• Get pre-approved for a mortgage: Before you start shopping for property, get pre-approved for a mortgage from a reputable lender. This will give you an idea of how much money you can borrow and will make the property buying process go more smoothly. Pre-approval also demonstrates your financial readiness to sellers, making your offer more attractive.

• Shop around and compare rates: Don’t settle for the first lender you come across. Shop around and compare rates from different lenders to find the loan with the most favorable terms and lowest interest rate.
• Be prepared to provide documentation and allow the lender to run your credit: Lenders will require documentation of your income, assets, and credit history to assess your creditworthiness and approve your loan.
• Be prepared to pay for an appraisal or two: An appraisal is an independent assessment of the property’s value, which is required by lenders to ensure that the loan amount does not exceed the property’s appraised value. The cost of an appraisal will cost about $800 per appraisal and is non-refundable. Lenders may require two appraisals when the loan amount is above $1,000,000.
• Mortgage brokers work with multiple wholesale lenders to shop rates with the lowest lender costs: Mortgage brokers have greater control over the initial interest rate and can find low rates from competing lenders and private investors. You can visit LoanFactoryUSA.com to check today’s rates and set up an email alert to track rates.
• Maintain lender relationship throughout the process: Once you’ve chosen a lender, maintain that relationship throughout the buying process. Switching lenders can delay loan approval and jeopardize the closing timeline. Underwriters often request additional documentation, which can further extend the process. Obtaining an extension from the seller may not always be feasible.
• Pay attention to paying points and closing costs: Paying points are fees paid to lenders to lower your interest rate. One point typically equals 1% of the loan amount. Closing costs, which can range from 2% to 5% of the loan amount, cover various expenses incurred during the loan process, such as appraisals, title insurance, and government fees. Factor in these costs when calculating your overall loan affordability.
• Maintain financial stability during the loan process: Avoid significant financial changes during the loan application and approval process. Maintain consistent payments on existing debts, avoid job changes, and refrain from accumulating new debt or co-signing on any loans. Sudden financial changes can negatively impact your loan approval.
• Mortgage paid in arrears: Payments are made for the previous month’s mortgage obligation rather than the current month’s obligation. At closing, interest is paid in escrow for the entire month of the closing month. Your first mortgage payment will be due one full month after the month you close.
• Don’t over leverage. Real estate market cycles are cyclical. It’s important to keep your monthly payments low enough to weather many different storms: income changes, down markets, and unexpected expenses. Remember, a cushion in your budget allows you to navigate market fluctuations thoughtfully and strategically.
• Loan pre-qualifying, loan pre-approval, conditional loan approval, and final loan approval:

• • Pre-qualifying: This is a quick and easy way to get an estimate of how much you can borrow. It is based on a general estimate of your income and debt, and it does not require you to provide any documentation.

• • Pre-approval: This is a more thorough process that requires you to provide documentation of your income, assets, and credit. A loan officer will review your documentation and give you an estimate of how much you can borrow. Pre-approval is a stronger indication of your creditworthiness and can make your offer more attractive to sellers.
    
  • Conditional approval: This means that the loan officer has sent your documentation to the lender and is in underwriting and they have approved your loan with certain conditions. These conditions may include providing additional documentation or getting a second appraisal of the property. Once you meet the conditions, your loan will be fully approved.
  • Final approval: This is the final step in the mortgage process. The underwriter has reviewed your documentation, cleared all conditions, and has approved your loan. This means that the lender is ready to fund your loan and you are ready to close on the property.

There are a number of factors that lenders consider when approving a mortgage, including your credit score, debt-to-income ratio, downpayment, and employment history. There are also a variety of loan programs and products available, each with its own requirements.

The most common loan products are fixed rate mortgage loans, adjustable rate mortgage loans, and interest only loans:

• Fixed-rate mortgage loans offer a stable interest rate that remains constant throughout the loan term, typically 30 or 15 years. This predictability in monthly payments provides borrowers with budget stability and protection from fluctuations in interest rates.

• Adjustable-rate mortgage loans (ARMs) feature an interest rate that are fixed for an initial term (e.g. 5 or 7 years) and then fluctuate periodically, typically every six months or one year. This product is ideal for borrowers that intend to hold their property for a shorter period of time.

