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| After You Move In |
The First Week
- Install new locks.
- Make extra sets of keys.
- Buy a fire extinguisher for the kitchen and garage.
- Install or check the batteries in the smoke detectors.
Keep Your House In Shape
- Make repairs and do preventative maintenance as needed early on.
- Keep an eye open for termite droppings and wet wood condition.
- Keep rain gutters and downspouts working properly to drain water away from the house.
Home Safety Check List
- Install good sturdy handrails.
- Service all heating equipment.
- Install carbon monoxide detectors.
- Use anti-skid material under area rugs.
- Install smoke detectors in key locations.
- Install an automatic night light outside bedrooms.
- Keep fire extinguishers handy in kitchen and garage.
- Keep medicines, poisons and firearms in child secured cabinets.
- Properly store paints, solvents and gasoline in a well-ventilated area.
- Provide rope or chain ladders on upper stories if there is no fire escape.
- Install ground fault circuit interrupters (GFCI) in bathrooms and by kitchen sink.
Disaster Preparedness
- Food for a week.
- Bleach to purify water.
- Camp stove and extra fuel.
- Fire extinguisher and first aid kit handy.
- Know where to turn off gas and water mains.
- Water: 1 gallon a day per person for at least three days.
- Keep flashlights, spare batteries, matches and candles in a special drawer.
Start A House File
Keep all important house related papers, title insurance, loan information, property insurance, etc. in a central "house file" system.
Important: save all receipts for any home improvements for later "possible" tax write-offs.
Thinking Of Adding On?
- Always get permits.
- Don't over improve for the neighborhood.
- Use professionals to maximize your investment.
- Addition should blend well with the existing architecture.
Well-planned and executed remodeling jobs are a good investment and some specific home improvements even can increase the value above the initial cost. Any owner contemplating an addition and/or change to his or her property should first check with the appropriate county or municipal building department to avoid any building code violations, which will generally render a seller's title unmarketable. In addition a seller's failure to disclose such violations (they have knowledge of) may constitute a material misrepresentation, entitling the buyer to rescind the transaction and obtain the return of his or her money.
What Makes More Sense - Adding on or Buying a Bigger?
Homeowners should consider several questions before making a choice between adding on to an existing home or moving up in the market to a bigger house.
- How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
- How much additional space is required?
- Would the foundation support a second floor?
- What do local zoning and building ordinances permit?
- How much equity already exists in the property?
- Are there affordable properties for sale that would satisfy housing needs?
Consider limitations of your neighborhood. It makes more sense to add on to the smallest house than to further improve the largest one in the area.
Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value.
Choosing a Reliable Contractor?
Never hire a contractor without first taking the following 9 steps:
1. Call the State License Board to verify the license number of the contractor. And ask the board if there are any outstanding complaints against that license holder.
2. Contact your local Better Business Bureau to see if there are any complaints on file.
3. When interviewing, ask prospects about their workman's compensation insurance.
4. Get the policy number and phone number of the insurance carrier. Call to be sure the contractor is covered. If he or she is not, any work-related injury on your property could become a liability to you.
5. Check to see that the contractor has an umbrella general liability policy.
6. Always ask for references.
7. Always take the time to call and verify them.
8. Do not give in to pressure to make a decision. Believe it or not, there are more contractors than there is work to be done. If a contractor insists that you make a quick decision, move on to someone else.
9. Never pay a deposit to a contractor. If you are asked to pay a deposit fee at the first meeting, simply end the meeting.
Special Government Programs for Rehab?
HUD's Rehabilitation Loan Program, Section 203 (K) is designed to facilitate major structural rehabilitation of houses with one to four units that are more than one year old.
Condominiums are not eligible.
The 203 (K) loan is usually done as a combination loan to purchase a fixer-upper property "as is" and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan. Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to finance the construction costs.
At this time, only select lenders are participating.
For a lender list, call HUD.
Some Home Improvement Expenses are Tax Deductible.
Mortgage interest payments on acquiring and improving a principal residence are fully deductible from income for tax purposes In addition, expenditures for permanent improvements can be added into your home's cost basis, or amount of money invested in a home, which reduces capital gains.
Save all receipts of money spent for permanent improvements, repairs after a fire, flood or storm and special property tax assessments for neighborhood improvements.
Capital gains are determined by the difference in price from the time a home is purchased and the time it is sold, minus the cost of any permanent improvements.
Thinking Of Refinancing?
- Don't list your house for sale if you are thinking of refinancing.
- Lenders usually require your house not to be listed in the recent past.
- Appraisers are required to make such disclosures if known.
- Keep Your Insurance Up To Date
- Keep records of any improvements as you have them done.
- Keep in a binder, receipts and owner's manuals of any equipment you buy.
- Take photos or videos of all your rooms and keep them in a safe place.
- Property values can rise dramatically in just a few years which is why it is important to have replacement cost insurance. Should you have a theft or fire, these will be very valuable for claims.
Know Your Neighborhood
After you are settled in, introduce yourself to your neighbors and invite them over.
Most people want to know who their neighbors are, but most are shy about making that
first introduction.
Break the ice first and introduce yourself.
Get involved in the neighborhood watch program. In areas of high crime, community watch programs organized by homeowners can lower the crime rate and rid a neighborhood of graffiti. These improvements also can enhance property values.
Knowing your neighbors is why people enjoy living where they live.
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| Before You Buy |
Before you buy real estate, educate yourself about what's involved.
These Real Estate articles are an excellent place to start.
Things to Consider
Planning to move out of the area in a couple of years? If so you may be better off not buying a home now. The cost of selling a house generally falls in a range of 7% - 8% of the sale price which may be more than the appreciation of the house.
Check out the Rent vs. Buying calculator to compare the advantages of each.
Thinking about changing jobs? It might be best to wait until after your purchase.
Look at your work history. Is it sporadic or did you just start a new job? Lenders like to see someone with a steady work history and with job changes in the same line of work.
Lenders will require your work history along with past tax returns.
Look at your credit report before you go to a lender. It is not uncommon to find problems with reports, especially if you have a common last name. If you find a problem, start with the reporting agency to clear it up. It is common to have a late payment at some time or another. These problems can usually be taken care of with a letter of explanation from you to the lender.
FICO Scores: What They are and Why They are Important
To get copies of your credit report, start at: Experian - My FICO Score
Banks/Savings and Loans vs. Loan Brokers
Loan officers at a bank work for the bank.
Loan brokers work for you and have a fiduciary relationship.
Most banks cooperate with loan brokers.
You can go to a broker and obtain a loan through a bank.
Most banks will offer you a menu of programs while a loan broker will offer a menu of lenders. Banks and loan brokers are under different government controls.
A complaint regarding a bank would go to the State Department of Banking.
A complaint regarding a loan broker would go to the State Department of Real Estate.
Contact someone from each source to see what special programs they have to offer.
Loan Pre-Approval
Before shopping for a home, get pre-approved for a loan first.
Getting pre-approved for a loan is a necessary step when buying real estate.
If you are pre-approved first you will save considerable time looking for a property.
You will know how much a lender will commit so you won't waste time looking at property you can't qualify for.
You will have a better chance of having an offer accepted if it is accompanied with a pre-approval letter. The best agents won't work with buyers until they are pre-approved.
A lender will let you know your maximum loan amount after providing them:
- Income from all sources.
- Funds available for a down payment and closing costs.
