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Purchasing a Home
Buying a new home is a financial and emotional experience that requires life-changing
decisions. In today's complex and changing real estate market, working with a licensed, full-time
real estate agent will ensure that you find a home that best satifies your
hopes and needs and that provides the most advantageous terms and conditions for you. When
you work with Dave Cunningham, you join a growing family of satisfied clients. As a Zephyr agent,
Dave has access to all the expertise and resources of the
entire company. Whether you need a referral to a reliable plumber or a
swing loan to help you finance your next purchase, Dave Cunningham and Zephyr Real Estate
can help you out.
Purchase a Home
There are basically four main things to consider when purchasing a home: Choosing
a Real Estate Agent, Financing Your Home, Finding the Right House, and Making the Offer.
Choosing a Real Estate
Agent
Your agent should provide you with the very best in
personal service and attention to help you find the right house. Your
agent will:
- Meet with you to discuss your needs, analyze
your financial resources, and help establish achievable goals.
- Recommend a lender where you can find the best
possible financing.
- Show you homes based on the crieteria you've
established.
- Explain protective conditions,
contingencies, customary practices, local laws, regulations, and agency
relationships.
- Guide you toward loan
pre-qualification/pre-approval.
- Draft the purchase agreement for
you.
- Present your offer to the seller and the
seller's agent, highlighting your strengths as a buyer.
- Negotiate a fair agreement that gets you
the best deal possible at the best price possible.
- Open escrow with the title
company.
- Manage the escrow, ensuring that all
conditions and contingencies are fulfilled in a timely manner and in
accordance with the contract.
- Help arrange and be present for all
physical inspections of the property and revew the inspection
reports.
- Review the Seller's Transfer Disclosure
Statement, title report and all other necessary documents with
you.
- Coordinate with your insurance agent and
the title company to make sure your policy is in effect at the close of
escrow.
- Accompany you to the title office when it
is time to sign the final closing papers.
- Follow up to make sure you have settled
comfortably into your new home.
Financing Your Home
There are many critical factors
involved in determining the best way to finance your home. Buying a
home can involve the commitment of a significant amount of your savings.
Questions such as how much can I borrow and how much can I afford to pay on a
monthly basis are very important as the decisions that are made here can significantly
impact your financial situation for years to come.
Let's start by addressing the issue of the down
payment. Lenders have many loans available for home purchases, There is no hard
and fast rule on how much to commit to a down payment, but try and anticipate
your cash needs as best as you can before determining how much to commit to a
down payment. Generally, the less of a down payment you have, the greater the
loan you are going to need to close the purchase. The greater the loan you need
means your monthly payment will be greater, which means the income you need to
qualify for the loan will need to be greater too.
The next important
issue is the loan itself. What follows is a very brief discussion of a highly
complex subject. The number and types of loans available for home purchase are
about as numerous as the number of lenders making loans, so this discussion is
designed to give you only a broad brushstroke view of the lending market.
Lenders generally make two types of loans available for home purchases, a
Variable Interest Rate Loan (sometimes known as an Adjustable Rate Mortgage) and
a fixed rate loan. Within those two types of loans, the loans can either be
'Conforming', which means the loan amount is within the Fannie Mae/Freddie Mac
loan limits (check with a lender in your State for the current loan limits), or
it is 'Non-conforming', which means the loan amount is in excess of Fannie
Mae/Freddie Mac loan limits.
Variable Interest Rate Loans
generally have a lower interest rate at loan origination, but have the provision
for the lender to increase or decrease the interest rate on the loan based upon
the movement of whatever index the loan is tied to. Because the interest rate
can be adjusted, the lender has the right to increase or decrease your monthly
payment accordingly. When and by how much the payment can be changed depends
upon the loan terms you agreed to. The one thing you need to be watchful for is
that many times a lender will qualify you for your loan at what is called a
'teaser rate'. While teaser rates are designed to help you obtain a loan, this
is generally accomplished by starting your loan at an artificially low rate.
After a specified period of time has elapsed, perhaps three to six months, the
interest rate on the loan is then increased to bring it in line with where the
true interest rate should be. This can result in a significant increase in the
amount of the monthly payment. While Variable Interest Rate Loans have become
popular over the past fifteen to twenty years, if you are not comfortable with
the idea that your payment can be increased or decreased by your lender, then
the more traditional fixed rate loan is probably for you.
Fixed Rate
Loans are still the most popular form of financing. With this type of loan,
your payment will remain constant for the entire term of the loan. These loans
generally have a slightly higher interest rate than the Variable Interest Rate
Loans at origination, but unlike the Variable Interest Rate Loans, the interest
rate will remain fixed throughout the term of the loan. The traditional fixed
rate loan generally fully amortizes over a thirty-year period, with the payment
in the first month the same as it is in the 360th month. For those buyers who
want to know that their monthly commitment to a home payment will always be the
same, this is the loan for you.
