Table of Contents
Chapter 1 - Can I afford to buy a home? pg 4
Chapter 2 - What lenders look for when approving a loan. pg 6
Chapter 3 - How to qualify for a low interest rate. pg 8
Chapter 4 - How to get approved for a mortgage loan. pg 10
Chapter 5 - Hire a professional real estate agent. pg13
Chapter 6- Property types. pg15
Chapter 7- Checking out the neighborhood. pg17
Chapter 8- Finding your dream home. pg18
Chapter 9- Making an offer. pg 20
Chapter 10 - Escrow and title. pg 22
Chapter 11 - Protect your investment with an appraisal. pg 23
Chapter 12 - Inspecting the house for potential problems. pg24
Chapter 13- Negotiating repairs. pg26
Chapter 14- Removing contingencies. pg27
Chapter 15- Final walk through inspection. pg29
Chapter 16- Closing. pg30 Introduction People often tell me the home buying process is confusing. They say they don’t know where to start. If this is you, relax. You’ve come to the right place. I’ll give you an overview of the process of buying a home. I’ll use easy-to-understand language. After reading this manual, you’ll have a clear understanding of the process of buying your first home. I’ll also provide you with money saving tips. I spend a substantial amount of time on financing and mortgage loans because it’s so important and I provide many strategies to save you money. The benefits of home-ownership are many. First, in the long run, real estate is arguably the best investment you can make. Homeowners often accrue hundreds of thousands of dollars of equity. Second, you may be able to take out loans on your property with interest rates far lower than credit cards. Third, unlike renting, you may remodel your home any way you want. Fourth, if you qualify for a down payment assistance program, the risk is on the lender, not you. Finally, you may write off the interest and property taxes on your loan (check with a CPA for details). I’ll spend ample time discussing how to prepare to buy a house. I want you to save the most amount of money possible. Please don’t make the mistake most first-time buyers make by rushing to purchase a home without proper planning. OK, let the game begin… :) Chapter 1- Can I Afford to Buy a Home? The first step of the home buying process is to determine if you can afford a house. Let’s focus on how much of your income the lender will allow you to pay towards your mortgage payment. The vast majority of borrowers pay the maximum amount they are approved for However, I suggest that you choose the maximum monthly payment you feel comfortable paying. Most loan programs allow a maximum of 32% of your gross monthly income (before taxes) to be allocated towards your total mortgage payment and 50% to go towards all of your monthly debt obligations. These debts don’t include liabilities that don’t show up on your credit report, such as your mobile phone, utilities, internet, cable T.V, etc. This means that every dollar you earn, the lender will allow you to spend 32 cents towards your mortgage payment and 50 cents towards your total monthly debt. For example, let’s say you earn $8,000 a month. Since you are allowed to allocate about 32% of your income towards your total mortgage payment, the maximum amount you may pay towards your mortgage payment is: $8,000 x .32 = $2,560 per month. If you qualify for a mortgage loan using the above example, your loan officer will calculate how much house you can purchase with a payment of $2,560 per month, then your real estate agent will look for houses in this price range. The maximum percent of your gross monthly income allowed towards all of your monthly debt is 50 %. So, $8,000 x .50 = $4,000.
You may utilize our monthly budget template as shown below to help determine how much home you can afford. If you want a copy of this budget planner, send me an email to: email@example.com 5
Chapter 2- What lenders look for when approving a loan
When deciding whether or not to approve a loan, most lenders focus on five categories: credit, employment, debt, income and liquid assets (cash or anything that can be quickly converted to cash). Lenders also ask themselves, “does this loan make sense? Can the borrower(s) afford the monthly payments?” Let’s take a quick look at each of these categories. Since there are many rules, I will cover the basics.