• Interest-only loans allow borrowers to pay only the interest on the loan amount for a specified period, typically five to ten years. This can significantly reduce monthly payments compared to traditional fixed-rate or ARM loans. However, borrowers must eventually repay the entire principal amount, which can lead to a substantial lump-sum payment at the end of the interest-only period. This product is also ideal for borrowers that intend to hold their property for a shorter period of time. Or an investor looking to flip the property by repairing real estate and reselling it back within a few months.

The suitability of each product can be associated with different scenarios, such as standard purchases, refinances, cash-out refinances, and purchase-renovation loans:

• Standard Purchase: This allows you to finance the purchase of a primary residence or investment property.

• Refinance: This replaces an existing mortgage with a new one, often to secure a lower interest rate and reduce monthly payments.

• Cash-out refinance: This allows you to tap into your real estate equity to access cash for various needs, such as home renovations, debt consolidation, or educational expenses.

• Purchase-renovation loans, also known as FHA 203(k) loans, combine the financing of a property purchase with the funds needed to renovate the property. This allows you to acquire and improve a property simultaneously, streamlining the process and avoiding the need for separate financing for the purchase and renovation.

Some of the most common loan programs include conforming loans, FHA loans, VA loans, and Non-QM loans:

• Conforming loans: These loans meet the guidelines of Fannie Mae and Freddie Mac, which are government-sponsored enterprises that buy mortgages from lenders. Conforming loans typically have the lowest interest rates and most flexible guidelines.

• FHA loans: These loans are backed by the Federal Housing Administration and are designed to help first-time home buyers and borrowers with less-than-perfect credit. FHA loans allow for down payments as low as 3.5%. However, the cost for the loan may be higher than conforming loans because of the upfront mortgage insurance premium and monthly mortgage insurance.  

• VA loans: These loans are available to veterans and service members and offer a number of benefits, including no down payment requirement.

• Non Qualified Mortgage (Non-QM) loans: These loans typically have higher interest rates and flexible documentation requirements. For example, non-qm lenders can use bank statements or the cash flow of a property to qualify for a loan instead of traditional methods like verifying income and credit.

The components lenders look at when qualifying for a loan are credit, income, assets, appraisal, down payment, and debt-to-income ratio:

• Credit: Your credit history plays a significant role in determining your loan approval and interest rate. A good credit score indicates a responsible borrower and reduces the lender’s risk.

• Income: Lenders will verify your income and employment history to ensure you have a steady source of income to repay the loan.

• Assets: Lenders may consider your assets, such as savings accounts, investments, and real estate holdings. In some cases, lenders may require you to have a certain amount of assets in reserve to cover 6-12 months of your mortgage payments.

• Appraisal: The lender will require an appraisal to ensure the property’s value matches the purchase price. The appraiser will also assess the property’s condition and may require repairs to meet lender standards. For instance, California requires water heaters to be double-strapped for earthquake safety and smoke and CO2 detectors to be installed.

• Down Payment:  While a minimum 20% down payment is often considered ideal, you can purchase a home with a down payment as low as 3%, that will cost you additional private mortgage insurance (PMI) to secure the loan. You may avoid PMI by increasing your interest rate, but you should consult a tax professional to determine the most advantageous option since PMI may or may not be tax deductible. For investment properties, the minimum down payment is typically 25%. Gifts from family members or friends can be used to cover down payment and closing costs, but the allowable amount may vary depending on the type of loan and occupancy status of the property.

• Debt-to-Income Ratio (DTI): Your DTI is a crucial factor that lenders consider when evaluating your eligibility for a mortgage. It represents the percentage of your gross monthly income that goes towards covering debt obligations. Lenders typically set a maximum DTI of 50%, but maintaining a DTI below 45% is generally more favorable for securing better interest rates and less stringent documentation requirements. In some cases, lenders may consider exceeding the 50% DTI limit based on individual circumstances. The DTI calculation encompasses various debt obligations:

• • Principal and Interest (P&I): This represents the monthly payments you make towards the principal amount of your mortgage and the associated interest.

