Buying a home is a complicated process which engenders many questions. Below is a few of the most frequently asked questions regarding buying a home.
What are my options, if I need to sell my current home before I can financially buy my next home?
Should I get pre-approved for a home loan before shopping for a home?
What is the difference between regular sales, bank owned foreclosures, and “short sales”?
Should you have a home inspected by a professional home inspector?
When you are trying to sell your current and buy another home, it is preferred that you sell your existing home first and then buy your new home. This will let you avoid paying the mortgage on two properties. Additionally, you can use the proceeds from the sale of your current residence to invest in the downpayment and closing costs of your new residence.
If you need to sell your current home before you can buy your next home, there are several options available to you:
You can list your current home for sale, before you have found or purchased your next home, and state in the listing that the sale of your property depends upon, or is contingent on, your locating and being able to buy your next home.
You can list your current home for sale and accept an offer from a buyer who agrees to allow you to lease it back for several weeks or months after the sale. Once your current home sells, you can use the sale proceeds for the down payment and closing costs of your next home.
If you find a home you strongly desire before selling your current home, you can obtain a “bridge loan” from your lender. A bridge loan is a short-term, such as three to six months, second mortgage on your current home that is secured by the equity you have in the property. A bridge loan does not require monthly payments. The entire bridge loan is paid in a lump sum when your current home sells.
Escrow means the placing of documents and funds with a neutral third party to carry out the terms of an agreement or contract. The escrow officer holds funds in a trust account and facilitates the transaction between the buyer and the seller. Typical escrow periods for buying a home are 30 days, but could be shorter or longer.
Cash buyers typically incur an escrow fee, inspection fees, property insurance fee, and related transaction fees.
Buyers who obtain financing through a lender when purchasing a property typically incur an escrow fee, property insurance fee, inspection fees, related transaction fees, and their lender’s title fees, loan processing or origination fees, and pre-paid interest. The buyer’s total closing costs average about 2.5% of the purchase price of a home.
Buying a home is a complex process involving difficult-to-understand documents. To help you become familiar with these documents, click the link below for more information and to view sample documents.
If you are serious about buying a home, it is important to shop for a loan, compare the interest rates and fees of different lenders, and get pre-approved for a home loan before you shop for a home. Why? For the following reasons.
So, if you are seeking to buy a home, it is strongly recommended that you get pre-approved for a home loan. Failure to do so can lead to your own detriment.
Warning! Not getting pre-approved for a home loan prior to placing an offer on a home is one of the biggest mistakes that home buyers make.
The duration of a real estate transaction, referred to as the escrow period, varies depending on the type of transaction.
Below is a summary of the three main types of real estate sales.
Types of Real Estate Sales |
Regular Sales |
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Bank-owned Foreclosures |
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Short Sales |
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The following items are needed to place a complete offer on a property:
I will create these using the standard California Association of Realtor forms, based on your input.
If you are not pre-approved and enter escrow, you may discover that you cannot get a home loan and may lose your earnest money deposit. You obtain a pre-approval letter from your loan officer or lender. I can recommend a loan officer who provides competitive rates and exceptional service.
The bank statement must show enough funds for the down payment and closing costs. A photocopy of an actual bank statement(s) or liquid funds is preferred, instead of a printout of an online summary.
I will instruct you on whom to make your check out to. I will make a copy and you keep the original.
You loan officer should be able to provide this. I will remove your social security number for security.
Why are all these items needed? Because:
A short sale is a process in which a lender allows the owner of real estate to sell a property for less than the amount owed on the mortgage. This usually occurs when the market values of real estate drop and a property is worth much less than the current mortgage balance. A bank or lender may allow a property owner to sell the property for less than the amount owed to avoid the lengthy and expensive foreclosure process. Some short sales are facilitated by a loss mitigator at the lender as well as a short sale negotiator who interacts with the real estate agents handling the transaction.
Since short sale transactions are subject to the lender's approval, and since the lender may or may not approve the short sale, such transactions have no assurance of completing. If a lender refuses to accept a short sale on a property, he may foreclose on the property and then it becomes bank-owned.
The term "short sale" refers to the fact that the lender who holds the mortgage on the property will be receiving less or short of what he is owed. It does not refer to the duration of the transaction. Because the short pay lender incurs a financial loss in a short sale transaction, the lender goes through a lengthy process of evaluating the financial situation of the seller and the property. Short sale transactions take much longer than normal sales transactions, sometimes taking several months or longer to complete.
The term "short sale" definitely does not refer to the transaction time which can be months in duration. A short sale is a long process, which from beginning to bank approval takes several months.
Below are the key steps in a short sale:
Hardship letter from seller
Third Party Authorization from seller
Financial statement from seller
Last two month's of bank statements from the seller
Last two month's of paycheck stubs from the seller
Last two year's tax returns from the seller
Buyer's proof of funds
Buyer's pre-approval letter from their lender
Estimated settlement statement (HUD-1) from escrow
Short sale homes tend to have lower prices than regular sales and bank-owned foreclosure properties. The condition of short sale homes is usually inferior to regular sale properties.
Warning! There is no assurance that a short sale transaction will be completed. Sometimes, the lender(s) do not approve the short sale. Other times, the lender(s) may decide to foreclose on the property. This is why short sale transactions are lengthy, uncertain, frustrating, and difficult.
