Buyers

Seven main roles of your real estate agent

1. educates you about your market.
2. analyzes your wants and needs.
3. guides you to homes that fit your criteria.
4. coordinates the work of other needed professionals.
5. negotiates on your behalf.
6. checks and double-checks paperwork and deadlines.
7. solves any problems that may arise.

Where you buy not only affects the home’s current and future value, but it also affects your lifestyle. your agent will be able to conduct a more targeted home search if you outline your preferences in neighborhoods and nearby amenities. here’s a checklist of items you should consider and communicate to your chosen real estate agent.

• urban, suburban or rural
• commute time
• school districts
• desirable neighborhoods
• proximity to the airport
• proximity to restaurants and retail
• access to major highways and thoroughfares
• access to public transportation
• health care facilities
• parks and recreation
• length of time you plan to live in the home (your agent should be knowledgeable about growth trends and projections that could affect your investment.)

Qualifications are important. however, finding a solid, professional agent means getting beyond the resume, and into what makes an agent effective. use the following questions as your starting point in hiring your licensed, professional real estate agent:

1. why did you become a real estate agent?
2. why should i work with you?
3. what do you do better than other real estate agents?
4. what process will you use to help me find the right home for my particular wants and needs?
5. what are the most common things that go wrong in a transaction and how would you handle them?
6. what are some mistakes that you think people make when buying their first home?
7. what other professionals do you suggest we work with and what are their credentials?
8. can you provide me with references or testimonials from past clients?

Lenders will review your income, debt, and savings information to determine how much money they are willing to lend you towards your home purchase.

based on your lifestyle and needs, consider how much you are willing to spend on the purchase of a home. you may not be willing to invest as much of your income in buying a house as you can actually afford. see further details below about the kinds of information used by lenders to determine how much house you can afford to buy: income, debt, and housing-related expenses.

income

your income is critical in computing how much you can afford to pay (using current lending guidelines) for housing related expenses. your income information is included in the debt ratio calculations. your ability to meet the monthly principal, interest, taxes and insurance payments (piti) and your debt ratio score can impact a lender’s decision to offer you a loan.

different loan programs have their own rules regarding the percentage of income that can be applied toward monthly house payments. for example, government loan programs such as fha and va have ratios that allow you to apply a higher percentage of your income toward the loan. while conventional loan front-end ratios generally run around 28%, fha allows you to apply 29% and va allows you to apply 41%.

this means that your monthly loan payment should be no more the 28%, 29%, or 41% of total monthly income, depending on the loan program you use or qualify for.

debt

a lender carefully considers your debt obligations when assessing your ability to repay a loan. your debt information is included in the pitio (principal, interest, taxes, insurance payments and other monthly non-housing expenses) and debt ratio calculations. loan programs have different rules regarding the percentage of income that can be applied toward long-term debt. your ability to meet the ratio requirements can impact a lender’s decision to offer you a loan.

government loan programs such as fha and va allow you to apply a higher percentage of your debt obligations towards the loan. while conventional loan debt ratios generally run around 36%, fha and va allow you to apply 41%. basically, this means that your long-term monthly debt payment plus your monthly loan payment can equal no more than 36% or 41% of total monthly income, depending on the loan program.

housing-related expenses

housing-related expenses are another category lenders consider. these expenses often depend on the location and type of home you are buying. these expenses will affect the size of the loan for which you qualify and may be one of the most critical factors in your decision to buy a home. consider how housing-related expenses will impact your budget. the purchase of a home may increase your monthly expenses and reduce the amount of money you have remaining for other expenditures.

typical home expenses include:

• property tax – this expense is dependent on the location of the home. property taxes vary by county and state. as a homebuyer, consider how this additional expense will impact your total monthly expenses.
• maintenance costs – this expense includes anything from faucet washers to a new roof or heating system and varies by geographic location, size, and age of home.
• utility costs – this expense includes items such as electric, gas, water, and heating and air conditioning and varies by geographic location, size, season, and age of home. the type of construction (i.e. gas, electric) may also be a factor in your utility cost estimates.
• mortgage insurance (if applicable) – this expense can vary by mortgage insurance company, lender, loan product, and loan-to-value percentage of the loan.
• other costs – these expenses vary depending on the type of home and geographic location. these costs can include:
  • homeowner association fees
  • flood insurance
  • other required property insurance
  • condominium assessment fees and
  • other condominium escrow items.

