BUYING YOUR HOME
Victoria Cruz Homes & Real Estate is one of the most trusted and respected real estate teams in your area. We are committed to providing you with a concierge experience – tailored just for you! Proudly serving buyers since 2011, we know how important it is that everything goes smoothly from start to finish when buying or selling property. Our team is uniquely qualified so we can provide expert advice on all aspects related to home ownership such as education about contract negotiations, tax incentives/disadvantages, financing options and more. So whether you’re looking for an experienced agent who will guide through every step or simply answer any questions that come up along the way during research; Victoria Cruz Homes & Real Estate has the knowledge and results. We’re waiting for your call today!
- READY TO BUY A HOME
- WHO’S WHO IN THE TRANSACTION?
- LIFE OF A PURCHASE & SALES TRANSACTION
- TITLE INSURANCE
- WHAT IS ESCROW?
- INSPECTION PROCESS
- WHO PAYS WHAT?
- THE LOAN PROCESS
“Buying a home can be complicated but it helps to be prepared for the process in advance. Before starting to seriously shop for a home, consider the following one-year timeline that’ll help you arrange your finances. The more time you give yourself for this process, the better.”
A Year Out
GET YOUR CREDIT REPORTS If there are errors on your reports, you will pay a higher interest rate on your mortgage. You might have issues getting a loan. The three major credit bureaus (Equifax, Experian and TransUnion) offer free reports from AnnualCreditReport.com. Scan for suspicious activity, collection accounts for debts you don’t owe and negative marks (other than bankruptcy) that are older than seven years.
OBTAIN YOUR FICO CREDIT SCORES Your credit scores are three-digit numbers used to measure your creditworthiness. They help determine the rates and terms for your loan. While there are hundreds of different credit-scoring formulas, the majority of lenders use FICO.
CONSIDER A CREDIT–MONITORING SERVICE Given how important your credit and credit scores will be in buying a home, many consumersappreciate the early warning if a collector tries to post a bogus debt.
ATTACK YOUR DEBT Try to eradicate bad debt such as credit-card balances and payday loans which signal that you are living beyond your means. Getting any overspending problems fixed before you buy a home is key. Homeownership typically involves big costs such as property taxes, insurance, maintenance, repairs, improvements, and decorating.
SAVE MONEY Cut back on luxury expenses and put as much money aside as possible. Think about your dream of homeownership. Ideally, try to have at least a 5% down payment but putting down 10% will give you even more financing options.
SWITCH TO AUTOMATIC BILL PAY A single, 30-day late payment can knock 100 points off your score so be sure every bill gets paid when it’s due. If you don’t have a reliable bill-paying system, consider using automatic debits so payments come directly from your checking account or an online bill-payment system’s recurring-payment feature.
6 Months Out
RESEARCH MORTGAGE OPTIONS Many people have lost their homes in today’s market, because they didn’t understand their mortgage or listened to poor advice. For some, low teaser payments for a more expensive home were enticing, but payments increased and they are unable to pay. Understand the risks of the different types of mortgages.
RESEARCH HOMEOWNERSHIP COSTS Remember that homeownership not only includes your mortgage, it also involves property taxes, home insurance and perhaps homeowners or condo-association fees. You might face higher utility bills, maintenance and repair costs, too. Speak with your homeowner friends so you know what to expect.
HONE YOUR SAVING STRATEGIES A bigger down payment could result in a larger home or a lower mortgage payment. Build up your emergency fund for unexpected home expenses.
3 Months Out
REDUCE YOUR CREDIT UTILIZATION Remember: less is better. At least when it comes to the FICO scoring formula. It’s sensitive to how much of your available limits you’re using on your credit cards and other revolving lines of credit. Even if you pay your balances in full every month, the balance that shows on your most recent statement is the formula used. Keep that balance below 30%, or even lower.
DON’T OPEN OR CLOSE ANY ACCOUNTS Until the mortgage process is completed and you’ve moved into your new home, avoid actions such as opening credit accounts or closing old ones that could potentially harm your credit.