1. Credit. There are three major credit bureaus in the US: Experian, Trans Union, & Equifax. Lenders will use your middle FICO score for loan qualification. For example, if your credit scores are 617, 652, and 668, the lender will use 652. The lowest acceptable credit score is 500, using an FHA loan. With FHA, if your FICO score is between 500-579, you will need a 10% down payment. If your credit score is min. 600, you may qualify for a down payment assistance program, AKA (DPA’s). There are two types of DPA’s: grants and loans. Grants don’t have to be repaid. The maximum amount is $27,412, which covers your down payment and most of your closing costs. Down payment assistance loans don’t have to be repaid until you sell, refinance or add or remove someone from title. Title refers to ownership of the property. I will further discuss this topic later. 6 Your credit doesn’t have to be perfect, but all of your accounts must be current, paid off or settled at the time the loan funds. Lenders focus on your most recent 24 month history. If you had a couple of late payments and a collection account, it shouldn’t be a problem However, if you have a few outstanding collection/charge-off accounts or repossessions, it may be tougher to get approved. Your loan officer will analyze your credit and give you a good idea if you will qualify or not. If you don’t qualify, he should give you a road map and inform you of the actions you need to take to qualify. 2. Employment. Technically, employment is not a requirement. For example, if you earn income from SSI, permanent disability, retirement income, or any other qualifiable income, this will suffice. However, if you are employed, the lender wants to see a minimum two year working history, preferably in the same industry. However, there may be exceptions. For example, if you changed industries for a better job opportunity, or if you had an employment gap 6 months ago because you attended a trade school, and started work thereafter, it should be ok. 3. Income. Income used for Conventional and FHA loans must be verifiable. How much income do you need? Well, it depends on two main factors, such as the purchase price of your home and how much debt you carry. So, income is only half of the formula. To find out how much income you need to qualify, you may chat with me on my website: www.firstimebuyerprograms.com, M-F 8am-6pm PST or call/text me @ (562) 452-3100. 4. Debt. Generally, Conventional loans will allow up to 50% of your gross income to be allocated to all of your monthly debt, including your new mortgage payment. FHA loans may allow up to 55%. Each program has a slightly different requirement. 5. Liquid assets. Lenders like to see at least two months mortgage payments set aside for a rainy day. However, not all lenders require these reserves. Whether or not it’s a requirement, I strongly recommend you follow this guideline. You’ll have peace of mind by setting money aside. Chapter 3- How to Qualify for low Interest Rates When purchasing a home, your ideal scenario is to earn as much income as possible and reduce your debt to zero. I understand this is probably wishful thinking, but at least make it a goal to strive for zero debt. You’ll be surprised how much you can accomplish by setting goals! If you need more income, brainstorm and think of ideas. If needed, you may consider a part-time job, start a small business, sell assets, rent out a room or ask relatives to help pay the mortgage. If you have too much debt, you may not qualify for a traditional mortgage because statistics show that borrowers with too much debt have a high default rate. Solution? Try to trim the fat off your debt. If you have high interest accounts, refinance existing debt to lower interest rates and/or lower monthly payments. There are 0% interest credit cards available to those with good credit. If the creditor initially refuses to lower your rate, play hardball and let them know you will refinance your debt with another creditor. Many creditors will negotiate with you after you threaten to go with another creditor. Also, if you have accounts with low balances, pay them off. This will decrease your debt ratio. High debt ratios equal higher interest rates. If you have good credit, you may qualify for a non-secured debt consolidation loan. Consolidate all revolving debt (e.g., credit cards and all other debt that doesn’t have a specified date to be paid off). This way, your debt will be paid off much faster and your monthly payments will be lower. If you have $10,000 in credit card debt and make minimum payments, it will take 33 years to pay off the debt! 8 If your balances are low, simply pay off the account(s). If you have unpaid debt, such as collection accounts, charge offs or medical bills, settle these accounts with your creditors. Most creditors will settle as low as 25%-50% of the unpaid balance. Send me an email to: firstname.lastname@example.org if you need assistance with credit repair or debt settlement. Also, focus on boosting your credit score if it’s less than 600. You