San Diego and South Riverside Counties Best Resource for Home Buying
The First Steps to Home Ownership Start Here
Our Agents, and Expert team members, diligently watch over the contract and purchase process, and stand ready to assist you expertly through the entire escrow period. We want to make sure you know and become aware of all the details, good and bad, of the home prior to your final decision to remove your contingencies and buy the home.
Most importantly, we are here to educate you on everything Real Estate. We are here to be your information resource. This article is a road map of the many things you may need to consider as you go about the home buying process.
Buying a home is one of the biggest decisions, both financially and emotionally, that you will make in your lifetime. If this is your first home buying experience, you're probably excited about purchasing your first home. However, you also may be a bit overwhelmed by everything involved.
To Rent or to Buy?
We have all heard in our lives that it is better to own than rent, after all it is better to be writing a check to yourself, than to whomever you are renting from. This is a good start! But let's take a deeper look:
Some people like the freedom that renting has to offer. Are you going to school? Looking for a new job? Not yet settled down into a long-term relationship? These are things that require a certain amount of freedom and house or apartment rental may be the best option. Especially if you are not quite ready to settle down or take on the responsibilities of a home owner.
Renting means you don't have to assume the greater financial responsibilities of owning, such as general upkeep and security of the home, and allows you greater flexibility. However, it also means you are not completely in the driver's seat. Your landlord gets to make all decisions about your home and also gets to raise your rent periodically. With the end result of you helping him pay off his loans with no advantage to you. He gets the appreciation, tax and other benefits at your expense. You are helping him with his investment.
Becoming a home owner may mean more responsibilities but it also comes with many freedoms: being able to plant what you want, repaint the walls, or even remodel your interior and exterior spaces to meet your needs. You can expand a kitchen or dining area, add on bedrooms and family rooms, put in a swimming pool or garden and change your lifestyle in many ways without ever moving.
You can limit your monthly living expense with loans for up to 40 years and enjoy the appreciation, tax benefits, and pride of ownership. The financial advantages are your monthly payment reduces what you owe, and is a tax write off. In addition any appreciation in value increases your net worth which historically has been the biggest source of savings for retirement most people have.
Other Considerations for Buying:
Security: Purchased properly and held for the long term, Real Estate is one of the most secure investments you can make. Just like any other investment the market fluctuates on a cycle. Even in bad times, in good locations, prices historically double over a 10 to 12 year period. As long as the population of an area is increasing and jobs are available, real estate is a good, secure, investment. But, most of all, you should not sell when prices are low. To protect yourself, your strategy is always buy with the intent to stay in the home for at least 5 to 10 years so you are never forced to sell at a bad time. You should always make sure your loan is one you can afford throughout your ownership.
Investment: Long term equity build-up is your goal in the investments you make, how much did you buy the home for? How much was your actual investment versus that price, or leverage? How much will it be worth when you sell? Lastly, how much net cash do you receive when you sell? Your Realty Expert can amortize your costs and cash flows and project your returns. You will be in a position to look at the current market for its investment potentials. The knowledge of the power of Real Estate leverage in investing is extremely important.
1031 Tax Deferred Exchanging is another concept your Expert can use to help you build your wealth. The tax dollars you might otherwise pay are compounded to build equity.
Cash Flow: We help you develop a clear picture of what you pay as a renter versus your monthly costs as a home owner. This will include other costs: home owner association fees (if applicable), property taxes, home insurance, interest rate based on the length of the loan, etc. It will be amortized to show your long term advantages of Renting vs. Buying.
Home Sweet Tax Shelter: Tax options change as well when you buy a home, no longer will you be held to only making one standard deduction on your return. As a homeowner you can itemize your tax deduction, accounting for home mortgage interest, property taxes, state income taxes, gifts to charity, and medical or dental, expenses that are over a certain percentage, as well as looking into other options. Do you run your own small business? Do you use part of your home to run it?
