Buying and Selling Real Estate in San Diego CA

Mortgage Funding Info

Fri, 18 May 2012 23:05:04 +0000

The reason why most commercial mortgage deals don't get funded is not because you can't find a lender. More often than not, the reason can be traced back to the "presentation" of the loan request. For example, when completing a residential loan, you fill out a 1003 using Point, Genesis, or another FNMA 1003 program. For a commercial loan request, what do you fill out?

Since there is no uniform commercial mortgage application, most brokers submit a 1003, an operating statement, and possibly a rent roll. However, this would be akin to submitting only the borrower's tax return and pay stubs, expecting a preliminary approval. In other words, it is clearly inadequate.

"A s lenders we see hundreds of loan requests, and most of these requests are incomplete and poorly prepared," says Chris Lewis, VP of Commercial Lending for Wells Fargo, Los Angeles. "Complete loan requests, however, go to the top of the stack as this shows that the broker understands the issues and has some control over the deal."

P ackaging a commercial mortgage loan is significantly different than packaging a residential loan. The main difference is that you need to determine whether the property -- not the borrower -- is generating sufficient "rental" income to cover the mortgage payments on the proposed loan amount (e.g., DSCR), and whether there is commensurate value to meet the lenders' loan-to-value requirement (e.g., LTV).

To calculate the DSCR and LTV, the stabilized net cash flow (NCF) must be determined. In most cases, lenders must re-create the operating statements to conform to their respective underwriting models, which requires identifying certain property-specific expenses.

Credit Info

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Did you know that 75% of all mortgage lenders use a three-digit credit score to determine your loan eligibility? This score is based on the information contained in your credit report. And the interest rate you will be charged is based on your credit score, so raising your credit score as little as 15 points could result in a lower interest rate and thousands in savings. You can save anywhere from a few hundred dollars in credit card interest charges, thousands of dollars on your next car loan, and tens of thousands of dollars on a mortgage loan simply by improving your credit score as much as possible.

The information below offers general guidelines as to what your credit score might be. Each lender sets its own guidelines for approving loans and issuing credit. For this reason, the information below offers only general guidelines. Your debt-to-income ratio also plays a role in determining whether or not you will be issued credit. Some lenders require a debt-to-income ratio that may be higher or lower than those stated below. See bottom of this page to find out how to calculate your debt-to-income ratio.

The information below is based on the FICO scoring model which ranges from about 375 to 900. Other lenders might use their own in-house scoring systems or another scoring model. General rules to determine your credit score and creditworthiness are as follows:

A rating [Credit score 660 or higher] -- You can easily obtain financing at the best rate; you can get approved for a credit card online in a few seconds. Note that a score above 700 means you have extremely good credit.

Typical debt- to- income ratio: Below 35%

Mortgage: You have not been late with a payment in the last 24 months

Installment loan: You have been 30 days late making payments 0 or 1 time within the last 12 to 24 months

Revolving credit: You have been 30 or 60 days late with a payment 0 or 1 time in the last 12 to 24 months

Additional requirements: Good/excellent credit during the last 2 to 5 years; no bankruptcy within the last 2 to 10 years

B rating [Minimum credit score 620] You can get approved, but not at lowest rate. You can get credit cards and such, but at a higher rate than someone with an A rating.

Typical debt-to-income ratio: Around 50%

Mortgage: You have been 30 days late with a payment 2 or 3 times in the last 12 months

Installment Loan: You have been 30 days late with a payment 2 to 4 times during the last 12 months

Revolving credit: You have been 30 days late with a payment 0 to 2 times in the last 12 months

Additional requirements: You have no 60-day late mortgage payments; if filed bankruptcy, it must be discharged 2 to 4 years ago

C rating [Minimum credit score 580] Have trouble getting approved. Very high rates.

The lender might ask you to get someone to co-sign for you.

Typical debt-to-income ratio: 55% or higher

Mortgage: You have been 30 days late with a payment 3 or 4 times in the last 12 months

Installment Loan: You have been 30 days late with a payment 4 to 6 times during the last 12 months

Revolving credit: You have been 60 days late with a payment 2 to 4 times in the last 12 months

Additional requirements: If you filed bankruptcy, it was discharged 1 or 2 years ago

D rating [Minimum credit score 550] Serious trouble getting approved. Co-signor required.

Typical debt-to-income ratio: Around 60%

Mortgage: You have been 30 days late with a payment 2 to 6 times in the last 12 months; and 60 days late 1 to 2 times during the last 12 months

Installment Loan: You have a few 90 and 120 day late payments during the last 12 months

Revolving credit: You have a few 90 and 120 day late payments during the last 12 months

Additional requirements: If you filed bankruptcy, was discharged within last 12 months

E rating [Credit score under 550] Unlikely to be approved.