- Your monthly obligations (auto loans, credit card payments, alimony, child support)
- Price range of homes where you want to locate.
Selecting a Lender
You should pick a lender based on experience, customer service and recommendations. Work with a lender who is experienced in the business, knows the availability of the different type loans and how to handle the demands of processing. Don't make the decision based solely on which lender is offering the lowest rates. If a company is offering a mortgage package that is well below market rates, you should beware.
All mortgage companies generally choose from the same pool of investors.
A company offering abnormally low rates might make up the difference by increasing closing costs or tacking on additional settlement fees.
Determine how long you expect to live in the new home. This decision will not only affect the houses you look at, but also will determine the type and term of loan you choose.
Get everything in writing and a copy of everything you sign.
Ask your lender at application what fees typically are included in the finance charge computation, and what fees may be charged separately at closing.
How Much Can I Qualify For?
Most lenders require your housing payments not to exceed 25-33% (depending on your down payment) of your gross monthly income called "housing expense ratio".
Your total debt payments should not exceed 33-38%, figured on a monthly basis.
This figure is called your "total debt ratio".
Use the mortgage calculators to find out how much you can afford.
How Much Do I Need?
Besides setting aside money for a down payment, you will need money for closing costs. Those costs can range from $3,000 to $10,000, depending on the type of loan, the loan fees and the community the property is located in.
See Buyers Closing Costs to help determine costs.
The smartest and most time efficient thing to do is get pre-approved up front, before you start looking for a home.
Next, find an agent familiar with the area you want to live and you are comfortable with.
Educate your self about local property values and the current market trend.
To find out what prices homes are listed for in the South County area, get signed up with Listing Alert. Once you submit the information, new MLS listings will automatically be emailed to you as soon as they come on the market.
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| Before You Close |
Don't Jeopardize Your Loan
Taking out a another loan, buying a car, or making large credit card charges before you close can jeopardize your loan commitment. Lenders run a second credit check prior to closing to check for new charges.
Time to Close
Closing at the beginning of a month, the lender will require you to "prepay" the interest on your loan from the day of closing to the end of the month. Therefore the cash you need to close will be more than if you close at the end of the month. Talk with your lender about this.
Buyers Remorse
It's common for buyers to feel stressed or remorseful during and after the purchase of a home, Educating yourself about the buying process will help minimize "buyers remorse".
You will probably forget it soon after you move into your new home.
Notify Services & Utilities
Don't forget to contact services such as: post office, insurance, movers, telephone, utilities, newspaper, etc. a few weeks prior to you moving out to "change over" billing/mailing addresses.
See your local directory of phone numbers of such services.
Arrange for Mover
Get a couple of written estimates from movers on the services they provide for the costs of your move. Check the local Yellow Pages and search to get quotes and contacts.
Final Walk Through
Do a final walk through as close to the sign off as possible.
Check appliances for operability. Test outlets with a radio or test device. Turn on light switches. Check water faucets and toilets.
Make sure promised cleaning and repairs have been completed.
Check that all items included in the purchase of the home (review contract) are present.
For new construction, write down what needs to be completed or fixed, have builder sign. Include the date when these items will be completed.
Closing Costs
You will have to have your closing cost "monies" deposited in escrow before you can close. Don't bring in a personal check to pay. Money should be in the form of a certified check or a money wire transfer. Check with your escrow officer.
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| Before You Sell |
Dress For Success
Before you put your house on the market, its best to put a shine to it.
The way you present your property to prospective buyers can make all the difference.
Without investing in expensive and time-consuming renovation and redecoration, it's still possible to show your home to its very best advantage.
Curb Appeal
That first impression when prospective buyers drive up is very important.
If they don't find the outside appealing, they won't be interested in seeing what's inside.
The Yard
Mowed lawns, trimmed shrubbery and clean windows are a start.
Planting a few flowers or plants can do a lot to a front yard.
Fertilize and water the lawn and plants thoroughly 2-3 weeks before putting the house on the market.
Clean up oil spots on the driveway. Make sure the garage door opens easily.
Swimming pools should be clean along with the pump and filters.
Clean up and throw away any junk or items laying around the yard.
Now is a good time to have a yard sale, get rid of those items that you don't plan to take with you. Do this before you put your house on the market to greatly reduce the "detrimental clutter look".
Start packing away little things that you don't use everyday.
Recycle magazines, newspapers, bottles, cans and so on.
Pet droppings can easily turn the buyer back to the front door.
The Exterior
If your house could use a paint job and you don't have the time or money, some times hosing it off (from the bottom up) and repainting the trim will update the entire facade.
At least paint the side facing the street.
A clean front porch with a fresh looking front door that opens smoothly is a must.
Any broken windows should be fixed now as they will most likely be before closing.
A few gallons of stain or paint can add real impact to a fence.
The Interior
Inside, everything should be spotless.
Spending $100 to have someone do heavy "spring cleaning" if needed can bring a return many times over in the sales price and time on the market.
A fresh coat of light colored paint on the walls is always recommended.
Painting only the trim and the doors will add a lot.
Check to see that all doors open and close freely. Oil any squeaky doors.
Replace any burned out light bulbs. Brighter lights enhance many rooms.
Steam clean the carpets if new carpeting is not possible and to help eliminate any pet odors. Wash and wax linoleum floors. Repair or replace damaged or missing tiles.
Bathrooms should sparkle. Remove soap scum and mildew. Replace old looking toilet seats. Kitchens should be clean and bright. Clean oven and stove top. Exhaust fans should be free of grease and dust. Clear all unnecessary objects from the counter tops.
Keep curtains and blinds open and interior lights on for a bright warm cozy feeling.
Store stuff and clutter under beds, not in closets.
Focus Rooms
Buyers react most strongly to kitchens, bathrooms and closets, so it pays to concentrate your efforts here.
Sometimes just switching door handles, knobs, and light switch plates is a dramatic improvement. Replacing new shower curtains and sink faucets can pay off.
Tip
Preview the competition's open houses to see what you are up against in both pricing and condition. Potential buyers will be previewing these and more.
In General
Try to look at your house "through the buyer's eyes" as though you've never seen it before.
Lockbox is #1 Importance. "If we don't have it, agents won't show it.
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| Building A House |
Buying Land & Building a Home
Following is general information and may vary from area to area. Check your local government for specific information.
Before you spend much time looking for land to buy, first do a little research to find out what costs and steps have to be take before the actual construction. You may decide it is worth more to buy an existing home and make personal modifications.
Many first time home builders think you just buy a lot and get some building permits and start building. Not so, there are a number of steps and issues one has to consider before applying for building permits.
When buying land, you need to check the zoning to see if a home can be built on it.
If it is zoned for residential, one must consider if it can be hooked up to sewer and water or is capable of supporting a septic system and well.
Septic systems generally cost $5,000-$10,000.
Wells can cost $15,000-$40,000, depending on the depth, location and the need for a secondary pressure tank.
Building in an unincorporated area usually requires a secondary pressure tank for the required interior fire sprinklers. Then there is the cost of bringing in other utilities such as electricity, propane tanks and phone lines.
Certain areas in the county require a "Perq Test" to determine if the site is suitable for the required septic system. This involves digging a hole about 10 feet deep and waiting a few days to determine if the ground water rises to the point where a septic system would contaminate it.
This test can only be done during the rainy season which generally ends in April.
Grading a lot can be a major cost of building a home. Many lots are priced seemingly low because the high cost of grading and site preparation in order to build.
