Successful Steps to Home Ownership

ARE YOU READY?
Knowledge and experience are the keys to successful real estate
transactions whether you are buying real estate in Los Angeles or
anywhere in the United States.
One of the keys to making the home buying process easier and more
understandable is planning. In doing so, you'll be able to anticipate
requests from lenders, lawyers and a host of other professionals.
Furthermore, planning will help you discover valuable shortcuts in the home buying
process.

DO YOU KNOW WHAT YOU WANT?
Whether you are a first-time homebuyer or entering the marketplace as a
repeat buyer, you need to ask why you want to buy. Are you planning to
move to a new community due to a lifestyle change or is buying an
option and not a requirement? What would you like in terms of real estate
that you do not now have? Do you have a purchasing timeframe?

Whatever your answers, the more you know about the real estate
marketplace, the more likely you are to effectively define your goals. As an
interesting exercise, it can be worthwhile to look at the questions above
and to then discuss them in detail when meeting with local REALTORS®.

Homes and financing are closely intertwined. (Financing is the
difference between the purchase price and the down payment, commonly referred
to as debt or the mortgage.) The good news is that over the years new
and innovative loan programs have evolved which require a 5% down payment
or less. In fact, a number of programs now allow purchasers to buy real
estate with nothing down.

In addition to a down payment, purchasers also need cash for closing
costs (the final costs associated with closing the loan). Several newly
emerging loan programs not only allow the purchase of a home with no
money down, but also underwrite closing costs.

Not everyone, however, elects to purchase with little or no money down.
Less money down means higher monthly mortgage payments, so most
homebuyers choose to buy with some cash up front.

As to closing costs, in markets where buyers have leverage, it may be
possible to negotiate an offer for a home that requires the owner to pay
some or all of your settlement expenses. Speak with local REALTORS® for
details.

IS YOUR FINANCIALHOUSE IN ORDER?
Those great loans with little or nothing down are not available to
everyone: You need good credit. For at least one year prior to purchasing a
home, you should assure that every credit card bill, rent check, car
payment and other debt is paid in full and on time.

More than 2 million people in the United States have earned real estate
licenses. However, real estate is a tough business with a steep dropout
rate, and the result is that only a small percentage of those with
licenses actively help buyers and sellers.
The National Association of REALTORS® (NAR) includes 750,000 brokers
and salespeople, individuals bound together with a strong Code of Ethics,
extensive training opportunities and a wealth of community information.
NAR members are routinely active in PTAs, local government committees
and a variety of neighborhood organizations. Being actively involved in
community affairs provides REALTORS® with a better understanding of the
area in which they are selling.

WHY?
Buying and selling real estate is a complex matter. At first it might
seem that by checking local picture books or online sites you could
quickly find the right home at the right price.

But a basic rule in real estate is that all properties are unique. No
two properties—even two identical models on the same street—are
precisely and exactly alike. Homes differ and so do contract terms, financing
options, inspection requirements and closing costs. Also, no two
transactions are alike.
In this maze of forms, financing, inspections, marketing, pricing and
negotiating, it makes sense to work with professionals who know the
community and much more. Those professionals are the local REALTORS® who
serve your area.

HOW DO YOU CHOSE?
In every community you're likely to find a number of realty brokerages.
Because there is heated competition, local REALTORS® must fight hard to
succeed in your community.
The best place to find a local REALTOR® is from the various realty
sites that list community professionals and properties. Other sources
include open houses, local advertising, Web sites, referrals from other
REALTORS®, recommendations from neighbors and suggestions from lenders,
attorneys, financial planners and CPAs. The experiences and
recommendations of past clients can be invaluable.

WHAT SHOULD YOU EXPECT? (Working with a REALTOR®)
Once you select a REALTOR® you will want to establish a proper business
relationship. You likely know that some REALTORS® represent sellers
while others represent buyers. Each REALTOR® will explain the options
available, describe how he or she typically works with individuals and
provide you with complete agency disclosures (the ins and outs of your
relationship with the agent) as required in your state.
Once hired for the job, the REALTOR® will provide you with information
detailing current market conditions, financing options and negotiating
issues that might apply to a given situation. Remember: Because market
conditions can change and the strategies that apply in one negotiation
may be inappropriate in another, this information should not be set in
stone. During your time in the marketplace REALTORS® will keep you
updated and alert you to each step in the transaction process.

