Tips for Buyers
What is Agency?
Agents can represent a buyer or seller exclusively - called a single agency, or represent both the buyer and seller in a dual-agency situation.
1) Single Agency - In a traditional relationship, real estate agents and brokers have a fiduciary relationship with one of the parties – buyer or seller. The seller pays the compensation of both brokers, not just the one who lists the property, but also to the sub-broker who brings the ready, willing, and able buyer to the table.
2) Dual Agency - This exists if two agents working for the same brokerage represent the buyer and seller in a transaction. A potential conflict of interest is created if the listing agent has advanced knowledge of another buyer's offer. Therefore, the law states that a dual agent shall not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission.
How much will I spend on maintenance expenses?
Experts generally agree that you can plan on annually spending 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway, and the myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. The cost also depends on how well the house has been maintained over the years.
What can I afford?
Knowing what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. It pays to check with a couple of lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan. The price you can afford to pay for a home will depend on six factors:
1. gross income
2. the amount of cash you have available for the down payment, closing costs, and cash reserves required by
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates
Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes, and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.
When is the best time to buy?
Here are some frequently cited reasons for buying a house:
* You need a tax break. The mortgage interest deduction can make home ownership very appealing.
* You are not counting on price appreciation in the short term.
* You can afford the monthly payments.
* You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of
buying and selling a home often include real estate commissions.
* You prefer to be an owner rather than a renter.
* You can handle the maintenance expenses and headaches.
* You are not greatly concerned by dips in home values.
Where do I get information on housing market stats?
A real estate agent is the best source for finding out the status of the local housing market. So is your statewide association of Realtors®, most of which are continuously compiling such statistics from local real estate boards. For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders’ association probably gets this report. There are several other sources that
offer housing related statistics and articles. The California Association of Realtors®, National Association of Realtors® and FreddieMae.com would be some places to check out, also.
How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.
How do you determine the value of a troubled property?
Buyers considering a foreclosure property should obtain as much information as possible from Corliss Realty, including the range of bids expected. It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition. It also is possible to do your cost comparison through researching comparable properties with assistance of your Realtor® recorded at local county recorders and assessors’ offices, or through Internet sites specializing in property records.
The Buying Process:
Buying a home can be one of your most significant investments in life. Not only are you choosing your dwelling place, you are most likely investing a large portion of your assets into this venture. The more prepared you are at the outset, the less overwhelming and chaotic the buying process will be. We are able to provide you with detailed information to assist you in making an intelligent and informed decision. Remember, if you have any questions about the process, we're only a phone call or email away!
The Best Investment
As a fairly general rule, homes appreciate about five percent a year. Some years will be more, some less. The figure will vary from neighborhood to neighborhood, region to region, and year to year.
Five percent may not seem like that much at first. Stocks (at times) appreciate much more, and you may earn over six percent with the safest investment of all, treasury bonds.
But please take a second look…
Presumably, if you bought a $500,000 house and you did not pay cash for the home. You got a mortgage. Suppose you put as much as twenty percent down – that would be an investment of $100,000.
At an appreciation rate of 5% annually, a $500,000 home would increase in value by $25,000 during the first year. That means you earned $25,000 with an investment of only $100,000. Your annual "return on investment" would be a whopping 25%.
Of course, you are making mortgage payments and paying property taxes, along with a couple of other costs. However, since the interest on your mortgage and your property taxes are both tax-deductible, the government is essentially subsidizing your home purchase…and life is good!
Your rate of return when buying a home is higher than most any other investment you could make.
Income Tax Savings
All of the interest and property taxes you pay on your primary residence, in a given year can be deducted from your gross income to reduce your taxable income.
For example, assume your initial loan balance is $400,000 with an interest rate of 4.5%. During the first year, you would pay $13,745 in interest. If your first payment is January 1st, your taxable income would be $13,745 less for the year due to the IRS interest rate deduction.
Property taxes are deductible, too. Whatever property taxes you pay in a given year may also be deducted from your gross income, lowering your tax obligation.
Stable Monthly Housing Costs
When you rent a place to live, you can certainly expect your rent to increase each year – or possibly even more often. If you get a fixed-rate mortgage when you buy a home, you have the same monthly payment amount for thirty years. Even if you get an adjustable-rate mortgage, your payment will stay within a certain range for the entire life of the mortgage – and interest rates aren’t as volatile now as they were in the late seventies and early eighties.