Not exactly. The property tax is based on the assessed value of a home, as determined by the government property tax assessor. The sales price of a home is based on what the seller and the buyer agreed to, which is usually based on the price of comparable properties on the market. The assessed value of a property is calculated by figuring the value of the land and then adding it to the value of the building, to arrive at a total assessed value. When a property sells, it gets reassessed by the tax assessor. The assessed value of a property that is calculated shortly after a property sells is usually close to its sales price, but may be higher or lower than the sales price.
San Diego County’s real property tax is an “ad valorem tax,” a tax according to value. Proposition 13 established the tax rate as 1% of current assessed value, plus voter-approved bonded indebtedness.
Real property is assessed when there is a change in ownership or completion of new construction. Proposition 13 also provides that the assessed value of property can increase no more than 2% annually, based upon the California Consumer Price Index.
When buying real estate, it is important to obtain title insurance to protect yourself against future title or ownership claims against the property that you are buying.
In the process of buying a real property, a title company will provide the buyer with a Preliminary Title Report for his review and acceptance. The preliminary title report is a document prepared prior to issuing a policy of title insurance that shows the ownership of a specific parcel of land and the liens and encumbrances which will not be covered under a subsequent title insurance policy. It is a precursor to the Title Insurance policy that is provided after a property transaction is completed. Since the Preliminary Title Report typically contains exceptions to title insurance coverage, it is important for the buyer to review and understand the Report.
The Preliminary Title Report is difficult to understand, so click the links below for more information. If you have questions with the Preliminary Title Report, please contact the title officer listed toward the beginning of the Report.
Click the link below to learn how to read a tax assessor parcel map.
Mello-Roos fees are additional assessments on some newer homes. Mello-Roos fees are above and beyond the typical real estate taxes. Mello-Roos fees are used to pay for community facilities that the builders built when they developed a subdivision. Mello-Roos fees expire after about 25 years after a home was built.
A professional home inspection lets you know the condition of the home that you are buying. When buying a used home, it is highly recommended that you have the home inspected by a professional home inspector. He will thoroughly inspect the home and provide a written report describing any defects.
When buying a home, during the inspection contingency period, if defects are found with the home, you have the opportunity to ask the seller to repair the defects or to provide a monetary credit. This is done via a request for repair form.
The findings revealed by a professional home inspection may also persuade you not to buy the home.
The home inspection fee is typically paid by the buyer in a real estate transaction. The inspection fee is several hundred dollars. The larger the home, the larger the inspection fee is.
Home builders typically provide a 1-year fit-and-finish warranty and a 10-year structural warranty on the homes that they sell. During your first year of owning a brand new home, the 1-year fit-and-finish warranty will cover any defects. So, if anything does not work property, you can contact the builder’s service department and have them fix it. So, when you initially buy a brand new home, it is not necessary to have it professionally inspected. However, it may be a good idea to have the home professionally inspected at about the 11th month of ownership, before the builder’s 1-year fit-and-finish warranty expires. If the home inspector discovers defects that you had not noticed, you can have the builder fix them before your 1-year fit-and-finish warranty expires.
A professional termite or wood-destroying pest inspection lets you know whether a home is infested with termites and the damage they caused. When buying a used home, it is highly recommended that you have the home inspected by a professional pest inspection company. The termite inspector will inspect the exterior and interior of the home for evidence of dry wood and subterranean termites and other pests, and provide a written termite inspection report describing any findings.
The pest inspection fee is typically paid by the seller in a real estate transaction, but is negotiable. The inspection fee is usually under one hundred dollars. Some termite companies provide free pest inspections.
If a home is found to contain termites, the seller in a real estate transaction typically pays to eradicate the termites, although who pays and how much is negotiable between the seller and the buyer. The work to eradicate the termites is usually performed during the escrow process. Once the work to eradicate the termites has been performed by the termite company, it provides a statement of work performed or termite clearance.
The findings revealed by a professional termite inspection may also persuade you not to buy a home.
Radon is a naturally-occurring radioactive gas that comes from the ground which can cause lung cancer. You cannot see or smell radon. Testing is the only way to know your level of exposure.
According to several home inspectors, radon is not an issue in the San Diego County area. The biggest source of radon, and it is miniscule, is from granite counter tops. However, radon is an issue in other parts of the U.S. such as the Northeast.
Many houses and apartments built before 1978 have paint that contains high levels of lead, which is referred to as lead-based paint. Lead from paint, paint chips, and dust can pose health hazards if not managed properly. Lead exposure is especially harmful to young children and pregnant women.
Children exposed to lead may develop lead poisoning, which may produce permanent neurological damage, including learning disabilities, reduced intelligence quotient, behavioral problems, and impaired memory.
C.L.U.E.® (Comprehensive Loss Underwriting Exchange) is a claims history database generated by LexisNexis® that enables insurance companies to access consumer claims information when they are underwriting or rating an insurance policy. The C.L.U.E. Home Seller's Disclosure Report provides a five-year insurance loss history reported by insurance companies. This report is a reflection of the C.L.U.E. database at the time of the date of order.
When buying a used home, it is a good idea to request the seller to provide a C.L.U.E. Report, because the report will hell you whether there has been an insurance claim on the home in the last five years, which may indicate a potential lingering defect(s) in the home.
It is a good idea to review your credit report periodically to ensure that it is current and accurate. The three largest credit reporting companies in America — Experian, Equifax, TransUnion — have collaborated to provide a Web site where you can obtain a free copy of your credit report from each of them once per year at no charge. Click the link below to access the Web site and then follow the on-screen instructions to view, save, and print your credit report from each of the three major credit bureaus. If you find any errors in your credit reports, notify the credit bureaus per the instructions provided on their Web site.
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