"Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world."
Owning your own home has been considered "The American Dream" for decades and nearly half a million California home buyers continue to prove that year after year. Besides the several benefits that come along with buying a home instead of renting, such as taking advantage of numerous tax benefits, locking in a more consistent payment vs. rising rents year after year, and being able to customize and create your living space to your liking, the majority of home buyers still state one, simple reason for choosing to buy their own home:
The desire to own their own home
Buying a home is the largest purchase that most people will ever make in their lifetime. Because of this, buying a home is often the scariest and most exciting thing most people will ever do. The best things you can do for yourself to help make the buying process as stress-free and smooth as possible, are to gain a basic understanding of the current market and buying process, and enlist the help of a local, experienced, knowledgeable REALTOR to guide you through the process. Your REALTOR will assess current market conditions to determine your best strategies, simply explain the otherwise complicated buying process to you, compare home prices and features with you to ensure you're getting a fair deal, advise you on how to write the winning offer in any market, be your ambassador through the escrow process, and be there to hand you your keys when your home officially becomes yours. Not only will a good REALTOR make the whole process look easy, but our services to you as a home buyer are free. Yes, FREE. Zip. Zero. Nada. In fact, having one of our REALTORS in your corner will typically SAVE you thousands of dollars when buying your home!
Saving enough money for a down payment is often thought to be a big obstacle for many home buyers, but we have great news for you (hint, it involves free money):
If you are a first time buyer, which typically means you haven't bought a home in the past 3 years, there's a pretty good chance that you may qualify for one of several down payment assistance programs available! In fact, there are even programs available that will help you with the rest of the costs of buying a home, meaning you may be able to buy your home with virtually no money out of pocket. Simply visit the down payment resource at the link below, input some basic information about your income, location, and overall situation, (don't worry, there's no personal or sensitive information required) and you can instantly see which programs you may qualify for:
Even if you may not qualify for assistance, most home buyers can purchase a home with a down payment as low as 3.5% of the purchase price! Considering the average home price in the Inland Empire area is in the $300k-$400k range, that can be as low as $10,000-14,000! While pinning down the total cost of buying a home is nearly impossible without knowing several factors, you can use 7-8% of your anticipated purchase price as a savings target. This may be just enough for some houses or it may be a little extra for others, but having a little extra money leftover after becoming a homeowner is never a bad thing, as you'll most likely want to add your own personal touches, such as paint or flooring, or new furniture.
If you'd like a more accurate, personalized estimate, or want to confirm that this target fits your goals, feel free to contact us anytime!
So you've decided you want to buy a home of your own. Great! Naturally, the next question is: how do you plan to pay for your home? While some home buyers have the ability to pay cash for their homes, for most home buyers today, the answer to that question is to obtain a mortgage (or a home loan). For the overwhelming majority of home buyers, a more specific answer is a 30 year, fixed rate mortgage. And this is exactly what it sounds like: a 30 year loan that has a fixed interest rate for the full 30 year term. To get even more specific, most buyers end up obtaining an FHA or Conventional, 30 year, fixed rate mortgage.
An FHA mortgage is a home loan made by a lender that is insured by the government agency: the Federal Housing Administration (FHA). Because this loan is made using the criteria that the FHA has set forth, it only requires a down payment of 3.5% of the purchase price of your home and many lenders will only require your credit score be in the 620-640 range (some lenders will even go as low as 550-580, but there will also be additional, more strict requirements for these loans). This allows you to buy a home with relatively little money out of pocket, even if you have some credit issues! An FHA loan does have minimum property condition requirements and maximum loan limits, so the home you want to buy will need to be in good overall condition and fall under the FHA loan limits in your area. Your lender and REALTOR will know your local criteria.
A Conventional mortgage is a home loan made by a lender that meets the criteria set forth by a government sponsored enterprise by the name of: the Federal Housing Finance Agency (FHFA), which consists of the two entities Fannie Mae and Freddie Mac. Historically, conventional loans have required a 20% down payment and a higher credit score (anywhere from 680-720 depending on the lender), but recently there have been several different conventional loans released, including 3%, 5%, and 10% down payment loans.
