Monday, October 24, 2016
Monday, October 10, 2016
Monday, September 26, 2016
Your home buying process is well underway. The sellers accepted your offer to purchase. The home is officially under contract and you're counting down the days to closing. The lender pre-approved you, so buying the house is a sure thing, right?
Not quite. Nothing is certain until the keys are in your hands. There are still major hurdles to get past before you close, and your actions between now and closing can create headaches, slowdowns, and even stop the transaction.
1. Don't Make a Major Purchase
You've just found out your credit is A+. That's great news, because a new car would look fantastic in the driveway of your new home. But hang on--if you are depending on a mortgage to move in, you'd best wait until after closing to buy the car.
An increase in your debt to income ratio reduces the amount of monthly income available for your mortgage payment.
If you tack on a higher car payment, the bank might decide you cannot afford the home.
Using cash to purchase the car could also create a problem, since banks consider cash reserves when approving your mortgage. If you must make a major purchase before closing, talk to your loan officer before you do it.
2. Don't Change Jobs Unless It's Necessary
Lenders like to see a consistent job history. They aren't usually as nervous if you change jobs within the same field, but it's better to stay put until the keys to the house are in your hand.
3. Don't Give an Earnest Money Deposit Directly to a 'For Sale By Owner' Seller
Your good faith deposit should go into a trust account. Some for sale by owner sellers don't understand that funds are to be applied to your expenses at closing.
I've heard many stories about sellers who spent the deposit money prior to closing. When the transactions didn't take place for valid reasons--such as financing or repair issues, the buyers had to fight for a refund.
Find an attorney or other neutral party who will hold the deposit for you until closing day and make sure your contract dictates what happens to the funds if the transaction doesn't close.
4. Don't Let Your Emotions Take Over
Keep a cool head during the entire home buying process, especially during and after an inspection. Be realistic. No home is perfect, especially older homes. It's not unusual for new owners to take care of some repairs themselves. Don't let the seller's refusal to do a small repair kill the deal on a home you truly love.
On the other hand, don't fall so much in love with the house that you'll buy it no matter what needs to be done--unless you're absolutely sure you can handle it emotionally and financially. Decide what type of repairs you can realistically tackle, and then stick with the decision.
5. Don't Forget to Switch Utilities
That sounds simple, but you'd be surprised how many people forget to apply for utility service at their new home. Call the utility companies as soon as you have a contract. Find out how many days lead time they need to switch the service, and then get back with them when you have a firm closing date. Don't forget to discontinue services at your old home.
6. Don't Wait to Line Up Your Hazard Insurance
A no-brainer, right? But it's another often-forgotten task that buyers scramble to take care of at the last minute. Before closing, your lender will want to see an insurance binder showing you have coverage for the new home. Get it as early as possible so that closing isn't delayed.
In some locations, additional types of insurance coverage might be necessary. Talk to your lender about insurance requirements well before the closing date.
7. Don't Become Best Friends with the Seller
I'll get some flack on this one. It's great to be friendly, but don't get into too many long discussions with the sellers, because personality conflicts often cloud judgments.
Remember, this is their home. You're no doubt excited about moving in, and if you didn't like the house you wouldn't have offered to buy it. But you'll make changes--everyone does. A casual statement about "ripping up that ugly carpet" might be hurtful enough to keep the seller from negotiating with you about repairs or other issues that crop up.
8. Don't Panic if the Appraisal Comes in Low
At least not at first. There are some things you (and your agent) can do to correct the problem. Study your options.
9. Don't Go It Alone
If you're working with an agent, it's the agent's duty to track many of the day to day details that involve the lender, the seller, or the seller's agent.
10. Don't Ignore Lender Requirements
Know what is expected of you and take care of it. For instance, a Certificate of Eligibility is required to move forward on a VA loan. That's something you must handle yourself. Answer lender questions and provide required paperwork as quickly as possible--your closing depends on it.
Monday, September 12, 2016
There is a rule of thumb that says that if you have the capacity to repay the mortgage, you can afford a single-family house that costs up to two and one-half times your annual gross income. (Annual gross income is the amount you make before taxes are deducted.) Like other rules of thumb, this is a general idea of how large a mortgage you can afford. But, because it is so simple, it doesn't take into account all the information that will help you feel comfortable with your mortgage payments.
