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real estate deposit Q
A-Rod
Registered User regular
Registered User regular
Ok maybe someone can help clear something up for me. When purchasing a house/condo whatever, the deposit one puts toward the place....what exactly is that going towards?
I know its held in a trust account, and i know it shows the seller as a buyer you are more serious about purchasing but im not quite sure what the deposit is used for.
I know its held in a trust account, and i know it shows the seller as a buyer you are more serious about purchasing but im not quite sure what the deposit is used for.
A-Rod on
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Basically, it starts you off having more capital than you have a loan for, which makes your interest rate lower.
Say you've got a $500,000 house, and you put $50,000 down on it; you go to your bank, and ask for a loan of $450,000 to buy a $500,000 house. This is much less risky than having to give you $500,000 to buy a $500,000 house, because if you default on the $450,000 loan, the bank can probably get most of their money back, even if the value of the home falls some. If you default on the $500,000 loan, the bank may be out quite a bit of money.
I was just wondering why someone would want to be 100% financed if they can put in a decent deposit.
If you don't have the money for a deposit, 100% financing is an option. It's not the smartest option, and will cost you in the long term in the form of interest, but it is an option.
Also, banks will charge you a hefty fee to apply and secure this type of loan. And they'll charge a higher interest rate than a traditional or loan-to-value loan.
Like I said, not the smartest option
Ok so what exactly is the difference between the deposit and a down payment? not quite getting the difference between the 2.
You put in a deposit, which goes to the costs, and the down payment is a lump sum at the start to help pay for the total cost as well??
To explain: if you're buying a one million dollar house, you can either secure the loan with a deposit or not. If you're wealthy, there's maybe a one-point difference between the two. So, you secure a 4.5% loan for 100% of the value rather than a 3.5% loan for 90% of the value. You take that $100,000, and place it in an investment that gives you a 12% APR over the life of the loan (probably 20 years). In the meantime, every dollar of interest you're paying on the loan is only costing you $.60 (because you can deduct it from your taxable income), so your 4.5% interest rate is actually only a 2.9% interest rate. Sure, you could pay down part of the loan with the $100,000 you have, but you're making more money by having that $100,000 invested elsewhere.
pleasepaypreacher.net
Earnest money is just a gesture to the seller that you're serious. And they keep it if you fail to uphold your end of the bargain (e.g. house passes inspection but you get cold feet and don't want to buy).
For example, a seller has listed a house at $250K, you make an offer for $220K contingent on the house inspection, they counter at $233K and you counter the counter at $225K which they accept. You give them a check for $2K in earnest money. You get the house inspected and everything's good. You plan on making a 20% down payment ($45K) and closing costs are another $5K. At closing you cut a check for $48K to secure the house (down payment + closing cost - earnest money).
Edit: Once they accept an offer and take your earnest money, the listing should then get classified as "Under Contract". And the seller cannot accept another offer before the contract period expires.
Info helped clear things up a lot for me. Thank you.
Well earnest money might be a US only thing, I don't know about Canadian real estate law.
pleasepaypreacher.net
Earnest money is also known as hand money in some parts of the world. Basically, it's a small payment to the seller as a show of good faith while the buyer work out the rest of the transaction. It's also known as down money and in the deep south, spittin' money.
I made that last one up.
I also hope to be buying a house in a year or possibly sooner
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Dependent on what you are buying (sometimes your down payment is also your earnest money). What I normally hear is at least 5k, no more then say 20k. But if you are buying a million dollar home well they might want you to be a little bit more earnest.
pleasepaypreacher.net
Do you think you'll be working with a real estate agent or buyer's agent, if so she will know best. Given the housing market is kinda in the shitter you probably don't have to put much earnest down. I bought at the end of '05 and my earnest money check was $1K, less than 1/2 of 1% of the purchase price.
Hey hey she/he will know best there sexist!
And its entirely dependant on where/what you are buying. The market overall is down the shitter but some areas always sell well so if you are buying there they will require a decent amount of earnest money.
pleasepaypreacher.net
What Than was referring to sounds like a down payment.
