Money Market Investing and New Home Purchasing

[BCClone]

Some potentially scary advice being given here in relation to down payments, getting to 20% when you are short of it etc.
Anything involving having a set purchase price and then inflating it only to get money back has the potential to get into mortgage fraud. That is very bad stuff. Prison type stuff.

I have never seen in 15 years a buyer with 15% down be able to get to 20% because of the seller. There are limits in place on what an "interested party" can contribute. A seller can give a buyer money towards closing costs. They cannot give them money towards the down payment typically. Be careful out there!

im far from saying to do it, but you can tell the crap that is going on in some of the contracts being written. The appraisals are supposed to cut any closing costs payments off the value of the house but lately it does not appear to be happening due to the common nature of it. It’s apparently on the realtor side it appears.

 

[cyfan21]

look into first time home owners loans or rural development loans, will save some of the larger 20% down payment stuff. you could even find minimal % down home loans for some places. I was lucky to be able to use VA loan with 0 down, with a decent APR%.

Are you talking mortgage credit certificates or tax abatements?

 

[BCClone]

Are you talking mortgage credit certificates or tax abatements?

No, FHA and VA programs, if you qualify, can lower the required down payment requirements.

 

[SoapyCy]

Some potentially scary advice being given here in relation to down payments, getting to 20% when you are short of it etc.
Anything involving having a set purchase price and then inflating it only to get money back has the potential to get into mortgage fraud. That is very bad stuff. Prison type stuff.

I have never seen in 15 years a buyer with 15% down be able to get to 20% because of the seller. There are limits in place on what an "interested party" can contribute. A seller can give a buyer money towards closing costs. They cannot give them money towards the down payment typically. Be careful out there!

Thanks for this. What possible benefit does an unrelated seller have for messing with sales prices to get a buyer a fake down payment percentage? And I still don't understand how increasing the sales prices I creases a down payment.

 

[BCClone]

Thanks for this. What possible benefit does an unrelated seller have for messing with sales prices to get a buyer a fake down payment percentage? And I still don't understand how increasing the sales prices I creases a down payment.

From what i make out of it, if the person buying your house doesn’t have enough to get the loan, you don’t sell your house and the realtor doesn’t make anything. It’s All I can make out of all these closing cost kickbacks. You can look at it either way. If the person buys a house and gets a loan they have to pay closing costs so that cuts into their down payment. So by paying their closing costs it increases their down payment. I think this is a total crock, but it appears to be common in the realty business. Realtors want to call it, paying the buyers closing costs, but it’s basically giving them down payment.

 

[cyphoon]

Short-term I'm wanting to save up to buy a starter home. I know I need to put 20% down for a home that ranges between $150-$200K. I'm in the process of setting up a Capital One 360 saving account that has 1.7% APY.

Congrats on getting the loans paid off.

How soon are you looking to buy a house? You could get a touch more aggressive if your timeframe is more than 5 years out. If not, then you are mostly stuck playing it safe with savings and CDs. A ladder of CDs might make sense if you are 2 or 3 years out.

Another approach is to divert a fraction of your house savings to a Roth where you can invest aggressively. When you are ready to buy a house, you can withdraw your contributions free of tax. For the sake of your house purchase, that money effectively earned 0 %APY, but it would have been earning 8% (historically) towards your retirement. Perhaps a better way, overall, to put your money to work.

Good luck
H

 

[cyphoon]

My wife and I are saved for a home too. We are putting our savings into a bond fund (FTBFX). I think the yield on it is 3-3.5%.

FTBFX has a current yield of 2.58% with an expense ratio of 0.45%. Expenses are a bit high for my liking. You might want to research the ishares IUSB ETF. It tracks the same index as FTBFX, but with an ER of only 0.06.

disclaimer: nobody pays me for financial advice.

H

 

[JP4CY]

If you have vanguard already, their money market pays pretty well also.

How has your yield been? I have a good amount liquid at Ally but they keep dropping points.

 

[DeereClone]

From what i make out of it, if the person buying your house doesn’t have enough to get the loan, you don’t sell your house and the realtor doesn’t make anything. It’s All I can make out of all these closing cost kickbacks. You can look at it either way. If the person buys a house and gets a loan they have to pay closing costs so that cuts into their down payment. So by paying their closing costs it increases their down payment. I think this is a total crock, but it appears to be common in the realty business. Realtors want to call it, paying the buyers closing costs, but it’s basically giving them down payment.

Essentially the sellers pay for the fees out of their equity when they sell so the buyer doesn’t have to pay for the fees out of their cash. The seller has more equity than the buyer has cash.

I thought it was a crock when I went to sell my house and the 50 year old couple buying it wanted me to pay $3,000 of their closing costs. They claimed they didn’t have enough money for a down payment, closing costs, and moving costs...I told them that’s their problem, not mine, and they buckled and paid the closing costs.

