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Information for Buyers

Buying your new home is a serious venture. It can be an absolute pleasure or a massive headache. Your house is not just your home; it is a serious investment in the dwelling, the area and your future.

When buying a home - you're bound to have many questions. For example, "In what area can I find a home that suits my needs?", "How much money will I need to afford the monthly payments?" and "How long will the home buying process take?"

Below are some articles that you might find useful in the home buying process. Please feel free to click on one of the links below to read more.

  Overview of the Buying & Selling Process
  Advice for First-Time Buyers
  Types of Mortgages
  Getting the Best Mortgage Rates Online
  Benefits of Home Ownership
  Finding the Right Home
  How to Negotiate with Sellers
  Home Shopping Tips
  Home Inspections
  Surviving Escrows
  Answers to Frequently Asked Questions

  • Overview of the Buying & Selling Process
  • Buyer 1. Considers purchasing a home
    2. Selects a real estate agent
    3. Determines needs and wants
    4. Discusses financial issues
    5. Views & researches target homes
    6. Makes an offer to buy

  • Seller 1. Decides to sell property
    2. Selects a real estate agent
    3. Determines needs
    4. Prepares home for marketing
    5. Agent markets the home
    6. Accepts, rejects or counters offer

  •   7. Offer Accepted

      8. Loan Application
      9. Inspections
    10. Title Search
    11. Appraisal
    12. Loan Approval

    13. Closing Papers Signed
    14. Documents Recorded
    15. Funds Available To Seller

  • 16. Seller Moves Out

  • 17. Buyer Moves In

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First-Time Buyers, read here

Pre-Qualification: Meet with a mortgage broker and find out how much you can afford to pay for a home, how much you’d need for the down payment and what a comfortable payment you can afford.

Pre-Approval: While knowing how much you can afford is the first step, sellers only want to see offers from buyers who have been pre-approved. You'll also avoid being disappointed when going after homes that are out of your price range. With Pre-Approval, the buyer actually applies for a mortgage, provides all the necessary financial information and receives a commitment in writing from a lender. This way, assuming the home you're interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and lenders will usually allow you to pay them when you close your loan.

Needs   Wants: Make 2 lists. The first is for items you must have (i.e., the number of bedrooms you need for the size of your family, a one-story house or 2-story, the age of the house, area, minimum square footage, etc.). The second list is your wishes, things you would like to have (pool and/or spa, loft or den, community features, etc.) but that are not absolutely necessary. Realistically for first-time buyers, you probably will not get everything on your wish list, but it will keep you on track for what you are absolutely looking for.

Representation by a Professional: Consider hiring your own real estate agent, one who is working for you, the buyer, not the seller. It is legal in state of Nevada for real estate agents to represent both parties- the buyer and the seller. However, there might be a conflict of interests involved as an agent cannot simultaneously represent the best interests of negotiating parties.

Focus   Organization: In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include: 1. Maps with your areas of interest highlighted. 2. A file of the properties that your agent has shown to you, along with the other ones you found on Internet or in a newspaper. 3. Paper and pen, for taking notes as you search. 4. Instant or video camera to help refresh your memory on individual properties, especially if you are looking at more than 3 properties 5. Location: Look at a potential property as if you are selling it. You are trying to imagine the resale value of the home- it is an investment after all. Would a prospective buyer find it attractive based on school district, crime rate, proximity to positive (shopping, parks, and freeway access) and negative (abandoned properties, garbage dump, source of noise) features of the area?

Try to visualize the house empty   with your decor: It is difficult for some people to imagine a house with own furniture and décor while looking at vacant homes. For some, it’s the other way around. Try your best to look at all of the features objectively: Are the rooms laid out to fit your needs? Is there enough light? Which side a property is facing?

Be Objective: Instead of thinking with your heart when you find a home, think with your head. Does this home really meet your needs? There are many houses on the market, so don't make a hurried decision that you may regret later and don’t settle for anything less than what you want. Most likely, you will compromise on one or two “wish” features, but stay focused on the absolutely-necessary ones and don’t settle.

Be Thorough: A few extra dollars well spent now may save you big expenses in the long run. That especially applies to properties that are sold “as is” (bank-owned and some short sales) as the new owners don’t have any knowledge of the property and would not disclose any current or past problems. Don't forget such essentials as: 1. Include inspection   mortgage contingencies in your written offer 2. Have the property inspected by a professional inspector 3. Request a second walk-through to take place within 24 hours of closing 4. You want to check to see that no changes have been made that were not agreed on (i.e., a nice refrigerator that you assumed came with the sale having been replaced by a cheap one).

