Frequently Asked Questions
What is escrow?
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.
What are the typical fees when buying a home?
If you are buying a home with all cash
Cash buyers typically incur an escrow fee, inspection fees, property insurance fee, and related transaction fees.
If you are buying a home and obtaining a home loan
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.
Should I get pre-approved for a home loan before shopping for a home?
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.
- The best time to shop for a home loan and compare lenders' interest rates and fees is before you find the right home, not after. You can take your time and do it right without being rushed.
- Getting pre-approved for a home loan enables you to know how much you can borrow, so you know what home price makes sense for you.
- It is very disappointing to find a home that you really like but discover that you cannot afford it. A loan pre-approval prevents this frustration.
- When placing an offer on a property, you need to include a loan pre-approval letter to demonstrate to the seller that you have the capacity to buy the home (unless you are paying all cash for the home).
- If you place an offer on a home without including a loan pre-approval, the seller will typically not accept your offer.
- If you are already pre-approved for a home loan, I can negotiate a better deal for you on the home you want to purchase.
- When homes are staying on the market only a few days before they go under contract, you need to be able to act quickly and place an offer on a home that you really like, to beat other buyers.
- Lenders are more strict with their loan requirements nowadays, so it is a good idea to go through the loan approval process to overcome any potential loan approval obstacles.
- It is better to get pre-approved for a home loan before you find the right home. You do not want to be scrambling to get approved for a home loan after you find the right home and desire to place an offer on it.
- If you are not pre-approved for a home loan, you will be at a disadvantage both regarding negotiating a better deal and against competition from other buyers.
- If you place an offer on a property and your offer gets accepted, you can lose your earnest money deposit, if you later discover you cannot get a home loan.
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.
What is the duration of a real estate transaction?
The duration of a real estate transaction, referred to as the escrow period, varies depending on the type of transaction.
- Regular real estate transactions involving the sale of a single-family residential property, in which the buyer is financing the purchase, typically takes 30 days to complete.
- Regular real estate transactions involving the sale of a single-family residential property, in which the buyer is paying all cash for the purchase, typically take 15 to 30 days to complete.
- Transactions involving the sale of bank-owned homes usually take 30 to 45 days to complete.
- “Short sale” transactions, which require the approval of the seller’s lender, can take several months or longer to complete.
- Transactions involving the sale of commercial properties take 30 to 60 days or more to complete.
What are the items needed to place an offer on a property?
The following items are needed to place a complete offer on a property:
- Purchase agreement and related documents
- Underwriting loan approval or pre-Approval letter from a funding lender
- Most recent bank statement(s)
- Minimum of 1% of purchase price as earnest money deposit
- Recent credit report with credit scores
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:
- You need to demonstrate to the seller that you have the financial capacity to purchase the property.
- The seller will see that you are financially able to purchase the property and take your offer seriously.
- You enhance your chance of getting your offer accepted.
- It will enable you to negotiate the best price.
- If you are not pre-approved for a home loan and enter escrow, you may discover that you cannot get a home loan and may lose your earnest money deposit.
What is a “short sale”?
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:
- Purchase offer is submitted by buyer.
- Seller accepts offer.
- Collect the following paperwork from the seller and buyer (1 week):
Hardship letter from seller
Third Party Authorization from seller
Financial statement from seller
Last two months of bank statements from seller
Last two months of paycheck stubs from seller
Last two years tax returns from seller
Buyer’s proof of funds
Buyer’s pre-approval letter from their lender
Estimated settlement statement (HUD-1) from escrow
- Submit the above items to seller’s lender. It takes up to 72 hours to upload the documents onto the lender’s system.
- Stage 1: takes up to 30 days to review the preliminary package and order the Broker’s Price Opinion (BPO).
- Stage 2: send the package to supervisor to review (up to 30-45 days)
- Stage 3: assign to a negotiator to negotiating with investor with all the terms regarding the short payoff amount and deficiency amount (up to 30-60 days).
- During the process, the seller has to update their bank statement(s) and paycheck stub(s) until the short sale is approved. Many times the seller does not respond to the request from lender right away.
- If there is 2nd trust deed (second lender), it takes even longer time to get all the investors to agree on both short payoffs.
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.
Is the property tax based on the sales price of a property?
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.
What are Mello-Roos fees?
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.
Should you have a brand new home professionally inspected?
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.
What are the hazards of lead-based paint?
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.
What is a C.L.U.E. Report?
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.
How can I get a free copy of my credit report?
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.
