Kerr and Jones

Sonoma and Napa Wine Country Real Estate

David Kerr

Solar For New Homes

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California will become the first state to require all new homes to have solar power. The new requirement will take effect in two years.

“The new requirement for solar panels on all new homes by 2020 is a dual edged sword. It is great for the environment and will be a great feature for resale but in the short term it will raise the cost of construction which will increase the cost of purchasing a new home here where home costs are already high. Overall, I don’t think it is a bad things but will likely have to wait and see what the actual increased cost of a new home will be with this new requirement.” David Kerr – Associate Partner

California has been the first to approve such a move on a statewide scale. By 2020, builders will be required to make individual homes available with solar panels or build a shared solar-power system that could serve a group of homes. The rooftop panels can either be owned by the homeowner and rolled into the cost of the home or leased on a monthly basis.

The mandate could add up to $16,000 more to the cost of a home. But homeowners’ lower energy bills will make up for the extra costs of adding solar, state officials and clean-energy advocates say. Based on a 30-year mortgage, the Energy Commission estimates that the standards will add about $40 to an average monthly payment. The commission also estimates consumers could save $80 on monthly heating, cooling, and electricity bills.

California’s new mandate stems from a requirement that at least 50 percent of the state’s electricity needs to come from non-carbon producing sources by 2030. Solar power is becoming an increasingly important part in meeting that goal.

Source: California Association of Realtors®

8 Tips to Guide Your Home Search

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Following these 8 home search tips will increase your likelihood of making a purchase you will be happy with for years to come.

1. Research before you look. Decide what features you most want to have in a home, what neighborhoods you prefer, and how much you’d be willing to spend each month for housing.

2. Be realistic. It’s OK to be picky, but don’t be unrealistic with your expectations. There’s no such thing as a perfect home. Use your list of priorities as a guide to evaluate each property.

3. Get your finances in order. Review your credit report and be sure you have enough money to cover your down payment and closing costs. Then, talk to a lender and get prequalified for a mortgage. This will save you the heartache later of falling in love with a house you can’t afford.

4. Don’t ask too many people for opinions. It will drive you crazy. Select one or two people to turn to if you feel you need a second opinion, but be ready to make the final decision on your own.

5. Decide your moving timeline. When is your lease up? Are you allowed to sublet? How tight is the rental market in your area? All of these factors will help you determine when you should move.

6. Think long term. Are you looking for a starter house with plans to move up in a few years, or do you hope to stay in this home for a longer period? This decision may dictate what type of home you’ll buy as well as the type of mortgage terms that will best suit you.

7. Insist on a home inspection. If possible, get a warranty from the seller to cover defects for one year.

8. Get help from a REALTOR®. Hire a real estate professional who specializes in buyer representation. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. Buyer’s reps are usually paid out of the seller’s commission payment.

Know Your Mortgage Terminology

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Every part of the home purchase process has its own special terminology. The loan process can be even more daunting for those of us who are math impaired – you are expected to understand how to understand how loans are calculated in addition to understanding the vocabulary. To get you started on the language of lending, here are some of the top terms you will here:

Adjustable Rate Mortgage (ARM Loan): The key word here is ‘adjustable’. Adjustable Rate Mortgages are often attractive to first time homebuyers who can’t afford quite as much house today, but expect to have increased earning power in the future. ARM loans often have lower interest rates for the first few years, so the mortgage payments are lower. Homebuyers should be very clear about how and when the interest rate and monthly payments increase, and plan finances accordingly.

Annual Percentage Rate (APR): This is the annual rate that includes the interest rate you were quoted by your lender plus any other loan costs (points, loan origination fees, etc.). The APR will be higher than the advertised interest rate because these other loan costs are included in the total.

Closing Costs: This is an umbrella term for a number of costs due at the close of ecrow. Some are paid by the seller, some by the buyer. From the buyer’s side, these costs may include pro-rated property taxes, loan origination and processing fees, escrow and title services and insurance fees. As a rule of thumb, if you are financing your purchase your closing costs will be in the ballpark of 3-3.5% of the purchase amount; if you are paying all cash, your closing costs will be in the ballpark of 1.5-2% of the purchase amount.

Conventional Loan: Bank loans, typically requiring 10-20% downpayment.

Escrow: A home is said to be ‘in escrow’ when it is in contract and is in the process of changing ownership from seller to buyer. The escrow officer holds the funds during the transaction, and ensures the funds (loan, earnest money deposit, any credits) are distributed to the proper parties according to the contract when the purchase is complete. In Northern California, Escrow and Title functions are combined in the same companies.

