Tuesday, July 29, 2014

When I sell my home, what will my net proceeds be?

When you buy your home it seems that everything can go your way.  You ask for a lower sales price, it usually happens and you get it or at least you meet somewhere between the "asking price" and what you would dream of getting the home for (the "bargain price").  

By accepting the discounted price, is that all the seller is having to pay to market and close on the sale of their home?  Of course not and agreeing on the price is only the first step.  From the meeting of the minds on sales price, the seller needs to figure in additional costs associated with marketing and selling (and closing) their home.  

In general, a seller will be looking at between 4% and 7% of the sales price in selling costs, and this doesn't take into consideration helping the buyer with their closing costs and prepaid expenses, if the buyer asks for this help and is obtaining mortgage financing to fund their purchase.  

A Realtor helping a seller market and sell their home will itemize expenses to be paid at closing and will provide a "seller net sheet" to help see what net profit the seller will be receiving from the sale of their home. 

As the seller, included in the net sheet expenses are the following (some or all may apply):

  • Mortgage balance payoff: The cost of repaying your home loan, second mortgage and any home equity line of credit is deducted from the sale price of your home.
  • Loan payoff fee: Some lenders charge an administrative fee when you pay off your mortgage or home equity line of credit.
  • Prepayment penalty: If you have a prepayment penalty clause in your mortgage, you will have to pay a fee to pay off your loan when you sell your home.  Home Equity Lines of Credit (HELOC's-interest only for a period of time-typically 10 years-and then gets reset to a fixed rate and fixed repayment term after the interest only period) and Home Equity Loan (HEL's-Fixed Rate and Fixed Repayment Term) most typically have a early termination fee associated with them if they are paid in full or closes sooner than 1 year (or the stipulated time that the line or loan needed to be left open at time of 2nd mortgage origination).
Working With the Buyer
Depending on the real estate market in your area and your buyer, the seller may have to negotiate and cover certain costs for the buyer, such as:
  • Closing cost concession: After you and the buyer agree on the final sale price, it isn’t uncommon for the buyer to ask for a closing cost concession to cover their closing costs. This fee—typically 3%—is added to the price of the house and then returned to the buyer after closing.
  • Repairs: Depending on the condition of the house, the buyer or the lender may ask you to cover the cost of repairs before closing.
  • Home warranty: Sometimes a seller will agree to foot the bill for a home warranty that offers a protection plan for the buyer’s first year in the home.
  • Termite letter: A document stating your home is termite-free may be required in some areas.
Fees Paid at Closing
Once you have struck a deal with a buyer, you will have other fees to pay before you can finalize the sale. For example:
  • Lien release document: If you owed money to a contractor, for court judgments, or for property taxes, a lien may have been placed on your property and you must pay that money before the sale can close.
  • Recording fees: If you owe money on the property, you will need to pay this fee to show your debts have been fully paid.
  • Notary fees: A fee charged by a notary to verify your identity and to make sure the documents are executed properly.
  • Escrow fees: The escrow company acts as an intermediary between you and the buyer, ensuring the money is handled properly. Escrow agents receive money from the lender, pay off your mortgage and closing costs, collect deposits and give the proceeds to the lender. You may be able to split these costs with the buyer.  In Utah, it is customary that the seller pays for their own title company expenses.   
  • Title search fees: Title companies search public records and give you a title insurance commitment. This document proves you have a legal right to sell your home.  In Utah, Title companies handle both the Title and Escrow services for the seller and the buyer.  
After meeting with your Realtor and receiving your net sheet, but BEFORE listing your home for sale, you are now ready to talk with a mortgage professional about questions you might have about financing your dream home.   

Get your financing in order and contact a professional to answer your questions.  So MUCH has changed in the mortgage world, most recently as of January 10, 2014, and it is a best practice to get a FULL credit approval letter from your lender which is backed up by:
  1. Full Credit Application
  2. 3 Bureau merged credit report
  3. Automated Underwriting System Approval-from Fannie Mae (DU) or Freddie Mac (LP)
  4. Income and Assets examined and underwritten
I can help with questions about selling your home, buying your next home and can offer a FREE Credit Approval which includes the 4 items listed above for a solid approval BEFORE you list your home for sale.   Call me at 801-540-5108 for questions you have.  

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