Definitions

foreclosure: procedure whereby property pledged as security for a debt is sold to pay the debt in event of default in payments or terms.

short sale: a short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. it often occurs when a borrower cannot pay the mortgage loan on their property, but the lender decides that selling the property at a moderate loss is better than pressing the borrower. both parties consent to the short sale process, because it allows them to avoid foreclosure. (source: wikipedia)

avoiding foreclosure

1. don’t ignore the problem.the further behind you become, the harder it will be to reinstate your loan and the more likely that you will lose your house.
2. contact your lender as soon as you realize that you have a problem.lenders do not want your house. they have options to help borrowers through difficult financial times.
3. open and respond to all mail from your lender.the first notices you receive will offer good information about foreclosure prevention options that can help you weather financial problems. later mail may include important notices of pending legal action.  your failure to open the mail will not be an excuse in foreclosure court.
4. know your mortgage rights.find your loan documents and read them so you know what your lender may do if you can’t make your payments.  learn about the foreclosure laws and timeframes in your state (as every state is different) by contacting the state government housing office.
5. understand foreclosure prevention options.valuable information about foreclosure prevention (also called loss mitigation) options can be found online.
6. contact a hud-approved housing counselor.the u.s. department of housing and urban development (hud) funds free or very low-cost housing counseling nationwide. housing counselors can help you understand the law and your options, organize your finances and represent you in negotiations with your lender, if you need this assistance. call (800) 569-4287 or tty (800) 877-8339.
7. prioritize your spending.after healthcare, keeping your house should be your first priority.  review your finances and see where you can cut spending in order to make your mortgage payment.  look for optional expenses–cable tv, memberships, entertainment–that you can eliminate. delay payments on credit cards and other “unsecured” debt until you have paid your mortgage.
8. use your assets.do you have assets–a second car, jewelry, a whole life insurance policy–that you can sell for cash to help reinstate your loan? can anyone in your household get an extra job to bring in additional income?  even if these efforts don’t significantly increase your available cash or your income, they demonstrate to your lender that you are willing to make sacrifices to keep your home.
9. avoid foreclosure prevention companies.you don’t need to pay fees for foreclosure prevention help–use that money to pay the mortgage instead. many for-profit companies will contact you promising to negotiate with your lender. while these may be legitimate businesses, they will charge you a hefty fee (often two or three month’s mortgage payment) for information and services your lender or a hud-approved housing counselor will provide free if you contact them.
10. don’t lose your house to foreclosure recovery scams!if any firm claims they can stop your foreclosure immediately and if you sign a document appointing them to act on your behalf, you may well be signing over the title to your property and becoming a renter in your own home! never sign a legal document without reading and understanding all the terms and getting professional advice from an attorney, a trusted real estate professional, or a hud-approved housing counselor

tax ramifications

if a lender forecloses on my principal residence or agrees to a short sale, will I owe tax on the deficiency?

generally, when there is either a foreclosure or a short sale a taxpayer will receive either (in some cases the lender may issue both) a federal form 1099-a, acquisition or abandonment of secured property, or form 1099-c, cancellation of debt, that provide the amount of debt cancelled, information to compute gain or loss, and whether the taxpayer is personally liable for the debt.

if you borrow money from a commercial or private lender and the lender later cancels or forgives the debt, you may have to include the canceled amount in income for tax purposes, depending on the circumstances. in a short sale, the lender agrees to accept less than full payment, and cancels the unpaid amount.

the most common situations when a foreclosure or a short sale does not result in cancellation of debt (cod) income involve a non-recourse loan. a non-recourse loan means the lender’s only remedy in case of default is to repossess the property the lender cannot pursue you personally in case of default. a purchase money loan (that is, a loan taken to “purchase” your home) is generally considered to be a non-recourse loan in california. refinances, second mortgages, and “cash out” loans are generally recourse loans.

