BUYING A HOME

Purchasing a home is a major financial responsibility. Because your money will only stretch so far, you need to buy a home that fits within your budget. Lots of people don't even consider buying a home because they are afraid they will not be able to afford it. But often, home ownership is within your reach, particularly with some of the special programs available to first-time homebuyers. In fact sometimes, home ownership is just as affordable as renting, and in some cases, even more affordable.

Home ownership can actually add to your savings as mortgage payments help build your net worth. As opposed to rent payments, a portion of your mortgage goes toward building equity (i.e. the difference between the market value of a house and the amount still owed on the mortgage). As you pay off the mortgage, you owe less on the home and "own" a larger share of it.

Another financial benefit of home ownership is that mortgage interest payments are deductible. By owning a home, you can write off the interest on your mortgage on your tax return. In many cases, this will take you above the minimum itemized deductible, allowing you to write off many other items.

On the flip side, there are some situations where renting may be a better financial situation than buying a home. If you will be in a particular community for under three years, if the local economy is not doing well, if unemployment is rising, or if your future income will not provide you with enough for mortgage payments and other financial responsibilities to owning a home, then renting may provide the better option.

When people start thinking about buying a house, one of their first questions is "How much can I pay for a house?"  Look at yourself through the eyes of the lender. Banks want to make sure you are able to afford the home you buy and they will decide if you meet their mortgage requirements.

As a general guide, you can purchase a home worth two or three times your annual income, depending on your savings and debts. Your total monthly payment for housing expenses, which include mortgage principal, interest, taxes, and insurance (PITI), should not exceed 30-40% of your total monthly income.

Get a copy of your current credit report (www.consumerinfo.com). Verify that all of the information is correct, and if it's not, contact the credit reporting company and have them make corrections where possible. If the inaccurate information involves debts that are still outstanding, or other derogatory information reported by your creditors (such as department stores, hospitals, contractors, etc.), you will need to contact the creditor(s) and work out a way to have this information removed from your credit report.

It's important that you do everything possible to make your credit report as clean as possible before applying for a loan. One of the best things you can do is pay off all of your credit card debt and then close all of your credit card accounts except for one or two at most.

The bottom line is that a good credit report is your passport to obtaining a loan. A bad credit report won't necessarily prevent you from getting a loan, but you may need to do some work to clean it up and make it acceptable to a lender before they'll make a loan to you.

Cooperative

Shareholders in a cooperative, or co-op for short, own shares in a corporation. The corporation holds title to the complex, and the shareholder has the right to live in a particular unit. Cooperatives are more common in big cities, where there is a shortage of housing.

Because a corporation owns cooperative buildings, and the people who live in it are shareholders, they tend to be the most selective of all of the housing options. By living in a cooperative, you are agreeing to live by the rules of the corporation -- these cover everything from maintenance of the building to loud parties. The selectivity, however, can be an advantage.

Townhouse

Townhouses are usually less expensive than houses, but have less privacy. Because one or more walls are shared, noise can seep in from neighbors. When looking at townhouses, check the noise level by visiting the place when neighbors are home and active. A townhouse can follow the condominium or co-op management models.

Of course the biggest concern is price. You should look over your budget carefully and research the market as well as the neighborhood. It is also a good idea to meet with your banker or financial advisor to see what you can really afford. You should then think about what aspects of a house are most important to you.

How many bedrooms or bathrooms will you need? Do you need a basement or an attic? Will you want a front yard, a back yard, or other amenities? What type of home are you looking for; a house, townhouse, or condominium? These are just some of the types of questions to consider when deciding what size home to buy.

Another important question is what are your plans for the future. Are you single and planning to stay that way or are planning on starting or growing your family? Knowing the answers to these questions in advance will not only help you determine the size of home you need, it will also save you time and money in your home buying process.

While you may have to wait longer to move into a new home, new construction offers the buyer several advantages:

·         New homes are more energy efficient. With improved heating and cooling systems, better windows, and greater use of insulation, new homes utilize half as much energy as home built before 1980.

·         New homes require less maintenance. Newer homes often come with siding and trim that never need painting. Pressure-treated wood that is resistant to rot and insects is also used.

·         New homes have more amenities. The kitchens in new homes come already built with dishwashers, refrigerators, and other appliances. Bathrooms also often come with more convenient features such as large mirrors and medicine cabinets. There are also more electrical outlets and cable tv and telephone outlets in new homes.