The realtors like this because it inflates the purchase price by a little bit on each deal and they make more money.

 

[BCClone]

Essentially the sellers pay for the fees out of their equity when they sell so the buyer doesn’t have to pay for the fees out of their cash. The seller has more equity than the buyer has cash.

I thought it was a crock when I went to sell my house and the 50 year old couple buying it wanted me to pay $3,000 of their closing costs. They claimed they didn’t have enough money for a down payment, closing costs, and moving costs...I told them that’s their problem, not mine, and they buckled and paid the closing costs.

The realtors like this because it inflates the purchase price by a little bit on each deal and they make more money.

Exactly how I see it. Iowa realty dude said it was mortgage fraud, but it has nothing to do with the lending side. It’s the realtors playing these games, or at least on their side. It’s becoming the point where used car salesmen are more trustworthy than realtors out there.

 

[cyfan21]

Congrats on getting the loans paid off.

How soon are you looking to buy a house? You could get a touch more aggressive if your timeframe is more than 5 years out. If not, then you are mostly stuck playing it safe with savings and CDs. A ladder of CDs might make sense if you are 2 or 3 years out.

Another approach is to divert a fraction of your house savings to a Roth where you can invest aggressively. When you are ready to buy a house, you can withdraw your contributions free of tax. For the sake of your house purchase, that money effectively earned 0 %APY, but it would have been earning 8% (historically) towards your retirement. Perhaps a better way, overall, to put your money to work.

Good luck
H

Sooner rather than later. My goal is spring 2021 for a new home, but I wouldnt have a problem putting it off for an additional year at the max.

 

[IowaRealEstate]

I feel bad for anyone that has been working with unethical Realtors. I'm not going to say there are not some bad apples out there, certainly that is true of any industry.
I can only speak for myself. 15 years doing this, A+ BBB rating, hundreds of great reviews and a clean track record with clients.
I think there is a large misconception here however that agents are somehow greatly benefitting from what is being described above.
Closing costs being exchanged has zero to do with how much commission we are getting paid. We are paid off price of home and closing costs do not factor in to that.
If a house is being artificially inflated on price, in theory and agent could make more on that, but we are talking $90 on a $3,000 price hike. Nobody would be getting rich doing things like what is being suggested here.

When I write an offer for a buyer I check with their lender. I ask how much closing costs are involved for my buyer to get the loan closed. In most cases it is going to be $2,000 to $3500 or so. We will then ask the seller for that. WHY??? Because I represent the buyer in this case and my job is to get them the best possible outcome I can.

Is it fair to a seller to have to pay them? Maybe not, but it is a negotiation and it is part of it.

If anyone here has questions about real estate, please feel free to reach out to me directly and ask. I have done this and nothing but this for 15 years and some of the stuff that is put on a message board is just flat out wrong.

Also, my hope is that my firm (and others) will start to change how people feel about agents a bit. Remember, the average commission for a long time charged to a seller was 7%, and now it is 6% where I live in Ankeny. But my firm does not charge that. We charge $2,495 +3% which would save the seller $3500 on a $200,000 sale. We are trying hard to put clients before money, so we hate to see every real estate agent painted with the same brush of greed and putting themselves first.

 

[cyphoon]

Sooner rather than later. My goal is spring 2021 for a new home, but I wouldnt have a problem putting it off for an additional year at the max.

I wouldn't change anything. With just one year to go, short term savings is about the only place to park your money. You could buy a couple of 1 year CDs each of the next few months to pick up a bit more yield. Not going to amount to much though.

H

 

[ClonesFTW]

Thanks for this. What possible benefit does an unrelated seller have for messing with sales prices to get a buyer a fake down payment percentage? And I still don't understand how increasing the sales prices I creases a down payment.

The seller (unless it’s a family member) or lender can never contribute towards the buyers equity/down payment. However it is very common for the buyer to ask for help in closing costs due to limited funds available to bring to closing. This can be easily negotiated on the contract by simply bumping up the purchase price by the amount the buyer is requesting in seller credits. The seller makes the same net profit, doesn’t impact them a bit. As long as the house still appraises for the agreed upon purchase price no harm no foul from the lending side.

 

[cyfan21]

I feel bad for anyone that has been working with unethical Realtors. I'm not going to say there are not some bad apples out there, certainly that is true of any industry.
I can only speak for myself. 15 years doing this, A+ BBB rating, hundreds of great reviews and a clean track record with clients.
I think there is a large misconception here however that agents are somehow greatly benefitting from what is being described above.
Closing costs being exchanged has zero to do with how much commission we are getting paid. We are paid off price of home and closing costs do not factor in to that.
If a house is being artificially inflated on price, in theory and agent could make more on that, but we are talking $90 on a $3,000 price hike. Nobody would be getting rich doing things like what is being suggested here.