FHA loan: The Federal Housing Administration is a federal agency that insures first mortgages, enabling lenders to lend a very high percentage of the sale price, typically requiring as little as 3% down. FHA requires homes to be in habitable condition as a prerequisite for purchase.

Fixed Rate Mortgage: A kind of mortgage where the interest rate stays the same for the whole term of the loan. These are typically 15, 20 or 30 year loans. Fixed Rate loans are attractive because they provide buyers with the ability to plan long term, knowing the monthly payments will remain the same through the life of the loan.

Loan to Value Ratio (LVR): For the purchase of a home, this refers to the amount of money borrowed, in relation to the value of the home being purchased. If you were purchasing a home valued at $100,000, with a loan of $85,000, your LVR would be 85%. LVR is important to pay attention to: if your LVR is more than 80% you will be required to purchase private mortgage insurance (PMI).

Lock-In: Once you’ve been preapproved for a loan, and made an accepted offer on a home, you will be waiting for the loan underwriters to complete their detailed work and fund your loan. During this time you will be in close contact with your lender to decide when to lock in a loan rate. The lock in is a guarantee that the loan you get will have the rate you locked. This is an important step in a market where interest rates are rising more than falling.

Points: In the lending world a point = 1% of the loan amount. There are two kinds of points to know about and keep track of, and both (if used) are paid at closing. Origination points are sometimes added to cover loan processing expenses – the cost of originating your loan. Discount points are used to buy down or discount the interest rate on your loan. If you wanted to reduce your loan interest rate from 5.5% to 4.5% on a $500,000 loan, you’ll pay one point up front, or an additional $5,000.

Private Mortgage Insurance (PMI): PMI is a policy to protect your lender from loss in the event that you default on your loan. Your PMI is a monthly cost added onto your mortgage payment. PMI is required whenever you have financed an amount larger than 80% of the value of the home you are purchasing. The good news: once you have gained 20% equity in your home, you can and should contact your lender to discontinue PMI coverage, and reduce your mortgage payment.

Title Insurance: A home has a title to the property in the form of a deed. Title insurance is issued by the Title company, and it insures that the home’s title is able to be legally passed from the seller to the buyer. Title insurance also protects the buyer against any future claims to the property by other parties.

VA loan guarantee: The Veterans Administration is a federal agency that guarantees repayment of first mortgages taken by qualifying US military veterans. Veterans may borrow 100% of the purchase price of the home, and are exempt from most of the costs and fees associated with the purchase. The VA lender will require the seller to complete any repairs to the property at the seller’s expense.

Get Your Finances in Order

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Smart buyers plan ahead and make sure to put their best financial foot forward when it comes time to apply for a home loan. Here’s how they do it:

1. Develop a household budget. Instead of creating a budget of what you’d like to spend, use receipts to create a budget that reflects your actual spending habits over the last several months. This approach will factor in unexpected expenses, such as car repairs, as well as predictable costs such as rent, utility bills, and groceries.

2. Reduce your debt. Lenders generally look for a total debt load of no more than 36 percent of income. This figure includes your mortgage, which typically ranges between 25 and 28 percent of your net household income. So you need to get monthly payments on the rest of your installment debt — car loans, student loans, and revolving balances on credit cards — down to between 8 and 10 percent of your net monthly income.

3. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills, too. Pay off the entire balance promptly.

4. Look for ways to save. You probably know how much you spend on rent and utilities, but little expenses add up, too. Try writing down everything you spend for one month. You’ll probably spot some great ways to save, whether it’s cutting out that morning trip to Starbucks or eating dinner at home more often.

5. Increase your income. Now’s the time to ask for a raise! If that’s not an option, you may want to consider taking on a second job to get your income at a level high enough to qualify for the home you want.

6. Save for a down payment. Designate a certain amount of money each month to put away in your savings account. Although it’s possible to get a mortgage with only 5 percent down, or even less, you can usually get a better rate if you put down a larger percentage of the total purchase. Aim for a 20 percent down payment.

7. Keep your job. While you don’t need to be in the same job forever to qualify for a home loan, having a job for less than two years may mean you have to pay a higher interest rate.

