Buying Tips
The best decision I ever made.
Being a first time home buyer can be scary as it’s most likely the biggest financial decision you will ever make. You are nervous about investing your hard earned money as it could significantly impact your net worth, yet you are also sick and tired of paying off someone else’s home loan mortgage by renting every month. Wouldn’t it be nice if you could own your first home and put all that rent money into paying down your own mortgage? For millions of us home owners, the answer is a resounding “yes”. First, however, It is necessary to understand what expenses are involved when buying a home. It starts with figuring out what your mortgage loan payment will be.
Many realtors will give you a general estimate of the monthly mortgage loan amount based on how much you put down and the current interest rate, and simply say, “this is what your payment will be”. Well, it’s not. Maybe for the loan, but it wont be your only payment you will be making. Below are a few tips to consider to better prepare you of the costs involved before you decide to purchase that first home.
If you are currently renting, you do not pay property tax or are required to have insurance, and some of you do not pay garbage water and sewer. You can expect to pay all those to show up in a monthly bill.
Here are some general costs involved;
- *Loan payment: Based on amount, interest rate, and type of loan.
- *Property tax: Depends on the county you are buying in.
- *Insurance (This is required or banks wont give you a loan)
- *Closing costs at escrow: Amounts and which ones you pay are negotiable. Escrow is a third party that handles the entire transaction.
- *Title insurance. (protects you against possible leans of the property you are buying.)
- *Utility bills, including Garbage, water, sewer.
- *Yard maintenance (unless you plan to do it yourself)
- *Home Warranty (a generous realtor will buy one for you)
- *Home inspection
- *Pest inspection
- *Roof inspection
Loan payment:
When you are getting an estimate from a bank, mortgage broker, or home loan expert and want to know what the entire payment will be, ask them to include impounds. Impounds include taxes and insurance as well as the loan payment which gives you a more accurate amount of what you will pay monthly. If you do not say this, they will only quote you the interest payment on the home loan.
Fixed loans for 30 years. Payment stays the same.
Adjustable rate loans. Payment starts lower than a 30 year fixed, but can increase over time as interests rates rise or it can be dependent on other factors in the economy.
How much will property tax be?
Simple math, (well for some : ) Take the cost of the home, let’s say $600,000 for a home in Monterey ca. Then figure up to 1.2% of the purchase price. (some areas will be less than that) That is $7,200 a year. Now divide that by 12 and you get $600 per month. Add that to your monthly estimated loan cost plus maybe $70 a month for home owners insurance, and now you have a closer picture of what your monthly fixed expenses will be.
Also, remember if you are buying your first home and were renting an apartment or condo, you may now have yard maintenance to figure in unless you plan to do this yourself.
Closing costs;
These are costs that both, you and the seller pay during the sale process in escrow, such as: a loan origination fee, appraisal, home inspection, title search, etc. It is important to note, however, that many of these fees are negotiable as far as who pays what. A good realtor will negotiate closing costs in your behalf to save you as much money as possible, especially with the home prices in Monterey, Carmel, Pacific Grove, Seaside, continually going higher. You will want to save as much money as possible.
How do I know I’m not paying to much for my new home?
This is also where a good real estate agent will come in handy. Most real estate agents, especially our company, Century 21 in Monterey, will do their homework and, without asking, will show you comps of other properties in your area of interest. Comps are simply comparable properties that have recently sold.
However, it is important to note, that, if a home similar to the one you want, sold for much less, it very well could have been a short sale, sold to family member or many other reasons. What’s important is that it appraises at the amount that is being asked or for more. If it appraises for less, the banks my not lend you the money, as any home loan expert will tell you. Also, a good inspection report will also be an indication of the valued condition. (see more on this below)
Ok, so I can afford home, now what?
(important tip)
Get pre-approved before you go house shopping.
It’s necessary to get pre-approved for a specific loan amount. Now, many of you will say to yourself “oh, getting the loan is no big deal, I have good credit and make good income”. Well, let me tell you what happens if you don’t get a pre-approval letter from the bank first. Let’s say I take you shopping for a new home, you find one you just fall in love with. So much so, you put in an offer for full-price. You do not submit an approval letter however. The selling agent is now looking at your offer and maybe 3 others, all of which have pre-approval letters. Who do you think he or she is going to pick? In fact, they often will accept a lower offer that they feel it is more secure, rather than a higher offer that they may be taking a risk on.
So, now you are pre-approved and you are ready to go to check out a house, well..
What exactly do I inspect when I’m looking at house? I’m not in the construction trade.
Well, neither are many realtors which is why I am going to make clear a very important point;
ABSOLUTELY IMPORTANT!! Pay for a home inspection and don’t think twice about it. A good home inspector will check for everything, dry rot, foundation problems, faulty wiring, etc. Note: if the house you are looking at is not new, expect a long list of noted items. That is their job. That doesn’t always mean everything has to be redone, it’s simply pointing out all that is noticed. In that long list, the items of most importance are foundation issues, leaks, cracks, wiring, structural damage. This is usually done after an offer has been accepted and a deposit is put down.
Now, home inspections do cost a few hundred dollars, usually at the expense of the buyer, so you can look for basic items before you pay this cost. Such items include the basement, look for any leaks or water damage, ask how old the roof is, is the wiring updated, plumbing been redone, dry rot around the house, that is, wood that looks rotted and easily chipping away. (look for my article, “What questions to ask when shopping for your first home”.)
So, do I lose my deposit if I decide the repairs are to much?
Not if it’s within the first 17 days of accepted offer. In CA, you have 17 days to do your due diligence which means do all your inspections. So let’s say you have put a deposit down and the inspections reveal about $20,000 with of work. You can re-negotiate the price of the house. If it is within the 17 days and you and the owner do not come to a comprise, you can back out of the deal and get your entire deposit back.
So,it all checks out and you make the purchase. Well, now for a nice surprise for you at tax time. All that interest you paid throughout the year is tax deductible. Depending on your work income, You’ll get a good chunk of that back. If you are paying taxes every year, you will now pay less.
I hope this helps and good luck in your search. Please feel free to search for your new home here. http://www.forsalemonterey.com
Thank you!