The mortgage interest deduction and the deduction for property taxes are, to most Americans, sacred. These deductions have been around since time immemorial and the purpose was to encourage home ownership. But what does it really mean when we talk about a home being a tax shelter? Simply owning a home and the process of buying and selling helps you save on taxes. Most Americans deduct their mortgage interest as a tax benefit of owning a home. Even property taxes, sometimes called "Real estate taxes," are deductable from your income. As seen more clearly in IRS Publication 530 and 936, there are many opportunities opened to you when you become a home owner. They basically fall into three categories: Home Purchase, Mortgage Interest, and Home Selling.
When you buy a new home the IRS allows you to deduct the interest in the year it was paid, which is usually shown as part of your mortgage payment each month. Also if your purchase falls after the first, and there is a good chance it will, you can be charged "daily interest" which is also deductible. Mortgage Interest is even more in your favor, as a buyer the IRS allows you to deduct loan discount points and origination fees regardless of who pays them. In addition you have the option for a "Home Equity Loan", which can be used to shift your debt, to pay off a credit card and claiming the pay off on your taxes.
Finally you can reap benefits as a seller, as long as you have owned and lived in your house for at least two of the past five years and are married you could earn up to $500,000 on the sale of the house Tax Free. Don't worry though if you are single it is still a nice chunk of $250,000. The restrictions are minimal, live in the house for at least two years, but the possibilities of making a business out of fixing up houses are amazing. Think about the possibility of turning a house around every two years! Again this is just a quick picture, remember to always seek your own tax advisors to confirm information like this as it applies to you. It is best to use the same person you rely on for your taxes. Tax laws change often so confirm everything.
Flexibility: Your home can be lived in by your family for years and then it can be converted to a rental for continued financial gain. Or, it can be refinanced to meet any number of needs. It can be sold. It can have a reverse mortgage on it in your older years so it will pay you an income for life while you own the home. Real estate has many possibilities.
Responsibility: When you choose to make the sacrifices to buy a home, you are choosing to invest cash, time, and energy to maintain and keep your real estate investment (your home) for the long term. Your obligation is for a longer term than renting and it is complicated by the fact you may be additionally obligated to make long term payments. You must be committed.
Are You Ready?
You should know the answer to these six important questions:
Who are the sellers and who makes all of the buying decisions? Your agent will make sure all parties are fully informed and are involved when needed to participate. Each person has needs and desires that are unique in their own minds and each has their own credit history to be considered in order to qualify.
What are you looking for? This includes price, location, house size, yard size, distance from work, school or shopping, number of baths, bedrooms, age, neighborhood, etc. Your agent will take all of this information and make sure you are able to find what you are looking for. Rarely will you find that perfect home in that perfect location. So you will need to prioritize so you can compromise as needed to buy a home.
How do you expect to pay for the home? This is the financial question that gets down to being qualified by amount of money down plus closing costs, current monthly debt compared to debt for new mortgage, tax, insurance (your ability to pay as a percent of your income), and your credit history. Basically, how much cash do you have, and how much money do you need in order to make those payments comfortably?
What is your motivation? This is not a superficial question and must be looked at closely. Why do you really wanting to buy? How motivated to buy are you on a scale of 1-10? Are you committed to the move and for what real reason? A desire to buy is a great first step, as is knowing what houses are on the market that fit your ideal needs. However knowing why you want to buy can be just as important. Are you a first time buyer? Is this going to be a second home, or an investment into real estate? Have your family needs changed and you are now seeking a new environment or community? What needs are you looking for in a house?
When? Again, you must know by when you want to make the move because if you want to buy 7 months from now you should wait to look for homes in detail until you are ready, willing, and able to write a purchase contract. It is a matter of wasting your time if you do not want to move when you find the "perfect home". It won't be on the market that long.
Are you committed to another agent? Agents make a living only by commission. It is important to pick one agent you commit to. You will find it saves you time, effort, money, and the end result will be best for you.
Time To Get A Realty Expert
When you want the best, only an Expert will do. Buying or selling real estate is one of the most complex investments you will ever make. It isn't enough to just look at listings and build a list of things you want, you need to connect to someone that can help you as you move forward by providing the right information, at the right time. Realtors represent both buyers and sellers, and have access to a wealth of frequently updated information that they are ready to place at your disposal.