Few people can buy a home for cash. According to the National
Association of REALTORS® (NAR), nearly 9 out of 10 buyers in 1999 financed their
purchase, which means that virtually all buyers—especially first-time
purchasers—required a loan.
The real issue with real estate financing is not getting a loan
(virtually anyone willing to pay lofty interest rates can find a mortgage).
Instead, the idea is to get the loan that's right for you—the mortgage
with the lowest cost and best terms.
REALTORS® routinely suggest that consumers start the mortgage process
well before bidding on a home. Many lenders (the sources of money) and
programs, for example, are available through recommendations from local
REALTORS®. By meeting with lenders—either online or face to face—and
looking at loan options, you will find which programs best meet your
needs and how much you can afford.
REALTORS® also recommend pre-approvals for another reason: Purchase
forms often require buyers to apply for financing within a given time
period, in many cases, 7 to 10 days. By meeting with loan officers in
advance and identifying mortgage programs, it won't be necessary to quickly
find a lender, check credit, and rush into a financing decision that
may not be the best option.

PRE-APPROVAL--WHAT IS IT?
"Pre-approval" means you have met with a loan officer, your credit
files have been reviewed and the loan officer believes you can readily
qualify for a given loan amount with one or more specific mortgage
programs. Based on this information, the lender will provide a pre-approval
letter, which shows your borrowing power. You can visit as many lenders as
you like and get several pre-approvals, but keep in mind that each one
carries with it a new credit check, which will show up on future credit
reports.
Although not a final loan commitment, the pre-approval letter can be
shown to listing brokers when bidding on a home. It demonstrates your
financial strength and shows that you have the ability to go through with
a purchase. This information is important to owners since they do not
want to accept an offer that is likely to fail because financing cannot
be obtained.

HOW DO YOU GET PRE-APPROVAL?
Real estate financing is available from numerous sources, including
mortgage companies that have worked with local REALTORS® and in some
cases, individual REALTORS® themselves. Based on his or her experience, the
REALTOR® may suggest one or more lenders with a history of offering
competitive programs and delivering promised rates and terms.

The loan officer will carefully review your financial situation,
including your credit report and other information. The lender will then
suggest programs that most-closely meet your needs. For instance, a
first-time buyer may qualify for state-backed mortgage programs with little
money down and low interest rates, while a repeat purchaser (someone who
has bought a home before) with more equity (money invested in the home)
might want to get a 15-year loan and the lower overall interest costs
it represents. Typically, first-time buyers opt for the traditional
30-year loan, with either a floating interest rate or a fixed rate of
interest over the life of the loan.

Some 6 million new and existing homes are sold each year. There's no
shortage of housing options, but with so many choices the challenge
becomes finding the property which best meets your needs.
The housing market is complicated because the stock of homes for sale
is always in flux. If it were possible to have a complete list of every
home for sale at this very moment in a given community, such a list
would become obsolete within seconds as new homes become available and
properties now for sale are put under contract.
In effect, buyers are looking at a moving target in a marketplace that
is never static. Because of this, it is important to know as much as
possible about the choices in preferred markets, and the way to do that
is by working closely with a local REALTOR® who has a good "lay of the
land."

WHAT ARE YOU LOOKING FOR?
A home is more than just a collection of bedrooms and bathrooms.
Several properties—each with four bedrooms, three baths, and the same
price—may well represent radically different designs, commuting distances, lot
sizes, tax costs, interior dimensions and exterior finishes.
Each of us is different and so it's important to list the features and
benefits you want in a home. Consider such things as pricing, location,
size, amenities (extras such as a pool or extra-large kitchen) and
design (one floor or two, colonial or modern, etc.).
Next, it's important to consider your priorities. If you can't get a
home at your price with all the features you want, then what features are
most important? For instance, would you trade fewer bedrooms for a
larger kitchen? A longer commute for a bigger lot and lower cost?
Lastly, consider your needs in several years. If you'll need a larger
home, maybe now is the time to buy a bigger house rather than moving or
expanding in the future. If you expect your income to increase, perhaps
you should consider a more expensive home financed with a loan program
where monthly payments increase in the future.