although forgiveness of a non-recourse loan resulting from either a foreclosure or a short sale does not result in cod income, it may result in other tax consequences, like a reportable gain from the disposition. even if the debt discharged is non-recourse, a taxpayer may have a gain to the extent the balance of the mortgage forgiven exceeds their adjusted basis of the property.

the gain, if any, from the foreclosure or short sale may or may not be taxable, depending on whether irc section 121 applies and the amount of the gain. irc section 121 only applies to principal residences, and limits the amount of gain that can be excluded from income.

if the loan is a recourse loan, then depending on the facts, you may have cod income, and potentially a reportable gain, in which case you would want to determine if one of the provisions in irc section 108 would apply, allowing the cod income from the discharge of indebtedness to be excluded.

what is cancellation of debt?

if you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. when you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. when that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. the lender is usually required to report the amount of the canceled debt to you and the irs on a form 1099-c, cancellation of debt.

here’s a very simplified example. you borrow $10,000 and default on the loan after paying back $2,000. if the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.

is cancellation of debt income always taxable?

not always. there are some exceptions. the most common situations when cancellation of debt income is not taxable involve:

• bankruptcy: debts discharged through bankruptcy are not considered taxable income.
• insolvency: if you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you.you are insolvent when your total debts are more than the fair market value of your total assets.insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
• certain farm debts:if you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.the rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
• non-recourse loans:a non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral.that is, the lender cannot pursue you personally in case of default.forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.however, it may result in other tax consequences, as discussed in question 3 below.

i lost my home through foreclosure.  are there tax consequences?  

there are two possible consequences you must consider:

• taxable cancellation of debt income.(note: as stated above, cancellation of debt income is not taxable in the case of non-recourse loans.)
• a reportable gain from the disposition of the home (because foreclosures are treated like sales for tax purposes).(note: often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.

hire only licensed contractors.
check a contractor’s license number online.

do your homework!
it’s a smart idea to get at least three bids from different contractors.

see the results!
get three references from each bidder and take the time to visit and review past work in person.

get it in writing!
make sure all project expectations are in writing and only sign the contract if you completely understand the terms.

are they covered?
confirm that the contractor has workers’ compensation insurance for his or her employees.

how much up front?
never pay more than 10% down or $1,000, whichever is less. don’t pay in cash and never let payments get ahead of the work.

you’re the boss!
it’s a good idea to keep a job file of all papers relating to your project, including all payments.

pay for what you get!
don’t make the final payment until you’re satisfied with the job. final payments mean just that! it’s done.

finding a contractor

always take the time to evaluate the contractor who may be doing the job.

talk to building officials. be particularly cautious when selecting a contractor to repair your chimney. not everyone is qualified to repair or rebuild a chimney. it takes specialized skill and training.

the state department of labor and industries (l&i) recommends the following steps when hiring a contractor:

• be wary of contractors soliciting business door-to-door.
• ask contractors if they have done this type of repair work before, if they will be purchasing necessary permits, and if the work will be inspected.
• determine if a contractor, electrician or plumber is registered or licensed. all contractors doing business in the state are required to register. while not a guarantee of performance, registration does mean the contractor has minimal liability insurance and a surety bond that can protect the consumer if there is a problem.
  for information, call l&i’s toll-free number 1-800-647-0982. the caller can also find out how long the contractor has been in business and whether there have been any complaints against the bond.
• try to get three separate bids on the job.
• ask for references.
• obtain a written contract.
• be cautious in dealing with a contractor who asks for a large down payment.
• pay the contractor at the end of the job, or pay only for the portion of the job that has been completed.
• avoid making final payment until you have received a lien release.

additional information to consider:

• check for a permanent place of business, telephone number, tax i.d. number and business license.
• look for a company with a proven track record that readily offers client references and a list of completed projects. call these clients to find out whether they were satisfied.
• check to see if the contractor is a member of any regional or national industry associations.
• contact your local better business bureau to check for a business report or any complaints that have been filed on a contractor.