All the above may seem rather overwhelming. That is why having a professional represent you and keep track of all the details for you is highly recommended. Please email me or call me directly to discuss any of these matters in further detail.

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Types of Mortgages

Fortunately for buyers, there are a variety of mortgages to choose from. It is in your best interest to investigate each of them to determine which the best for your situation is. You probably won't qualify for all of them. In fact, you may only qualify for one. But if you do qualify for more than one, you may save yourself money (and worry) in the long run if you do your homework before signing on the dotted line.

  Fixed-Rate Mortgages
  FHA and VA Loan
  Adjustable-Rate Mortgages
  The Convertible ARM

Fixed Rate Mortgages
Consider a fixed rate mortgage if either of the following describes you:

You plan on living in your new home for many years, and/or

You are not a risk-taker and prefer the stability of knowing how much your payment will be each month

Since most home loans are for a period of 30 years, if you want a payment you can count on for that long of a period of time, a fixed rate mortgage may be what works best for you. Once your loan amount and interest rate are calculated and locked in, a fixed rate mortgage will guarantee that you will have the same payment over the life of the loan. Making extra payments to principal will allow you to pay your loan off sooner.

This may not always be the best choice, however. If interest rates are very high at the time you take out your loan, with a fixed rate mortgage you'll be stuck with that high interest for the life of the loan (unless you choose to refinance). Conversely, if interest rates are very low, you'll come out the winner with interest rates that will stay low no matter how high interest rates go in the future.

The following are the advantages and disadvantages of the varying lengths and terms of fixed-rate mortgages:

15-Year Fixed-Rate: Pay off the loan in half the time of a 30-year loan. Equity builds up more quickly than in a 30-year loan. Payments are higher (which may be a problem if you lose your job or become unable to work). 20-Year Fixed-Rate: Pay off the loan in 2/3 the time of a 30-year loan. The overall interest paid is considerably less than for a 30-year loan. 30-Year Fixed-Rate: The most common choice, especially for first-time homebuyers, as it's the easiest of the fixed-rate loans to qualify for. Monthly payments are lower than for 15-year and 20-year loans. This can prove especially helpful if you do not have a lot of "padding" between the amount you can afford to spend and the monthly payment for your desired property. More desirable if you plan on staying in the same home for years, since equity builds more slowly than for shorter-term loans. For income tax purposes, this term provides the maximum interest deduction.

Government Loans
Another mortgage option available to some people is a government loan, providing that you meet the qualifications for these loans.

VA Loans: Veterans may qualify for a loan from the Veterans Administration. There is a limit on the amount you can borrow, so this option works best for those buying a lower priced home. FHA Loans: The Federal Housing Association offers loans to lower-income Americans. Look for the phrase "FHA approved" when looking at ads for homes.

Adjustable-Rate Mortgages (ARMs)
If you are more comfortable in taking a risk with your money or if interest rates are very high at the time you take out your loan, an adjustable-rate mortgage (ARM) may be the solution for you. You might also choose this type of loan if your planned ownership of the property is short-term or if you expect your income to increase to cover any potential rise in the interest rate.

Generally, the interest rate when you take out your loan will be lower than a fixed-rate mortgage. Please note that this is true initially, not necessarily long-term.

Since an ARM rate rises and falls depending on the prevailing interest rate, your mortgage payment will rise and fall accordingly. If your income is not sufficient to cover the highest possible payments, then this option is not for you. On the positive side, the lower initial payments will allow you to qualify for a larger loan than if you choose a fixed-rate. The downside is that your payments will increase if/when the rates go up.

Typically, ARM interest rates are tied to a specific financial index (such as Certificate of Deposit index, Treasury or T-Bill rate, Cost of Funds-Indexed Arms or COFi, or LIBOR [London Interbank Offered Rate]) and your payment will be based on the index your lender uses plus a margin, generally of two to three points. Get the formula used by your lender in writing and make sure you understand what it means.

Fortunately, the amount an ARM can increase is limited. There are "caps" on how much your lender can increase your rate, both for a period of one year and for the life of the loan. Plan ahead, and have your lender calculate what the maximum payment would be if your rate went to the highest amount allowed by the cap for your particular mortgage. If you are not confident you'll be able to pay that amount on a monthly basis, perhaps you should reconsider this type of loan.

