The following articles were
written by Stephen Rosenbaum.
Copyright 2004. All rights reserved.
I
was recently
speaking with a
neighbor. They
were complaining
to me that when
they purchased
their home they
were told they
could have
horses on their
property even
though the
CC&R's at the
time for the
home did not
allow it. They
were told by the
agent and
developer that
it would not be
a problem.
Unfortunately,
they did not get
the approval in
writing nor did
they have the
CC&R's changed
before they
purchased the
home.
When buying or
selling a home,
remember, any
agreements MUST
be in writing
and agreed to by
both buyer and
seller. If only
one party agrees
there is no
agreement. No
verbal
agreements are
enforceable
either.
In the above
example, prior
to purchasing
the home, the
CC&R's should
have been
changed to
reflect that
horses were
allowed.
Effective
October, 2002
the California
Association of
Realtors
released a new
and improved
Residential
Purchase
Agreement and
Joint Escrow
Instructions -
the contract
between buyer
and seller to
purchase a home.
With this new
contract the
investigation
periods are
longer. The
buyer is
protected even
more. The final
decision date is
all at the same
time. In effect,
here are the
"boilerplate"
new time frames
when purchasing
a home. Of
course, the
number of days
can be changed
by mutual
written
agreement
between the
Seller and
Buyer.
-
The Seller
has 7 days
after
acceptance
of the offer
to deliver
to the Buyer
all reports,
disclosures
and
information
for which
the seller
is
responsible.
-
The Buyer
has 17 days
after
acceptance
to complete
all of their
investigations,
approve all
disclosures,
reports and
other
applicable
information,
which Buyer
receives
from Seller;
and approve
all matters
affecting
the
Property.
-
Within the
17 days the
Buyer may
request the
Seller make
repairs or
take any
other action
regarding
the
Property.
The Seller
has no
obligation
to agree to
or to
respond to
the Buyer's
requests.
-
At the 17th
day,
assuming the
Seller has
followed all
time frames,
the Buyer
shall in
writing,
remove all
contingencies
or cancel
the
Agreement.
This
cancellation
does not
have to have
a reason.
-
Upon
cancellation
within the
17 day time
period, all
deposit
monies are
returned to
the Buyer.
In summary, a
Buyer now has a
17 day period,
after acceptance
of an offer to
purchase a home,
to perform their
"due diligence"
investigation
based on
disclosures from
the Seller as
well as the
buyers own
investigations
with their
experts.
If for any
reason or no
reason within
the 17-day
period, the
Buyer does not
want to purchase
the home, they
may cancel and
get their
deposit money
back.
When making an
offer on a home
be sure the
contract date
indicated in the
lower left
corner of the
contract says
"Revised 10/02
Print Date BDC
Mar 04"
or later.
California
law
provides
a one
time
property
tax
relief
for
seniors
55 years
of age
or older
(you or
your
spouse).
It
allows
you to
transfer
your
current
Proposition
13
base-year
value to
a newly
acquired
residence
if you
sell
your
existing
home and
buy
another
of equal
or
lesser
value
(see the
definition
below of
"value")
within
the same
county
or
within
another
county,
which
has
passed
an
ordinance
authorizing
such
transfers.
Those
counties
were
mentioned
last
week.
The
original
dwelling
must be
sold
within 2
years
before
or 2
years
after
the
purchase
of the
replacement.
Construction
of the
replacement
dwelling
must be
completed
within 2
years of
the date
the
original
property
sold. In
addition,
the
application
must be
filed
within 3
years of
the date
the
replacement
property
was
purchased
or new
construction
was
completed.
"Equal
or
Lesser
Value"
of a
replacement
dwelling
is
defined
as; 100%
of
market
value of
the
original
property
as of
its date
of sale
if a
replacement
dwelling
is
purchased
or newly
constructed
before
an
original
property
is sold;
105% of
market
value of
original
property
as of
its date
of sale
if a
replacement
dwelling
is
purchased
or newly
constructed
within 1
year
after
the sale
of the
original
property;110%
of
market
value of
the
original
property
as of
its date
of sale
if a
replacement
dwelling
is
purchased
or newly
constructed
within
the 2nd
year
after
the sale
of the
original
property.
Both of
the
dwellings
must be
eligible
for the
Homeowners
Exemption.
To get a
copy of
the
Reappraisal
Exclusion
for
Seniors
Claim
form go
to
the
Assessors
web site
and
click on
Forms
then
Property
Tax
Exemption
then
Reappraisal
Exclusion
for
Seniors.
This
information
is
reliable
but not
guaranteed
as of
the date
of this
writing.
Recently friends
of mine were
buying a home in
Carlsbad. During
the escrow
period they were
having a
difficult time
getting
homeowners
insurance.
Finally, an
insurance agent
told them that
the home they
were about to
purchase had 3
large water
damage insurance
claims made
during the
previous 5
years.
Although the
homeowners
should have
disclosed all
insurance claims
made during the
previous 5
years, they did
not. Upon
learning of the
claims, my
friends
immediately
cancelled the
purchase of the
home. The owners
did not disclose
the water damage
claims. What
hidden condition
in the home were
they hiding?
This story is
real and
probably happens
all the time. In
the past only
insurance agents
could obtain
prior claims
information.
However, now
thanks to a
company called
Choicepoint
(www.ChoiceTrust.com),
primary
residence owners
can request a
Property Claims
History Report,
known as a
C.L.U.E®
Personal
Property Report.
You can also see
what information
is being used to
determine your
overall risk.
The cost is $
9.95.
In my opinion,
as a real estate
professional, if
you submit an
offer to buy a
home, you should
include as part
of the offer, a
request for the
Seller to supply
you a C.L.U.E
report. While
this is a report
of personal
property losses,
if any past
claims were made
because of fire
or water damage,
you have
additional
information
about what has
occurred in the
home.
This report
would just be
another of the
many you would
review, while
you are
performing
inspections and
reviewing
reports during
the contingency
period.
Why You Need
Title Insurance
I have just
finished sitting
with some
sellers talking
about the costs
to list their
homes and the
closing costs
they may have to
pay for. The
conversation got
more involved
when we started
talking about
title insurance.
This week I
thought I would
take the time to
explain why you
need title
insurance and
why the sellers
usually pay for
it when a home
is sold.
If you have ever
purchased a used
car, common
sense tells you
to take the car
to a mechanic to
have it checked
to insure that
you are not
buying a lemon.