Generally speaking, compared to an FHA loan, a conventional loan offers slightly less strict property condition requirements, but requires a higher credit score, and sometimes a larger down payment.
Another cost to consider is mortgage insurance (called MIP on an FHA loan or PMI on a conventional loan). On any mortgage, you will be required to pay for monthly mortgage insurance when you contribute any amount less than a 20% down payment. With a conventional loan, you have the ability to have your mortgage insurance removed once you build a certain amount of equity in your home (typically 22% or more) and/or once you've owned your home for a certain period of time (typically 8-10 years). With an FHA loan, you currently must pay mortgage insurance for the entire life of your loan, no exceptions.
There are numerous additional loan options out there, including VA loans for veterans, USDA loans for homes in rural areas, ARMs (adjustable rate mortgages), stated income loans, hard money loans, 15 or 20 year loan as opposed to that traditional 30, and the list goes on and on...
Because of the complexity of mortgages and the numerous loan options you may have, it is best that you consult a local, experienced, knowledgeable, reliable loan officer to help you compare all of the different options and assist you in obtaining the mortgage loan that best fits your specific needs and situation. Although you are absolutely free to seek out a loan officer on your own, your best resource for finding a great loan officer is your REALTOR. Your REALTOR and loan officer will need to maintain frequent communication and work together as a team to ensure your home buying experience is as smooth and stress-free as possible. We are more than happy to refer you to one of the several, local, knowledgeable, reliable, proven lenders we frequently work with. We receive absolutely no compensation for doing so, but both you and we receive peace of mind knowing that we will all benefit from better communication, better performance, and an all around better transaction together.
Finding the Right Home for YOU
Congratulations, you've been pre-approved for a mortgage loan and you're officially ready to begin the hunt! If you haven't already, we highly recommend taking a little time to sit down and figure out what your ideal home looks like. You can start by creating a list of all of the ideal characteristics you're looking for in a home. Characteristics such as price, location, bedroom count, bathroom count, living square footage, lot/yard size, garage size, age of home (new construction or existing, older or newer), and any unique or specific needs you may have. After creating this list, take some time to determine what your top 3-5 characteristics/needs are, in order of importance. Once you've narrowed those down, you're all set; you now have your main shopping criteria! We recommend this process for a couple reasons:
1) We repeatedly find that many buyers end up falling in love with a home that is much different than the ideal home they envisioned in their mind. You may end up buying a home that meets your most important needs/wants, but is far different than what you imagined. Without keeping an open mind and looking at different options, you're very likely to miss out on great opportunities.
2) The more detailed and specific your ideal home is, the less likely you are to find it. In fact, it may not actually exist, which is why many experienced homeowners often find themselves exploring the idea of building a custom home.
Once you've determined your criteria, your REALTOR will use their experience and resources to begin a thorough, relentless search for your new home. The overwhelming majority of homes are listed for sale on the local MLS, a database where a large network of REALTORS market homes for sale to other REALTORS. From the MLS, this for sale information is sent out and displayed on countless popular real estate websites such as Realtor.com, Zillow, Trulia, Redfin, AOL and Yahoo Real Estate, and many, many more. Millions of people every year enjoy the thrill of browsing these sites for listings and information and some of them do have great information, unfortunately when it comes to the accuracy of their data (mostly price and availability), they often fall short.
We frequently find ourselves having to be the bearer of bad news when we have to tell our buyers that a home is not for sale anymore even though it says it is on a real estate site, or that the price is actually higher than what a site says. There are also plenty of times when a property is for sale, yet a popular real estate site says it's off the market or not for sale. This is a very common frustration for buyers and REALTORS alike, unfortunately once these sites get the information, nobody has control over what is done with it or how often it is updated.
Because the for sale information on these sites comes from the MLS, your REALTOR will most likely already have seen a house that you come across online, but if you come across a home that interests you, simply contact your REALTOR to verify, directly from the source, that the price is correct and the home is still for sale.
Writing a Winning Offer
You finally found the house you want. No, the house you NEED. You absolutely love it, it's in your price range, and you have to have it! How do you make absolute sure you're the one that gets to call this house "my home"? Simple:
You've got to be ready to submit your offer and you've got to do what it takes in the current market to present THE best offer and get that offer accepted by the seller(s).