Typical debt-to-income ratio: Around 65%

Mortgage: You have a pattern of 20, 60, 90 and/or 120 day late payments

Installment Loan: You have a pattern of 20, 60, 90 and/or 120 day late payments

Revolving credit: You have a pattern of 20, 60, 90 and/or 120 day late payments

Additional requirements: You may have a current bankruptcy or foreclosure

How to Calculate Your Debt-to-Income Ratio

The formula for calculating your debt-to-income ratio is monthly fixed expenses divided by gross monthly income (before taxes and deductions). Monthly fixed expenses include all debt, such as the following: house payment or lease, credit card and other revolving credit balances that it will take you longer than 6 months to pay off; car payments, alimony, child support, etc. Do not include grocery, telephone, and utility bills or any debt that will be paid off in the next few months.

Sample calculation:

Gross monthly household income: $5,000

Fixed expenses: $1,560

[house payment $540.00 + car payment $370.00 + credit cards $250.00 + child support $400.00]

Debt-to-income ratio calculation:

$1,560

$5,000 = 31%

Fico Scores Effect Purchasing

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FICO® scores were developed by Fair Isaac & Company, Inc. for each of the credit repositories. The scores are: (Equifax) Beacon®, (Experian formerly TRW) Experian/FICO and (TransUnion) Empirica®. They are simply repository scores meaning they only consider the information contained in a person's credit file; they do not consider a persons income, savings or amount of a down payment for a mortgage.

The scores were designed to assess risk. They are useful in directing applications to specific loan programs and to set levels of underwriting, i.e. streamline, traditional or second review. The scores are objective, consistent, accurate and fast.

Many people in the mortgage business are skeptical about the accuracy of FICO scores. Scoring has only been an integral part of the mortgage process in the past few years; however, the scores have been in use since the 1950's by retail merchants, credit card companies, insurance companies and banks for consumer lending. The data from large scoring projects emphasizes the accuracy, the predictive quality of the scores. Large portfolios have been scored for mortgage servicing and investment groups, and again, they demonstrate that FICO scores work.

The scores were developed from each repository's database using actual loan performance. A sample of over 750,000 consumers per repository was used. The repositories have each made great strides to increase the accuracy of their respective database through computer technology and internal monitoring. There is a new standard reporting format for credit grantors to use when sending electronic information to the repositories; this is the critical first step to providing accurate data.

The scores use a multiple scorecard design. Each repository uses 10 individual scorecards, and the models at each repository are the same. This increases accuracy and optimizes the predictive variables for each subpopulation. (For example, a borrower with two 30-day late payments will be scored against a population with some minor delinquencies.) This feature may cause a borrower with delinquencies to score in the same range as a borrower without delinquencies. Scorecards are reviewed and updated every twenty-four months.

The actual scoring process is proprietary, and the algorithms are copyrighted. We can share the predictive variables, the portion of the credit file considered and the weight as provided by Fair Isaac. They are:

Previous credit performance (35%)
Current level of indebtedness (30%)
Time credit has been in use (15%)
Types of credit available (15%)
Pursuit of new credit (less than 5%)

FICO has changed the way it factors credit checks, inquiries. These changes should minimize the "negative" effects that aggressive rate shopping or the normal mortgage process can have on a mortgage applicant. In the new Beacon version, the deduping process has been expanded beyond seven days. One variable counts the number of days within 365 days of scoring. If there has not been an inquiry, the deduping mechanism is not activated. If there is a consumer originated inquiry within the past 365 days from mortgage or auto related industries, these inquiries are ignored for the first 30 calendar days from scoring; then, multiple inquiries within the next 14 days are counted as one. Each inquiry will still appear on the credit report.

Scores should not change significantly because the variable in the model using inquiries contributes less than 5% of the predictive power of the model. According to Equifax statisticians, an average of 5% of the credit reports in the Equifax consumer credit reporting database (over 200 million consumer files) will see a change in score due to this. Fewer than 5% of those will see a change significant enough to effect a loan decision.

In order to get a score a borrower must have the following conditions in his/her file:

No "Deceased" indicator on the credit file
At least one undisputed trade line that has been updated in the last six months
One trade line open at least six months

Scores range from 350 (high risk) to 950 (low risk). A scorecard of 660 will be 660 on Beacon 96, Empirica and Experian/FICO if the data on each file is the same. However, each repository is likely to contain different data.