Obtaining a loan on land is not as easy as getting a loan for buying a house.
Buying raw land, lenders typically require 50% down usually with a shorter term and a higher rate of interest.
Once these steps are taken the next stop is the local planning department.
The following information was derived from materials provided by the cities of Morgan Hill and Gilroy and should be considered as only a guideline. Contact the City for the most up to date information.
Follows are some of the steps necessary to complete the process of building a home.
Advanced Review Group
This group, consisting of a Planner, an Engineer, a Plan Review Technician and the Fire Marshal, meets with the project owner and his/her staff at their request, prior to the submission of any application, to discuss the process for that particular project.
This optional meeting is designed to result in both the owner and the City having an understanding about the nature and scope of the project, the steps required in the process, an approximate time frame in which the project can be completed and an approximation of the fees which will be charged.
Land Use Applications
Land use applications are processes such as General Plan Amendments, Zoning Changes, inclusion in the Urban Service Area, Residential Development Ordinance applications, Tentative Map applications, Conditional Use permits, and Architectural and Site Reviews. One or more of these applications may be necessary on some developments.
Environmental Review
Certain projects, because of their size or potential impact, may require an environmental review. This determination is based on rules of the California Environmental Quality act.
Development Review Group
The Development Review Group meets every week to discuss all applications received in the past week. This group consists of members of each Division within the City organization which has responsibility for any part of the development process.
The group reviews Architectural and Site Review applications. It will also review preliminary plans in order to help the applicant identify any problem areas prior to a full submission of an application. In many cases, this results in a significant time savings for both the applicant and the City, allowing us to reduce your costs as well as the fees we must charge to recover our costs.
Sewer Allocations
Additional or new allocations for sewer capacity are granted by the Engineering Division in accordance with policies set by the City Council.
Utility Connections
Connections to water, sewer and storm drainage systems are handled by the Engineering Division. Engineering also reviews all infrastructure plans associated with new development and inspects the work.
Parcel Maps
Parcel maps are required in order to split lots and for subdivisions.
Building Permits and Inspection
Building permits are generally required for any building or construction involving any plumbing, electrical, mechanical, or structural alterations.
The Uniform Building Code states that a permit is required for all new construction, demolition, remodeling, improving, removing, repairs, or moving of all buildings or structures.
Regardless of the type of occupancy, a permit is required for additions, swimming pools, hot tubs, spas, decks over 30" above grade, carports, sheds over 120 sq. ft. of roof area, skylights, covered patios and walkways, retaining walls, bathroom and kitchen remodeling, termite repairs, reroofing, solar panels and most interior and exterior remodeling work. Permits are also required for plumbing, electrical, and heating and cooling work.
When work is done without a permit, the permit fees will be doubled, the completed work may have to be dismantled or uncovered to provide access for inspection.
Who May Apply for a Permit?
Property owners or licensed contractors may apply for a building permit.
The person signing for the permit must declare they have no employees, or they must show proof of a valid Workers' Compensation Insurance policy before a permit can be issued.
General Permit Requirements
For new construction, additions and most remodeling, complete plans are required.
All plans must include the name and address of the architect, engineer, or other person preparing the plan.
Energy calculations are required and must be incorporated into the plans.
Generally 3 or 4 sets of plans are required to be submitted.
Information Required on Drawings
A plot plan must be included in plans for any work which alters the use, exterior footprint, exterior of an existing structure, or for any new buildings.
Plot plans must show lot dimensions, front, rear and side setback distances to all property lines and existing buildings.
Indicate all easements and underground utility lines.
Show locations and sizes of proposed and existing water, sewer, gas and electric meter.
Floor plans must show dimensions and the location of all walls, plumbing fixtures, doors, windows, appliances, kitchen counter, furnace and water heater.
All electrical fixtures and locations must be indicated.
Framing plans must indicate the sizes of floor joists and girders, ceiling joists and roof rafters. If you are using main beams, trusses or any unconventional framing, calculations must be submitted.
Four exterior elevations are required which show windows, doors, skylights and architectural finish features. Heights of buildings must be indicated to show compliance with zoning regulations.
Engineered Plans
If you are constructing a new building or addition on a hillside, engineered footings are required, with soils and geology reports to substantiate all design assumptions. Calculations shall be submitted in two copies with the designers wet signature and stamp. Structures in the residential hillside zone must have noncombustible roofing and be fire sprinklered.
How Much Will it Cost?
Building permit fees are based on a proportion of the total construction cost, including all labor and material involved in the proposed work.
A plan check fee is assessed at a percentage of the building permit fee.
Plumbing, electrical and mechanical permit fees are based on the actual work done, such as how many receptacles, sinks, etc.
Where applicable, all site development fees, parks development fees, public safety fees and school impact fees, mitigation fees and water meter hook-up fees must be paid prior to permit issuance.
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| Capital Gaines |
Tax Changes and Effects
The new capital gains law allows homeowners to avoid paying taxes on the first $500,000 of profit if they are married or on the first $250,000 if they are single.
You must have lived in the home as your primary residence for two of the last five years.
You are allowed to use the provision as often as you like, as long as it fits in that two year period. Any gains above the limit will be taxed at the new 20% capital gains rate - down from the current 28 %.
The old law provided a $125,000 "one time" tax free exclusion on profits for home sellers 55 or older. This no longer is used, but those who have used it will be allowed to use the new provisions without penalty.
Under the old law you could roll over gains if you bought a more expensive house.
If you sold a more expensive one and purchased a less expensive one you were liable for gains tax. Under the new law this provision is no longer in effect.
Time Frames
If you bought and sold a home within 1 year, any capital gains would be taxed as regular income.
If bought and sold between 1 and 2 years, gains would be taxed at the long term capital gains rate.
Filing an extension may be a consideration, talk with a CPA for advice.
Needing to sell and move for specific reasons may have cause for exclusion of gains tax prior to two year ownership.
Save Receipts
Always save receipts for home improvements in a "house file".
If you don't qualify for the 2 year ownership rule, the cost of improvements can be used to offset capital gains tax you may have after the sale of your property.
People Benefited Now!
- Wanting to downsize, children have all moved out.
- Retirement and move out of the area to less expensive area.
- Job relocation from area with high property values to lower values.
One Thought!
People with rental property could sell their current home, move into their rental for two years and sell it under the $500,000/$250,000 provision with the same benefits.
Change in Property Values?
It is unknown how many people have been waiting to sell their property until this bill was passed. One possible scenario: Many homes are suddenly put on the market.
The Immediate Impact!
Should not immediately affect property values as there currently appears to be more buyers than sellers. Immediate effect would be properties with more "days on the market". This would hurt sellers needing to move soon or those sellers who listed the house over market value.
The Next Impact!
When more and more houses are put on the market with fewer buyers this market peak will end. Property values could go back down again like 7 years ago, to start a new cycle.
Timing for those sellers sitting on the fence could mean more money made.
Contact your accountant or tax attorney for advice.
Penalty-free IRA
The final package allows penalty-free early withdrawals of up to $10,000 from an IRA to help with the down payment on a first-time home purchase.
The IRA can be the home purchaser's own account or can be a parent's or grandparent's.
Need Answers
If you are not sure what tax consequence you face when selling real estate, consult with a CPA or tax attorney and not a real estate agent.
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| Choosing A House |
Before Looking
Before you actively look at homes to buy, it's necessary to know how much you can qualify for. Use mortgage calculators to determine how much you can buy with your down payment and closing cost money and what your monthly payments will be.