Imagine rent prices ten, fifteen, or even thirty years from now? Which makes more sense?
Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.
Second, your home appreciates. The average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate. Over time, history has shown that owning a home is one of the very best financial investments you can make.
Freedom & Individualism
When you rent, you are normally limited on what you can do to improve your home. You have to get permission to make certain types of improvements. It does not make sense to spend thousands of dollars painting, putting in carpet, tile, or window coverings when the main person who benefits is the landlord and not you.
Since your landlord wants to keep his expenses to a minimum, he or she will probably not be spending much to improve the place, either.
When you own a home, however, you can do pretty much whatever you want. You get the benefits of any improvements you make, plus you get to live in an environment you have created, not some faceless landlord.
Both indoors and outdoors, you will probably have more space if you own your own home. Even moving to a condominium from an apartment, you are likely to find you have much more room available – a laundry and storage area, and bigger rooms. Apartment complexes are more interested in creating the maximum number of income-producing units than they are in creating space for each of the tenants.
Things to Avoid Before Purchasing a Home
Don’t Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts. If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them. The mortgage underwriter (the person who approves your loan) will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce canceled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.
Perhaps you become exasperated at your lender, but they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document. So, leave your money where it is until you talk to a loan officer. Oh…don’t change banks, either.
The Effect of Changing Jobs When Buying a Home
For most people, changing employers will not affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application. Before changing jobs, talk with your loan officer to see if and how that could affect your loan eligibility.
If you are a salaried employee who does not earn additional income from commissions, bonuses, or overtime, switching employers should not create a problem. Just make sure to remain in the same line of work. Hopefully, you will be earning a higher salary, which will help you better qualify for a mortgage.
If your income is based on hourly wages and you work a straight forty hours a week without overtime, changing jobs should not create any problems.
If a substantial portion of your income is derived from commissions, you should not change jobs before buying a home. This has to do with how mortgage lenders calculate your income. They typically average your commissions over the last two years.
Changing employers creates uncertainty about your future earnings from commissions. There is no track record from which to produce an average. Even if you are selling the same type of product with essentially the same commission structure, the underwriter cannot be certain that past earnings will accurately reflect future earnings. Changing jobs would negatively impact your ability to buy a home.
If a substantial portion of your income on the new job will come from bonuses, you may want to consider delaying an employment change. Mortgage lenders will rarely consider future bonuses as income unless you have been on the same job for two years and have a track record of receiving those bonuses. Then they will average your bonuses over the last two years or more in calculating your income. Changing employers means that you do not have the two-year track record necessary to count bonuses as income.
If you earn an hourly income but rarely work forty hours a week, you should not change jobs. There would be no way to tell how many hours you will work each week on the new job, so no way to accurately calculate your income. If you remain on the old job, the lender can just average your earnings.
Since all employers award overtime hours differently, your overtime income cannot be determined if you change jobs. If you stay at your present job, your lender will usually give you credit for overtime income. They will determine your overtime earnings over the last two years, then calculate a monthly average.
People who are self-employed will have a much harder time qualifying for a mortgage. If you arenot self-employed, but are considering a change to self-employment before buying a new home, don’t do it. Buy the home first.
Lenders like to see a two-year track record of self-employment income when approving a loan. Plus, self-employed individuals tend to include a lot of expenses on the Schedule C of their tax returns, especially in the early years of self-employment. While this minimizes your tax obligation to the IRS, it also minimizes your income to qualify for a home loan.
If you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay that until you purchase your new home.
No Major Purchase of Any Kind...Especially a New Car.
When an individual’s income starts growing and they manage to set aside some savings, they commonly experience what may be considered an innate instinct of modern civilized mankind...The desire to spend money.
Since North Americans have a special love affair with the automobile, this becomes a high-priority item on the shopping list. Later, other things will be added and one of those will probably be a house.
However, by the time homeownership has become more than a distant and hopeful dream, you may have already bought the car. It happens all the time, sometimes just before you contact a lender to get pre-qualified for a mortgage.
