Home Buyers Real Estate Journal

We’re in a competitive market. What can I do to make my offer look better than another buyer’s offer?

It takes more than good luck to get the right home at the right price. One advantage you can have on your side is a conditional loan pre-approval. When you are pre-approved your offer is more attractive because the seller doesn't have to wonder if you can afford to buy. The seller will know in advance that your offer is as good as money in the bank.

• Pre-approval versus pre-qualification
  A pre-approval is a conditional loan approval from a lender based on your application. Pre-approval differs from pre-qualification, which is a verbal exchange with a lender about how much you can probably afford. Pre-qualification does not obligate the bank to make the loan, whereas a pre-approval is a conditional loan commitment. Final approval is made when both your finances and the property pass review.
• Close the deal faster
  Lining up your mortgage loan before you start house hunting could make buying your new home quicker and easier. A pre-approval can speed closing because most of the paperwork is already in place for the loan. You have already started to learn about the financing process, and any problems will have been resolved.

What are some inside tips to close a deal if the seller won’t budge on price?

Negotiating is an important part of many home sales. If you have found the home you want, but the price isn't just right, both you and the seller may have to adjust your expectations to close the sale and get you in the door.

• Keep searching for common ground
  If the seller won't budge on the price, perhaps there are other items that can be negotiated, such as closing fees or loan discount points to bring the cost of the home within reach. Or perhaps the seller will add the washer and dryer, drapes or other amenities not originally included in the sale. The key is to keep talking until you find common ground.

What happens after I present my offer?

When a buyer presents a purchase contract, it is usually the starting point of negotiations, so keep your mind sharp and your pen handy. The seller can accept, reject or modify the contract. Most often changes are negotiated and the sale goes forward. Here are some points to remember:

• Keep the calculator handy
  Both the buyer and seller should total up the value of negotiable items, and keep in mind how the price bid by the buyer compares to recent sales of comparable homes. If the bid is already low, the seller may not be willing to pay points or closing costs, but when a home price is a little high, the seller has room to offer financial considerations.
• Try to nail down intangibles
  Other negotiable items may be hard to quantify, such as including the drapes or a special chandelier, or the 5-year old washer and dryer. Anything pertaining to the sale is up for negotiation and has a value. For example, changing the date of settlement to accommodate one of the families or inserting a mortgage approval contingency can be discussed.
• Put it all in writing
  Be sure all changes to the contract are made on the original form, no matter how messy it gets; important items can be missed during retyping.

Should I ask for a home inspection before I buy?

When buying a home, leave yourself the option to get a second opinion. Consider putting a contingency clause in your offer that allows you to get a home inspection and cancel the sale if the results of the inspection are unsatisfactory. If there are serious problems, a home inspection can prevent some serious hassles.

• Who pays for the inspection?
  The buyer usually pays for the inspection, which can cost several hundred dollars. The seller generally wants the inspection completed within a short time period, say five or ten days. For this reason, when you start shopping for a home, also look around for a good home inspector. Ask your agent for several names.
• Who should attend the inspection?
  You. You’ll learn a lot about the house that could soon be your home. If it's practical, your real estate agent and the seller should also accompany the inspector. Wear old clothes and comfortable shoes, as a complete inspection goes from attic to basement. The inspector should check for structural defects, plumbing and wiring problems, dampness in the basement, leaks from the roof, termites, lead paint, dry rot, energy efficiency and compliance with local building codes. Any visible and accessible problems should be noted immediately and then included in the report.
• What happens if the inspection uncovers problems?
  If you put an inspection clause in the contract, you may back out of deal if serious defects are found. What happens more frequently is the buyer will negotiate with the seller to have the problem repaired or the sales price adjusted.

Once a settlement date is set, can it be changed?

Settlement it the last step in home buying – before the moving begins, that is! Sometimes called closing, settlement is where the seller receives the funds from the buyer and the buyer gets proof of ownership. While everyone does their best to meet the settlement date, it is important to remember that many things can crop up to delay the settlement.

