Home Buying Tips: Part 3

Hello Everyone, I hope you all had a great Holiday break and New Year. Now that we are back to the grind, I will continue with tips for home buyers. If you remember, my last two posts went over getting started and finding the right home. Today, I will talk about what to do once you find the right house. This includes the inspections and making an offer.

Having an inspection is a very important part of the home buying process. It is one of the ways you “the buyer” can protect yourself from any problems with the functionality or construction of the home. The primary purpose of the inspection is to check and estimate the cost to repair any issues with pests, water, foundation and all other aspects of construction. If there a major problem is discovered, the inspector may recommend a more specific inspection of that area.

You also need to consider if the home is in a flood plain. Your Realtor will answer this question for you and if it is, you will be required to purchase flood insurance. If you are near, but not in a flood plain, you still should consider buying flood insurance because floods are typically not covered in basic home owners insurance. Other factors you want to consider are probability of natural disasters, zoning laws, and building codes. These are all questions your real estate agent should be able assist you with. Some states, including California, require the seller give a natural hazards disclosure statement to buyers which covers earthquakes, floods, wildfires and dams.

It is important that you have the inspection done before you make an offer, because once your offer is accepted, it is legally binding. If you do not have an inspection done before the offer, you need to make sure your offer contains an “inspection contingency”. This allows you to pull out of the sale if the inspection finds any major problems. I’ll go offers and contingencies next.

Making an offer is not a difficult process, but it’s not as easy and telling the seller you will buy the house for the asking price. There is a specific format and all offers should include the following:

Complete legal description of the property

·         Move-in date

·         Closing date

·         Amount of deposit

·         Down payment amount and financing details

·         Purchase price

·         Time period for which the offer is valid

·         Details of the offer

The legal description of the property is not just the address. It describes the specific parcel of land and how it was accounted for in county’s map and usually contains the property’s Assessor Parcel Number (APN). The move-in date is the day you wish to occupy the home and the closing date is the day ownership is legally transferred.

Your deposit is a sum of money, included with the offer, which you give to the seller to show you are “serious” about buying the home. It is usually 1 to 5 percent of the purchase price. If your offer is accepted, the deposit becomes part of your down payment. If it is rejected, then the deposit is returned to you. The down payment amount and full purchase price need to be included as well. Most banks want to see a 20% down payment, but there is no “mandatory standard” so it is always negotiable.

The details sections will include any contingencies regarding the offer/purchase. Contingencies are items which must be fulfilled by either party or the agreement can be terminated. There are a wide variety of contingences, but some of the major ones involve inspections, financing, and the purchase/sale of other homes. An example of the purchase contingency would be if the seller only wanted to sell if they found a new home to buy. Sale contingencies would be used if the buyer didn’t want to buy the home unless they can sell their other home.

Determining the purchase price and contingencies are the hardest parts of making an offer and this is when it is good to have a knowledgeable agent. They will know what similar homes are selling for in similar areas and how different types of financing affect the price. The amount of time the home has been on the market affects the price, as well. Usually, sellers will accept an offer which is lower than the list price, if the home has been for sale for a long time. Your agent will help you decided what contingencies are necessary, as each situation is different.

Remember, once an offer is accepted, it is legally binding. Meaning, if you submit an offer and it is accepted by the seller and all contingencies are fulfilled, you are legally bound to purchase the house. If you back out of the sale, your deposit may be forfeited to the seller and you may be liable for any losses incurred by the seller, seller’s agent, and/or your agent as a result of cancelling the agreement.

I hope this provided some good information for you and as always, if you have any questions or comments, leave them below. Take care and see you next week.

Home Buying Tips: Part 1

With all that’s been going on with our economy real estate industry, there has been a lot of talk about now being the perfect time to buy a home. For many people, this is correct. Although lending guidelines are stricter than in the past, if you have decent credit, you can still get a great loan. There is a huge surplus of great homes for sale, prices are discounted and mortgage rates are at record lows. Because of these reasons, there are also a growing number of first-time home buyers hitting the market so I think it is a good time to go over the steps involved with the home buying process.

When trying to determine if you are ready to buy a home, ask yourself the following questions:

-Do you pay your current bills on time?

-Do you have steady income that is reliable?

            -Can you afford more monthly expenditures?

-Do you have savings for a down payment?

            -Do you have very little long-term debt? (i.e. car loan)

If you answered yes to these questions, you are most likely ready to buy.

To start the process, you must figure out what you need. Think about the size, area, and style of home you want. You should do some research online to see what is available and for how much money. You also need to figure out how much you can afford. This number may be lower than what the bank is willing to loan you, but you need to make sure your payments will not be so high that you cannot keep your other obligations.

When you apply for a mortgage, the lender is going to use two primary ratios to determine the maximum home you can afford. These are the Debt to Income ratio and Housing Expense to Income ratio. Your housing expense to income ratio is calculated by dividing your monthly mortgage payment by your gross monthly income. Gross income is your income before tax deductions and the ratio should not be more than 29%. Debt to income ratios are calculated by dividing your total reoccurring monthly debs by your gross monthly income. Those debts include credit card payments, personal loans, car payments, cell phone bills, alimony/child support, insurance and any other fixed bills which are paid every month. Your total debt should not be more than 41% of your gross income.