Every score is accompanied by a maximum of four reason codes. Reason codes identify the most significant reason that a consumer did not score higher. They are not red flags. Consumers with scores in the 800 range get reason codes just as consumers with scores in the 500 range. The reason codes may be used in describing to the consumer the reason for adverse action. Scores are not part of the credit file and are not covered by the Fair Credit Reporting Act. Scores, if disclosed to the consumer, must be related to the credit file - using the reason codes - since the score has no meaning in itself; the meaning or risk level is assigned by the lender and the investor.

When applicants have erroneous information reported, document the inaccuracies. The easiest way to do that is to have your credit-reporting agency upgrade the merged in-file to an edited mid-range report or to a Residential Mortgage Credit Report. With the upgraded report, you can ignore the score! The file will have to be handled in a traditional manner for underwriting and investment purposes. The developed report will provide the paper trail that investors want.

Property Rights

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You have a right to do with the land as you please, subject to restrictions imposed by law. When you own land, you can do many things with it, such as:

use it
rent or lease it to others
sell or transfer it
give it away
use it as collateral for a loan
bequeath it to intended beneficiaries (by will or trust upon your death)
let it sit where it is without doing anything to it
(although this could create problems due to restrictions imposed by law.)

Real Property Definition

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Real property is generally defined as land and the things permanently attached to the land. Things that are permanently attached to the land, also can be referred to as improvements, include homes, garages, and buildings.

Substances that are beneath the land (such as gas, oil, minerals) are also considered permanently attached. Other items which can be attached to the land, such as mobile homes and tool sheds, are not considered to be real property.

Property Investment

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If that's the question that keeps you up at night, welcome to the club. Many investors are wondering where to park their cash. And with the stock market in the dumps and real estate going gangbusters, who hasn't wondered if becoming the next Donald Trump is where it's at?

Nationally, housing prices are up 6.4 percent as of August, but in some places they've soared more than 20 percent in the past 12 months, the National Association of Realtors reports. Why not bag the bears and bulls, purchase a tax-friendly rental property and watch your investment grow? After all, you reason, it'll continue to appreciate while producing a steady income stream.

Trouble is, it's not that simple. Housing prices do fall from time to time and there's already word of a housing bubble that's likely to pop.

So, let's say you've got an extra $100,000 or just came into a $50,000 inheritance. Do you plow it into real estate or put your faith in Wall Street?

The quick answer: There isn't one. Yes, real estate can pay off big time - as can stocks. But both can plummet in value. And while real estate may provide steady rental income, it's a non-liquid asset so you can't sell it in a pinch. Variables aside, however, there is some math to crunch. So pull out that calculator and let's take a look.

First, consider the two ways you can potentially make money on rental property. That'd be rental income and/or a fat payout if you sell the place at a profit.

If you've got a monster mortgage and high expenses, rent may not cover your overall costs, even though they're deductible. By the way, don't forget some of those costs could include a professional caretaker to deal with tenants if you're not the kind of person who wants to put a lot of effort into property management.

Once you figure the costs, you've got to determine if your rent will leave you in the red or the black. In general, if you want to break even your rental income should equal 10 percent of the property's value.

So, let's say you take that $50,000 and use it as a 20 percent down payment on a $250,000 rental home – can you make at least $25,000 in rent a year? Check out ads for rental units in your area to see if your projection holds up.

These days, while the housing market remains hot, you may have trouble renting at all. If someone can buy as cheaply as renting, they'll often buy. That means landlords have to lower prices to attract tenants. In fact, they're already doing so. While rents have risen about 3.5 percent nationally in the past decade, this year they're down an average of 2 percent. And in some markets, like San Jose, San Francisco and Austin, rents have dropped 12 percent to 25 percent in the past year, according to NAR.

"We're looking at a very strong housing market so more renters are becoming homeowners," said NAR economist Sigrid Fennemore. In fact, rents should drop nationally by another 1 percent next year, she predicts, as massive layoffs take their toll.

As it turns out, it doesn't take much to beat the Street. Consider your $250,000 rental property.

If it climbs 6 percent in value the first year - the historic average annual gain on housing nationwide - you'd be sitting on an asset worth $265,000. You would have made 30 percent on your $50,000 downpayment.

"That's the effect of leveraging," said Gerald Weiss, a certified financial planner in Dublin, CA, who notes the value of your entire investment goes up, rather than just the value of the downpayment you contributed.

Now let's try a similar equation using stock investments.

Assume you plunk that $50,000 into an S&P 500 index fund that returns a conservative (though difficult to achieve lately) 8 percent. That's a $4,000 gain.
Not bad. But in order to make the same amount on your rental property, it would have had to appreciate far less – by just 1.6 percent. (To do the math, divide $4,000 by $250,000 and you'll get 1.6 percent.)

So, is real estate a slam dunk?

NO.