For instance:

• Credit problems
  Problems with buyer's credit history that must be explained.
• Paperwork delays
  Unforeseen delays in processing lending paperwork.
• Appraisal problems
  Delays in property's appraisal.
• Contingencies
  Inspections and/or repairs that must be completed before settlement.
• Unresolved liens
  Liens against the property that need to be resolved.
• Personal Problems
  Personal problems (such as a death in the family) that lead to rescheduling.

Remember, delays in settlement do not necessarily mean the transaction is falling apart. Most transactions do eventually go to settlement. Many problems can be straightened out in a day or so. The key is flexibility.

What should I expect at the final "walk through?"

Whether you buy a new house or one that has been occupied before, you want to make a final inspection before settlement. The "walk-through" should be scheduled long enough before settlement so any problems can be solved before you receive the keys.

• Examine the house closely
  Examine the house closely to see that any contingencies the seller agreed to have been attended to. Then look for any flaws that might have escaped your notice earlier. For instance, how does the house look without your predecessors' furniture? Has the builder made any changes since you saw the house before? Are the items that are supposed to remain still there?
• Negotiate problems
  In some cases, problems will have to be taken care of after settlement. Just make sure you have a written agreement to that effect (with a timetable specified), to prevent misunderstandings.
• Ask all your questions
  Don't be shy about asking questions during your final walk-through. Make a checklist of questions and answers and put your requests in writing as soon after the inspection as possible.
• Get some help if needed
  If you're not sure what questions to ask, take your agent or an experienced inspector along with you. Or consult a home maintenance book ahead of time to alert you to problem areas.

I can help you with every step of your home-buying experience. If you'd like to begin by searching for a home that meets your criteria, I've got a page on my website that allows you to find a home in San Diego, Orange, Los Angeles, San Bernardino and Riverside Counties.

Or simply contact me, let me know what you're looking for, and I'll help you find it!

What are some sources for out of pocket cash to pay closing costs?

Sometimes the amount of cash needed to close a sale comes as a shock to the buyer. Taxes, recording fees, insurance premiums, pro-rated interest, escrow deposits and other expenses can easily reach into the thousands of dollars. Rather than reduce the down payment to pay these costs, many homebuyers have other sources of funds they might not think of using.

Here are seven to consider:

• Gifts
  Lenders like these best because they do not have to be repaid. Miss Manners may object, but this would be a good time to ask for cash in lieu of a birthday or wedding present.
• Concessions
  Ask the seller to pay some of the closing costs. You may pay more for the home, but you will have more cash to use for down payment than if you use part of your savings for settlement expenses.
• Lender programs
  Some lenders are willing to wrap the closing costs into the loan total, but will charge you a higher interest rate for the loan. You may be able to refinance for a lower rate later.
• Sell something
  Some people have sold assets like an extra car, land, or stocks to raise the extra cash for closing.
• Housing assistance programs
  Borrowers who meet moderate-income guidelines may be eligible for state or local loans or grants to help first-time home buyers.
• Employer assistance
  Many companies have housing-assistance programs available through the Human Resources department. Some firms will allow an employee to borrow against a year-end bonus.
• Borrow from yourself
  You may be able to take a loan out against your retirement account, life insurance or other restricted savings. You pay the interest to yourself. But be sure to repay what you borrow, since some programs have hefty fines and tax consequences if you don't.

If you're enjoying this series of articles on Closing for Buyers and would like to read more articles on buying a home, visit Southern California Homes Online's Buyer Tips!

We’re a little tight on cash. How can we shift some settlement costs to reduce out of pocket expenses?

Some buyers reduce the cash needed at settlement by scheduling closing at the end of the month. But there are several other ways to save on closing costs that may work better in the long run.