• • Property Taxes: These are taxes levied by the local government based on the assessed value of your property. For a property’s tax bill information, go to your county at https://www.boe.ca.gov/proptaxes/countycontacts.htm and click on the name in the Tax Collector column. Go to pay or view bill to see details of the current tax bill information.

• • Hazard Insurance: This insurance protects your home from damage caused by fire, theft, or other perils.

• • Homeowners Association Dues (HOA): If you reside in a community with an HOA, you may be required to pay monthly dues to cover the maintenance of common areas such as pools, parks, and clubhouses.

• • Private Mortgage Insurance: If you make a down payment of less than 20% of the purchase price, you will likely be required to pay private mortgage insurance (PMI). PMI protects the lender in case you default on the loan.

• • Other Debt Payments: Lenders consider other debt obligations, such as car loans, student loans, and credit card payments, when calculating your DTI.

There are various down payment assistance programs that can help you purchase a home. These programs may have income restrictions and may be specific to your county. Some programs may require repayment of the assistance upon the sale of your home, when the property has appreciated in value. You can learn more about down payment assistance programs here: https://www.workforce-resource.com/dpr/pmt/CRMLS/STEVEN_QUACH

This formula will give you an estimate of how much loan you may qualify for. However, it is important to note that there are many factors that lenders will consider when approving a mortgage, such as your credit score, employment history, down payment amount and assets. Getting pre-approved from a loan officer will give you the most accurate results.

Here is a simple formula you can use to estimate how much loan you can qualify for:

1. Take 45% of your total gross monthly income.

2. Subtract monthly debt payment obligations such as credit cards, loans, and school loans. Monthly payments for deferred school loans are calculated using 1% of the outstanding balance.

3. Subtract estimated monthly property taxes, insurance and association dues (if applicable).

• • For the estimated annual tax rate, use 1.25% of your target purchase price.

• • For the estimated annual  fire hazard insurance rate, use .02% of the target purchase price.

• • If you’re looking at property with a HOA the average you can use is $400/mo.

• • Keep in mind that property taxes can surpass 1.25% if there are Mello-Roos, which are typically found in newer neighborhoods. Similarly, homeowners association dues can significantly exceed $400.

4. After subtracting monthly debt payments and monthly PITI(A) (principal, interest, taxes, insurance, and association dues) from 45% of your monthly gross income, divide the remaining income by the number corresponding to the current average interest rate below. Find the current rate here.

Owning real estate comes with a range of ongoing expenses. It’s important to keep cash reserves for unexpected repairs. Condos and townhomes have less repairs and exterior maintenance, however, special assessments can be charged to unit owners for major building repairs or replacement costs when association financial reserves are inadequate. Reserves can be reviewed during a purchaser’s investigation period.

Here’s a list of expenses to keep in mind for your home or rental property:

• PITI(A): This stands for Principal, Interest, Taxes, Insurance, and Association Dues. For a property’s tax bill information, go to your county at https://www.boe.ca.gov/proptaxes/countycontacts.htm and click on the name in the Tax Collector column. Go to pay or view bill to see details of the current tax bill information.
  

• Private Mortgage Insurance (PMI).

• Utility bills & pest treatment.
• Property management.
• Interior and exterior routine Maintenance:

For Interior maintenance, we have:

• • HVAC Maintenance: Regularly inspect and clean or replace air filters, schedule annual tune-ups and maintenance for heating and cooling systems, and maintain proper ventilation to prevent mold and mildew growth.

• • Plumbing Maintenance: Check faucets and pipes for leaks, address any dripping or running water promptly, and clean drains regularly to prevent clogs.

• • Appliance Maintenance: Clean and maintain appliances according to manufacturer instructions, replace worn-out parts, and ensure proper ventilation for appliances like stoves and dryers.

• • Structural Maintenance: Inspect walls, ceilings, and floors for cracks or damage, repair any loose or damaged fixtures, and address any signs of wood-destroying pests or moisture issues.

• • General Cleaning: Regularly clean floors, countertops, and surfaces to maintain hygiene and prevent dust buildup, and deep clean carpets and upholstery periodically.