Know Your Credit Worthiness
Look at your credit report before you go to a lender. It is not uncommon to find problems with reports, especially if you have a common last name.
To get copies of your credit report, start at My FICO Score.
Get Pre-Approved
After you see your credit report and any problems are cleared up, get pre-approved with a lender. Take the steps necessary to get a letter from the lender stating you are "pre-approved" for a loan in a specific price range. It's important to have this letter before you make a contract offer to buy real estate. Once your pre-approved, you know what price range of homes you should be looking at.
What Kind of House is Right?
Determine the specifics you want or need in a home.
- What are your day to day and future needs?
- Do you enjoy swinging a hammer?
- Older houses have great charm, but may need updating.
- New homes offer the latest energy efficiency and design features.
- Larger lots can give room for additions and swimming pools.
- A fixer upper can dramatically increase in worth.
- A PUD may have private recreational facilities such as a pool and play parks.
- A condo or town-house will relieve you of yard work and exterior maintenance.
Sit down with your real estate agent and make up a wants and needs list. Knowing your price range, your agent can determine in what neighborhoods or towns to start looking. You may find that you are limited to where you look based on your situation.
There is no sense in wasting your or your agent's time in areas out of your price range.
Wants and Needs
- Price range
- Building style/design
- New construction
- Remodeled
- Fixer upper
- Minimum # bedrooms
- Bathrooms
- Family room
- Fire place
- Office/den
- Hardwood floors
- Swimming pool / Spa
- In-law quarters
- Workshop
- Central air conditioning
- Parking facilities
- Yard size
- School district
- Work locations
- Special zoning or location
With a list of houses that you can afford to buy, drive-by them and check out the surrounding neighborhood. Next make an appointment with your real estate agent to view the interior of the ones you are interested in.
After you have narrowed your selection to few houses it is important to visit them at different times of the day. Visit them during the morning commute time. If you visit only during the middle of the day, you might not notice if the street in front of the home is used as a minor thoroughfare or a shortcut. This is also a good time to find out how you emerge from you residential area into traffic on a thoroughfare or how long it takes for freeway access. Go back after dark and walk around the block. You might notice that headlights from approaching traffic shine into the home or hear sounds from a nearby night club or park that you were not aware of.
After previewing a number of homes, you will want to preview some a second time. This is the time to make measurements, ask questions and make a closer self-inspection.
When you want to make an offer, ask your agent for sales comps to arrive at an offering price.
A "seller's market" or "buyer's market" can have big effect on how much to offer. There is no sense in making a low offer on a well priced home in a seller's market.
A properly written contract will allow a buyer a number of outs if certain items are not met or approved. Get a copy of a typical real estate contract prior to making an offer and have your agent go over it with you.
To find out what prices homes are listed for in areas you are considering, go to the different Internet listing sites and make searches for properties.
After you are pre-approved for a loan and are ready to buy in the South County area, get signed up with my Listing Alert System. Once signed up, all new MLS listings (in the price range and your preferences) will automatically be emailed to you as soon as they come on the market.
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| Closing Costs |
Down Payment
Most lenders require at least 10% of the purchase price, though new programs are available for 3%-5% down. 100% financing can be found, but you credit must be excellent and PMI insurance will be required.
Loan Origination Fee
A lender's fee for establishing a new loan. Government regulations allow only 1% origination fee on FHA or VA loans. Conventional loan fees can vary from -1 to 3+ points, plus other costs. A point is 1% of the loan.
Appraisal Fee
Fee paid to obtain an estimate of market value upon which the lender will base the loan amount. The cost is about $300-$500. Non refundable.
Credit Report
An evaluation of the buyer's credit habits made by a credit bureau for the lender. The cost is $50-$60. Non refundable.
Tax Service Fee
A charge of approximately $75 is made by a tax service company to verify to the lender that the taxes have actually been paid when due or are due to be paid by borrower or mortgage company if impounding.
Assumption Fee
Fee of approximately $250 up to 1% of the loan balance is charged by the existing lender for the privilege of assuming the existing loan.
Pest Inspection Fee
Fees of $75 - $175 is charged by termite companies for inspecting property for damage done by wood destroying organisms and dryrot.
It is customary for the seller to pay for Section 1 and the buyer for Section 2 work.
Other Inspection Fees
Other inspections the buyer may choose to have done are: property inspections that usually cover foundation, electrical, plumbing and overall construction at a cost of $300-$400. Roof inspections cost $75-$125. Geological reports cover subject's site in relation to fault and slide zones, costing about $100. Septic $200-$400. Radon $50-$100. Asbestos $75-$125.
City Transfer Tax
A municipal tax imposed within the corporate limits of some cities.
The cost is $3.30 per $1,000 of selling price, usually negotiable between buyer and seller, but custom varies between counties.
The VA does not allow the veteran buyer to pay any portion of this cost.
Miscellaneous Costs & Fees
An estimate of $150 should be adequate to cover minor items as notary, recording documents, endorsements, etc. as well as allowing for variations from these other estimates.
Hazard Insurance Reserve
Two month's premium is collected for the impound account if required. The buyer will need to either provide or pay for coverage for the 1st year.
Prepaid Interest
Interest must be paid from COE (close of escrow) to 30 days prior to the first regular mortgage payment. An estimate of one months interest should suffice.
Mortgage Insurance
Mortgage Insurance is required on all conventional loans greater than 80%. The cost may range from 1/2% to 1% per year and 14 months premium is collected in advance. This is coverage for the lender in case of default.
Tax Impounds
If the new loan is going to have an impound account, the lender will require from 2-10 months taxes to be deposited, depending on the time of year. Note: if taxes are prorated, buyer's total charge for taxes should equal about six month's taxes.
Escrow Fee
These fees range from $750-$2500, depending on the sales price. In some counties it's customarily paid by the seller, in other counties the buyer pays, while in others it may be customarily split. Remember though, everything is negotiable.
Negotiating Fees
The above fees are typical costs when buying real estate in Colorado counties.
Most of the fees are considered buyer's non-recurring closing costs.
Some of the fees are fixed while others are negotiable.
Your real estate agent can negotiate with the sellers to pay some or most of these costs, saving you thousands of dollars in closing costs.
Ask your real estate agent and loan agent to provide estimated closing costs of buying a home before looking at homes.
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| Condominiums |
First Time Buyer
Condominiums are a good way to get into the housing market if you can't afford to buy a house or prefer this type of lifestyle. Condos are also great if you don't want to spend a lot of time doing yard work or maintenance.
One important thing to remember about a condominium is that you don't actually own the unit you live in nor the lot.
You own the air space inside the walls, ceiling and floor of the unit.
With a townhouse you own the unit along with the lot.
Owning a condo, you are restricted from adding a room, painting the exterior or changing the landscaping.
When you buy a condo you are also joining a homeowners' association which is responsible for the maintenance of the units, insurance, garbage and outdoors areas. The monthly HOA fees may seem high at first, but owning a home will have similar costs over a same period of time.
What to Consider when Buying a Condominium
Ask owners in the complex what they like and dislike about both the unit and the complex.
How good is the sound proofing? End units and upper units generally sell for more when sound comes into play.
How is its location in the complex. Next to an access street, parking facility, pool?
Look for units that are not adversely affected by these.