2 Months Out
LOOK INTO POTENTIAL MORTGAGE RATES Checking your FICO credit scores doesn’t ding them so order a fresh set and speak to a few mortgage lenders about rates. Don’t apply yet or give permission for your credit to be pulled; just get a feel for what you can expect.
UNDERSTAND THE EFFECT OF MORTGAGE SHOPPING ON YOUR SCORE Everyone wants to get the best loan rate and terms possible. Each time a lender checks your credit, a “hard inquiry” appears on your credit report and dings your score slightly. Good news is that the FICO scoring formula counts all mortgage-related inquiries within a specified period as one. It is important to do your serious mortgage shopping in a fairly concentrated period of time, typically immediately after you enter escrow.
GET APPROVED FOR A MORTGAGE IN ADVANCE Pre-approval, in which a lender gives a commitment to make you a loan, is different and more valuable to sellers than pre-qualification, which gives you just an idea of an affordable mortgage amount without any commitment. You are not obligated to get a loan from the lender that offers you a preapproval letter. Even though a pre-approval involves a hard credit inquiry, the small potential ding on your credit is worth it because you’ll be in a stronger position with sellers.
CONSIDER A MORTGAGE BROKER After you are in escrow, shop for a mortgage. Get referrals from family and friends or look on the National Association of Mortgage Brokers website.
RESEARCH NEIGHBORHOODS AND AGENTS Check Internet listings, attend open houses, and talk to others to identify a professional to help you in your home search.
Once You’re In Escrow
SHOP FOR A MORTGAGE Consider the national mortgage lenders, local lenders and online brokers. The full approval process typically takes four to six weeks so be sure to move quickly.
CONDUCT APPRAISAL, HOME INSPECTION AND WALK–THROUGH An appraisal is required for loan approval. An inspection is not required but can alert you to any serious problems before the deal closes. The walk-through is usually done within 24 hours of the deal closing, so you can make sure that the home sellers have performed any agreed-upon repairs and the place is in move-in condition.
GET HOMEOWNERS INSURANCE Mortgage lenders require this coverage, and you’ll need to prove you have it at closing.
CONFIRM CLOSING COSTS Your “closing” entails signing all loan and escrow paperwork and paying agreed upon amounts, which can include your down payment and your share of legal fees, paperwork costs, property taxes and title insurance.
Professionals Involved In Your Transaction
REALTOR® A licensed real estate agent and a member of the National Association of Realtors, a real estate trade association. Realtors also belong to their state and local associations of Realtors.
LISTING AGENT The listing agent or broker forms a relationship with the homeowner to sell the property and place the property in the Multiple Listing Service.
BUYER’S AGENT A key role of the Buyer’s agent or broker is to work with the buyer to locate a suitable property and negotiate the home purchase.
TITLE OFFICER A title officer carries out the title search and examination, takes any necessary corrective action and provides the policy protection to secure a clean title.
ESCROW OFFICER An escrow officer leads the facilitation of your escrow, including escrow instructions preparation, document preparation, and funds disbursement.
APPRAISER Before you can get a loan, the bank will have an appraiser look at the home and decide if it’s really worth the money you’re planning to spend. Many homeowners hire their own appraisers to make sure they’re getting the best value.
MORTGAGE BROKER OR LENDER A mortgage broker will find you the best loan and lender to fit your needs. The financing aspect of your home purchase may begin before you find an agent with a loan pre-approval.
- Submits a written offer to purchase (or accepts the Seller’s counter-offer accompanied by a good faith deposit amount.
- Applies for a new loan by submitting all required forms & often pays certain fees such as credit report & application costs.
- Approves the preliminary report & any property, disclosure or inspection reports called for by the purchase & sale agreement, (Deposit Receipt).
- Approves & signs the escrow instructions, new loan documents, & other related instruments required to complete the transaction.
- Fulfills any conditions contained in the contract, lender instructions and/or the escrow instructions.
