YOUR EASY GUIDE TO
BUYING A HOUSE TO CALL HOME
W H AT T O
CONSIDER… TURN T H E PAGES TO FIND OUT: ·· What you need to do before you start your house hunt ·· What to look for during your house hunt ·· Helpful resources for when you get the keys to your new home
Even if it’s your first home purchase, or one of many - it’s exciting to go house hunting. A little ‘homework’ and preparation will streamline the process for you. That’s where this little booklet comes in. It is designed to support you through the steps involved in buying your next home. It covers details about your mortgage options, budgeting, finding a property, making an offer and helpful resources when you move in. Included in this booklet are tips and reminders to help you through the process, so your house hunt can be as easy and stress-free as possible.
IF YOU’RE NEW TO
HOME BUYING You might find it all a little overwhelming — here’s a few easy-to-follow steps on how to get started and what to expect.
1
Choose a First Team ® Real Estate professional to help you through the process.
2
Set limits – what’s your budget?
3
Decide what area/neighborhoods you like best.
4
Compare properties and choose your favorite.
5
Make an offer! (Negotiate the price).
6
Sign the contract.
7
Make sure conditions are fulfilled.
8
Review settlement with a trusted and experienced agent.
9
Money, money, money – insurance and finance.
10
Settlement and move in!
Finding a home in your preferred neighborhood and within your budget is no small task. That’s why many buyers choose to work with a First Team® full-service real estate professional. There’s a reason why First Team® agents turn up as the consumers’ first choice in satisfaction surveys time and time again. Here’s what you can expect with a First Team® agent by your side: ·· A First Team® agent who knows the local market
·· With access to the Multiple Listing Service (MLS),
and can quickly identify the areas where you are
First Team® agents have access to thousands of
likely to find your home at the price you want.
homes for sale at their fingertips.
·· A First Team® agent who saves you time. By
·· Did you know that a home does not have to be listed
knowing your needs, the agent can do a lot of
with a First Team® agent in order to get detailed
the legwork to eliminate homes that do not
information or an appointment to tour the home?
match your wish list. ·· A First Team® agent who makes appointments, previews homes with you and helps you determine the pluses and minuses of each home.
· · When you have identified your dream home, you will be guided through the negotiation, legalities and paperwork of purchasing the home.
BEFORE YOU START L O O K I N G AT H O M E S
SET TING YOUR LIMITS – ACKNO W L E D G I N G YOUR B UD G E T! Shopping for a home before getting pre-approved for a mortgage is like walking into a grocery store without a wallet. This vital step should not be left until the end of the process, especially in today’s competitive market. A serious buyer should get a pre-approval from a lender before starting their home search, because without pre-approval letters from their bank, buyers’ offers are often viewed less favorably by sellers. Tip: Getting pre-approved before you shop for a loan also allows you time to fix unexpected errors on your credit report.
When setting your limits, always include a buffer so if interest rates rise, you can afford the extra amount without stretching yourself too far. Don’t forget to budget for the extra up-front costs involved in buying a home (Earnest money for opening an escrow, etc). H O W MUC H CAN I AFFORD ? There are lots of loan products available for buyers, and it’s important that you understand what criteria lenders review before they issue a loan to a borrower. These are the top three factors to qualify for home financing: ·· Your income ·· Your assets ·· Your credit history
Most loan products will need you to verify all of your sources of income, and your mortgage consultant will tell you what documentation to submit. You should expect to provide pay stubs, W-2’s and, if self-employed, copies of your tax returns and 1099 forms. Down payment requirements vary according to the loan, and there are usually several affordable options for borrowers. You should also factor in closing costs associated with finalizing the transaction, and these vary according to the loan. Typically you should expect; appraisal fee, loan origination fee, title insurance, escrow services and legal recording of documents. Each loan is different, so be sure to talk to your mortgage consultant about what closing costs are associated with your loan. All lenders review a borrower’s credit history to determine: ·· Type of credit used ·· The amount owned ·· Borrower’s history of repaying a debt
It’s a good idea to get pre-approved for a loan to figure out how much home you can afford before you start your home search. This will help to narrow the home search to a price range that is comfortable for you, and being pre-approved also makes for a stronger offer in the eyes of sellers! Tip: A pre-approval is not a loan commitment; but it does help to speed up the underwriting and loan approval process.
