If you have identified a certain neighborhood as an area you are interested in, I would strongly recommend you do research into it before you make an offer on a house there or even go house shopping just yet, the reason being that once you find a house and fall in love with it, you will tend to look at the area with rose-tinted glasses. So, if you have identified a neighborhood, definitely look up its community profile in the local newspaper’s website, and on City Data.

Another thing you can do that is immensely helpful is to drive by the area many times, at different times of the day and get a feel for the place. Try first thing in the morning, sometime in the afternoon, later at night and definitely at least once on the weekends. Be critical. Roll down your windows. Can you tolerate loud music coming from some houses? What speed are cars driving? How do the lawns look? How do the houses look? Does it seem like the people that live there care about their properties? How many cars on the road? What kind? Are there junk cars in driveways? Oil stains on driveways?

The best thing of course is to knock on a few doors and talk to the people there. Ask them how long they’ve lived there and what they think. Tell them you’re considering buying in their neighborhood. Trust me, people love to talk about their homes and neighborhoods. And, if they don’t, take a cue.

A FSBO (pronounced fizz-boh) is a house that is on the market “For Sale by Owner.” This means that the owner has decided not to hire a Realtor to sell it for him – he intends handling the entire sale of the home by himself. Be forewarned – he also intends to do all the paperwork himself.

Sometimes, FSBOs happen to be retired Realtors wanting to save themselves the home selling fee – typically 6% divided amongst two Realtors – the buyer’s agent and the seller’s agent.

As a buyer going into a FSBO however you should remember that most FSBOs are overpriced. Because the seller has usually not spoken with a Realtor, he has not had the conversation of comps in the neighborhood and is probably asking more than the home is worth. Secondly, since he does not have an agent guiding him regarding the legality of certain structural issues, he might not be revealing things about the house he knows to be an issue. These might come back to bite you later.

Obviously, my recommendation is to stay away from FSBOs, but if you must buy one, get a good property inspector, an independent general contractor to examine the property (yes, both!) a pest inspection and hire your title company to make sure the paperwork is processed correctly. Take no chances and put in writing every assurance the seller gives you about the home.

Officially. I like that.

According to me, the official home search starts when you are pre-approved for a mortgage, have a number in mind and are actively searching for a home, that is, going out with some regularity with your Realtor to look at houses in a specific area you have selected as wanting to live in which has homes that fit your criteria.

This search should begin approximately two – four months before you want to love in to the house. Why so long? Escrow lasts about 30 – 45 days. And unless you are going to devote every waking minute to heading out looking at homes (most clients go out once a week) you will take on an average two to three times of going out before you make an offer. If that offer does not work out for some reason you will want to begin the search again.

Depending on how fast inventory is moving and what area you are looking in, it will take you about two months to find the right home and then another month to close on it. So plan accordingly. Traditionally, the summer months see the most activity because people like to move school children out to another school before the year begins again.

Just call the number to the upper right! No, just kidding.

This is a question I’ve been wanting to write about for a long time because it seems to me that clients end up frustrated when they don’t spend enough time looking for a Realtor, just a house. Here’s the scoop: all Realtors use the same tools, they all use the same MLS, follow the same rules and every Realtor knows how to do a basic search to find the home you are looking for. The difference lies in whether this Realtor’s style and way of doing business fits what you want.

So there, you are actually doing two searches at once – one for a Realtor and then for the house. And the second gets a lot easier if you do the first one right. Here’s what most people do: they see a house they like on the outside and call the number on the sign. That is the listing agent’s phone number. And chances are the listing agents (at least in today’s market) have no interest in driving buyers around and showing them homes. Buyers however call every number on every sign until someone answers and shows them a few homes.

While there’s nothing wrong with this approach, it wastes a lot of time. Instead, what I recommend buyers do is find a few Realtors they think they can work with and try calling them to talk with them. Better yet, search for them online. Many Realtors today have more than a website – they have a blog, where they publish information about topics that interest them and houses in general. Read their blogs, get a feel for whether you would get along with them and how competent they seem in their field.

Then call them, tell them what you’re looking for and go shopping!

As a first-time home buyer, you’re probably looking at this turmoil in the real estate market, the dropping values and think to yourself, “I could buy a home now.” You’re probably right. Here’s another reason why you should be considering this thought very seriously in this market – there is a lot of inventory to look at, interest rates are still near historic lows and, what’s more, there are some unbelievable deals in REOs out there.

