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May 13, 2008
...about Buying
What can I afford?
What is the standard debt-to-income ratio?
How long do bankruptcies and foreclosures stay on a credit report?
How do I really find out everything about homes I am looking at?
Is it wiser to stretch our budget and buy a dream home or settle for a more affordable home?
How do you choose between buying and renting?
What are the pros and cons of adding on or buying new?
Whose obligation is it to disclose pertinent information about a property?
What are the standard contingencies?
Should I include an inspection contingency in my offer?
What contingencies should be put in an offer?
What is the first step in buying a home?
Is a "low-ball" offer a good idea?
Who gets the fixtures when a home is sold?
Can you negotiate the price on new homes?
Can you buy homes below market?
Are interest rates negotiable?
Is there a secret to good negotiating?
What are some tips on negotiation?
What is the best time to buy?
Do I need an attorney when I buy a house?
What can I afford?
Knowing what you can afford is the first step of home buying, and that depends on how much income and how much debt you have. In general, lenders don’t want borrowers to spend more than 32 percent of their gross income per month on a mortgage payment or more than 42 percent on all debts. It may pay to check with a few lenders before you start searching for a home. They will be happy to roughly calculate what you can afford and pre-qualify you for a loan.
What is the standard debt-to-income ratio?
A standard ratio used by lenders limits the mortgage payment to 32 percent of the borrower’s gross income, and the mortgage payment combined with all other debts, to 42 percent of the gross income.
Prospective borrowers can compensate for high ratios by putting up a larger down payment. Mortgage loans requiring little or no documentation often can be obtained with down payments of 25 percent or more of the purchase price.
How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven to 10 years.
Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender’s decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.
How do I really find out everything about homes I am looking at?
Home inspections, seller disclosure requirements and the agent’s experience will help. You could also talk to neighbors about the area conditions.
Is it wiser to stretch our budget and buy a dream home or settle for a more affordable home?
Choosing between a smaller house in an affluent neighborhood, an older, bigger house in a more average area or a brand-new home is not easy. If you.re in this situation, start by examining your priorities and asking the following questions: "Is the location as ideal as can be afforded? Is the surrounding neighborhood or the home itself the most important consideration? Is each of the neighborhoods safe? Is quality of the schools an issue? Do any of the areas seem to attract more families with children or adult residents? And where do you fit in?"
How do you choose between buying and renting?
For some people, owning a home is a great feeling. Home ownership offers tax benefits as well as the freedom to make decisions about your home. The advantage of renting is not worrying about maintenance and other financial obligations associated with owning property.
There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially.
Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.
What are the pros and cons of adding on or buying new?
Before making a choice between adding on to an existing home or buying a larger one, consider these issues:
If a remodel plan can be done that ties in well with the existing house, and if the family is willing to be in temporary rental housing until the work is completed, it is often economically better to do the addition rather than move to another home. Closing and other costs can make it considerably more expensive to buy a new home that has comparable space. However, houses are usually designed to be the size they are originally built. When an owner starts putting additional rooms on a home, a conventional floor plan may become unacceptable. Having to walk through one room to get to another is an example of what is termed "functional obsolescence."
Homes that experience this usually diminish in value. Even though actual expenditures have been made, it may actually lower the resale value of the home. If an owner intends to stay in the home for a long enough time to recapture the expense, though, it may justify the addition.
Another problem that might occur when an addition is made is overbuilding the neighborhood. There is a principle in real estate appraisal called conformity. All homes in an area should be of similar size and price. By overbuilding in a neighborhood, the value of that home is actually lowered by the average value.
There are always exceptions to any general rule. If the value of the lot is exceptional because of its location, such as having an outstanding view, being much larger than those around it, or even in an exceptional neighborhood, the normal rules about making additions to a home might not apply.
However, in many cases, it is better to sell a home and re-invest in a home designed to be the size that the family needs, surrounded by homes of similar size and value. This will protect the resale value and give the homeowners what they need.
Whose obligation is it to disclose pertinent information about a property?
Obligations to disclose information about a property vary from state to state.
Under the strictest laws, as in California, the seller and the seller’s broker, if there is one, are required to disclose all facts materially affecting the value or desirability of the property which are known or accessible only to him.
Items sellers must disclose may include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any restrictions on the use of the property, such as zoning ordinances or association rules; any environmental hazards; any known boundary encroachments; etc.
It is wise to know your state’s disclosure rules prior to a home sale or purchase.
What are the standard contingencies?
Most offers include several standard contingencies, including: a financing contingency, which makes the sale dependent on the buyers. ability to obtain a loan commitment from a lender, and inspection contingencies, which allow buyers to have professionals inspect the property to their satisfaction.
