Keys to Smart Home Buying
Buying a home is one of life's most important
investments and exciting adventures. Even
experienced buyers, however, can find this complex
process a bit overwhelming. We will guide you every
step of the way. In addition to the crucial step of
locating and presenting properties that match your
search criteria, we will help you along the path
between "I want this house!" and "I own this house!"
The Search Begins
You should start your search by determining your
price range, and how much can you afford. While
lenders use different formulas for arriving at this
figure, a general rule of thumb is that you should
spend no more than 28% of your gross monthly income
on housing costs or PITI (principal, interest, taxes
and insurance), and no more than 38% on combined
total monthly house and other long-term debt
payments. However, each person's financial picture
is unique and we'll be happy to put you in touch
with a lender we trust to evaluate your buying
power.
Understanding the Asking Price
Many factors influence the price that a seller
expects to get for their home. While only you can
decide how much you feel comfortable offering for a
property, we can gather critical information for you
regarding the factors that impact how much you
should consider paying for the home. These factors
include:
How long the home has been on the market
If the price has been reduced
The prices for other comparable homes in the
area
If there are multiple offers
Other items that might be included in the
sale - furniture, hot tub, etc.
The "list to sale price ratio," an
indication of how competitive the market is for
homes in this area.
Why the seller is selling
Whether the seller is offering an assumable
loan or financing
Getting Your Mortgage Application Started
Being pre-approved by a lender can put you in a much
stronger negotiating position, because it shows the
seller that you are a committed buyer, financially
capable of buying the property, and more likely to
close on the property. Keep in mind that
pre-approval is different from pre-qualification.
Pre-qualification is merely an estimate of what you
may be able to afford. Pre-approval occurs when the
lender has reviewed your credit and believes that
you can finance a home up to a specific amount.
However, neither pre-approval nor pre-qualification
represents or implies a commitment on the part of a
lender to actually fund a loan.
Here are some of the current documents you'll need
to get started:
INCOME
Current pay stubs
W-2s or 1099s
Tax returns, usually for two years
ASSETS
Bank statements
Investments/brokerage firm statements
Net worth of businesses owned (if
applicable)
DEBTS
Credit card statements
Loan statements
Alimony/child support payments (if
applicable)
Financing Your New Home
The financing process can take anywhere from 10 to
90 days, but typically runs 30 to 45 days. We'll be
involved throughout the process to help it run
smoothly. The basic timeline for what will happen
along the way is as follows:
You submit the completed application and any
required supporting documentation to the lender
The lender orders an appraisal of the
property, a credit report, and begins verifying
your employment and assets
The lender provides a good faith estimate of
closing and related costs, plus initial Truth in
Lending disclosures
The lender evaluates the application and
your supporting documents, approves the loan,
and issues a letter of commitment
You sign the closing loan documents and the
loan is funded
The lender sends their funds to escrow
All appropriate documents are recorded at
the County Recorder's Office, the seller is
paid, and the title to the home is yours
Negotiating the Offer and the Contract
You may make your offer subject to certain terms or
contingencies, including securing of financing or
perhaps the sale of your current home. You may also
make the contract subject to various inspections by
both you and professional inspectors. Most contracts
include some standard provisions, such as property
taxes, insurance costs, utility bills, and special
assessments, which will be prorated between buyer
and seller. Others outline what happens if the
property is damaged before closing, or either party
fails to go through with the sale. We will review
with you every aspect of your offer. Together, we
will plan a strategy for getting the most
advantageous terms for you - the buyer - at the
price you are willing to pay for the property.
Inspections
Real estate contracts often contain contingency
clauses that allow buyers to inspect the property.
Certain inspections are required by lenders and
others are a matter of observation and what is
particular to a region or area. Which party pays for
these inspections is negotiable. The two most common
types of inspection are:
Wood Destroying Pest and Organisms
(Termite) Inspection
This inspection identifies existing or potential
pest, dry rot, fungus and other
structure-threatening infestations or conditions.
The initial inspection fee covers only those areas
which are accessible to the inspector. Inspections
of inaccessible areas cost more and are subject to
an estimate by the inspector. These inspectors must
be licensed and can give estimates to correct noted
problems, can make the suggested repairs, and can
certify that the work has been completed.
General House Inspection
This inspection identifies material defects in the
essential components of the property based upon a
noninvasive physical inspection. There are no
licensing requirements for someone to be a home
inspector. These inspectors are not allowed to give
estimates to correct noted problems, nor can the
inspector perform any of the repairs.
Title Search Process
A title search spells out who has the right of
ownership for a property. It is considered "clear"
if there are no claims or liens against it. In order
to make sure nothing will prevent transfer of the
property to you, a title company will conduct a
title search and prepare a preliminary title report
that indicates what recorded matters affect the
title to the property and if the title insurance
company is willing to insure the title. At the close
of escrow, the title company will issue an Owner's
Policy of Title Insurance to protect you against
losses that might arise from covered claims on the
title. For more information,
click here.
Preparing For The Closing Costs
A home purchase is a complex transaction involving
many parties and associated fees. In addition to
your deposit and down payment, there are a variety
of other costs involved in the close of escrow,
including:
Loan origination fees, appraisals, and
reports
Surveys and inspections
Mortgage insurance
Hazard insurance
Taxes
Assessments
Title Insurance, notary, and escrow fees
Recording fees and stamps
The lender will provide a good faith estimate of
these costs prior to the close of escrow, so that
you will know in advance what to expect. Some of
these costs may be negotiable items with the seller.
Naturally, we'll walk you through each item in your
good faith estimate to make sure you understand
every detail.