When buying a
home you should
be just as
cautious. You
are buying a
home from
persons you do
not know who are
making
disclosures to
you, as they
know them. Is
there fraud, any
forged deeds,
unknown heirs,
judgments or
liens against
the property,
unknown
easements, etc.
Title insurance
is your
insurance policy
that protects
buyers and
lenders against
"clouds" on
title, for
example, fraud,
forged deeds,
unknown heirs,
judgments and
liens, etc.
This information
is reliable but
not guaranteed
as of the date
of this writing.
I just completed a home
inspection with a client. After answering
their questions, I thought it would be a
good idea to discuss what a home inspection
is, and what you should expect from it.
After a homebuyer and
seller agree to price and terms, a buyer has
a 17-day, or other agreed upon period, after
the acceptance of the offer to perform a
"due diligence" investigation of the home.
There are many parts to that investigation.
A thorough home inspection should be
performed as an important part of that
investigation.
The
California Real
Estate Inspection Association (CREIA)
cautions homebuyers not to misunderstand the
purpose of a professional inspection report.
The inspector's role is not to create repair
lists for the home, nor is it the sellers
obligation to repair any problems discovered
by the home inspector.
Potential homebuyers
often view an inspection report as a
mandatory repair list for the seller. Except
where requirements are set forth by state
law, sellers are not required to make the
repairs, for example earthquake straps for
hot water heaters and smoke detectors in
specified locations.
With a home inspection,
most repairs are subject to negotiation
between the parties to the sale. After the
list is received from the home inspector,
buyers will request that the seller fix
various conditions before the close of
escrow. The sellers may or may not agree to
some of those requests. But with most
defects, sellers make repairs as a matter of
choice, not obligation to facilitate the
consummation of the sale.
Before making any
demands of the seller, try to evaluate the
inspection report with an eye toward
problems of greatest significance. Look for
conditions that compromise health and
safety, involve actual leakage or greatest
cost.
An inspection consists
of a thorough visual inspection of all
accessible areas of a home. It includes a
home's structural components including the
foundation and roofing systems. The
inspection tests the heating and cooling,
plumbing fixtures, appliances, electrical
outlets, doors and windows, etc. If the home
has a pool and spa, it will be inspected
The primary
purpose of a home inspection is not to
corner the seller with a repair list. The
primary objective is to know what you are
buying before you buy it. All previously
owned homes have defects. The inspection
gives you knowledge of defects before you
close escrow.
The following articles are reprinted from
Realtor Magazine Online by permission of the
National Association of Realtors. Copyright
2004. All rights reserved.
1.
Develop a family budget.
Instead of budgeting what you’d like
to spend, use receipts to create a
budget for what you actually spent
over the last six months. One
advantage of this approach is that
it factors in unexpected expenses,
such as car repairs, illnesses,
etc., as well as predictable costs
such as rent.
2.
Reduce your debt.
Generally speaking, lenders look for
a total debt load of no more than 36
percent of income. Since this figure
includes your mortgage, which
typically ranges between 25 percent
and 28 percent of income, you need
to get the rest of installment
debt—car loans, student loans,
revolving balances on credit
cards—down to between 8 percent and
10 percent of your total income.
3.
Get a handle on expenses.
You probably know how much you spend
on rent and utilities, but little
expenses add up. Try writing down
everything you spend for one
month. You’ll probably see some
great ways to save.
4.
Increase your income.
It may be necessary to take on a
second, part-time job to get your
income at a high-enough level to
qualify for the home you want.
5.
Save for a down payment.
Although it’s possible to get a
mortgage with only 5 percent down—or
even less in some cases—you can
usually get a better rate and a
lower overall cost if you put down
more. Shoot for saving a 20 percent
down payment.
6.
Create a house fund.
Don’t just plan on saving whatever’s
left toward a down payment. Instead
decide on a certain amount a month
you want to save, then put it away
as you pay your monthly bills.
7.
Keep your job.
While you don’t need to be in the
same job forever to qualify, having
a job for less than two years may
mean you have to pay a higher
interest rate.
8.
Establish a good credit history.
Get a credit card and make payments
by the due date. Do the same for all
your other bills. Pay off the entire
balance promptly.
The
first step in getting yourself in
financial shape to buy a home is to
know what you make and what you
spend now. List your income and
expenses below.
Income
|
|
|
Take-Home Pay/All Family
Members |
|
|
Child Support/Alimony |
|
|
Pension/Social Security |
|
|
Disability/Other Insurance |
|
|
Interest/Dividends |
|
|
Other |
|
|
Total Income |
|
Expenses
|
|
|
Rent/Mortgage |
|
|
Life Insurance |
|
|
Health/Disability Insurance |
|
|
Vehicle Insurance |
|
|
Homeowners or Other
Insurance |
|
|
Car Payments |
|
|
Other Loan Payments |
|
|
Savings/Pension Contribution |
|
|
Utilities |
|
|
Credit Card Payments |
|
|
Car Upkeep |
|
|
Clothing |
|
|
Personal Care Products |
|
|
Groceries |
|
|
Food Prepared Outside the
Home |
|
|
Medical/Dental/Prescriptions |
|
|
Household Goods |
|
|
Recreation/Entertainment |
|
|
Child Care |
|
|
Education |
|
|
Charitable Donations |
|
|
Miscellaneous |
|
Total Expenses=
|
|
Remaining Income After
Expenses=
|
|
Credit scores, along with your
overall income and debt, are a big
factor in determining if you’ll
qualify for a loan and what loan
terms you’ll be able to qualify for.
1.
Check for and correct errors
in your credit report. Mistakes
happen, and you could be paying for
someone else’s poor financial
management.
3.
Don’t charge your credit
cards to the maximum limit.
4.
Wait 12 months after credit
difficulties to apply for a
mortgage. You’re penalized less for
problems after a year.
5.
Don’t purchase big-ticket
items for your new home on credit
cards until after the loan is
approved. The amounts will add to
your debt.
6.
Don’t open new credit card
accounts before applying for a
mortgage. Having too much available
credit can lower your score.
7.
Shop for mortgage rates all
at once. Too many credit
applications can lower your score,
but multiple inquiries from the same
type of lender are counted as one
inquiry if submitted over a short
period of time.
8.
Avoid finance companies. Even
if you pay the loan on time, the
interest is high and it will
probably be considered a sign of
poor credit management.
