Category Archive 'Housing'

How to Buy Your First House


house buying process

Following up on my latest post on first time home buyer tips, I’ve decided to share more insight on the great financial experience that is buying a house for the first time! I thought it would be interesting to delve deeper into each of the steps for a first time home buyer just to make sure you don’t forget anything. So here we go!

– Get your budget in order

All right, we all want to be a home owner. However, it doesn’t mean that we can all afford it. The very first step prior to shopping for a house is to get your budget in line. Consider your current expenses along with additional spending that comes with a new home:

– Taxes

– Energy costs

– Condo fees

– Insurance

– Renovation / Maintenance costs

– Equipment (lawn mower, shovel, tools, etc)

– New furniture

– Curtains and accessories

– Get your documents in order

Before making an appointment with a banker, make sure you have all your documents. You can call your local bank to know what is required. Ask for a specific list according to your financial situation (documents are not the same depending if you are an employee, self-employed, property owner, etc.). Get everything in a file and then book an appointment).

– Go see your bank for a preapproval

As I have mentioned in my first home buyer tips, it’s easier to shop for a house with a preapproval. This is your occasion to ask your banker all the questions that come to mind regarding the transaction. It will also be a great opportunity to check with him if your budget calculations were in line with the bank’s debt ratio calculations!

– Go see a real estate agent to shop

Now the real fun begins! Sit down with a real estate agent and tell him what you are looking for in terms of:

– price

– number of rooms

– neighborhoods

– nice to have (pool, near schools or parks)

– things you don’t want (near a highway or commercial center)

He will then pull out all the properties matching your criteria and send you the listings.

– Visit at least 5 properties

In order to make up your mind and make sure you make the right decision as a first time home buyer, it’s important to look at a minimum of 5 properties. You will then be able to compare them and know exactly what you are looking for.

– Make an offer (negotiation process)

Once you find your first home, it’s time to make an offer. Ask your real estate agent to pull out recently sold houses in the same area. You will be able to assess what is the value of the property and what would be a good offer to make.

– Get back to your bank for the official letter of approval

Once the offer is accepted by both parties, it is time to turn around and ask for the official letter of approval from your banker. You then ask him for his best rate and you let him know that you will negotiate with a mortgage broker as well. Remember, the rate is one thing, but the structure of the mortgage is important too. Make sure to have a good discussion about which kind of mortgage you want.

– Negotiate rate with your banker and a mortgage broker

If you really want to pay the lowest rate possible, you can always go see a mortgage broker. This is an additional step that requires that you go through the whole process of mortgage qualification. Sometimes, you might negotiate harder with your banker and get the right mortgage and the right rate the very first time!

– At the same time, you need to get an inspection done on the house you are buying

While you are in the middle of the mortgage process, you also need to have an inspection of the house completed. This is very important as the inspector will tell you if the house is in good shape or not. If major renovations are required such as new replacement windows or a new roof, you are allowed to back off and withdraw your offer. You can also renegotiate the price according to the things that has been discovered.

– Start looking for a lawyer to close the transaction

You will need to get in touch with a lawyer in order to finalize the transaction. Prices and services are different so make sure to call a few lawyers to know what is involved.

– Shop around for insurance

You need to insure your property against fire, flood, break ins, etc. but you should also insure your loan through a life insurance policy. Take a good day to shop around, the internet is a wonderful tool to ask for quotes ;-).

– Sign your documents at the lawyer and receive your keys!

That’s an easy step! The lawyer will contact you a few days prior to your meeting telling you how much you need to bring (your cash down + fees). The bank will send the money from the mortgage.

– Move in and enjoy ;-D

That’s it! You are in your new house, Congratulations to all first time home buyers!

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First Home Buyer: 18 Things You Need To Know


first home buyer

My best friend just bought his first house last week. As I work in the banking industry, I never realized how complex the home buying process really is when it’s your first one. He gave me the idea of creating these quick 18 things you need to know if you want to buy your first home this year. They are not in any particular order; I just wrote them as they came to mind:

#1 Prepare your proof of income and assets

In all cases, you will be required to provide proof of your income and assets. Gather your latest pay stub, year end income summary and investment portfolio statements. You will be ready when it will be the time to meet with your banker / mortgage broker.

