Tag Archives: Home insurance

All Those Fees

There are many payments, costs and fees associated with buying and selling a home. Some are paid by the buyer and some are paid by the seller.

Costs and Fees Generally Paid by Buyer:

While there are a number of categories of costs and payments, the most significant buyer fees are related to financing.

Inspection fees – In the Houston area, these are generally mechanical, structural, foundation, termites and pool.

The warranty deed and deed of trust, if applicable, will be recorded with the County.

Escrow Fees are paid by both the buyer and seller to the title company for the services the title company is providing.

Survey cost is generally paid by the buyer. However, the seller may have an existing survey, which may be acceptable. Or, the seller could pay if that is negotiated.

Having Fun at Home

Having Fun at Home

Homeowners’ Association Dues and Fees are generally paid at the beginning of the year. As a result, the buyer will reimburse the seller for that remaining portion of the year for which the buyer will own the home.

Property taxes are paid at the end of the year. As a result, the seller will owe the buyer for that portion of the year for which the seller owned the house.

Optional Owner’s Title Policy additional coverage for discrepancies and shortages is negotiable but generally paid by the buyer, if purchased.

Homeowner’s Insurance and Flood Insurance may be paid directly to the insurance company if there is a cash transaction. If a loan is set up with an escrow account (meaning the bank pays these costs on behalf of the buyer), they are paid by the bank.

If financing is involved, there will be Lender Fees and Charges:

  • Lenders typically set up an escrow account to directly pay the buyers property taxes, homeowner’s insurance and flood insurance (if applicable). To set up the initial funding for that account, the bank will generally require a payment for three months’ insurance and at least a year of the estimated annual property tax amount.
  • Other lender fees and charges are loan origination, appraisal, document preparation, credit report, and mortgage insurance premium, if applicable. Mortgage insurance is paid if the down payment does not meet specific levels or on some government supported loans.
  • Interest for the period from closing to the date of the first payment.
  • Although not paid to the bank, the buyer will pay Title Insurance covering the bank for the amount of the initial loan.

Miscellaneous fees like courier fees are also charged.

Costs and Fees Generally Paid by Seller:

While there are a number of categories of costs and payments, other than debt payoff, most sellers’ payments, fees and costs are related to transaction commission to the broker, title insurance premium paid on behalf of the buyer, and property tax credit to the buyer.

Basic Title Policy for buyer – Although negotiable, this is almost always paid by seller.

Proration of Property Taxes – Property taxes are due at the end of the year. As a result, the sellers are charged for the portion of the year they owned the home. This amount is credited to the buyer who will be responsible for paying the tax at the end of the year (or their bank if there is an escrow account.)

Home Warranty –Typically, the seller pays an agreed amount for a substantial portion of a one year warranty on mechanical items in the home such as sprinkler systems, heaters and air conditioners.

Homeowners’ Association Dues and Fees are generally paid at the beginning of the year. As a result, the seller will be credited for the portion of the year related to the period of the year in which the buyer will own the home.

All commissions are the responsibility of the seller.

The payoff of all loans and liens will be charged to the seller.

Escrow Fees are paid by both the buyer and seller to the title company for the services the title company is providing.

Miscellaneous other fees and costs are related to recording the release of liens, document preparation fees, and homeowner’s transfer fees.

Advertisements

Home Buying Process – Part III of III

POST CONTRACT TO POSSESSION

This is Part III of three parts listing the broad steps in the home buying process. Parts I and II were included in prior posts. The steps listed are generally in order of occurrence. Although, some will occur at the same time or cross other steps.

Checks  – The checks you wrote when the offer was prepared are delivered by your REALTOR to the seller’s agent (option money) and to the title company (earnest money – generally 1% or so of purchase price.)