I've only ever heard the terms deposit and down payment in Canada.
I paid like 1k earnest money that showed the sellers we were serious. This was something that in the event we backed out we would not get back.
I bought my house for about 165k. We took a 100% loan. Our interest is not ideal: 7%, but we pay no PMI so our monthly costs are lower anyway. We have no penalties for putting money towards the mortgage, so we will have the house paid off in 20 years or so and will pay much less than putting down 10%. We talked with the banker and she even advised us to not put money down and invest it into things for the house (furniture, other stuff you will just need it adds up quick).
When we bought the house the market was terrible for selling. They wanted 172, we offered 165 and made them pay closing costs. If you can pull this off it's amazing. We literally walked from closing with a check for $500 and keys to the house (the amount of closing turned out to be less than we bargained for because the buyer and seller had the same realtor).
In the past 12 months it has gotten much harder to make this sweet of a deal because so many people got in over their heads and it's too big of a gamble for the banks anymore.
Whatever formulas you hear regarding % of your income vs mortgage payments you need to be careful. I made sure to crunch all the numbers and even though we were approved for something like 250k that is a bad bad plan. Do the math, have a buffer zone because shit WILL come up and fixing a house is not cheap. That water heater that looks great and passed inspection all of a sudden sets me back $1200. Can you afford that on top of the mortgage?
I'm sitting on my back porch typing on my laptop with a glass of whisky and a cigar. This is the greatest fucking investment ever.
I'm getting ahead of myself though. I haven't been to a mortage company or a bank yet to find out what I can afford. I just have a pretty good feeling I can't afford anything over 150K (live in the midwest) so im just looking around at listings for at that amount or lower.
So I keep hearing about special loans for first time home buyers...is that just a lower interest rate or does it just vary depending on who is offering the mortgage?
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If the most note you can afford is 150K, include up to mayeb 180K houses in your search. It's a big transaction, and depending on your market people could just be asking for too much. The house I bought was out of our price range, but my buyers agent had included in our list houses upto 25% over our "max price". The house we liked and made on offer on I probably wouldn't have even considered because it was too much. We made an offer, she countered, we countered and secured the house for under list. Turns out the seller was heavily pregnant, getting married and had already moved into her new house, the house had been listed before twice and it was 6 months into its 3rd listing and had just been informally rented (read: motivated seller).
tl dr: Make an offer, even if it's a lowball. Worst that can happen is the seller says no and doesn't counter.
pleasepaypreacher.net
YOU talked someone down $59,000.00+ on the price of their home?
What was the caliber of your discussion: .357 or the more conventional .45?
When the price is that high, that much money is usually unsubstantial to the seller. No? Unless, of course, the home was originally highly priced.
So it was probably one of those homes where it cost them very little to build and they want to sell it for as much profit as they can? We have a lot of those pre-fabbed house neighborhoods around here.
They built a lot of them, but apparently not a lot of people are buying so they might be motivated to sell cheap just to move them.
But first, I really need to go to a mortgage company and find out what I can really afford
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Yes please be aware of your spending limits before going out there. Nothing worse then finding a house then trying to find financing, its how morons wound up in ARMS in the first place.
pleasepaypreacher.net
is there any advantages to going with a big national corp as opposed to the local banks or does that just depend on area I suppose.
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In my experience, local banks tend to give you the better deals, but are less lenient with things like forbearance and such.
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As far as lenders go, if you go new construction they will offer incentives for going through their preferred lender, sometimes this can work really well in your favor, so keep it in mind. My wife and I let our buyers agent know what we wanted to pay total per month and let them figure out how much house we could afford, we didn't get the lending stuff figured out until we picked our place because we went through their preferred lender. (Granted, we picked a house our first day looking!) I know our lending stuff was out of order a little, as you want to be "prequalified" first, but it worked for us! (at least I think it did, I'll know on June 30th when we close!)