Making a Winning Offer

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Now that you’ve found your perfect home, it’s time to get organized to make the best offer possible. Here are some things to consider:

Go local. Sellers and their Realtors® prefer to see preapprovals from local lenders. Local lenders have a known track record for being able to deliver on the loan promises, and local lenders understand the specific market and regulatory conditions that directly affect the property. Choosing a reputable local lender can give you an edge in competition. Ask your Realtor® for recommendations.

Remember your financial limits. Ensure your preapproval from your lender is current, and don’t make any big purchases once you’ve been preapproved. Reviewing your finances now will keep your offer in perspective, and ensure you make an offer you can follow through on. This is especially true if there are multiple offers for the home you want.

Think like a seller. While you naturally want the most house for your money, the seller wants the most money for their house. You may have very different ideas from the seller on what the most valuable or attractive features of the house are. Talk with your Realtor® – he or she should be able to give you some insights into the seller’s wants and goals.

Find a win for everyone. Remember the lesson learned as kids – that we need to learn to give and take, and do it gracefully? Your offer should do the same thing: ask for what you want, but find ways for the seller to feel they are winning too. Be prepared to compromise. It’s not personal, it’s a sale. Don’t make it personal.

Keep it simple. Try to avoid padding your offer with unnecessary contingencies, or complicated terms and trade-offs. Do keep your inspection, loan and appraisal contingencies – but make the length of time for each of these as competitive as possible.

Love letters. A simple gesture can make the difference. Write a letter telling the seller what their home will mean to you if you lived there, and ask your Realtor® to include it with your offer. What features about the house and yard and neighborhood do you respond to? Why? How would you live in their home and make it your own? Most sellers are emotionally attached to their homes, and want to know the home will be well lived in and well cared for once they pass on the keys. A ‘love letter’ can give you an edge, especially if it is sincere.

Cool head, warm heart. Negotiating is the time for a cool head. No matter how much you love the home you’ve found, now is the time to think through the process, remember your limits and requirements. You may be trying to buy your dream home, but this is a business transaction. You’ll be better able to understand the seller’s intentions during negotiation if you keep your feelings in check, and think about how you each are trying to make the best deals.

Smart Selling

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It takes some work to be a smart and prepared seller, but it will reward you by maximizing your profit and minimizing your stress.

Hire a great Realtor®. A Realtor® is a licensed real estate agent who belongs to their local Association of Realtors®, and through that the California Association of Realtors® and the National Association of Realtors®. Realtors® subscribe to a strict code of ethics and must maintain a higher level of knowledge -of real estate practice and regulation. Realtors® are committed to providing utmost care in representing their clients, and in treating all parties to a real estate transaction honestly.

Make a Plan, Work the Plan. There are a number of things to do and to keep track of when you sell your home. Together with your Realtor® you will make a plan for putting your home on the market and maintaining it through the close of escrow. Be sure to put dates against each item. Here are the big moving parts:

  • Make Repairs & Spruce Up. All those things on the Honey-Do list to repair or complete? Write them down. Listen to recommendations from your Realtor®. Fix what you can; hire professional for what you can’t do. And keep receipts and permits.
  • Document your repairs and upgrades. Make a folder or list of everything you’ve done on the house over the years, and note who did the work (you, or name the professionals), and if there were permits include copies. Not only will this impress potential buyers, it will also help you at tax time as you figure out the adjusted basis for the home.
  • Stage your Home. If you can, move out of the house and have a professional stager furnish the house – he or she will accentuate the positives, and diminish the negatives with furniture, art and accessories, and may recommend painting or other fixes. If you can’t move out, hire a professional stager to help you know how to de-clutter, to re-arrange the furniture and accessories, and generally make the most out of what you have to show the house at its best.
  • Keep it clean and showroom fresh. Remember, you have to begin to think of this as no longer your home. Future buyers may not care about the things you care about. Stagers and Realtors® will guide you in what to show off – be sure to keep the house clean, keep clutter out of the way, and keep the house like a showroom. Pet or home smells can be a major turn off to prospective buyers.
  • Let it be shown. This one should be obvious. If you want to sell your home quickly and get good offers, you need to let buyers see your home when they want to. If you have a newborn at home, or some other extenuating circumstance, make sure your Realtor® notes this in the MLS in the information to agents. Buyers understand personal challenges, but are put off by what might seem like a lack of interest in showing the home. If you want it sold, make it easy for buyers to see it.
  • Love letter. Write a letter to prospective buyers, telling them what you love about the home, the yard, and the neighborhood. Very few sellers do this, and it can give you a competitive edge or sway a prospective buyer.