need a min 600 score to qualify for a zero down program. Ideally, maintain 3-4 credit cards and one installment account (e.g. auto, personal loan). If you don’t qualify for a traditional credit card, sign up for three prepaid cards to raise your FICO score. Keep your balances as low as possible, preferably zero. In addition, contact your creditors and request that your credit limit be increased as much as possible. High credit limits with low balances shows the lender that you are not struggling financially. Whether that’s true or not, the lenders will look at worst-case scenario. Most important, do your best to never have a late payment. A late payment appears on your credit report when you’re 30 or more days late after the due date. Also, try not to purchase large items if you presently carry a lot of debt. Wait until escrow closes to make large purchases. Too much debt may disqualify you for a mortgage loan, as it’s too risky for the lender. Last, if you need to change your job to a diﬀerent industry, try to do so after you buy your home. It’s not necessarily a deal breaker, but the lender views it as a higher risk. Follow this advice and you will be in good shape. I've got a ton of info on my website that will save you thousands when buying a home: www.firstimebuyerprograms.com If you want info regarding California’s no down payment and closing cost program, click here. Move into your new home within 45 days with as little as $2,000! Chapter 4- How to Get Approved for a Mortgage Loan Once you’ve improved your financial situation as much as possible, it’s time to apply for a mortgage loan. Since there are many different mortgages available, I will focus on the two most popular first-time buyer loans-FHA and Conventional. FHA- FHA loans are insured by the federal government. FHA doesn’t loan money. They guarantee lenders repayment if borrowers default. Its purpose is to assist borrowers that don’t qualify for a conventional loan. FHA loans are relatively lenient compared to other types of loans. If a borrower doesn’t have traditional credit (e.g. credit cards, auto loans, personal loans, etc.), has too much debt or his credit score is too low, this is the right program. FHA also allows ho me buyers to utilize a down payment assistance program. Conventional - This is a non-government loan. Conventional loans are stricter than an FHA loan. This type of loan only accepts traditional credit and doesn’t allow as much debt compared to FHA. The minimum credit score is 620. Surprisingly, the interest rates are about the same as an FHA loan. Conventional loans close faster and there is no upfront mortgage insurance. Overall, a conventional loan costs less than an FHA loan. Let’s address a common problem with home buying. 10
Most people start the home buying process by rushing to look at homes. Understandably, they are excited and want to see houses now. PLEASE don’t make this mistake. I strongly recommend getting a loan approval first. There are a few reasons why. First, you may be looking at homes in the wrong price range. Unless you are paying cash, the lender will decide your maximum loan amount. With a loan approval in hand, you will not waste time looking at houses that are not in your price range. Second, before you can view a home, many agents representing the seller often require potential buyers to submit a lender pre-approval. Without one, it’s highly unlikely you’ll be allowed to view the interior of the property. Hence, you may miss out on your dream home! There are four (4) stages of loan approval: 1. Pre-qualification - This is the first step. A loan officer or mortgage broker will ask you several questions regarding your credit, employment, income, debt and liquid assets (cash or any assets that can be easily converted to cash. e.g., stocks, bonds, 401k). If everything looks good, she will move on to the next step. This type of approval holds no weight. 2. Pre-approval - Either a mortgage broker or lender will issue a pre-approval based on the previous qualifying categories I mentioned in Chapter 2. If the pre-approval letter is issued by a broker, it’s stronger than a pre-qualification, but not by much. A lender pre-approval letter is stronger because the lender has verified your information. Most listing agents require a pre-approval before you can view the seller’s property. I highly suggest you obtain a lender pre-approval before looking at homes. 3. Conditional loan approval – Several days after escrow is opened, the lender will issue you a conditional loan approval if you meet the program requirements. This type of approval is stronger than a pre-approval, but it’s still not a final loan approval. Your documents that you submitted are verified by the underwriter. The only reason the lender won’t give you final loan approval at this time is because they still need to verify a few conditions. For example, just prior to close of escrow, the lender will verify that you are still employed. 