For exterior maintenance, we have:

• • Roof Maintenance: Inspect the roof for missing or damaged shingles, clear debris from gutters and downspouts, and trim overhanging branches to prevent damage from falling limbs.

• • Siding Maintenance: Clean and inspect siding for cracks, loose panels, or signs of moisture damage, and repair or replace any damaged sections.

• • Windows and Doors: Clean windows and doors regularly, check for proper weatherstripping and caulking to prevent drafts, and ensure locks and latches are functioning correctly.

• • Landscaping Maintenance: Maintain lawns by mowing and watering regularly, trim bushes and trees to prevent overgrowth, and remove weeds and debris from walkways and patios.

• • Painting Maintenance: Inspect exterior paint for peeling or fading, and repaint or touch up areas as needed to protect the siding and maintain curb appeal.

• Major Repairs:

For structural repairs, we have:

• • Foundation Repairs: Foundation issues can manifest as cracks in walls, uneven floors, or doors and windows that don’t open or close properly. Repairing foundation damage involves stabilizing the foundation, addressing any underlying soil or water problems, and restoring the affected areas.

• • Roof Replacements: Roofs have a lifespan of 15-30 years, depending on the material and climate. Signs that a roof needs replacement include leaking, missing or damaged shingles, sagging or soft spots, and excessive wear and tear.

• • Exterior Wall Repairs: Exterior walls can be damaged by weather, wood-destroying pests, or structural issues. Repairs may involve replacing damaged siding, repairing cracks in stucco or brick, or addressing moisture infiltration.

For system repairs, we have:

• • Plumbing Repairs: Major plumbing repairs can include replacing or repairing pipes, fixing leaks, and addressing issues with water heaters, sewer lateral lines, or drains. These repairs often involve specialized plumbing expertise and tools.

• • Electrical Repairs: Major electrical repairs may involve rewiring, replacing outdated or damaged electrical panels, addressing circuit overloads, or fixing faulty wiring. These repairs should be handled by licensed electricians to ensure safety.

• • HVAC Repairs: HVAC systems can experience various problems, such as refrigerant leaks, malfunctioning compressors, or clogged ducts. Major HVAC repairs may involve replacing or repairing major components, cleaning and maintaining the system, or addressing ductwork issues.

For appliance repairs, we have:

• • Water Heater Repairs or Replacements: Water heaters can malfunction due to age, corrosion, or sediment buildup. Repairs may involve replacing heating elements, thermostats, or other components, or in some cases, a complete water heater replacement may be necessary.

• • HVAC System Repairs: Major HVAC system repairs may involve replacing compressors, motors, or refrigerant coils. These repairs often require specialized HVAC technicians and specialized equipment.

• • Appliance Replacements: Major appliances like stoves, refrigerators, and dishwashers may need to be replaced due to age, extensive repairs, or energy inefficiency. Replacing appliances can be a significant expense, so careful consideration of energy efficiency and warranty options is important.

Owning a home offers certain tax advantages. It’s always advisable to seek guidance from a qualified tax consultant for all tax-related matters. A tax consultant can help you understand the specific tax implications for your home or investment and ensure that you are taking advantage of all available tax benefits. Here are some tax advantages to keep in mind:

• Saving Receipts for Property Improvements: Keep receipts for any improvements you make to your home, as these can be added to your cost basis when you sell the property, reducing your taxable capital gains. For example, if you spend $10,000 on a kitchen renovation and sell your home for $100,000 more than you paid for it, you can reduce your capital gains tax liability by $10,000.

• Tax Write-Offs for Homeowners: You may be able to deduct from your taxable income the mortgage interest, property taxes, and discount points paid to the lender for lowering your interest rate. Here’s an article for a quick list of tax deductible items and non-items.
  
• Tax Write-Offs for Investors: Operating expenses, mortgage interest, financing costs, miscellaneous closings costs, depreciation, capital improvement, personal property, and maintenance expenses.

• Proposition 13: Proposition 13 is a California law that limits property tax increases to 2% per year, regardless of the assessed value of the property. This can provide significant tax savings for homeowners, especially in areas where property values are rising rapidly.