Convertible ARMs
If neither the fixed-rate or the adjustable-rate mortgage seems like the best option, perhaps the convertible ARM will be right for you. This alternative combines the initial advantage of an ARM with a fixed rate after a predetermined number of years. Obviously, this type of mortgage has more advantages when the initial interest rate is low and the future rate is not guaranteed.

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Getting the Best Rates for Your Mortgage

Naturally, you want to get the best deal for the least amount of money. This holds true for mortgage rates as well.

A lower interest rate means a lower monthly mortgage payment, which can save you money in the long run. Also, it is easier to qualify for a lower payment than a higher one.

You basically have two routes to finding the best rate. The first is to do all the research on your own. The second is to use a mortgage broker.

Do-It-Yourself
With the accessibility of the Internet, much of this information is readily available online. Once you have educated yourself sufficiently about real estate loans, all it takes is the time and energy to sift through online resources to find the information you need.

Rates change quickly. That great rate you find today might not be there tomorrow. Once you find the rate you are looking for, submit a loan application and lock in that rate.

Some sources for interest rates on the Internet include:

  Bank Rate Monitor
  E-Loan

When comparing loans, make sure that you're comparing loans of the same type. For example, you find that "Loan A" for a 30-year loan has a much lower interest rate than "Loan B" (also for 30 years). Upon further inspection, you find that "Loan A" is technically an adjustable rate mortgage. Its payment is based on a 30-year amortization, but becomes due through either payment or refinancing at the end of 5 or 7 years. These are frequently referred to as a 5-year or 7-year fixed-rate mortgage. While both said "30-year", they are not the same type of loan.

Ask the lender for a statement detailing all fees associated with the loan. Factors such as "points" (loan fee), interest rate and other fees can vary greatly from one lender to another.

Mortgage Broker
If you do not have the time or experience to "do it yourself," look for a qualified mortgage broker that can assist in finding the right mortgage for you. Ask friends and associates who have refinanced or purchased recently if they have a broker they can recommend. You'll want to find a broker who is energetic, flexible and knowledgeable about finance and loans and someone who has your best interests in mind.

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Benefits of Home Ownership

Credit:
Owning a home helps you establish financial credibility.

Independence:
Owning your own home provides you with independence and more privacy than renting. You are free to paint walls, plant flowers, keep pets and anything else within legal bounds.

Investment:
As you make more payments and own more of your home, you add to its investment value. Most improvements you make will also add to its value.

Pride:
A home reflects its owner's values and lifestyle. Owning a home can provide you with a source of pride, enjoyment and satisfaction.

Security:
A home can provide security against inflation because the value of your home increases as prices go up.

Stability:
Being established in a community provides a sense of belonging, stability and security.

Tax Advantages:
Interest on your mortgage loan is deductible on your yearly personal income tax return. Many of the closing costs associated with purchasing your home are deductible, as are your property taxes.

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Finding the Right Home

Real Estate Agents
You can sit down with a real estate agent and discuss your needs, type of area, style of home, amenities and everything you really want in your next home. Real estate agents can help you by accessing a Listing Service which covers all properties listed for sale within a specific area. Together, you can select the homes you would like to see, set appointments and preview homes in a short period of time. An agent can guide you through the entire process.

Newspaper Ads/Internet
Many people go through the real estate classified section or browse the Internet to find a home that appeals to them. However, your real estate agent will have many listings available that may not appear in the newspaper or Internet on a continuous basis. New listings come on the market daily.

Multiple Listing Service
Your real estate agent should have access to the multiple listing service if it is available in your area. It usually includes the following details about homes and properties for sale:

  Location
  Price
  Photograph
  Utilities
  Amenities
  Annual property tax
  Current financing (when assumable)
  Listing company

When Previewing A Home
Write notes when previewing a home so you will be able to discuss the details later with your real estate agent. Ask questions about the home and discuss any objections or concerns you may have. Ask about the community - schools, shopping and transportation. Ask specific questions about the construction of the home; electrical, plumbing, heating, cooling systems, etc.

Have Fun
Relax. Finding your new home can be a rewarding experience. Have a good time and enjoy the process.

