Here is the story. I have a client that is looking at Metro Detroit homes homes for sale. Well we found a Dearborn Hieghts foreclosure that he likes. He loves the home is the issue and he asked me what he should offer. Now that is a tricky question! As to what to bid to get the piece of Dearborn Hieghts real estate an “at or above list price offer” usually will get you the home. But that is not always the best decision. Here are the steps you need to take to make the decision.
1). What are the most recent comparables? What I mean by that is what homes have sold in the immediate area that are like that home that sold in the last six months.
There are 4 bungalows that sold in the last 6 months in the same square mile of the Dearborn Heights foreclosure and here is what they were. Now our house is priced at $48,000 and is in decent to very good condition but doesn’t have a basement.
- 1200 sq ft $25,000 basement
- 1000 sq ft $40,000 basement
- 1047 sq ft $20,151 basement
- 1100 sq ft $7,000 no basement
After looking at these I think it this Dearborn Heights home is a little over priced for the area.
2.) What can you truly afford? What payment can you afford? Do you have the money for the closing?
I honestly don’t know what you closings costs will be they could be anywhere from $2000 to $3500 depending on her bank’s costs. Plus I don’t know what interest rate they quoted you. I will give you a general idea. You need to call your bank and get a good faith estimate. It is a small loan (which they hate to do) so many times the banks charge more for them. But based on a 30 year loan at 5.25% the payment would be:
- $40,000 $220.88 P & I
- $45,000 $248.49
- $50,000 $276.10
Taxes are 192.90 a month. SEV and Taxable value are the same which should mean your taxes would not go up unless they raise the SEV on the house. Which I doubt. The SEV is 59,980 on the house. It should come down. The city’s assessor thinks the house is worth $120,000
Insurance I would guess about $50 a month. PMI I would guess at $25 a month. Total payment on the low end would be $489 and if you went full purchase price it would be about $545. Now these are all estimates on my part and would have to be confirmed with your lender.
- Your closing costs should be in the $2500 – 3000 range I would guess.
- If you got a home inspection $300
- You has to pay one year of insurance up front $500
- Tax pro-rations you have to pay back and to set up your mortgage escrow account will be roughly $2350. I always figure 1 full year of taxes will cover your tax pro-rations and if you have a mortgage that requires escrows. So this houses yearly property taxes are $2350 so you will need to come to the closing table with $2350.
The max sellers concessions we can get is 6% of sales price. So figure the sellers concessions should cover your tax pro-rations and your escrow account. So the bottom line is that you need enough money for the first year of insurance, banks closing costs and enough to go over your approved loan amount.
This guy only has a loan approval for $35,000 but he has cash to make up the different. But that limits what he can bid.
So as a Metro Detroit real estate agent I get all this information so you can make a sound decision.
- In the above example the house is overpriced. You should be paying less. Is it wrong to pay higher? There is no rule against it. It is a personal decision if you love the house, if it is the best house that meets your needs.. i.e. best location, best layout, best condition. You fell in love with it. It happens everyday in the real estate industry that people will pay a little more for what they want. Will you regret you didn’t buy the house a year from now and “settle” for another one.
- If you want a deal then you shouldn’t buy the house. If that is your number one priority go with what you feel is right. I am not the one living in the house.
- Make a sound financial decision. Can you truly afford it? Are you stretching to get into the home? Do you still have a little rainy day fund if you need to get something repaired?
The bottom line is too get as much information as possible and think about it. But don’t take too long. If you like the home put an offer in it as soon as possible. Too many times I have seen Metro Detroit home buyers “think about it” only to lose the house to somebody else. If you like it, can afford it put an offer in as soon as possible.
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Russ Ravary your Metro Detroit real estate agent
My quote of the day is:
Democritus said a hundreds of years ago
Happiness resides not in possessions and not in gold, the feeling of happiness dwells in the soul.
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