Buyers Resources

Some people are just lousy at saving money, and a house is an automatic savings account. You accumulate savings in two ways. Every month, a portion of your payment goes toward the principal. Admittedly, in the early years of the mortgage, this is not much. Over time, however, it accelerates.

Second, your home appreciates. Average appreciation on a home is approximately five percent, though it will vary from year to year, and in some years may even depreciate.. Over time, history has shown that owning a home is one of the very best financial investments. Let's walk through the steps to buying a home.

Try some of the following cost-cutting measures without feeling the pinch:

Clear up any lingering credit issues. HUGE long-term savings.
Replace your $150 monthly cable service with a $10 Netflix standard streaming account, and you'll save $1,680 per year.
Cut that languishing gym membership—at $50 per month, you'd save $600 a year. Go running instead!
Packing lunch will save you about $60 a month—or $720 a year.
Bike to work. For a 10-mile commute, biking can save you around $5 a day, according to Kiplinger—or $1,250 a year.
Start a coin jar. Saving all your loose change can have a big impact—up to $700, according to financial blogger J.D. Roth.
Boycott Starbucks. $4/cup every workday? There's another grand. Make your own fancy coffees.
Turning down your thermostat just 3 degrees could shave almost 10% off your electrical bill, netting you $20 a month on a $200 bill, or $240 a year.
Curb those dinners and drinks out at restaurants, which can quickly add up. If you typically shell out $40 three times a week, reduce that to one evening a week, and you'll save $80—or $4,160 per year. (Bonus: It'll make those times you do indulge more special!) And if you and your significant other team up and try all of the above, that would amount to $10,550 per person, or $21,100 in one year's time. Just remember that when you're thinking of ordering a second glass of artisanal craft beer.

As you look for a home, you may be asked to get prequalified or preapproved.

Before you start, it’s important to understand the difference. When you want to talk to a lender to establish a general range of home prices, you can get prequalified, which is simply a lender’s estimate of what you could potentially borrow. This can be completed easily and conveniently online, in person, or over the phone in just a few minutes with basic information like your income and expected down payment.

When you want to give yourself a competitive edge over other buyers in the market, you can get preapproved. Having a preapproval lets sellers know that you already qualify for the home financing which greatly increases your chance of having your offer selected.

Unlike prequalification, preapproval is a more specific estimate of what you could borrow from your lender and requires documents such as your W2, recent pay stubs, bank statements and tax returns. The lender will then use these documents to determine exactly how much you can be preapproved to borrow. Once you’re preapproved, you’ll have 90 days to find a home you love. Then you can lock your rate and complete your application.

Whether you choose to get prequalified or preapproved, you will have a better sense of what’s in your price range and can hunt for a house with confidence.

Once you've assembled at least 3.5% down and cleaned your credit as best as you can, it is time to set realistic budget amounts for your future home purchase.

Your debt-to-income ratio, or score, is one of the most impactful numbers on your life since your ACT score. It measures the percentage of your monthly income that goes to pay your debts. You calculate it by adding all your monthly debts – credit card minimums, rent or mortgage, car payments, and, yes, student loan payments. Then, you divide the total by your monthly gross income (take-home pay before taxes and other monthly deductions). Your debt-to-income ratio should be no more than 45% of your gross monthly income.

Many lenders consider the ideal debt-to-income ratio, including a mortgage payment, to be 36% or less. Depending on your credit score, savings, assets, and down payment, lenders may accept higher ratios, according to Bankrate. It depends on the type of loan you're applying for.

You should ideally stay at 28% of your gross monthly salary for your home payment. There's much more to this below, but for now, let's CALCULATE:

Javascript Mortgage Calculator by MortgageCalculator.org

The GFSA Platinum down payment assistance program, in particular, provides up to 5% of the loan amount in a non-repayable grant. (You don’t have to pay this back!) Income limit: $63,280 in LA County and $78,240 in Ventura County.

CalHFA has published new income guidelines as of June 2020 for LOS ANGELES COUNTY RESIDENTS. $153,000 $194,000 VENTURA COUNTY RESIDENTS. That sounds like a lot! Check with your lender about these programs. In Santa Clarita, the lower income (lower interest rate loans) limits:

THE PRICE

The first step in determining the price you are willing to offer is to look at the recent sales of similar homes. These are called "comparable sales." Comparable sales are recent sales of homes that compare closely to the one you are looking to purchase. Specifically, you want to compare prices of homes that are similar in square footage, number of bedrooms and bathrooms, garage space, lot size, and type of construction.