- Approves any final changes by signing amendments in the escrow instructions or contract.
- Deposits sufficient funds in the escrow to pay the remaining down payment & closing costs.
LENDER (IF APPLICABLE)
- Accepts the loan application & related documents from the Buyer(s) & begins the qualification process.
- Orders & reviews the property appraisal, credit report, verification of employment, verification of deposit(s), preliminary report & other related information.
- Submits the entire package to the loan committee and/or underwriters for approval.
- When approved, loan conditions & title insurance requirements are established.
- Informs Buyer(s) of loan approval terms, commitment expiration date, & provides a good faith estimate of the closing costs.
- Deposits the new loan documents & instructions with the escrow holder for Buyer’s approval & signature.
- Reviews & approves the executed loan package & coordinates the loan funding with the escrow officer.
- Receives order for the title & escrow services
- Accepts Buyer’s earnest money deposit. Orders the title search & examination on the subject property from title officer.
- Acts as the impartial “stakeholder” or depository, in a fiduciary capacity for all documents & monies required to complete the transaction per written instructions of the principals.
- With the authorization from the real estate agent or principal, orders demands on existing deeds of trust & liens or judgments, if any. For assumption of loan by Buyers, orders the beneficiary’s statement or formal assumption package.
- Reviews documents received in the escrow: preliminary report, payoff or assumption statements, new loan package, & other related instruments.
- Reviews the conditions in the Lender’s instructions, including the hazard & title insurance requirements.
- Prepares the escrow instructions & required documents, together with a preliminary estimate of settlement charges, for the Buyer & Seller, in accordance with the terms of the purchase & sale agreement.
- Presents the instructions, documents, statements, loan package(s), estimated closing statements & other related documents to the principal(s) for approval & signature.
- Reviews the signed instructions & documents, returns the loan package, & requests the lender’s funds.
- Determines when the transaction will be in the position to close & advises the parties.
- Assisted by title personnel, records the deed, deed of trust, & other documents required to complete the transaction with the County Recorder & orders the title insurance policies.
- Closes the escrow by preparing the final settlement statements, disbursing the proceeds to the Seller, paying off the existing encumbrances, & other obligations. Delivers the appropriate statements, funds & remaining documents to the principals, agents, and/or lenders.
- Submits documents & information to escrow holder, such as: addresses of lien holders, tax receipts, equipment warranties, home warranty contracts, any leases and/or rental agreements.
- Orders inspections, receives clearances & approves final reports and/or repairs to the property as required by the terms of the purchase & sale agreement (Deposit Receipt).
- Approves & signs the escrow instructions, payoff demands, grant deed, & other related documents required to complete the transactions.
- Approves any final changes by signing amendments to the escrow instructions or contract.
- Reviews documents received in the escrow: preliminary report, payoff or assumption statements, new loan package, & other related instruments.
- Reviews the conditions in the lender’s instructions including the hazard & title insurance requirements.
- Examines the title to the real property & issues a preliminary report.
- Determines the requirements & documents needed to complete the transaction & advises the escrow officer and/or agents.
- Reviews & approves the signed documents, releases the order for title insurance prior to the closing date.
- When authorized by the escrow officer, the title officer records the signed documents with the County Recorder’s office & issues the title insurance policies.
“In California, most real estate transactions are closed with the issuance of a title insurance policy in favor of the owner, the Lender or both. Many homebuyers erroneously assume that when they purchase a piece of real property, possession of the deed to the property is all they need to prove ownership. Not so, because hidden hazards may attach to real estate. Forgeries, faulty surveys, hidden liens, the false representation of ownership of a married person as being single are just a few examples of factors which may cloud the title to real property ownership. A property owner’s greatest protection is a policy of title insurance.”
WHAT IS TITLE INSURANCE? Title insurance insures property owners that they are acquiring a marketable title. Unlike casualty insurance (policies which insure against future events), title insurance is designed to eliminate risk or loss caused by defects in title from past events. Title insurance provides coverage only for title problems. A title insurance policy is a contract of indemnity which insures against loss if the title is not as reported; and if it is not and the owner is damaged, the title policy covers the insured for his/her loss up to the face amount of the policy.