Stay away from predominantly rental condo complexes, those having more occupants that are renters. They are often poorly maintained as absentee owners usually vote against improvements and increases in maintenance fees.
Many lenders will not make loans if the percentage of renters is high compared with owner-occupants.
Compare monthly association fees with other similar condo complexes and what amenities are included.
Find out if any increases in fees or special assessments are planned.
Is the condo homeowners' association in good financial condition. Before making a purchase offer, obtain the latest financial statement from the homeowners' association.
Are there any lawsuits between the homeowner association and the builder?
Who manages the complex and how well are the common areas maintained.
Check to see if there are any unusual bylaws, rules or CC&Rs. A good complex generally is a result of restrictions of pets and rentals. Read all papers carefully.
Buying in a New Complex.
Find out how many units are sold and closed. Don't be one of the first buyers.
Its better to have 60% of the condos sold before you close your purchase.
If the units don't sell or the developer goes bankrupt, you may end up owning much less.
Make sure a warranty is provided for one year on everything in the unit.
It is important to know exactly what your developer will warrant when buying in a new complex.
How do Condos Compare to Single-Family Homes?
Based on appreciation, condominiums in some areas have been as profitable an investment as single-family homes in the last five years. In some markets, condos appreciated even more.
Problems with Condominium Associations, are Condos a Bad Investment?
Despite problems in many associations, condominiums have done a good job of holding their value. Real estate experts say that the reason there are more stories about conflicts in associations is the proliferation of homeowners' associations.
Condominium associations involved in lengthy and expensive litigation may find that such disputes will hurt resales because some lenders are reluctant to make home loans on units in their projects. However, experts argue that many disputes today are resolved more readily without initiating legal action. In addition, the condominium community has worked hard in the last few years to overcome image problems that were brought on by disputes and lawsuits among condo owners and developers.
Associations today are becoming more sophisticated about property management and are taking steps to prevent legal problems and disputes.
Buying a condominium is still an excellent way to start home ownership
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| Contracts |
Contract Knowledge
Buying a home, you are entering into a legally binding contract that must be clearly understood both in terms of rights and obligations.
Today's real estate contracts are quite lengthy.
Agents are trained to understand and explain the contract along with the reports that are involved in a real estate transaction. Have your agent give you a sample contract to read over prior to you making your first offer. Get explanations to areas you don't understand. This will take a lot of pressure off you during the negotiation period.
When it comes to contracts, put everything in writing and fill in all the blanks. Wording should be specific and carefully chosen.
When it comes to who pays for what or if it ever comes to litigation, it's what is in writing that counts.
Presenting the Offer
When you find the right home, move on it quickly. Have your agent run "comps" on similar sales in the neighborhood. Use this information to base your initial offer. Before your agent writes up the offer, he should attempt to find the sellers motivation. Where are they moving? Why are they selling? How long has the home been on the market? Do they have an offer on another house?
The agent will want to consider other aspects before writing up an intelligent offer.
Is the property still for sale or are there offers pending? Is it a probate or foreclosure sale? How much do the sellers owe, are they willing to carry back a loan? Who pays for certain transfer fees may be decided by local custom.
Different scenarios will dictate how a contract will be written up and presented.
Be Realistic with Your Offer
Negotiation time can be very emotional.
If you give a lowball offer, the seller may reject it and any other offers.
Your agent will present your offer with all the reasoning behind it.
Your agent will be more effective if you are not present at the negotiating table.
Let them do their job. They know more about the details of the offer and can present your offer in a positive light.
When an agent presents an offer on your behalf, often there is another agent involved, the listing agent. If your offer is reasonable, expect 1 or 2 counter offers.
You will be signing many papers during this time. Contract, counter offers, disclosures, addendums, reports and so on. Make sure to get a copy of everything you sign. You should have copies with the signatures of all those involved in the transactions.
After the seller has accepted your offer, the process of escrow and closing begins. Inspections need to be ordered and scheduled in a timely manner.
The loan process will begin and generate an equal amount of paperwork.
This can be a very emotional and confusing time because of what is involved.
The agent will follow the transaction through the closing and will walk you through the steps and keep you informed.
Be patient, realistic and educated about the process.
The typical real estate transaction takes 30-45 days to close after a contract is ratified.
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| Credit Reports & FICO Scores |
Good FICO Scores = Best Loan Rates
FICO scores (credit score) are what the vast majority of American mortgage lenders use to evaluate home loan applicants' creditworthiness.
The scores are based on a number of factors that analyze the electronic credit files maintained on virtually all adults in the U.S.
The scores range from the 300s to around 850, with higher scores indicating lower risk. Many lenders reserve their most favorable quotes of rates and fees for applicants in the upper FICO score ranges, 700 and above.
Mortgage applicants in the low 600s and below get progressively higher rate quotes and are charged higher loan fees.
Your FICO score only looks at information in your credit report.
However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.
Your Score Takes into Account:
Payment information on many types of accounts, including credit cards, retail accounts, car and mortgage loans.
Public record and collection items such as bankruptcies, foreclosures, suits, wage attachments, liens and judgments.
Details on late or missed payments ("delinquencies") specifically, how late they were, how much was owed, how recently they occurred and how many there are.
How many accounts show no late payments.
Length of Credit History
How Scores are Established
Approximately 15% of your score is based on your credit history. Generally a longer credit history will increase your score. The score considers both the age of your oldest account and an average age of all your accounts.
10% of your score is based on new credit or if you are taking on new debt. Opening a couple of new credit lines in a short period will hurt this score. If you are planning on buying real estate in the near future, put off buying a car until after it closes. A new car loan can have a big impact on what price of house you can qualify for.
10% of your score is based on types of credit in use. The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.
30% of your score is based on amounts owed on all accounts. Even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report.
The score considers the amount you owe on specific types of accounts, such as credit cards and installment loans.
Small balances without missing a payment shows that you have managed credit responsibly, and may be slightly better than no balance at all. Closing unused credit accounts that show zero balances and that are in good standing will not generally raise your score.
A large number of accounts can indicate higher risk of over-extension.
35% is based on payment history. The first thing any lender would want to know is whether you have paid past credit accounts on time. This is also one of the most important factors though late payments are not an automatic "score-killer." An overall good credit picture can outweigh one or two instances of, say, late credit card payments.
Understanding credit scoring can help you better manage your credit.
Get a copy of your credit report & FICO Scores.
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| Disclosures |
Mandatory Disclosures Required
With ever increasing mandatory disclosure obligations being placed on sellers of real estate, it can be difficult to keep-up with new requirements.Real estate agents and sellers are being held to ever more stringent and higher standards of care. The number one claim on Errors & Omissions Insurance is "failure to disclose" some item that a Buyer felt was material.
Although there is no way to completely prevent law suits, there are some general guidelines to help protect against non-disclosure liability.
Make all disclosures in writing and obtain acknowledgment signatures.
If there is any doubt, don't wait for the Buyer to ask - disclose, disclose, disclose.
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| Escrow |
What is Escrow?
Escrow is the depositing of funds and documents by the parties to a transaction with an impartial or neutral third party.
It takes orders from sellers, buyers, lenders, inspectors and others setting out the terms and conditions under which further delivery is to be made.
Many escrows are done through title companies which provide reports and title insurance.
The Purpose of Escrow
Escrow enables the parties in a real estate transaction to reduce the risk.
The Escrow Holder Acts as:
- A custodian for funds and documents.
- A clearing house for payments of all demands.
