A BUYERS GUIDE TO BUYING A HOME

Buying a home can be very exciting and scary at the same time. Most first time home buyers will experience a full range of emotions as they go through the buying process. This is a completely normal reaction. Homeownership is at an all-time high in America, not just because of low interest rates, but also because more and more people are realizing the benefits, such as:

·         Credit - having a mortgage that you pay on time every month improves your credit.

·          Investment - home values are constantly appreciating which helps you build equity. That makes real estate a good   investment.

·         Pride - there's nothing like the feeling of buying and owning your own home.

·         Tax Advantages - interest on your home is tax deductible.

Getting Started

Before you begin the process of buying a property or home you need to consider the following:

-      Determine Your Needs. Prioritize what is most important to you in a home (style of home, size of home, neighborhood, schools, cost, etc.) Keep in mind, there is a difference between what you need and what you want, so be realistic.

-      Focus & Organization: In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:         

1. One detailed map with your areas of interest highlighted.         
2. A file of the properties that your agent has shown to you.             

Knowing What You Can Afford

The first thing you need to decide is how much you can afford. Determining this early in the buying process will save you a lot of time and frustration. Not only will you have a clearer idea of the amount you can spend, but you can also eliminate all those homes that are not in your range. You may even find that being pre-approved opens the doors to a home you hadn't considered before.

Get Pre-Approved for a Mortgage - - It pays to get pre-approved for a mortgage early in the process. Some think pre-qualifying for a loan is enough, but it's not. Pre-approval gives you more power when you've found that perfect house.

What's the difference between Pre-Qualification and Pre-Approval?

Pre-Qualification is a "guesstimate" of what a buyer might qualify for prior to actually submitting a mortgage application. Based on the unverified financial information you provide, the lender uses a quick calculation to arrive at a loan amount. Pre-Approval means that the lender has verified your financial information and has actually committed money in your name for a specific loan type and amount. With today's technology, you can receive loan pre-approval in minutes.

Types of Mortgages

Fixed-rate mortgages:
As the name implies, a fixed-rate mortgage carries the same interest rate for the life of the loan. Traditionally, fixed-rate mortgages have been the most popular choice among homeowners, because the fixed monthly payment is easy to plan and budget for, and can help protect against inflation. Fixed-rate mortgages are most common in 30-year and 15-year terms.

Adjustable-rate mortgages (ARM):
Adjustable-rate mortgages differ from fixed-rate mortgages in that the interest rate and monthly payment can change over the life of the loan. This is because the interest rate for an ARM is tied to an index (such as Treasury Securities) that may rise or fall over time. In order to protect against dramatic increases in the rate, ARM loans usually have caps that limit the rate from rising above a certain amount between adjustments (i.e. no more than 2 percent a year), as well as a ceiling on how much the rate can go up during the life of the loan (i.e. no more than 6 percent). With these protections and low introductory rates, ARM loans have become the most widely accepted alternative to fixed-rate mortgages.

FHA and VA loans:
U.S. government loan programs such as those of the Federal Housing Authority (FHA) and Department of Veterans Affairs (VA) are designed to promote home ownership for people who might not otherwise be able to qualify for a conventional loan. Both FHA and VA loans have lower qualifying ratios than conventional loans, and they often require smaller or no down payments.

Bear in mind, however, that FHA and VA loans are not issued by the government; rather, the loans are made by private lenders but insured by the U.S. government in case the borrower defaults. Remember too, that while any U.S. citizen may apply for a FHA loan, VA loans are only available to veterans or their spouses and certain government employees.

Conventional loans:
A conventional loan is simply a loan offered by a traditional private lender. They may be fixed-rate, adjustable, hybrid or other types. While conventional loans may be harder to qualify for than government-backed loans, they often require less paperwork and typically do not have a maximum allowable amount.

Making an Offer

If you're using an agent, they will provide you comparable market analysis (CMA) lists of the recent sales information of nearby homes, including how long each home stayed on the market, how close the asking price was to the actual sales price, etc. It then compares the information regarding these houses with the one in question. do this for you to help you determine a realistic price.

As you go through this buying process, remember that everything is negotiable, and everything should be in writing. You should be very specific when you prepare your purchase offer, and the seller should be equally specific when they issue their counter offer. Don't forget to think ahead in terms of the top price you're willing to pay. It's a very emotional time and making some decisions early on is a good idea.

Earnest money proves to house sellers that you're serious. After all, they're going to take their home off the market on your behalf. Earnest money is typically between 1-5% of the purchase price. The money should be held by an escrow or in the broker’s account. This deposit check will be cashed. Assuming the sale goes through, this money will be applied to the purchase price of the home.

Once your offer is accepted, it becomes a binding contract, so be sure to include the necessary contingencies. Contingencies are clauses that, if not met, will render the contract null and void. Common contingencies are the sale being subject to approved financing, the sale of an existing home and/or a satisfactory home inspection.