This information is copyrighted by
the Fannie Mae Foundation and is
used with permission of the Fannie
Mae Foundation. To obtain a complete
copy of the publication, “Knowing
and Understanding Your Credit,”
visit
http://www.homebuyingguide.org.
5 Factors That Decide Your Credit
Score
Credit scores range between 200 and
800. Scores above 620 are considered
desirable for obtaining a mortgage.
These factors will affect your
score.
1.
Your payment history. Whether
you paid credit card obligations on
time.
2.
How much you owe. Owing a
great deal of money on numerous
accounts can indicate that you are
overextended.
3.
The length of your credit
history. In general, the longer the
better.
4.
How much new credit you have.
New credit, either installment
payments or new credit cards, are
considered more risky, even if you
pay promptly.
5.
The types of credit you use.
Generally, it’s desirable to have
more than one type of
credit—installment loans, credit
cards, and a mortgage, for example.
For more on evaluating and
understanding your credit score, go
to
http://www.myfico.com/?lpid=NARI3.
Your
Property Wish List
While your opinions on the type of
home you want to own may change
during the home buying process, use
this easy checklist to help you
prioritize and make the shopping
process less time consuming.
§
How close do you need to be to:
(a) public transportation
_______
(b) schools _______
(c) airport _______
(d) expressway _______
(e) neighborhood shopping
_______
(f) other_______?
§
What neighborhoods would you prefer?
§
What school systems do you want to
be near?
§
What architectural style(s) of homes
do you prefer?
§
Do you want a one-story or two-story
house?
§
How old a home would you consider?
§
How much repair or renovation would
you be willing to do?
§
Do you have special facilities or
needs that your home must meet?
§
Do you require a fenced yard or
other amenities for your pets?
|
Prioritize each of these
options into
|
Must have |
Would prefer |
|
Yard (at least_________) |
|
|
|
Garage (size________)
|
|
|
|
Patio/Deck |
|
|
|
Pool |
|
|
|
Bedrooms (number_________) |
|
|
|
Bathrooms (number_________) |
|
|
|
Family room |
|
|
|
Formal living room |
|
|
|
Formal dining room |
|
|
|
Eat-in kitchen |
|
|
|
Laundry room |
|
|
|
Basement |
|
|
|
Attic |
|
|
|
Fireplace |
|
|
|
Spa in bath |
|
|
|
Air conditioning |
|
|
|
Wall-to-wall carpet |
|
|
|
Hardwood floors |
|
|
|
View |
|
|
|
Light (windows) |
|
|
|
Shade |
|
|
Tips for Finding the Perfect
Neighborhood
The
neighborhood you choose can have a
big impact on your lifestyle—safety,
available amenities, and convenience
all play their part.
1.
Make a list of the
activities—movies, health club,
church—you engage in regularly and
stores you visit frequently. See how
far you would have to travel from
each neighborhood you’re considering
to engaging in your most common
activities.
2.
Check out the school
district. The Department of
Education in your town can probably
provide information on test scores,
class size, percentage of students
who attend college, and special
enrichment programs. If you have
school-age children, also consider
paying a visit to schools in the
neighborhoods you’re considering.
Even if you don’t have children, a
house in a good school district will
be easier to sell in the future.
3.
Find out if the neighborhood
is safe. Ask the police department
for neighborhood crime statistics.
Consider not only the number of
crimes but also the type—burglaries,
armed robberies—and the trend of
increasing or decreasing crime.
Also, is crime centered in only one
part of the neighborhood, such as
near a retail area?
4.
Determine if the neighborhood
is economically stable. Check with
your local city economic development
office to see if income and property
values in the neighborhood are
stable or rising. What is the
percentage of homes to apartments?
Apartments don’t necessarily
diminish value, but they do mean a
more transient population. Do you
see vacant businesses or homes that
have been for sale for months?
5.
See if you’ll make money. Ask
a local REALTORÒ
or call the local REALTORÒ
association to get information about
price appreciation trends in the
neighborhood. Although past
performance is no guarantee of
future results, this information may
give you a sense of how good an
investment your home will be. A
REALTORÒ
or the government planning agency
also may be able to tell you about
planned developments or other
changes in the neighborhood—like a
new school or highway—that might
affect value.
6.
See for yourself. Once you’ve
narrowed your focus to two or three
neighborhoods, go there, and walk
around. Are homes tidy and well
maintained? Are streets quiet? Pick
a warm day if you can and chat with
people working or playing outside.
Are they friendly? Are their
children to play with your family?
Tips
on Buying in a Tight Market
Increase your chances of getting
your dream house instead of losing
it to another buyer, with these easy
steps.
1.
Get pre qualified for a
mortgage. You’ll be able to make a
firm commitment to buy and make your
offer more desirable to the seller.
2.
Stay in close touch with your
real estate sales associate to find
out first about new listings that
come on the market. And be ready to
go see a house as soon as it goes on
the market.
3.
Scout out new listings
yourself. Look at Internet sites,
newspaper ads, and drive by the
neighborhood frequently. Maybe
you’ll see a brand-new “for sale”
sign before anyone else.
4.
Be ready to make a decision.
Spend lots of time in advance
deciding what you must have so you
won’t be unsure when you have the
chance to make an offer.
5.
Bid competitively. You may
not want to start out offering the
absolute highest price you can
afford, but don’t try to go too low
to get a deal. In a tight market,
you’ll lose out.
6.
Keep contingencies to a
minimum. Restrictions such as
needing to sell your home before you
move or wanting to delay the closing
until a certain date can make your
offer unappealing. In a tight
market, you’ll probably be able to
sell your house rapidly. Or talk to
your lender about getting a bridge
loan to cover both mortgages for a
short period.
7.
Don’t get caught in a buying
frenzy. Just because there’s
competition doesn’t mean you should
just buy anything. And even though
you want to make your offer
attractive, don’t neglect
inspections that help ensure that
your house is sound.
The
Pros and Cons of Condos
Condominiums and townhouses offer
an affordable option to
single-family homes in most areas.
But consider these facts before you
buy.
1.
Storage.
Some condos have storage lockers,
but usually there are no attics or
basements to store belongings.
2.
Outdoor space.
Yards and outdoor areas are usually
smaller in condos, so if you like to
garden or entertain outdoors, this
may not be a good fit. However, if
you hate yard work, this may be the
perfect option for you.
3.
Amenities.