- An agency to perform the clerical details for the settlement of accounts between parties.
What is a Preliminary Report?
The preliminary report shows the ownership of a specific parcel of land and lists title defects, liens and encumbrances.
There may also be recorded restrictions which have been placed in a prior deed or contained in what are termed CC&Rs - covenants, conditions and restrictions.
A report is ordered after escrow is opened and provides the buyer the opportunity to seek the removal of items which are objectionable, prior to purchase.
What is a Policy of Title Insurance?
Title insurance is real estate ownership insurance or an insured statement of the condition of "title" of a particular piece of property.
It insures your rights and interests in order to protect you against claims.
Title polices are issued to both the buyer and the lender.
All Lenders Require Title Insurance.
The two most common forms of title insurance are the CLTA standard coverage policy and the ALTA loan extended coverage policy.
Both the buyers and sellers are charged fees.
Who pays for what varies in different areas or counties.
Even though different areas have typical standards, everything is negotiable.
Escrow Officer's Responsibilities
- Reviews preliminary report
- Provides copies of preliminary report to all parties
- Receives and prepares seller's & buyer's escrow instructions
- Receives buyer's funds for escrow
- Arranges hazard insurance with buyer
- Complies with lender's instructions
- Arranges new loan funding with lender
- Prepares documents and special instructions
- Records documents with county recorder
- Disburses monies and documents to the appropriate parties
- Prepares final closing statements for buyers and sellers
- Issues title insurance policy.
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| Establishing Value |
Why a Real Estate Appraisal?
There are many reasons why you need a real estate appraisal.
Reduce property taxes, probate, estate planning, divorce settlements are some.
The most common one is to obtain a mortgage.
Most lenders are required by federal and state laws and current banking regulations to obtain an appraisal for most loans secured by real estate.
As of Jan. 1, 1993, all appraisals made for mortgage loans from federally insured lenders and other federally related transactions must be made by a licensed or certified appraiser.
What is a Appraisal?
An appraisal is an objective supported opinion of value of an adequately described piece of property made by an appraiser who has sufficient knowledge, training and experience to accurately estimate its value.
In this detailed and time consuming report, appraisers use comparable sales together with information about the property being appraised, its neighborhood and community along with the local and national economy, to support the appraised value.
Look Objectively not Subjectively.
The most important thing you can do when previewing is to look at the house as if empty: four walls, floors and a roof.
Don't let the current owners' furniture and decor influence you.
Important Tip!
If you are buying a house with the owner carrying the paper (loan), it is well worth the cost to hire an appraiser to make sure you don't pay more than it is worth.
For your protection many real estate agents will write in a purchase contract: this contract is contingent upon the property appraising for the sales price.
How is Value Established?
The value of a house is based upon recent sales of the similar neighboring homes in the market as well as rentals and listing data.
Ideally, appraisers want to use sales of properties of the same size, age, room count, condition and with similar amenities and external influences. This rarely happens though, so adjustments have to be made, based on what people will pay extra for.
Examples: extra square footage, bedrooms, fireplace, upgrading, parking facilities, swimming pool, lot size, location and so on. To help get a better picture, this information is entered on a form, a value for differences is established and comparisons are made to the subject property.
A minimum of three verified closed sales with photos are required to establish a value.
Houses Appraise for More When:
- Well maintained inside and out.
- Located in a good school district.
- Additions are done with the proper building permits.
- Additions conform with and fit well into the existing house.
- Properties throughout the neighborhood are well maintained.
- Not over improved or the largest house on the block.
- Style of the house conforms with those in the neighborhood.
- Zoning changes are not expected or there is not a mixed use.
Remember: Location, location, location.
You can change everything about a house except it's location.
What is Poor Location?
- Located on a feeder street.
- Under an airport flight path.
- In or near a gang territory.
- Center of night life activities.
- In a rundown block or neighborhood.
- Next to a school or school yard playground.
- Next to apartments or commercial property.
- In close proximity to a freeway, expressway or railroad.
- Next to a gas station, near a municipal garbage or toxic waste dump.
- Odors from factories, farms and processing plants are routinely noticed.
- The city is affected by the closing of a major employer.
Think about Selling - When You are Buying.
Location is a big factor in a home's appraised value. This is most notably felt at the time you sell or refinance. What seems like a bargain when you buy might turn into a real headache when you try to sell.
Drive around the neighborhood and note any adverse conditions.
You may think you can live with something adverse for the price, but when it's time to sell you might find buyers won't.
Important Tip!
Adding onto your house = Always obtain a building permit.
A 600 square foot addition built without a permit is given no value on an appraisal. When it is time to sell or refinance, the frustrations of the building permit process will be worth it.
Always save copies of the final permit sign offs and keep with your house papers.
Buying a House with an Addition?
Verify that it was built with a permit prior to closing the sale.
Don't just accept the sellers word. Get copies of the permits before final sign off.
Should you want to refinance or sell at a later date, and the appraiser cannot verify the addition being permitted, no value should be given.
The result: no new loan or worse . . . no sale.
Tip!
A one bedroom house or condominium doesn't appreciate as well and is harder to sell.
Work with An Agent
An advantage of working with a real estate agent is that they can provide you with sales information of similar properties to better guide you on how much to offer.
Your agent can provide recent sales "comps" for similar homes in the neighborhood.
Finding the list prices is also important. Comparing the list prices with the sale prices tells you exactly what percentage of the list price sellers are getting.
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| Financing Facts |
What To Do First
Obtain a copy of your credit report and check for errors.
Do this prior to your lender ordering one. Mistakes are found.
Next gather all your financial data.
Lenders will want to see bank account statements, paycheck stubs, W-2 forms and tax returns for the last two years, investments and proof of any other sources of income.
Down Payment Sources
- Savings
- Sell a car, boat or other property.
- Receive a tax-free gift from parents or relatives.
- Borrow against a pension plan or a life insurance policy.
- Equity share with parents or friends.
- Use your business as collateral.
If you can make only a small down payment or have credit problems, consider asking the seller to help you with the financing.
Example: Sellers can "carry back" a second mortgage to reduce the amount of the first mortgage you need.
By reducing the loan-to-value ratio of the first mortgage to 80% or less, buyers often avoid paying for private mortgage insurance when they use a seller-provided second mortgage.
Other Financing Options
If you can't qualify for a conventional loan because of income, don't give up. There are a number of special programs to get you into a home. Some cities have BMR (below market rate) housing programs that allow qualified buyers to purchase new homes substantially below market value.
Programs to Help Lower Income Families:
VA (Veteran)
Community Homebuyer loan program
FHA's 203(k) program (for fixer-upper)
Mortgage Credit Certificate program (MCC)
Enhance Fannie Neighbors mortgage program
Fannie Home Style loan program (for fixer-upper)
Ask your loan agent for more information about these programs.
Comparing Programs (ask yourself):
How long will I live there?
What are the tax implications?
Can I expect earnings to increase or decrease?
Are interest rates likely to go up or down in the near future?
Questions a Borrower Should Ask
Are there any "up front" fees?
What is the annual percentage rate?
What and how much are the points?
Is there a prepayment penalty?
Is there a balloon payment?
Is the loan assumable by someone later?
How much money must I have at closing?
What is the interest rate and term of the loan?
What is the monthly payment for principal and interest?
What happens if interest rates change during the loan process?
Do not hesitate to ask questions.
Take the time to carefully examine the programs being offered.
Get a written cost estimate up front.