If the home you are interested in is part of a tract of homes, then you will most likely find some exact model matches to compare against one another. There are three main sources of information on comparable sales, all of which are easily accessed by a real estate agent. It is somewhat more difficult for the general public to access this data, and in some cases impossible. Two of the most obvious information sources are the public record and the Multiple Listing Service.

LOOKS ARE DECEIVING

There are some red flags to look for as you click through pictures that may not always show the true details of a property:

Are there more photos of the exterior than the interior? The inside might need work. Closed curtains and blinds in a photo are usually hiding a bad view.

If a picture of a bathroom focuses on a sink,

it can mean the bathroom is painfully small.

If photos look stretched out,

the seller or agent is trying to make a room appear bigger.

Some listing terms are red flags as well.

A "fixer-upper" can mean a great investment or a money pit, and "cozy" generally means the home is small.

If the home has been on the market longer than a month, it is ripe for a discounted offer, at least in the Southern California market until further notice. A healthy market is a 5-7 month supply of homes.

What will make your offer stronger? Cash offers carry a ton of influence, but financing offers can win the day when they have fewer contingencies, shorter inspection times, and buyers with the credit and lender who look like they can CLOSE the deal. Sellers have no appetite for a deal falling through.

WRITING THE OFFER

In an offer to purchase real estate, you include not only the price you are willing to pay but other details of the purchase as well. This includes how you intend to finance the home, your down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included in the purchase, terms of cancellation, any repairs you want to be performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur.

CONTINGINCIES

Some "move-up" buyers often agree to purchase a home before selling their previous home. Even if the home is already sold, it is probably a "pending sale" and has not closed. Therefore, you should make closing your own sale a condition of your offer. If you do not include this as a contingency, you may find yourself making two mortgage payments instead of one.

Once your offer is accepted, you'll have a checklist of things to do, with deadlines. (Don't worry, we handle much of what follows:)

1. Send the escrow company a copy of the fully executed offer to purchase real estate

2. Obtain wire transfer instructions from the escrow company so that you can send your earnest money deposit Provide the escrow company with your earnest money deposit

3. Send your lender a fully executed copy of the offer to purchase real estate

4. Get a list from your lender of all documents they need from you

5. Send your lender all documents they need for the underwriter to approve your loan

6. Review escrow instructions provided by the escrow company

7. Obtain documents from the escrow company, including the preliminary title report, termite certificate, natural hazard disclosure report, FIRPTA affidavit and HOA docs and HOA transfer fee, if applicable

8. Review and sign the Sellers Disclosure packet

9. Verify that your lender scheduled the appraisal so the appraisal contingency can be removed in a timely manner

10. Schedule and complete a general home inspection 10. Schedule and complete a termite inspection

11. Schedule and complete any special inspections, such as roof, plumbing, chimney, electric, sewer or mold

12. Deliver a Request for Repair to seller, if applicable

13. Sign and deliver the Contingency Removal form, removing all contingencies and making your earnest money deposit subject to forfeiture

14. Review the estimated closing costs worksheet provided by the escrow company 15. Schedule a final walk-through with seller

16. Obtain homeowners insurance

17. Provide the escrow company with proof you have obtained home owner's insurance

18. Wire your down payment to the escrow company

19. Visit the escrow company to sign your loan docs and Transfer of Ownership docs with a notary, or arrange for the signing to occur elsewhere

20. Confirm the escrow company has everything it needs for closing

21. Confirm the closing recorded via the escrow company

22. Obtain keys and take possession of your new home

We hope you find our escrow checklist for home buyers valuable as you work your way through your home purchase!

Brian Krasnoff

STEP ONE: SAVING MONEY FOR A HOME

STEP TWO: DETERMINE HOW MUCH YOU CAN AFFORD FOR A HOME

PRE-QUALIFYING VS. PRE-APPROVAL

Here's what's needed:

STEP THREE: FIND YOUR HOME

FREE MONEY

overlooked questions

DO's & DONT'S

DON'T DO THESE THINGS:

STEP FOUR: LOCK DOWN THE DOWN PAYMENT & FINANCING

STEP FIVE: DETERMINING WHAT TO OFFER ON THE HOME

STEP SIX: ESCROW

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