Many condo properties have swimming
pools, fitness centers, and other
facilities that would be very
expensive in a single-family home.
4.
Maintenance.
Many condos have onsite maintenance
personnel to care for common areas,
do repairs in your unit, and let in
workers when you’re not home.
5.
Security.
Many condos have keyed entries and
or even door attendants. Plus,
you’ll be closer to other people in
case of an emergency.
6.
Reserve funds and association fees.
Although fees generally help pay for
amenities and provide savings for
future repairs, you will have to pay
the fees agreed to by the condo
board, whether or not you’re
interested in the amenity or not.
7.
Resale.
The ease of selling your unit is
more dependent on what else is for
sale in your building, since units
are usually fairly similar.
Single-family homes usually are more
individual.
8.
Freedom.
Although you have a vote, the rules
of the condo association can affect
your ability to use your property.
For example, some condos prohibit
home-based businesses. Others
prohibit pets. Read the covenants,
restrictions, and bylaws of the
condo carefully before you make an
offer.
9.
Proximity.
You’re much closer to your neighbors
in a condo or town home. If
possible, try to meet your closest
prospective neighbors before making
a decision.
5 Reasons You Need a
REALTORÒ
1.
A real estate transaction is
complicated. In most cases, buying
or selling a home requires
disclosure forms, inspection
reports, mortgage documents,
insurance policies, deeds, and
multi-page government-mandated
settlement statements. A
knowledgeable guide through this
complexity can help you avoid delays
or costly mistakes.
2.
Selling or buying a home is
time consuming. Even in a strong
market, homes in our area stay on
the market for an average of ____
days. And it usually takes another
60 days or so for the transaction to
close after an offer is accepted.
3.
Real estate has its own
language. If you don’t know a CMA
from a PUD, you can understand why
it’s important to work with someone
who speaks that language.
4.
REALTORSÒ
have done it before. Most people buy
and sell only a few homes in a
lifetime, usually with quite a few
years in between each purchase. And
even if you’ve done it before, laws
and regulations change. That’s why
having an expert on your side is
critical.
5.
REALTORSÒ
provide objectivity. Since a home
often symbolizes family, rest, and
security, not just four walls and
roof, home selling or buying is
often a very emotional undertaking.
And for most people, a home is the
biggest purchase they’ll ever make.
Having a concerned, but objective,
third party helps you keep focused
on both the business and emotional
issues most important to you.
6.
REALTORSÒ
are members of the NATIONAL
ASSOCIATION OF REALTORSÒ,
a trade organization of nearly 1
million members nationwide. REALTORSÒ
subscribe to a stringent code of
ethics that helps guarantee the
highest level of service and
integrity.
Questions to Ask When Choosing a
Real Estate Practitioner
1.
How long have you been in
residential real estate sales? Is it
your full-time job? (While
experience is no guarantee of skill,
real estate, like many other
professions, is mostly learned on
the job.)
2.
Are you a REALTORÒ?
(Members of the NATIONAL ASSOCIATION
OF REALTORSÒ,
a trade organization of nearly 1
million members nationwide,
subscribe to a stringent code of
ethics that helps guarantee the
highest level of service and
integrity.)
3.
What designations do you
hold? (Designations, such as GRI and
CRSÒ,
which require that real estate
professionals take additional,
specialized real estate training,
are held by only about one-quarter
of real estate practitioners.)
4.
How many homes did you and
your company sell last year?
5.
How many days did it take you
to sell the average home? How did
that compare to the overall market?
6.
How close to the initial
asking prices of the homes you sold
were the final sale prices?
7.
What types of specific
marketing systems and approaches
will you use to sell my home? (Look
for someone who has aggressive,
innovative approaches, not just
someone who’s going to put a sign in
the yard and hope for the best.)
8.
Will you represent me
exclusively, or will you represent
both the buyer and the seller in the
transaction? (While it’s usually
legal to represent both parties in a
transaction, it’s important to
understand where the practitioner’s
obligations lie. A good practitioner
will explain the agency relationship
to you and describe the rights of
each party. It’s also possible to
insist that the practitioner
represent you exclusively.)
9.
Can you recommend service
providers who can assist me in
obtaining a mortgage, making repairs
on my home, and other things I need
done? (Keep in mind here that real
estate professionals should
generally recommend more than one
provider and should tell you if they
receive any compensation from any
provider.)
10.
What type of support and
supervision does your brokerage
office provide to you? (Having
resources, such as in-house support
staff, access to a real estate
attorney, or assistance with
technology, can help a real estate
professional sell your home.)
11.
What’s your business
philosophy? (While there’s no right
answer to this question, the
response will help you assess what’s
important to the real estate
practitioner—fast sales, service,
etc.—and determine how closely the
practitioner’s goals and business
emphasis mesh with your own.)
12.
How will you keep me informed
about the progress of my
transaction? How frequently? Using
what media? (Again, this is not a
question with a correct answer, but
that one reflects your desires. Do
you want updates twice a week or
don’t want to be bothered unless
there’s a hot prospect? Do you
prefer phone, e-mail, or a personal
visit?)
13.
Could you please give me the
names and phone numbers of your
three most recent clients?
10 Steps to Prepare for
Homeownership
1.
Decide how much home you can
afford. Generally, you can afford a
home equal in value to between two
and three times your gross income.
2.
Develop a wish list of what
you’d like your home to have. Then
prioritize the features on your
list.
3.
Select three or four
neighborhoods you’d like to live in.
Consider items such as schools,
recreational facilities, area
expansion plans, and safety.
4.
Determine if you have enough
saved to cover your down payment and
closing costs. Closing costs,
including taxes, attorney’s fee, and
transfer fees average between 2
percent and 7 percent of the home
price.
5.
Get your credit in order.
Obtain a copy of your credit report.
6.
Determine how large a
mortgage you can qualify for. Also
explore different loans options and
decide what’s best for you.
7.
Organize all the
documentation a lender will need to
pre approve you for a loan.
8.
Do research to determine if
you qualify for any special mortgage
or down payment-assistance programs.
9.
Calculate the costs of
homeownership, including property
taxes, insurance, maintenance, and
association fees, if applicable.
10.
Find an experienced REALTORÒ
who can help you through the
process.
How
Big a Mortgage Can I Afford?
Not only does owning a home give you
a haven for yourself and your
family, it makes great financial
sense, too.