But where should you start?

I recommend taking a good hard look at your finances and talking with a mortgage consultant to see how much you can afford to pay toward your mortgage every month. Make sure this amount includes taxes and insurance along with principal and interest on the home. The next step would be, working backwards from this number, to see how much of a home you can afford.

When you have that number in your head, see what’s available in an area you would like to buy in. Some people prefer to live where they have rented in the past but sometimes this is not always possible. Consider bedrooms, baths, and how close you are to work or if you would consider commuting.

Then, check how much you have in savings for a down payment. If you have about 10% down, in today’s market you should be fine. If you don’t, ask your mortgage broker what you need as a minimum down payment. Many programs today allow gifts from parents and other relatives for down payments as low as 6% so ask about those.

Then, get a Realtor. You can ask your mortgage consultant for a referral or just search online. Pick one you can trust.

Remember that first-time buyer homes are not always the dream homes people would like to own, but if you start somewhere near the bottom of the market (like today’s) you are likely to trade up in the not too far future to something that very nearly resembles your dream house!

Glad you asked. Usually, a good Realtor will find a way to ask you this question, but it’s a good idea if you have thought about it first by yourself. The first thing to consider is if you will be involving anyone in the financial aspect of buying this house. It amazes me when someone calls me to see a house and then tells me that their brother, or sister or uncle is paying for the home. When I tell them to contact the said relative, I never hear back from them. Bad communication!

So if someone is paying for the home, or putting a down payment on the home, realize they will probably want to be involved in the process, be it parents, or whoever. It is usually a good idea to find a time to go looking for a house with them. Also please understand that if they are going to buy the home for you, the lender will consider it an investment property, since they will not be living in it by themselves.

Even if no one else is contributing to the financial aspect of buying the house, if you need a second opinion, be sure to pick your “critic” wisely. Pick someone you know whose house you like and someone you see as having had some success in buying and maintaining a good property. Also be very clear on what you intend the do with the house (will it be a rental later?) and pick your critic accordingly.

One other person besides you (and your spouse) seems to be the consensus. Like with many other things, too many cooks spoil the escrow along with the broth.

In the big booming real estate market, banks were willing to loan to investors 100% of the purchase price of non-owner occupied residences for whatever reason. With a 680 FICO score, a buyer could come into possession of a house he could flip or rent out. These were called 80 – 20 loans, where the buyer would get a first mortgage for 80% of the purchase price and a second mortgage for the 20% rest of the purchase price. Since property values were headed up, most people thought they could refinance easily in the future against the increased value of the home into a fixed mortgage for 80% of the value.

Unfortunately, we now know that the dream of refinancing for a lot of people never quite worked out because property values began to fall. So today, if you’re looking for a zero down investor loan, you’re not going to find it.

Banks have stopped loaning 100% purchase price mortgages even to some owner-occupied borrowers. So buying a rental with the bank’s money alone is impossible. Your best bet is to come up with at least 15% down, although 20% to 25% is better because you can avoid private mortgage insurance and, possibly, get a better cash flow on your investment.

When you start shopping for a home, especially when you are new to the area, it seems natural to ask your Realtor if it is an area that is “safe,” school information, information about the neighborhood and neighbors and so on. Many clients however do not realize that Realtors have to be very careful in handing out such information due to the Fair Housing Act to avoid allegations of steering. So while we might be able to give you school information, we cannot tell you the average size of families in the neighborhood. Information about crime seems to be another sensitive topic.

So where does a person go for such information? Here are a few resources. You can go to a title company and request neighborhood information. Chances are however they might be bound by similar rules. Online resources are best. If searching in the Sacramento area, go to Sacramento Bee’s community information page under “Homes.” For other areas, you can search their local newspapers or even go to City Data.

Personally, I find City Data quite fascinating, with their average temperatures and most common professions amongst residents. Especially when it comes to relocation, it helps to get a general idea of the place as well as the residents!

Many first-time (and subsequent-time) homebuyers are faced with this question today: what’s the best home loan for them? Sure, they’ve heard about interest only loans and hybrid loans and a very popular refinance loan of 15 year fixed instead of the 30 year fixed because they get to pay lesser interest and pay off the mortgage sooner. But deciding the right one for their situation is tough.