WHERE SHOULD YOU LOOK?
All neighborhoods and communities have a special nature that gives them
identity and value. One community may be well known for historic homes
while another offers both suburban living as well as easy access to
downtown office areas.

HOW DO YOU FIND A HOUSE?
Some buyers like to search the internet by looking at listings on the
basis of location or price; others prefer to have local REALTORS®
suggest properties; and many buyers prefer both approaches.
Regardless of your choice, it's important to target your search. By
using basic measures such as general location and affordability, you can
refine your search and focus on homes that offer the most desirable
features.

There's no doubt that choosing a home is a big decision and you want to
do it right.
As a buyer, here's what actually happens.
A home has been placed on the market for which the seller has
established an asking price as well as other terms. In effect, this is an offer.
At this point, you have three choices:
• accept the seller's offer and create a contract;
• reject it and not make an offer;
• or suggest different terms and make a counter-offer.
If you choose this last option, the seller may accept, reject or make a
counter-offer.
No aspect of the home buying process is more complex, personal or
variable than bargaining between buyers and sellers. This is the point where
the value of an experienced REALTOR® is clearly evident because he or
she knows the community, has seen numerous homes for sale, knows local
values and has spent years negotiating realty transactions.

IS IT "THE" HOUSE?
A house is shelter, but a home is far more. It's where you live, relax,
entertain friends, raise families and work. A home is where you spend
much of your life, and so choosing a house is an enormous decision.
How do you know if a house is THE one? Probably the best approach is to
look at as many homes as possible, something made easy by your
Realtor®. Your Realtor® will be available to take you to view any and all
homes in which you are interested, supply you with the information provided
by the seller, obtain any additional information about the
property/neighborhood, etc.

CAN YOU REALLY AFFORD IT?
Remember Step 2 - the pre-approval process? Getting pre-approved means
you have a very good idea of how much you can borrow, what loan
programs will most likely work best in your situation and how much home you
can afford.
How reliable is a pre-approval? While pre-approval is not a loan
commitment, it's still necessary for lenders to check such items as
appraisals and the latest credit reports. Despite fluctuating interest rates,
pre-approval nonetheless provides a reasoned, careful analysis of what
you can afford. After all, loan officers are routinely paid only when
loans are originated. It doesn't make much sense for loan officers to
suggest high loan limits that later can't be delivered.

Often the cost of real estate financing is routinely greater than the
original purchase price of a home (after including interest and closing
costs). Because financing is so important, buyers should have as much
information as possible regarding mortgage options and costs.
Your REALTOR® can provide mortgage information, discuss financing
options and recommend loan sources. In addition, some REALTORS® also
originate loans.

WHAT KIND OF LOAN?
There are thousands of loans available out there from a variety of
lenders, but in general, the mortgage you choose will likely be determined
by at least several key factors:
• How much down? Loans with 5% down or less are now widely available—in
fact, loans from major lenders with no money down have appeared in
recent years.
If you place less than 20% down, lenders will want the mortgage
guaranteed by an outside third party such as the Veterans Administration (VA),
the Federal Housing Administration (FHA) or a private mortgage insurer
(PMI, or private mortgage insurance, is required by lender to protect
against any mortgage defaults). More than 2.5 million VA, FHA and PMI
loans are generated each year.
• How's your credit? The best rates and terms are only available to
those with solid credit. To get the best loans, make a point of paying
credit cards, installment payments, rent and mortgage bills in full and on
time.
• Are you a first-time buyer? It might seem that "first-time buyer"
means someone who has never owned property before, but under most state
programs, the term refers to those who have not owned property within the
past three years. State-backed first-timer programs often feature
smaller down payments and below-market interest rates. For details, speak
with your local REALTOR®.