As part of the interview, you may tell the loan officer your price target. He will ask about your income, your savings, and your debts, then give you, his opinion. "If only you didn’t have this car payment," he might begin, "you would certainly qualify for a home loan to buy that house."
Debt-to-Income Ratios and Car Payments
When determining your ability to qualify for a mortgage, a lender looks at what is called your "debt-to-income" ratio. A debt-to-income ratio is a percentage of your gross monthly income (before taxes) that you spend on debt. This will include your monthly housing costs, including principal, interest, taxes, insurance, and homeowner’s association fees if any. It will also include your monthly consumer debt, including credit cards, student loans, installment debt, and….…car payments.
How a New Car Payment Reduces Your Purchase Price
Suppose you earn $5,000 a month and you have a car payment of $400, you would qualify for approximately $50,000 less for a mortgage than if you did not have the car payment.
Even if you feel you can afford the car payment, mortgage companies approve your mortgage based on their guidelines, not yours. Do not get discouraged, however. You should still take the time to get pre-qualified by a lender.
However, if you have not already bought a car, remember one thing. Whenever the thought of buying a car enters your mind, think ahead. Think about buying a home first. Buying a home is a much more important purchase when considering your future financial well-being.
The Business Cycle and Buying a Home - Recession and Expansion
There are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result, they spend money. People eat out more, buy new cars, and….…buy new homes.
Then, for one reason or another, the economy slows down. Companies lay off employees and consumers are more careful about where they spend money, perhaps saving more than usual. As a result, the economy decelerates even further. If it slows enough, we have a recession.
During such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Families grow beyond the capacity of the home, employees get relocated, and some may even find themselves unable to make their mortgage payment - perhaps because of a layoff in the family.
Supply and Demand
When the supply of available houses is greater than the supply of buyers, appreciation of homes may slow and prices may even fall, as happened in the early eighties, the early to mid-nineties, and in 2007-2008.
If you are lucky enough to purchase a home during a slow period, you can be reasonably certain the economy will begin to show strength again. At times, real estate values may even surge drastically.
Should You Try to "Time the Market"?
One problem with attempting to time your purchase to the business cycle is that no one can accurately predict the future. Another challenge is that interest rates are generally higher during a depressed market and income may not be keeping up. For that reason, fewer people can qualify for a home purchase than in more prosperous times.
Why You Should Not Wait.
People who already have a home usually need to sell it to buy their next one. If a "move-up" buyer wants to buy a home during a depressed market, that means they usually have to sell one during the slow market, too. If a seller wants to sell his home to take advantage of a "hot" market when prices are fairly high, they generally have to buy their next home during that same hot market. It tends to equal out.
Finally, the business cycle can change over time. You could miss out on a substantial amount of appreciation by waiting and end up paying much higher prices.
Determining Your Offer Price.
When you prepare an offer to purchase a home, you already know the seller’s asking price. But what price are you going to offer and how do you come up with that figure?
Determining your offer price is a process. First, with the help of your Realtor® look at recent sales of similar properties to come up with a price range. Then, additional data should be analyzed, such as the condition of the home, improvements made to the property, current market conditions, and the circumstances of the seller. This will help you settle on a price you think would be fair to pay for the home.
The first step in determining the price you are willing to offer is to look at the recent sales of similar homes. These are called "comparable sales." Comparable sales are recent sales of homes that compare closely to the one you are looking to purchase. Specifically, you want to compare prices of homes that are similar in square footage, number of bedrooms and bathrooms, garage space, location, lot size, and type of construction.
If the home you are interested in is part of a tract of homes, then you will most likely find some exact model matches to compare against one another.
There are three main sources of information on comparable sales, all of which are easily accessed by a real estate agent. Two of the most obvious information sources are the public record and the Multiple Listing Service.
Comparable Sales in the Public Record
The most accessible source of information on comparable sales is the public record. When someone buys a home the property is deeded from the seller to the buyer. In most circumstances, this deed is recorded at the local county recorder’s office. They combine sales data with information already known about the property so they can assess property taxes correctly.
Provided there have been no additions to the property, the information available from the public record is usually correct regarding sales price, square footage, and numbers of rooms. This makes it easy to use the public record as a source of data for comparable sale information.