1. before you start looking for a home, get pre-qualified for a loan. banks, credit unions and mortgage bankers make home loans; mortgage brokers process them. the lenders will take an application, process the loan documents, and see the loan through to the funding stage.

2.if you have marginal or bad credit, consult your lender. you may be able to qualify for a loan depending on how long ago and what reason(s) caused the bad credit. a lender should be able to advise you on whether your credit history will prevent you from qualifying for a home loan.

3. you will need a down payment. down payment requirements vary depending on the type of loan. many down payment assistance programs exist. these programs may loan or grant you the funds necessary for the down payment. consult with a lender about programs available in your area.

4. you will need funds for closing costs closing costs are charges for services related to the closing of your real estate transaction. they include, but are not limited to:

• escrow fees charged by the company handling the transaction
• title policy issuance fees charged by the title insurance company
• mortgage insurance fees
• fire and homeowners insurance
• county recorder fees for recording your deed
• loan origination fees

consult your lender for an actual estimate of these costs, as well as information about loan programs which can assist in financing your closing costs

5. some loans have “points” and some do not. a point is a loan origination fee equivalent to 1% of the loan amount. together with the interest rate they constitute the yield on your loan for the lender. some lenders charge a higher interest rate to compensate for charging no points. it is important to comparison shop lenders to make sure your loan is at a competitive yield.

6. should you select a mortgage with a fixed rate or an adjustable rate? the answer to this question depends on whether mortgage rates are at a high or a low point when you purchase, and on how long you plan to live in the home. if rates are high, an adjustable rate might be attractive since subsequent rate drops could reduce your monthly payments. additionally, lenders may offer a low rate during the first few years of an adjustable mortgage to make it appealing to you. if interest rates are low you might want to take a fixed rate to protect yourself against the possibility of rising interest rates.

7. be aware of the two main types of loan categories.

• conventional loans. conventional mortgage loans are available with fixed or adjustable interest rates. some loans may require mortgage insurance.
• government loans. these include federal housing administration (fha) fixed and adjustable rate mortgage loans, and veterans administration (va) fixed rate mortgage loan

8. if you are a low or moderate income homebuyer, there are special programs designed to help you. these loans are available through private lenders, as well as local and state housing agencies, like the california housing finance agency (calhfa). most lenders specializing in real estate mortgage loans are aware of these types of loan programs.

9. why might i have to pay mortgage insurance? mortgage insurance protects the lender from potential loss if you should default on your mortgage loan payment. generally, conventional loans that require larger down payments do not require mortgage insurance. mortgage insurance is always required on fha mortgage loans.

10. many organizations offer home loan counseling to prospective homebuyers.these organizations provide classes for homebuyers to cover the steps to homeownership. they will cover home selection, realtor services, lenders, loan programs, homeownership responsibilities, saving for a down payment, and other important pieces of information. many first-time homebuyer programs require homebuyers to attend this type of class to be eligible for selected programs.

Buying a home requires you to make an intelligent and informed decision. be objective! buying a home is both an emotional and business decision. try to make a sensible evaluation of all factors before proceeding with an enormous commitment of time and financial resources.

representation by an experienced real estate professional is the best way to avoid mistakes in purchasing a home.  hire a real estate agent that exclusive represents you as a buyer to avoid potential conflicts of interests.

owning vs. renting

• benefits of renting — more flexibility in length of occupancy and location of residence, landlord is responsible for most repairs and maintenance
• benefits of ownership — build equity through gradual principal reduction and appreciation, tax advantage of being able to deduct mortgage interest and property taxes from income taxes. tax benefits alone may make more financial sense than renting depending on your income level and tax bracket. if you rent your rent may be increased over time, but if you finance your home with a fixed interest rate loan then your payment will remain exactly the same for the term of the loan, usually 30 years.

determine your needs

• narrow your search by separating reality from fantasy
• create a basic requirements list of true needs and a wish list of wants
• needs = number of bedrooms and bathrooms for size of family, one story house if accessibility is a factor, good schools for children, enough parking for vehicles
• wants = pool, updated design, large rooms, extra space, fancy landscaping, etc.