HOW DO YOU GET A LOAN?
To obtain a loan you must complete a written loan application and
provide supporting documentation. Specific documents include recent pay
stubs, rental checks and tax returns for the past two or three years if you
are self-employed. During the pre-qualification procedure, the loan
officer will describe the type of paperwork required.

WHERE DO YOU GET A LOAN?
Mortgage financing can be obtained from mortgage bankers, mortgage
brokers, savings and loan associations, mutual savings banks, commercial
banks, credit unions and insurance companies. A growing number of
REALTORS® can also arrange financing.

REALTOR® groups, working with legal counsel, have developed forms that
are appropriate for realty transactions in specific communities. Such
documents include numerous sale conditions and their wording should be
carefully reviewed to assure that they reflect the terms you want to
offer. REALTORS® can explain the general contracting process in your
community as well as his or her role.
While much attention is spent on offering prices, a proposal to buy
includes both the price and terms. In some cases, terms can represent
thousands of dollars in additional value for buyers—or additional costs.
Terms are extremely important and should be carefully reviewed.

HOW MUCH?
You sometimes hear that the amount of your offer should be x percent
below the seller's asking price or y percent less than you're really
willing to pay. In practice, the offer depends on the basic laws of supply
and demand: If many buyers are competing for homes, then sellers will
likely get full-price offers and sometimes even more. If demand is weak,
then offers below the asking price may be in order.

FIND A LENDER
Lender suggestions are available from your Realtor®, phone book or
anyone currently owning a home.

HOW DO YOU MAKE AN OFFER?
The process of making offers varies around the country. In a typical
situation, you will complete an offer that the Realtor® will present to
the owner and the owner's representative. The owner, in turn, may accept
the offer, reject it or make a counter-offer.
Because counter-offers are common (any change in an offer can be
considered a "counter-offer"), it's important for buyers to remain in close
contact with Realtors® during the negotiation process so that any
proposed changes can be quickly reviewed.

HOW MANY INSPECTIONS?
A number of inspections are common in residential realty transactions.
They include checks for termites, surveys to determine boundaries,
appraisals to determine value for lenders, title reviews and structural
inspections.
Structural inspections are particularly important. During these
examinations, an inspector comes to the property to determine if there are
material physical defects and whether expensive repairs and replacements
are likely to be required in the next few years. Such inspections for a
single-family home often require two or three hours, and buyers should
attend. This is an opportunity to examine the property's mechanics and
structure, ask questions and learn far more about the property than is
possible with an informal walk-through.

No one would drive a car without insurance, so it figures that no
homeowner should be without insurance.
The essential idea behind various forms of real estate insurance is to
protect owners in the event of catastrophe. If something goes wrong,
insurance can be the bargain of a lifetime.

WHAT KIND AND HOW MUCH?
There are various forms of insurance associated with home ownership,
including these major types:
• Title insurance: Purchased with a one-time fee at closing, title
insurance protects owners in the event that title to the property is found
to be invalid. Coverage includes "lenders" policies, which protect
buyers up to the mortgage value of the property, and "owners" coverage,
which protects owners up to the purchase price. In other words, "owners"
coverage protects both the mortgage amount and the value of the down
payment.
• Homeowners’ insurance: provides fire, theft and liability coverage.
Homeowners' policies are required by lenders and often cover a
surprising number of items, including in some cases such property as wedding
rings, furniture and home office equipment.
• Flood insurance: Generally required in high-risk flood-prone areas,
this insurance is issued by the federal government and provides as much
as $250,000 in coverage for a single-family home plus $100,000 for
contents. Local Realtors® can explain which locations require such
coverage.
• Home warranties With new homes, buyers want assurance that if
something goes wrong after completion the builder will be there to make
repairs. But what if the builder refuses to do the work or goes out of
business?
Home warranties bought from third parties by home builders are
generally designed to provide several forms of protection: workmanship for the
first year, mechanical problems such as plumbing and wiring for the
first two years, and structural defects for up to 10 years.
Home warranties for existing homes are typically one-year service
agreements purchased by sellers. In the event of a covered defect or
breakdown, the warranty firm will step in and make the repair or cover its
cost.
Insurance policies and warranties have limitations and individual
programs have different levels of coverage, deductibles and costs. For
details, speak with Realtors®, insurance brokers and home builders.