Accessing the data is another matter, at least for the general public. Real Estate Professionals can generally look up this information through title insurance companies. The title companies either compile the data directly from the county recorder’s office or purchase it from other companies.
One problem with the public record is that it tends to run at least six to eight weeks behind. Add another four to six weeks for the typical escrow period and you can see the data is not current. The most current information is the most valuable.
Comparable Sales in the Multiple Listing Service
Most of the public is aware that the Multiple Listing Service is the private resource where Real Estate Professionals advertise properties available for sale. The public can access some of that information on such sites as Realtor.com, Zillow.com, and Redfin.com. The easiest way however, is to just ask us to help you!
Once a property is sold and the transaction has closed, the selling price is posted to the listing in the Multiple Listing Service. Over time, it has become a huge database on past sales, containing much more information on individual homes than can be gleaned from the public record. This information is only available to real estate agents who are members of the local Multiple Listing Service. Your agent will provide you with this data to help determine your offer price.
Comparable Sales – Pending Transactions
The most valuable information would be the most current, of course. A sale last week has more validity in helping you determine a purchase price than a sale from six months ago. The problem is that there is no actual record of the sales price until the transaction is completed. The information is not available in the public record because no deed has yet been recorded.
Neither is the information available in the Multiple Listing Service. Once an offer is accepted, it becomes a "pending sale" and the sold prices are not posted until it becomes a "closed sale." This protects the seller in case the transaction falls apart and the property is placed back on the market. It would give an unfair advantage to future potential buyers if they already knew what price the seller had been willing to accept in the past.
Other Factors Influencing Your Offer Price
Gathering and analyzing information from comparable sales helps to establish the range of prices you should consider when making an offer to buy a home. More weight should be given to the most recent sales, but even so, you need to do a bit more analysis before setting upon the price you will offer. That is because you also need to consider the condition of the property, improvements, the current market, and the circumstances behind the seller’s decision to sell.
How Property Condition Affects Your Offer
Since you have toured the property, you are interested in, you should know how it compares to the general neighborhood. When evaluating a home’s condition, there are several things you should consider. Structural condition is most important - items such as walls, ceilings, floors, doors, and windows. Then paint, carpets, and floor coverings. Pay special attention to bathrooms and bedrooms and whether the plumbing and electricity work efficiently. Look at the fixtures, such as light switches, doorknobs, and drawer handles. The front and back yards should be in reasonably good shape. The missing ingredient will be information on the condition of the homes from your comparable sales list.
How Home Improvements Affect Your Offer Price
Even when comparing exact model matches within a tract of homes, you should note whether the previous owners have made any substantial improvements. Most important would be room additions, especially bedrooms and bathrooms. Other items, like expensive floor tile or swimming pools, should be taken into account, too, but should be discounted. A pool that costs $60,000 to install does not normally add $60,000 in value to the home. Rely on your agent to give you guidance in this area.
How Market Conditions Affect Your Offer Price
A hot market is a "seller’s market." During a seller’s market, properties can sell within a few days of being listed and there are often multiple offers. Often homes even sell above the asking price. Though most buyers want to get a "deal" on a home, reducing your offer by even a few thousand dollars could mean that someone else will get the home you desire.
A slow market is called a "buyer’s market". During a buyer’s market properties may languish on the market for some time and offers may be few and far between. Prices may even decline temporarily. Such a market would allow you to be more flexible in offering a lower price for the home. Even if your offered price is too low, the seller is likely to make some sort of counter-offer and you can begin negotiations in earnest.
More often than not, the market is simply "steady," or in transition. When a market is steady, no real rules apply on whether you should make an offer on the high end of your range or the low end. You could find yourself in a situation with multiple offers on your desired house, or where no one has made an offer in weeks.
Transition markets are more difficult to define. If the economy slows unexpectedly, people who buy on the high end of a seller’s market could find their home loses value for several years. So far, no one has proven reliable in predicting when markets change or how good or bad the real estate market will become.
How Seller Motivation Affects Your Offer Price
Truthfully, it is rather rare that a seller’s motivation will dramatically affect the price of a home, but it is often possible to save a few thousand dollars. The most common "motivated seller" is someone who has already bought his or her next home or is relocating to a new area. They will be under the gun to sell the home quickly or face the prospect of making two mortgage payments at the same time. Since that can drain a bank account quickly, most sellers want to avoid such a situation and may be willing to give up a few thousand dollars to avoid the possibility.