·         New homes are safer. Electrical systems in new homes are better sized for the heavier electricity demands of today’s homes, and thus less likely to cause fires. Smoke detectors are often hard wired on every level of a new home and ground fault interrupters for bathrooms and kitchens reduce the chance of fire or electrocution

• More space for the money. Many older homes have more ample bedroom space. Often buyers will prefer a home with fewer rooms that are more spacious to a house with more rooms that are smaller.

• Nicer Landscaping. The lot of an older home is often planted with trees and shrubs by previous owners and therefore presents fewer landscaping problems.

• Better location. Buyers should not fail to weigh the shorter commuting distances to offices, schools, and other frequent destinations afforded by older neighborhoods.

• More stable taxes. Homes in established neighborhoods have fairly predictable assessed values (county tax valuation) since they've been bought and sold several times.

• More charm and individuality.  Today, many new homes in a subdivision are built following one of only a handful of plans.  Most homes in older subdivisions are unique in design, giving the neighborhood a lot of character.

• Higher quality of construction.  Slate roofs, brick and stone construction, plaster walls, hardwood floors, and other high-quality materials that are fairly commonplace in older homes -- are virtually non-existent in new homes.

What if you’ve never worked with a real estate agent? How do you find an agent that is right for you?

You're going to be spending a fair amount of time with your agent so it's important to like and trust him or her. Take the time to interview several agents.  Questions to ask include:

• How long have they been selling/buying houses?
• Do they specialize in the areas you’re considering?
• What is their commission, and who will pay it?
• How often will they follow-up with you?
• How much time will they spend with you each week?

It is also important notice if the agents ask questions about what you want and need. Do they listen to you? Do they make suggestions? Do they seem knowledgeable about the community? Do you feel comfortable spending time with them?

A good agent will not only look to learn more about their client but will constantly provide advice. A good agent should be on call 24 hours a day. The very basics of the selection process normally encompass your very own feelings about the REALTOR®. Choose someone you trust, feel comfortable with, and are open, honest and a good listener, once the very basics have been met; Let the agent know your expectations.

If you are not pleased with an agent, thank them for their time and choose another. You can repeat the process as often as you want to find the agent that’s best for you. Most agents are professional, so you should not encounter too many bad experiences.

If you are pleased with the agent, commit to stay with them. Real estate agents work hardest when they know they have a loyal client. You will not help yourself by going from agent to agent. In some areas, agents will ask you to sign them on as your buying agent. This means that they are legally responsible to work on your behalf instead of the seller's. Once you find an agent you like and with whom you plan to work, you may want to enter into such an agreement.

Since there are thousands of homes available for sale, get a head start in finding the right home for you, let your real estate agent assist you in this process by calling Bill now.

 Bill Smith, REALTOR®
 702-273-8705
 Reach  Me 24/7

When an agreement is reached between a buyer and seller on a home's price, the parties sign a purchase agreement (also known as a sales contract). Before signing, you should make sure that the document correctly describes your agreement with the seller on such important details as the sale price, method of payment, the time for your taking possession, and what fixtures, appliances and personal property are to be conveyed with the home.

Whether it consists of several pages of big type or a few of fine print, the purchase agreement is a legal document. In most areas, there are "boiler plate" forms that spell out what each party agrees to do by certain dates and what happens if either side breaks the contract.

The best time to become familiar with the contract is early on in the home buying process. Ask your agent for a copy of the purchase agreement and then review it, keeping in mind that it has the force of law. If you do not understand the document, seek the advice of an attorney. If there is a dispute between buyer and seller, a court will hold you to what the purchase agreement says, not what you thought it meant or what you thought the REALTOR® said it meant. There are several important points you need to be clear about. What are the deadlines for loan application and obtaining financing? Can you back out of the contract after the home inspection report? Are appliances included with the sale of the house? When will the closing take place? If you comprehend the agreement and its clauses, you will minimize the likelihood of misunderstandings and avoid a lot of stress.

When you have found a desired property and have arranged a suitable mortgage (or at least agreed to it in principle with your lender) you are ready to make an offer. When you make an offer, you're negotiating an important investment. Understanding the process will help you get the best possible advantage in your negotiations.

There are two types of offers you can make on a home, Firm or Conditional.