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How to Negotiate with Sellers

Buying a home is one of the most important purchases most people will make. In order to make the right decision the first time, potential buyers need to be prepared. Consider the following before starting negotiations:

Be prepared   Research the housing market in the target area. Once you have information about the general area, look for answers to questions such as: 1. Why is the homeowner selling? (If they're moving because they find the area undesirable, you might want to consider this issue.) 2. How long has the home been on the market? (If it has been on the market for a long time, perhaps there are negative facts about the property that you need to know.) 3. How much did the seller pay for the home compared to the current asking price? (If the seller paid more, find out why. Was it a general real estate trend, or did property values in that particular neighborhood go down?) 4. 4. What is the seller's time frame for selling and moving? Does it fit within your needs? 5. Are there any defects in the home or problems with the surrounding neighborhood? (For example, is the roof so old that it will likely leak during the next storm? Is there a new construction project in the area that will lead to major traffic congestion?)

  As the potential buyer, you want the advantage. While you want answers to all your questions to the seller, reveal very little about your circumstances. Do not give the seller personal information such as your income, the maximum you are able to pay for a down payment or the home, or when you want to move. Make sure that your agent knows not to reveal any such information to the seller or his/her agent.

  Also, do not let the seller see how much you want the property. If you appear desperate or overly enthusiastic, the seller then has the stronger bargaining position. When meeting with the seller or listing agent, keep your emotions in check.

Establish a Timeline   Find out if the seller needs to have the sale closed sooner rather than later. If the seller is feeling pressured to sell, use that to your advantage in negotiating. Even if you, the buyer, are the one with the deadline for purchasing a home, don't let yourself be rushed into making concessions or a purchase you may regret later.

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Home Shopping Tips

Check For Properly Working Appliances/Fixtures:

  • Bathroom: Sinks
    Showers/tubs
    Toilets
    Vent fan
    Heating fan

    Appliances : Dishwasher
    Stove
    Oven
    Ice maker
    Garbage disposal
    Range hood
    Refrigerator
    Freezer
    Microwave
    Trash compactor
  • Kitchen: Kitchen cabinet doors
    Drawers
    Sinks

    General: Lights (interior & exterior)
    Windows
    Heating system
    Ceiling fans
    Hot water system
    Air conditioning system
    Electrical outlets
    Door bells
    Doors
    Water purifier
    Fireplace damper
    Garage door

Ensure House Is Well-Built & Systems Are In Working Condition:

  • Exterior: Brick bulging or cracking
    Shingles missing or broken
    Siding rotted or missing
    Gutters damaged or need to be cleaned
    Concrete cracked in sidewalks/driveway

    Basement : Water seepage in basement
    Cracks in foundation
    Poor ventilation
  • Interior: Sub-flooring damaged or loose
    Cracked walls or ceiling
    Cracked tiles
    Loose plaster
    Flooring damaged
    Soft, springy floors
    Water stains near windows
    Water stains on ceiling below bathroom
    Water stains in attic
    Pipe insulation missing

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Home Inspections

What is an inspection?
There are numerous types of inspections. An inspection is meant to evaluate, at minimum, the structural and mechanical condition of a property. It is not the same as an appraisal which evaluates the market value of a property. Persons involved in real estate transactions need unbiased information about the physical condition of property they plan to buy or sell and your contract should include a contingency that you obtain a satisfactory inspection report. Talk with your agent about the types of inspections available.

Home Inspectors vs. Engineers
Home Inspector: A person who examines any component of a building, through visual means and through normal user controls, without the use of mathematical sciences.

Engineering: Analysis or design work requiring extensive preparation and experience in the use of mathematics, physics, chemistry and the engineering sciences.

Finding a qualified Inspector

Referrals from satisfied customers Referral from a local real estate agent or mortgage company Local consumer affairs office Yellow Pages under "Building Inspection Services"

Ask if she/he is a member of the American Society of Home Inspectors (ASHI). The ASHI has established standards of practice which include the specific services, limitations and exclusions that can be expected from private home inspectors.

What the inspection, at minimum, includes
Every inspection should include, but not be limited to, an evaluation of at least the following:

Foundations Plumbing and electrical systems Doors Ceiling, walls and floors Roof Hazardous materials concerns Heating and air conditioning systems Common areas (in condominiums) Insulation Ventilation

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You've Opened Escrow, Now What?

Congratulations, you are on your way to owning your very own home! Follow these suggestions (and your realtor's advice) so that escrow and settlement with go as smooth as possible.