CONSIDER COST NOT JUST PRICE
As a seller, you will be most concerned about ‘short term price’ – where home values are headed over the next six months. As a buyer, you must be concerned not about price but instead about the ‘long term cost’ of the home. The Mortgage Bankers Association (MBA), the National Association of REALTORS®, Fannie Mae and Freddie Mac all projected that mortgage interest rates will increase by almost a full percentage point over the next twelve months. According to CoreLogic’s most recent Home Price Index Report, home prices will appreciate by 4.5% over the next 12 months. W H AT DO E S THIS MEAN AS A BUYE R? Here is a simple demonstration of what impact an interest rate increase would have on the mortgage payment of a home selling for approximately $750,000 today if home prices appreciate by the 4.5% predicted by CoreLogic over the next twelve months:
MORTGAGE
I NTE RE ST RATE *
PAYM E N T ( P & I ) *
TO DAY
$750,000
3.94%
Q3 2016
$783,759
5.00%
$3,554.73 $4,206.54
DIFFERENCE IN MONTHLY PAYMENTS
$651.81
*Rates based on Freddie Mac
M O NTH LY
ANNUAL LY
OV E R 3 0 YE A R S
$651.81
$7,821.72
$234,651.00
5 FINANCIAL REASONS TO BUY A HOME
Eric Belsky is Managing Director of the Joint Center of Housing Studies at Harvard University. He authored a paper on homeownership, “The Dream Lives On: the Future of Homeownership in America.” In his paper, Belsky reveals five financial reasons people should consider buying a home. Here are the five reasons, each followed by an excerpt from the study:
1. Housing is typically the one leveraged investment available Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.
2. You’re paying for housing whether you own or rent Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.
3. Owning is usually a form of “forced savings” Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.
4. There are substantial tax benefits to owning Homeowners are able to deduct mortgage interest and property taxes from income. On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.
5. Owning is a hedge against inflation Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.
BO T TO M LINE We realize that homeownership makes sense for many Americans for many social and family reasons. It also makes sense financially.
M O R T G A G E A P P L I C AT I O N
CHECKLIST DO C UMENTATION
When starting a loan application, be prepared to furnish the following documentation: I NC O ME Salaried Employees: ·· Paycheck stubs for the last 30 days ·· W-2 Statements for the previous two years ·· Proof of rent or mortgage payments
Salaried Employees with additional income: ·· Paycheck stubs for the last 60 days (commissions, self-employed in a second job, etc.) ·· Statements for the previous two years ·· Personal tax returns for the previous two years ·· K-1 form if partnership is indicated on Schedule E ·· Most current federal business tax returns (if borrower owns more than 25% of the business) ·· If tax returns have not been filed for the most current year, and it’s after April 15th: 12-month profit and loss statement for that year or 1099 forms. ·· List of assets, including bank statements, mutual fund statements, real estate and automobile titles, brokerage statements and records of other investments or assets. ·· Proof of rent or mortgage payments
All of the above documents tell the lender how much you earn. The list of debts (including mortgages, student loans, auto loans, minimum credit card payments and child support) tells the lender how much you owe each month. The lender then calculates your debt-toincome ratio, which is vital to the loan decision. Example: Jim and Sue together earn $5,000 a month. Their total debt payments are $2,000 a month. Their debt-to-income ratio is 40 percent ($2,000 divided by $5,000 = 0.4). Loan documentation tips: When you provide documents, never cross out, white out or alter any information on a document, if you do then it’s not a valid document for the lender to use. Also, always provide every page of every document – even the pages that say ‘This page is blank.’ Be prepared to supply updated documents – documents expire after 60 days.
EXCLUSIVE
SNEAKPREVIEW SYSTEM SM
W O ULD H AV ING ACCESS TO HO M E S N OT YE T L I STE D O N TH E MLS HELP YOU FIND YOUR D RE AM HOM E ? With their exclusive SNEAKPREVIEWSM system, First Team® agents have access to hundreds of homes not yet posted on the MLS, Zillow.com or Realtor.com.
H O W IT W ORKS: First Team® Sales Associates have access to a proprietary software program where they can post properties coming to the market within the next 30 days. First Team® members have access to this list of homes not yet available to the buying public. Once the First Team® agent receives the information, they forward the details to their clients if it meets their criteria. It’s that simple.
Don’t let another great home you don’t even know about slip through your fingers.