Long gone are the days of submitting an offer and then working out the details. In today's real estate market, no seller will even consider an offer it is does not include the following: a loan pre-approval from a reputable lender and proof of funds available to close the sale (typically a bank statement showing enough money to cover the down payment of your loan and other costs of buying). Sellers, and their agents, need to see that you are truly ready, and able, to buy their home if they accept your offer.
In a seller's market, meaning sellers are getting several offers from other potential buyers just like you as soon as they put their home up for sale, you've got to give it your best and stand out above the rest. If you don't want to be one of the several buyers who have to go back to searching for that perfect home, this means doing things like:
Getting the sellers your offer quickly In a seller's market, homes typically sell after only a few days on the market.
Offering more than the seller is asking In some seller's markets, the winning offer can be tens of thousands of dollars above asking price.
Offering to close the transaction on the seller's timeline As soon as you can or as long as they need.
Not asking the seller for any repairs, assistance with your transaction-related costs, etc These things equate to a lower bottom line for the seller, meaning a weaker offer compared to other offers.
Requesting less contingencies in your offer Contingencies introduce more risk into the transaction for the seller, meaning a weaker offer compared to other offers.
Paying more than the home appraises for, out of your own pocket A lender will not finance more than their appraisal says the home is worth, meaning the difference will have to made up in cash by the buyer if the buyer chooses to move forward.
In a buyer's market, meaning many homes are sitting on the market not selling, you have many more options to choose from and you can usually end up with some perks or incentives along with being able to buy the home you want without fighting too many other buyers for it. Some examples of things that are common during a buyer's market are:
Offering less than asking price In a buyer's market, your chances of successfully knocking a couple to several thousand dollars off of the asking price are much better.
Requesting to close on your timeline If you need a little extra time, you have better chances of getting it.
Requesting assistance with your transaction-related costs It is not uncommon to get up to 3% of the purchase price from the seller to use towards your costs, which in most cases translates to thousands of dollars that gets to stay in your pocket or is money that will make the difference between you being able to buy a home or not.
Requesting longer, or more, contingencies Contingencies are forms of buyer protection that protect a buyer's deposit if certain events don't happen.
Of course, the market is not always a straightforward seller's or buyer's market. A market can change very quickly, and the real estate market in one neighborhood or city isn't going to be the same as the market in another area. Your local REALTOR will be able to analyze your local market and explain what it will take in the current market to get you into the home you love. As San Bernardino's largest independent real estate office, with our REALTORS serving all over the Inland Empire and beyond, our REALTORS are better equipped to always have a better pulse on the market, being able to adapt to the ever-changing market and help you write the winning offer in any market.
Closing Escrow and Getting Your Keys!
Congratulations, you just "opened escrow" on your soon-to-be new home! (Escrow is a neutral, 3rd party company that helps to coordinate and finalize the transaction for both the buyer and seller) Over the next several weeks, there is a lot for you to do, and your REALTOR will be there every step of the way to make sure all of the pieces fall into place correctly, and just as important, when they need to. Since no two transactions are exactly alike, it's nearly impossible to predict an exact timeline to expect, but generally speaking, most financed transactions will take about 30-45 days to complete and most cash purchases will take about 10-15 days. Below is a basic outline to help you gain a better understanding of what to expect during your transaction:
Deliver your Earnest Money Deposit Your earnest money deposit (or "EMD" or simply "deposit"), which is different than your down payment, will need to be deposited with the escrow company within the first couple days after your offer is accepted by the seller. Escrow will need to cash your check, or have your funds available to hold, so be sure you have the funds available in your account before writing a personal check.
Start your Loan Application You will need to meet with your loan officer asap to complete your official loan application and opening loan disclosures. If you haven't already, you'll also need to supply your loan officer with a minimum of: 1 month of paystubs, 2 months of banks statements, 2 years of tax returns, a valid ID and social security card (or other qualifying identification). Your loan officer will advise you of any additional documentation he/she will need from you as well, such as a 401k statements if you are borrowing against your 401k for a down payment. Also at this time, or soon thereafter, you will authorize payment to the lender to have the property appraised (see below for more info regarding appraisal). The loan application process is typically what takes the most amount of time in a financed transaction and it will be a continuing process, meaning your loan officer may ask you for additional and/or updated items, explanations, etc throughout the transaction.