4. Final loan approval - After the lender verifies all documents and conditions to meet the program requirements, your loan is funded and escrow soon closes. Yeah!!! If possible, try to obtain a conditional loan approval before you look at houses. A conditional loan approval creates leverage. You’ll have bargaining power when negotiating with the seller because your loan is more likely to fund compared to a pre-approval. 11 As of this writing (November 2021), the real estate market in most of California is a sellers market. This means demand exceeds supply. Consequently, most sellers are receiving multiple offers, sometimes 10+ offers. As mentioned previously, in order to get your offer accepted, you need a competitive advantage. You need leverage, bargaining power. While most buyers are submitting broker pre-approval letters to the seller’s agent, you’re equipped with a much stronger loan approval- a conditional loan approval from the lender. Why is this important to the seller? Because the seller wants assurance that the buyer will qualify for the loan. If escrow doesn’t close, the seller must start over with another buyer. In addition, if the seller has already purchased another property, she will have to make two mortgage payments if the deal doesn’t close. Taking the time to obtain a conditional loan approval will save you time, unnecessarily stress and you will have a greater chance of getting your dream home :) 12
Chapter 5- Hire a Professional Real Estate Agent The ideal agent is an experienced professional who knows your market, is tech savvy, acts in an ethical manner, is not pushy, is helpful by guiding you through the process, answers all your questions, and addresses your concerns and needs. A professional agent should provide the following: Experience. It takes an agent at least 2 yrs. to be proficient in all aspects of residential real estate, including basic mortgage financing. Also, keep in mind you will be dealing with lengthy, complicated contracts and real estate law. Consequently, I strongly recommend you hire an experienced agent. Customer Service - A professional real estate agent will exceed your expectations. She should explain every step of the home buying process. Also, she should be there for you to guide you throughout the process and promptly answer your questions or concerns. I recommend that you hire an agent that will provide you with a written statement that explains her customer service policy. Familiar with the area where you want to live. You want an agent that’s familiar with the proximity of schools, churches, freeways, shopping and transportation. In addition, an agent should be familiar with crime levels of various neighborhoods. Provide referrals of satisfied clients. This step should be a prerequisite. The last thing you want is to hire an incompetent agent. Credibility. Check the agent’s license status and disciplinary action with the California Department of Real Estate (D.R.E.). Simply input the agent’s license number into the box near the bottom of the page that requests: License ID. If you prefer to call the BRE, their number is: (877)373-4542. 13 Also, check the agent’s credibility with the Better Business Bureau (BBB). Input the company or individuals name and location near the bottom of the page. If there’s no info in the agents profile, call the BBB at: (213) 631-3600. If there’s been any complaints or disciplinary action against a licensed agent, these two agencies will have a record. Integrity. An agent who possesses integrity will always look after your best interest. During the interview, ask him specifically what he will do for you. Ask him, “why should I hire you? How will you negotiate the purchase of my home? What will you do to look out for my best interests? What will you do to find and negotiate my ideal home?” Hiring the right agent is very important. The right agent can save you money, time and shouldn’t cause you headaches. You’ll be spending a lot of time with him, so it’s best to do your homework so your home buying experience will be enjoyable. 14
Chapter 6 Property Types There are four main residential property types: Single Family Residence (SFR); Townhouse; Condo; and Manufactured House. Here’s a breakdown of each type: 1. Single Family- This is a house. It’s by far the most popular type of home. What separates this type of property from the others is the structure. Single-family homes are freestanding, typically on a plot of land that also belongs to the homeowner. 2. Town house- A townhouse or townhome is a single family home that shares one or more walls with other independently-owned units. They are often rows of uniform homes, two stories or taller. This type of property is usually cheaper than a single family residence. However, you must pay HOA dues. The main benefit of buying a townhouse is there is a management association that manages the complex. Most townhouses are gated. Many provide security. Also, the association takes care of the exterior maintenance of the complex, the common areas and the residential unit. If security and maintenance is important to you, townhomes might be the right choice.