There are also family crises that can motivate a seller to make a quick deal. However, when you see a real estate ad that mentions "divorce," "motivated seller," "relocation," or something to that effect, beware. Although the facts may be true, that does not necessarily mean the seller is motivated to make a quick and costly sale. Most likely, the ad is more designed to generate phone calls and leads rather than selling the home.
However, there are times when a seller is truly distressed, willing to make a quick sale, and sacrifice thousands of dollars. With the seller’s permission, the listing agent will post this information along with the listing in the Multiple Listing Service. They may also inform other agents during office and association marketing sessions. Provided this information has been made generally available to Real Estate Professionals, your agent should know when a seller is truly motivated and when it is just a "ploy" designed to elicit interest in a property.
The Final Decision on Your Offer Price
Comparable sales information helps you to determine a base price range for a particular home. Adding in the various factors like property condition, improvements, market conditions, and seller motivation help determine whether a "fair" price would be at the upper limit of that range or the lower limit. Perhaps you will feel a fair price is outside of that price range.
The "fair" price should be approximately what you are willing to agree on at the end of negotiations with the seller. Most buyers start somewhat lower than the price they eventually want to pay.
Although your agent may provide advice and guidance, you are the one who makes the decision. The price you put in the offer is totally up to you.
Writing an Offer to Purchase Real Estate
Once you find the home you want to buy, the next step is to write an offer – which is not as easy as it sounds. Your offer is the first step toward negotiating a sales contract between you and the seller. Since this is just the beginning of negotiations, you should put yourself in the seller’s shoes and imagine his or her reaction to everything you propose in your offer. Your goal is to get what you want; imagining the seller’s reactions will help you attain that goal.
The offer is much more complicated than simply coming up with a price and saying, "This is what I’ll pay." Because of the large dollar amounts involved, especially in today’s litigious society, both you and the seller want to build in protections and contingencies to protect your investment and limit your risk.
In an offer to purchase real estate, you include not only the price you are willing to pay but other details of the purchase as well. This includes how you intend to finance the home, your down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included in the purchase, terms of cancellation, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur. It is certainly more involved than buying a car. And more important.
Buying a home is a major event for both the buyer and seller. It will affect your finances more than any other previous purchase or investment. The seller makes plans based on your offer that affect his finances, too.
However, it is more important than just money. In the time, it takes to write an offer you are making decisions that affect how you live for the next several years, if not the rest of your life. The seller is going to review your offer carefully because it also affects how he or she lives the rest of their life.
Contingencies in a Purchase Offer
There are common contingencies you should include in your offer. Since you probably need a mortgage to buy the home, a condition of your offer should be that you will be able to to successfully obtain suitable financing. Another condition should be that the property appraises for at least what you agreed to pay for it. During the escrow period, you are likely to require certain inspections, and another contingency should be that the results of those inspections are acceptable to you.
Contingencies protect you in case you cannot perform or choose not to perform on your promise to buy a home. If you cancel a contract without having built-in conditions and contingencies, you could find yourself forfeiting your earnest money deposit...or worse. Corliss Realty will guide and protect you through this process.
Earnest Money Deposit
After you have come up with an offer price, the next step is to determine how large a deposit you want to make with your offer. You want the "earnest money deposit" to be large enough to show the seller you are serious, but not so large you are placing significant funds at risk. There are also times when closing can be delayed through no fault of your own. Have backup plans prepared for such a contingency. Your Realtor® will coach you through this obstacle course.
The Closing Date
You must include a closing date as part of your offer. This way both you and the seller can make plans for moving, and the seller can make plans for buying his or her next home. Though most transactions do close on the right date, do not be so inflexible that a delay creates insurmountable problems.
For example, if you are renting and need to give the landlord notice that you are moving out, you may want to allow a little flexibility. Otherwise, if your purchase closes a few days late you could find yourself staying in a motel with your belongings packed in a moving van somewhere while you pay storage costs.