A buyer could forfeit all or part of the deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract after all contingencies have been removed. (The purchase contract also includes the seller’s responsibilities, such as maintaining the property in its present condition until closing, making any agreed-upon repairs to the property, complying with local ordinance, etc.).
Should I include an inspection contingency in my offer?
In nearly every case, definitely yes! Even in new construction there may be many small or not-so-small issues that would only become known by a thorough property inspection. (Also, see the "Buying tips" section about inspections.)
What contingencies should be put in an offer?
Most offers include several contingencies, including a financing contingency, which makes the sale dependent on the buyer’s ability to obtain a loan commitment from a lender, and inspection contingencies, which allow a buyer to have professionals inspect the property to their satisfaction. Most contracts also include a pest control report and review of preliminary title report and all underlying documents such as covenants, conditions and restrictions (C.C. & R.’s).
What is the first step in buying a home?
Finding what you can afford is one of the steps which can be done by pre-qualifying for a home loan. This will help you narrow your search to neighborhoods where homes in that price range are found.
Is a "low-ball" offer a good idea?
A "low-ball" offer is a term used to describe an offer on a house that is substantially less than the asking price.
While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is substantially overpriced, the offer will probably be rejected.
A buyer should always do homework about comparable prices in the neighborhood before making any offer. It also pays to know something about the seller’s motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons.
Who gets the fixtures when a home is sold?
In California, fixtures are property items that are permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace), and these automatically stay with the house unless specified otherwise in the sales contract. But anything that is not nailed down is negotiable. This includes appliances that are not built in (washer, dryer, and most refrigerators, for example).
Can you negotiate the price on new homes?
It is usually difficult to negotiate the sales price with a developer, partly because their prices are based on fixed construction costs. But it doesn’t hurt to try.
Builders may be more flexible on price at the very beginning and the very end of a development project. Most developers want to move people in quickly so the project picks up momentum. Later, they may be more inclined to accept lower offers when only a few units remain.
If negotiating the price doesn’t work, buyers may succeed in negotiating better amenities (upgrade countertops, carpet, light fixtures, etc.).
Can you buy homes below market?
While a typical buyer may look at five to 10 homes before making an offer, an investor who makes bargain buys usually goes through many more. It takes a lot of patience, knowledge and determination, and often good luck, to find a real "bargain".
Are interest rates negotiable?
Some lenders will negotiate on both the loan rate and the number of points but this isn’t typical among established lenders who set their rates like large corporations set the prices on their products. Nevertheless, it pays to shop around for loan rates and know the market before you go in to talk to a lender. You should always look at the combination of interest rate and points and get the best combination possible.
The interest rate is much more open to negotiation on purchases that involve seller financing. These usually are based on market rates but some flexibility exists when negotiating such a deal.
When shopping for rates, look for published rates in local newspapers or check the growing number of Internet sites that publish such information.
Is there a secret to good negotiating?
There are many principles in negotiating effectively. One is to do your homework, and learn as much about the seller as you can. Another is to not reveal too much information to the other party or their agent. Don’t get rushed into any decision, no matter how tempting it may be. Finally, hire an experienced agent to do the actual negotiating.
What are some tips on negotiation?
The more you know about the other party’s motivation, the stronger a negotiating position you are in. For example, a seller who must move quickly due to a job transfer may be amenable to a lower price with a short escrow. Other so-called "motivated sellers" include people who have already purchased another home.
Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller’s asking price stacks up. Remember that the listing price is what the seller would like to receive but is not necessarily what they will settle for.
A deliberate low-ball offer can be presented, but it can also discourage the seller from negotiating at all.
What is the best time to buy?
Because many buyers prefer to move in the spring or summer, the market starts to heat up as early as February. Families with children are anxious to buy so they can move during summer vacation, before the new school year begins. The market slows down in late summer before picking up again briefly in the fall. November and December have traditionally been slow months, and astute buyers may find bargains during this period.
Do I need an attorney when I buy a house?
In some states, you need an attorney to complete a real estate transaction, but in others you do not.
Most home buyers are capable of handling routine real estate purchase contracts as long as they make certain they read the fine print and understand all the terms of the contract. In particular, it is vital to understand the terms of any contingency clauses that will allow backing out of the contract.
If you have any legal questions at all, it is advisable to consult an attorney to avoid future legal hassles. In looking for an attorney, ask friends for recommendations or ask your real estate agent to recommend several. Call to inquire about fees and to check on their experience.
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Michael Edlen, MBA, Coldwell
Banker
15101 Sunset Blvd. Pacific Palisades, CA 90272
Direct Number (310) 230-7373
Email : Michael@michaeledlen.com |
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