3. Condo - A condominium is a large property complex divided into individual units and sold. Ownership usually includes a common interest in certain "community property" controlled by the condominium management. Management is usually made up of a board of unit owners who manages the day-to-day operation of the complex, including property maintenance and security. Compared to townhouses, condos are often “boxed” shaped, as opposed to resembling the shape and style of a house. Unlike a townhouse, often there are other units above or below. Condos are usually less costly than townhouses, but not always. There’s little privacy living in a condo. 15 Keep in mind that townhouses and condos may have high association fees. Also, they may be very strict. I’ve heard plenty of horror stories from previous clients. Request a copy of their rules before you decide to buy. 4. Manufactured homes - These are prefabricated homes. They are assembled in factories in sections, then shipped to sites. They are built with chassis and are permanently attached to the foundation. Compared to houses, they tend to be rather flimsy since they lack traditional building materials such as cement and standard lumber. Proper insulation is usually poor. The benefits of a manufactured home are lower cost, the ability to place the home wherever legally permitted. The downside is there are many rules, both from the lender and also the homeowners association. 16
Chapter 7 Checking out the Neighborhood Arguably, the quality of a neighborhood is more important than the house. Why? Because you may structurally alter or remodel a house, but you can’t change a neighborhood. Therefore, I strongly recommend that you thoroughly inspect the area you plan to live in. Before you make an offer on a house, check out the neighborhood twice-once in the day and once at night. Remember, gang bangers and drug dealers sleep in the day and are up all night. They are like cockroaches. At night, the cops turn on the bright lights and they scatter! Also, pay close attention to the next door neighbors. Are there any red flags indicating trouble? Do they park their car in the front yard? Do they play loud music? Are they nosy? You may live next to these neighbors for many years. It pays to do a little research. Speaking of research, it’s a good idea to speak with the neighbors about the quality of the neighborhood. Many neighbors will be glad to help. You’d be surprised how much you will learn about the neighborhood. In addition, check to see if there are undesirable external factors such as railroad tracks, airplane noise or nearby industrial buildings that emit toxic pollution. These types of nuisances may lead you to sell prematurely. These neighborhoods generally take much longer to sell. Last, check out Google maps to determine the proximity of freeways, shopping, churches, etc. Also, ask your agent if the city is planning development projects. If so, the value of the neighborhood will appreciate. 17
Chapter 8 Finding Your Dream Home Now the fun begins. It’s time to find your ideal home! Once you’re equipped with a lender approval, your agent will search for properties that match your criteria. The source of most of the properties will derive from the MLS. But don’t settle for only these homes. Ensure that your agent searches for Coming Soon homes and off-market property.
Coming soon are properties that will be listed soon. They are either houses in the process of being built or homes from Zillow that will soon be listed for sale. Off- market properties can be for sale by owner or other property that the seller decided not to list in the MLS. Before discussing your housing needs with your agent, create a needs list. Write down your must haves: type of house, minimum number of bedrooms and baths, kitchen style and size, garage and lot size, etc. Discuss these needs with your agent in detail. If your needs are not properly communicated, you will waste time since you’ll look at properties that don’t match your criteria. 18
Once the search is completed, your agent will contact the seller’s agent and make appointments to view the interior of the property. Since you’ll most likely view multiple properties, it’s easy to mix up the features of one house with another. To prevent confusion, I suggest you create a simple spreadsheet. Input the property address, then rate the following on a scale of 1-10: - proximity to shopping, freeways, schools, churches, restaurants, etc. - quality of neighborhood - style and condition of exterior home - amenities of exterior home ( e.g. swimming pool, designer landscaping) - condition of interior home - floor plan - desirability of kitchen, bathrooms and bedrooms - amenities of interior home - exterior noise level Add any other features or amenities that are important to you. By creating this list, you will have a better chance at finding the house most suited for your family. If the house is furnished, try your best to imagine the home vacant. Often, buyers pass up a good home because they don’t like the furnishings in the home. Instead, imagine your furniture, appliances and household items in the home. In addition, ask your agent to take photos of each home you visit to compare properties. Narrow down the homes to 2-3 properties that you like most and view them again. Viewing homes a second time will often help you find something you overlooked the first time. If you want info regarding California’s no down payment and closing cost program, click here. Move into your new home within 45 days with as little as $2,000 total out-of-pocket cost! 19
Chapter 9 Making an offer
Once you’ve found your dream home, it’s time for you to make an offer. Keep in mind that all real estate contracts and agreements you make with the seller must be in writing. Any verbal agreements are not enforceable. An offer is a written agreement between you and the seller. Both parties agree to perform specific tasks. For example, you may agree to complete a home inspection within 14 days of an accepted offer. Or the seller promises to vacate the property within 3 days after close of escrow. The contract includes, but are not limited to: the offer amount, information regarding your good faith deposit, financing, conditions (e.g. you agree to purchase the property on the condition that you obtain financing), an appraisal and the closing date. A good faith deposit, AKA an Earnest Money Deposit, are funds that you deposit into escrow to show the seller you are serious about purchasing her property. All sellers require a deposit. The amount is usually between $1,000- 10% of the purchase price. Your deposit is returned to you if you execute all tasks that you agreed to do in the purchase agreement (contract). In addition, you must pay all mortgage and real estate closing costs associated with the purchase of your home. Fortunately, the vast majority of the costs are financed or paid by the seller. If you are deficient paying any cost, all or part of your good faith deposit will be deducted to cover these deficient expenses. The amount you offer to purchase the house must be your decision. Your agent cannot tell you how much to offer. However, since your agent should be knowledgeable in the area and the market you want to buy in, he will advise you how much to offer, but the final amount is up to you. 20
Your agent will research the following: similar properties that have recently sold within one square mile from the property you are making an offer on; your agent will ensure that the square footage, lot size, property condition and other factors are similar. He must compare “apples to apples, so to speak. Keep in mind the value of any property is based upon similar properties that have sold within the past 3-6 months. Based on his research, your agent can recommend how much to offer. This research is known as a Comparative Market Analysis (CMA). The purpose of this research is to determine the value of a property, therefore reducing the odds of overpaying for a property. After you submit your offer, the seller will either accept your offer, counter-offer or reject your offer. If your offer is accepted, this means that the seller accepted all of your terms and conditions. If the seller counter-offers, she means that she changes one or more terms or conditions of the loan. If you agree to the terms of the counter-offer, you have a legal binding contract. If the seller rejects your offer, you need to search for other property. If your offer is accepted, it’s time to open escrow.