Also remember that whatever loan you
obtain, the lender may require an impound for real property taxes and insurance,
which will further increase the monthly payment. These impounds are designed to
make sure that the borrower has enough funds available to pay for property taxes
and insurance when they become due and payable.
How much home can you
afford to purchase? This is a difficult question to answer, as each potential
buyer's situation is different. The very best way to answer this question is to
go and talk to lenders and ask them to calculate how much they can qualify you
for based upon your income, length of time on your job, and amount of your down
payment. Lenders will need to know how much debt you have, such as car loans,
credit cards, student loans, etc. Remember, once you actually apply for a loan,
all the information you use to qualify for the loan will be verified through the
loan qualification process. Another suggestion would be to talk to more than one
lender. Each lender may have a slightly different loan to offer. Find out which
lenders are most active in the real estate market in your area.
- Determining the right
price range
The first step in the buying process is to
determine the price range that is right for you. You will need to consider
how much cash you are prepared to invest in your home and how much money you
will need to borrow.
Your cash on hand will have to cover both the down
payment and any closing cost associated with the purchase. Closing costs
vary significantly based on the terms of any loan you may obtain, but are
generally 2% to 4% of the purchase price. And don't forget any moving
expenses!
You should also consider how much property taxes
and insurance will cost in addition to a monthly mortgage payment. If you
are buying a condominium also consider monthly HOA or Homeowner's Association
Dues.
Dave Cunningham can recommend a terrific mortgage
broker or you may select a direct lender as long as your lender is based in San
Francisco or at least has local offices here. Buyers are strongly
discouraged from using online lenders based on many bad experiences with them at
Zephyr and other San Francisco real estate brokerages.
- Pre-qualifying for a
Loan
Generally in San Francisco an offer to
purchase property must be accompanied by a pre-approval letter from a
reputable lender or mortgage broker. This gives assurance to the seller
that you will be able to get the proposed financing and will not tie up the
property needlessly.
- Potential lenders will inquire about six
critical factors:
- Income
- Savings
- Credit History
- Debt level
- Employment History
- The value of the property you wish to
purchase
Closing costs are the various charges
made by the lender, the title company, real estate agents, and other service
providers necessary to complete a transaction. Although who pays for the
vaious closing costs is negotiable between the buyer and seller, the following
sets forth the customary division in San Francisco
County.
- The Buyer customarily pays:
- Title insurance
premium for lender and buyer
- Escrow fee
- Notary fees
- Contractor's and
pest inspection fees
- All new loan
charges (points, appraisal, document processing fees, etc.)
- Interest on new
loan from date of funding to 30 days prior to first payment date
- Beneficiary fee
for assumption of existing loan
- Home warranty
- Homeowner's
insurance
- Earthquake
insurance (optional)
- Private mortgage
insurance (typcially 2 months) if required by lender
- Property tax
impound accound if required by lender
- Move-in fee (for
condominiums)
- Miscellaneous
charges by Title Company for messengering, wiring, notary,
etc.
- The Seller customarily pays:
- Real Estate
commission (for both agents - 6% split 50/50 between the Buyer's Agent and
Seller's Agent)
- Document
preparation for deed
- Transfer Tax
(amount depends on sales price)
- Payoff of all
loans in seller's name
- Interest accrued
on loans being paid off, reconveyance fees and pre-payment penalties (if
applicable)
- Home warranty (if
specified in the contract)
- Any judgement or
tax liens
- Property tax
proration
- Unpaid
homewoner's dues (condominium)
- Bonds or
assessments
- Delinquent taxes
- Move-out fees
(for conominiums)
- Notary fees and
recordation fees
- Third party
Natural Hazard Disclosure Statement
- Pre-sale Pest
Inspection fee
- Underground
storage tank report
- Miscellaneous
charges
Finding the Right House
In the
intial buyer meeting I will help you identify the factors which will guide the
search process for a property that best suits your lifestyle and needs.
Price, neighborhood, type of property, 'nice to haves' and essentials will be
discussed. Of all the issues involved in purchasing a home, this is
probably the most subjective. Ask yourself, what type of home satisfies your needs? Is it
a single family, detached home with a backyard, or a condominium? Do you want
your home on one story or multiple stories? Is it
close to schools, shopping/work, public transportation, shopping district? I will take the time
to help analyze what is important to you and how to best achieve
that.
Looking for Properties
We will go out together and view properties at
least once early in the search process. This will help me and you define
what you like and dislike and help me to know the most appropriate properties to
show you in the future. Your time is important to me and I will endeavor
to understand your needs as best as possible so that I can minimize sending you
to properties that you would never consider living in!
Most buyers see properties on Sunday during 'Open
Home' times which generally are between 2-4p.m. every Sunday. I will give
you a stack of my business cards to take with you so that you can give one to
the person holding the property open so they'll know you are working with
me.
