 Buyer’s Guide
A real estate purchase is likely the biggest financial investment you’ll make in your life. Before you get started, do some homework. This Buyer’s Guide will show you some things to keep in mind, and help give you a good understanding of the process of buying real estate.
1. Determine How Much You Can Afford
2. Shop for Property
3. Find a Real Estate Professional
4. Research Different Mortgages
5. Make an Offer
6. Begin Contingency Period
7. Buy Property Insurance
8. Complete Settlement or Closing
1. Determine How Much You Can Afford
How much you can afford is largely dependent on how large a mortgage you can handle. Start your research by using the simple mortgage calculators we have on our website to see whether you can afford to pay the monthly mortgage on the kinds of properties you have in mind.
You may even apply for a mortgage at a lender before you start looking for a property (and you should). Getting pre-qualified for a loan will tell you exactly how much you can afford and will make the closing process smoother. Don't forget about insurance and taxes when you are trying to figure out how much the payment is going to be.
Owning property involves more than a monthly mortgage, taxes, and insurance. You’ll also have to consider money you’ll need to have at hand when you make an offer and when you close. You don't need to be too concerned if you are coming up a little short on cash. There are ways to structure real estate deals that can support you in a savvy purchase.
Payments you may have to make when you submit an offer and at closing include:
- Earnest money, usually 1% to 5% of the cost of the property, which you pay as a deposit when you submit your offer. It’s your proof that you’re a serious buyer
- Down payment, usually 10% to 40% of the cost of the property, which you must pay before closing
- Closing costs, usually 3% to 4% of the cost of the property, to pay for processing all the paperwork
Having said all of that, lending has changed a lot over the last five years. It's actually fairly easy to get closer to a "less money down" approach to purchasing real estate. We have personally bought several properties with a very small amount of money into the deal, and in some cases we even get a check at the close of escrow. You really have to know what you are doing, but it's possible (and it's also legal as long as you obey certain laws). *Of course, with the recent tightening of the mortgage market, lenders are scrutinizing buyers more, but deals are still being made in manners that would not have been perceived traditional just a few short years ago.
Day-to-day expenses you may incur once you own your property include:
- Utilities
- Association Fees
- Property Taxes and Insurance
- Property Management
- Maintenance
2. Shop for a property
Use the 100 - 10 - 3 - 1 Rule: Look at 100 Properties; Make 10 Offers; Get 3 Accepted Offers; Buy 1
Property hunting can be both exciting and frustrating. Most good buyers see many properties before buying one. To make the search easier and faster, nearly half of all property hunters today begin by browsing on the Internet, using web sites like this one. Please go to our home page and click on the "Search for Property" links and you will have access to properties covering a large area of California. This information is up-to-date and accurate.
The Internet is a quick way to see whether the properties that are currently available meet the following critical criteria: in the right location, with the right features and at the right price. If you find few properties meet with your expectations, you may want to readjust your criteria – change the location, features, price – to increase your chances of finding a property or investment that works for you. Also, keep in mind that we do this constantly so you're probably better of calling us and letting us help you through the process.
We are always the most current resource for literally up to the minute new property listing information, and properties for sale that few know about.
Here's a checklist of things to consider when purchasing a property for personal use or investing:
- Is there enough space for you to grow in?
- Is the property structurally sound?
- Is the property in move-in condition or will it need work?
- Will you or your tenants feel safe at the property?
- Does the personal property that is part of the sale have value?
- Is the land right for your needs?
- Do you like the floor plan?
- Is there enough storage?
- Will this property work in winter, summer, spring, and fall?
You may also want to take some exterior and interior photos of each property you visit so that you can keep track of its pros and cons, and make a record for legal issues that may come up later.
3. Find a Real Estate Professional
While you’re not required to use a real estate professional, it is a good idea. A "true" professional has access to a network of resources and can draw from extensive knowledge to help pinpoint the right property for you.
A professional also can help you structure your deal to save money, explain the advantages and disadvantages of different types of mortgages and guide you through the due-diligence and paperwork.
4. Research Different Mortgages
There are a variety of mortgage types available today, each with advantages and disadvantages depending on how long you plan to own the property, the financial marketplace, and your income potential.
Keeping up with all the possibilities is a lot of work, but you don't need to worry about that. We've already done all of the work. You can just select an option that works for your situation.
Beware of Negative-Amortization Loans!
5. Make an Offer
When you’ve found a house you really want, it’s time to make the offer. How much you offer may depend on a number of factors:
- Is the asking price fair? Here’s where the legwork you put in while shopping for a property pays off. Decide whether this property is priced right or out of line in the current marketplace.
- Is the property in good condition? Is this property in useable condition or will it need a lot of work? Take any costs of improvement into consideration when deciding your offer price.
- Has it been on the market long? Usually the longer a property has been on the market the more likely it is the owner would accept a lower offer. Or maybe it’s just overpriced for the market.
- Is it a seller’s or buyer’s market? If the properties you’re interested in are being bought as soon as they’re listed, that means you’ve got a lot of competition from other buyers; offer accordingly. If properties aren’t selling fast, you have more leverage in negotiating a lower price (known as DOM - days on market).
Once you’ve determined how much you’d like to offer, work with your real estate professional to submit the proper information. This includes things like:
- A complete, legal description of the property
- The amount of earnest money you’re paying
- The down payment and financing details
- The price you’re offering
- Due-diligence and contingency periods
- A proposed closing date
- The length of time your offer is valid
- Details of the deal (ask for a lot if you know what you're doing)
This can be just the beginning of the negotiation process. The seller has four options: accept your offer, counter your offer, reject your offer, or fail to respond. Let us advise you on the best way to present your offer for a profitable outcome.
6. Begin Contingency Period
When your offer has been accepted, the contingency period begins. This is time that allows you to obtain financing, perform inspections and satisfy any other contingencies of your purchase agreement. The initial period is most often referred to as due-diligence. This is a free-look period where you have the right to back out of the contract, as long as the contract was written right to begin with.
Obtaining financing might include loan approval, which will include an appraisal of the property. Also be prepared to make your down payment, which is usually due several days before the close of escrow.
Now is the time to schedule a professional inspection of the property; it is one of the best safeguards you can take before buying. A home inspector should check (and may give you a rough price for repairs on) the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, water source and quality, pests, foundation, doors, windows, ceilings, walls, floors and roof.
Keep in mind that the inspector isn’t there to tell you whether you’re getting a good deal. He or she is there to give you an educated opinion on whether the house is structurally and mechanically sound and fill you in on any repairs that are needed.
7. Buy Property Insurance
A paid insurance policy "should be" required at closing (even if you pay cash for the property). We will help make sure your insurance company and your title officer are working together to put your policy in effect by the close of escrow. But, if you get your insurance agent involved early in the process, he or she may also help point out ways to help keep your insurance premiums lower. We know people who have lost property due to disaster, and didn't have insurance. It's painful to watch someone suffer like this - get good insurance.
8. Complete Settlement or Closing
When the property you’re buying has been inspected and you’ve had your final walk-through of the property to see that all contingency conditions – such as final repairs made by the seller -- have been met, it’s time to face the paperwork. You will be signing loan documents and closing papers, paying the balance of your down payment and closing costs. This is the day you get possession of your property.
Yes...it's a lot of work, but don't worry. We're a full-service real estate firm, and we'll do a lot of the work for you.
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