Chapter 10 Escrow and Title
After you and the seller agree on price and terms, it’s time to open escrow. What is escrow? Escrow is a legal agreement in which a neutral third party controls money until two other parties (in this case buyer and seller) involved in a transaction meet certain conditions. Escrow holds money for buyers and sellers, deeds and financial documents. Think of escrow as a referee in a sporting match. His job is to make sure both teams are following the rules. He does not favor either team. He is a disinterested third party. There are many reasons why escrow is needed, but I will give one example. You wouldn’t want to give the seller ( a complete stranger) your good faith deposit, right? What if he takes off with your money? Instead, you would much rather hold your deposit with a neutral third p arty (escrow) in a secured bank account, right? You also need title insurance. This type of insurance protects your ownership interest in the property. It’s similar to a pink slip, except title insurance relates to real estate property instead of automobiles. Title insurance protects you in two ways. First, the title company guarantees when ownership is transferred from seller to you, you are the true owner of the property. If someone else claims they are the owner of your home, and it turns out to be true, the title company must reimburse you for the lien amount (the amount you owe the lender), your legal fees, and even compensation if you have to forfeit the property. Title insurance also protects you against government agencies trying to collect back taxes from a previous owner, liens placed against the property (e.g. a mechanic's lien by a previous contractor for unpaid work performed on the property), or conflicting wills. The lender also requires an additional title insurance policy to protect their interest in the property. Remember, your home is collateral for the amount that you borrowed. 22
Chapter 11 Protect Your Investment with an Appraisal Almost all mortgage loans require an appraisal. This cost is approximately $500-$600. It must be paid by the borrower soon after escrow is opened. A home appraisal is an unbiased estimate of the true (or fair market) value of what a home is worth. Most loan programs require an appraisal during the mortgage loan process to determine an objective way to assess the home's market value. Another purpose is to ensure that the amount of money requested by the borrower to purchase the home is sufficient to cover the value of the property. An appraisal also protects the borrower. Since the appraiser will conduct a thorough inspection of the home and analyze similar or comparable properties, you shouldn’t overpay for a property. As previously mentioned, an appraiser determines the value of a property by gathering facts such as: square feet, lot size, number of bedrooms and baths, condition, amenities, location and more. Next, he searches for comparable properties that are located within one square mile that have sold within the past 3-6 months. Finally, the appraiser makes adjustments. For example, if the subject property has a swimming pool but the comparable property does not, the appraiser will add more value to the subject property. 23
Chapter 12 Inspecting the House for Potential Problems Although lenders don’t require a property inspection, I strongly recommend that you get one. There may be unforeseen foundation problems, or other expensive problems that may cost tens of thousands of dollars. The inspection cost ranges from $350-$550, depending primarily on the size of the house. This fee is paid by you about 7-14 days after escrow is opened. A property inspector will provide you with a written inspection report of the condition of the property. The following areas of the home will be inspected: 1. Foundation 2. Roofing 3. Electrical system 4. Plumbing 5. Sewer 6. Mechanical Systems (e.g. air conditioning, heating, stove) 7. Flooring & walls 8. General interior 9. Attic & basement 10. Chimney 11. Visible insulation 12. Ventilation 13. Siding or other exterior wall coverings 14. Windows 15. Doors 16. Garage and other visible structures 24
Please note the inspector will not inspect areas that aren’t easily accessible. Therefore, try to make available as many areas as possible. The inspector will not move items. Also keep in mind that the inspector will note many items that need to be repaired. This will be the case whether the property is new or old. Focus primarily on major problems, if any, such as foundation or roofing problems. These are the two most costly repairs. The inspection takes 1.5 - 2 hours, depending on the square footage and condition of the house. Although it’s not necessary for you or the agent to be present, you may ask your agent to accompany you. If you want info regarding California’s no down payment and closing cost program, click here. Move into your new home within 45 days with as little as $2,000 total out-of-pocket cost! 25
Chapter 13 Negotiating repairs Once you receive the physical inspection report, you may request that the seller to perform repairs. Which ones? Well, it depends. If there are major problems, such as major cracks or a sloped foundation, I strongly recommend that you ask the seller to correct these issues.