• Proposition 60/90: Proposition 60/90 allows homeowners aged 55 or older to transfer the base year value of their primary residence to a newly purchased replacement residence of equal or lesser value within the same county (Proposition 60) or from one county to another (Proposition 90). This can help homeowners avoid higher property taxes based on the increased assessed value of their new home.

• Capital Gains Tax Exclusion for Primary Residences: If you sell your primary residence, you can exclude up to $250,000 of capital gains from taxation, or $500,000 for married couples filing jointly. Here’s an article for more details.

• 1031 Exchange for Investment Properties: If you sell an investment property and reinvest the proceeds in another investment property within a specific timeframe, you can defer capital gains tax through a 1031 exchange. This can be a valuable strategy for investors who want to avoid paying capital gains taxes on their investment profits.

In the intricate world of property transactions, sales commissions play a crucial role in compensating real estate agents for their expertise and services. Whether you’re a buyer or a seller, understanding how sales commissions work is essential for making informed decisions and ensuring a smooth real estate journey.

• No Upfront Costs for Buyers: Buyers typically incur no upfront costs when working with a real estate buyer agent. The commission structure is designed so that the listing agent pays the buyer agent’s fees.

• Commission Splitting: In most real estate transactions, the listing agent, who represents the seller, shares their commission with the buyer’s agent. This arrangement incentivizes both parties to work collaboratively towards a successful sale, ensuring that both the seller’s interests and the buyer’s needs are adequately addressed.

• Commission Rates When Selling: When it comes to selling your property, sales commissions typically are around 6% of the sales price. The exact commission rate is often negotiated between the seller and the listing agent, and it may vary depending on factors such as the property’s location, value, and the agent’s experience.

Real estate, like any investment, carries certain risks that can affect your potential return on investment (ROI). Understanding these risks can help you make informed decisions about investing in real estate and take steps to mitigate potential losses.

• Market Fluctuations: Real estate prices are subject to market fluctuations, and there is no guarantee that your property will appreciate in value. Economic downturns, changes in interest rates, and shifts in supply and demand can all impact property values and lead to potential losses.

• Liquidity Issues: Real estate is considered an illiquid asset, meaning it can take time to sell and convert into cash. Unlike stocks or bonds, which can be traded on exchanges, selling a property may require finding a buyer, negotiating a price, and navigating the closing process.

• Vacancy Risk: If you invest in rental properties, you face the risk of vacancy, where you are unable to find tenants to occupy your property. This can lead to lost rental income and additional expenses for property taxes, maintenance, and utilities.

• Tenant Issues: Dealing with tenants can present challenges, such as late or unpaid rent, property damage, and legal disputes. Effective tenant screening, clear lease agreements, and prompt action in case of tenant issues are crucial to minimizing risks.

• Maintenance and Repair Costs: Real estate requires ongoing maintenance and repairs to preserve its condition and value. These costs can vary depending on the property type, age, and location. Unforeseen repairs or renovations can significantly impact your return on investment..

• Location Dependence: The value of real estate is heavily influenced by its location. Properties in desirable areas with high demand tend to appreciate more in value compared to less desirable locations. Choosing a property in a growing or stable market can help mitigate location-related risks.

Average Rate of Appreciation

Here’s Google Gemini providing the average rental and home price appreciation over the years:

Based on the data provided, the average annual rental rate increase over the past 30 years (1992-2022) is approximately 3.6%, while the average annual real estate appreciation rate is approximately 6.3%. However, it is important to note that these are just averages, and the actual rates have fluctuated significantly over time. For instance, rental rates increased by an average of 10.4% in 2022, while real estate appreciation averaged 6.9% in the same year.

As you can see, rental rates have generally increased at a slower pace than real estate appreciation over the long term. However, this trend has reversed in recent years, with rental rates outpacing real estate appreciation. This is likely due to a number of factors, including the increasing demand for rental units, the rising cost of construction, and the low supply of available rental properties.

It is important to keep these trends in mind when making investment decisions in real estate. If you are considering investing in rental properties, you should be aware of the potential for higher rental rates. However, you should also be aware of the risks associated with investing in real estate, such as the potential for vacancies, declining property values, and unexpected repairs.