This calculation assumes a 28
percent income tax bracket. If your
bracket is higher, your savings will
be, too.
Rent: _________________________
Multiplier: X 1.32
Mortgage payment: __________________
Because of tax deductions, you can
make a mortgage payment—including
taxes and insurance—that is
approximately one-third larger than
your current rent payment and end up
with the same amount of income.
To determine what your monthly
mortgage payment would be on various
loan amounts, visit
http://www.realtor.org/realtororg.NSF/pages/FMCalculators?OpenDocument&Login.
1.
Tax breaks.
The U.S. Tax Code lets you deduct
the interest you pay on your
mortgage, property taxes you pay,
and some of the costs involved in
buying your home.
2.
Gains.
Between 1998 and 2002, national home
prices increased at an average of
5.4 percent annually. And while
there’s no guarantee of
appreciation, a 2001 study by the
NATIONAL ASSOCIATION OF REALTORSÒ
found that a typical homeowner has
approximately $50,000 of unrealized
gain in a home.
3.
Equity.
Money paid for rent is money that
you’ll never see again, but mortgage
payments let you build equity
ownership interest in your home.
4.
Savings.
Building equity in your home is a
ready-made savings plan. And when
you sell, you can generally take up
to $250,000 ($500,000 for a married
couple) as gain without owing any
federal income tax.
5.
Predictability.
Unlike rent, your mortgage payments
don’t go up over the years so your
housing costs may actually decline
as you own the home longer. However,
keep in mind that property taxes and
insurance costs will rise.
6.
Freedom.
The home is yours. You can decorate
any way you want and be able to
benefit from your investment for as
long as you own the home.
7.
Stability.
Remaining in one neighborhood for
several years gives you a chance to
participate in community activities,
lets you and your family establish
lasting friendships, and offers your
children the benefit of educational
continuity.
To calculate whether renting or
buying is the best financial option
for you, use this calculator
courtesy of Ginnie Mae:
http://www.ginniemae.gov/ypth/rent_vs_buy/Rent_vs_buy.htm.
5 Common First-Time Homebuyer
Mistakes
1.
They don’t ask enough
questions of their lender and miss
out on the best deal.
2.
They don’t act quickly enough
to make a decision and someone else
buys the house.
3.
They don’t find the right
real estate professional who is
willing to help you through the home
buying process.
4.
They don’t do enough to make
their offer look good to a seller.
5.
They don’t think about resale
before they buy. The average
first-time buyer only stays in a
home for four years.
Reprinted with permission from Real
Estate Checklists and Systems (www.realestatechecklists.com)
10 Tips for First-Time Homebuyers
1.
Be picky, but don’t be unrealistic.
There is no perfect home.
2.
Do your homework before you start
looking.
Decide specifically what features
you want in a home and which are
most important to you.
3.
Get your finances in order.
Review your credit report and be
sure you have enough money to cover
your downpayment and your closing
costs.
4.
Don’t wait to get a loan.
Talk to a lender and get
prequalified for a mortgage before
you start looking.
5.
Don’t ask too many people for
opinions.
It will drive you crazy. Select one
or two people to turn to if you feel
you need a second opinion.
6.
Decide when you could move.
When is your lease up? Are you
allowed to sublet? How tight is the
rental market in your area?
7.
Think long-term.
Are you looking for a starter house
with the idea of moving up in a few
years or do you hope to stay in this
home longer? This decision may
dictate what type of home you’ll buy
as well as the type of mortgage
terms that suit you best.
8.
Don’t let yourself be “house poor”.
If you max yourself out to buy the
biggest home you can afford, you’ll
have no money left for maintenance
or decoration or to save money for
other financial goals.
9.
Don’t be naïve.
Insist on a home inspection and, if
possible, get a warranty from the
seller to cover defects within one
year.
10.
Get help.
Consider hiring a REALTORÒ
as a buyer’s representative. Unlike
a listing agent, whose first duty is
to the seller, a buyer’s
representative is working only for
you. And often, buyer’s reps are
paid out of the seller’s commission
payment.
1.
Find a real estate
professional who’s simpatico. Home
buying is not only a big financial
commitment, but also an emotional
one. It’s critical that the
practitioner you chose is both
skilled and a good fit with your
personality.
2.
Remember, there’s no “right”
time to buy, any more than there’s a
right time to sell. If you find a
home now, don’t try to second-guess
the interest rates or the housing
market by waiting. Changes don’t
usually occur fast enough to make
that much difference in price, and a
good home won’t stay on the market
long.
3.
Don’t ask for too many
opinions. It’s natural to want
reassurance for such a big decision,
but too many ideas will make it much
harder to make a decision.
4.
Accept that no house is ever
perfect. Focus in on the things that
are most important to you and let
the minor ones go.
5.
Don’t try to be a killer
negotiator. Negotiation is
definitely a part of the real estate
process, but trying to “win” by
getting an extra-low price may lose
you the home you love.
6.
Remember your home doesn’t
exist in a vacuum. Don’t get so
caught up in the physical aspects of
the house itself—room size,
kitchen—that you forget such issues
as amenities, noise level, etc.,
that have a big impact on what it’s
like to live in your new home.
7.
Don’t wait until you’ve found
a home and made an offer to get
approved for a mortgage, investigate
insurance availability, and consider
a schedule for moving. Presenting an
offer contingent on a lot of
unresolved issues will make your bid
much less attractive to sellers.
8.
Factor in maintenance and
repair costs in your post-home
buying budget. Even if you buy a new
home, there will be some costs.
Don’t leave yourself short and let
your home deteriorate.
9.
Accept that a little buyer’s
remorse is inevitable and will
probably pass. Buying a home,
especially for the first time, is a
big commitment, but it also yields
big benefits.
10.
Choose a home first because
you love it; then think about
appreciation. While U.S. homes have
appreciated an average of 5.4
percent annually from 1998 to 2002,
a home’s most important role is as a
comfortable, safe place to live.
If the latest technology or
entertainment options are important
in your new home, add the following
questions to your buyer’s checklist.
1.
Are there enough jacks in
every room for cable TV and
high-speed Internet hookups?
2.
Are there enough telephone
extensions or jacks?
3.
Is the home pre wired for a
home theater or multi-room audio and
video?
4.
Does the home have a local
area network for linking computers?
5.
Does the home already have
wiring for DSL or other high-speed
Internet connection?
6.
Does the home have multi
zoning heating and cooling controls
with programmable thermostats?