start with financial capability

• mortgage lenders will want to review your credit report
  • equifax, experian, and trans union sell your credit report to banks so they can review your loan applications
  • credit score
  • indicates your ability and willingness to repay a debt based on your record
  • your credit score will be an important factor in determining whether you are approved for a loan
• mortgage brokers will help you find a loan that you qualify for
• a written pre-approval letter from a lender will impress a seller and help avoid the disappointment of trying to purchase a home that you cannot a afford. costs for pre-approval are generally low and are often included in closing costs.

building your credit

• pay your bills on time
• always pay at least the minimum balance due
• keep overall balance low
• don’t apply for too many loans or credit cars

can you afford this house?

• down payment – generally ranges from 3% to 20% of the purchase price. if you put less than 20% down, then you may be required to have private mortgage insurance (pmi)
• homeowner’s insurance
• closing costs – generally range from 2% to 7% of the purchase price. it includes points, taxes, title insurance, financing fees, escrow fees, and other settlement costs. the lender will give you an estimate of total costs after you are approved.
• moving costs
• purchase of major appliances and other home furnishings

organize your search

• highlight maps of area of interest
• keep a file of properties of interest
• use a pen and notepad as you search
• use a digital camera and/or video camera to take many photos of properties and neighborhood
• learn as much as possible about your area of interest: school info, crime statistics, shopping, parks & recreation, transportation, employment, politics, and any other info that will be pertinent to life in your future home.

making an offer and closing escrow — your real estate agent should guide you through most of this process, but be aware of the following:

• include inspection and financing contingencies in written offer
• have home inspected by professional inspector
• request a second walk through prior to the close of escrow to make certain no major changes have taken place

There are many factors to consider when looking for a home. listed below are some of the factors.

types of homes — there are many different types of homes: single-family, condominium, townhouse, and duplex. additionally, the type of home you select may impact your buying power.

new or existing home — consider whether you want to move into a new home or an existing home. in general, new homes are more costly than existing homes. however, the condition of an existing home can significantly increase your maintenance requirements.

quality of home — examine the condition of the home. carefully inspect the structure, interior and exterior of the house for defects. the additional renovation costs may add up over time and exceed your maintenance estimates. will the house need a lot of repairs? how old are the appliances? the purchase of the home is one step, but the renovations and repairs are added costs that need to be considered. would you prefer to purchase a newer, costlier home or would you prefer to invest additional time and money into renovations and repairs for an older, less expensive home?

features — consider the features of the home. does it have gas or electric heating? how many bathrooms does it have? how many bedrooms do you need? all of these characteristics will influence the price of the home and your monthly housing expenses.

location — would you rather live in the city, the country, or the suburbs? do you want to be near parks or the library? what about a shopping center? is it important for you to be near major highways or public transportation? get a feel for the surrounding area by exploring the neighborhood and talking to residents.

crime rate — look into the safety of the neighborhood. does the neighborhood have a high crime rate? has there been an increase in crimes committed in the area? if so, how will this influence the future property value of your home?

school system — the quality of the school system in a particular area is not only important to families with children but can influence the property value of your home.

economic stability of area — the economic growth and stability of the area surrounding a home can influence its future property value.

property tax — examine the annual amount of real estate taxes and other assessments levied on homes in the neighborhood you are considering.

When you have found the home that best meets your needs, you are ready to make an offer on the house. in most cases your real estate agent will present your offer to the seller. do not be discouraged if your first offer is rejected by the seller. it is not uncommon for the seller to make a counter-offer.

once the selling price has been agreed upon by both the buyer and seller, a purchase contract is started. in most cases, your real estate agent will help you negotiate the terms of the purchase contract. the purchase contract is a legal contract that details the final terms for the purchase of the home including price, closing date, and estimates on the closing costs. by signing the purchase contract, it means you have agreed to purchase the property under the negotiated terms and price. although some closing cost fees are required by law, you can negotiate others as part of the purchase offer.