KEEPING YOU
FIRST IN THE LOOP As with their exclusive SNEAKPREVIEWSM system, First Team® agents also offer two other services to their exclusive Buyer Club Members. 1. Listing Appointment Loop 2. First Look Loop
LIS TING APPOINTMENT LOOP At First Team® Real Estate all sales associates have access and can utilize a proprietary online system. This system affords all associates the ability to post information on properties that we are doing listing evaluations on. What this means to you… First Team® has access to a continuous list of homes that customers are ‘thinking’ about putting on the market. Do you see how knowing about homes at this early stage of the process gives First Team® agents and their buyers the upper hand in helping them find just the right home for just the right price with just the right terms and conditions? Don’t let another great home you don’t even know about slip through your fingers. FIR ST LO O K LOOP Jump ahead of other buyers with the ‘First Look Loop’! ‘First Look’ is an internal First Team® Real Estate proprietary software system where First Team® sales associates can post future upcoming listings. This feature allows First Team® members the ability to give other teammates a 48-hour jumpstart on listings before they go online and hit the MLS, Zillow.com or Realtor.com websites. How it works: First Team® agents will be notified of all new listings 48 hours prior to their exposure to the rest of the buyers in the marketplace. Once they receive a property that matches your buying criteria they will forward you the information immediately and even preview the property on your behalf, if you prefer. By utilizing a First Team® agent’s services and allowing him or her to work on your behalf, you will have access to all these cuttingedge tools and guaranteed service that gets you, the buyer, first in line ahead of all the other buyers looking for similar properties.
FINDING
YOUR DREAM HOME EVERYO NE’S ID EA OF A D REAM HOM E I S D I FFE RE NT… Before you compile your ‘wish list,’ you should start with a ‘needs’ and ‘wants’ list. Spend some time defining what aspects make a home perfect for you. Distinguishing between your needs and wants is a great way to start. ‘Needs’ are the essentials; the ‘must haves’ of your new home – such as number of bedrooms, location, whether you need to be close to freeways, in a particular school district, etc. ‘Wants’ can be categorized as things you’d like to have, but are not essential to your decision, such as a pool, big kitchen, game room or bonus room for a home office. It’s important not to compromise on your needs and to maximize your wants. When you have compiled your needs and wants list don’t forget to share that list with your First Team® agent – and be sure to highlight any ‘deal-breakers’! R EVIEW LISTINGS Once you have established your ‘wish list’ and shared your ‘deal-breakers’ with your First Team® agent, you can start reviewing available listings that your First Team® agent has selected for your consideration. In addition to price and property features, pay close attention to data like property taxes, market timeline, and monthly assessments (HOA fees) for homes that have a homeowners association. You should also find out if the HOA has good reserves, or if special assessments are likely to make up for shortfalls. VIEW PRO PERTIES Your First Team® agent will schedule showings and make appointments for you to view properties. It’s best if your First Team® agent accompanies you to answer any questions you might have. As you tour the property, you should consider: ·· How the space functions for your lifestyle ·· What’s included in the total square footage (e.g. balcony or garage) ·· For new construction – what are standard features, and which ones are upgrades ·· Time of day and potential traffic flow issues in the neighborhood
O PEN H O USES If you attend an ‘Open House’ without your First Team® agent, be sure to mention that you are already being represented by a particular agent. This will save you from being inundated with calls from other agents hoping to represent you. Tip: It’s a good idea to ask your First Team® agent for some of their business cards so that you can use them to make the Open House sign-in process easier. C O MPARE PROPERTIES Discuss each home you see with your First Team® agent and provide honest feedback – they will appreciate that. As your expectations and the marketplace begin to converge, your First Team® agent will be able to adjust certain parameters, such as location and features, so alternatives can be presented for consideration. When you find a home and are ready to make an offer, your First Team® agent will perform a Comparative Market Analysis (CMA). This report compares the subject property with other properties that are currently listed or recently sold to help you formulate a strong offer.
MAKING
AN OFFER When you find a home you absolutely love, you may find someone else loves it too! Competing against other buyers can be daunting, but making a strong offer can help you stand out. It’s vital to act quickly, and make an informed offer based on a realistic approach to pricing and negotiating. Your First Team® agent will discuss the situation with you and advise you on how best to proceed. Tip: Be likable. Money’s not the only thing that talks…. don’t say anything that could turn the seller off – telling someone how undesirable their house is and then trying to buy it simply doesn’t work. The seller may have memories and emotional ties to the home – you don’t want to give the seller an excuse to reject your offer and accept an offer from someone else. Also, avoid making unreasonable demands such as a fast closing date… no one likes being pushed out of their home.