• Skip late-month settlement
  Since interest on the loan is paid to the end of the month at settlement, the interest payment gets lower as you get closer to the end of the month. But another approach is to wait a few days until the beginning of the next month. That way, you'll need to pay more up front at settlement, but you'll gain a whole month's delay before the first full mortgage payment is due, because mortgage interest is paid in arrears, after the month has passed.
• Reduce out-of-pocket cash
  Another way to reduce the cash needed at settlement takes some advance planning. By negotiating with the seller, the buyer may be able to pay more for the home and finance it, while the seller puts an equal amount toward out-of-pocket settlement costs.
• Finance closing costs
  A third option is to find a lender who will finance closing costs by wrapping them into the mortgage. This method may, however, cost more over the long run, as lenders often will then charge a higher interest rate for a "no closing costs" loan.

What are some typical closing costs?

When you apply for a mortgage, the lender must respond with a Good Faith Estimate of Closing Costs, which explains the costs you will likely have to pay at settlement. But the numbers on the form are estimates, and the final tally could be higher or lower.

Some of the more common charges are:

• Loan Origination Fee: usually 1% of the loan;
• Loan Discount Points: a form of accelerated interest; each point is 1% of the loan amount (who pays points is negotiable between buyer and seller);
• Appraisal Fee: the charge to have a professional appraiser certify the value of the property being purchased;
• Credit Report: the cost of getting a credit history from a credit service;
• Tax Service Fee, Document Preparation Fee: charges to set up a tax escrow account and prepare mortgage documents;
• Attorney Fees: the settlement agent's charges for processing the sale closing;
• Title Insurance: charges for insurance to guarantee the validity of the property's title for the lender; buyers can also purchase title insurance at settlement to protect their interests;
• Recording Fees, Tax Stamps: local charges to officially record the deed and mortgage, and transfer taxes;
• Survey: the charge to verify the boundaries of the property being purchased.

For more information on closing, please visit Southern California Homes Online's Buyer Tips page.

What do I need to know about closing on my home?

Once you’ve signed a contract to buy a house, the preparation for settlement begins. Settlement, or closing escrow, is the process of transferring the title (ownership) of the home from seller to buyer. Often, the real estate agents involved in the sale help you take care of these arrangements. But the buyer and seller are ultimately responsible for attending to these details. Here are the basics.

Buyer's Responsibilities

• Getting financing
  The buyer must first secure the financing to buy the house. Usually this means taking out a mortgage loan. Most lenders require a complete financial picture, including income and expenses, and a credit check. In addition, most want an up-to-date appraisal of the home, a survey of the property and, often, some inspections (for termites, radon gas, etc.). Some lenders specify which service providers they want the borrower to use. Once all the paperwork is in, the borrower should keep in touch with the lender until receiving a loan commitment.
• Buying hazard insurance
  The buyer needs to purchase a hazard insurance policy (also called homeowner's insurance) – usually bringing a paid receipt to settlement – to protect the lender. If the buyer wishes to bring an attorney to settlement, arrangements should be made 30 to 60 days in advance.
• Expect an estimate of closing costs
  A few days before settlement, the buyer should receive a Good Faith Estimate of settlement costs. In addition to the loan commitment letter, the buyer must bring a certified or cashier’s check for the down payment and any other costs due at settlement. These costs include mortgage interest from the closing date to the first payment due, escrow for property taxes and insurance, and various taxes and recording fees. Be sure to bring your regular checkbook in case miscellaneous costs need to be paid.
• Plan ahead for settlement
  Both the buyer and seller need to give the settlement agent all pertinent information requested. And, since many long and detailed forms are usually signed at settlement, you might consider requesting copies of the basic settlement forms several days in advance to read them and familiarize yourself with the process. The focus at the settlement table will be on checking the exact figures to be sure everything is accurate.
• Send a representative if you can’t attend
  If you cannot come to closing, be sure to notify the settlement agent in advance so a Power of Attorney can be prepared. Once the papers are signed and money paid, the keys are handed over to the buyer and the sale is complete.