HOW DO YOU GET INSURANCE?
The time to obtain insurance and warranty coverage is at closing, so
speak with a Realtor® or insurance broker prior to closing. Be sure to
ask about limitations, costs, deductibles and "endorsements" (additional
forms of coverage that may be available).

Go to any local courthouse and you can find property records detailing
real estate ownership in your community—sometimes records that date
back hundreds of years.
These records are important because they provide today's owners with
proof that they have good, marketable and insurable title to the property
they are selling. Equally important, such records enable buyers to
provide proof of ownership when they sell.
The closing process, which in different parts of the country is also
known as "settlement" or "escrow," is increasingly computerized and
automated. In many cases, buyers and sellers don't need to attend a specific
event; signed paperwork can be sent to the closing agent via overnight
delivery.
In practice, closings bring together a variety of parties who are part
of the "transaction" process. For example, while the history of
property ownership has been checked, it's possible that the records contain
errors, unrecorded claims or flaws in the review itself, thus title
insurance is necessary. At closing, transfer taxes must be paid and other
claims must also be settled (including closing costs, legal fees and
adjustments). In most transactions, the closing agent also completes the
paperwork needed to record the loan.

WHAT TO EXPECT.
Settlement is a brief process where all of the necessary paperwork
needed to complete the transaction is signed. Closing is typically held in
an office setting, sometimes with both buyer and seller at the same
table, sometimes with each party completing their papers separately.
Whatever the case, the result is that title to the property is
transferred from seller to buyer. The buyer receives the keys and the seller
receives payment for the home. From the amount credited to the seller,
the closing agent subtracts money to pay off the existing mortgage and
other transaction costs. Deeds, loan papers, and other documents are
prepared, signed and filed with local property record offices.

What you need to do.
One of the best parts of settlement is that buyers and sellers need to
do very little.
Before closing, buyers typically have a final opportunity to walk
through the property to assure that its condition has not materially changed
since the sale agreement was signed. At closing itself, all papers have
been prepared by closing agents, title companies, lenders and lawyers.
This paperwork reflects the sale agreement and allows all parties to
the transaction to verify their interests. For instance, buyers get the
title to the property, lenders have their loans recorded in the public
records and state governments collect their transfer taxes.

You've done it. You've looked at properties, made an offer, obtained
financing and gone to closing. The home is yours. Is there any more to
the home buying process?
Whether you're a first-time buyer or a repeat buyer, there are several
more steps you'll want to take.
• Those papers you received at settlement are extremely valuable, so
hold on to them! In the short-term they can help establish tax deductions
for the year in which the property was purchased. In the future, such
papers will be important for tax purposes when the property is sold, and
in some cases, for calculating estate taxes.
• Also at closing, determine the status of the utilities required by
the home, items such as water, sewage, gas, electric and oil service. You
want utility bills to be paid in full by owners as of closing and you
also want services transferred to your name for billing. Usually such
transfers can be done without turning off utilities. Realtors® can
provide contact numbers and related information.
• About two weeks after closing, contact your local property records
office and confirm that your deed has been officially recorded. Such
records are public notices that show your interest in the property.

Moving in
It is generally understood that sellers will leave homes "broom clean"
when moving out. This expression does not mean "vacuumed" or
"spotless." Broom clean makes sense because it means the house is ready to be
painted and cleaned.

Your home, your money
For most owners a home is the largest single asset they hold, so it
makes sense to protect that asset.
Many owners make a photo or video record of the home and their
possessions for insurance purposes and then keep the records in a safety
deposit box. Your insurance provider can recommend what to photograph and how
to secure it.
You want to maintain fire, theft and liability insurance. As the value
of your property increases such coverage should also rise. Again, speak
with your insurance professional for details.
Lastly, enjoy your home. Owning real estate involves contracts, loans
and taxes, but ultimately what's most important is that homeownership
should be a wonderful experience. Enjoy!