For instance, consider the person who has been transferred and wants to live there for about 7 years. He knows for certain, he will not live in the place for more than ten years. Should he still get a thirty year fixed rate, just because these are uncertain times for rates? Or should he do something else?

I think a good mortgage broker should be able to sit down with you and work the numbers depending on your situation. Take a look at this post in the Mortgage Reports which talks about how only after half the loan is paid off does the 30 year fixed revert to making more payments on principal rather than interest. In this case, wouldn’t it make sense for the person who is buying a home to live in it for only 7 – 10 years get a hybrid loan, fixed for 10 years? Shouldn’t he at least consider it, instead of reverting to the knee-jerk 30 year fixed?

Generally, yes. The short answer is that if something shows up on your credit report as unpaid and is counting toward your score being pulled down, you would need to pay it to raise your score. Even if your score is decent enough and the unpaid items are not bringing your score down enough to be refused a mortgage, the lender might require that certain unpaid items be cleared.

Remember the lender is giving you the money to buy the house based on your credit history. The lending institution doesn’t know you personally and your credit history is the only introduction they will ever have to your payment patterns.

But be careful: there may be some items on your credit that are considered “charge-offs” and paying these might hurt your score because they may raise old skeletons. Be sure to find a mortgage broker who is willing to work with you to understand your credit report and identify which items need to be paid before paying them.

Say you see a home you like and would like to take a look inside. You pick up the phone and call. A Realtor answers. She says she would be happy to come out and show you the home. You’re happy, looking forward to it.

Great, right? Wrong. Just who did you make an appointment with? Was it the person who has listed the home for sale? Or her assistant? Or a third Realtor who will represent you in the purchase?

The question, “Are you working with another agent?” should not be limited to the Realtor making the appointment alone. You should know if you are working with the seller’s agent, an assistant, or someone who will represent your interest in the home – a buyer’s agent.

What’s the difference? Without a buyer’s agent, you are in a dual agency. A dual agency means you are almost always without representation. The agent has been hired by the seller first. While dual agency is not illegal in California, it can create a difficult situation when the buyer wants certain things done and the seller is unwilling. The purpose of the buyer’s agent is to insist that important repairs get done or escrow is canceled. A dual agent is required only to communicate needs and messages across the buyer and seller.

I would love to pick up the phone to make an appointment with a client and have the client ask me if I have listed the home or I would be there essentially to represent him in the purchase!

Usually, when you are ready to make an offer on a house, your Realtor will show you comps of the area. (If he doesn’t, make sure you ask him for them! “Comps” are comparable properties in the neighborhood – usually within a one mile radius of the subject property – which are similar in size, square footage and usually floor plans and number of bedrooms and baths to the property in question.

The comparative market analysis should include active, pending and sold properties. Pay careful attention to the sold properties – that will tell you what the appraiser is most likely to look at and will tell you how the house compares historically in prices (comps usually go back six months) with the others. The active sales will tell you what houses in the neighborhood are asking in terms of price. These numbers will reveal if you bought the most expensive home in the area or got the biggest discount! Pending sales do not reveal what buyers paid for the home until they show up as sold, so there’s not much to compare with in that regard.

A market analysis is your best bet, next to the appraised value, to know if a home is worth the asking price. But keep in mind that there is no guarantee that the house will hold its value or be worth the same a year or two from then. Historically, real estate appreciates in the long run, but that doesn’t mean that values won’t have drops for a year or two every few years.

Infuriating pat answer: it depends.

I have had clients in the past who have paid cash for homes, especially investors. But I think you need to look at all aspects of the question to get the right answer to this one. For one, how does it help you to pay cash? Are you one of those people that doesn’t want a mortgage at all? There is a serious drawback to this if you intend to live in the home yourself: you won’t get to deduct your mortgage interest on your taxes. In fact, even if you are an investor, mortgage interest on your rentals may be tax deductible. Check with your tax accountant the next time you drop in before you make this decision.

On the other hand, paying cash for a home has its advantages of course. As a homeowner, you don’t have the pesky (large) bill every month, you will save a ton of money in mortgage interest and there’s the security that whatever happens no one gets to throw you out of your house. It’s yours, free and clear. As an investor, it can mean a higher cash flow every month from the rent as opposed to if you were still paying a mortgage on the property.