Your job is to build a picture of what you want, begin to look, and ask the right questions, while one of our Realty Experts is there to help provide more complete information. At times the property that fits your needs best may not even be actively advertised on the market, although it is still available. They also have access to a wider range of homes on the market, and can make suggestions as to where to look. We can help you determine your buying power, that is your finical reserves and the amount you can borrow, and refer you to the lenders best qualified to meet your needs.
Once you have an idea of what you may want, we can focus on narrowing the field. Looking at community factors, zoning rights, utilities, and whether or not the property is likely to increase in value. Knowing if the environment is right and whether your house will increase in resale value can be major deciding factors in your search. Once you have chosen a house it is time to negotiate.
Many factors can become points to negotiate: final price, who pays closing costs, whether repairs will be done before you move in, how long it takes to close the deal, inspections and who covers them, and several others. Our Realty Experts will help you through the process and be your advocate while keeping your best interests in mind. A purchase agreement will be established, which will hold key information on inspections and when they need to be completed, we will continue to work with you providing support and due diligence during the evaluation of the property.
Many factors come into play when it comes to home inspection, most notably area and property type, and our Realty Experts are equipped to help you choose the best professionals. A home inspection can be quite detailed and comprehensive including: termites, dry rot, asbestos, structure, roof condition, fire codes, septic tanks, well tests, and even more. Getting a preliminary report on the title and going over it can also be confusing, but we can help you by pointing out the useful information and limitations that are to be found.
Last but not least is assistance in the closing process. Depending on where your new home is, the process may change, however your Realty Expert will be there to assist in any way you may need. A Realty Expert is a huge resource when it comes to buying or selling a home, and establishing a good business relationship early in the process can make the process smooth and enjoyable. You can contact one of our Realty Experts by becoming a VIP Member, or using our Contact Request Form
Get Loan Pre-Approval
Most of us need a loan when we are looking at buying a new home. Several factors play into this including your credit score, a more in depth look at income vs. debts, any first time buyer options, as well as future mortgage costs. According to the National Association of Realtors, 9 out of 10 buyers will finance their home purchase. Getting a loan can be easy, especially if you are willing to pay high interest rates; however, you want the loan that is best for you. Simply this is the loan with the lowest rates and best terms. At Realty Experts we have tools in place to help you along the way, our 5 Minute Application is a form designed to place you in touch with one of our Finical experts for pre-approval, and you also have the option of contacting a Realty Expert through our VIP Login or Contact Request Form.
Keep in mind that RealtyExperts.net offers an entire section on Loan programs including information for first time buyers. So what do you have to have saved up before you buy a home? The good news is that Real Estate is a proven and sound investment, so lenders are generally offering loans in the amount of 80, 90 or 95 percent of the total cost of your home. That means that the 20, 10 , or 5 percent gap is left up to you to fill from your savings. This is possible because the market has proven the property values generally increase over time, and so a lender is willing to give a loan under the prime rate. What this means to you is that you don't have to have huge savings, in most cases, before you look into buying a home. There are many options to be considered when you looking into getting your loan however, and taking a look at our Loans page or filling out our 5 Minute Application would make an excellent first step. As is understanding your Credit.
Your credit history paints a picture to potential lenders about your ability and obligations to pay past or current debts. When you are beginning to look at buying a house it is a good idea to get a handle on your credit and take the time to work on it and turn it around or strengthen it. There are three credit reporting agencies: Equifax, TransUnion and Experian, that maintain information about your credit. It can be a good idea to get a report from each, as an error in reporting by one company can negatively affect your chances of getting the right loan. Stay away from other services that claim to retrieve your credit, as their reports often carry extra fees or incomplete information.
Your credit report reflects your credit history for the last seven years, credit you have been awarded, payments you have made, whether you have had late or outstanding payments, highest and current balances, as well as how many times your credit has been checked. In the case of bankruptcy your credit report is extended to 10 years. It can benefit you to discover and correct any errors on your credit now because a lender is much more interested in recent history and if you have good credit records for two to three years it may get you where you need to be. Your credit score is only part of it, you also need a good grasp of you income vs. debt.