Transfer of Possession
A transaction is considered "closed" once the deeds have been recorded. Then you own the home. However, it is not always possible for you to occupy it immediately. This can happen for several reasons, but the most common is that the seller may be purchasing a home, too. Usually, it is scheduled to close simultaneously with your purchase of their home.
It is sort of like being at a red light when it turns green. Although all the cars see the light change at the same time, the guy at the back of the line doesn’t begin moving until all the cars ahead of him have started.
As a result, it has become customary to allow the seller up to a maximum of three days to turn over actual possession and keys to the home. The date/time of the transfer of possession should be laid out in your offer clearly, to prevent confusion later.
Writing an Offer - Safeguards Regarding the Property
Disclosures from the Seller
Although you have toured the property, looked at the walls and ceiling, turned on the faucets, and played with the light switches, you have not lived in it. The seller has years of knowledge about his or her home and there may be some things you want to find out about as quickly as possible. For this reason, you will require certain disclosures as part of your offer.
You want the seller to disclose any adverse conditions that may have a substantial impact on your decision to purchase the home. This would include any problems with the house, whether the property is in a flood zone, a noise zone, or any other kind of hazardous area.
Inspections You Should Require
Besides appraisal and the termite inspection, you should also have a professional go through the house to identify potential problems. Of course, you will have inspected the home, but you are not used to looking at some things that a professional will find. Even if they are not things the seller is expected or willing to repair, at least you will have foreknowledge of any potential problems.
The seller will want this inspection performed quickly so that you can approve the results and move forward with the purchase. Once you receive the inspection, you will want to allow yourself sufficient time to review and approve the report. Remember, in California, the Real Estate Purchase Contract (RPA) provides for an "As Is" purchase. However, you may attempt to negotiate with the seller on which repairs you would like to be performed and paid for by the seller.. Otherwise, you can cancel the purchase without penalty, provided you have included this as a contingency with your offer.
Final Walk-Through Inspection
Before closing, you will want to revisit the property to ensure it is in essentially the same condition as when you wrote your offer and to inspect that any required repairs have been performed. You should do this approximately five days before you intend to close.
How Financing Details Affect Your Offer
Most buyers do not have enough cash available to buy a home, so they need to obtain a mortgage to finance the purchase. Since you will probably make your purchase contingent upon obtaining a mortgage, the seller has the right to be informed of your financing plans to evaluate them. That is one of the major reasons that financing details are included in your offer.
As part of your offer, you will need to disclose the size of your down payment. Once again, this allows the seller to evaluate your likelihood of obtaining a home loan. It is easier to get approved for a mortgage when you make a larger down payment. The underwriting guidelines are less strict.
How FHA and VA Loans Affect Your Offer
Extra Costs to the Seller
If you are obtaining a VA or FHA loan to finance your purchase, you must include that information in your offer. This is because government loans require some extra steps that must be completed prior to closing.
VA and FHA Appraisals
Home appraisal inspections on FHA and VA loans are a little more detailed than on conventional loans (and more expensive). The appraisers are required to perform certain minimum inspections as well as evaluate the market value of the property. Although these inspections are not as detailed as a professional home inspection and should not be considered a substitute.
These are additional costs the seller would not be obligated to pay for someone obtaining conventional financing, so your offer should include a maximum figure for these repairs. Otherwise, the seller is signing the equivalent of a blank check, and they do not want to do that. At the same time, whatever figure you put in will most likely affect the seller’s willingness to negotiate on price. If you put $500 as an estimate, the seller may be $500 less negotiable on their price. If no repairs are required, you may have been able to get the house for $500 less than what you and the seller agreed on as the price. The solution is to add a clause to your offer that goes something like this. "If required repairs cost less than the maximum amount allowed, the excess will be credited toward buyer’s closing costs."
Escrow or Settlement
You are going to need an escrow or settlement company to act as an "independent third party" between you and the seller. In this area, we call it "Escrow". Without having a third party involved, how do you know that when you write a check to Escrow, you are going to get the deed? This is the type of service provided by escrow. They will hold your deposit and coordinate much of the activity that goes on during the escrow period. Since this third party is very important to both you and the seller and both of you will pay your own fees to this company, it is important to agree on which service to use. Therefore, your preferred choice should be part of the offer. Since you do not buy a home every other week or so, you are probably unfamiliar with companies that provide this service. Your agent can make recommendations for you.