#2 It’s easier to shop for your house if you have a preapproved mortgage from your bank

This is very true especially in the case of a first time home buyer. Why? Because both the Real Estate Agent and the seller will know that you are serious, qualified and that you are not just walking around to “see what’s on the market”. Go to your bank and ask for a preapproval. This is a document certifying the amount the bank is willing to lend you in the case of a purchase.

#3 Don’t overestimate your mortgage payment capacity

After getting your preapproval, you may have the feeling that you can buy the house of your dreams. WRONG! Most of the time, the preapproved amount is ridiculously high. It’s not that you can’t afford the mortgage payment, but you will have to make some serious decisions with regards to your budget (forget about nice restaurants, cool activities and new clothes for a while ;-) ).

#4 Your real estate agent can be a great help to find a property

I don’t really like real estate agents to be honest. However, I really like them when it’s time to buy a property. You can give him all your criteria and he will find properties within your budget, neighborhood and including your desires as well. They can book appointments and visit the house with you. They are very useful to buy properties.

#5 Your real estate agent will always tell you that there is an offer coming through

The real estate business is rough and agents are only paid when they sell a property. Therefore, they could be tempted to rush first time home buyers to make an offer as soon as they realize that you like a property. My advice; take an extra 24 hours to think about it. Once you are in the process of making an offer, it’s hard to back off.

#6 Your real estate agent may seem disappointed by your first offer

Then again, the higher the first offer is, the better are the chances to close a quick deal. Real Estate Agents are known to put their own property for sale for a longer time and selling them for a higher price. This is a great stat showing you that they will try to facilitate the negotiation toward the fastest closing time.

#7 Don’t be shy to start low and negotiate your price

Even though the Real Estate Agent will be disappointed, starting with a lower offer will give you more negotiation room in the process. If you negotiate properly, this could save you an extra $5,000 or more. This is more than enough to cover other purchase fees (transaction fees, moving, new furniture, etc.)

#8 Don’t be shy to make a 3rd offer

You make an offer, the seller comes back with another one and you close the deal. Really? Why don’t you try to grab an extra 3 to 5K? It often works since the seller certainly doesn’t want to go through this process again (visits, offers, counter offers, etc) for a few thousand. The negotiation game is an interesting one. Be patient and rational. Even though it’s your first home, it is also your first occasion to make a good deal!

#9 If you are buying with an agent, you can’t contact the vendors directly

The real estate agent represents the vendor. Therefore, all communications must go through him. It is sometimes a pain but this is the way it works. Sometimes, having a middle man is a good thing, especially during negotiation time ;-). If you wish to discuss a specific detail, you can always ask the agent for permission to contact the vendor.

#10 An appraisal doesn’t count as an inspection

There is a clear difference to make here: an appraisal will be done by an appraiser which is specialized in determining the value of houses compared to the market. The inspection is made by an inspector which is specialized in house structure and buildings. Therefore, he will not give you a value of your house but will rather tell you what is in good shape and what requires minor (or major) renovations to keep it up-to-date.

#11 You will need an official letter of approval once your offer to purchase is accepted by the vendors

Your preapproval from the bank is not enough. Once your offer is accepted, you need to go back to your banker with the offer and the house listing. Then, you can negotiate your lending conditions (term and rates). Once your mortgage is officially approved, the bank will send a confirmation letter to the real estate agent.

#12 Shop your rate with a mortgage broker first

If you want to make sure that you have a good rate, go see a mortgage broker first and he will give you the best rate around. Warning; some mortgage brokers are aware of this shopping method and will charge a file opening fee before starting working with you. Sometimes, it’s a $250-$500 well invested. And it doesn’t mean that you won’t do business with him ;-).

#13 You can ask your bank to pay for the appraisal fee

Once you are done negotiating with the vendor, you can start negotiating with your bank ;-). Ask for a special rebate or to have the appraisal fees paid since you are a first time home buyer. It usually works like this with bankers ;-). On top of that, they probably gave you an “okay rate” since it’s your first house and you are not used to negotiate. They certainly have more room to pay other fees.

#14 You can ask your bank to pay for lawyer fees

You don’t have enough with the appraisal fees paid? You can always push your luck to have your lawyer fees paid too. Worst case scenario, the banker will say no. But he will never cancel the deal based on your request ;-).

#15 You don’t have to get your mortgage where you had your preapproval

I know, this is not really fair with the original banker that dealt with you. However, if you are feeling ripped off by the high rate (remember, first time home buyers tend to get so excited about getting their first house that they completely forget about the rest), you can still shop around for a mortgage once your original mortgage is approved. Just make sure you are in line with your timing according to the offer to purchase (avoid last minute mortgage shopping!).