If you are buying a house with someone else (spouse, parent, adult child, partner/companion, brother or sister or other relative), you should consider your co-purchaser's earnings and existing debts as well. Remember, if you apply for a loan with somebody else, you and your coborrower are both legally responsible for repayment of the mortgage.
Your buying power depends on how much you have available for the down payment and how much a financial institution will agree to lend you.
Your down payment
If you are a first-time home buyer, the price you can afford to pay for a house may well be limited by your ability to come up with the required down payment and closing costs. If you haven't accumulated much savings, you may want to set aside funds for a down payment on a regular basis from your paycheck. Monies in your checking and savings accounts, mutual funds, stocks and bonds, the cash value of your life insurance policy, and gifts from parents or other relatives may all be suitable sources for a down payment.
Private Mortgage Insurance
Depending on the lender and loan type, you may be able to get a mortgage with as little as 3 percent or 5 percent down. However, putting less than 20 percent down often means you will be required to purchase private mortgage insurance. Private Mortgage Insurance (PMI) helps protect the lending institution in case you fail to make payments on your mortgage.
It is possible to get financing with 0-10% down and not pay PMI (Private Mortgage Insurance). This is why 80-10-10 financing was created. It is called 80-10-10 because a lender provides a traditional 80% first mortgage, a 10% second mortgage, and makes a cash down payment equal to 10% of the home’s purchase price. The same principle applies if the borrower can only afford to make a 5% down payment: 80-15-5 financing is also available.
Your closing costs
In addition to the down payment, you will also need to consider closing costs. The closing is the final step during which ownership of the house is transferred to you. The purpose of the closing is to make sure the property is ready and able to be transferred from the seller to you.
Closing costs generally range from 3 percent to 6 percent of the amount of the mortgage. So, if you were to buy a $100,000 house with a 5 percent ($5,000) down payment, you could expect to pay between $2,850 and $5,700 on your $95,000 mortgage. Sometimes, you can negotiate with the seller of a property to pay some of your closing costs, which will reduce the amount of money you will need to bring to closing.
How much a financial institution will lend you
Apart from having available funds for a down payment and closing costs, the other major factor limiting how expensive a house you can buy will be how much you can borrow.
When you apply for a mortgage, the lender will consider both your earnings and your existing debts in determining the size of your loan. Lenders generally use the following two qualifying guidelines to determine what size mortgage you are eligible for:
The amount of money you owe for mortgage payments, property taxes, insurance, and condominium or co-op fee, if applicable, should total no more than 28 percent of your monthly gross (before-tax) income. This is called the Housing Expense Ratio. The amount of money you owe for the above items plus other long-term debts should total no more than 36 percent of your monthly gross income. This is called the total Debt-to-Income Ratio.
Basically, lenders are saying that a household should spend no more than about one-fourth of its income (up to 28 percent) on housing and no more than about one-third of its income (up to 36 percent) on total indebtedness (housing plus other debts). Lenders feel that if they follow these guidelines, homeowners will be able to pay off their mortgages fairly comfortably.
These lender ratios are flexible guidelines. If you have a consistent record of paying rent that is very close in amount to your proposed monthly mortgage payments or if you make a large down payment, you may be able to use somewhat higher ratios. Some lenders offer special loans for low- and moderate-income home buyers that allow them to use as much as 33 percent of their gross monthly income for housing expenses and 38 percent for total debt.
Don’t Despair, There is a Loan For You
When you go to apply for a mortgage, the lender will use all the relevant data -- your income, your existing debts, the purchase price of the house, your down payment, the interest rate on the loan, and the cost of property taxes and insurance -- and calculate whether you qualify to borrow the amount of money you need to buy the house.
Monday, August 22, 2016
Pricing will determine, among other things:
- How quickly your home sells
- How attractive your home will be to buyers
- How you will reach your financial goals regarding the transactions
Unless there are extenuating circumstances, such as your property’s being located in a high-risk, undesirable or unusual area, the listing price of your home will set the tone for your entire transaction.