TITLE SEARCH Issuing a title policy is an extensive and exacting process. Title companies work to eliminate risks by performing a painstaking search of the public records or the title company’s own “plant,” where public records pertaining to the property and the parties to the escrow are maintained, to determine the current recorded ownership, any record liens, encumbrances, or other matters of record which could affect the title to the property. Once a title search is complete, the title company issues a preliminary report detailing the current vesting, description, taxes and exclusions from coverage.
Escrow is the depositing of funds and documents that establish the terms and conditions for the transfer of property ownership with an impartial third party for delivery upon completion of the terms of the escrow instruction.
When the parties deliver documents and money to the impartial escrow holder to be held for further delivery until certain conditions have been met, we say the documents are held “in escrow”. We may also say the parties have “opened an escrow”. Each of the principals of the escrow (Seller, Buyer, Lender) will give to the escrow holder written instructions setting out the conditions under which the further delivery is to be made.
THE PURPOSE OF AN ESCROW The common use of an escrow is to enable the parties in a real estate transaction to deal with each other with less risk, since the escrow holder acts as:
- Custodian for funds and documents.
- A clearing house for payment of all demands.
- An agency to perform the clerical details for the settlement of the accounts between the parties.
TYPICAL ESCROW TRANSACTION An escrow begins with the Realtor® opening the order for title work and providing the Purchase Agreement and all executed documentation to escrow. Once received, title prepares a preliminary report. Upon receipt of the preliminary report, an analysis is made to determine the necessary action and documents required to complete the transaction:
- Demands for the satisfaction of liens not acceptable to Buyer and/or Lender.
- Documents for recording.
- Instructions and requirements of the new Lender.
- In most areas, Buyer and Seller instructions are prepared for signature from the information gathered. When all the title and financial requirements are met and instructions from all parties can be fully complied with, the escrow is said to be “in perfection” and can close. Once the financial settlement takes place, documents are recorded and the title insurance policies are then issued.
During the contingency period, the Buyer or Seller will order physical inspections as specified in the Purchase Agreement. Legislation mandates (under Civil Code 1102) that the Seller has the responsibility to reveal the true condition of the property on a Transfer Disclosure Statement. This may help determine what kind of property inspections are desired or necessary.
WHO PAYS? Your Purchase Sale Agreement will specify who is responsible for the costs of inspections and for making any needed corrections or repairs. It is negotiable between the parties and should be considered carefully. Your agent will advise you what is customary and prudent.
STRUCTURAL PEST CONTROL INSPECTION A licensed inspector will examine the property for any active infestation by wood destroying organisms. Most pest control reports classify conditions as Section I or Section II. The inspection and the ensuing Section I repair work is usually paid for by the Seller. Section II preventative measures are generally negotiated, and not necessarily completed.
Section I Conditions are those currently causing damage to the property. These conditions generally need to be corrected before a Lender will make a loan on a home.
Section II Conditions are those not currently causing damage but which are likely to, if left unattended.
HOME INSPECTION This inspection may encompass roof, plumbing, electrical, heating, appliances, water heater, furnace, exterior siding, and other visible features of the property. A detailed report will be written with recommendations and pictures which may include the suggestion to consult a specialist (such as a structural engineer or roofing contractor). The inspection fee is usually paid by the Buyer.
GEOLOGICAL INSPECTION If requested, a soils engineer will inspect the soil conditions and the stability of the ground beneath the structure, as well as research past geological activity in the area. You may also elect to go to the city and research the property’s proximity to known earthquake fault lines. Typically, the Buyer pays for this inspection.
HOME PROTECTION PLANS Home protection plans protect the Buyer’s major investment beginning immediately upon close of escrow. The plans cover major mechanical systems in the home as well as certain major appliances. Realtors® are familiar with some of the various plans available and will be happy to gather a selection of programs for you to study.