Financing Facts
Interest rates are negotiable.
Costs for fees may be negotiable.
Save money by shopping around for your mortgage.
A larger down payment isn't necessarily the best way to go.
It may not be to your advantage to pay off your mortgage early.
Larger monthly mortgage payments means a larger tax deduction.
Interest rates on mortgages may be high, but the interest is tax deductible.
A short-term mortgage will build more equity for you in a shorter period of time.
Mortgage insurance may be required if the down payment is less than 20%.
A second mortgage or equity line on top of a low rate first mortgage may be cheaper than refinancing a new first mortgage.
What is the Best Loan?
You can save thousands of dollars or increase your home purchasing power by selecting the right loan.
New mortgage programs are constantly entering the market place in response to consumer needs. Take the time to understand and compare programs available to you.
Tax Advantages
With many tax deductions being eliminated, it's comforting to know that mortgage interest is still deductible. Besides the interest, you also can deduct any points paid to secure a loan on your first or second home.
Property taxes on your home are fully deductible. These can add up to a sizable savings on your income tax bill.
Other Savings
You may deduct a portion of your house expenses if you have a qualifying home office.
Tips to Expedite the Loan Process
Pay off credit cards before lender orders a credit report.
Don't buy a car or take out a loan prior to applying for a loan.
Don't charge expensive items on charge cards before getting a credit report.
Have verification of the down payment and an explanation of the source of money.
Getting money from relatives? A Gift letter from them will be needed.
Completely fill out the loan application, providing addresses with zip codes and all account numbers.
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| Foreclosures |
All of us want a bargain.
There are no better bargains in real estate today than the purchase of distressed properties at substantially less than fair market value. The process is not complex, but success in this field requires a large amount of time to research and a more modest amount of money.
Five Ways to Acquire
In general, there are five basic ways to acquire foreclosures at discounted prices. All but one of them permit the buyer to pay for qualified assistance from other sources (such as a title and / or escrow company. Unfortunately, the most popular technique (buying properties at the trustee's sales) allows no such luxury. The purchasing process at the trustee's sale requires each buyer to make his own thorough investigation of both title and debt on the chosen property within a limited time frame.
Delinquent Seller
The first and simplest way to buy properties under the fair market value arises when the delinquent (not defaulted) owner is uncovered. The delinquent buyer will not have made recent payments of principal, interest, taxes or insurance and / or may have reduced the value of the property through benign negligence or lack of funds. When the delinquent owner realizes that he will be unable to meet the commitments on promissory notes and trust deeds for an extended period, he may choose to sell his property even at a discounted price rather than proceed through the foreclosure process.
The wise buyer will point out to the delinquent (and later defaulted) owner how he will be harmed by proceeding through the brief foreclosure process to the trustee's sale. At that point, the owner will lose his property, lose his equity, reduce his credit standing as a result of the recorded foreclosure and may have taxable income due the IRS for the amount of the debt reduction (elimination of the trust deed debt) resulting from the trustee's sale. Selling to an interested buyer at a discounted price may well be the most convenient solution for the troubled, delinquent owner.
Defaulted Seller
The property owner becomes a defaulted owner when the trustee for the beneficiary records a Notice of Default. During the following three month plus three week periods, a Notice of Trustee's Sale also will be recorded and published in a local adjudicated newspaper once a week for three weeks just prior to the trustee's sale. Live-in buyers of the property of the defaulted owner may negotiate any reasonable purchase price and terms for the property with the defaulted owner. Investors who seek to purchase the primary residence of a defaulted owner of one to four units and who are not related to that owner must work with the equity seller under the restrictions of two California Civil Codes which can make such purchases more difficult. These restrictions require the use of a special contract with a Notice of Cancellation, permit the equity seller to pursue the equity purchaser for unconscionable advantage for two years after the sale, and eliminate the use of outside assistance in the pursuit of a foreclosure property. Investors who unwittingly or intentionally become foreclosure consultants to equity sellers may also place themselves in jeopardy under certain conditions.
Trustee's Sale
Most purchasers of foreclosures prefer to acquire their properties at the trustee's sale. At this time, it is possible to make property purchases without being in contact with the defaulted owner or foreclosing lender. Money talks. Anyone with money may make a purchase regardless of credit, race, religion, etc. The verbal auction permits the highest bidder to acquire a property by paying off only the remaining balance on the foreclosing loan regardless of the fair market value of the property. Debt recorded after the date of recording of the foreclosing loan is eliminated. Problems of unanticipated repair, eviction, payoff of superior loan(s), possible IRS redemption and inadequate research can present formidable obstacles to the inexperienced buyer.
REO Lender
When a trustee's sale is held with no bidder present, the property is said to be "sold" to the foreclosing lender. The REO lender usually will sell the property rather than retain the property as part of the lender's nonperforming assets. Finding that lender who will well the property newly acquired at the trustee's sale at a substantial discount is not easy although it is possible through a careful selection of lender sources of such properties. Individuals (not lending institutions) normally present better opportunities to purchase at a discount.
Friendly Junior Note
The fifth way to buy foreclosures is just a bit more complex but is an attractive way to acquire properties with less competition than purchasing at the trustee's sale. If the holder of the junior loan to the foreclosing loan agrees to sell his promissory note and trust deed at a substantial discount, the purchaser of the junior loan may cure the underlying senior loans and then foreclose himself on the newly acquired junior loan. The sale of the property through the junior loan can bring immediate return on the face value of the junior loan of the acquisition of the property with attractive equity.
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| FAQ - Buying Real Estate |
How Much House Can You Afford?
There are several ways to gauge how much you can afford to spend on a house.
But, before you go house-hunting, get pre-qualified for a mortgage so you'll know in what price range you can shop.
It is not unusual for first-time buyers to be somewhat baffled about how to estimate what mortgage payment they will be able to handle each month, plus how much money they'll need for a down payment and closing costs.
That's why it is a good idea to get pre-qualified through a lender before you even start to look for a home. Pre-qualification lets a buyer know exactly how much a lender is willing to loan them. With pre-qualification in hand, the buyer can save a lot of time-and frustration.
Pre-qualification does not obligate buyers to take a loan from the lender, nor should it involve any fees (until later, when they actually apply for the loan).
At the same time, you must understand that pre-qualification is not pre-approval for a loan either which is a much more involved formalized process that results in an actual letter of credit from a lending institution for a specific loan. Depending on your unique circumstances, you may wish to consider pre-approval as an option, but it is not necessary-consult with your real estate professional to decide what is right for you.
The less formal process of pre-qualifying on the other hand is a tremendous tool for buyers to have when making an offer. Usually, pre-qualified buyers have an edge when making a purchase offer because the seller knows that the buyer is pre-qualified, and that there is at least one lender ready to make it happen.
In addition, it allows you the flexibility to choose the mortgage that is best for you at the time of actual purchase-which is sometimes months down the road. That can be important given the volatility of interest rates.
When a lender pre-qualifies, they are more concerned about the buyer's paying ability than the price of the property.
For this reason, lenders are interested in more than just a buyer's income. They also want to know how much existing debt a buyer has, what their on-going financial obligations happen to be, and what the buyer's monthly budget looks like.
Lenders use an established debt-to-income ratio, usually between .28 to 1 and .38 to 1, to calculate the amount of the loan they are willing to give to a buyer. For instance, a lender who uses a .3 to 1 debt-to-income ratio has determined that payments toward debt reduction-including existing debt plus new debt associated with buying a home-cannot be more than 30% of they buyer's gross monthly income.
