Financing is all about your financing plan for buying your home and future Nomad homes. It is the fourth step in the First Meeting with your real estate agent process.
We are usually thinking about financing your Nomad purchases from the very beginning so this is something we discuss at our first meeting and something we recommend you address in Week 1 of the Ultimate Nomad Checklist™.
The Financing process is shown below. Some of the tasks should be done immediately while others will be done after you’ve gone under contract to purchase a property.
This class covers the different types of financing available and which ones we consider for Nomad. It goes into detail on Down Payments and much more.
- Nothing down loans like USDA and VA. VA loans require VA benefits but can also be used to purchase single family homes, duplexes, triplexes and fourplexes if you owner occupy at least one of the units.
- Conventional financing like 1% down payment for your first owner occupant purchase, 3% down payment for purchases #2 and #3, then 5% down payment for purchases through #10
- FHA 3.5% down payment programs which can be used to purchase single family homes, duplexes, triplexes or fourplexes if you owner occupy at least one of the units. FHA is also one of the easiest loans to qualify for should you have some credit challenges.
- Non-owner-occupant loans with as little as 15% down payment with Private Mortgage Insurance (PMI) or 20% down payment without PMI.
Offering less Earnest Money than the Seller is asking for will typically weaken your offer.
That means for the following home prices, Earnest Money will typically be approximately:
- $100,000 home - $1,000 Earnest Money
- $200,000 home - $2,000 Earnest Money
- $300,000 home - $3,000 Earnest Money
- $400,000 home - $4,000 Earnest Money
- $500,000 home - $5,000 Earnest Money
If you're trying to buy a home with little or nothing down, it would help if you had Earnest Money to put up with your offer and if you did not use it at closing for Closing Costs, you could get a refund of your Earnest Money at Closing.
If you don't have Earnest Money, it will be harder to negotiate getting a Seller to accept your offer so we might need to be much more flexible in house selection to find a Seller willing to accept an offer with little or no Earnest Money.
Your Earnest Money will apply toward your Down Payment (plus any closing costs you might have for your loan). For example, if you needed $15,000 for Down Payment and you put up $3,000 for Earnest Money, the $3,000 would apply toward the $15,000 so you would need $12,000 more for Closing plus any additional closings costs.
This is the time to start thinking about where you might get your Down Payment from and how much you have to work with.
Here are some examples and some really rough estimates of what they might cost:
- Home inspection (paid to Home Inspector you hire if you decide to hire one) - about $250 for interior only condo to $375-$500 for single family home, more for multi-family properties
- Radon test (paid to the person who does your radon test which may be your Home Inspector) - $100 to $200
- Sewer scope (paid to the Sewer Scope company) - $200 if there is a sewer cleanout or more if they need to go in through a toilet
- Meth test (paid to Industrial Hygienist) - $1,000 and up if you decide you want to test for meth.
- Mold test (paid to Industrial Hygienist) - $300 and up if you decide you want to test for mold.
- Appraisal (paid to the appraiser usually via your Lender) - usually about $500 to $800, can be much more if there is a rush fee, multiple trips or multi-family property
- Closing Services Fee (paid to Title Insurance Company for preparing and presenting all the paperwork for Closing) - usually about $300 and is negotiated in the contract as to who pays (Buyer or Seller or split 50/50)
- Loan Closing Fee (paid to Title Insurance Company for presenting your specific loan paperwork to you at Closing to get the loan) - typically about $350 (and not negotiated in Contract; it is a Buyer cost if they're getting a loan)
- Owner's Title Policy (paid to Title Insurance Company and typically required by lender to get the loan) - varies based on purchase price and time since last refinance but you can estimate about $1,200 for $300K property without a new loan in past 5 years. It is negotiated in Contract but it is common to negotiate to get the Seller to pay for this.
- Lender's Title Policy (paid to Title Insurance Company to insure the Lender for your loan) - typically about $400 to $500 depending on purchase price and this one is not negotiated in Contract and is always a Buyer expense.
- HOA Transfer Fee (paid to the HOA) - Who pays it is negotiated in the Contract. It ranges from $0 to $500 or more depending on the HOA. It is common to see about $250ish.
- HOA Status Letter Fee (paid to the HOA) - Who pays it is negotiated in the Contract. It ranges from $0 to $250 or more. It is common to see it about $150ish.
- HOA Capital (paid to the HOA) - The amount varies depending on the HOA, but it is a Buyer expense all the time. Buyer may get it back when they sell. It is common that it can be about one or two months of HOA dues but can vary widely from that.
- Condo Questionnaire (paid to HOA) - Usually if you're buying a condo and the lender requires it for the loan. It can vary a lot, so we'd need to call the HOA to find out the amount.
Some of these expenses are optional but strongly recommended like Inspection. Some of these expenses are optional and rarely done like meth tests. Some are negotiated in the Contract between Buyer and Seller like who pays the $300 or so Closing Services Fee or Owner's Title Policy. Some are required if you're getting a loan. Some you can ask the Lender to increase your interest rate (which will raise your monthly payment slightly) but give you a credit you can use to pay some of these up-front expenses; this allows you finance some of them over time. Sometimes, you can negotiate to get the Seller to pay some of them as Seller Concessions when you submit your offer.
Discuss these with James to talk about it especially before writing your offer if you're trying to minimize your out of pocket and buy a home with little or nothing down.
Appraisals can run about $500 to $800.
Much more if there is a rush fee, multiple trips or multi-family property.
It is extremely rare (like I've never seen a Seller agree to it), but you can try to get Seller to pay for the appraisal when submitting your Contract. It is highly unlikely.
In some cases, I am hearing it is taking mailing in a copy of your request and a photo ID to unfreeze your credit, so you may want to get a jump start on this process before you formally apply.
Ask your lender which credit bureaus they pull credit from so you know which to unfreeze.
Once you’ve figured out your plan for financing your Nomad model, you can move on to discussing Receiving Property Lists from you real estate agent.
The following are improvements I plan to make to this page based on some of my Standard Process Improvement Questions.
- Add information about some of the financing types to this page? Or, shoudld that be on the Financing 101 video page for ease of updating as things change.
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- Sponsor Read "Before for Real Estate Agents"
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- Sponsor Read "During for Real Estate Agents"
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- Sponsor Read "Lease Option Ad for Property Listed in MLS for Clients"
- Sponsor Read "Standard Process Improvement Questions"
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IMPORTANT NOTE: This checklist is based on what I personally use with clients in Northern Colorado. Please rely on your local real estate agent for how it works in your local real estate market. This process will definitely vary in different States.