Experts like Schatsky and Weiss say they advise clients to have 5 percent to 10 percent of their portfolios in real estate – including Real Estate Investment Trusts (REITs).

REITS have earned more than 30 percent since 2000 - plus they've delivered 7 percent dividends. Best, to make this money you never have to deal with a tenant.

Property Trust(s)

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An REIT is a company dedicated to owning and, in most cases, operating income-producing real estate, such as apartments, shopping centers, offices and warehouses. Some REITs also are engaged in financing real estate. Most importantly, to be a REIT a company is legally required to pay virtually all of its taxable income (90 percent) to its shareholders every year.

An REIT may deduct the dividends paid to the shareholders from its corporate tax bill so long as —

the company's assets are primarily composed of real estate held for the long term,
the company's income is mainly derived from real estate, and
the company pays out at least 90 percent of its taxable income to shareholders.

The main benefit of being a REIT: one level of taxation.

The main limitation of being a REIT: a restriction on earnings retained by the company.

For a REIT to grow, capital must come from money raised in the investment marketplace as well as money generated internally. REITs, like other stocks, are carefully monitored by others, including the SEC, each REIT's independent directors, independent auditors, and the business and financial media.

Negotiating a Contract

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The typical residential real estate purchase contract is complicated, densely written and packed with legal jargon, but don't use that fact as an excuse for not reading the entire contract. Take your time and read slowly. Ask questions about anything you don't understand. Be flexible and willing to negotiate. The following five points are among the many items that merit attention:

1. What are the cutoff dates for inspections and approvals of the inspection reports? A typical contract provides an opportunity for the buyer to hire all manner of experts to check out the condition of the home. From the buyer's perspective, the more time that's allowed for these once-overs, the better. Sellers, on the other hand, usually want the inspections to be completed and signed off as soon as possible.

2. Who is responsible for making repairs, if any, as a result of the inspections? The fact that the buyer orders one of more inspections of the home for informational purposes doesn't obligate the seller to make repairs or modifications as a result of those inspections. In practice, however, inspection reports often are used to negotiate repairs of major problems or safety or environmental hazards that may be noted. The purchase contract should provide some guidance for these negotiations.

3. Is the seller making any representations or warranties regarding the condition of the property? In some contracts, the seller warrants that specified major components of the home (e.g., the roof or central heating or cooling system) are in good repair and working order at the close of escrow. Buyers should understand which components of the home are guaranteed and which are being sold "as-is."

4. Will a home warranty plan be purchased? A home warranty plan is a sort of limited insurance policy covering the basic major systems and appliances in the home. It may seem like a prize for the buyers, but it's equally important for the sellers and the real estate broker representing the sellers. In fact, these warranty plans are so popular among real estate agents that many of them will pick up the tab for the program in order to insulate themselves from irate buyers.

5. When is escrow scheduled to close? Pay attention to this date! If you're selling your home, you'll be expected to move out completely before the property changes hands. You'll want to make sure the closing date doesn't fall before you're able to move into your next residence. If you're buying a home, you'll be able to pick up the keys on the day escrow closes. You'll want to make sure you don't give up your prior residence too soon. Don't cut the dates too close. Many escrows end up closing a day or two later than the contract states--but that can happen only with the mutual agreement of the buyer and seller.

Real Estate Negotiation

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Most home buyers and home sellers want to arrive at a win-win agreement, but that's not to say either side would regret getting a bigger "win" than the other. Successful negotiating is more than a matter of luck or natural talent. It also encompasses the learned ability to use certain skills and techniques to bring about those coveted win-win results. Here are six tips and suggestions to turn negotiation into agreement:

1. Start with a fair price and a fair offer. There's no question that significantly overpricing your home will turn off potential buyers. Likewise, making an offer that's far lower than the asking price is practically guaranteed to alienate the sellers. Asking and offering prices should be based on recent sales prices of comparable homes.

2. Respect the other side's priorities. Knowing what's most important to the person on the other side of the negotiating table can help you avoid pushing too hard on hot or sensitive issues. For example, a seller who won't budge on the sales price, might be willing to pay more of the transaction costs or make more repairs to the home, while a buyer with an urgent move-in date might be willing to pay a higher portion of the transaction costs or forgo some major repairs.

3. Be prepared to compromise. "Win-win" doesn't mean both the buyer and the seller will get everything they want. It means both sides will win some and give some. Rather than approaching negotiations from an adversarial winner-take-all perspective, focus on your top priorities and don't let your emotions overrule your better judgment.

4. Meet in the middle. Can't decide who will pay the recording fee? Can't agree on a close-of-escrow date? Arguing over cosmetic repairs? Splitting the difference is a time-honored and often successful negotiation strategy. Pay half the fee. Count off half the days. Fix half the blemishes.