An important factor that may influence a lender to authorize a loan with a higher debt-to-income ratio - (where debt payments take a higher percentage of a buyer's income) - is a larger down payment. Buyers who put a larger percentage of the purchase price down (5%, 10%, 15%, 20%, etc.) are considered better "risks," because the theory is that the more a person has actually invested in the purchase, the less likely they are to default on the loan.
Buyers usually discover that the pre-qualification process will produce a home purchase price that is roughly 2 1/2 to 3 times their gross annual income. The 2 1/2 -to-3 guideline is only a general rule of thumb, however, and it doesn't take a buyer's full financial situation into consideration. Since the lender's calculations will also consider a buyer's actual debts and ongoing expenses, the loan pre-qualification amount may be higher or lower.
Regardless of the price bracket a buyer targets, they should keep pre-qualification in mind.
How much should you budget to own your own home?
Aside from the down payment, the three largest expenditures involved with the purchase of a home are usually your monthly mortgage payment, insurance and taxes. Obviously, the amount of your mortgage payment depends upon your down payment, rate of interest and the price of the property.
Take, for example, a home that has a $200,000 mortgage. An 7% fixed mortgage for 30 years, will run approximately $1330 per month. What about taxes? The rate will often times vary from city-to-city, but generally you might expect your yearly tax bill to total around 1.25% of the purchase price. That means, for a home with a market value of $250,000, yearly taxes might run around $3125. A local real estate agent can help prospective homeowners refine these figures.
In addition, it is important to keep in mind that there are many additional expenses incurred with home ownership, some of the most obvious are utilities and trash collection. Smart homeowners should also budget for one other item, maintenance and upkeep of the home. If possible, a small amount should be set aside each month to pay for those "rainy day" repairs such as painting, plumbing (hot water heaters, garbage disposals), adding storm windows (to improve energy usage), insulation (in attics), etc.
But home ownership is not just a one way street-that is, aside from spending money on repairs and maintenance, homeowners can profit from their property. The most significant benefit is the tax deduction. It is no secret that among the last real income tax deductions available to consumers today are the interest paid on the home loan, and the property taxes. This can amount to thousands of dollars in deductions each year.
And, of course, the primary benefit of home ownership is appreciation-equity that builds every month. A home, aside from being a place that provides shelter, can be a profitable investment, and the rising value of the property oftentimes provides another "savings" account.
So, when it comes to buying a new home, remember one thing ... the purchase of a property requires budgeting and planning.
How do you go about finding a mortgage?
The commotion of house hunting is finally over. You found just the right house, and your offer has been accepted. It was a great buy. Now, just one more hurdle-getting a loan-and you're home free.
Often, buyers are so eager to get this "final detail" behind them, they rush through this portion of the transaction, and end up with less-than-ideal terms. Borrowers, however, have something lenders want-their business. This positions them to negotiate the best possible price (cost of loan), terms and service.
Let's look at price, or the cost of the loan. The first thing to do is find out what the current rates are, information readily available on the internet, in your newspaper or from your real estate agent. When comparing rates, figure the annual percentage rate (APR), which includes interest, extra fees and costs amortized over the life of the loan. Also determine the number of points, if any, that the lender will charge to make the loan. (A point is equal to one percent of the loan amount.)
Next, consider what loan options the lender offers. There are six or seven basic types of loans, which vary in their duration. Check how rates are calculated (fixed versus variable), and whether charges are fully amortized over the life of the loan, or whether you'll have to pay points up front and/or balloon payments at the end.
Is there a prepayment penalty clause?
Which terms are best for you depends on such factors as what changes you expect in your income and what you predict will happen in loan rates in the years ahead.
For example, if you only plan to reside in the home for a year or two, starting with a lower Adjustable Rate Mortgage (ARM) might be the best choice. If you have no plans to move, and feel that inflation will rise rapidly, a fixed rate would obviously be better.
Finally, and perhaps most importantly, consider speed and service. Buyers shouldn't have to wait days for approval and weeks for closing just because the lender is slow.
Remember, qualified buyers are great prospects for lenders - so give your business to the lender who demonstrates they not only want it, they deserve it.
How difficult is it to qualify for a mortgage if you have a past credit problem?
Credit problems can make it harder to qualify, but it's quite possible for buyers with poor credit to obtain a home loan.
Anyone who has had a financial problem-whether it was a matter of late credit payment, delinquent taxes, or even a judgment that was filed-should expect this data to be a factor when applying for a mortgage.
How critical a factor?
Minor lapses will probably have little or no effect. However, buyers with serious problems may still qualify for a loan, but they may have to pay a higher rate of interest or provide a larger down payment.
There are three steps that a person with past credit problems should take before applying for a loan.
First, request a credit profile from one of three major credit reporting agencies. To get copies of your credit report, start at: Credit Now - Credit Reports
Second, the buyer should optimize his or her credit profile by citing prompt payment of rent, utilities, and other bills not reported on the credit profiles.
Finally, the buyer should be prepared to provide comprehensive and candid explanations for any late payments to the loan officer. This is important because problems not reported by the buyer but discovered by the lender will reflect unfavorable.
Many lenders are understanding about one-time problems such as the loss of a job, a medical emergency, etc.
Buyers with patterns of delinquent payments might want to consider adding six months or a year of flawless credit to their track record before pursuing their home-buying plans.
So remember-if you are thinking about purchasing a home, but are worried about your past financial record-don't give up.
There are solutions, lenders and agents who are in business to help.
What are the five most common mistakes made by first-time buyers-and how can you avoid them?
A good home-buying decision is one that fits your lifestyle and your budget-a house you'll be able to resell when the time is right. Sound simple? Not always.
Five common mistakes frequently made by first-time buyers.
1. Looking outside your price range. To avoid disappointment, contact a real estate agent who can help you pre-qualify before you start looking for a home. The agent can also provide valuable insight on taxes and other expenses associated with a home (utility bills, etc.)
2. Buying on impulse. Buyers-especially first-timers-may be impressed by the first two or three homes they view. Look at a good selection. List the positives and negatives. Narrow the prospects to three or four, and then return for a closer look. Evaluate more than just the property. Look at the surrounding area and community amenities. Is this what you-and your family-want and need?
3. Not planning ahead. Think seriously about any personal changes you are planning in the next five to seven years.
For instance, if you are planning on having children, consider how the home will meet both your current and future needs. If a double-income is necessary to qualify for financing-and make your payments-do your plans foresee an income sufficient to continue making payments?
4. Failure to focus on location. Don't just focus on the house, examine the neighborhood. Is the area safe, well maintained, moderately quiet and close to work, stores, and schools?
Find out about zoning and what new construction is planned on any vacant land in the immediate neighborhood.
Will the property be easy to market when you are prepared to sell it?
5. Failure to understand the home buying process. Once you select a home, get involved. Find a real estate agent willing to spend time with you, and don't hesitate to ask questions. Have them explain the negotiation, financing and escrow processes and other elements involved in the transaction.
Home-buying involves knowing the price, and what is inside and around the property. Consider all your options carefully. This may be the most important financial transaction of your life.
What's the real difference between a new home and an old one?
While each offers its own style and charm, the difference usually boils down to two things:
1. How the home fits into the buyer's lifestyle.
2. The condition of the property.
Homes that are 10 years old or less a | | |