Consider all options before you decide. And realize it doesn’t have to be either-or. You can make a larger down payment on the house and keep the rest for security. Personally, I don’t like socking too much money away in one place, but that’s just me.

I’m assuming when you say that you mean your purpose as in whether it will be owner-occupied i.e. you would actually physically live in the house yourself, or you would be renting it out to someone else. And not the purpose almost everyone else has in buying a home: building long-term wealth. Okay, sorry – haven’t had my first cup of coffee just yet and it’s not funny when I try to be funny before it. My apologies.

The lender wants to know your purpose (and usually Realtors do as well) because they want to decide how much of an interest rate to charge on your mortgage. Your interest rate is inversely proportional to the amount of risk you are as a borrower. If you have a great credit score, have a down payment and are buying the home to live in, you are considered a lower risk than someone who has no down, a bad score and wants to rent the place out. The thinking is that if times get tough on you financially, you will pay for the roof on your head first and let your investments go the way of foreclosure.

Typically, investors are charged between 1/8 to a 1/4 percentage higher on their mortgage rates than owner-occupied homes. They are also required to have a higher down payment – typically 25% today.

Technically, stated income loans, where someone cannot document their income and the mortgage broker and lender has to go with a number that the borrower “states” as an annual amount are harder to get today. Or so we are told repeatedly. However, you should realize that just because they are harder to get does not mean they are impossible. Lenders have become more vigilant regarding “liar loans” as they are called and are checking and double-checking numbers on mortgage applications to make sure exaggerations and aberrations get weeded out.

That being said, there are still a huge percentage of people who don’t get W-2s at the end of the year and just cannot document their income. These would include people involved in businesses, self employed individuals, and other professionals. The only way these people can buy homes is by stating their income. There might be some supplemental information they need to provide, like a good credit score, but stated income loans just cannot be thrown out for the simple reason that too many people need them… too many normal, honest people need them.

These individuals may pay a higher mortgage interest on the home they buy, but that is a small trade off for the privilege of being able to buy a home they can live in.

In spite of my indignation at the word “repo” they won’t stop using it. So maybe I’m the odd one out. I just contend that cars get repossessed. Homes get foreclosed. So yes, a “repo” (ugh!) is the same as an REO, which stands for Real Estate Owned. By a bank.

Banks don’t like owning homes, by the way, in case you were wondering. Banks are not in the business of real estate, banks are in the business of money. Unfortunately, when someone stops making payments on a house, they are forced to foreclose, a process by which the home is sold at a trustee’s sale. If the home continues to remain unsold, it gets added to the other homes the bank may have called REOs. These eventually find their way to the open market, where they are sold at usually deep discounts.

There are a number of REOs on the market today, which in turn have led to the drop in home prices. The major drawback of a REO is that it is always an as-is sale and the buyer has to be exceptionally vigilant about getting all inspections done. But the price you pay for one almost always makes it worth it.

Perhaps one of the best income tax laws we have in the United States that our neighbors in Canada envy. I would know – my best friend lives in Canada and I’ve heard her family curse the fact that they don’t get any benefits for owning a home when it comes to income taxes.

Basically, if you itemize your deductions, mortgage interest counts – especially in California – as a major deduction on Schedule A. You also can deduct real estate taxes, and sometimes, points you have paid on the purchase of a primary residence. Consult your tax professional for the details or read the IRS booklet here.

With most people, the home mortgage deduction is enough to beat the standard deduction just by itself, which results in a higher refund. If you can keep more of your money and use it to fund your own home, why wouldn’t you?

When you get a loan for a property, chances are you are going to borrow that money from a bank or other institutional or private lender. This lender will then want to have you make monthly mortgage payments to “amortize” the loan – literally meaning, “kill off.”

If you fail to make those mortgage payments, however, the lender can then foreclose on the home, which would include taking it back from you and sell it on the open market. To be able to sell it on the open market, whether through an auction or through a listing agent, the lender needs to ensure that the property can cover the loan amount when sold.

Your Realtor probably will show you “comps” when you look at the home. Typically, “comps” are comparable properties that sold in a one mile radius in the last six months. This will give you an idea of where your contemplated purchase stands – in the middle is good, towards the bottom is the best.