Calculating your DTI (Debt to income) Ratio
As a general rule lenders don't want to over burden your ability to pay off all your debts. Take the time to determine your gross monthly income, which is all the income you collect like: regular paychecks, unearned sources (alimony, lottery payoffs, etc.), and incoming-producing assets like real-estate and stocks. You will then want to compare this to you monthly debts. Which is all the debt you have to pay like: credit card payments, installment loans, car loans, personal debts, or monthly obligations such as child support or alimony. One of our Loan Officers can help you with all the rules, and help paint you a better picture.
When the process is complete you will have a good sense of you DTI or debt-to-income ratio. Ideally a lender is going to want to see your house expenses, including monthly payments and insurance fall below or match 28% of your gross income. Also your proposed monthly housing expense and your total debt combined should fall at or below 36%. A larger down payment, a powerful co-signer, or a number of other factors and choices can have a positive effect on what a lender is willing to do with you. All of these factors help to build you a better picture of where you stand.
For a better and clearer picture contact one of our Loan Officers through our 5 Minute Application to receive help on any of these steps, pre-approval, and more information on your loan and you new home.
Looking at Homes
The Real Estate market is ever shifting, with new and existing homes being listed or sold every moment. It can be hard to get a full picture of everything the market has to offer all at once, however in this section we will look at some tools to help build a better picture of what you are looking for. With this picture and a Realty Expert to help find the homes that fit your needs, you can begin to find your perfect new home.
It is important to remember that no two houses are the same; even homes that are the same design can be different. Lot size, distances from community centers, exterior look, how much of the yard is usable, all of these things can change. Two houses with the same number of bedrooms and bathrooms around the same price point may have radically different designs and layouts. However more than one house might meet your needs, so how do you begin to build this picture?
Building the Picture: The Basics
What type of property are you looking at? Is this a house you want to grow into? Are you planning on having your income increase? Is a pool a must? These are some of the questions that you will answer to build a better picture. There are different types of homes, the majority are either, single family homes or condos. A single family home, is a home located on its own lot. Most of the time you are responsible for and own the land marked out by the property lines. A Condominium or Condo, is a home located on common use property, you own everything form the plaster in and a percentage of the common grounds.
There are other types of properties such as: duplexes, co-ops and zoned land, but most of what you will probably be looking at falls into one of the two categories above. If you are planning a family or know you are looking at an increase in income it may be better to look at house that are larger than your current needs, or on the higher-end range of your set budget. Often times it is better to look at the condos with more than one bedroom and the homes with more than two bedrooms, as they hold more resale value and are easier for young families to move into.
Do you need, or want, special features like a big kitchen or a pool? If so, are you willing to trade off for fewer or smaller bedrooms? Many times you will also need to consider if you are looking for a new home, an older home, or something you will need to do a bit of work on to get just right. Or are you looking at a certain type of home, like Victorian or American Colonial? A home that has great curb-appeal now may be easier to maintain, rather than an average home you may need to work on to get the yard into shape. Also some homes come with HOAs, or Home Owners Associations, which can place certain restrictions on your property.
As communities and new home builders become increasingly aware of Green Technologies and building materials, it may also be good to decide if you are looking for a home with solar power, or that used sustainable products for flooring options. Knowing what you want is essential when it comes to your opening conversations with one of our Realty Experts, as well as having a well defined list of priorities when it comes to your home and neighborhood needs.
Building the Picture: Rating Your Prospective New Home and Neighborhood
As you look through potential homes and their surrounding neighborhoods begin to rate the following features as good, fair, or not important.
- General room layout
- Number of bathrooms
- Closets and other storage spaces
- Yard size
- Size of the rooms - Kitchen, Living Room, Dining Room, Family Room, Master and other bedrooms.
What is your overall rating of any given home? Begin to build a better picture by eliminating or adding houses to your list of prospective homes. Use these tools to make a rough diagram or sketch of any home style or layout you might seriously consider; nothing fancy or too detailed, just a basic summary of the floor plan. Where are the windows? Phone jacks? How would you place the furniture?