5. Leave it aside. Politicians and corporate executives are famous for their "for future discussion" agreements. If you have a major sticking point that's not material to the overall contract (e.g., the purchase of furniture or fixtures), finish the main agreement, then resolve the other difficulties in a side agreement or amendment. This technique allows both sides to recognize and solidify basic areas of agreement, then move ahead toward a fair compromise on other terms and conditions. Summarizing the points of agreement in writing is another helpful strategy.

6. Ask for advice. Successful realtors tend to be experienced negotiators. They've seen what works and what doesn't in countless real estate transactions, and they've established a track-record of bringing buyers and sellers together. Consult your realtor about negotiating strategies, win-win compromises and creative alternatives.

Seller Financing

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You're selling your home and the buyer wants you to finance part of the purchase price by "carrying back" a loan. Should you?

The answer depends on the anticipated ease of selling your home without the financing and your own financial situation. Seller financing is more common in slow housing markets when it's offered as an inducement for buyers. But it's also a viable option for sellers who prefer to receive a stream of payments over time instead of a lump sum in cash. If you're toying with the idea of offering seller financing, consider these six suggestions:

1. Think like a banker. Examine documents and reports indicating the buyer's ability and willingness to pay his or her debts. Verify the buyer's employment and other sources of income. Get a credit report. Ask for copies of bank statements and other financial documents. If the buyer is applying for additional financing from a mortgage lender, review a copy of the loan application.

2. Get a contingency in writing. The purchase contract should specify the amount, interest rate and term of the seller financing and include a clause allowing you to approve the buyer's financial situation before you go ahead with the loan.

3. Call your accountant and your attorney. Lending money to someone who is buying your home will affect your income tax situation. Interest earned on the loan is taxable income. The transaction can be treated as an "installment sale" for tax purposes, enabling you to spread your capital gain on the sale over the term of the carry-back loan. The loan documents should be drawn up by your attorney.

4. Set a shorter term. Seller-financed loans usually have relatively short terms -- perhaps 5 years or less. Some seller carry-backs are very short term bridge loans that cover a gap until the buyer sells a prior residence or obtains long-term financing. Balloon payments are common too.

5. Consider the collateral. Your loan to the buyer should be secured by the property, so you'll be able to foreclose and evict the buyer if he or she defaults on the loan. The home should have an appraised value equal to or higher than the purchase price, and the buyer's down payment should be at least 10 percent of the purchase price. Otherwise, you could end up foreclosing on a home that can't be sold to cover the outstanding encumbrances. A sizable down payment also reduces the likelihood of the buyer walking away from the mortgage obligations.

6. Hire a servicer. If you're willing to loan money to the buyer, but don't want to handle the paperwork or the payments, you can retain a contract collection or loan servicing company. This company will compute the principal, interest and outstanding balance on the loan, send payment coupons to the buyer, deposit payments into your bank account, prepare year-end statements and provide other services. Some servicers will purchase the loan outright if you later decide to take the cash.

Contract Negotiation

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The natural focal point of a real estate purchase contract is the selling price of the home, but the price isn't the only factor that determines the net bottom line for both the buyer and the seller. Is a bargain for the buyer really a bargain if he or she is paying all the transaction costs? Is a top price for the seller really a top price if the buyer wants all the furniture to be included in the purchase price? Or if the buyer can't come up with the down payment or qualify for a mortgage? Before you decide to go ahead with a great price, here are five other bottom-line points to consider:

1. What are the estimated transaction costs and who will pay for what? Typical costs include the brokers' commission, a home inspection, a termite inspection, escrow or attorney's fees, a title search, an owner's title insurance policy, transfer taxes and recording fees. The price tags on these items vary greatly around the country. Who pays for what is a matter of both local custom and negotiation.

2. How much money is the buyer putting into escrow and how soon? A big deposit -- called "earnest money" -- and a substantial down payment are generally seen as a sign that the buyer is serious about completing the transaction. From the seller's point of view, the more money the buyer places in escrow and the sooner the money is transferred, the better.

3. Is there a mortgage financing contingency and how specific is it? The mortgage escape clause is a must for buyers, unless they're paying all cash for the home. Without this contingency, buyers can be legally obligated to purchase the home even if they can't obtain financing. Further, an open-ended statement that says the buyer will obtain a loan "at the prevailing rate of interest" leaves the buyer completely exposed to interest rate fluctuations. A statement that says the loan must be at an interest rate "not to exceed xyz percent" and on specified terms is preferable.