Data is from the following sources:

Rental Rates: The rental rate data was gathered from the U.S. Census Bureau’s Current Population Survey (CPS) and the Bureau of Labor Statistics’ (BLS) Consumer Price Index (CPI) for Housing.

Real Estate Appreciation: The real estate appreciation data was collected from the S&P/Case-Shiller US National Home Price Index and the Federal Housing Finance Agency (FHFA) House Price Index.

Here are the key factors influencing the price your property might fetch:

Location-based:

• Schools: The quality of public schools in the area can significantly impact property values. Good schools generally attract families, leading to higher demand and prices.
• View: Properties with scenic views, such as waterfronts, mountains, or parks, often command premium prices.
• Amenities: Proximity to amenities like parks, restaurants, shopping centers, and public transportation increases desirability and value.
• Convenience: Easy access to major roads, highways, and other essential services contributes to a property’s attractiveness and price.
• Crime rate: Lower crime rates are associated with higher property values, as residents feel safer and more secure.
• Noise levels: Homes in quieter areas with less noise pollution tend to be more valuable than those in noisy locations.
• Zoning regulations: Zoning restrictions and land-use regulations can influence property values by limiting development potential.

Property-specific:

• Size: Generally, larger homes with more bedrooms and bathrooms have higher values than smaller ones.
• Age and condition: Newer homes in good condition typically fetch higher prices than older properties requiring significant repairs.
• Lot size: Larger lots offer more space and privacy, which can increase the property’s value.
• Architectural style: Unique or historically significant architectural styles can add value to a property.
• Energy efficiency: Homes with energy-saving features are becoming increasingly desirable and can command higher prices.
• Interior finishes: High-quality finishes, such as granite countertops or hardwood floors, can add value to a property.
• Special features: Swimming pools, hot tubs, gardens, and other unique features can enhance a property’s appeal and value.

Market-based:

• Supply and demand: When demand for properties in a specific area exceeds supply, prices tend to rise. Conversely, an abundance of available properties can lead to lower prices.
• Interest rates: Lower interest rates make mortgages more affordable, increasing demand and potentially pushing prices up.
• Economic conditions: A strong economy with rising income levels can lead to higher property values.
• Investor activity: Increased investor activity can drive up demand and prices in certain markets.

Additionally:

• Recent sales: The prices of comparable properties in the neighborhood (comps) play a significant role in determining a property’s value.
• Negotiation skills: The skills of the buyer and seller can affect the final sale price.
• Marketing strategies: effective marketing can increase demand and potentially lead to a higher selling price.

It’s important to note that the relative importance of these factors can vary depending on the specific location, property type, and market conditions.

• Multiple Listing Service (MLS) Websites: Properties found on search websites like Realtor.com, Redfin, Zillow, and Trulia aggregate listings from the same local MLS but have different algorithms to display and save them.

• Real Estate Agent: Your agent can set up a search with your criteria and email new listings to you as they hit the market.

• For Sale By Owner (FSBO): These are properties sold directly by the owner without the assistance of a seller agent.

• New Construction: These are newly built homes typically sold by the developer or builder. Note: Builders will require your agent to register with the sales office before you tour model homes for the agent to receive compensation as your buyer agent.

Not all buyer agents are created equal. Experienced buyer agents have encountered and successfully navigated a wide range of real-world challenges in the real estate market. Here’s my proven approach to helping buyers achieve their real estate goals:

• Dedicated availability 7 days a week to schedule property tours, assist with offer writing, and address your questions promptly.

• Expert guidance and preparation through the pre-approval process, advice on financial asset arrangements, and helping you define your lifestyle needs and goals to efficiently find your perfect home or investment property.

• In-depth market analysis with a comprehensive CMA (Comparable Market Analysis) for all prospective properties, ensuring you understand the fair market value and make informed offers.

• Personalized financial projections with your estimated closing costs, monthly debt service projections, and property tax obligations, providing a clear picture of your financial commitments.

• Thorough property investigation, coordinating and arranging inspections on your behalf, ensuring a comprehensive understanding of the property’s condition.

• Diligent review of seller disclosures and inspection reports, advising you on potential repairs, credits, or the need to reconsider the purchase.