The appraiser goes through a similar database of sold properties, although probably uses the MLS as well as the tax records to price homes that sold outside the MLS. Then the appraiser adjusts for differences to come up with an appraisal value for your property. Hopefully, the appraisal value falls within the price the lender has agreed to fund for your mortgage amount. If it does not, further negotiations might be necessary with the seller or you would move on to another property.

As a home buyer, yes, you would pay the mortgage broker for his or her services in finding you the right and hopefully most inexpensive mortgage. You would also pay him for explaining which mortgage best suits your needs at the current time. Usually, the way it works is this: the real estate brokers get paid by the seller at closing and the mortgage broker gets paid by the buyer. (There is obviously some confusion in the above regard related to real estate brokers, because even though the buyer’s broker is paid by the seller through a broker co-operation, the buyer’s broker is not an agent of the seller. Just wanted to clarify that.)

The mortgage broker will typically charge points if you want to buy down the interest rate of your mortgage. Usually 1 point corresponds to 1/8 of a percentage drop in your mortgage rate. Other fees involved are processing fees (sometimes points are included here, so read your HUD-1 carefully), transaction fees, credit reporting fees, appraisal fee, underwriting fee and so on.

The total of these fees usually adds up to between 1% – 3% of the purchase price of the house. This is why when we ask for closing costs back from the seller, they are usually capped at 3% of the purchase price. The negative aspect of getting closing costs back from the seller though is that they get added on to your loan, so you’re paying for them essentially for 30 years. It is much better to pay closing costs out of pocket if you can. It even makes for a stronger offer.

When you start looking for a home or thinking about looking for a home, one of the questions you are definitely going to run into is: should I be prequalified or preapproved for a loan? It’s an important distinction.

Usually, getting prequalfied for a mortgage, in my opinion:
1. is usually extremely easy unless you have obvious blemishes on your credit; and
2. means almost nothing.

Twixt the prequal and the purchase, there lies many a slip.

Ideally, once you get serious about buying a home, you should get a preapproval letter. A preapproval is also referred to as a credit-approval and involves amongst other things getting a loan application filled out, having your credit screened and getting an approval from a lender that – as long as the appraisal bears out on a home – they will fund the loan.

Here’s another reason a preapproval means more than a prequalification – when you meet with a lender you will have your questions answered and get a better idea of what your monthly payments will be. A computer doesn’t do that. Or answer questions regarding your specific financial situation.

Glad you asked. With this being the tax season, there are a lot of questions hanging out there in the air. And although I will not be preparing taxes at H & R Block this year (I did last year) I have always taken an active interest in income tax law. However, please remember to talk with your tax professional before following any of the advice you read here.

The rental credit is something you get on your California (state) taxes for being a tenant. It gets phased out as your adjusted gross income gets higher, but I do believe it was aproximately $120 last year.

Since the rental credit is not a deduction, it does not reduce your taxable income, but instead reduces your tax liability. Is it better? I would disagree. While technically a credit means more for reducing your taxes, I would rather get a deduction and accumulate wealth while doing so. Also, I remember the phase out adjusted gross income being pretty low last year before the phase-out started.

It depends. You might be one of those people who decides to buy a home you saw the first time you were out with your Realtor. Or you might be one of those who needs to go out more than three or four times and look at approximately a hundred homes online before you decide.

Typically, from the time you decide to buy a home to the time you actually make an offer is approximately 30 – 45 days. This includes time to get preapproved (after shopping for the best mortgage) and going out a few times to actually check out houses on the inside as well as the outside.

Then, assuming the offer doesn’t take too long to get accepted and provided you haven’t fallen in love with a short sale, you should be in escrow in about a week.

Escrow typically last 30 – 40 days. Most escrows are written as 30 day escrows just because sellers don’t want a 60 day escrow that cancels at the last minute. They have then just wasted months of advertising for their home. So even if escrows are written for 30 days, they may take up to 40 days with some delays.

You get your keys the day escrow closes, unless other arrangements have been made. So, plan on about 65 – 90 days from the day you decide to buy a home.

Now of course, this does not include moving!

In other words, your Realtor has probably asked you if you’re preapproved before going out looking at homes and has said, “If you haven’t spoken with a lender yet, I’d be glad to refer one to you.”