It is important to note, that these percentages are just guidelines and are not set in stone. Other factors which have influence are the down payment amount and overall net worth. Your net worth is the value of all your assets minus all your debts. If you have a high net worth, lenders will likely be very flexible when it comes to the ratios.

Next, you need to find the right real estate agent. Friends and family are a great source for finding agents. You should also look online; well-known agents should be easy to find through search engines like Google and Bing. Also check Realtor.com which does a good job of pairing clients with agents. Once you have a list of possible agents, you should start calling them. The best agents will have good knowledge of the area and will have many resources for finding you the right home. You want an agent who listens to you, not one who tries to make you change your mind a lot. The most important thing, however, is that you are comfortable and trust your agent. This is the best way of insuring you have a pleasant experience.

The final step, before actually looking for homes, is figuring out what you want and need from a property. Make a list of characteristics which are important to you. There should be two categories on the list; one for “must haves” and one for “wants”. This will make comparing houses easier. Think about the location, schools, size, yard, and age or anything else you think is important. Remember, this house is for you and your family. It is important to get what you want out of it.

So now you have some information to help get you started in the home buying process. You know how to figure out if you are ready to buy, what you can afford, how to choose a Realtor, and you have a list of what is important to you. Now is the time to get online and start doing some research. Check out as many websites as you can. You want to have some knowledge of what is on the market and what prices are like before you start visiting homes.

Next time I will go over how to find the perfect home for you; including what to look for in a community, where to get school info and evaluating comparable homes.

As always, feel free to leave a comment or question below and I will answer as soon as I can. Thanks and have a great rest of the week.

Short Sale Information 4 of 4

Here is the final part in my short sale advise blog. It covers the application process for short sales and some other issues.

V.  Short Sale Application Process and Other Issues

Q  20.  What is the process for applying for a short sale?

A  It is always in the best interest of the borrower to keep the lender informed.  If the borrower is in default of the loan and is contemplating a short sale, it would be best for the borrower to let the lender know before the foreclosure proceedings are well under way.  The lender may or may not grant more time to the borrower to find a buyer.  In general, the process goes as follows:

·  First, the borrower must find a buyer for the property.

·  Second, the borrower must prepare all the necessary documents (See Question 17).

·  Third, the borrower must submit all documents to the lender.

·  Fourth, the lender will send out their own appraiser to make sure that the buyer's offer is at fair market value.

·  Fifth, the lender will make a determination on whether or not to agree to the short sale.

Q  21.  What documentation will a lender typically require?

A  Lenders will typically require a distressed borrower to furnish a variety of documents, which could include the following:

·  Written explanation (and proof) of the hardship the borrower is experiencing;

·  Copy of the purchase contract signed by both the buyer and seller (borrower);

·  Copy of the TDS;

·  Proof of the buyer's ability to purchase the property, i.e., a completed loan application, pre-approval by another lender, or evidence of cash on hand (bank statement);

·  Copy of the certified escrow instructions; 

·  Preliminary title report;

·  Estimated net/closing statement certified by an escrow officer acceptable to the lender;

·  Completed and signed IRS Form 4506, "Request for Copy of Tax Form;"

·  Completed and signed personal financial worksheet;

·  Previous two years tax returns;

·  Employment paycheck stubs for the past two months;

·  Profit and loss statement (if the borrower is self-employed);

·  Past three months bank statements.

Q  22.  Does C.A.R. provide any special forms for short sales?

A  Yes. REALTORS® may use C.A.R. form SSL (Short Sale Listing Addendum) when they take the listing and C.A.R. form SSA (Short Sale Addendum) should be available shortly to be used with a purchase agreement.

Q  23.  Where can I obtain additional information?

A  You may consult the seller's lender directly about their policies and what is required to apply for a short sale of a property.  The internal departments that handle short sales differ by lender.  You may try asking for the problem loan department, loan workout department, loss mitigation department, or foreclosure department.

As always, feel free to ask a question or leave a comment below. Take care and see you next week.

Short Sale Information 3 of 4

Here is part 3 of 4 of my short sale information blog. It is about the licensing requirements and questions 12-15. Enjoy.

III.  Licensing Requirements for Short Sales

Q 12.  What is a short sale consultant?

A  A short sale consultant is someone who advises on short sales.  Depending on the agreement between the parties involved, the typical short sale consultant assists a homeowner or listing agent to prepare a short sale application package, submit it to the homeowner’s lender, and negotiate with the lender on the homeowner’s behalf to approve the short sale.

Q 13.  Does a short sale consultant have to be a real estate licensee?

A  Yes.  Generally, if a short sale consultant negotiates real estate loans or performs services for borrowers or lenders, both the short sale consultant and the short sale consulting company must be properly licensed with the California Department of Real Estate (DRE).  More specifically, unless an exemption applies, a real estate license is required for someone who, for compensation or in expectation of compensation, does or negotiates to do any of the following acts on behalf of another:

•  Solicits borrowers or lenders for loans secured by real property;

•  Negotiates loans secured by real property;

•  Performs services for borrowers, lenders or note holders for loans secured by real property; or

•  Collects payments for loans secured by real property.