THE SELLER CAN GENERALLY EXPECT TO PAY FOR:
- Real Estate Broker’s commission
- Due and payable property taxes, bonds, assessment
- Prorated taxes, interest, rent HOA dues (could be credit or debit)
- Payoff of all loans, other liens and judgments of record against the property (except those to be assumed by Buyer) including, but not limited to; accrued interest, demand/statement fee, re-conveyance fee, forwarding fee, late fees/prepayment penalty, if any
- Loan fees required by the Buyer’s Lender (specifically on FHA & VA loans)
- Homeowner’s Association transfer fee, document fee and demand fee
- Pest control inspection reports and cost for repairs
- Home warranty plan
- Title insurance premium for Owner’s Policy
- Escrow fee (Seller’s portion)
- Document preparation fee for Grand Deed and other recordable document(s) prepared for Seller’s benefit
- Demand processing fees
- Notary Public fees
- Document signing service, if requested
- Documents recording charges
- Natural Hazard Disclosure
- County Transfer Tax ($1.10 per $1,000 of sales price)
- City Transfer Tax (varies by city)
THE BUYER CAN GENERALLY EXPECT TO PAY FOR:
- Prorated taxes, interest, rent HOA dues (could be credit or debit)
- Payable taxes (not yet delinquent) required to be paid in advance by Lender
- Inspection fees (physical, roofing, geological, etc.)
- New financing costs, fees, pre-paid interest and impounds, if any (except those costs to be paid by Seller, as required by Lender or as negotiated in Purchase Agreement) or Assumption costs if existing financing is to be assumed by Buyer
- Hazard insurance premium – year paid in advance
- Title insurance premium for Lender’s Policy
- Escrow fee (Buyer’s portion)
- Document preparation fee for documents prepared for Buyer’s benefit
- Notary Public fees
- Document signing service, if requested
- Special delivery/courier fees/wire transfer, if utilized
- Document recording charges
NEGOTIATED TERMS The costs and charges of a Southern California real estate transaction are fully negotiable between the Buyer and Seller through their respective agents. The negotiated terms will be set forth accordingly in the Purchase Agreement.
NEW RESPA REGULATIONS In accordance with new RESPA regulations, all fees for Buyer’s financing, Owner’s Policy of Title Insurance and Documentary Transfer Tax must be disclosed as a cost to the Buyer on the Good Faith Estimate and be charged to the Buyer in Sections 800, 1100 and 1200 accordingly on the HUD Settlement Statement. If negotiated in the Purchase Agreement that Seller pays for these costs and charges, Buyer will receive a credit for same from the Seller which will appear in Section 200 of the HUD Settlement Statement.
GETTING PRE-QUALIFIED Once you have an idea of the type and size home you want and the area you’d like to look in, you should be pre-qualified by a Lender. By doing this before looking for ahome, you’ll save yourself time, energy and frustration because pre-qualification can:
DETERMINE HOW MUCH HOME YOU CAN AFFORD Pre-qualification helps you avoid buying less home than you can afford or being disappointed if you don’t qualify for as much as you had hoped.
SHOW WHAT YOUR TOTAL INVESTMENT WILL BE You’ll know approximately how much money you’ll need for down payment and closing costs. Inform you of your monthly payments . You’ll have a close estimate of your monthly principal, interest, taxes and insurance (PIT).
IDENTIFY THE LOAN PROGRAMS YOU CAN QUALIFY FOR With the wide variety of loan programs available, it is important to know which types you qualify for and which will best suit your needs.
STRENGTHEN YOUR OFFER Sellers are more inclined to accept realistic offers when they know that you have taken the time to be interviewed by a Lender and can probably qualify for the loan.
At this point, your Lender can also help you determine alternatives and strategies that could help you buy the home of your dreams. Some examples include:
- Special first – time homebuyer program.
- Co-mortgage financing.
- Debt consolidation counseling.
In order to be pre-qualified, the Lender will need to know the following:
- Your employment history and income.
