Starting the buying process
- Calculate your monthly income and debt
- Check your FICO Score.
- Collect documents, such as W-2s and tax returns.
- Figure out what you can afford as a down payment and for a mortgage (Price Range).
- Get Pre-approved for a mortgage, preferably a 15, 20 or 30 year fixed. Make sure to shop for the best interest rate by speaking to at least three lenders.
- Determine What You Need.
- Acceptable Locations
- Type of Residence (Single Family, Loft, Condo, Townhome, Duplex, Etc.)
- Square Feet
- Number of Bedrooms and Bathrooms
Getting a Mortgage
- Ask for referrals. Ask friends, family, your real estate agent, or loan officer for recommendations for lenders. Also, consider local credit unions. They have low rates if you qualify for membership.
- Calculate your down payment. To avoid having to buy private mortgage insurance, you need to pay at least 20 percent of the purchase price before closing costs.
- Obtain quotes from at least three lenders. Consult with both mortgage bankers and mortgage brokers to get the best interest rate.
- Decide if you want to pay points to lower your rate. Sometimes a bank will let you pay upfront to lower your interest rate, but it can get expensive.
- Lock in your interest rate. Do so 30 to 45 days before your close.
Making an offer and Negotiating the Close
- Bid Smart. Ask your real estate agent for prices of comparable homes in the area that have recently sold, use those figures to determine your initial offer.
- Make Clear Demands. Be up-front about extras, such as curtains and light fixtures, that you want included with the house.
- Use the closing date as a negotiating point. If you don’t have to move by a certain date, be flexible on when you move into your new home. You might be able to get other concessions from the sellers.
- Home Warranty Policy. Buyers should request the seller provide and pay for a home warranty policy, which should be reviewed for coverage and limitation provisions. For between $250 and $600, a home warranty policy will cover the cost of repairing, or replacing, major home systems (interior plumbing, heating, electrical system, ductwork, etc.) and appliances (central aid, garbage disposal, stove, oven, water heater, etc.). For an additional fee, additional coverage for air conditioning, pools, spas, washer and dryer, and even roofs can be added.
While some providers are reputable, others are not. Home Buyers should investigate their options. Once a policy is obtained, the buyer should also carefully read the service agreement to know what is and is not covered. For example, many policies exclude coverage for "pre-existing" problems and failures due to do poor maintenance or improper installation. In addition, some policies will require the home owner to upgrade systems to current building code standards (at the homeowner's cost) before any repairs will be covered.
Buyer documents that should be reviewed carefully.
- MLS Printout. Your real estate agent probably sent you this document via email. Although the MLS is simply an advertisement, it contains various pieces of information concerning the property, and some of that information may be inaccurate. All of the information listed in the MLS should be verified.
- Real Estate Transfer Disclosure Statement. California law requires every seller to provide the potential buyer with a Real Estate Transfer Disclosure Statement. On this pre-printed form, the seller is required to disclose all known problems with the property, such as: structural defects, problems with the roof, windows, air conditioning, heating, plumbing, mechanical and electrical systems, water damage, noise problems (schools, bands, airplanes, etc...), easements, environmental hazards, zoning and permit violations, taxes, fire, flooding, etc… A Seller cannot simply say they were unaware of a problem, if a simple inspection would reveal it. In fact, the seller is required to perform his or her own inspection of the property. A buyer should carefully review the disclosure statement.
- Title Report / Commitment for Title Insurance. Two types of title insurance policies are available to owners of real property
in California: California Land Title Association (CLTA) standard coverage policies and American Land Title Association (ALTA)
A CLTA policy insures primarily against defects in title which are discoverable through an examination of the public record. This includes defects in title or recorded liens or encumbrances, such as unpaid taxes or assessments, and defects due to lack of access to an open street. A CLTA policy also covers a limited number of risks that are not discoverable through a search of the public records.
The ALTA policy provides greater coverage than the CLTA policy. Generally, the ALTA policy provides the same coverage as the CLTA policy, but also insures against defects, liens, encumbrances, easements, and encroachments and conflicts in boundary lines that are not reflected in the public records. Since an ALTA policy covers many "off-record" defects in title, the insurer will typically survey the property to be insured.
A home buyer may also purchase, at an additional cost, optional endorsements to cover risks that are not included in the standard CLTA or ALTA title insurance policy. Be sure to discuss available optional endorsements with your title insurer, or escrow officer.
The cost of title insurance can be found at www.insurance.ca.gov
- County Assessors Records. The county assessor's records will contain various pieces of vital information such as the assessed value of the property for tax purposes, the square footage of the property (which should be verified for accuracy), and other important details. If you believe there is an unpermitted improvement, or structure, pull the building permits for the subject property.