what’s included in closing costs?

closing costs typically average approximately 5-10% of the house price. this percentage may vary, depending on where you live. in general, your closing costs will include the following items:

• lender fee – typically paid by the seller to cover the lender’s expenses for processing the loan.
• title insurance – based on the sale price of the home. the percentage of sale price varies by title insurance company. it is the fee charged for property title inspection and insurance policy against policy defects. this will require coverage for both the lender and the buyer’s guaranties.
• title search fee – fee charged for examining the public record, laws, and the registry of deeds to ensure that no individual other than the seller can legally claim ownership of the property.
• state mortgage taxes – fee charged by the state as a tax on the sale of the home.
• settlement charge – fee charged by the closing company to cover attorney fees and other expenses incurred.
• escrow – items for which the lenders require escrow accounts, as they are not monthly fees. companies usually require two months in escrow at closing. federal, and in some cases, state law dictate the amount of funds that must be held in your escrow account at all times. your realtor or lender can help ascertain these amounts. items that typically require escrow accounts include:
  • hazard insurance – fee charged for insuring the property against property loss or damage.
  • property tax – fee charged for the property that is based on the assessed value of the property. the tax rate can vary by county.
  • mortgage insurance – fee required by lenders to insure against the risk of default by the borrowers. this is usually required if the down payment is less than 20% of the mortgage amount.
• settlement or closing fee – fee charged to cover the services of the settlement agent that handles all the payment transfers during the closing.
• attorney’s fee – fee charged if an attorney performs the functions of a settlement agent. in some states, it is required that an attorney be involved with the closing process.
• flood insurance fee – fee charged to determine if the property is in a special flood hazard area.
• home warranty fee – fee charged by an insurance company for a warranty that covers repairs or replaces defective items in the home.
• home inspection fee – fee charged for professional inspection of the house to identify any problems associated with the home.
• survey fee – fee charged for measuring the property to document location, dimensions, and any construction improvements of the property.
• notary fee – fee charged to cover cost of a licensed notary individual authorized by the state to certify the identity of the individuals signing the documents.
• recording fee – fee charged for filing closing documents such as your deed of trust at the county recorder’s office.
• interest – prorated fee charged daily for mortgage interest due from the date of funding until the time of the first monthly mortgage payment.
• lender fees/charges
  • discount points – finance charges calculated by the lender at closing. each point is equal to 1% of the loan amount which is paid at closing. this fee is sometimes charged by the lender to reduce the interest rate of the mortgage, also referred to as a “buydown”. one discount point typically reduces the loan rate by an eighth of a percentage point. for example, if the interest rate is 7.5%, you may end up paying 7.25% over the life of the loan and pay the difference in additional up-front costs equivalent to 2 discount points. discount points are based on the total loan amount and can vary by lender and by lender’s loan products.
  • loan origination fee – based on loan amount; typically this fee is 1% of the loan amount.
  • mortgage interest – the interest on the loan amount from the date of closing to the last day of the month.
  • credit report fee – fee charged by lender to request a credit report on the borrower. this fee varies by location and reporting agencies.
  • appraisal fee – fee charged for a written evaluation of the fair market price for the property. this fee varies by lender.
  • tax service fee – fee charged by the lender to cover the cost of hiring a tax service agency. a tax service agency monitors the property tax payments for the loan and informs the lender if they are not paid in full and on time. if property taxes are included in the monthly payment as part of the escrow account, the tax service will obtain the tax bills for payment by the lender.
  • document preparation fee – fee charged to cover the cost of preparing the loan documents.

who pays for what?

there are no definitive rules on who pays which closing costs. the buyer and the seller usually negotiate who pays certain closing costs. for instance, the seller may be willing to negotiate full or partial payment of appraisal fees, loan points, credit report request, and inspection fees. usually the seller is responsible for the brokerage fees, as this is compensation to the real estate agents for their roles in the sale of the home.

earnest money – typically required as part of the purchase contract, earnest money provides a “good faith” deposit and secures the sale agreement. this deposit is usually a portion of the purchase price. this deposit shows that the buyer is serious about purchasing the house. earnest money is held in an escrow account for the buyer and can be applied toward the down payment or closing costs. in some cases, the buyer must pay the deposit in cash.

