Tips for Buying a Home (cont -page 3)
WHAT DO I REALLY WANT?
For the moment forget about your real estate agent . . . only for the moment. What would make your search for a home less difficult or less stressful? Would restricting the search to only those houses you really want make it easier? Driving down the street, looking for yard signs is a waste of your time. Walking through a few dozen open houses may be fun if you are just looking or want some design ideas, but is not productive overall.
The Home I am Looking For
What does my dream home look like and what do I really NEED? What we want and what we need are very different things. We all WANT a 10,000 square foot castle on forty acres, complete with staff to take care of it and a garage full of fancy cars when all we really NEED is a three bedroom, two bath home with a den for the office.
- How many bedrooms do I need? Can a den be substituted for a bedroom?
- If I want a big yard, what does that mean? Big enough for horses or horse sized dogs, big enough for kids to put a swing set in, big enough for a pool? How big is big?
- Is a family room necessary? Dining room? Big kitchen (again define big)
- Square footage?
- How many bedrooms?
- How many bathrooms?
- Air Conditioning / Heating?
- Gas or electric stove / dryer?
- One or two stories?
- How old should it be?
- Garage? Parking spaces?
- Pool? Spa? Patio? Deck? Barbeque gas supply in backyard?
- Trees, shrubs, dust or wind you might be allergic to?
Make a list of the ten most important things a house and yard must have. Narrow it down to eight. You will probably never find 10 of 10. The more specific you are the fewer you will have to look at before finding one you like.
Have your REALTORŪ put you on an email drip campaign, where you can look at these homes online in the comfort of your own living room. Save gas, save time. Eliminate the styles, neighborhoods and colors that are simply not you. Hopefully your REALTORŪ has an IDX (link) for the MLS on their website so you can see for yourself the most current listings. Realtor.com is okay, but dated.
In a buyers market, where there is plenty of inventory, you can be very picky and hold out for a home matching most, if not all, your criteria. In a seller's market or when inventory is low, you will lose many good deals being too picky. This is not settling, this is acknowledging the difference between a dream and current market reality.
Give your REALTORŪ sufficient time to preview properties for you. Generally, after your first time in the car together, good REALTORsŪ will have a pretty good handle on what you are really looking for and will be able to screen properties so you don't waste your time.
Cost of the Property
Price usually is determined by the monthly payment, not the list price. Unless you have the ability to pay cash for the purchase, which few of us can, what one pays for a property is far less relevant than an affordable monthly payment.
WATCHOUT FOR SPECIAL ASSESSMENTS. When property values were higher, special assessments didn't represent such a high percentage of purchase price. As an example, a Lake Elsinore property sold for $525,000 in 2005 and the $3,500 special assessment pushed the property tax bill to 1.6%, not too bad. The property recently sold for $215,700. The special assessment, which a fixed amount not related to purchase price, was still $3,500 per year, pushing the annual tax bill to $5,657 or 2.62%. WOW! You can afford a higher priced home in a lower taxed area.
What is Mello-Roos? In the eighties, before there was a Mello-Roos, there were many older neighborhoods missing sewers, street lights or sidewalks. Cities aggressively sought to update these dangerous or unhealthy conditions, but were unable to help financially. This add-on tax was intended to assist homeowners to install needed improvements, bonding for them and paying for the expense over many years through self-imposed property tax increases.
Developers figured out that using Mello-Roos they could pay for roads, sewers, streets and lighting through Community Facilities Districts (CFD). Instead of paying for such items themselves, they could pass the charge on and keep prices lower or, as some skeptics point out, keep their profits higher.
What Monthly payment can I afford?
Seek the advice of a qualified lender
- What is the monthly loan payment?
- How much is the monthly cost of homeowner's insurance?
- How much is the monthly base tax?
- How much is the monthly special assessment?
- How much is the monthly HOA?
All of the above combined comprise your house payment for loan qualifying purposes.
Your lender may or may not require that some of these expenses be paid monthly, commonly called an impound account.
Cash to Close
- How much down payment can I afford?
- How much will closing costs be?
- Though the tradition has been to estimate 3%, lenders are fixing fees rather than assessing a percentage of purchase price.
- Along with an increased number of added lender fees, closing costs are rising significantly upward, sometimes as high as 5%
- Ask your lender for a good faith estimate, which they are required to do within 24 hours of an accepted application. Most will give it to you on request, even if your application is not "complete".
Why are there so few homes to Choose From
Contrary to popular belief, Short Sales are not the fault of foolish buyers, but in fact are largely the result of rapidly falling prices. Riverside and San Berardino Counties lost nearly 61% of their value in just over two years, bringing values close to 2002 levels and in some areas 2001 levels. No matter how smart buyers were after 2002 and regardless of how much money they put down, their property was probably worth less than what was owed. That would be most of the homeowners in Riverside and San Berardino Counties. That would mean fewer standard sales leaving only short sales and REO's.
Short Sales are, for many reasons, problematic (see Short sales). Only buyers with the gift of patience should attempt them. They can take weeks, even months to complete, if they get completed at all. Lenders and sellers change their minds after months of waiting. The foreclosure clock is ticking while unpaid payments gather interest. Lender portfolios are bought and sold, changing the holder of the underlying short sale notes and asset manager. Agreements made by the previous note holder are seldom honored
On average, only one in ten short sales actually happen. For very good reasons, short sales cannot be counted in standard inventory numbers and many buyers, after having been burned by a short sale, avoid them like the plague. If short sales are removed from consideration, and there are very few standard sales, REO's comprise the bulk of available inventory. Unfortunately, in a good real estate economy REO's are in short supply.
Some theorize that the federal bail out allowed many lenders to make back room deals, selling properties in bulk to their cronies at below market prices. They argue that taxpayer money and new accounting rules are being used to subsidize lender losses, allowing such greed. It is difficult to say for sure if that is what is happening, but there could be truth to the supositions.
According to consumer advocacy groups, the former number two for Countrywide teamed up with a very large money investor to buy up bad Countrywide loans. Rather like letting the arsonist back in to pick over the ashes.
That coincides with government plans to sell off troubles assets to large investors. The Fed plan was similar to what happened in the eighties through the Resolution Trust Company, which was a resounding clunker to American taxpayers. The RTC was charged by the Feds with liquidating troubled Savings and Loan assets. Unfortunately that also lead to a great deal of insider deals and questionable transactions at taxpayer expense. Wherever there is big money there is the potential for abuse and the Feds provide very big taxpayer money.