As you build a better picture of what you are looking for in a home, consider the neighborhood.
- Are the homes well tended?
- Is there good access to public service? Such as the Police and Fire Department.
- Are the roads paved?
- Is there adequate street lighting?
- Adequate Parking?
- Pet or other Neighborhood based restrictions?
- Is the public school system good?
Other factors of the neighborhood can help; will the neighborhood offer you conveniences?
- Will you be closer to work?
- Is there a local place of worship?
- Are shopping centers or restaurants close by?
- Is there access to public transportation?
- Will you be near child care services, parks or playgrounds?
- Are hospitals, clinics or doctors close by?
- Is there an association offering pools, sports fields, or tennis courts?
There are several other factors you may wish to consider: Will you be closer to friends and family? Is the neighborhood age appropriate for you and your children? Is there a local community center? Last but not least is a list of factors that may determine the safety and security a neighborhood may offer.
- Decreasing sale prices of homes?
- Lots of families moving away?
- Heavy traffic or noise?
- Litter and pollution?
- Factories and other heavy industry?
- Local businesses closing down?
- Vacant homes and buildings?
- Increase in crime or vandalism?
How does your potential neighborhood rate? There are countless other factors that may be important to you and your family as you search for a new home. As you look to buy or even just to begin to get a better picture our Realty Experts are available to help.
Building the Picture: Is this House THE HOUSE?
As you work with one of our Realty Experts it is good to keep in mind what you were pre-approved for, how much money you have for a down payment, and what price ranges you are comfortable with. Using our websites search feature and talking to one of our Realty Experts will help get the widest picture possible of the house available to you on the market. Once you have narrowed the field, it can be easy to find your dream home and make an offer. Remember if you are looking at a home, other people are too and it is normally best to make an offer rather than to sleep on it. However, your Realty Expert is your best resource when it comes to that.
By this time you should have more information concerning your loan, if you don't already have your loan finalized. Check out our Loans page to get a better look at all that is out there. As the final cost of the purchase factors in closing costs and interest it is good to have as much information as you can get concerning your loans. Our Loan Officers will work with you to make sure that the finalized loan is in your best interests and meets all your needs, as well as providing you with all the information you need.
Making The Offer
An offer is a written contract between you, the buyer, and the seller, which can cover a whole host of factors other than the price you might be paying. Your Realty Expert is going to be a huge resource when it comes time to make an offer. Not only do we have access to all the forms and up-to-date laws, but also specific information and advice based on the property you are looking at. It is not uncommon to negotiate on price, closing costs, who covers repair or pays the inspectors, and all of these factors need to be tracked and represented in a way that legally protects you as a buyer.
It is also around this time in the process that inspections of the property begin, sometime you are able to go along on these and make sure that the house is up to your standards. At times an inspection will uncover a problem that needs to be fixed which gives you options as you come to a final price. It is also not uncommon for the seller to make a counter-offer, in this case any change to the original offer. The entire offer process is handled by your Realty Expert and the seller's own agent; however we will keep you in the loop as the process moves forward. Once the offer is agreed upon and accepted it becomes a binding sales contract. But what goes into an offer in detail?
- Address and/or Description of the Property
- Sale Price
- Seller's Promise of Title(Names you the owner)
- Closing Date
- Amount of Deposit Money Accompanying the Offer
- Prorated information on who covers taxes, rents, and utilities
- Provisions on who covers inspection and repair costs
- Type of Deed
- State Requirements
- Provision allowing a final Buyer Walkthrough before closing
- Offer time limit
Contingencies: are a way of making sure you have all your bases covered, basically you are saying if "this" happens I am going to move forward with the offer. Normally a contingency would state that if you don't get the loan approval you are looking for you are not bound by the contract. Or, for example, if a given amount of time after an inspection that you have to look over the findings, so if something does come up you are also in the clear. You can make yourself more appealing to the seller with your offer if you already have pre-approval or if you are not tied down to selling you own home before you commit. There are several other tips your Realty Expert or Loan Officer can help you with.