To begin, your First Team® agent will draw up a contract that includes your offer price as well as other terms and contingencies. Buyers often focus on price, but there are other important terms to a real estate contract. You can add any terms you like, but be aware the more you add, the more likely the seller will object and consider your offer less favorably than offers with fewer encumbrances. Tip: It may be tempting to offer significantly less than the list price, however a low-ball offer may insult the homeowner. An experienced First Team® agent will probably have the best read on what the seller is likely to accept, and you should heed their advice.
The most common elements of a real estate purchase contract include: · · P R I CE The market will determine the final price, but your First Team® agent can help you prepare an offer based on comparable listings and sales, taking into consideration current market conditions. · · MO RT G AG E C ON T IN GE N C Y A mortgage contingency stipulates that you will buy the property subject to obtaining a mortgage. If you cannot obtain a mortgage, and the seller will not agree to finance the sale, then the contract will be void. The terms of the mortgage must be stated in the contract, and you will also need to establish a timeframe to secure financing. · · H O ME I N S P E C T ION C ON T IN GE N C Y A thorough inspection of the property by a licensed home inspector protects you against structural or material problems that are not detectable in a casual walk-through. The buyer, not the seller, is responsible for hiring and paying the inspector. · · E AR NE S T MO N E Y Earnest money is a deposit, given by the buyer to the seller, which secures the contract until the closing. An initial deposit, usually in the form of a check or wire transfer, must be given to the seller or seller’s agent along with the contract. Typically, earnest money is held in an escrow account until the closing, when it may be applied to the down payment and/or closing costs. If the sale does not go through due contingencies covered within the contact, then the earnest money may be returned to the buyer. However, if a buyer is in breach of contract, then the seller may be entitled to keep all or a portion of the earnest money. · · CLO S I N G DAT E One of the most important terms of a real estate contract is the closing date – the date when ownership changes hands. This is usually, but not always, the date that the seller must vacate and the buyer may occupy the property. Flexibility on the closing date can give the buyer an advantage over other potential buyers.
NEGOTIATING
FOR THE HOME OF YOUR DREAMS
C O UNT ER OFFERS Offers and counter offers are common in many transactions and this is where having a skilled First Team® real estate agent on your team is invaluable. An experienced agent will know all of the key points in a contract and related addendums and help you avoid or resolve any issues – before they cause a problem. Negotiating for a home can be an emotional and sometimes highly charged process, and it’s preferable to have a competent First Team® agent who can serve as a buffer between the buyer and the seller/sellers’ agent. FRO M O PEN CONTRACT TO CLO SE D CONTRACT Between signing the contract and closing the sale, there are tons of loose ends to tie up. This is when your First Team® agent’s attention to detail is of vital importance. During this important phase, your First Team® agent is trained to synchronize and facilitate the following steps:
1
Deposit earnest money with the seller or seller’s agent
2
Recommend and schedule a home inspector (and accompany the buyer on the inspection)
3
Procure important documents such as property disclosure forms, condominium documents (eg. budget, declaration, association minutes, codes, covenants & restrictions) and deliver them to the buyer
4
Recommend a mortgage broker and help expedite the loan-application process
5
Make sure all contingencies have been met
6
Schedule a walk-through – preferably with both buyer and buyer’s agent present
7
Coordinate your closing
Tip: If you have an existing home to sell, choose a First Team® agent who will customize a comprehensive marketing proposal to help you receive the highest possible sales prices in the quickest time.
DURING THE TRANSACTION…
WHO PAYS FOR WHAT During the negotiation stage of the transaction process, a mutually agreedupon date for closing is established and is usually several weeks after the offer is formally accepted. ‘Closing’ (also referred to as completion or settlement) is when you and the seller sign all the paperwork and pay your share of the settlement fees, and the documents are recorded. On the closing date, the ownership of the property is transferred to the buyer. Settlement obligations vary widely due to specific contract language, local laws and customs. Prior to closing, the closing agent (usually an escrow company) will complete a detailed settlement statement for both buyer and seller.
TH E BU Y ER PAYS: ·· Earnest money deposit ·· One-half of escrow or legal fees paid to the attorney or escrow company for preparing the closing (In California, the party paying escrow fees varies from county to county) ·· Document preparation fees ·· Recording and notary fees
·· Title preliminary report and title insurance (paid by either seller or buyer) ·· Local transfer taxes, if any ·· Repairs or inspections the buyer has agreed to pay ·· Loan fees ·· Appraisal fees ·· Credit report fees
Your First Team® agent will help you understand which of these typical statement fees apply to your transaction.
NOTES/QUESTIONS FOR YOUR FIRST TEAM® AGENT