10 Steps to Home Ownership

10 Steps to Home Ownership

The process of home ownership can seem daunting but the reward is a great investment. The San Diego Association of REALTORS (SDAR) offers these 10 steps with helpful tips to simplify the process of buying a home.

By Robert Kevane, 2011 President of the San Diego Association of REALTORS®

Step 1: Are you ready? Get information about the existing market by reading statistics that organizations such as SDAR publish each month. Then set your goals: are you buying as a long or short-term investment?

Step 2: Be sure your agent is a REALTOR® REALTORS® are agents who adhere to a strict code of ethics and belong to associations that give their REALTORS® access to exclusive tools and resources to help you through the maze of forms, financing, inspections, marketing, pricing and negotiation.

Step 3: Get loan pre-approval REALTORS® suggest you start the mortgage process before previewing homes to ensure you are looking at homes within your price range and to be in the strongest position to negotiate as a pre-approved buyer.

Step 4: Look at more than just the home Research all the aspects that may be important to you when picking a neighborhood such as crime statistics, local school and proximity to parks, shopping and freeways. Utilize your REALTOR® to make home suggestions that match all of your needs.

Step 5: Choose your home from many Look at as many homes as possible. With the Internet you can quickly and easily view large numbers of homes, search a variety of prices, take video tours, go to open houses and view extensive neighborhood information.

Step 6: Get funding Buyers often end up spending too much in interest and closing costs. Always research mortgage options and costs; A quality mortgage broker or loan specialist will be able to discuss all the various options available to you.

Step 7: Make the best offer In a typical transaction, you will complete an offer that your REALTOR® will present to the seller and their REALTOR®. The seller will then, accept it, reject it or make a counter-offer.

Step 8: Have inspections & review disclosures Before closing always get a professional home inspection. Also consider termite, pool, roof and electrical inspections. Review the inspection reports and all of the disclosure documentation you receive from the owner, REALTORS® or homeowners association regarding local area, natural hazard, and lead paint among others.

Step 9: Get insurance Real estate insurance protects owners in the event of catastrophe and can be the bargain of a lifetime. Make sure you also receive Title Insurance to protect against undisclosed liens and ensure that you have clear title to the property.

Step 10: Closing – know what to hold on to Before closing, buyers typically have a final opportunity to walk through the property and assure that its condition has not changed since the purchase agreement was signed. The final step to closing is the recording of the Grant Deed at the County Recorder’s Office. Remember that the papers you receive at settlement are extremely valuable – so hold on to them.

Last but not least, enjoy your home!

Renting Versus Buying: 2011

Renting Versus Buying: 2011

This year California housing market conditions make a strong and compelling case for homeownership. With prices still well below the historic highs of just a few years ago and attractive mortgage rates, qualified buyers have a unique opportunity to own their own home. As seen below, a rigorous analysis of renting versus buying hears this conclusion out. The monthly housing costs (principle, interest, taxes, and insurance or PITI) associated with buying a median-priced home of $301,430 is $1,590 (Fourth Quarter 2010 median priced home in California).  This assumes the buyer is making a 20 percent downpayment and financing with a 30-year fixed rate mortgage at 4.62 percent. In comparison, the median rent on a three-bedroom two-bath apartment with renter’s insurance in California is $1,810. That means buying a home would save the homeowner $220 per month when compared to renting and the homeowner would save over $2,600 a year.

In addition, existing tax laws allow homeowners to itemize and deduct the mortgage interest and property taxes from their taxable income. For example, compare the tax implications for two households both earning $63,430 a year, the minimum income required to purchase the statewide median-priced home of $301,430.* The household that purchases the home with a 20 percent downpayment and finances the mortgage at the current rate of 4.62 percent will receive a tax deduction of over $14,000 in the first year of ownership. The renter household will most likely utilize the IRS Standard deduction of $11,400, $2,600 less than their homeowner counterparts. The homebuyer reduces their total tax liability by $400 compared to the renter in the first year of ownership. Accounting for the out-of-pocket savings as well as the tax savings, the homebuyer saves over $3,000 in their first year of ownership.