#16 Life insurance is recommended but not mandatory

Some advisors will tell you that the life insurance is mandatory to any mortgage. This is because they sometimes make even more with the insurance than with the mortgage itself ;-). Don’t get me wrong, insuring the biggest debt you will have (especially in the case of a first time home buyer) is very important. However, you should have the right to shop for the best product available.

#17 Creditor insurance vs Life insurance

An important point, as I mentioned before, for first time home buyer is insurance. You don’t have to take creditor insurance as you can also look for a term life insurance that matches your mortgage amount and term. This is usually cheaper. A good insurance shopping session with an insurance broker is suggested.

#18 Normal Steps in the buying process for the first time home buyer

– Get your budget in order

– Get your paper in order

– Go see your bank for a preapproval

– Go see a real estate agent to shop

– Visit at least 5 properties

– Make an offer (negotiation process)

– Get back to your bank for the official letter of approval

– Negotiate rate with your banker and a mortgage broker

– At the same time, you need to get an inspection done on the house you are buying

– Start looking for a lawyer to close the transaction

– Shop around for insurance

– Sign your documents at the lawyer and receive your keys!

– Move and enjoy ;-D

So that’s it for me, do you have any other great tricks people should know about being a first time home buyer?

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Still flummoxed by the Bay Area housing market

Housing, Personal finance

I wrote in the Bay Area. Believe it or not, we’re still looking, casually I suppose, and have come near to bidding on two or three houses since then, but not close enough to pull the trigger. The one thing that’s changed is that we’ve narrowed down our needs to being in a “good school district” since our son has been attending speech therapy, and the therapist has advised that we live in a school district with good support in this area in case he would need to continue using these services in school.

Up until now, we were considering semi-fixer-uppers. A few weeks ago, we looked at this house, a trust sale, and even though we were fairly convinced we could probably get it for under $925K asking, after having some contractors take a look, they came out with estimates that were far from figures we were comfortable with. Our thought was that with some add’l money, we might be able to make it look somewhat like the since it has the exact same floor plan (this house sold for $1.27M, another outlier in our opinion). Then we got the estimates:

  1. $120K to remodel the kitchen (keep in mind this is a 1920s house, so small kitchen)
  2. $75K to redo the basement
  3. $60K to put in a bathroom
  4. $100K if we wanted to tilt the roof to make it not a flat-top house

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$8K First time home buyers’ credit extended

Housing, Personal finance

Seems the ever popular that offers qualified first-time home buyer an $8K tax credit was expanded and extended earlier in November.

Now, rather than expiring at the end of December 2009, it’s been extended into the first half of 2010 (purchase agreements have to be signed by April 30th and closings final by June 30, 2010), offers up to $6.5K to qualified repeat home buyers, and increases the income cap limit to receive the full amount of the tax credit to $125K for single filers and $225K for joint filers. You can also receive partial credit for up to $145K and $245K, respectively.

While this is good news for us (something is better than nothing), it unfortunately isn’t a significant enough event for us to find a place any faster. Even with the full $8K credit, that’s < 1% of the house prices we've been seeing listed in the area, and it might just cover what I estimate will be our closing costs. Wow, that's sobering. We're continuing our house hunt but simply finding much less inventory now that it's December (read: winter, or maybe "not summer"). Our current lease is up in March, so we'll have to see whether we find something by then, choose to renew the rental on our tiny house for another year (our landlord is not open to month-to-month leases), or opt for renting some other place. The good thing is that after seeing so many houses, I've got a much better sense of the housing market on the Peninsula, so hopefully the next time we find a place we like, we'll be ready and won't get cold feet again!

It’s a big jump from real estate theory to real estate practice…especially in the Bay Area

Housing, Personal finance

Last week, we made our first actual bid on a house, and boy, was it a roller-coaster ride. Up until then, we had been browsing and MLS listings, looking at open houses in the area and not really seeing anything we liked or that was remotely within our price range.

Then we happened across a house in a neighborhood we hadn’t been considering. It was as close to what we were ideally looking for as we had seen, and it didn’t need any obvious changes or upgrades. Believe it or not, that’s rare on the . For readers who are unfamiliar with Bay Area housing, you just have to trust me on this one. It’s been a shock to understand just what sort of housing inventory and pricing there is around here, even in a “down economy”.

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