Option period – The standard contract provides an option period in which the buyer may back out of the contract with no reason required. During this option period you and your agent will complete the steps not completed during due diligence and have inspections performed. Your REALTOR can provide you names of general inspectors and those that can review for termites, foundation issues or other specialized concerns. You will need to obtain the inspection reports and negotiate repairs to be paid by the seller prior to the end of the option period.

In addition, you will want to complete due diligence with your insurance agent by obtaining the CLUE report if you have not previously done it, and obtain an estimate of homeowner’s insurance and flood insurance.

Loan Application – As soon as the contract is executed you will start the loan application process. As part of this, the bank will request an appraisal. Your REALTOR may provide data relative to comparable homes to the appraiser. The bank will also be concerned about the status of the title and will wait on the title commitment from the title company. The buyer can back out of the transaction if the financing is not approved.

Title Company – The title company holds the earnest money until release is approved by the parties to the contract or closing, depending on whether the contract closes. They also review the title for encumbrances (issues), provide title insurance to the buyer and the buyer’s bank, ensure all conditions of the contract are met and perform closing.

They will provide the preliminary title commitment (which notes any issues) to the bank, the buyer and the seller. Each party will have a chance to review it for issues. The bank or the buyer may back out of the transaction if there are issues with the title.

Insurance and Utilities – You will want to arrange for your homeowner’s and flood insurance to commence on your closing date. If it is hurricane season, it sometimes takes 30 days after purchase for flood insurance to be effective. So, you will want to discuss this issue with your insurance agent.

Having Fun at Home

Having Fun at Home

Walkthrough – You will perform a walkthrough the day of closing but prior to closing or the day before closing. The purpose is to ensure no major issues have arisen (e.g., a fire) and that repairs to which the seller committed have been made. The buyer may want an inspector to review repairs made.

HUD-1 – Also called an allocation or settlement statement, the HUD-1, or similar document if there is no financing, sets out the sales price, down payment, fees and other financial activity associated with the transaction. The buyer and seller and their REALTORS will review the statement in detail to ensure all amounts are appropriately calculated and allocated. It cannot be prepared until the bank provides the loan commitment. So, in many cases, this is right before closing.

Closing – Prior to closing the buyer will purchase a cashier’s check or arrange a wire transfer for the “down payment” (amount shown as paid at closing on the HUD-1.) At closing (which can be an event for each party or one event for both parties), each party signs numerous documents transferring title and setting up the loan. During closing or shortly after (could be the next day), the bank funds the loan to the title company. Once closing and funding have occurred, the buyer owns the house. Unless the seller enters into a short-term lease with the buyer, the buyers are given keys and can take possession.

Congratulations. It is now your home.

Home Buying Process – Part II of III

GETTING TO CONTRACT

This is Part II of three parts listing the broad steps in the home buying process.  Part I was my prior post. The steps listed are generally in order of occurrence. Although, some will occur at the same time or cross other steps.

View properties – At this point, you have selected several properties to see which seem to meet your requirements (needs and wants). Especially, if you are seeing several houses at once, take pictures to help remind yourself of the houses. It also helps to take notes and name the houses (e.g., the Dungeon, the Castle, the Hipster, etc.) In taking notes, it is especially important to comment on what you really like or dislike about a particular house. This helps you decide about the house and helps your REALTOR fine tune the search.

Inspecting the Home

Inspecting the Home

Pre-offer – Once you have decided to make an offer you will want to complete some due diligence. Depending on the timing (how quickly you want to make the offer), you will want to complete some or all the following steps. If not completed now, all but the market analysis can be completed during the option period which will be discussed in Part III.

If prepared, review the seller’s disclosure. This form is required to be completed in the majority of residential transactions. It will generally be completed as part of the listing process. But, it may not be prepared until after an offer is signed. If not prepared, the contract will give you an “out” after you review the disclosures. The seller’s disclosure will tell you issues of which the seller is aware (e.g., termites, foundation issues, broken air conditioner, etc.) It is prepared as of a certain date. Depending on timing (how old the signatures are), you may want it re-signed/updated by the seller.