Home Inspections

You've made your offer. Now you need to have an expert verify "what you see is what you're buying." A formal inspection determines if anything needs to be repaired or replaced. If you're using a real estate agent, they'll arrange the inspection for you. The contract should also include a contingency in case the inspection reveals any repairs that cannot be resolved with the seller.

Licensed home inspectors inspect homes to determine what, if anything needs repairing or replacing. Typical inspections may include...

·         Termites - signs of termites in the home or foundation.

·         Plumbing - checks for leaks, dripping faucets, toilet tank leaks, etc..

·         Electrical -  Checks that all light switches and wall sockets are working properly

·         Exterior - settling cracks, paint peeling

·         Interior - signs of leaks in walls or ceilings, structure and general condition

·         The Roof - checks for leaks or damage

·         Windows- good condition and sealed

·         Appliances - checks that they work along with heating and air conditioning units

·         Radon Gas - an odorless and colorless gas that is sometimes found in the earth's rock and soil

·         Lead-Based Paint - Lead is a highly toxic metal that was used for many years in products found in and around our homes. Homes built prior to 1978 are required to fill out a lead-based paint disclosure form and provide you, the buyer, with a lead-based paint educational booklet in any sale.

·         Asbestos - Asbestos is a mineral fiber that can pollute air or water and can cause serious illnesses

The home inspector will write up an inspection report with all minor and major defects itemized. Good inspectors will find minor flaws in nearly any home. It's up to you to decide how important they are. It is also helpful to be present during the inspection. Inspectors often provide you tips on the maintenance and upkeep of the home and its systems.

Now that the inspection is done, it's time to move into the title and closing phase.

Understanding Title Insurance, Appraisal and Homeowner's Insurance

Some people can get confused about this area of the real estate transaction, but with a little knowledge and guidance, it's easy to understand. We'll break down the basics for you.

Title Insurance

When you buy a home, a title company examines the chain of titles (previous owners) to insure that there are no problems with obtaining clear title to the property. Parties other than the current owner of the home may have rights to it for things such as mortgages, liens due to unpaid taxes, lien claims to those who the owner owes money, etc. As a new owner, you may know nothing about these risks, but you are still vulnerable to such claims on your property. A deed is not sufficient protection. That's why title insurance is necessary.

It is very common for title companies to also handle the escrow portion of the transaction, meaning they serve as a neutral party to exchange funds and make sure both parties adhere to the agreed upon terms of the contract.

Home Appraisal

Lenders require appraisals to confirm that the home for which they're providing you a loan is in fact worth the amount you're paying. Appraisers are independent agents normally hired by the lender, however you may have a choice. The fees appraisers charge vary and are typically built into your loan costs. Your lender may also require a Location Survey that certifies the house is within the boundaries of the lot. The lender often selects the surveyor, but again, you may have a choice. The lender usually pays for the cost of an appraisal. Then it's factored into the buyer's closing cost.

Homeowner's Insurance

If you are not assuming the seller's homeowner's policy, you will need to buy your own. Title will not be transferred until you can prove you have the home covered by insurance. This protects you for things such as fire, flood, tornados, or any other damage to the home. You may also consider additional levels of insurance to cover natural disasters that are more prevalent in your area.

Escrow and Closing

Congratulations! You're only a few steps away from being in your next home! You've purchased a home, but you don't actually own it yet. You need to close on it. This is known as closing or settlement.

The escrow agent conducts the closing and is often affiliated with the title insurance company. Their job is to ensure the buyer obtains a clean title, the lender obtains a good mortgage, that the costs of the transaction are paid, that the seller's mortgage is paid off, and that the seller receives their proceeds.

The escrow agent prepares a closing statement that outlines what the required funds are, who's paying and where the funds are going toward They will not disburse funds until they can guarantee that the above noted items have been taken care of.

Odds and Ends

Utilities - Water, gas and electric meters will be read on the day of closing and the seller will owe for the utility usage up until that day. You may also need to make deposits with both the water and electric companies.

Service Contracts - If you are taking over any service contracts from the home seller, you will owe the seller for the unused portion of those contracts that have been pre-paid. These could include pest control, pool and/or lawn services, home maintenance contracts, etc.

The Check - The title/escrow company you are using will tell you how much you need to bring to closing. Personal checks are not accepted, so bring a cashier's check.

Home Warranty - It's highly recommended that you purchase a home warranty. This will cover the repair or replacement costs in case items such as appliances break down after you purchase the home. The peace of mind is worth the expense.

There's nothing like the American dream of homeownership. The pride and stability you feel when you come home to a place that you know is yours is hard to describe.

 We hope this guide provided you insight into and help with the home buying process.

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 Lighthouse Properties  R.E. Services Inc.   I   3121 Washington Blvd., Marina del Rey CA 90292   I   Cell: (310) 310-1295   I   Fax: (310) 823-0102

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