DEAR BOB: I will be retiring at the end of the year when I will move to another state. In January, I will put my condo on the market for sale. It should bring about $325,000. With the proceeds from the sale, I want to pay cash to buy a patio-garden home for around $150,000 at my new location. If I find a property to buy before my condo sells, what type of loan should I seek? I currently have no mortgage and have an excellent credit rating. I was told by a loan officer to apply for a mortgage on my condo, but the settlement costs seem outrageous. What should I do? – Virginia B.
DEAR VIRGINIA: When you find a home you want to buy at your new location, with your great credit score you should be able to finance its purchase with a home equity loan, called a HELOC. However, most bank HELOC lenders will only loan up to 75 percent of market value. If you can fund the remaining 25 percent from your cash reserves, you’re in a great situation.
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Check with a local bank or credit union at your new location to discuss this inexpensive choice. The HELOCs I have obtained had virtually zero closing costs. Their interest rate is usually at the prime rate.
After your condo sells, then you can pay off your HELOC balance. But you will still have the HELOC at a zero balance, which costs you nothing (except a $50 annual fee). Keep that HELOC because it is great to have as a cost-free source of emergency cash.
HOW TO SELL HOME TO YOUR REAL ESTATE AGENT
DEAR BOB: After having long discussions with our real estate agent on how to price our beach condo for sale, he informed us his wife wants to buy our condo before it “officially” goes on the market for sale. How do we know if the asking price was influenced by his personal interest in our property? Is this like a FSBO (for sale by owner) situation? Should we pay any real estate sales commission? – Patrick K.
DEAR PATRICK: Just to be sure you are receiving full market value, I suggest you interview two other realty agents who sell beach homes. Tell them you are thinking of selling and want their full CMA (comparative market analysis) listing presentations.
If their recommended asking prices are substantially higher than the first agent’s evaluation, go ahead and list for sale with the best agent. But include a written “reservation” in the listing so you won’t owe any sales commission if you sell to that first agent.
If he buys the beach condo, just because he is a real estate agent doesn’t mean he should get a discount in the form of a sales commission. You are correct; it becomes a “for sale by owner” situation with no sales commission payable.
Be careful that first agent doesn’t overwhelm you with his superior knowledge and experience. You might want to consult a local real estate attorney before signing his sales contract purchase offer.
‘HARD’ AND ‘SOFT’ MORTGAGE PREPAYMENT PENALTIES
DEAR BOB: When we refinanced our home, we told the mortgage broker we didn’t want a prepayment penalty because we planned to sell within a year or so. But at the mortgage closing, there was a prepayment penalty in the documents. The mortgage broker assured us the prepayment payment wouldn’t apply unless we refinanced. He said this is a “soft prepayment penalty.” So we signed. However, now that our house is on the market for sale, when we inquired about the mortgage payoff amount, we were told there is a prepayment penalty. The mortgage broker now says we shouldn’t have to pay any prepayment penalty because we are selling our home. Is this true? – Lucy W.
DEAR LUCY: Without reading the documentation, I can’t fully answer. I’ve seen mortgage prepayment penalty clauses that apply if the borrower refinances within three years, but don’t apply if the home is sold within that time. Such clauses allow lenders to recover their costs and are fair to both parties. I have such a clause in my recently financed home loan.
In real estate, for an agreement to be legally enforceable, it must be in writing. Unless your mortgage prepayment penalty is as you understood, the lender could refuse to waive it when you sell.
How much of a penalty is involved? Perhaps a few hundred dollars?
My suggestion is don’t let it delay your home sale. Keep protesting with the mortgage lender. If the lender refuses to waive the prepayment penalty at the sale closing, I would sign the papers “under protest,” and then sue the lender in local small claims court. Don’t lose a sale profit over a small amount.
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