Other factors that you may want to consider when making an offer and negotiating to a close are whether or not anything is being sold with the house. You will want to know if the seller plans on taking any of the large appliances, backyard potted plants, or the light fixtures that helped sell the home. It is not uncommon for a house to be shown with furniture still inside, giving you a sense of what it will look like when lived in, but you need to be clear on what is staying and going. Make sure you also stay appraised of what the consequences are if either you or the seller breach contract. Staying in good contact with your Realty Expert is a must at this time.
The last thing to remember is that this is a process; as you negotiate remember that on the other side is a person who is probably a lot like you. They have their own goals in selling the house, and timelines in which they wish to see it completed. Keeping a fair and open mind as well as maintaining a good line of communication are very important and can help the process move smoothly. Also keep in mind that you are going to have to compromise in the end and come to a mutually beneficial agreement with the seller. Ask advice of your Realty Expert and make sure you know every step in the process, in the end the more you ask and know the better off you will be.
So we have come all this way, a house has been picked, an offer has been made, the inspections have begun, soon the house will be your New Home. Closing, which is often called settlement or escrow, is an extremely important step that governs the changing of the title from seller to buyer. As we move further into the computer age this process has become largely electronic, so it is a good idea to have a firm understanding of how it all works. An Escrow Officer will oversee most of the steps, and it is a good idea that you plan on spending a good chunk of time meetings with and talking to your escrow officer. The process deals with large sums of money changing hands, and brings many different parties together, so it can be long and extremely detailed.
So what exactly happens? The main purpose of Closing is to transfer ownership from the seller to the buyer, and to create the titles and deeds you need to become a new home owner. However it is all in the details. Inspections on the home will be done, assuring that it is in the state which was agreed upon in the offer, remaining tasks will be assigned to either you or the seller, and other contract details agreed upon in the offer come into effect. At times there may be contingencies on insurance: home, flood, fire, repairs and financing. These will detail who is responsible for doing what, in a given timeframe. It's your job to know exactly what is expected of both you and the seller, and then keep track of each contingencies signing or checking off each as the requirements are met and the task completed.
You will need to get Title Insurance; basically this covers you when a Title Company begins to look over the property. Inspections and repairs will need to be completed, and the title company will generate a preliminary title report, which will state what easements, liens, claims or encumbrances the seller must resolve before the transfer. The title company will continue to watch over the rest of the process, verifying that tasks are completed or that liability is release to you, the buyer.
You will also be involved in a final walkthrough, to assure that the property is still in good repair and that everything agreed upon has been completed and is included. The Deed will be transferred after all of these steps have been completed and signed off on, your loan has been funded and money has changed hands. At times, other agreements may exist, for instance, a rental agreement that allows the seller time to finish moving out. Other times money may be held in escrow until certain tasks are completed. The keys are yours, as is the Title to you new home, but what comes next?
Sometimes, as a part of closing, and normally just after, you will need to look at insurance. Much like a car, home owners insurance can cover a multitude of factors and is something we all need. Some types of insurance, like title insurance, are covered in the closing process. Another type that comes up is Home Warranties; depending on what is decided upon in the closing agreement a home warranty will cover you in case something breaks after you move in. On a new home a warranty typically covers workmanship for a year, mechanical issues (Plumbing, Electrical, etc) for two years, and structural defects for ten years. On an existing home you are typically looking at a year worth of coverage, including any other factors like large appliances that may have transferred ownership.
Depending on where you have purchased your home, flood, fire or earthquake insurance are things you will want to look into. Also most insurance companies offer home protection plans too, in case of a robbery or for liability issues. The options and requirements for insurance are far and wide and take a bit of research however your Realty Expert will be able to help you through the closing process, and make suggestion on insurance plans you will want to consider. Our Realty Expert's aim to make the entire process as smooth and enjoyable as possible as well as providing you with all the information you need.
Talking to a Realty Expert is your best bet at getting the most complete and up to date information on the home buying process, we invite you to become a VIP Member or to take a few moments to fill out our Contact Request Form, so we can begin to help you on the road to owning your new home.