- Termites & Other Wood Destroying Organisms. Although California law does not require a seller to provide, or a buyer to obtain, a pest control inspection and certification report, all buyers should insist on a termite inspection, and if problems are discovered, that they be rectified by the seller.
- Professional Home Inspection Report. We cannot emphasize enough the importance of obtaining a professional home
inspection by a licensed and trusted home inspector. The home inspector will generally provide the buyer with a report
detailing information about the home’s condition, actual problems, and potential problems. The report should be obtained
and carefully reviewed within the allotted time frame, as the buyer may need to cancel his or her offer and submit a
reduced offer based on the information obtained. Attend the inspection, this is your opportunity to ask questions about
the infrastructure of the house. Be sure to learn about the operation and locations of the gas and water shut-off valves and
Before agreeing to hire a specific home inspector, understand that California home inspectors are not required to be licensed. The California Business & Professions Code defines a home inspection as a “a noninvasive, physical examination, performed for a fee in connection with a transfer, as defined in subdivision (e), of real property, of the mechanical, electrical, or plumbing systems or the structural and essential components of a residential dwelling of one to four units designed to identify material defects in those systems, structures and components.” It is therefore important that you hire someone you trust, and preferably a licensed contractor who also holds some experience as a building inspector.
- Property Appraisal. To determine its value, you need an appraiser, which your lender will hire. Make sure the appraiser has a copy of the sales contract to verify what is (and isn’t) being sold.
Common Physical Property Conditions to Investigate.
- Roof. If the home inspector discovers any problems with the roof, you may consider having a licensed roofer come inspect the property.
- Swimming Pool or Spa. If the home has a pool or a spa, you will want the home inspector (or a pool company) to pay particular attention to any leaks, the age of the system, the cleaning system, and any heater. You will also want to take note of any barriers surrounding the pool, as California Health and Safety Code Sections 115920-115929 (Swimming Pool Safety Act) require many local ordinances require a pool to either have a fence surround at least 60 inches high, or approved safety pool cover under certain circumstances.
- Sewer and Septic Systems. Even if the Seller states that the home is connected to the city sewer, it should be verified and inspected by a plumber, contractor, or home inspector. The main water line, if 30 years old may need to be repaired and replaced and this can be a very expensive process. If the property has a Septic System, it should be inspected by a qualified septic tank company.
- Property Boundaries. Property boundaries should always be of concern, and we strongly recommend that a buyer obtain a survey before completing any purchase. It is not uncommon for property owners to learn that their garage, driveway, or other structure is impeding on an adjacent landowner's property and corrective measures can be extremely costly. A list of surveyors may be obtained from the Board for Professional Engineers and Land Surveyors at http://www.pels.ca.gov/.
- Repairs & New Construction. A potential buyer should be concerned about recent repairs and new construction. Oftentimes a seller will make quick fixes to hide old problems, or a seller may have engaged in unpermitted upgrades or additions which can lead to fines and penalties. If a property appears to have been remodeled, the buyer should not only request copies of any invoices, or other documentation regarding the work performed, but should also contact building and safety to ensure the work was properly permitted.
- Square Footage. The square footage of the property will probably be listed on the MLS listing document, and may actually have been supplied by the county assessor's office. Unfortunately, these numbers are often inaccurate and misleading. If square footage is important to you, the home buyer should have an appraiser, or architect, measure the home’s size to verify the square footage.
- Water Damage and Mold. Prospective home buyers should be very concerned about water damage and mold. If the seller discloses that there has been either a fire, or flood, the property should be inspected for potential mold. A buyer should thoroughly investigate the surrounding area for: (1) schools, (2) freeway noise, (3) air traffic noise, (4) crime statistics and sex offenders, (5) change in zoning that may affect the property, and (6) potential hazards, such as a high water table, earthquake fault zone, etc...
Home buyers should visit the property at different times of the day and should talk with surrounding neighbors and the local police department.
Final Walk Through
- Verify that all included appliances are in working order.
- Turn on every faucet and flush toilets
- Plug something into each outlet
- Check the smoke detectors
- Test the heat and air-conditioning
- Look for water and mold on ceilings
- Examine for signs of vermin
- Negotiate a closing credit if you find anything broken or missing
- Sign the contract, then move in.
This is only a partial list of the items that should most concern potential home buyers. When buying a home it is not only important that you understand all of the documents, but to also learn what costs are in fact negotiable and what terms can also be altered. If you are unsure about something, do not rely on the statements of the broker or agent; remember their main priority is getting a commission which only occurs if you buy or sell that residence. Getting an opinion from a local real estate attorney could be money well spent, and typically is provided for a relatively low fee.