That’s why my expertise and knowledge of your local marketplace is so helpful. I will gather statistics that quantify the prices of comparable homes in your neighborhood:
- That have sold
- That have not sold
- That are pending
- That currently are on the market
I will compare aspects of those homes against the unique features of yours. I will also analyze market conditions, the availability of mortgage funds, neighborhood reputation and characteristics, among other considerations, to create a Comparative Market Analysis (CMA). The CMA provides objective information that will enable us to make an educated, informed pricing decision designed to yield a speedy sale for the most advantageous price possible.
Philosophically speaking, put yourself in a potential buyer’s shoes when considering pricing. Buyers’ main considerations will be location, age of property, its condition and style and of course, price. Thinking objectively about these matters will help you and me determine a price based on fair market value -- what your house is worth in the current market, not the amount you or your buyers would like it to be.
Other key aspects to consider include the following:
1. How soon do I want to sell my property?
Statistics show the narrower the gap between the asking price and my estimate of value, the sooner an offer will come in.
2. How does my home compare to others in the area?
As a real estate professional, I have access to details about current listed and sold properties through the Multiple Listing Service. You will be able to see how much competition there is and what effect market conditions have had in your area. You can then determine your price by analyzing homes comparable to yours in age, size, condition and location.
3. What are buyers willing to offer?
Buyers are interested in your home’s comparable worth, not what you might need to get out of the property. The buyer’s perception of the value of your home will not be altered by the cost of your next home, your need to pay off an existing mortgage, or your hope for a dollar-for-dollar return on home improvements. Remember that sellers and Realtors© are not appraisers...buyers are. In the end, it is the buyer's evaluation that matters. Buyers make their assessments by comparing your property with others that offer similar features and are in a similar condition to yours.
4. Is there any harm in overpricing property, then dropping the price if it doesn’t sell?
Yes. To effectively price your home, you must establish a solid correlation between the asking price and the fair market value. A realistic asking price will result in a fast, lucrative sale. If your price is out of sync with the market, you’re likely to turn off a large group of potential buyers. Contrary to popular belief, a buyer usually makes an offer on a fairly priced property before making a lower offer on a listing that is seen as overpriced. Also, overpricing your home often helps sell your neighbor's home faster than yours.
5. But my house is worth so much more...
Emotion and pride should have no place in the pricing process. Sellers speak of value, amount invested and what they can afford "to take." Buyers consider only price, condition and other properties offered.
6. Should I leave room for negotiating?
Experience has shown that the closer your listing price is to the supporting comparable sales data, the greater your chances for a quick sale at or near your asking price. As a result, we recommend pricing as close to that figure as possible. If you list your home at an unreasonably high price and receive a full-priced offer, the price will be tested during the appraisal and lending process. As a result, it’s important to price your property at something statistics and the experience of the local brokers can justify. In fact, agents will miss showing your property to potentially qualified buyers simply because, at face value, your property is out of their clients' price range.
Monday, August 8, 2016
During the escrow process, you must inform the buyer of specialized conditions that affect your home. These may include the following conditions:
Sellers of properties built prior to 1978 have the following obligations:
- Provide buyers with a HUD pamphlet entitled "Protect Your Family From Lead in Your Home"
- Disclose all known lead-based paint and related hazards and provide any available reports
- Include a standardized warning as an attachment to the contract
- Complete and sign statements verifying that requirements have been met
- Retain the signed acknowledgement for 3 years
- In addition, you must provide the buyers with a 10-day opportunity to test for lead
California law requires sellers to disclose, via a "Natural Hazard Disclosure Statement" or NHD, if properties are located in one of six predetermined "natural hazard" zones. (If the property is not within one of these zones, you, of course, have no such obligation.)
The six zones are:
- A flood hazard zone as designated by the Federal Emergency Management Agency (FEMA)
- An area of potential flooding after a dam failure (also known as an inundation area)
- A very high fire hazard zone
- A wildland fire area, also known as a state fire responsibility area
- An earthquake fault zone
- A seismic hazard zone
If an NHD is delivered to the buyer after both parties have signed the Purchase Agreement, the buyer will have three days to rescind the agreement. However, if the buyer received the NHD before they signed the Purchase Agreement, then they cannot use the NHD to rescind.