4. What furniture, fixtures and appliances, if any, are being sold with the property? Technically, anything that's permanently affixed to or installed in the home is real property. Everything else is the seller's personal property. This distinction is a narrow one and it naturally leads to a fair amount of confusion. Are built-in appliances real property or personal property? What about a shelving system? A chandelier? Window coverings? Potted plants in the backyard? Sellers who intend to remove anything that's attached to the home should have that spelled out in the contract. And the same goes for buyers who expect to acquire any of the furniture or other movables.

5. What will happen if either side breaches the contract? Unless an unmet contingency triggers the abandonment of the contract, it's a binding legal document. Buyers who fail to perform can lose their deposit money. Sellers who try to back out can be sued for "specific performance," which forces the sale of the home to the buyer. Many contracts also specify that disputes must be brought in small-claims court or presented for arbitration or mediation.

Tip: Ask your real estate agent to go over the standard contract with you before you receive or make a purchase offer. That way, you'll know what to expect and be prepared to negotiate the best deal you can get.

Real Estate Tax Advice

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Check with your tax consultant on the factors that may affect taxes resulting from the sale of your home. For example:

Whether you purchased the home or acquired it by gift or inheritance
Whether you used your home partly for business or rental
Costs associated with selling your home
Home improvements or additions, which may help to offset capital gains
Gain from the sale of a prior home on which tax was postponed prior to the enactment of the federal Taxpayer Relief Act of 1997

The federal Taxpayer Relief Act of 1997 says when you sell your home you can keep, tax free, capital gains of up to $500,000 if you are married filing jointly or $250,000 for single taxpayers, or married taxpayers who file separately. To qualify for the exclusion, you must have used the home as your principle residence for at least two of the prior five years. It is not a one time tax exclusion. You can use the exclusion as often as you meet the qualifications.

The federal Internal Revenue Service Restructuring and Reform Act of 1998 further clarified the law and says you can prorate the $500,000/$250,000 exclusion (not your specific gain) if unforeseen events, such as a job change, illness, or some other hardship forced you to sell before you meet the two-year residency requirement.

Many, but not all federal tax benefits are also available from state tax departments. Be sure to discuss your move with a tax professional familiar with state tax rules, especially if you are moving from one state to another.

Property Inspection

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Your home is in escrow, and the buyer has scheduled a home inspection. Should you be worried about what the inspector might find? The answer depends, of course, on the condition of your home and how well you've maintained its major components over the years. Regardless of what the inspector may uncover, however, you shouldn't be overly concerned about the actual home inspection. Keeping in mind that disclosure laws and customary real estate practices vary from place to place, here are six suggestions as to how you might help the home inspection process go smoothly:

1. Leave the premises. It's perfectly reasonable to absent yourself from your home during the home inspector's visit and turn over the duties to your real estate agent. Your agent should be familiar with the home inspection process and be able to act as your representative. In fact, many listing agents prefer that the seller not be at home during the buyer's home inspection.

2. Be courteous. Some sellers mistakenly assume the home inspector is an adversary. Experienced professional home inspectors aren't on a mission to find fault with every tiny aspect of your home. The home inspector's role is to offer the buyer a fair assessment of the property. Tips: Don't keep the inspector waiting on your doorstep and allow at least two hours for the inspection.

3. Don't attempt to refute negative comments about your home during the inspection. Inspectors don't appreciate being followed around by argumentative or defensive home sellers (or sellers' real estate agents). The time to explain and negotiate will come after you receive and review your copy of the inspector's report.

4. Don't make statements about your home that are beyond your personal knowledge or can't be verified. For instance, if the inspector asks you how old the roof is or when certain appliances were installed, check your records before you answer. If you have documentation, provide a copy of it. If repairs or modifications were made prior to your purchasing the home, don't guess when that work was performed. The same caution about misrepresentations applies to questions about whether permits were obtained for remodeling, the exact square footage of your home, the name of the architect who designed it and so on.

5. Don't block access to normal living areas of your home. If the home inspector can't enter a room or complete some other aspect of the inspection, that will be noted in his or her report and the buyer may question it.

6. Make agreed-upon repairs promptly. The buyer may ask the inspector to okay any repairs you agree to make as a result of the inspection. The sooner you make the repairs, the sooner the contingency can be met. Delaying the repairs until the last minute won't stop the buyer from having those items re-inspected, but it could delay the closing of escrow.

Pick An Offer

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In many of today's strong real estate markets, home sellers can expect to receive multiple offers for their home. Multiple offers are a classic example of economic realities because they appear when the supply of homes for sale is limited and the demand for good-condition homes is strong. Sellers love multiple offers because they push up home prices and create an opportunity to spark a bidding war. Knowing how to respond to multiple offers can help you get the best price and terms for the sale of your home.

