Here’s a sample estimated buyer costs sheet prepared with the most common charges. Please reach out to go over each charge in detail and how to find or shop for specific items.
Buying Real Estate | Buyer Q&A
If you're planning to use a mortgage, getting pre-approved from a lender and familiarizing yourself with available loan programs are important first steps. Buyers with cash or mortgage pre-approval typically show proof of funds and financing qualifications when submitting an offer. Provide a copy of your bank statement and, if using a mortgage, a pre-approval letter. Blackout sensitive information like account numbers and home addresses.
Think about how your needs might evolve over the next 5-10 years, or longer, when selecting your next property. Ask yourself introspective questions about your current needs and future aspirations, your desired level of maintenance, and your rental income expectations if purchasing for investment purposes. Factor in other goals and preferences to complete the picture. Partnering with an experienced real estate buyer agent can help you narrow down your search, find the perfect property, quickly get access, and negotiate a favorable price and terms.
Find the lowest interest rate and best terms for your ideal holding period: mortgage brokers, like Loan Factory, can typically find low rates and competitive terms because they can shop multiple wholesale lenders, banks, and online banks. There's no obligation to use a lender that pre-approves you. But remember, when when your offer is accepted, it's best to stick with the lender you choose to work with because there are contractual timelines that need to be met.
Visit www.LoanFactoryUSA.com to compare today's interest rates and loan programs with all of the top lenders.
Lenders can go as low as 3% for residential real estate. A 20% down payment or more is recommended to lower the interest rate and waive mortgage insurance. Investment properties will typically require a minimum 25% down payment. Since there are many programs available, discussing your financial history in detail is the best way to find a lender who offers the best program for your specific needs and financial circumstances.
Beyond pre-approval, getting pre-underwritten is becoming a critical step before placing your first offer. Nightmare stories abound of buyers having their offers accepted after months of searching, only to be disqualified later during the loan underwriting process, forcing them to withdraw. This is especially true for individuals with diverse income sources. Pre-approval involves the loan officer collecting your financial records and running your credit, but it can be subjective because underwriters have numerous guidelines to navigate when determining loan approval.
With a pre-underwritten loan, the loan officer submits your file to the wholesale lender’s underwriter who identifies and addresses potential loan conditions beforehand. This means that during escrow, the only remaining hurdle to loan approval is the appraisal, which ensures the property value supports the loan amount.
Navigate the intricacies of real estate with an experienced buyer agent.
- Tailor your search to your unique vision.
- Delve into every detail and analyze important data, including comparable sales, disclosures, and inspection reports.
- Leverage negotiation expertise to secure your desired terms and price.
- Stay on top of critical deadlines.
- Seamlessly communicate with all parties involved.
- Safeguard your buyer rights with expertly drafted contracts.
The Buying Process + Tax Considerations
1. Define Your Needs and Budget
Must-haves and nice-to-haves: What’s essential in your new home? Location, size, features?
Budget and financial health: Determine your comfortable monthly payment and down payment amount.
Pre-approval: Get pre-approved for a mortgage to understand your borrowing power.
2. Assemble Your Team
Real estate agent: Choose someone who understands your needs and the local market.
Mortgage lender: Compare rates, fees, and service to find the best fit.
Other professionals (optional): Lawyer, inspector, insurance agent.
3. Search for Your Dream Home
Utilize online tools and listings: Filter based on your criteria and budget.
Attend open houses and schedule private viewings: Get a feel for the property and neighborhood.
Be realistic and flexible: Don’t set expectations too high or dismiss potential options too quickly.
4. Make an Offer and Negotiate
Research comparable sales: Understand the market value of similar homes.
Present a competitive offer: Craft a competitive offer that reflects the property’s condition, recent neighborhood sales, and current market trends. Keep in mind that in a competitive market, multiple offers are common, and it may take some time and negotiation to secure the right property.
Negotiate terms: Be prepared for counteroffers and compromise on certain aspects.
5. Secure Your Loan and Finalize Paperwork
Formal loan application: Provide necessary documents and complete required underwriting steps.
Home inspection: Identify any potential issues requiring you to negotiate repairs or, if necessary, back out.
Title search and insurability: Verify clear ownership and insurance eligibility for the property.
Contingency Management: Utilize contingency periods in your offer to protect your earnest money deposit. Be prepared to potentially waive contingencies, like financing or appraisal, for highly competitive properties.
Contingencies are clauses in the contract that allow you to back out under specific circumstances, such as difficulties obtaining financing, unsatisfactory inspection results, or title clearance issues. While they offer valuable protection, waiving them in competitive situations can strengthen your offer.
6. Close the Deal and Pick Up Keys
Protect your credit score: Avoid new applications or late payments.
Clear all contingencies: Confirm completion of your home inspection, appraisal, and financing approval.
Review the Closing Disclosure: You’ll receive it from your lender three days before settlement. Ask questions if anything is unclear.
Wiring funds: Gather your down payment and closing cost funds in an accessible account. Arrange a wire transfer or get a cashier’s check for settlement funds.
Schedule a walk-through: Check the condition of your new home within 24 hours before closing.
7. Tax Considerations for California Property Owners
Proposition 13: Prop13 limits annual increases to 1% based on your purchase price, with a maximum 2% annual rise in assessed value (unless you renovate or sell). Stay informed about potential reassessments.
Proposition 19: Moving at 55+? Severely disabled? Victim of a disaster? Prop 19 lets you transfer your low tax assessment to a new, equally-priced home, keeping your tax burden manageable.
Homeowner Exemptions: Claim your $7,000 Homeowners’ Exemption (apply annually!) and explore others for seniors, veterans, and more. Lower your assessed value, meaning a smaller tax bill.
Mello-Roos: Some newer communities levy additional Mello-Roos taxes for specific services. Factor these into your budget when house-hunting to avoid surprises.
Capital Gains: Selling your home may trigger capital gains taxes on profits. However, the principal residence exclusion lets you exclude up to $250,000 ($500,000 for couples) if you lived there for two years in the past five.
California’s Brackets: California uses a progressive tax system with rates ranging from 1% to 13.3% based on your income. Knowing your bracket helps estimate your tax burden.
Deductions: Claim the Mortgage Interest Deduction, Property Tax Deduction (up to $10,000), and Home Office Deduction (if applicable) to reduce your taxable income. Remember, the SALT deduction cap applies to combined state and local taxes, not just property taxes.
California Perks: Explore disaster relief, energy efficiency, and teacher housing deductions for even more savings.
Gifting for a Home: Receiving money for a home purchase can be considered a taxable gift if it exceeds the annual exclusion. Gifting for your home exceeding $17,000 counts towards your lifetime tax limit (currently at $12.92 million in 2023). While the current limit is significant, it’s important to keep track of your remaining exemption space as it can affect your future tax liability. Consulting a tax professional is recommended for guidance on large gifts and your personalized situation, especially considering potential changes to the limit in the future.
Real Estate Tax Write-Offs: Points paid for lower interest rates and prorated property taxes from closing are yours to deduct. Keeping meticulous records of receipts and documents for home improvements, income, expenses, and investments is key to claiming all your deductions come tax time.
Seek Expert Guidance: Tax laws are complex and change frequently. Consulting a qualified tax professional will ensure you maximize exemptions, deductions, and credits, navigate potential changes effectively, and optimize your financial well-being as a California homeowner.