New House and the 'closing'

victory_tea2085September 8, 2009

My wife and I just put a purchase offer in on a house and the seller accepted our offer. Now the "closing". Due to a 620 dollar monthly bill for child care (which we will soon eliminate), we are short of savings. We also have our current house to sell and will make enough to pay our monthly mortgage once we sell it on a land contract. My question is what kind of things should we look for in the closing- should we include closing costs, lawyer fees etc. in the total amount borrowed or would we be better off writing ourselves a home equity loan to cover these costs. What kind of tricks is the bank going to use to get more money out of us. I am very naive and have only bought 3 places in the past- all on a land contract. Any help greatly appreciated.

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I don't know what a land contract is.

You are putting the cart before the horse and making a huge financial mistake in trying to buy before you sell in this housing market. This post looks like it was written in 2007... Many individuals and the global economy was ruined by people overextending themselves on credit. I seriously doubt you can find a bank to loan you > 100% of the equity in a home in 2009.

Here is my advice. 1. Sell your existing home first. 2. Keep saving money until you get a 10-20% down payment and closing costs in your savings account. 3. Purchase a new home with a monthly payment that is about 30% of your gross income and therefore allows you to keep saving money after you close.

    Bookmark   September 8, 2009 at 12:16PM
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I don't know what a land contract is.

A land contract is a seller financed sale.The seller carries the contract and retains title to the house till the last payment. Your payments are the same as if to a bank and may even be colleced by a bank.

Most closing costs can be eliminated. The transaction can be done at a Title, Bond and Mortgage office.

    Bookmark   September 8, 2009 at 5:12PM
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Our house to sell is already paid for, with the exception of an 8000 dollar home equity loan. We wanted the new house so badly that we felt we couldn't pass it up.

    Bookmark   September 8, 2009 at 11:55PM
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You might try posting this in the "Buying and Selling" forum.

    Bookmark   September 9, 2009 at 9:11AM
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Thanks, dreamgarden, I completely overlooked that forum!!

    Bookmark   September 9, 2009 at 12:54PM
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It's great that you have an almost paid off house.
Regarding the home equity loan, I still think it will be impossible to attempt to roll in closing costs and 100% financing these days. And the closing costs, regardless of how they are paid, are paid by you. Most of them are legal requirements and cannot be avoided. These include: A Mortgage Tax (NY state), A Transfer Tax (typically paid by seller), county recording fees for mortgage and deed. You will also need to pay your own attorney an in NY you will be required to pay for a separate attorney for the bank. If you get a Good Faith estimate you will be provided the dollar amounts of these statuatory fees (based on sales price and mortgage loan amounts). There is also title searches and title insurance.

If you don't have any cash, and are not cashing out of your present home, I feel it will be difficult to close. Also, where is your deposit money coming from? Sellers typically ask for big deposits of 5-10%.

    Bookmark   September 11, 2009 at 12:28PM
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What is the value of your current home compared to what you're paying for the new?

My dad and stepmom bought their current home in this manner.

1) Took out HELOC on paid-for old home.
2) Bought new home free and clear with cash from HELOC on old home.
3) Sold old home. Paid off HELOC with proceeds from sale.

Obviously this worked because the new home cost less than the old. But I would think even if that is not the case for you, possibly you could still borrow enough against your almost-paid-for house to get cash for whatever closing costs you need, and keep the new mortgage to 80% of new home value? Assuming you can afford payments until the old home sells, of course.

    Bookmark   September 11, 2009 at 3:44PM
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I agree with everything Landmarker has said.

If you can't cover the closing costs, how will you cover the down payment? Has the bank pre-qualified you for the purchase price of the new house?

What if your current place does not sell? What if the land contract falls apart? You need to get your current situation squared away before you even think of taking on another mortgage.

    Bookmark   September 13, 2009 at 1:42PM
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We bought the "New" house for 60,000 and plan to sell ours for 80,000. My wife and I make 90,000 a year. We will be saving 620 a month soon on child care alone. If our house does not sell, we'll rent it. Closing costs and down payment will be covered by home equity. Isn't there an insurance you can purchase on a monthly basis that will eliminate the need for a down payment?

    Bookmark   September 14, 2009 at 12:34AM
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Forgot to add that my credit score (according to the bank) is 840, my wife's is 750.

    Bookmark   September 14, 2009 at 12:42AM
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You're still think like this is 2005. Seriously, you really ought to wait until you have the actual money to buy a house which from the sound of things, you don't.

Banks are quite strict these days about who they loan to and how much they loan. There is no insurance that will substitute for the 5 - 10% down payment most banks want these days.

    Bookmark   September 14, 2009 at 10:39AM
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I still find your financial situation strange in that you own your house outright, and have no savings. If you have no savings, retirement plans etc, I would strongly suggest you focus there rather on moving. But having said that, based on your representation, you may be able to refinance the current home and take out 80%, and then buy the new home outright with the cash including all closing costs. But the certainty of renting or selling or land contracting your present home is not high, thus you could be in a positoin where you are unable to pay the monthly payments on your loan. It's still better to square away the sale first, then purchase second.

    Bookmark   September 16, 2009 at 12:55PM
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We do have retirement funds that i overlooked as savings. We should be able to make the monthly payments just by eliminating 90 percent of our current child care. Our banker says it looks good that we will get the loan. We wanted a house close enough to the school so that our son could walk there, a house sitting on a pond and a home with a 2 car garage. This house had everything we wanted. I am nervous about this transaction but feel that our place will sell once on the market. You have convinced me to avoid the land contract.

    Bookmark   September 17, 2009 at 11:54AM
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