Home Buying Process

Seven Things Your Agent Should Know About Your Bay Area Mortgage Approval

01 April 2010 / Home Buying Process / 0 Comment

While many experienced Bay Area real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.

New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a Bay Area borrower's home loan financing.

With today's volatile lending environment, it's obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer's scenario prior to spending any time looking at new homes with an agent.

Either way, we've listed a few of the top things your agent should keep in mind while showing you new properties in the Bay Area:

Caution - Agents Beware:

Property Type -

High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House... all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.

Residence Type -

Need to sell one home before moving into another? Is a property considered a second home if it's in the same city? What if I'm buying a home for my children to live in, it is still considered an investment property?

These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.

Rates / Locks -

Mortgage Rates are typically locked for a 30 day period, and one of the only ways to get a new rate is to switch mortgage lenders. Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.

A 1% increase in rate could literally mean the difference between an approval or denial.

Headline News / Employment -

Underwriters watch the news as well. Bay Area Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.

Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.

Title / Property Flip -

A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period. Generally, an investor will do a little rehab work, fresh paint, landscaping.... and try to re-sell the property for a significant profit margin.

While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent Bay Area borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.

These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.

Homeowner's Association Insurance -

Some Bay Area lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.

It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.

Appraisal Ordering Procedures -

Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.

Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.

VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you're approved for so that they document any anticipated delays in the purchase contract.

For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn't smart to write a purchase contract with a four week close of escrow.

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Where does Earnest Money on my Bay Area Home Purchase Go?

28 March 2010 / Home Buying Process, Mortgage Closing Costs / 0 Comment

Hey, I gave my Bay Area real estate agent a $5000 Earnest Money Deposit check... Where does that money go?

A basic and very obvious question that most Bay Area First-Time home Buyers ask once their purchase contract gets accepted.

According to Wikipedia:

Earnest Money - an earnest payment (sometimes called earnest money or simply earnest, or alternatively a good-faith deposit) is a deposit towards the purchase of real estate or publicly tendered government contract made by a buyer or registered contractor to demonstrate that he/she is serious (earnest) about wanting to complete the purchase.

When a buyer makes an offer to buy residential real estate in the Bay Area, he/she generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations.

An Earnest Money Deposit (EMD) is simply held by a third-party escrow company according to the terms of the executed purchase contract.

For example, there may be a contingency period for appraisal, loan approval, property inspection or approval of HOA documents.

In most cases, the Earnest Money held by the escrow company is credited towards the home buyer's down payment and/or closing costs.

*It's important to keep in mind that the EMD may actually be cashed at the time escrow is opened, so make sure your funds are from the proper sources.

The Process:
1. Earnest Money is submitted to an escrow company with the accepted purchase contract
2. At the close of escrow, the EMD is credited towards the down payment and / or closing costs
3. If there are no closing costs or down payment, the EMD is refunded back to the buyer
Who Doesn't Get Your Earnest Money:
- Selling Real Estate Agent - A conflict of interest
- Sellers - Too risky
- Buying Agent - They shouldn't have your money in their account
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Renting vs Buying a Home in the Bay Area

28 March 2010 / Home Buying Process / 0 Comment

Buying a home versus renting is a big decision in the Bay Area that takes careful consideration.

While there are several biased sources that can make arguments for or against owning a home in the Bay Area, we've found that most home buyers base their ultimate decision on emotion.

Yes, there are some tax advantages of owning real estate, as well as the potential to earn equity or pay a mortgage note off after several years.

However, let's address some of the more obvious topics of discussion first.

Benefits Of Renting:

Lower Acquisition Cost -

Unless you're able to qualify for a mortgage loan with zero down and have your closing costs paid for by the seller, a typical investment to purchase a home in the Bay Area is around 3.5% - 7% of the purchase price for down payment and closing costs on an FHA mortgage, and an average of 13% - 23% for a home secured by conventional financing.

Compared to the cost of about 1-3 month's rent payment, it's obvious that renting a home in the Bay Area makes financial sense in the short-term.

Lower Qualifying Standards -

While the FHA and other government insured mortgage programs have more flexible credit / qualifying guidelines than most traditional home loan programs, there is certainly a lot less paperwork and personally invasive probing required by most landlords and property management companies.

Generally proof of employment / income and a decent credit history (or a good explanation) is needed to rent a home in the Bay Area.

Freedom To Move -

It's easy to find a home through a reputable property management company, move in that weekend and then leave a year later when the rental contract expires. Not being tied down by a long-term mortgage liability is ideal for people new to a community, in a career that keeps them on the go or for parents with children that prefer a certain Bay Area school district.

Plus, if you're planning on moving in the next 3-5 years, then it may become cost-prohibitive due to the amount of equity you'll have to gain in the short-run just to cover the cost of paying an agent, buyer closing costs, transfer taxes.... so that you can at least break even at closing.

Less Maintenance and Cost -

If something breaks, a simple call to the property management company will generally solve the issue in 48 hours or less. Plus, renters don't have to carry expensive homeowners insurance, pay property taxes or worry about interest rates adjusting.

Benefits of Owning:

Pets Are Allowed -

Well, according to the rules and regulations of your county or neighborhood HOA, you can pretty much have as many domestic and exotic pets without having to pay extra deposits.

It may seem like a funny benefit to mention first, but the millions of dog and cat lovers would definitely rank this towards the top of their list.