• Should I Buy A Home?
  In addition to providing you with a place to live, owning a home can provide you with a possible investment for many reasons including potential equity growth, the stability that comes with having ownership in a community, and possible tax advantages.

Renting might make more sense for a mobile lifestyle or if you may need to move because of a job change or other factors. If you do not foresee staying in your home for several years, the amount of equity that you build up over the first year or two may be lost through selling costs and real estate commissions.

Can I Afford to Buy A Home?
Normally, you need to have enough savings to cover a down payment of 5% to 20% of the purchase price plus an additional 3% to 7% of this price for closing costs. If you do not have the down payment, you may be able to qualify for a loan under various government programs that are available.

Before you begin looking for a home decide what you want and can afford. Various factors are considered when a lender qualifies a purchaser for a home purchase including credit history, job stability and the size of the down payment. Prior to shopping for a home you may wish to visit a respected lender to determine the loan you can afford.

Selecting an Agent
Before you select an agent, do your homework. Interview several real estate agents to determine their level of experience in the area you wish to purchase. Check to ensure that the agent is properly licensed. Review any disciplinary actions that may be reflected on the licensee record and assess whether or not that information is important to you in your selection of an agent. Also, ask the agents for the names of past clients and check their references.

Finding Your Home
Before you look for a home, you should determine the features that you need such as the location, number of bedrooms, size of the lot and proximity to stores, schools, hospitals, work and other services such as fire and police protection. You should also determine if there are any special taxes, assessments or homeowners association dues that could affect your monthly expenses.

Inspecting the Home
Once you find a house that meets your specific needs, you should check the electrical, plumbing and structural integrity of the property. Consider hiring a qualified inspector to evaluate the structural aspects of the home you are considering purchasing. By doing this, you are giving yourself the opportunity to negotiate any necessary repairs with the seller. Under any circumstances, buying a home requires maintenance and sometimes unexpected expenses for repairs. When you make a decision to buy a home, remember to include this in your budget.

Presenting an Offer
Decide what you wish to pay for the property. A good basis for this is to determine what other properties in the neighborhood have sold for. Your real estate agent can be a valuable source for this information.

Make sure that your offer contains any contingencies or special conditions that you desire in the contract. This would include your need to qualify for a loan, repairs that you want the seller to complete prior to the close of escrow, as well as pest control inspections, home inspections, home warranty programs, and any other specific items. Remember, if your offer is accepted and thus becomes a binding contract, failure to complete the purchase could affect the return of your deposit.

You should thoroughly review the contract before signing it and make certain that you understand it. If there are portions of the document that you do not understand, you should seek appropriate professional advice. If your real estate agent is unable to adequately answer your questions, you should ask to speak with his or her broker or seek legal advice. Make sure that the offer you sign does not contain any blank spaces that can be filled in after you signed it. Also, avoid giving cash as a deposit or down payment. Instead, always use a check, money order or cashier’s check. This provides a permanent record of the money that you have deposited.

Disclosures
There are a number of disclosures that you are entitled to receive during the course of your purchase. Two of the most important disclosures that you should receive in a residential purchase are as follows:

Real Property Disclosure Statement — This disclosure is completed by the seller and covers the physical condition of the property and potential hazards or defects that may be associated with it. While the seller is principally responsible for the disclosures presented in this document, the agent is also responsible for conducting a visual inspection of the property and disclosing any readily observable defects detected in the process. This document also discloses any special taxes, assessments and other factors that may have a material effect on the value or desirability of the property.

Agency Relationship Disclosure — Your real estate agent is required to provide you with a written disclosure stating whom he or she represents in the transaction. The agent may represent you as the buyer exclusively, or the seller exclusively, or be a dual agent representing both you and the seller. You should carefully review and understand this disclosure as it has a material effect on the level of responsibilities that your agent owes to you.

Depending on the location, age and other factors involved with the residential property that you are purchasing, additional disclosures may be required.