(Cal. Bus. & Prof. Code § 10131(d).)

To check someone’s license status with the DRE, go to its Web site at http://www2.dre.ca.gov/PublicASP/pplinfo.asp.

Certain exemptions to the licensing laws may apply.  For example, a real estate license is not required if someone merely performs clerical or administrative services, such as assembling a short sale package as long as final determination as to its completeness is made by the broker (see 10 Cal. Code of Reg. § 2841 which lists other permissible clerical activities).  For other exemptions to the licensing laws, see C.A.R.’s legal articles, Licensing Guide for REALTORS® and Licensing Chart for REALTORS®.

Q 14.  Can a licensed short sale consultant collect an advance fee?

A  No, unless certain requirements are met.  An advance fee is a fee charged upfront for services not yet performed.  An advance fee is broadly defined to include a fee claimed, demanded, charged, received, collected or contracted from a principal for negotiating real estate loans (Cal. Bus. & Prof. Code § 10026).  Among other things, no less than ten calendar days before collecting an advance fee, a real estate broker must submit to the DRE the advance fee agreement and all other materials to be used for advertising, promoting, soliciting, or negotiating the advance fee (10 Cal. Code of Reg. § 2970).  Furthermore, if a Notice of Default has been recorded against a property involving one-to-four owner occupied residential units, an advance fee is prohibited for foreclosure-related consulting services under the foreclosure consultant law (Cal. Civ. Code § 2945 et seq.).  For a list of real estate brokers who have received “no objection” letters for their advance fee agreements, go to the DRE Web site at http://www.dre.ca.gov/mlb_adv_fees_list.html.

Q 15.  If a real estate broker collects an advance fee, does it have to be handled in a special way?

A  Yes.  A real estate broker who collects an advance fee must deposit it in a trust account with a bank or other recognized depository.  Amounts may not be withdrawn for the agent’s behalf until actually expended for the benefit of the principal or five days after a verified accounting as specified is mailed to the principal in compliance with Section 2972 of Title 10 of the California Code of Regulations.  (Cal. Bus. & Prof. Code § 10146.)


Remember to leave a comment or ask a question below. Happy Veterans Day. See you next week!

How to Improve Your Credit

Now, more than ever, one’s credit score has a huge impact on what they can “afford”. Credit scores play a major role in determining your worthiness for mortgages, auto loans and credit cards. They can even affect your ability to get a job. Many of us, especially in these times, have a few, if not many, negative remarks on our credit reports. Because of that, I am going to give a few tips on how to build or rebuild your credit.

Pay your bills, in full.

I know this is easier to say than do, but it is important. If you can, it is best to pay off your full bill every month. This s good for two reasons; One, when you pay your bill in full every month, you don’t pay any interest and two, it shows that you are well within your spending ability, given your income and credit.

Keep your balances low.

It is best to keep your balances under 30% of your limit. It is better to spread your debt over a few cards than to have one card with a high balance and two cards with no balances.

Pay your bill on time.

This is one of the most important ways to keep your credit in good standing. Creditors do not want to see late payments. This can reduce a good credit score; say 720, by as much as 100 points, depending on the circumstance. We all hit hard time and it can be tough to pay all one’s bills on time, but if you know you are not going to be able to make you payment, call your creditor. There is a good chance they will move back the deadline, but remember, do it early. The sooner you let them know, the more likely they are of giving you an extension.

Don’t apply for a lot of credit.

This is something that a lot of people don’t know, but when you apply for a new credit card or loan, it shows up in your report. Creditors do not like to see a lot of inquires within a short period of time because it is a sign that you are in serious need of money, which is a red flag for risk.

Keep your old cards.

When it come to your score, credit history is very important. The longer you have been using credit, the better; so don’t close your old accounts. It is much better to keep them open and to use them. Each is beneficial for its own reasons. Keeping old accounts open benefits in both credit history and overall available credit. Using those old cards will help spread your debt.

Ask your creditors to increase your limit.

This can be very beneficial because it will spread the gap between your balances and your limits. I recommend asking for an increase every 2 to 3 months. One of the pros of doing this, other than the obvious, is when your current creditors pull your report for an increase; they do a “soft pull”. A “soft pull” is similar to when one checks their credit report and it does not have a negative effect. This is not true of a “hard pull”, which is when you apply for new credit, such as a loan or new credit card. “Hard pulls” show up in your report and, like I stated above, creditors do not like to see a lot of inquires.

Review your report.

The best way to keep your score up is to review your report often. Mistakes happen in credit reports and they can have a huge impact on your score. You can get a free report once a year from annualcreditreport.com and there are many services that will send you a monthly report. Remember, your own inquires will never affect your score, so check it as often as you want. If you are new to credit, I recommend checking your report once a month. This will aid in your understanding of the report, its self, and ensure that you won’t be stuck with any surprises.

Feel free to leave a comment or a question below.

I hope this helps. We are all going through tough times, but remember, good things come to those who make it happen.