Title insurance is important because, by providing you with an Owner’s Policy, It ensures that you will have a clear title to the property. If there are any problems later, you can always go back to the title insurance company and have them clear it up. It is customary for the seller to pay for the Owner’s policy.
However, you are going to pay a fee to the title insurance company, too. This is for the Lender’s Policy. The lender’s policy assures your mortgage lender that there are no liens or judgments against the property and that the mortgage will be in first position. In other words, should you sell the property or refinance it, their mortgage gets paid first, before any other claims against the property. The lender’s policy is less expensive than the owner’s policy because the lender's policy is based on the loan amount and the Owner's policy is based on the Sales Price.
Termite and Pest Inspection
As part of your offer, you may want to require a termite and wood-destroying pest inspection. This company not only inspects for termite damage and pest infestations but also inspects for dry rot and water damage, among other things.
Buying Your Home - Escrow & Closing Costs
How can I save on closing costs?
Studies show that the closing costs for a buyer, average about 2 percent of a total home purchase price, are often more costly than many buyers expect.
But there are some ways to save:
* Get a no-point loan. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
* Get a no-fee loan. Usually, though, these fees are wrapped into a higher interest rate though it will save you on the amount of cash you need upfront.
* Shop around for the best loan deal. Each direct lender and each mortgage brokerage has its own fee structure. Call around before submitting your final loan application.
Who pays the closing costs associated with getting a loan?
Closing costs associated with a loan are paid by the home buyer.
What are closing costs?
Closing costs are the fees for services, taxes, or special interest charges that surround the purchase of a home. They include up-front loan points, title insurance, escrow charges, document fees, prepaid interest, and property taxes. Unless these charges are rolled into the loan, they must be paid before escrow can close.
Where do I get information about closing costs?
For more on closing costs, ask Jim and Danielle or you can order the "Consumers Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120 or call (415) 974-2163.
Why do I need a title report?
As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property. A preliminary title report provides you with an opportunity to review any impediment that would prevent a clear title from passing to you. When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "fee simple" or "fee," which is the highest type of interest an owner can have inland. Liens, restrictions, and interests of others excluded from title coverage will be listed numerically as exceptions in the report. You also may have to consider the interests of any third parties, such as easements granted by prior owners that limit the use of the property. Some buyers attempt to clear these unwanted items before purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning. Additionally, the lender will receive a copy of the Preliminary Title Report to review, and may have items that will require to be cleared before making the loan.
Buying Your Home - Appraisals & Market Value
What's a house worth?
A home ultimately is worth what someone will pay for it. Everything else is an estimate of value. To determine a property's value, most people turn to either an appraisal or a comparative market analysis. An appraisal is a certified appraiser's estimate of the value of a home at a given point in time. Appraisers consider square footage, construction quality, design, floor plan, neighborhood and availability of transportation, shopping and schools. Appraisers also take lot size, topography, view and landscaping into account. Most appraisals cost between
$450 - $700 each.
What is a comparative market analysis?
It is a real estate broker's or agent's evaluation of a home's market value, based on sales of comparable homes in a neighborhood. Most agents will give you a comparative market analysis for free. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder or assessor offices, through private real estate information companies or on the Internet.
What standards do appraisers use to estimate value?
Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value.
Can I find out the value of my home through the Internet?
You can get some idea of your home's value by searching the Internet. A number of websites and services crunch the numbers from historic public records of home sales to produce the statistics. Some services offer an actual estimate of value based on acceptable software appraisal standards. They also depend on historic home sales records to calculate the estimate. Neither of these services produce official appraisals. They also don't factor in demand, market nuances or other issues a certified appraiser or real estate professional might in assessing the value of your home. A comparative market analysis done by a Realtor is much more accurate than the internet.
What is the difference between list price, sales price and appraised value?
The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area. The sales price is the amount of money you as a buyer would pay for a property. The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors. The appraised value is the figure that a lender uses.
What are the standard ways of finding out how much a home is worth?
A comparative market analysis and an appraisal are the standard methods for determining a home's value. Your real estate agent will be happy to provide a comparative market analysis, an evaluation of value based on comparable sales in the neighborhood. Be sure you get listing prices of current homes on the market as well as those that have sold.