Frequently Asked Questions
Renting vs. Owning ?
Now let's consider an equivalent home purchase....
$2000/month will buy you approximately a $325K home with 3% down. On a 4.75% 30 year loan, your principal & interest payment is approximately $1700/month. Taxes will run about $175/month and insurance about $100/month. So your looking at an "out the door" payment of $1975 (it might be slightly higher depending on mortgage insurance and total down payment).
What is earnest money ?
Once we've agreed on the price and terms, a contract becomes valid once an earnest money check is deposited. The earnest money is typically 1-2% of the contract price and the funds are held in a secure account -- sometimes with the listing brokerage firm, but more often with a title company authorized to conduct the closing.
Is the earnest money refundable ?
Yes. Residential brokers in Colorado utilize a state approved contract that was written with a buyers interests in mind. There are a series of contractual events, including inspection resolution and loan objection which provide opportunities for buyers to rescind from a contract with a full reimbursement of the earnest money.
Good Credit - Bad Credit
Anytime you take out a loan your credit worthiness, and the amount you're ultimately going to pay in interest, is based on a number of factors including: income, your dept to income ratio and your credit score.
How much do I need to put down?
The single largest expense in a home purchase is the down payment. Depending on the type of loan, you can expect to put down anywhere from 5% to as little as $1,000 if you're planning to use a CFHA loan. In today's market most jumbo loans (more than $417,000) require at least 10% down. Mortgage Insurance Premiums (MI) are built into most loans, unless you have a loan to value ratio of 20% or more.
What other fees can I expect ?
Once you're under contract a professional home inspection is recommended and will cost anywhere from $200 (for roughly 1,000 square foot condo) up to $800 or more for a 5,000+ square foot home. Additional fees may include radon testing and sewer scopes -- both run about $175. After resolving any inspection issues your lender will order an appraisal. The cost for an appraisal is about $400 and is non refundable.
What are closing costs ?
Closing costs are fees that cover things like loan origination (that's how the mortgage broker get's paid), title insurance and escrows for taxes, home owners insurance and HOA fees (when applicable). Depending on your financial needs closing costs (usually up to 6%) can be negotiated into the contract as a sellers expense. For the sake of a round number example, let's say you've just written an offer for $100,000 on a home. You can realistically expect closing costs to be somewhere in the range of $2500-3,000. If you don't want to pay those fees out of pocket at closing you might ask the seller to pay for them, but realize the seller is looking at their bottom line, so that offer is now worth $97,500-98,000.
What are the tax benefits of home ownership ?
The following example illustrates how home owner tax benefits can reduce monthly payments by as much as 20%
- Assume your payment is $1000/month -- of that payment approximately $750/month will be tax deductible mortgage interest (over the first 10 years of your loan).
- $750 x 12 months = $9000 tax deduction.
- $9,000 x .25 (25% tax bracket) = $2,250 that's comes right off the top on your annual taxes
- $2,250/12 months is almost $200 per month that may utlized to reduce your monthly mortgage payment
The Internal Revenue Service has also made it easier to claim a deduction for business-related use of your home. The new IRS option is available beginning 2013 tax year and the specific form will be available Jan 1st of 2014. Rather than the complicated 43-line form, there is a simpler option: a "safe harbor" method allowing for $5 per foot (up to 300 feet) for "schedule C" filers.The write-off is capped at $1,500 per year.
Please consult a certified tax planner to learn more.
How does your agent get paid ?