7.
Does the home have multi-room
lighting controls, window-covering
controls, or other home automation
features?
8.
Is the home wired with
multi-purpose in-wall wiring that
allows for reconfigurations to
update services as technology
changes?
Visit the Consumer Electronics
Association (www.ce.org/techhomerating)
for a complete Tech Home ™ Rating
Checklist.
No
home is flawless, but certain
physical problems can be expensive.
Watch for:
1.
Water leaks.
Look for stains on ceilings and near
the baseboards, especially in
basements or attics.
2.
Shifting foundations.
Look for large cracks along the
home’s foundation.
3.
Drainage.
Look for standing water, either
around the foundation of the home of
in the yard.
4.
Termites.
Look for weakened or grooved wood,
especially near ground level.
5.
Worn roofs.
Look for broken or missing copings
and buckled shingles as well as
water spots on ceilings.
6.
Inadequate wiring.
Look for antiquated fuse boxes,
extension cords (indicating
insufficient outlets), and outlets
without a place to plug in the
grounding prong.
7.
Plumbing problems.
Very low water pressure, banging in
pipes.
10 Questions to Ask a Home Inspector
1.
What are your qualifications?
Are you a member of the American
Association of Home Inspectors?
2.
Do you have a current
license? Inspectors are not required
to be licensed in every state.
3.
How many inspections of
properties such as this do you do
each year?
4.
Do you have a list of past
clients I can contact?
5.
Do you carry professional
errors and omission insurance? May I
have a copy of the policy?
6.
Do you provide any guarantees
of your work?
7.
What specifically will the
inspection cover?
8.
What type of report will I
receive after the inspection?
9.
How long will the inspection
take and how long will it take to
receive the report?
10.
How much will the inspection
cost?
Portions adapted from Real Estate
Checklists and Systems and used with
permission (www.realestatechecklists.com).
What
Your Home Inspection Should Cover
§
Siding: Look for dents or buckling
§
Foundations: Look for cracks or
water seepage
§
Exterior Brick: Look for cracked
bricks or mortar pulling away from
bricks
§
Insulation: Look for condition,
adequate rating for climate
§
Doors and Windows: Look for loose or
tight fits, condition of locks,
condition of weatherstripping
§
Roof: Look for age, conditions of
flashing, pooling water, buckled
shingles, or loose gutters and
downspouts
§
Ceilings, walls, and moldings: Look
for loose pieces, drywall that is
pulling away
§
Porch/Deck: Loose railings or step,
rot
§
Electrical: Look for condition of
fuse box/circuit breakers, number of
outlets in each room
§
Plumbing: Look for poor water
pressure, banging pipes, rust spots
or corrosion that indicate leaks,
sufficient insulation
§
Water Heater: Look for age, size
adequate for house, speed of
recovery, energy rating
§
Furnace/Air Conditioning: Look for
age, energy rating; Furnaces are
rated by annual fuel utilization
efficiency; the higher the rating,
the lower your fuel costs. However,
other factors such as payback period
and other operating costs, such as
electricity to operate motors.
§
Garage: Look for exterior in good
repair; condition of floor—cracks,
stains, etc.; condition of door
mechanism
§
Basement: Look for water leakage,
musty smell
§
Attic: Look for adequate
ventilation, water leaks from roof
§
Septic Tanks (if applicable):
Adequate absorption field capacity
for the percolation rate in your
area and the size of your family
§
Driveways/Sidewalks: Look for
cracks, heaving pavement, crumbling
near edges, stains
How
Comprehensive Is Your Home Warranty?
Check your home warranty policy to
see which of the following items are
covered. Also check to see if the
policy covers the full replacement
cost of an item.
§
Plumbing
§
Electrical Systems
§
Water Heater
§
Furnace
§
Heating Ducts
§
Water Pump
§
Dishwasher
§
Stove/Cooktop/Ovens
§
Microwave
§
Refrigerator
§
Washer/Dryer
§
Swimming Pool (may be optional)
1.
What is the assessed value of
the property? Note that assessed
value is generally less than market
value. Ask to see a recent copy of
the seller’s tax bill to help you
determine this information.
2.
How often are properties
reassessed and when was the last
reassessment done? Generally taxes
jump most significantly when a
property is reassessed.
3.
Will the sale of the property
trigger a tax increase? Often the
assessed value of the property may
increase based on the amount you pay
for the property. And in some areas,
such as California, taxes may be
frozen until resale.
4.
Is the amount of taxes paid
comparable to other properties in
the area? If not, it might be
possible to appeal the tax
assessment and lower the rate?
5.
Does the current tax bill
reflect any special exemptions that
you might not qualify for? For
example, many tax districts offer
reductions to those 65 or over.
10
Questions to Ask Your Condo Board
Before you buy, contact the condo
board with the following questions.
In the process, you’ll learn how
responsive—and organized—its members
are.
1.
What percentage of units is
owner-occupied? What percentage is
tenant-occupied? Generally, the
higher the percentage of
owner-occupied units, the more
marketable the units will be at
resale
2.
What covenants, bylaws, and
restrictions govern the property?
What grandfather clauses are in
place? You may find, for instance,
that those who buy a property after
a certain date can’t rent out their
units, but buyers who bought earlier
can. Ask for a copy of the bylaws to
determine if you can live within
them. And have an attorney review
property docs, including the master
deed, for you.
3.
How much does the association
keep in reserve? How is that money
being invested?
4.
Are association assessments
keeping pace with the annual rate of
inflation? Smart boards raise
assessments a certain percentage
each year to build reserves to fund
future repairs.
To determine if the assessment is
reasonable, compare the rate to
others in the area.
5.
What does and doesn’t the
assessment cover—common area
maintenance, recreational
facilities, trash collection, snow
removal?
6.
What special assessments have
been mandated in the past five
years? How much was each owner
responsible for? Some special
assessments are unavoidable. But
repeated, expensive assessments
could be a red flag about the
condition of the building or the
board’s fiscal policy.
7.
How much turnover occurs in
the building?
8.
Is the project in litigation?
If the builders or homeowners are
involved in a lawsuit, reserves can
be depleted quickly.
9.
Is the developer reputable?
Find out what other projects the
developer has built and visit one if
you can. Ask residents about their
perceptions. Request an engineer’s
report for developments that have
been reconverted from other uses to
determine what shape the building is
in. If the roof, windows, and bricks
aren’t in good repair, they become
your problem once you buy.
