• Pre-Qualification: Meet with a mortgage broker and find out how much you can afford to pay for a home.
  • Pre-Approval: While knowing how much you can afford is the first step, sellers will be much more receptive to potential buyers who have been pre-approved. You'll also avoid being disappointed when going after homes that are out of your price range. With Pre-Approval, the buyer actually applies for a mortgage and receives a commitment in writing from a lender. This way, assuming the home you're interested in is at or under the amount you are pre-qualified for, the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and lenders will usually permit you to pay them when you close your loan.
  • List of Needs & Wants:  Make 2 lists. The first should include items you must have (i.e., the number of bedrooms you need for the size of your family, a one-story house if accessibility is a factor, etc.). The second list is your wishes, things you would like to have (pool, den, etc.) but that aren't absolutely necessary. Realistically for first-time buyers, you probably won't get everything on your wish list, but it will keep you on track for what you're looking for.
  • Representation by a Professional:  Consider hiring your own real estate agent, one who is working for you, the buyer, not the seller.
  • Focus & Organization:  In a convenient location, keep handy the items that will assist you in maximizing your home search efforts. Such items may include:

1.      One or more detailed maps with your areas of interest highlighted.

2.      A file of the properties that your agent has shown to you, along with ads you've cut out from the newspaper.

 

3.      Paper and pen, for taking notes as you search.

 

5.      Location: Look at a potential property as if you are the seller. Would a prospective buyer find it attractive based on school district, crime rate,
proximity to positive (shopping, parks, freeway access) and negative (abandoned properties, garbage dump, source of noise) features of the area?

  • Visualize the house empty & with your decor:  Are the rooms laid out to fit your needs? Is there enough light?
  • Be Objective: Instead of thinking with your heart when you find a home, think with your head. Does this home really meet your needs? There are many houses on the market, so don't make a hurried decision that you may regret later.
  • Be Thorough:  A few extra dollars well spent now may save you big expenses in the long run. Don't forget such essentials as:

1.      Include inspection & mortgage contingencies in your written offer.

2.      Have the property inspected by a professional inspector.

3.      Request a second walk-through to take place within 24 hours of closing.

4.      You want to check to see that no changes have been made that weren't agreed on (i.e., a nice chandelier that you assumed came with the sale having been replaced by a cheap ceiling light).

  • All the above may seem rather overwhelming. That's why having a professional represent you and keep track of all the details for you is high recommended.

How to Negotiate with Sellers

Consider the following before starting negotiations:

  • Be prepared

    Research the housing market in the target area. Once you have information about the general area, focus on the particular property and seller. Look for answers to questions such as:

1.      Why is the homeowner selling? (If they're moving because they find the area undesirable, you might as well.)

2.      How long has the home been on the market? (If it has been on the market for a long time, perhaps there are negative facts about the property that you need to know.)

3.      How much did the seller pay for the home compared to the current asking price? (If the seller paid more, find out why. Was it a general real estate trend, or did property values in that particular neighborhood go down?)

4.      What is the seller's time frame for selling and moving? Does it fit within your needs?

5.      Are there any defects in the home or problems with the surrounding neighborhood? (For example, is the roof so old that it will likely leak during the next storm? Is there a new construction project in the area that will lead to major traffic congestion?)

As the potential buyer, you want the advantage. While you want answers to all your questions to the seller, reveal very little about your circumstances. Do not give the seller personal information such as your income, the maximum you're able to pay for a down payment or the home, or when you want to move. Make sure that your agent knows not to reveal any such information to the seller or his/her agent.

Also, don't let the seller see how much you want the property. If you appear desperate or overly enthusiastic, the seller then has the stronger bargaining position. When meeting with the seller or listing agent, keep your emotions in check.

  • Establish a Timeline

    Find out if the seller needs to have the sale closed sooner rather than later. If the seller is feeling pressured to sell, use that to your advantage in negotiating. Even if you, the buyer, are the one with the deadline for purchasing a home, don't let yourself be rushed into making concessions or a purchase you may regret later.

Types of Mortgages

There are a variety of mortgages to choose from. It is in your best interest to investigate each of them to determine which is the best for your situation. Do your homework before signing on the dotted line, you may save yourself money and a big headache.

Fixed Rate Mortgages
Consider a fixed rate mortgage if either of the following describes you:

  • You plan on living in your new home for many years, and/or
  • You are not a risk-taker and prefer the stability of knowing how much your payment will be each month.

Most home loans are for a period of 30 years, an a fixed rate mortgage may work for you best. Your loan amount and interest rate are locked in and the fixed rate will guarantee, that you will have the same payment over the life of loan. You can make extra payments to the principal that will allow you to pay your loan off sooner.

If they interest rates are very high at the time you take out your loan, than this  may not be your best choice.

Below are descriptions of the varying lengths and terms of fixed-rate mortgages:

    15-Year Fixed-Rate:

  • You to pay off the loan in half the time of a 30-year loan.
  • Equity builds up more quickly than in a 30-year loan.
  • · Payments are higher (which may be a problem if you lose your job or become unable to work).

    20-Year Fixed-Rate:

  • You to pay off the loan in 2/3 the time of a 30-year loan.
  • The overall interest paid is considerably less than for a 30-year loan.