• Negotiation expertise and risk mitigation with a proven track record of successfully negotiating purchase agreements, securing favorable terms, while also identifying and mitigating potential risks.

• Efficient timeline and contract management throughout the property purchase process, ensuring a smooth and stress-free experience.

• Property Inspection Report: The property inspection is your home’s comprehensive health report. Plumbing, electrical, foundation, roof, and overall condition. The report lists all issues, but cost estimates are a separate consultation. While major concerns might be negotiated, repairs generally fall on you. Consider it a roadmap for informed decisions and confident buying.
• Pest Inspection Report: Termites, wood rot – it all builds up over time. Unlike the house inspection, this report includes costs to fix the problems it finds, categorized as Section I (current issues) and Section II (future risks).
  • Section I: Active pests, rotting wood – this is traditionally the seller’s repair, unless you buy “as-is” (which is common in a sellers’ market).
  • Section II: Potential issues that can lead to infestation and future water damage – such as leaks or missing caulking by water sources.
• Seller’s Disclosures: Sellers are required to disclose all known material problems that they are familiar with.
• Title Report: The title report, issued by reputable companies like First American or Chicago Title, verifies the seller’s legal right to convey clear ownership and identifies any outstanding liens that could impede the transfer.
• Homeowners Association (HOA) Documents: Townhouse or condo? Review HOA documents carefully for financial stability, potential litigation, and planned dues increases.
• Property’s Insurability: Insurance is becoming much harder to obtain in California due to the increased fire risk. Some properties are located in designated fire zones, so determining your home’s insurability is crucial, especially when a lender requires insurance coverage.

• Buyers on the purchase agreement:  The names will be written in the purchase agreement as you would like them printed on the property title.

• Purchase Price: This is simply the amount you are offering to purchase the property.

• Closing Date: You can input a specific date in the future. Or, more commonly the closing date will specify the number of days from the day seller offer acceptance is delivered to the buyer. 30-45 days is common for buyers needing loan financing and 15-20 days for cash buyers.

• Earnest Money Deposit: It’s customary to deposit 3% of the purchase price into escrow and ensure it is delivered to escrow within three days of offer acceptance.

• Offer Expiration: You can set an offer expiration date to establish a timeframe for the seller’s response. There is a three day offer expiration built in the contract.

• Financing and Loan Terms: This is where you outline your financing details for an all cash purchase or if there is a loan, include the loan type, maximum qualifying interest rate, and down payment amount.
  

• Contingency Periods: The contract allows you to allocate time for each contingency, allowing you to back out or withdraw your offer and reclaim your deposit within the proper contingency period.

• • Appraisal Contingency. This allows time to verify that the property appraises at the price in the purchase agreement. This is most important if you are getting a loan. 10-17 days is the typical amount of time needed to complete the appraisal and return to the lender.

• • Loan Contingency. This allows time to clear the lender’s underwriting requirements and receive final approval for funding the loan. 17 days should be enough time to clear this contingency.

• • Investigation Period. This allows time to conduct inspections, review disclosures, preliminary title reports, natural hazard disclosures, inspection reports, and make any requests for repairs. 12 days should be enough time to complete the investigation period.

• • HOA Document Review. This allows time to examine HOA documents such as meeting minutes, financial reserves, CC&Rs, and other pertinent documents . 5-10 days is the typical amount of time for this contingency period.

• Cost Allocation. Here’s an understanding of how various costs are split between the buyer and seller. Each cost will be identified on the contract as seller paid, buyer paid, or paid by both. The only costs that are not allocated in the contract are prorated property taxes where buyer and seller will pay their own portion from the date title transfers.
  

• • Lender’s Appraisal. This is an upfront buyer cost paid directly to the appraisal company at the time the lender orders the appraisal. This cost is non-refundable and can range around $800 depending on the size of the property.

• • Inspections. This will be an upfront cost paid by the buyer for due diligence inspections. The cost for each inspection is non-refundable and inspection reports remain with the property. The most common inspections are general inspections, around $500 depending on the property size, wood pest inspections, around $250, sewer lateral inspections, around $250, and chimney inspections, around $250.

