Buying our first house... what to expect?

Sounds like the seller chips in on the closing costs.

Normally, the buyer is responsible for closing costs, I think, unless there is some agreement and the seller helps out.

Who owns the house? The bank? Is it an approved short sale? I don’t think you need to worry about any of that. You just need to be sure the title is free and clear, and that you can afford to pay for the house and associated closing costs. Of course, you want to reduce your costs as much as possible.

Do not worry about whether your offer covers the amount owed on the mortgage. That’s not your concern. Offer what you think is fair, and make it an offer that is serious enough for them to consider. The owner may be willing to make up whatever the difference is if your offer does not cover what is owed on the mortgage. Your offer may be the best they can get.

They may decide they can do better than your offer, and give you a counter offer. You can call their bluff, or meet their counter offer. In this market, if you are covering the mortgage, I’d think they would be happy to walk away not having to have to pay for the privilege of walking away. But you may be making a very generous offer, and they might snap it up.

I suggest you watch some HGTV. There are a number of good programs that will educate you on many of the issues you raise. Hire an experienced and well recommended home inspector and find an real estate expert to help you through this process. There are too many rookie mistakes for you to just wing it on your own and hope for the best.

Very exciting!

Short sales often take longer than a regular sale. It is possible they are taking multiple contracts, and will decide on the best looking one. Did they give you a date the bank will respond to your offer? The bank is going to want to do an appraisal if they haven’t recently, which sometimes mean they want even more than the asking price, hopefully that won’t happen to you. Some realtors make a close guess, but shoot low for the asking price to get offers to come in.

Ok, so you put in your offer, let’s say the bank and owner sign off on it. Then you will start things going with your mortgage companh and you will do your inspection (I assume you put on your contract you will inspect within a certain amount of days after the banks acceptance lf the price) and give a second deposit if that is in your contract. Your realtor should help you walk through everything, have them help you stick to the contract.

Know that closing might wind up being more than you expect. If the good faith estimate from your mortgage broker did not have an estimated closing date, then the good faith is probably based on closing on the 15 th of the month. Closing at the very beginning or very end of the month will change some of the numbers. If you ask the seller to pay closing, that would have to be in your sales contract, they either agree or not, like every other part of the contract from price, to time periods you can still get out of the contract with no oenalties and get all your down payment (escrow money back). You should be able to cancel the contract within a time period after inspection, and be able to cancel if you cannot get financing for the mortgage, but that must be written in the contract it isn’t a law. What is a law in most states is if it is a condo they must supply you with the condo documents to review, and you get 15 days in some states to review them, but it can vary. Covenants or docs for noncondo communities might not be covered by law, so that would need to be written in the contract if you want time to review them with leeway to cancel the contract if you don’t like the rules of the community.

Basically, the short sale is a pre-foreclosure. The owners can’t pay the mortgage. A lot of people don’t know they have the option to short-sell their house, and so they wait for the bank to foreclose.

So knowing what’s left on the mortgage is sort of important, because the bank wants to break even instead of losing money, which is what a short sale typically means for them.

Basically, the asking price is not approved by the bank. We submit our offer to the seller. If the seller signs off on it, then it goes to the bank. In this state, they can not accept multiple contracts, and luckily, there is no contract already, so if the seller approves our offer, we will be the one and only contract. Then the offer goes to the bank. Because the bank has to assume all costs that the seller would normally pay for, they want to not only break even on the remainder of the mortgage, but also to cover those costs, and likely make some money too.

So… we know what the mortgage is. The seller’s asking price is about 7k more than they owe on the mortgage. Plus, we know that the bank will have to pay 3800 to bring the heating system up to standard, so that leaves 3200 left for the bank and all the remainder of the costs to close. Assuming the remaining costs aren’t more than that 3200, the bank should logically accept our offer, because they will break even. Otherwise, they could counter for more money. We are prepared to offer up to another 15k for this house (and even then it’s still 20k less than we are pre-approved to borrow). Also, since the seller owes 7k less than they’re asking, they really have no reason to decline the offer.

So, the odds are in our favor, it seems. The problem is with short sales and the fact that it’s pre-foreclosure means there are so many other aspects that a regular home sale doesn’t deal with.

@poofandmook Did you write in the contract the bank will fix the heating system?

The bank cares about what the house will appraise for, not just what is owed on the mortgage. If the price is above appraisal, you will not be approved on your mortgage and the contract will fall apart.

I have a co-worker whose wife does home appraisals, and she is running the MLS number for me.

The realtor told me that the bank will have to assume the cost to fix the heating system. She said that in this state, when a house is approved for a short sale, the bank must do what the seller should be paying to do under normal circumstances. We shall see.

First step though, we have to hope the seller will accept the offer. Then go from there.

@poofandmook I’m licensed in Florida, so I only know the laws there. Most short sales are sold “as is” which means nothing will be fixed unless specifically stated otherwise on the contract. I’m assuming your realtor used a contract where the seller is responsible to fix some things either up to a certain dollar amount or percentage of the selling price, or possibly there is law governing certain things like heaters in your state as you said, I just did not have that circumstance in my state. Some houses are sold to be torn down or fixer uppers, so the state requiring a seller to fix anything would not make sense in those circumstances.

yeah, apparently the laws are different here… because she said that “the bank also has to absorb an additional 3800 to fix the heating system.”

@poofandmook What state are you in?

Is it a short sale if you are paying more than the amount remaining on the mortgage?