• A Firm Offer to Purchase is often preferable to the seller, because it means that you are prepared to purchase the home without any conditions. If the offer is accepted, the home is yours.
• A Conditional Offer to Purchase means that you have placed one or more conditions on the purchase, such as "subject to home inspection" or "subject to sale of buyer's existing home."

The process of making the offer usually follows the steps below:

1. Submit the offer to the seller or the seller's real estate agent. Your real estate agent will have all the standard documents available to make the offer. Pre-approval for a loan could also make all the difference. If you secure pre-approval before making an offer, you'll be in a stronger position to negotiate and have an edge over the competition. When you make an
offer, present a certificate or letter confirming your pre-qualified status.

2. A "good faith deposit" (also known as "earnest money") is also usually required to demonstrate your commitment to the transaction. The amount of the deposit varies from contract to contract. Your agent can give you a good idea of how much should be offered. This deposit is then applied against the purchase of the home when the sale closes.

The seller will then reply to the offer in one of three ways:

• Accept your offer
• Reject your offer
• Make a counter-offer

3. The counter-offer may be in reference to the price, the closing date, or any number of variables. The offers can go back and forth until both parties have agreed, or one of you ends the negotiations.

4. Your real estate agent will act as a liaison by presenting your offer and conveying the seller's response or counter-offers to you. When you and the seller have both signed your agreement to the same terms, you have a legally binding contract.

Buying a home is probably the largest single investment you will ever make. In doing so, you should learn as much as you can about the condition of the property and the need for any major repairs before you purchase. A home inspection is usually set up within a few days after the contract or purchase agreement has been signed. However, before you sign the contract, be sure that there is an inspection clause in the contract, making your purchase obligation contingent upon the findings of a professional home inspection. This clause should specify the terms to which both the buyer and seller are obligated.

A home inspection not only points out the bad, but the good aspects of a home, as well as the maintenance necessary to keep it up. After a home inspection, you will have a better understanding of the home you are about to purchase, and will be able to make a more confident decision on buying.

While it is not required for you to be present for the inspection, it is strongly recommended.

By following the home inspector around and observing and asking questions, you will learn a great deal about the condition of the home, how its systems work, and how to maintain it. You will also find the inspector’s written report, which you’ll receive after the inspection, easier to understand if you've seen the property first-hand with the inspector.

No house is perfect. If the inspector finds problems, it doesn't necessarily mean you shouldn't buy the house, only that you will know in advance what to expect. A seller may be flexible with the purchase price or contract terms if major problems are found. If your budget is very tight, or if you don't wish to become involved in future repair work, this information will be extremely important to you.

Here are some Helpful Hints for a Hassle-Free Home Inspection:

• Select an inspector with training and qualifications. As licensing for home inspectors is not required in most of the United States, professional designations are all the more important. Try to find an inspector who is a member of a professional society, for example the American Society of Home Inspectors.

• Use referrals. Most real estate agents encourage their clients to seek a serious inspection. They're interested in client satisfaction. Still, agents don't want to be seen as pushing the services of any one inspector. That's why you may get as good, or better, referrals from friends or co-workers who have gone through the home inspection process.

• Don't select just on price. The fee for a home inspection depends on the geographic area as well as the size of the house. A home inspection usually takes about two to three hours and runs between $200-$500, depending on these factors. However, home inspector’s prices are usually within 20 to 40 dollars of each other.

• Don't confuse an appraisal with an inspection. An appraisal is requested by the buyer’s lender and is designed to determine the market value of the property. It is not a replacement for a home inspection, which provides an in-depth look at such basic home systems as plumbing, heating, air conditioning and roofing.

• Understand the limits of a home inspection. The most thorough home inspector can still miss some items. Some problems are slow to develop, while others are hidden from view. That's why it's best to choose a home inspector who is willing to answer your questions -- even after you move in.

When to Find a Lender

It is often a good idea to start this process when you start thinking about buying a home. While you can’t actually apply for a mortgage until you’ve chosen your specific home and signed a purchase agreement, you should start talking to lenders. This way you’ll have a better understanding of what you can qualify for and afford and you will also have a good relationship with a lender when it comes time to actually apply for the mortgage.