• • Escrow and Title. These costs will vary by region and may be split 50/50, paid by the buyer alone, or paid by the seller alone. These costs are paid through escrow proceeds upon escrow closure. The average cost for title and escrow is around $3000 and increases with higher sales prices.

• • Lender’s Title Insurance. If you’re getting a loan, the lender will require title insurance for the loan. This is paid at the close of escrow. The cost can range starting from $200 up to $1500 or more depending on the loan amount.

• • County/City Transfer Taxes. County transfer taxes are typically paid by the seller. City transfer taxes are most times split 50/50. Both are paid upon escrow closure.

• • HOA Documents. This is typically paid upfront by the seller and delivered within a specified timeframe in the contract for the buyer to review. This is non-refundable and can cost around $500.

• • HOA Transfer Fee. This cost is typically paid by the buyer to the association for updating ownership records for the unit. This is paid upon escrow closure. The cost is around $250.

• • Retrofitting Inspections. This cost varies by county, but typically is paid by the seller who takes corrective action if necessary.

When writing an offer, there are a few key considerations to keep in mind:

• Be prepared to waive contingencies and negotiate seller costs in multiple offer scenarios. In competitive situations, sellers may prioritize the highest offer with the most favorable terms, such as a buyer waiving contingencies, paying a seller cost, and offering a short term rent back at $0.

• Provide a pre-approval letter and bank statement to your buyer agent and attach it to all offers to demonstrate your financial readiness.

• Confirm your financing qualifications by having your lender evaluate the property. For example, some properties may require Mello-Roos which would increase your debt to income ratio and possibly risk your loan from getting approved.

• Ensure that all funds you intend to use for the purchase are readily available in liquid form.

• Analyze comparable properties (comps) to understand the seller’s asking price in relation to the market.

• Factor in estimated closing costs to accurately assess the overall property expense.

By following these tips, you can ensure that you are prepared to write a strong offer and navigate the purchase process successfully.

Within three calendar days of accepting the purchase agreement, you will need to deliver your earnest money deposit to escrow. This deposit, which is typically 3% of the purchase price, is held in escrow as a guarantee of your good faith.

Day 1 of the Contractual Timeline

Day 1 of the contractual timeline begins the day after you receive the seller’s signed purchase agreement and confirm receipt. This date is important because it is the deadline start date for meeting certain contingencies, such as obtaining financing and completing inspections.

Appraisal and Inspections

During the escrow period, your lender will order an appraisal to determine the fair market value of the property. You will also have the opportunity to schedule inspections to assess the property’s condition and negotiate any new findings.

Loan Submission and Underwriting

While you are working towards final loan approval, your lender will submit your loan application to underwriting. Underwriting is the process of verifying your financial information and assessing your creditworthiness to determine whether you qualify for the loan.

Contingencies and Removal

Most purchase agreements include contingencies that allow you to back out of the deal if certain conditions are not met. For example, you may have a contingency that allows you to cancel the contract if the appraisal comes in lower than the purchase price or if a seller fails to negotiate the cost of a major repair found during an inspection when in escrow.
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You only risk losing your earnest money deposit if you remove all contingencies.

Final Walkthrough

Once all contingencies have been removed, you will have the opportunity to schedule a final walkthrough of the property. This is your last chance to make sure that the property is in the condition that you agreed to purchase it in.

Title Transfer and Closing

After all contingencies are removed and the final walkthrough is completed, the title company will review the property’s title and prepare the closing documents. The closing is the final step in the purchase process, where you will sign the necessary documents and officially take ownership of the property.

Closing Thoughts

Congratulations! You’ve made it through to the closing of escrow! This is when the title records into your name and the keys will be delivered. As you settle into taking care of your property, there are a few things to keep in mind:

Supplemental Taxes

You will receive one or two bills for the property tax difference between the current owner’s assessed value and the purchase price. This difference is due to cover taxes owed from the start date of ownership. An estimate of this difference will be included in your estimated buyer costs.

Homestead Exemption

If your new home is your primary residence, you may qualify for a homestead exemption, which can reduce your property taxes. To apply for the homestead exemption, contact your local tax assessor’s office. It’s also common to receive an application in the mail right after you close.

I hope you found this guide valuable. Enjoy your new property and the many benefits of real estate!