Review Seller Disclosures and a Title Report You will be provided several documents and questionnaires that have been completed by the seller, in which they are required to tell you of any "material facts" that they know of regarding the property. A "material fact" is anything that affects the value or desirability of the property. A very important thing to remember about these disclosures, is that the seller is only required to disclose the things that they know about the property. For this reason, it is VERY important that you conduct inspections on the property (see below). Along with these disclosures, you will also receive a natural hazard zone disclosure, which tells you whether the property is located in one of several natural hazard zones, and a preliminary title report, which tells you of anything that affects title to the property, such as easements, restrictions, existing liens, etc. If anything in these disclosures is unacceptable to you, and you are within your agreed contingency period, you may get your deposit back from escrow, shake hands with the seller, and go separate ways.
Conduct Inspections You'll have a fair amount of time (typically a little over 2 weeks from the day you open escrow) to do any and all inspections and investigations (except for anything invasive, such as opening up the walls or anything that causes damage) regarding the property. The costs of any inspections are typically paid by you at the time of service, directly to the inspector(s). Your REALTOR is a great resource for a referral to a reputable inspection provider. Common inspections are: a general home inspection, in which a home inspector will look at the components and major systems of the property with a fine toothed comb and report any current issues/concerns, and a termite inspection, in which a certified termite inspector will search the home for evidence of termite infestation, rotted wood, or wood eating fungus and report any issues/concerns. If you would like to request that the seller repair any of the reported items, you may do so, but the seller has no obligation to comply with your request. In most cases, a mutual agreement can be reached, but if not, as long as you are within your agreed contingency period, you may get your deposit back from escrow, shake hands, and go separate ways.
Have the Property Appraised As mentioned above, you will be responsible to have the property appraised. The lender must conduct a property appraisal to ensure that you are not asking them to loan you more than the property's fair market value (Along with your inspections and a credit check by the lender, these should sum up all of your "up-front" costs. The remainder of your transaction-related costs will be collected within the last week before you are scheduled to close escrow). If the appraisal states that your new home is worth more than you are paying for it, congratulations, you got a great deal and have "equity" in your new home already! If your appraisal states that the property is worth what you are paying for it, you can see that you're getting a fair deal on the home you want. If your appraisal states that your home is worth less than what you have agreed to pay, there's no need to panic just yet. In a seller's market, this can be a common issue due to fierce buyer competition driving the price of the house up above what an appraiser thinks is a reasonable price. In some cases, the appraiser that appraised your house could have accidentally missed some key information and/or recent sales that would justify the price you are paying. Whatever the cause may be, if you end up with a low appraisal, you have some options to consider and discuss with your REALTOR. In most cases, a mutual agreement can be reached, but if not, as long as you are within your agreed contingency period, you may get your deposit back, shake hands, and go separate ways.
Finish your Loan Application After your appraisal is received by your lender, your entire loan package will be submitted to your lender's underwriter for final approval. Your loan officer may ask for additional documentation or letters of explanation for specific situations, or you may get loan approval within a couple days. Once you have loan approval, you get to sign your loan documents, meaning you're very close to being able to call your new home yours!
Sign Loan Documents Your loan documents will outline the final terms of your loan and include many disclosures about your responsibilities and rights regarding your loan. Plan to set aside about 1-2 hours to complete this process, as there are a lot of documents in this package and many of them will need to be signed in front of a notary public. You may either complete this process at your escrow company's office or have a mobile notary bring the documents directly to you for an additional fee. Escrow will coordinate this process with you, either way you choose.
Funding your Loan and Recording the Deed Once your loan documents have been reviewed for accuracy and completeness, your lender will authorize the funding of your loan. Escrow will also request the remainder of your transaction-related costs from you around this time. Once escrow has all funds and has verified that all necessary documents are complete, they will send your grant deed (which is the official document that conveys the title of your new home to you) to your county recorder's office to be publicly recorded. Once escrow receives confirmation that your grant deed has officially been recorded, congratulations, you are officially a new homeowner!