- Your monthly debts and obligations.
- The amount and source of cash available for down payment and closing costs.
When you are pre-qualified by a Mortgage Company, you’ll receive a FREE Pre-Qualification Certificate to give to your Realtor®. The Seller may be more likely to accept your offer because you have been qualified to buy their home.
CLOSING COSTS Below is an overview of the types of closing costs you may incur on your loan. Some are one-time fees while others recur over the life of the loan. When you apply for your loan, you will receive a Good Faith Estimate of settlement charges and a booklet explaining these costs in detail.
LOAN ORIGINATION FEE This fee covers the Lender’s administrative costs in processing the loan. It is a one-time fee and is generally expressed as a percentage of the loan amount.
LOAN DISCOUNT Often called “Points”, a loan discount is a one-time charge used to adjust the yield on the loan to what market conditions demand. One point is equal to 1% of the loan amount.
APPRAISAL FEE This is a one-time fee that pays for an appraisal, a statement of property value required on most loans. The appraisal is made by an independent appraiser.
CREDIT REPORT FEE This one-time fee covers the cost of the credit report which is processed by an independent credit reporting agency.
TITLE INSURANCE FEES There are two title policies; a Buyer’s title policy (which protects the new homeowner) and a Lender’s title policy (which protects the Lender against loss due to a defect in the title). These are both one-time fees.
MISCELLANEOUS TITLE CHARGES The title company may charge fees for a title search, title examination, document preparation, notary fees, recording fees and a settlement or closing fee. These are all one-time charges.
DOCUMENT PREPARATION FEE There may be a separate, one-time fee that covers preparation of the final legal papers, including the note and deed of trust.
PREPAID INTEREST Depending on the day of the month your loan closes, this charge may vary from a full onth to just a few days interest. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount. If your loan closes near the end of the month, you will only have to pay a few days interest. Your first payment will usually be 30 days after the date pre-paid interest is paid through.
MORTGAGE INSURANCE MI PREMIUM Depending on the amount of your down payment, you may be required to pay a fee for mortgage insurance (which protects the Lender against loss due to foreclosure). You may also be required to put a certain amount for MI into a special reserve account (called an impound account) held by the Lender.
Step 1 – The Loan Application. The key to the loan process going smoothly is the initial interview. At this time, the Lender obtains all pertinent documentation so unnecessary problems and delays may be avoided. The Realtor® opens escrow with the title company at this time as well.
Step 2 – Ordering Documentation. Within 24 hours of application, the Lender requests a credit report, an appraisal on the new property, verifications of employment and funds to close, mortgage or landlord ratings; a preliminary report and any other necessary supporting documentation.
Step 3 – Awaiting Documentation. Within 1-to-2 weeks, the Lender begins to receive the supporting documentation. As it comes in, the Lender checks for any problems that might arise and requests any additional items needed.
Step 4 – Loan Submission. Once all the necessary documentation is in, the loan processor assembles the loan package and submits it to the underwriter for approval.
Step 5 – Loan Approval. Loan approval generally takes 1-to-3 days. All parties are notified of the approval and any loan conditions which must be cleared before the loan can close. The loan approval is the beginning of the closing process.
Step 6 – Documents are Drawn. Within 1-to-3 days after loan approval, the loan documents (including the note and deed of trust) are completed and sent to the escrow holder. The escrow officer will make an appointment for the borrowers to sign the final documents. At this time, the borrowers are told how much money they will need to bring in to close the loan. Payment must usually be made by a cashiers check.
Step 7 – Funding. Once all parties have signed the loan documents, they are returned to the Lender who reviews the package. If all the forms have been properly executed, a check is issued to fund the loan.
Step 8 – Recordation. Upon receipt of the loan funds, the title company will record the legal documents necessary to transfer the property into the Buyer’s name. At the same time, the deed of trust is recorded to how the new loan on the property. Escrow is now officially closed and you now own your home. Please consult your Mortgage Consultant for more detailed information regarding your loan.