Check with your insurance agent to obtain the CLUE report which lists all claims made against the home. You will also want to obtain an estimate of homeowner’s insurance and determine whether the home is in a flood plain. If it is, you need the elevation certificate from the current owner for your insurance agent to determine your flood insurance rates.

Your REALTOR will prepare a market analysis of comparable homes to evaluate a reasonable range for the offer price. The market analysis will have sales prices of comparable homes sold in the last six months or so.

Write an offer – Once satisfied and an offer price is selected, the REALTOR can prepare the offer. There are standard forms REALTORS use with blanks for offer price, etc. Depending on your comfort with the transaction, you may have a lawyer review the documents. There will be additional forms for neighborhood association disclosures, MUD disclosures, financing details, etc. Your REALTOR will submit the offer to the listing agent. The listing agent is required to present the offer to the sellers unless the sellers are no longer accepting offers (i.e., they have an existing offer with which they want to work or have accepted an offer.) Generally, due to timing issues, your REALTOR will obtain two checks (one for the option period and one for earnest money) before submitting the offer. Your REALTOR will hold the checks until both parties sign the agreement.

Negotiate terms – The sellers will accept, decline or indicate a willingness to work with the offer. Depending on the REALTOR, this may be documented in writing or communicated orally. Once one party communicates different terms to the other party, that communication becomes a new offer. An offer becomes a contract when it is executed (when the second party – buyer or seller – signs.)

Part III will include the steps to finance and buy the home.

Inspections and the Option Period

At Home

In Texas, the standard contract to purchase a home gives the buyer a choice to purchase the home in its present condition (“as is”) or purchase in its present condition, except for specific items the seller will repair. Unless there is something specific known at the time of the offer, most buyers mark the “as is” box.

The contract also includes an optional option period. During the option period, the buyer has an opportunity to discuss the potential home with an insurance agent and have the home inspected and tested. Prior to the end of the option period, the buyer will generally propose an amendment to the contract as a result of the information gathered after the contract was executed. And, a new round of negotiations occurs prior to the end of the option period. If the buyer is not satisfied with the seller’s willingness to resolve issues, the buyer can walk away and still receive the earnest money deposit.

From the insurance agent, pricing for homeowners and flood insurance should be obtained. In many parts of Houston, a flood plain elevation certificate will have to be obtained to price the flood insurance. An elevation certificate can be produced by a surveyor if the sellers do not have one. A CLUE report can also be obtained by the insurance agent summarizing prior damage claims on the home. Flood insurance pricing and prior claims are the two key pieces of information needed during the option period.

One or more inspectors should evaluate and test the property. The most important issues for the inspectors in the Houston area are:

Wood Destroying Insects – Most homes of any age and a few new ones will have been exposed to termites and other wood destroying insects. Ensuring the infestation is not active is key.

Foundations – Most of Texas for over 100 miles from the coast is a build-up of sand and dirt. As a result, foundations are not built on rock and after a period the foundations must be repaired. In general, the older the home, the more likely the foundation will need repair or have been repaired in the past.

Drainage – Most Houston homes need to drain from the back to the front and will need a path or drainage system for that to occur. Poor drainage can lead to wood rot, landscape issues and mold issues.

Electrical and wiring – Evaluating whether the electrical system and wiring are working properly, are adequate for the buyer’s needs and are up to date are major concerns as issues can lead to fire hazards.

Under slab plumbing – In homes built before the mid-1970s, cast iron pipe may have been used. The pipes should be inspected for blockage and leaks. The cast iron pipe will likely have to be replaced at some point.

Stucco – Because of the humidity and wetness in the Houston area, stucco should always be tested and inspected for leaks and water penetration.

Other – Roof age and condition, and adequacy of heating and air conditioning equipment are areas of concern.

In selecting an inspector or inspectors, each of these areas should be addressed. Once the buyer knows all the issues, determining a final negotiating stance during the option period can be finalized.