High closing costs and interest rates appreciation

Asked by Nael Mohammad, Mission San Jose, Fremont, CA Fri Aug 23, 2013

With the recent spike in interest rates and the unrealistic high closing costs, I feel like walking away from a potential purchase and just cutting my losses with the deposit. Why are closing costs so high? I know its a sellers market but it takes two to tango... All theses fee's really makes me want to walk away from the accepted offer. Id much rather lose my deposit then sign high cost loan.

My recent offer got accepted but the house did not appraise and the seller is refusing to come down on the price. This means I have to pay out of my pocket the difference and the house still needs lots of work to renovate(40k). As a first time home buyer, I feel that should just save my money and continue renting since it seems cheaper.

Should I just walk away if the seller refuses to go down to the appraised price? And keep in mind, the appraised price is still above the listed price so they are still ahead.

Help the community by answering this question:

+ web reference
Web reference:

Answers

6
Terri Vellios, Agent, Campbell, CA
Fri Aug 23, 2013
If you are purchasing in Alameda county you are most likely picking up the Title and Escrow fees, along with your lender fees, and it sounds like you may be putting less than 20% down and perhaps that is why you are having to make up on appraisal? Is this a resale house or new construction? I can't give you a clear answer for sure because I am not privileged to your contract and what has transpired.

I do wonder if you met with a lender in person and your buyer agent prior to shopping for a home. If you did they should have explained to you the process, the heated market we have, along with what fees you are expected to pay.

When these types of fears and stress occur I suggest the client take a step back and truly evaluate the picture. Get the information you need to make a sound decision (either way).

What I can tell you is that interest rates are still a good value. In the 1980's I had a loan of 11.5% and was grateful. In the 1990's they were 7% and early 2000's in the 6% range. When home prices are increasing by double digits your decision to wait may price you completely out of the market.

Have your agent and lender run some numbers for you. If you are not comfortable with their answer then speak to someone who can look at your numbers and explain it all to you.

All the best in your decision.
0 votes
Steven Ornel…, Agent, Fremont, CA
Fri Aug 23, 2013
Hi Nael,

"With the recent spike in interest rates and the unrealistic high closing costs, I feel like walking away from a potential purchase and just cutting my losses with the deposit. Why are closing costs so high?"

There is a difference between closing costs and pre-paid fees. You have industry standard fees related to costs of buying a home (the 3rd party Loan, Escrow and Title Insurance fees); however, sometimes the larger costs are pre-paid fees which your lender requires you pay upfront at closing: 1) Pro-rata interest for the first month of the loan, 2) One year pre-paid homeowners insurance and 3) if you are going to escrow your property tax and/or mortgage insurance you will also probably have to pay between 3-6 months’ worth for both. These prepaid costs will lighten your wallet.


“Id much rather lose my deposit then sign high cost loan.”

Have you removed all of your contingencies? I hope not, this would be the only way you might lose your deposit money.

A high-cost loan is quite different than “high escrow costs”. Unless you have decided to be a renter for the rest of your life, I would sit down with your Agent, Lender and/or Escrow Officer to understand all of the costs on your Estimated HUD-1. This may not make you feel any better about the amount you are paying, but at the very least you will hopefully understand where your $$ are going and why.


“My recent offer got accepted but the house did not appraise and the seller is refusing to come down on the price. This means I have to pay out of my pocket the difference and the house still needs lots of work to renovate(40k). As a first time home buyer, I feel that should just save my money and continue renting since it seems cheaper.”

Mission San Jose is a highly sought after location and Sellers are well aware of this fact. The frustrations you have as a Buyer right now will become a faint memory when it comes time to sell and you are able to be in the driver’s seat. If you and your family like the home you have a difficult decision to make. If you want to be a MSJ homeowner and you walk away from this opportunity you may lose more than just your deposit; I’m of the opinion mortgage rates will likely be in the high 5’s/ low 6’s by the end of September/October (brought on by the reduction of the Fed’s Mortgage Backed Securities buying).

For example, let’s say you can finance at 4.75%. For each $100K of loan amount you are paying ~ $522. Let’s say you pass on this deal and rates do go up, say by .75 to 5.5%, which would increase your payment to ~$568, $46 more per month of ownership. Assuming a $700K loan amount, over the course of your first five years of ownership you would have paid an extra $19,320 ($46 x 12 mos x 7 x 5 years) -- close to 50% of your remodel budget.


“Should I just walk away if the seller refuses to go down to the appraised price? And keep in mind, the appraised price is still above the listed price so they are still ahead.”

Your call, but review the pros and cons carefully. The listing price is normally a marketing tool; it’s not necessarily what the Seller is actually hoping a Buyer will offer.

-Steve
0 votes
Elena Talis, Broker, Palo Alto, CA
Fri Aug 23, 2013
Yep, just walk away and cut your losses. Oh, wait!!! You are in a contract on the tight seller's market - you should keep the house. But renting seems to be cheaper, at least for now. And how this buy vs. rent will be in 5 years?

The answer depends on so many factors that you have to get help from people familiar with your financial situation, the actual home you are trying to purchase and the details of the contract. Your agent is a good person to start with. Also get your situation reviewed by a CPA and/or an attorney.
Web Reference:  http://talisrealestate.com
0 votes
Bill Mccord, Agent, San Jose, CA
Fri Aug 23, 2013
Hello Nael, The way you state your issues indicates you really do not know how the home buying process works. For example, you seem to be confusing fixed price Closing Costs such as Title Insurance, with flexible Closing Costs such as Loan Fees/Points which can easily be zero if you choose different loan parameters. There are numerous other similar misunderstandings in your comments which show a lack of understanding of the situation you are in.
I think you badly need to quickly get better educated before going any further. This education is the largest part of any professional Real Estate Agent/Broker. If your agent has not bothered explaining these kinds of things then you should consider whether you made a good choice.
Good luck,
Bill
0 votes
Tina Lam, Agent, San Jose, CA
Fri Aug 23, 2013
What are the closing costs you're seeing? If you're doing a cash deal, it should be a few hundred dollars. A financed deal may cost around $3-7K, depending on the terms of your loan.

If you want the house and it doesn't appraise, then you either have to pay the difference or let somebody else buy it.
Web Reference:  http://www.archershomes.com
0 votes
Melissa Goss, , Center Moriches, NY
Fri Aug 23, 2013
I too am dealing with my own home purchase as of right now. Costs to remediate the house due to mold in the basement has added a lot of stress, an the fact that we agreed to cut the cost in half with the seller. I am fine with that.... but.... the closing costs on a $155k home are coming in at about $15,000!!! Woooooiiieeeee. That's not even including the down payment which was already made!

If your seller is refusing to come down you can walk because the bank will not finance- and your contract will likely state that if you cannot get a loan, you will get your deposit back - read your contract over though.

Will the seller meet you half way at least? Or are they putting it all on you?

The ball is in your court. If you have cold feet, and are already resenting the house.... think about it.
0 votes
Search Advice
Search
Ask our community a question

Email me when…

Learn more