loan exceeds 80% of the purchase price; the amount will be approximately one-half percentage point paid at the time of the closing and approximately one-third additional percentage point added to the monthly mortgage rate.
  3. Documentation Preparation and Recording Fees – this is necessary to prepare the mortgage and record the deed and title. The average for this fee is $500.
  4. Application and Appraisal Fee – charged by the lender. Average fee is $250
  5. Chicago Revenue Transfer Stamps – $7.50 per $1000 of the purchase price
  6. Lenders Title Insurance – average $250
  7. Attorney’s Fee – average $400-$700
  8. Tax Reserve Refund – equal to two months of taxes (only if required by lender)
  9. Homeowners Condominium Insurance Policy – a paid receipt may be requested at the closing
  10. Escrow Charges – only if the escrow is established
  11. Cashier’s Check or Certified Check – for the total amount due at the time of the closing

Mar 26, 2010 | Categories: Buyers, Resources | Tags: , | Leave A Comment »

5 Steps in Purchasing a Property

Here is a 5-step guide for buyers who wish to purchase a property

I. Forming & Presenting an offer to purchase property

  • Buyer’s agent prepares a comparative market analysis to determine the current selling price of homes in the area.
  • A buyer decides a sufficient offer to present based on the CMA prepared & the condition of the prospective property.
  • Buyer’s agent will then put together a full packet to submit to the Seller’s agent containing the actual contract, earnest money check along with a pre-approval letter from the lender.

II. Acceptance, Attorney Review & Inspection

  • When an offer is accepted, signed copies of the contract/disclosures will be issued to all parties involved in this transaction within 24 hrs.
  • The buyer is given 5 days to have his or her attorney review and make any modifications to the contract after it has been accepted.
  • The buyer will be given 5 days to perform an inspection on the subject property. An inspection is suggested but not required to all buyers to ensure the condition of the property. A copy of the report will then be issued to your attorney.

III. Appraisal

  • An appraisal s required by the lender in order to obtain financing needed.
  • After the attorney modification and inspection contingency period, the lender will send an appraiser out to the subject property to ensure the property’s value.

IV. Commitment letter from lender

  • A commitment letter states that the purchaser has secured financing from the lender.
  • A commitment letter is usually issued 3 to 4 weeks after a contract has been accepted.

V. Last walk through & Closing

  • A walk through of the property is given 24-48 hrs before the closing to reassure the buyer of the properties condition before taking possession.
  • All parties are required to have a valid drivers license or state i.d. present at the closing.
  • All funds brought by purchaser must be certified checks only.

Mar 22, 2010 | Categories: Buyers, Resources | Tags: , | 4 Comments »

Investing on Foreclosures, Is it for you?

Foreclosure properties can be a good place to invest your money. However, potential investors should take precaution because there are some deals out there with little or no money down but can involve significant risks. Here are 3 ways to invest in foreclosure properties.  

The first approach, also considered as the most popular, is to purchase a property, fix it up and then rent it out. This approach creates (most of the time) positive monthly cash flow for the investor as he / she becomes the landlord.

The second way is to seek out and buy foreclosures or “handyman” specials, invest more money to fix or upgrade the property and then sell for a higher value for profit. 

The third approach is to purchase a foreclosure that is underpriced and selling it immediately at a higher value.

Now how do investors sell homes for a higher value? One way is to take back a mortgage. For example, a house worth $100,000 is sold to an investor at foreclosure for $50,000. The investor makes a 10% downpayment on the property and assume or create a new mortgage for $45,000. The investor then advertises the property at a discount price of $80,000, offering 100% seller financing. By underpricing the house, the owner creates a sense of urgency to pull in buyers. If successful, the investor takes a promissory note from the new purchaser for $80,000. He has now created a $35,000 note for himself (The difference between $80,000 sale price and the original mortgage of $45,000). The new buyer makes payments to the investor for an $80,000 loan and the investor makes payments on the original loan for $45,000.

If the original loan is for $45,000 at 8% over 30 years, the principal and interest is$300. When the second buyer takes a note for $80,000, the investor may charge higher interest since he’s offering 100% financing.

Let’s say he offers the $80,000 loan for 9.3% over 30 years. The monthly payment is $620, creating a positive cash flow of about $320 per month.

If the borrower stays in the house for 30 years, the investor will make $115,200in interest and $35,000 in capital gains after he’s paid his own interest on the first note for a total return of $150,200. Not bad for a $5,000 down payment.

Keep in mind that not all mortgages allow an owner to “wrap” a second mortgage onto an original loan. Most loans today contain a “due-on-sale” clause, meaning if the property is sold, the first trust must be paid off immediately.

Before you decide to invest in foreclosure properties, be sure everyone (be it your spouse or other investors) understands this form of investing including the nature of this business including high finance, property management, calls in the night from tenants and other risks that regular home owners never experience. Before diving into this new world, consider the following:

1) Get educated. There are plenty of real estate agents and auctioneers who do this on a daily basis and would be happy to educate you in the world of foreclosure properties. Read on guides written by reputable authors who know investment intricacies.

2) Be realistic and manage your expectations.

  • not all foreclosures are good deals
  • not all foreclosed properties are available at a discount
  • if you take back a loan your buyer could default
  • most loans prohibit wraparound financing
  • repairs might be far more than what you expected
  • not all tenants pay their rent on time
  • some renters damage property
  • changing interest could impact your bottom line
  • it may not be possible to re-sell the property without excessive and costly repairs
  • not every deal yields a profit
  • if you have profit you may face taxes
  • if you only look at foreclosures you may miss other investment opportunities

3) Get professional help from brokers, lenders, attorneys, accountants, home inspectors and others.

Mar 18, 2010 | Categories: Buyers, Resources | Tags: , , | Leave A Comment »