The mortgage rate is a significant factor in determining just how much a homebuyer can afford. Today’s low mortgage rate environment tips the scale—for some—in favor of buying versus renting. For a home priced at $400,000, with a 20 percent downpayment and a 4 percent mortgage rate, the monthly PITI will be $1,990 for the homebuyer. The monthly PITI jumps to $2,180 at 5 percent and to $2,380 at 6 percent. For each one percentage point increase in the mortgage rate, the payment goes up by almost $200 under these assumptions. Even for a lower priced home at $200,000, the difference in the monthly payment is significant as each percentage point rise in the mortgage rate tacks on $100 to the monthly PITI.

Of course, there are many other socioeconomic benefits that homeownership brings to communities. And there are other costs associated with homeownership above and beyond the downpayment and monthly PITI. So as long as one has considered all of the costs and benefits of owning a home and is in the financial position to do so, there are some pretty compelling reasons to strive for the “American Dream.”

*Assumptions:

1. Underlying assumptions for the Mortgage Interest Deduction and Property Tax (1 percent of the purchase price) deduction are based on the Traditional HAI Q4-2010 assumptions of: The prevailing median price in the 4th quarter 2010 (Median Price $301,430), effective FRM interest rate of 4.62%, a 20% downpayment, and a $241,144 loan amount.

2. Incomes are based on the underlying assumptions for the Traditional HAI. The same income is used for both Renters and Buyers and is assumed to be the Minimum Qualifying Income needed to purchase a median priced home in the 4th quarter 2010.

3. Tax rate based on 2010 IRS Schedule Y-1 Married Filing Jointly in 15% tax bracket (latest available from the IRS) assuming no changes over the 5 year horizon

4. Interest deduction based on the Traditional HAI Q4-2010 underlying effective FRM interest rate
of 4.62%, a 20% downpayment, and a $241,144 loan amount.

5. Property taxes are assumed to be constant over this 5 year analysis, thereby assuming the underlying market value remains unchanged. If the home value were to increase, under Proposition 13, the property tax assessment would increase at a rate of 2 percent per year. Along these same lines, income is also assumed to be constant over this 5 year analysis in order to keep the analysis simple and determine the basic 5 -year tax benefit of buying a home in 2010.

Copyright © 2011 CALIFORNIA ASSOCIATION OF REALTORS®

Lease Options

A lease option is an arrangement between you and a seller to exercise the option to buy a house after you have rented it for a specific period. A portion of your rent would be applied toward the purchase if the option is applied. This is referred to as rent credit, which most institutional lenders will accept as part of the down payment if rental payments exceed the market rent and if a valid lease-purchase agreement is in effect, a copy of which must be attached to the loan application. Read any lease option arrangement carefully for details on transferring the option and other important concerns. For information on lease options, contact your real estate agent (some even specialize in such transactions) or read up on lease options at the public library or on the internet. If you have a real estate attorney, ask if he or she has any prepared information you can review.

Things to Consider When Searching for a Home

Before deciding which house to buy, think about your lifestyle, your current and anticipated housing needs, and your budget. It’s a good idea to create a prioritized list of features you want in your next home – you'll soon discover finding the right house involves striking a balance between your "must-haves" and your "nice-to-haves." To start, consider your lifestyle. If you love to cook, you'll want a well-equipped kitchen. If you're into gardening, you'll want a yard. If you're planning your office at home, you may want a room for a separate library or work space. If you have several cars, you may require a larger garage. Use this list as your search guide. Next, think about what you might need in the future. As you consider your housing needs, it's important to consider how long you may live in your home. If you're newly married, you might not be concerned with a school district right now, but you could be in a few years. If you have aging parents, you may want to look at homes that offer living arrangements for them as well as you. It’s important to think about your new home’s location just as carefully as you do about a house’s features. Location is a huge part of any move. In addition to considering the distance to work, you need to evaluate the availability of shopping, police and fire protection, medical facilities, school and day-care, traffic and parking, trash and garbage collection, even recreational facilities. Perhaps the most important decision is deciding on the type of home you want. Do you want a condominium or a co-op? A town house or a detached single-family home? Do you want brick, stone, stucco, wood, vinyl siding, or something else? Do you prefer a new home or an older one? Through all of this, make sure to talk to your real estate professional about where you want to live. While more buyers now use the Internet to gain access to listings, or available properties for sale, it is still a good idea to use an agent. The agent brings value to the entire process: he or she is available to analyze data, answer questions, share their professional expertise, and handle all the paperwork and legwork that is involved in the real estate transaction. CENTURY 21 professionals have the expertise to help their clients narrow down their choices by sharing market trends and local information.