New Jersey. Also, this realtor is a friend of mine and she happens to specialize in short sales, which worked out nicely for me lol

@wundayatta: Yes, because there are other costs the bank has to absorb that need to be covered. And also, of course, being a bank, they want to make money too for their trouble, I’m sure.

Well, if they make money on it, then technically, I don’t see how it can be a short sale. If it’s a short sale, they are simply trying to minimize their losses. If they can make money, it can’t be a short sale. Or if it can, then someone has to explain to me how they are using the term. It wouldn’t make sense to me.

Or maybe it would. Only in America, right? You can lose money while making money. Gah!

If the house sells above the mortgage and all other costs, the profit would go to the owner, not the bank, so then it technically is not a short sale possibly. The tricky part might be payments that have not been made in several months, and the pay off amount of the mortgage. The loan balance is lower, because it does not include the interest in the payments maybe? That is all I can think of. So, since the owner probably is behind on payments, usually you have to be behind to short sell, that is why it is probably considered a short sell. Not sure though. All the short sales I know of have gone for below the mortgage balance.

well then if the bank can’t make any money off it, and the seller can’t if it’s a short sale, then that’s even better for us, right?

@poofandmook The only way it is a good deal for you is if it is selling at or below market. How much money the seller or bank makes is fairly irrelevant. It is good information to be able to negotiate the price, but in the end you own it for the price you bought it.

I know that in our area, it is DEFINITELY a buyer’s market.

Hopefully my co-worker can come back with the appraisal and have good news.

Just be sure you can cover the cost of the mortgage. The mortgage isn’t going to be just the loan amount and interest. You will have insurance and taxes included in the mortgage. You’re also going to have title search, survey and home/termite inspection fees. You will get a HUD 1 settelment statement prior to the closing of the home if your offer is accepted. It will breakdown every detail to the last penny of what is owed from the borrower and the seller. Congratulations. I hope everything goes smoothly for you.

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Let me just emphasize what @JLeslie said. To you, it is irrelevant if the bank or the owner make or lose money. Not your problem.

Your only concern is to get the house at the lowest price you can get them to take. All else is negotiation. You do not have to help them make money. If they’ll sell you the house at a loss, that’s all good for you. Your only concern is getting them to sell you the house for the lowest price possible.

That includes closing costs. If you can get them to pay for closing costs, that’s even better.

They, of course, are trying to get you to pay as much as possible and to cover as much of the costs as you will. You are in a negotiation, and you need to stand your ground. If they counter offer, and they will, if they know what they are doing and your offer wasn’t too high, you don’t have to meet that offer. You can counter-counter, or stand pat. It all depends on how badly you want the house.

It sounds to me like you want the house pretty badly, because you are will to go up another 15K. Try not to show them that. Act as if you’ll just walk away if it isn’t on your terms. It’s a game, and you have to be willing to walk away, or you will pay more than you had to.

A short sell is a little different, @wundayatta. It usually doesn’t involve the typical offer, counter offer and such. It is an alternative to foreclosure or the value has fallen on the property and the seller is trying to get out from under the mortgageon a home that isn’t worth the loan. The lender is willing to accept less than what is owed on the property so there usually isn’t much room for negotiating.

Make sure you have a good real estate attorney, @poofandmook. Remember the lender is the one paying the commission and there is going to be negotiations going on that you need to be aware of so you don’t end up paying any out of pocket.

I have a great real estate agent who is holding our hands through the whole thing… It’s all so scary. But we did sign the contract tonight with our offer.

Is the home going to be foreclosed on, @poofandmook, or is it being sold for other reasons?

@poofandmook You should always read over the contract, so you understand what you are signing, or you can also get a lawyer of course. Probably your realtor used a standard contract and it will be fine, but you should now if she asked for the seller to pay closing, how many days you will have to inspect, etc. You must have a copy of the contract? Look it over.

@bkcunningham The short sale is done before foreclosure, to avoid foreclosure. The people selling will have less negative impact on their credit scores by short selling.

I know what a short sell is, @JLeslie. But a pending foreclosure isn’t the only reason a lender will agree to a short sell. There are other reasons people may request a short sell before they get behind on their payments. Sometimes the value of the home and the value of comps in the area have dropped so dramatically people who bought the house when the price was way up want to get rid of the house and the lender will work with them. Sometimes a property owner is in over their head with all of their bills and negotiates with the lender to agree to a short sale.

Make sure that the water heater’s OK. It’s going to be your problem now, not the landlord’s. Someone keen on selling will sometimes replace the old water heater (if it’s not working right) with a new one that isn’t so great and might break in a few years. Workmanship, too.

We need to replace the furnace, but the bank will lower their counter, if they counter, to allow us to do so. If we decide it’s too many repairs after inspection, we can back out.

The short sell is because they are behind I the mortgage.

And she is emailing a copy of the contract tomorrow. She did tell us how many days but she said she will walk us through each step until it closes.

@bkcunningham It’s the same in the end. The seller wants to dump the house or can’t afford the house, and the house will eventually go into foreclosure. I think some of the rules have changed, but a few years ago someone had to default on their mortgage, not pay a few months in a row, for a bank to be willing to start the short sell process. Now it might have changed, I don’t know.

my anxiety is through the freaking roof about this. What if we do get it? What if we don’t? Can we really manage all this? The numbers all look good, so why am I positive we’ll be broke and foreclosed in 6 months?

@poofandmook Buyers remorse! It’s very common.

@poofandmook, it is exciting and stressful all at the same time. It is a MAJOR life decision. If you have a budget and know that you can afford the mortgage and the repairs, you’ll be fine.