    30-Year Fixed-Rate:

  • The most common choice, especially for first-time homebuyers, as it's the easiest of the fixed-rate loans to qualify for.
  • Monthly payments are lower than for 15-year and 20-year loans. This can prove especially helpful if you don't have a lot of "padding" between the amount you can afford to spend & the monthly payment for your desired property.
  • More desirable if you plan on staying in the same home for years, since equity builds more slowly than for shorter-term loans.
  • For income tax purposes, this term provides the maximum interest deduction.

Adjustable-Rate Mortgages (Arms)

If you are more comfortable in taking a risk with your money or if interest rates are very high at the time you take out your loan, an adjustable-rate mortgage (ARM) may be the solution for you. You might also choose this type of loan if your planned ownership of the property is short-term or if you expect your income to increase to cover any potential rise in the interest rate.

Generally, the interest rate when you take out your loan will be lower than a fixed-rate mortgage. Please note that this is true initially, not necessarily long-term .


Since an ARM rate rises and falls depending on the prevailing interest rate, your mortgage payment will rise and fall accordingly. If your income isn't sufficient to cover the highest possible payments, then this option isn't for you. On the positive side, the lower initial payments will allow you to qualify for a larger loan than if you choose a fixed-rate. The downside is that your payments will increase if/when the rates go up.

Typically, ARM interest rates are tied to a specific financial index  and your payment will be based on the index your lender uses plus a margin, generally of two to three points. Get the formula used by your lender in writing and make sure you understand what it means.

Fortunately, the amount an ARM can increase is not unlimited. There are "caps" on how much your lender can increase your rate, both for a period of one year and for the life of the loan. Plan ahead, and have your lender calculate what the maximum payment would be if your rate went to the highest amount allowed by the cap for your particular mortgage. If you're not confident you'll be able to pay that amount on a monthly basis, perhaps you should reconsider this type of loan.

Convrtible ARMs

If neither the fixed-rate nor the adjustable-rate mortgage seems the best option, perhaps the convertible ARM will be right for you. This alternative combines the initial advantage of an ARM with a fixed rate after a predetermined number of years. Obviously, this type of mortgage has more advantages when the initial interest rate is low and the future rate is not guaranteed.

Government Loans

Another mortgage option available to some people is a government loan, providing that you meet the qualifications for these loans.

  • VA Loans: Veterans may qualify for a loan from the Veterans
    Administration. There is a limit on the amount you can borrow, so this option works best for those buying a lower priced home.
  • FHA Loans: The Federal Housing Association offers loans to lower-income Americans. Look for the phrase "FHA approved" when looking at ads for homes.

Getting the Best Rates for Your Mortgage

Naturally, you want to get the best deal for the least amount of money. This holds true for mortgage rates as well.

A lower interest rate means a lower monthly mortgage payment, which can save you much money in the long run. Also, it is easier to qualify for a lower payment than a higher one.

You basically have two routes to finding the best rate. The first is to do all the research on your own. The second is to use a mortgage broker.
Mortgage Broker

If you don't have the time or experience to "do it yourself," look for a qualified mortgage broker. Ask friends & associates who have refinanced or purchased recently if they have a broker they can recommend. You'll want to find a broker who is energetic, flexible & knowledgeable about finance and loans. You need someone who has your best interests in mind.

You've Opened Escrow, Now What?

Panic? Well, maybe a little. Besides doing that, follow these suggestions (and your realtor's advice) and you'll soon be the proud owner of a new home.

After you've signed on the dotted line, you'll be asked to provide a check for the "earnest money", showing that you are a serious buyer. In Southern California, the standard of practice is that a deposit in the amount of 3% of the purchase price is deposited into escrow.  Make sure that there are sufficient funds in your account to cover this check.

The deposit check will be cashed. Assuming the sale goes through, this money will be applied to the purchase price of the home. If for any reason the sale is not consummated, you may be entitled to receive all of your deposit back, less standard cancellation fees. In certain instances, the seller may be able to retain this money as liquidated damages. Prior to executing a purchase contract, it would be wise to speak with your counsel regarding whether or not it is your best interest to have a liquidated damages clause as part of the contract.

The period that you are "in escrow" is often 30 days, but may be longer or shorter. During this time, each item specified in the contract must be completed satisfactorily. By the time you have opened escrow, you have come to an agreement with the seller on the closing date and the contingencies. Each contract is different, but most include the following:

  1. Inspection contingency. This should be completed as soon as
    possible after the contract to purchase is signed, as unsatisfactory results of the inspection may mean that you will want to cancel the contract .
  2. Financing contingency. Once the contract is signed, you have a
    period of time to secure funding. If, for any reason, you are unable to secure funding during the period of time granted to you by the contract (and the seller will not provide a written extension of time), you must decide whether you want to remove the contingency and take your chances on getting a loan. You may choose to cancel the purchase contract .
  3. A requirement that the seller must provide marketable title.

Review the title report. The title must be "clear" to ensure that you don't have legal issues regarding your ownership on down the line.

Check into local and state ordinances regarding property transfer and make sure that you and/or the seller have complied with them.

Secure homeowner's insurance. This will probably be required before you can close the sale. In Southern California, due to such requirements as special fire and earthquake insurance, obtaining this insurance may require a lengthy period of time. It would be in your best interest to apply for insurance as soon as possible after the contract is signed.

Contact local utility companies to schedule to have service turned on when you close escrow.

Schedule the final walk-through inspection. At this time, you should make sure that the property is exactly as the contract says it should be. What you thought to be a "permanently attached" chandelier that would come with the property might have been removed by the seller and replaced with a different fixture entirely.

 Once the sale has closed, you're the proud owner of a new home.

 Congratulations!