10.
Are multiple associations
involved in the property? In very
large developments, umbrella
associations, as well as the smaller
association into which you’re
buying, may require separate
assessments.
10 Questions to Ask Your Lender
Be sure you find a loan that fits
your needs with these comprehensive
questions.
1.
What are the most popular
mortgage loans you offer?
2.
Which type of mortgage plan
do you think would be best for us?
Why?
3.
Are your rates, terms, fees,
and closing costs negotiable?
4.
Will I have to buy private
mortgage insurance? If so how much
will it cost and how long will it be
required? NOTE: Private mortgage
insurance usually is required if you
make less than a 20 percent down
payment, but most lenders will let
you discontinue the policy when
you’ve acquired a certain amount of
equity by paying down the loan.
5.
Who will service the loan?
Your bank or another company?
6.
What escrow requirements do
you have?
7.
How long is your loan lock-in
period (the time that the quoted
interest rate will be honored)? Will
I be able to obtain a lower rate if
they drop during this period?
8.
How long will the loan
approval process take?
9.
How long will it take to
close the loan?
10.
Are there any charges or
penalties for prepaying the loan?
Used with permission from Real
Estate Checklists & Systems (www.realestatechecklists.com).
10 Things a Lender Needs From You
1.
W-2 forms or business tax
return forms if you’re self-employed
for the last two or three years for
every person signing the loan.
2.
Copies of one or more months
of pay stubs from every person
signing the loan.
3.
Copies of two to four months
of bank or credit union statements
for both checking and savings
accounts.
4.
Copies of personal tax forms
for the last two to three years.
5.
Copies of brokerage account
statements for two to four months,
as well as a list of any other major
assets of value, e.g., a boat, RV,
or stocks or bonds not held in a
brokerage account.
6.
Copies of your most recent
401(k) or other retirement account
statement.
7.
Documentation to verify
additional income, such as child
support, pension, etc.
8.
Account numbers of all your
credit cards and the amounts of any
outstanding balances.
9.
Lender, loan number, and
amount owed on other installment
loans—student loans, car loans, etc.
10.
Addresses where you lived for
the last five to seven years, with
names of landlords, if appropriate.
6 Creative Ways to Afford a Home
If your income and savings are
making home buying a challenge,
consider these options.
1.
Investigate local, state, and
national down payment assistance
programs. These programs give loans
or grants to cover all or part of
your required down payment. National
programs include the Nehemiah
program (http://www.getdownpayment.com)
and the American Dream Down payment
Fund from the U.S. Department of
Housing and Urban Development
(http://www.hud.gov).
2.
Get the seller to provide
financing. In some cases, sellers
may be willing to finance all or
part of the purchase price of the
home and let you repay them
gradually, just as you do a
mortgage.
3.
Consider a
shared-appreciation, or shared
equity, arrangement. Under this
arrangement, your family, friends,
or even a third-party may buy a
portion of the home and thus share
in any appreciation when the home is
sold. The owner/occupant usually
pays the mortgage, property taxes,
and all maintenance costs, but all
investors’ names are usually on the
mortgage. There are companies that
can help you find such an investor
if your family can’t participate.
4.
Get help from your family.
Perhaps a family member will loan
you money for the down payment
and/or act as a cosigner for the
mortgage. Lenders often like to have
a cosigner if you have little credit
history
5.
Lease with the option to buy.
Renting the home for a year or more
will give you the chance to save
more toward your down payment. And
in many cases, owners will apply
some of the rental amount toward the
purchase price. You usually have to
pay a small, nonrefundable option
fee to the owner.
6.
See if you can qualify for a
short-term second mortgage to give
you the money to make a higher down
payment. This may be possible if you
have a good income and little other
debt.
Choices That Will Affect Your Loan
§
Mortgage term.
Mortgages are generally available at
15-, 20-, or 30-year terms. The
longer the term, the lower the
monthly payment if the same amount
is borrowed. However, you pay more
interest overall if you borrow for a
longer term.
§
Fixed or adjustable interest rates.
A fixed rate allows you to lock in a
low rate for as long as you hold the
mortgage and is usually a good
choice if interest rates are low. An
adjustable-rate mortgage (ARM) is
designed so that interest rates will
rise as interest rates increase;
however they usually offer a lower
rate in the first years of the
mortgage. ARMs also usually have a
limit as to how much the interest
rate can be increased and how
frequently they can be raised. ARMs
are a good choice when interest
rates are high or when you expect
your income to grow significantly in
the coming years.
§
Balloon mortgages.
Balloon mortgages offer very low
interest rates for a short period of
time—often three to seven years.
Payments usually cover only the
interest, so the principal owed is
not reduced. However, this type of
loan may be a good choice if you
think you will sell your home in a
few years.
§
Government-backed loans.
Government-backed loans, sponsored
by agencies such as the Federal
Housing Administration (www.fha.gov)
or the U.S. Department of Veterans
Affairs (www.va.gov), offer special
terms, including lower down payments
or reduced interest rates—to
qualified buyers.
Slight variations in interest rates,
loan amounts, and terms can
significantly affect your monthly
payment. For help in determining how
much your monthly payment will be
for various loan amounts, use this
online calculator:
http://www.realtor.org/realtororg.NSF/pages/FMCalculators?OpenDocument&Login.
5 Things to Understand About
Homeowners Insurance
1.
Look for exclusions to coverage.
For example, most insurance policies
do not cover flood or earthquake
damage as a standard item. These
coverages must be bought separately.
2.
Look for dollar limitations on
claims.
Even if you are covered for a risk,
there may a limit on how much the
insurer will pay. For example, many
policies limit the amount paid for
stolen jewelry unless items are
insured separately.
3.
Understand replacement cost.
If your home is destroyed you’ll
receive money to replace it only to
the maximum of your coverage, so be
sure your insurance is sufficient.
This means that if your home is
insured for $150,000 and it costs
$180,000 to replace it, you’ll only
receive $150,000.
4.
Understand actual cash value.
If you chose not to replace your
home when it’s destroyed, you’ll
receive replacement cost, less
depreciation. This is called actual
cash value.
5.
Understand liability.
Generally your homeowners insurance
covers you for accidents that happen
to other people on your property,
including medical care, court costs,
and awards by the court. However,
there is usually an upper limit to
the amount of coverage provided. Be
sure that it’s sufficient if you
have significant assets.