Get Pre-qualified and/or Pre-approved

How to Find a Lender

Often the only factor people consider when choosing a mortgage lender is finding the lowest interest rate. Of course, financial considerations are critical and you certainly should consider the different rates lenders offer on comparable loans. But you also want a lender you can trust, and someone you can work with effectively. Here are some suggested steps to find a mortgage lender:

1. Develop a list. Get referrals from family and friends who have bought or refinanced a home recently, review the newspaper’s real estate or business section, or just consult your local phone book under “Mortgages.”
2. Ask you Agent for suggestions about lenders he or she has worked with in the past.
3. Talk to lenders. Call or visit the lenders on your list. This will give you an initial feel for what it will be like to work with them.
4. Compare rates for similar loans. Among the things you’ll want to discuss with prospective lenders are the rates they offer on mortgages. But when comparing rates between lenders, be sure the rates are for comparable loans—and remember to include fees and other costs.

Get Acquainted with Types of Financing

The first thing to do is find out what the current rates are. You can get this information from your newspaper or your real estate agent. When comparing rates, you need to look at the annual percentage rate (APR), which includes interest, extra fees and costs amortized over the life of the loan.   Remember, mortgage interest is deductible from your income tax.

You should become familiar with the various types of loans available: fixed rate, adjustable rate, government-backed loans (FHA and VA), assumptions, blended loans, and more. FHA loans, for example, allow first time buyers to put 5% or less down.

Check how rates are calculated (fixed versus variable), and whether charges are fully amortized over the life of the loan, or whether you’ll have to pay points up front and/or balloon payments at the end. Is there a prepayment penalty clause?

 Finding the Right Kind of Mortgage

Which loans are best for you depends on such factors as:

• Your current financial picture;
• Potential changes in your finances;
• What your length of stay in the home will be; and
• Your comfort level with having your mortgage payment change from time to time.

For example, if you only plan to reside in the home for a year or two, starting with a lower Adjustable Rate Mortgage (ARM) might be the best choice. If you have no plans to move, and feel that inflation will rise rapidly, a fixed rate would obviously be better.

The best way to find the “right” answer is to discuss your finances, your future plans and financial prospects, and your preferences frankly with a mortgage lender.

At settlement, also referred to as closing, your weeks of planning and anxiety finally pay off. In a few circumstances, an escrow agent prepares the documents and then collects and pays out the various funds. More often, all parties to the transaction, including the lender; buyer, seller, and their attorneys; real estate agents; and someone from the title company will meet with the closing agent to settle the paperwork and exchange moneys associated with the deal. 

If your loan application process went smoothly there should be no surprises at settlement. However, last minute problems may arise. For example, a termite inspection report may be missing or the loan applicant may have forgotten to bring a one-year paid homeowner's insurance policy. Depending on the parties involved, these instances may postpone settlement.

You will be presented with a settlement or closing costs sheet that reflects all the applicable details of the transaction. The settlement sheet details the amount of money due to and from various parties. Review this document carefully. If you were fully disclosed by your lender before settlement (as required by law) there should not be any charges you do not recognize. You might want to bring along a calculator and add up these charges. Although they are totaled on the settlement sheet, errors may occur. Closing costs typically include:

• Loan origination fee, usually 1 % of your mortgage amount
• Discount point (or points); each point is 1% of your mortgage amount
• Assumption fee if you assume the seller's loan
• Cost of title search
• Lender's title insurance fee
• Owner's title insurance fee (optional but advisable)
• Survey fee (if applicable)
• Transfer tax (state and / or local tax and tax stamps in some areas; sometimes split with seller)
• Lender's appraisal fee
• Recording fees for settlement documents
• Prepaid interest on your mortgage, covering the time between settlement and your first monthly payment
• Prepaid mortgage insurance premium
• Homeowner's hazard insurance premium
• Property tax escrow Lawyer's or escrow company's fee

Your lawyer or representative will review the documents, explain them to you, and protect your interests. You will pay your portion of the closing costs to cover the down payment, loan origination fee (sometimes called points), an escrow amount to pay your property taxes and mortgage and property insurance, services such as a title examination, and document recording, among other things. You'll sign numerous documents and receive copies of them all. You will then receive the keys to your new home!

If you have any questions, please feel free to contact me at any time.  I am at your service.

Bill Smith, REALTOR®
(702) 273-8705
Reach me 24/7

DISCLAIMER:  This information has been reprinted courtesy of the Greater Las Vegas Association of Realtors.  Although the above information is deemed reliable, neither Bill Smith nor Liberty Realty assume any responsibilities, either expressed or implied, as to the accuracy of any information given in this report.