Loans & Lenders

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®

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.

Congratulations! You’ve made the decision to buy real estate. Whether it’s your first home, an additional investment property, buildable land, or your vacation dream home or retirement home, being ready to buy will make your home search more enjoyable, and you’ll have fewer surprises when you make an offer.

Make your list. You probably have a general idea of the kind of home you’d love to own. Maybe a sleek condo; or a single family home; or a working vineyard or ranch. Do you need proximity to particular schools or community services? Are there particular neighborhoods? Now’s the time to sit down and make a detailed list of both what you do want, and what you don’t want. Making an honest and clear list will help both you and your real estate agent focus in on just the right properties for you.

Know your timeline. Is your current lease up in 3 months? Are you able to take as many weeks or months as it takes? Know when you need to be able to move in. Also get a sense from your agent how long it may take to find the house you want in the location you desire. If you have very specific requirements, you will be more dependent on market supply. And don’t forget: a typical purchase will take between 30-45 days to close once your offer is accepted.

Check your credit. Have a credit report done – and check your FICO number as well as what you’re creditors report about you. Have you paid your bills on time? Any red flags? Fix any problems now, so that when your lender asks, you’ll be able to tell them honestly how you are working to correct any problems.

Get preapproved. Start this process early. Your Realtor® can give you referrals to lenders they know will do a good job. If you don’t know how much you can borrow, you won’t know what homes you should be looking at. And nothing is more disappointing than finding out that the homes you’ve been visiting are beyond your means.

Name your limits. Once you know how much financing you qualify for, you also need to identify how much you’re comfortable borrowing. Remember, you’re signing on for a monthly payment that may be significantly larger than you currently pay for rent or mortgage. Be very sure you feel comfortable with the monthly payment, not just the total amount of the loan.

Understand the costs. Talk with your agent and your lender. Your down payment and your loan are only part of the costs of buying a home. At the beginning of escrow you’ll be paying for inspections and any specialist examinations of the property to ensure you understand what you’re buying. At the end of escrow, when you sign all your loan and title documents, you’ll be expected to pay a number of costs and fees – for title, escrow and lender processes, pro-rated taxes, appraisal, and possibly other funds to the seller or inspectors. If you are financing with multiple loan sources, each loan source will likely have its own fees and costs.

Talk with your Realtor® and your lender – both can give you more information on your specific circumstances and help you be the best informed and ready to buy.

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.

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.

Most of us only deal with real estate loans a few times in our lives. It’s important to understand the details of the loan you are being offered – before you sign on the line. Here are the questions you should be asking your potential lender:

1. What are the most popular mortgages you offer? Why are they so popular?



2. Which type of mortgage plan do you think would be best for me? Why?



3. Are your rates, terms, fees, and closing costs negotiable?



4. Will I have to buy private mortgage insurance? If so, how much will it cost, and how long will it be required? (NOTE: Private mortgage insurance is usually required if your down payment is less than 20 percent. However, most lenders will let you discontinue PMI when you’ve acquired a certain amount of equity by paying down the loan.)



5. Who will service the loan — your bank or another company?



6. What escrow requirements do you have?



7. How long will this loan be in a lock-in period (in other words, the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if it drops during this period?



8. How long will the loan approval process take?



9. How long will it take to close the loan?



10. Are there any charges or penalties for prepaying the loan?



Used with permission from Real Estate Checklists & Systems, www.realestatechecklists.com.