Broker's Tour : Each Tuesday in San Francisco,
new property listings are open to agents and brokers for viewing. You may
accompany me on Tuesdays if this is available to you and this is a excellent way
to accelerate your search property as most of these properties are being shown
for the first time. If you would like to see a property on Tuesday but I
cannot accompany you, I will give you some of my cards to give the Broker's
holding the property open. This is your ticket into the
property.
Questions to Ask :
When you find a property you like think about the
following questions:
- Are there any recent
inspection reports? The
Seller may have a recent pest control or general contractor's insepction report
for your review. I will review these reports with you and let you know if
your are viewing a complete or partial report and if the inspector is a well
know local inspector. Often times these reports can tell you some great
information about a property before you even consider making an offer or paying
for your own inspection. This can help you decide if you would like to
move forward on this property.
- What is the condition of the plumbing,
electrical system, roof, foundation? If these systems are old, the
cost to repair or replace them should be considered. I will help you
decide how to proceed when we find answers to these questions.
- What items of personal property are included
in the sale? In San Francisco, appliances and fixtures are assumed
to stay with the property unless indicated otherwise but I will be sure to
write the pertinent items into the purchase offer to make sure there are no
misunderstandings after close. (e.g. expensive custom blinds or
draperies missing when you go to move in)
- Are there any signs of dampness or poor
drainage? These conditions are often difficult and expensive to
correct.
- When were improvements made and were they
done with permits? Many properties in San Francisco have had
improvements or additions completed without the benefit of permits and may not
comply with San Francisco building and zoning codes.
Making the Offer
Financial and emotional
considerations: Once you have identified the property that can fulfill
your goals and are prepared to make an offer, there are financial, psychological
and emotional considerations in structuring your offer. Is the property
'hot' (extremely desirable) - one that could invite multiple offers? If
the seller counters your offer and asks for a higher price, what is your top
dollar? Is the property in dire need of improvement? How motivated
is the seller? How motivated are you? What contingencies
(conditions) have you placed on the offer? Do you have to sell a property
in order to purchase this one?
Writing
the Offer : In writing the offer,
there are several factors to consider in the intial presentation:
- Purchase Price - Having viewed other properties,
you will have a good idea of the value of your prospective home. I will
'comp' each property that you are interested in making an offer on and give you
a range of current fair market value for the property. However, due to the
competitive market here in San Francisco, often properties that have multiple
offers will go well over the 'fair market value' or price that the latest
properties have sold for. I tell all my buyers to make and offer that they
will be at peace with whether they win or lose in the bidding process. In
other words, if your offer is accepted you won't say 'Oh no! I must have
paid too much!' and if your offer isn't the winning offer you won't say, 'Oh
no! I wish I had bid that extra $5,000 on this property!' I also
tell clients that most often when a client is outbid on a property that they are
emotionally invested in, they will feel very disappointed when they don't get it
but inevitably we will eventually get them into a property that they like even
more than the property they didn't get earlier. Things just seem to work
out this way!
- Loan Condition - If you are obtaining a
loan to finance the purchase of your home, I will structure the purchase
contract to allow reasonable time to obtain a loan from your lender and at
terms which are acceptable to you. If often takes 3 to 4 weeks to obtain
a loan commitment. Typical contract time frame for loan conditions in
San Francisco are 21 days.
- Inspections - In thne majority of
transactions, offers are made contingent upon obtaining and approving
inspection reports on the property by a licensed professional. This is
to inform and protect the buyer about known and unknown conditions. I
recommend 3 major inspections be conducted on single family residences and
muti-unit buildings; pest control inspection, general contractor, and
underground tank inspection. It may also be appropriate to have
inspections by structural engineers, roofers, sewer/plumbing contractors, and
or other specialists.
- Personal Property to be included - It is
important to clearly identify all personal property that will be included in the sale. I
will make sure we specify what it is we want included with
the property.
- Dispute resolution - Liquidated
damages, mediation, and arbitration address what happens if a buyer and seller
get into a despute. I can provide you with summaries of these contract
provisions to help you decide if you want to include them in your
offer.
Submitting your deposit:
A good faith deposit must accompany your
offer. This is a personal check made payable to the title company of your
choice. I will take the check and hold it, submitting only a copy of it to
the seller's agent, and upon offer acceptance, open escrow with the check.
The amout is 3% which is part of your total down payment for the property.
The balance of the down payment will not be due until a couple of business days
before close of escrow. (about 27 days) If your offer is not
accepted, I will return or destroy the check as you wish.
Methods of Holding Title:
It is very important for two or more individuals
buying a property together to decide on the appropriate form of ownership, known
as vesting of title. The method of holding title will determine who may
sign various documents and future rights of the individuals in the
transaction. These rights invovle such matters as real property taxes,
income taxes, inheritance and gift taxes, transferability of title and exposure
to creditors' claims. The form of ownership also has significant probate
implications in the event of death. The most common forms of ownership are
"Tenancy in Common", "Joint Tenancy", "Community Property with Right of
Survivorship."
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