Financing Disclosures – Various financing disclosures are also required in real estate transactions providing you with important details of your loan. In this regard, the two major disclosures required are the Truth in Lending Statement (Regulation Z) and the Real Estate Settlement Procedures Act (RESPA). The Truth in Lending Statement will provide you with important details on the terms and conditions of credit including the amount financed, the finance charge, as well as the annual percentage rate. RESPA requires detailed broker and lender good faith estimates regarding settlement and closing costs to be provided within three days after you apply for a loan. RESPA also requires a HUD Uniform Settlement Statement that provides you with a detailed accounting of actual disbursements and closing costs upon the completion of your loan transaction.

Public Report – In all common interest facilities which have homeowners association dues, as well as in the initial offering of homes in standard subdivisions located outside city limits, a public report issued by the DRE is required. The public report is a detailed statement, which discloses to prospective buyers pertinent facts about the subdivision. The report includes information about utilities, water, roads, soil, geologic conditions, title, zoning, use restrictions, hazards, and the financial arrangements that have been made for the completion of the subdivision.
Escrow and Title

You have a right to negotiate with the seller if you have a preference as to the escrow and title company that will be used in your transaction. The Escrow Company is a neutral third party with the responsibility of protecting the interests of both the buyer and seller. The escrow officer ensures that all terms of the contract as detailed in the escrow instructions have been met and that the appropriate deeds are recorded upon the close of the transaction. The Title Company provides an insurance policy to protect the buyer and the lender against any unknown defects with respect to the title to the property. Normally, the lender will require a title insurance policy as a condition of the loan.

Conclusion
A real estate transaction can be complex and involves many parties and documents. When purchasing a home, you as the buyer should do your homework, be sure to read all documents involved in the transaction and seek professional advice in the event that you do not fully understand any aspect of your transaction.

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• home improvement – hiring contractors

  hire only licensed contractors. check a contractor’s license number online.

  do your homework! it’s a smart idea to get at least three bids from different contractors.

  see the results! get three references from each bidder and take the time to visit and review past work in person.

  get it in writing! make sure all project expectations are in writing and only sign the contract if you completely understand the terms.

  are they covered? confirm that the contractor has workers’ compensation insurance for his or her employees.

  how much up front? never pay more than 10% down or $1,000, whichever is less. don’t pay in cash and never let payments get ahead of the work.

  you’re the boss! it’s a good idea to keep a job file of all papers relating to your project, including all payments.

  pay for what you get! don’t make the final payment until you’re satisfied with the job. final payments mean just that! it’s done.

  finding a contractor

  always take the time to evaluate the contractor who may be doing the job.

  talk to building officials. be particularly cautious when selecting a contractor to repair your chimney. not everyone is qualified to repair or rebuild a chimney. it takes specialized skill and training.

  the state department of labor and industries (l&i) recommends the following steps when hiring a contractor:

  • be wary of contractors soliciting business door-to-door.
  • ask contractors if they have done this type of repair work before, if they will be purchasing necessary permits, and if the work will be inspected.
  • determine if a contractor, electrician or plumber is registered or licensed. all contractors doing business in the state are required to register. while not a guarantee of performance, registration does mean the contractor has minimal liability insurance and a surety bond that can protect the consumer if there is a problem.
    for information, call l&i’s toll-free number 1-800-647-0982. the caller can also find out how long the contractor has been in business and whether there have been any complaints against the bond.
  • try to get three separate bids on the job.
  • ask for references.
  • obtain a written contract.
  • be cautious in dealing with a contractor who asks for a large down payment.
  • pay the contractor at the end of the job, or pay only for the portion of the job that has been completed.
  • avoid making final payment until you have received a lien release.

  additional information to consider:

  • check for a permanent place of business, telephone number, tax i.d. number and business license.
  • look for a company with a proven track record that readily offers client references and a list of completed projects. call these clients to find out whether they were satisfied.
  • check to see if the contractor is a member of any regional or national industry associations.
  • contact your local better business bureau to check for a business report or any complaints that have been filed on a contractor.