Major roofing problems are also very expensive to repair. The only exception is if you knew about these problems in advance and you are getting a deal on the property. If not, and the seller refuses to make repairs, I would walk away. Besides, most traditional lenders won’t finance a property that has major defects. They require the property to meet minimum property standards. If there are no major structural, roofing or other major problems, it’s up to you to request how many repairs you ask to be repaired. Most sellers will be willing to make a few repairs. It’s part of your agent’s job to get a feel of how desperate the seller is. However, keep in mind that you are buying a used product. Very few sellers will agree to repair every item stated in the property report. Furthermore, in a seller’s market, most sellers will make very few repairs, if any. 26
Chapter 14 Removing Contingencies
When you make an offer, you do so with conditions, or contingencies. Contingencies are events that must occur in order to move forward during the home buying process. Contingencies protect buyers and sellers. In essence, when you make an offer, you are saying, “yes, I will purchase your home Mr. Seller, but only if certain events occur.” What certain events must occur? There are plenty. I will cover the most important. Before you make an offer, your agent will explain all contingencies so you won’t be left in the dark.
Contingencies are only valid if both the seller and the buyer agree. All contingencies must be removed before escrow closes. Below are the most common types of contingencies. A. Appraisal contingency. Earlier, I mentioned the need for an appraisal. So, let’s say you demand an appraisal contingency and the seller accepts. Assume you and the seller agree to a purchase price of $500,000. If the house appraises at $490,000, you are not obligated to go through with the purchase. If the appraisal came back at $500,000 or more, then the contingency is removed, you are happy, then you move on to the next condition. I strongly recommend you request this condition unless you are willing to pay the difference if the appraisal comes back lower than the purchase price. B. Property inspection contingency. If you are not satisfied with the condition of the property for any reason, you may cancel the contract. In addition, if you request for the seller to make certain repairs and he refuses, you may balk. C. Financing contingency. If you are unable to obtain financing, you are not obligated to purchase the property. I strongly recommend you request this condition. 27
D. Title contingency. If the title company cannot guarantee you clear title (ownership) to the property, you can back out of the deal. This rarely occurs, but it’s very important for you to require this contingency. I hope you feel relieved to know you have protection should any of the above problems occur. The law recognizes that it’s not fair to buyers if negative situations are beyond the buyer’s control. 28
Chapter 15 Final Walk Through Inspection
A final walk through inspection is exactly how it’s described. You and your agent walk through and inspect the condition of the property about 1-2 days prior to close of escrow. The purpose of the walk through inspection is to make sure that the condition of the property is the same as it was when you first viewed the home. If it is, great. There’s nothing to do. If it isn’t, you need to ask the seller to repair or replace what is damaged or missing. Don’t worry, this rarely happens. It’s more common in sub-prime neighborhoods. As previously mentioned, it’s a good idea to take photos of the properties that you like so you can have proof of the property condition. 29
Chapter 16 Closing
About 2-3 days after the final walk through inspection, your loan is funded and escrow closes. You will receive a final statement of the closing costs. In addition, the deed will be transferred in your name, your agent will deliver the keys (and hopefully a congratulations gift!) and you are a proud homeowner.
I hope you found my home buying guide informative. If you want info regarding California’s no down payment and closing cost program, click here. Move into your new home within 45 days with as little as $2,000 total out-of-pocket cost!
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