Hush. Calm your crazy, paranoid, beating heart. Realtors and lenders are expressly disallowed by RESPA from giving referral fees or gifts to one another for business. Chances are, your Realtor has worked with this lender before and just wants a smooth transaction – isn’t that what you want? – and / or genuinely wants to help you get the best interest rate and terms.

Private Mortgage Insurance (or PMI for short) is insurance you are required to pay if you have less than 20% down to buy a home. If you intend to buy a home with nothing down, or 5% down or even 10 – 15% down, the lender will require you to buy private mortgage insurance. It is usually added to your monthly payments, but it may be possible to buy it upfront and add it into the closing costs.

Private mortgage insurance is required to protect the lender in case you default on the loan and the lender has to go through foreclosure proceedings to sell the home. The private mortgage insurance company will then pay the lender and cover him in case of a loss (on your part.)

Usually, you would call the lender to have PMI canceled once you have paid down the mortgage to be 80% of the value of the home when it was purchased or the appraisal value, whichever is less. However, be warned that you cannot have any late payments on your mortgage when requesting a cancelation of private mortgage insurance.

Oh no. You’ve been reading those books, haven’t you?

Yes, they make entertaining reading and besides fill you up with all kinds of ideas about buying up entire streets and becoming a real estate mogul. Hey, nothing wrong with buying up streets and aspiring to be a mogul, or even being one. But realize you are not going to be able to trade your beaten up old 1985 chevy truck to get a 3 bedroom home that you can then rent out and make a fortune on five years down the road. (Yes, I can the books that trash Realtors for being conservative:))

Look, the best creative financing is usually the kind that works well. Seller financing, while not creative enough for most people, can work for example. But in today’s market where the best prices on homes are those that are in foreclosure, you are going to have a hard time convincing a bank to go for any kind of creative financing.

Your best bet is to get a loan and buy the home with no games attached. Even if it is incredibly boring.

I’ve heard of people buying homes on credit cards, but why would you?

Here are a few good reasons not to do so:
1. Interest rates on mortgages are lower than those on credit cards because mortgages are secured loan. (secured by the house)
2. You escape paying a mortgage, but you also don’t get the tax benefits of a mortgage.
and lastly,
3. I know it can seem pretty cool to do so, but why else would you?!?!

Buying a house on a credit card is probably a lot easier in other states where homes don’t cost as much as they do in California. And even if you’ve worked hard enough to get a card that will let you borrow $250,000 – $500,000 at one shot, go back to point #1 and read this post over!

Contrary to certain beliefs, I do NOT think it’s a conspiracy to take your home. I really think these mortgages came up because of the needs of various borrowers. Case in point: some of us cannot prove our income because we don’t get W-2s from our jobs. Many self-employed business owners have to get stated income loans, typically carrying a higher interest rate. Certain landlords for example might prefer interest only loans for their rentals to create a cashflow where there couldn’t be one with a fixed 30 year loan.

So how many kinds are there? You would have to ask someone specializing in mortgages that question. The following are the most common:

30 year fixed – loan amortizes (prinicipal and interest) over 30 years – payments remain the same.

15 year fixed – loan amortizes over 15 years – payments remain the same.

Hybrid – typically a combination of fixed and adjustable. Usually fixed for 3, 5 o 7 years.

Interest Only – monthly payments only include the interest, principal remains the same.

Option ARMS – interest is adjustable and borrowers can choose to pay one of four payment options; if they choose the lowest, the principal and interest part that is not paid is added to the loan, thus leading to negative amortization where the mortgage amount goes up instead of down.

Chances are, no. If you want to get a cash advance and have that money sit in your bank account for a while and “season” you could potentially do that. However, be forewarned that you would have to disclose that part of your “down payment” is borrowed and the lender might not like that.

We also warn buyers not to make any drastic changes to their credit while they are in the process of buying a home. For example, don’t buy furniture on credit, or clothes on credit. In fact, don’t use your credit cards at all for about a month between applying for a mortgage and closing on it. The reason for this is that there is usually a last credit approval done before funding during escrow. If your credit is already low or just average, this change in your credit situation might sink your scores lower than the lender wants to see and deny your loan on day 30 of escrow.

So, your best bet is to either get the closing costs paid by the seller and have the amount added to your loan figure or save up to 5% of the total purchase price before you decide to look for a home.