When I write an offer for a buyer I check with their lender. I ask how much closing costs are involved for my buyer to get the loan closed. In most cases it is going to be $2,000 to $3500 or so. We will then ask the seller for that. WHY??? Because I represent the buyer in this case and my job is to get them the best possible outcome I can.

Is it fair to a seller to have to pay them? Maybe not, but it is a negotiation and it is part of it.

If anyone here has questions about real estate, please feel free to reach out to me directly and ask. I have done this and nothing but this for 15 years and some of the stuff that is put on a message board is just flat out wrong.

Also, my hope is that my firm (and others) will start to change how people feel about agents a bit. Remember, the average commission for a long time charged to a seller was 7%, and now it is 6% where I live in Ankeny. But my firm does not charge that. We charge $2,495 +3% which would save the seller $3500 on a $200,000 sale. We are trying hard to put clients before money, so we hate to see every real estate agent painted with the same brush of greed and putting themselves first.

What suggestions would you advise me as a first time home buyer with the goal of purchasing a starter home within the next year?
Are there any courses I should be looking into or researching. I know a mortgage credit certificate can lower your interest rate and give you a tax credit.
And obviously finding a realtor to work with and to have scouting for what your ideal house and location are beneficial.
Thanks in advance.

 

[CysRage]

Remember the average commission for a long time charged to a seller was 7%, and now it is 6% where I live in Ankeny. But my firm does not charge that. We charge $2,495 +3% which would save the seller $3500 on a $200,000 sale.

Mark, thanks for the information. I'm not selling but I've always been interested in how the commissions work for selling Realtors. I've got nothing but respect for your firm but why would you charge less than your competing realtors if your service is as good or better? Do you see better long term commissions and more customers using this strategy?

 

[Cyientist]

Haven’t read the whole thread, but sounds like the OP is on the right track. I’m kicking myself for not getting a high interest online savings account earlier.

Others have mentioned that 20% may not be necessary and I agree. I’ll put a plug in for Luana Savings bank in Polk City because they have no closing costs and they are willing to back a 2nd mortgage so you can avoid PMI. We did an 80/15 loan with them, and our 15 was about 1.5 points higher than the going rate for a mortgage. it was still less than what PMI would have been. We paid the 15 off in a couple of years with no penalty. That would essentially been how long it would have taken us to save the 20% down.

 

[IowaRealEstate]

What suggestions would you advise me as a first time home buyer with the goal of purchasing a starter home within the next year?
Are there any courses I should be looking into or researching. I know a mortgage credit certificate can lower your interest rate and give you a tax credit.
And obviously finding a realtor to work with and to have scouting for what your ideal house and location are beneficial.
Thanks in advance.

Learn as much as you can. Read about the pros and cons of owning vs renting.
Owning is not always the best option.
But a great first step is finding a lender you can trust. I think credit unions are a great option as they have low closing costs and typically pretty good rates.
To find a great agent search a site like zillow and search by reviews. You want to work with someone with a ton of positive reviews. It shows they care about the client.

 

[IowaRealEstate]

Mark, thanks for the information. I'm not selling but I've always been interested in how the commissions work for selling Realtors. I've got nothing but respect for your firm but why would you charge less than your competing realtors if your service is as good or better? Do you see better long term commissions and more customers using this strategy?

Great question.

Real estate commissions are way out of whack. The entire structure is flawed.
Why does the guy with the 200k house pay 12,000 and the guy with the 400k house pays $24,000?
The selling process is EXACTLY the same on both houses. We don’t do twice the work, not even close.
So when you come from the premise that the entire model is broken you have to find a new normal.
When we sell a home we make $2,495 and the firm that represents the buyer makes 3%, so is $2,495 enough money to make.
You have to factor in real time. the initial
Meeting, marketing the property, getting it on the mls, negotiating the offer etc.
on an average sale, I will spend 3-4 hours of actual real time on that sale. that means I make $600-800 an hour selling that one house.
Once you know that, does $2,495 still seem low.
Now imagine how much other agents are making off people.
Another reason we charge that is it levels the playing field. We get to treat the $100,000 seller the exact same as the $500,000 seller because the paycheck is the same. People with lower priced homes can feel equally important to those with bigger/nicer homes.
At Charter House we are actually trying to be a company that does the right thing and does not put money first.
If we do a good job, our clients will write a review or tell a friend and the phone will ring again.
My biggest goal is simply getting people to realize that real estate has changed and options like us exist and HOPE they get it and stop drastically overpaying and costing their families thousands of extra dollars.

 

[Cyched]

The ads above the urinals at Jack and Hilton have enhanced the gameday experience. Thanks Mark.