Pink and Purple Walls -

Yep, you can paint the inside of your house any color you choose. And depending on whether or not there is an HOA in place, you could probably do the same thing on the home's exterior. Landscaping, flooring, built-in shelving... it's your Bay Area property to renovate and grow in.

Peace-of-Mind and Security -

The only way you would be forced to move is if the bank forecloses on your property due to a default in mortgage payments.

So basically, you don't have to worry about a landlord's financial ability to make mortgage payments on time. Plus, you can stay in your own property as long as you wish.

Tax Benefits -

The US government has created certain tax incentives making it possible for many homeowners to exceed the standard yearly deduction.

*Disclosure - Check with your CPA or Tax Attorney to verify your own unique filing scenario*

The following three components of your home mortgage may be tax deductible:

a) Interest on your Bay Area home mortgage
b) Property Taxes
c) Origination / Discount Points

Stability -

Remaining in one neighborhood for several years lets you and your family establish lasting friendships, as well as offers your children the benefit of educational continuity.

Appreciation of Property -

Historically, even with other periods of declining value, home prices have exceeded consumer inflation. From 1972 through 2005, home prices increased on average 6.5%, according to the National Association of Realtors®.

Forced Saving -

The monthly payment helps in repayment of the principal amount. Also when you sell you can generally take up to $250,000 ($500,000 for married couple) as gain without owing any federal income tax.

*Disclosure - Check with your CPA or Tax Attorney to verify your own unique filing scenario*

Increased Net Worth

Few things have a greater impact on net worth than owning a home in the Bay Area. In a comparison of renters versus homeowners, the Federal Reserve Board of Consumer Finance found that the average net worth of renters was just $4,000 compared to homeowners at $184,400.

While the available tax advantages and potential for earned equity are generally highlighted by most industry professionals as the top reasons to own real estate, it's important to remember that markets go through cycles.

However, owning real estate that appreciates more than the rate of inflation may help contribute towards your overall investment portfolio, provided your maintenance and mortgage costs are kept low.

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Bay Area First-Time Home Buyer Credit Checklist

28 March 2010 / Home Buying Process / 0 Comment

Getting a new mortgage for a First-Time Home Buyer in the Bay Area can be a little overwhelming with all of the important details, guidelines and potential speed bumps.

Since there are so many rules and steps to follow, here is a simple list of Do's and Don'ts to keep in mind throughout the mortgage approval process:

DO:
- Continue working at your current job
- Stay current on all your accounts
- Keep making your house or rent payments
- Keep your insurance payments current
- Continue to maintain your credit as usual
- Call us if you have any questions
DON'T
- Make any major purchases (Car, Boat, Jet Ski, Home Theater...)
- Apply for new credit
- Open new credit cards
- Transfer any balances from one credit or bank acct to another
- Pay off any charge-off accts or collections
- Take out furniture loans
- Close any credit cards
- Max out your credit cards
- Consolidate credit debt
Basically, while you are in the process of getting a new mortgage, keep your financial status as stable as possible until the loan is funded and recorded.

Any number of minor changes could easily raise a red flag or cause a negative impact on a credit score that may result in a denied loan.

Most importantly, check with your loan officer on even the simplest questions to make sure your loan approval is successful.

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HOA Hurdles to be aware of when looking at New Bay Area Properties

28 March 2010 / Home Buying Process / 0 Comment

A Home Owner Association (HOA) can have a huge impact on your life when you buy a home in a PUD (Planned Unit Development) or Condominium Project in the Bay Area.

According to Wikipedia:

A homeowners' association (abbrev. HOA) is an organization created by a real estate developer for the purpose of developing, managing and selling a development of homes.

It allows the developer to exit financial and legal responsibility of the community, typically by transferring ownership of the association to the Bay Area homeowners after selling off a predetermined number of lots.

It allows the municipality to increase its tax base, but reduce the amount of services it would ordinarily have to provide to non-homeowner association developments.

Most homeowner associations are incorporated, and are subject to state statutes that govern non-profit corporations and homeowner associations.

State oversight of homeowner associations is minimal, and mainly takes the form of laws, which are inconsistent from state to state.

The Pros and Cons of HOA's:

A Home Owner Association may have the power to determine the color of your Bay Area home, the number of pets you have and the type of grass you have to plant.

They also may have the power to levy assessments, dues and fines.

Or, they may be as simple as collecting a few dollars per year to make sure the grass is cut in the common areas.

HOAs are set up by CC&Rs (Covenants, Conditions & Restrictions) and become part of your deed.

The CC&Rs dictate how the HOA operates and what rules the owners, tenants and guests must obey.

You should take the time to review the CC&R for any prospective purchase to make sure that the Bay Area home you are buying will be right for your lifestyle.

For instance, if you operate an Amway business from your Bay Area home, it is possible the CC&Rs prohibit this type of activity. Or, if you have two dogs and three cats, the CC&Rs may limit you to one pet.

The CC&Rs are only a portion of the HOA.

Bylaws are another component of HOA's that reflect the intention of the association.

Each HOA either has a managing Board of Directors, or a third-party property management company.

One issue to be sure you check on is potential assessments.

For instance, recently a Condo Association had a foundation problem and was assessing the members over $10,000 per unit.

Another PUD had a pool that required routine maintenance and certification.

Subdivisions are commonly set up as PUDs with an additional HOA.

Until the subdivision is complete, the builder is generally in charge of the HOA.

When complete, the management of the PUD is typically turned over to the homeowners at a special membership meeting.

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