10 Ways to Lower Your Homeowners
Insurance Costs
1.
Raise your deductible.
If you can afford to pay more toward
a loss that occurs, your premiums
will be lower.
2.
Buy your homeowners and auto
policies from the same company.
You’ll usually qualify for a
discount. But make sure that the
savings really yields the lowest
price.
3.
Make your home less susceptible to
damage.
Keep roofs and drains in good
repair. Retrofit your house to
protect against natural disasters
common to your area.
4.
Keep your home safer.
Install smoke detectors, burglar
alarms, and dead-bolt locks. All of
these will usually qualify for a
discount.
5.
Be sure you insure your house for
the correct amount.
Remember, you’re covering
replacement cost, not market value.
6.
Ask about other discounts.
For example, retirees who are home
more than working people may qualify
for a discount on theft insurance.
7.
Stay with the same insurer.
Especially in today’s tight
insurance market, your current
vendor is more likely to give you a
good price.
8.
See if you belong to any groups—associations,
alumni groups—that offer lower
insurance rates.
9.
Review your policy limits and the
value of your home and possessions
annually.
Some items depreciate and may not
need as much coverage.
10.
See if there’s a government-backed
insurance plan.
In some high-risk areas, such as the
coasts, federal or state governments
may back plans to lower rates. Ask
your agent.
5 Things to Understand About Title
Insuranc
1.
It protects your ownership
right to your home both from
fraudulent claims against your
ownership and from mistakes made in
earlier sales, such as mistake in
the spelling of a person’s name or
an inaccurate description of the
property.
2.
It’s a one-time cost usually
based on the price of the property.
3.
It’s usually paid for by the
sellers.
4.
There are both lender title
policies, which protect the lender,
and owner title policies, which
protect you. The lender will
probably require a lender policy
5.
Discounts on premiums are
sometimes available if the home has
been bought within only a few years
since not as much work is required
to check the title. Ask the title
company if this discount is
available.
What Not to Overlook on a Final
Walk-through
Be sure that:
§
Repairs you’ve requested have been
made. Obtain copies of paid bills
and any related warranties.
§
All items that were included in the
sale price—draperies, lighting
fixtures—are still there.
§
Screens and storm windows are in
place or stored.
§
All appliances are operating.
§
Intercom, doorbell, and alarm are
operational.
§
Hot water heater is working.
§
HVAC is working.
§
No plants or shrubs have been
removed from the yard.
§
Garage door opener and other remotes
are available.
§
Instruction books and warranties on
appliances and fixtures are there.
§
All personal items of the sellers
and all debris have been removed.
Common Closing Costs for Buyers
The lender must disclose a good
faith estimate of all settlement
costs. A check to cover your closing
costs will probably have to be a
cashier’s check. The title company
or other entity conducting the
closing will tell you the required
amount for:
§
Down payment
§
Loan origination fees
§
Points, or loan discount fees, you
pay to receive a lower interest rate
§
Appraisal fee
§
Credit report
§
Private mortgage insurance premium
§
Insurance escrow for homeowners
insurance, if being paid as part of
the mortgage
§
Property tax escrow, if being paid
as part of the mortgage. Lenders
keep funds for taxes and insurance
in escrow accounts as they are paid
with the mortgage, then pay the
insurance or taxes for you.
§
Deed recording fees
§
Title insurance policy premiums
§
Survey
§
Inspection fees—building inspection,
termites, etc.
§
Notary fees
§
Prorations for your share of costs,
such as utility bills and property
taxes
A Note About Prorations:
Because such costs are usually paid
on either a monthly or yearly basis,
you might have to pay a bill for
services used by the sellers before
they moved. Proration is a way for
the sellers to pay you back or for
you to pay them for bills they may
have paid in advance. For example,
the gas company usually sends a bill
each month for the gas used during
the previous month. But assume you
buy the home on the 6th
of the month. You would owe the gas
company for only the days from the 6th
to the end for the month. The seller
would owe for the first five days.
The bill would be prorated for the
number of days in the month, and
then each person would be
responsible for the days of his or
her ownership.
What to Keep From Your Closing
§
The Real Estate Settlement
Procedures Act (RESPA) statement.
This form, sometimes called a HUD 1
statement, itemizes all the costs
associated with the closing. You’ll
need this for income tax purposes
and when you sell the home.
§
The Truth in Lending Statement
summarizes the terms of your
mortgage loan.
§
The mortgage and the note (two
pieces of paper) spell out the legal
terms of your mortgage obligation
and the agreed-upon repayment terms.
§
The deed transfers ownership of the
property to you.
§
Affidavits swearing to various
statements by either party. For
example, the sellers will often sign
an affidavit stating that they have
not incurred any liens on the
property.
§
Riders are amendments to the sales
contract that affect your rights.
For example, if you buy a
condominium, you may have a rider
outline the condo association’s
rules and restrictions.
§
Insurance policies provide a record
and proof of your coverage.
Tips for Packing Like a Pro
1.
Develop a master “to do” list
so you won’t forget something
critical.
2.
Sort and get rid of things
you no longer want or need. Have a
garage sale, donate to a charity, or
recycle.
3.
Don’t throw out everything.
If your inclination is to just toss
it, ask yourself how frequently you
use an item and how you’d feel if
you no longer had it.
4.
Pack like items together. Put
toys with toys, kitchen utensils
with kitchen utensils.
5.
Decide what if anything you
plan to move yourself. Precious
items, such as family photos,
valuable breakables, or must-haves
during the move, should probably
stay with you.
6.
Use the right box for the
item. Loose items encourage
breakage.
7.
Put heavy items in small
boxes so they’re easier to lift.
Keep weight under 50 lbs. if
possible.
8.
Don’t over-pack boxes and
increase the chances they will
break.
9.
Wrap every fragile item
separately and pad bottom and sides
of boxes.
10.
Label every box on all sides.
You never know how they’ll be
stacked and you don’t want to have
to move other boxes aside to find
out what’s there.
11.
Use color-coded labels to
indicate which room each item should
go in. Color-code a floor plan for
your new house to help movers.
12.
Keep your moving documents
together, including phone numbers,
driver’s name, and van number. Also
keep your address book handy.
13.
Back up your computer files
before moving your computer.
14.
Inspect each box and all
furniture for damage as soon as it
arrives.
15.
Remember, most movers won’t
take plants. |