Especially (but not exclusively) if you are selling a home in a newer area, you may be within a Mello-Roos tax district, and you must provide to the buyer a "Notice of Special Tax." If this notice is delivered to the buyer in person, they have three days to rescind their offer. If it’s delivered via U.S. mail, they have five days to decide.
Basically, a "Mello-Roos Community Facilities District" is formed by a local government, district, or agency to finance public services and facilities including police and fire departments, ambulance and paramedic services, parks, schools, libraries, museums and cultural facilities.
If you’re selling a condominium, townhouse or other planned development (for purposes of this discussion, we will call them all "condominiums"), there are the buyer needs to know about common areas (such as greenbelts and recreational rooms) and the homeowner’s association.
The buyer will be required to make monthly payments, known as regular assessments, to maintain common areas, as well as special assessments to replace a roof or repair the plumbing, as determined by the homeowner’s association (HOA.)
Condominiums also may have regulations regarding architectural requirements, limitations on pets, and age restrictions (i.e., senior housing). These must be formally disclosed to the buyer during escrow. You may provide this information via the following documents, to the extent that they exist and are available:
Declaration of Restrictions:
- Commonly known as "CC&Rs", or Conditions, Covenants and Restrictions
- Articles of Incorporation or Articles of Association
- All current financial information and related statements, including operating budget, estimated revenue and expenses, HOA reserves, estimated remaining life of major components (including roofs, plumbing etc.), and regular and special assessments
- A statement describing the HOA’s policies and practices in enforcing lien rights or other legal remedies for default in payment of its assessments
- A summary of the HOA’s property, general liability, and earthquake and flood insurance policies
- On existing HOA’s, a statement describing any restrictions on the basis of age, such as authorized senior citizen housing
Many smaller HOAs will not have all of these documents, but must provide what they do have.
Monday, July 25, 2016
Let your home smile a welcome to buyers when the agent shows the house...
Three's A Crowd
Avoid having too many people present during inspections. The potential buyer will feel like an intruder and will hurry through the house.
Music is Mellow
But not when showing a house. Turn off the blaring radio or television. Let the salesman and buyer talk, free of disturbances.
Keep them out of the way-preferably out of the house.
Silence is Golden
Be courteous, but don't force conversation with the potential buyer. He/she wants to inspect your house-not pay a social call.
Be It Ever So Humble
Never apologize for the appearance of your home. After all, it has been lived in. Let the trained salesperson answer any objections. This is his job.
In the Background
The salesperson knows the buyer's requirements and can better emphasize the features of your home when you don't tag along. You will be called if needed.
Why Put the Cart Before the Horse?
Trying to dispose of furniture and furnishings to the potential buyer before he has purchased the house often loses a sale.
A Word to the Wise
Let your Realtor discuss price terms, possession and other factors with the customer. He is eminently qualified to bring negotiations to a favorable conclusion.
Use Your Agent
Show your home to prospective customers only by appointment through your agent. Your cooperation will be appreciated and will help close the sale more quickly.
First Impressions are Lasting
The front door greets the prospect. Make sure it is fresh, clean and scrubbed looking. Keep lawn trimmed and edged, and the yard free of refuse.
Decorate for a Quick Sale
Faded walls and worn woodwork reduce appeal. Why tell the prospect how your home could look, when you can show him by redecorating? A quicker sale at a higher price will result. An investment in new kitchen wallpaper will pay dividends.
Let the Sun Shine In
Open draperies and curtains and let the prospects see how cheerful your home can be. (Dark homes do not appeal.)
Fix That Faucet
Dripping water discolors sinks and suggests faulty plumbing.
Repairs Can Make a Big Difference
Loose knobs, sticking doors and windows, warped cabinet drawers and other minor flaws detract from home value. Have them fixed.
From Top to Bottom
Display the full value of your attic and other utility space by removing all unnecessary articles.
Keep stairways clear. Avoid cluttered appearances and possible injuries.
Make Closets Look Bigger
Neat well organized closets show that you have ample space.
Bathrooms Help Sell Homes
Check and repair caulking in bathtubs and showers. Make this room sparkle.
Arrange Bedrooms Neatly
Remove excess furniture. Use attractive bedspreads and freshly laundered curtains.
Can you See the Light?
Illumination is like a welcome sign. The potential buyer will feel a glowing warmth when you turn on all your lights for an evening inspection.