You will be asked for a down payment on the home you are purchasing. You can choose to put down as much or as little as you want (depending on your mortgage), but remember, the more you put down toward the total price of your home, the less time it will take you to pay off and the less your mortgage payments will be every month.

During this period of purchasing your home, you are going to need an escrow or settlement company to act as an independent third party so that you know when and who to give your money to get the deed to your new home. The escrow or settlement company will hold your deposit and coordinate much of the activity that goes on during the escrow period. This deposit check may also be held by an attorney or in the broker's trust account. Make sure that there are sufficient funds in your account to cover this check.

The deposit check will be cashed. Assuming the sale goes through, this money will be applied to the purchase price of the home. If for any reason the sale is not consummated, you may be entitled to receive all of your deposit back, less standard cancellation fees. In certain instances, the seller may be able to retain this money as liquidated damages. Prior to executing a purchase contract, it would be wise to speak with your counsel regarding whether or not it is your best interest to have a liquidated damages clause as part of the contract.

The period that you are "in escrow" is often 30 days (40 days for FHA), but may be longer or shorter. During this time, each item specified in the contract must be completed satisfactorily. By the time you have opened escrow, you have come to an agreement with the seller on the closing date and the contingencies. Each contract is different, but most include the following:

1. Inspection contingency: this should be completed as soon as possible after the contract to purchase is signed as unsatisfactory results of the inspection may mean that you will want to cancel the contract. 2. Financing contingency:once the contract is signed, you have a period of time to secure funding. If, for any reason, you are unable to secure funding during the period of time granted to you by the contract (and the seller will not provide a written extension of time), you must decide whether you want to remove the contingency and take your chances on getting a loan. You may choose to cancel the purchase contract. 3. A requirement that the seller must provide marketable title

With an attorney or title officer, review the title report. The title must be "clear" to ensure that you do not have legal issues regarding your ownership.

Check into local and state ordinances regarding property transfer and make sure that you and/or the seller have complied with them.

Secure homeowner's insurance. This will probably be required before you can close the sale. Due to such requirements as special fire and earthquake insurance, obtaining this insurance may require a lengthy period of time. It would be in your best interest to apply for insurance as soon as possible after the contract is signed.

Contact local utility companies to schedule to have service turned on when you close escrow.

Schedule the final walk-through inspection. At this time, you should make sure that the property is exactly as the contract says it should be. What you thought to be a "permanently attached" chandelier that would come with the property might have been removed by the seller and replaced with a different fixture entirely.

You've made it! Once the sale has closed, you're the proud owner of a new home. Congratulations!

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Answers to Frequently Asked Questions

What is the difference between "pre-qualified" and "pre-approved"?
If you are "pre-qualified" you have determined, with a loan officer, what price you can afford based on the down payment, your debts and the amount the mortgage company will approve for your mortgage. Being "pre-qualified" is only a determination of your probable credit. If you are "pre-approved", your credit, employment and funds have been approved by the lender.

What are closing costs?
Closing costs are an accumulation of charges paid to different entities associated with the buying and selling of real estate. For buyers, they are usually about 4-6% of the total sales price of a property. Some of the closing costs you might encounter are: application fees, appraisal fee, county taxes, credit report, discount points, documentation fee, escrow fees, homeowners' association fees, loan fees, mortgage insurance, origination fees, tax registration and title insurance premium.

What is a point?
One point is equal to 1% of the new loan amount. Whenever government regulation, state usury laws and/or competitive practices prohibit the lender from charging a rate of interest that would make the real estate loan competitive with other fields of investments, the lender must seek some method of increasing the yield for the investors. By charging "points", the lender can bring the real estate loan up to those other investments.

What is earnest money?
When you make an offer, you will need to put up an earnest money deposit as a sign of good faith that you are seriously interested in buying a home. That deposit becomes a part of the purchase price and is held in a trust account until there is full acceptance of the offer. Typically, an earnest money is 3-5% of the offer amount.

What is title insurance?
Title insurance protects the named insured against loss because of defects, liens, encumbrances, adverse claims or other matters not shown or disclosed to the new owner that attach before date of policy.

Is VA or FHA financing unfair to sellers?
FHA and VA loans provide purchasers the opportunity to buy homes with minimal cash investment and at lower interest rates. The result is a larger market for sellers, who also benefit by receiving all cash for their equity.

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