How can I make sure my home will attract multiple offers?
Hit the market at the right price and, assuming your home is in good condition, multiple offers should come in. "Sellers see [home prices] are going higher, so they want to go a little higher. Sometimes it works and sometimes it doesn't. You can end up having to wait for the market to catch up with you," says Bob Stallings, broker/owner of RE/MAX Real Estate Specialists in Long Beach, California.

TIP: Make sure your listing agreement states that your agent will put your home in the Multiple Listing Service (MLS) within 24 hours. Some agents will hold a home off the MLS for a day or two in hopes of selling it themselves or in-house. Putting the home in the MLS as soon as possible is in the seller's best interest because the home then will be exposed to a much larger number of potential buyers.

Do I have to accept the offer with the highest price?
No. If you prefer a lower-priced offer, perhaps with a better qualified buyer or more attractive terms, you can accept that offer instead. Or you can give counteroffers to one or more of the buyers. Caution: If you reject a full-priced offer, you may owe your agent a full commission even if you don't sell your home.

Being greedy can back-fire. REALTOR® Rae Wayne of The Bizzy Blondes team with RE/MAX Westside Properties in Culver City, California, says one seller instructed her to tell all the buyers' agents that offers would not be considered until the property had been on the market for one week, unless the offer was full-price or better. One agent asked to submit an offer right away, but the sellers, who were hoping for multiple offers, insisted on waiting until the appointed time. A week later, that agent was still the only one ready to submit an offer. "The seller said to me, 'What if we plan a party and nobody comes?' I said, 'That's the risk you took when you didn't want to look at this offer four days ago,'" she says. If you delay, anything can happen, including the buyers losing interest or offering a lower price.

My agent says I should receive all my offers by fax, rather than having the buyers' agents present the offers. Is that okay?
Some agents recommend the fax-only option. "Very few agents who do a lot of business will [present offers] anymore," says Carole Geronsin, a Realtor-associate with Prudential California Realty in Anaheim Hills, California. "Before, everyone would meet and the agents would tell all about their buyers, then everyone would wait while the seller made a decision." If there are multiple offers, the fax-only practice is a time-saver for you and the agents. However, the jury is still out on this practice. "I wonder [whether] the sellers are getting the full picture of the buyers, unless there are cover letters telling them about the buyers' qualifications. It's hard to really understand [the offers] and make a clear decision," says Stallings. "I'm a strong believer that it's best for both sides to have the offers presented, so the seller can ask the buyers' agents questions about the buyers."

TIP: You might want to receive all the offers by fax, then have the top offers presented. Either way, you, as the seller, make the rules.

One of the buyer's agents is from the same brokerage company as my agent. Should I give extra consideration to this "in-house" offer?
No. All offers should be evaluated equally based on the net price and terms. "We often have offers on our own listings and the sellers don't pick ours. If my own offer is marginal and the other offer is good, the last thing I want is for my seller to be mad at me. I'm going to look for the best offer," says Judy Sheller, the other half of The Bizzy Blondes team.

TIP: Some brokerages give the seller a commission break for an in-house transaction. This concession is known as a "variable commission" or "listing broker advantage." It should be discussed in advance and disclosed through the MLS.

Can I counter more than one offer?
Yes. However, if you accidentally accept more than one offer you could be legally obligated to sell your home to two buyers. For safety's sake, use a standard counteroffer form that says the counteroffer isn't accepted until it is signed by the buyer and subsequently accepted by you.

Can I back out of my escrow with buyer A and accept a new higher offer from buyer B that my agent just received?
Trying to back out of an escrow is extremely unwise because an accepted purchase offer is a legal contract and the buyer can take action to enforce it. "Legally, once you have signed and agreed to the offer with buyer A, you can't get out of it. Your only hope would be that the buyer does an inspection and makes a bunch of requests. You flatly refuse everything and perhaps the buyer walks away," says Wayne.

My home has been on the market for four weeks, but I haven't received any offers. Is this situation my agent's fault?
If you ignored your agent's advice about pricing your home or making any repairs, it's not really reasonable to blame the agent for the dearth of offers. However, if the home is priced right and in good condition, you'll want to have a frank conversation with your agent and take corrective action. Never sign a listing agreement with a term of more than three months. As a last resort, you can ask your agent's sales manager to help resolve any complaints.

Open House Expectations

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Your agent is closing up shop in your home after a weekend open house. You cleared out early, as instructed, but now you've returned home and are bursting with curiosity about the day's event. Here are some questions you might want to ask:

1. How many people stopped by and who were they? If the turnout was disappointing, you may want to quiz your agent about his or her efforts to attract people to the event. Was the open house listed in the newspaper? Mentioned around the agent's office? Did any of your neighbors drop by?

2. When and how will the agent follow-up with prospective purchasers or their agents? Hot prospects who seem well-qualified should be contacted as soon as possible after the event and asked whether they're interested in seeing the home again, have any questions or concerns about the home or are planning to make an offer to purchase it.

3. What positive and negative feedback did the agent receive about the home? You'll certainly want to know what people are saying about your home, but don't take minor criticisms too personally or overreact to any one person's comments. Do pay attention to repeated criticism of one or more specific aspects of your home. You can disregard one person who dislikes your taste in wallpaper, but if six or seven people make the same comment, you might want to have that offensive pattern stripped off.

4. Did any problems or mishaps occur during the open house? Many open houses attract only a handful of visitors, but it's also entirely possible for 15 or 20 people to traipse through your home in a couple of hours. If there were any problems -- someone injured a knee on your glass -- topped coffee table or slipped and fell on the wet grass in your backyard-you'll want to know about it.

5. What's next? Now that the open house is over, what else is your agent planning to do to find a buyer for your home? Does the agent intend to continue with the existing marketing tactics or will some new plans be put into action? Would another open house be worthwhile?

TIP: Unless open houses are particularly well-attended in your neighborhood, you might want to forgo these events altogether or just hold one open house the first or second weekend after your home is listed. Some surveys suggest that open houses are more beneficial for the agent than the home seller and that only a tiny percentage of homes are sold as the direct result of an open house.

Your Open House

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The weekend open house is a time-honored tradition in real estate sales, but has it outlived its effectiveness? Quite possibly, according to a new survey conducted by the Real Estate Center at Texas A&M University. The survey results hint at the notion that public open houses may be more beneficial for the agents themselves than for the home sellers.

Almost all the agents who responded to the survey (97 percent) had held public open houses, but only 41 percent believe those events help sell the home that's being showcased. Thirty-two percent believe public open houses attract many potential buyers, but nearly three-fourths also believe those buyers are more likely to buy a home other than the one being held open. And 62 percent say most people attending open houses aren't serious buyers at all.

Even though open houses may be of only marginal benefit for sellers, they aren't necessarily a total loss for sharp agents. In addition to bringing in buyers for other homes, open houses create opportunities for agents to sign listing agreements with neighbors who stop by to see the open home. Fifty-five percent of the survey respondents agreed with the statement that open houses help them generate new listing contracts.

Public open houses also present a security issue for home sellers and agents. "Whether or not to hold an open house is a concern among agents," says Jack Harris, a research economist with the Texas A&M center. "Agents must be on-site for the duration of open houses. Safety is a growing concern because there is no way to know whether a visitor is a serious buyer, just curious or has more sinister motives."

Despite the potential for meeting prospects, many agents find open houses troublesome, dangerous and generally a waste of time. The first lesson for home sellers is: Unless your home is unusual (i.e., difficult to sell), you might want to spend your weekends enjoying your own backyard, rather than turning your home over to your real estate agent. If your agent is gung-ho on public open houses, find out what supplemental marketing efforts (e.g., advertising the open house in a local newspaper) he or she will use to attract serious buyers for your home to the event.

The falling favor of public open houses may be partially attributable to new marketing techniques, including real estate Web sites, cable television infomercials and yard signs that transmit radio messages about the home. Weekday agent open houses (also called "broker opens") remain popular and, agents say, worthwhile for sellers. "Agent open houses are held when the listing agent invites other agents to view the home when first placed on the market, hoping one or more agents will have a buyer interested in the home," Harris explains.

Virtually all of the respondents had held agent open houses. More than half believe agent open houses are effective and 65 percent believe they're more effective than public open houses.

The second lesson for home sellers is: On the day when your agent holds a broker open, be sure your home is as presentable and attractive as you possibly can make it.

Marketing Info

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Your home should be listed, whenever possible, in the local Multiple Listing Service and on my site, which has a huge online database of homes and virtually 100% of potential buyers who look for property on the Internet.

Advertising
The realtors largest expense has traditionally been classified advertising in the local newspaper. However, today properties are also exposed through popular Internet home search/listing services, radio and television promotions, and real estate guides. Even with all these additional advertising avenues, "For Sale" signs on the front lawn are still remarkably effective. Many realtors use brochure boxes along with these signs to market the property. When appropriate, and with your permission, your agent may send a mailing about your property to neighbors. Sometimes one of them has "a friend or relative who always wanted to live near me." You never know.

Showings and open houses
To prepare your home for viewing, make it as light, cheerful and serene as possible. Your realtor will probably find a tactful way to suggest that you not be present while the house is being shown to prospective buyers. This is done because your presence will inhibit their actions and conversations. They won’t feel free to open closets and cabinets, test out the plumbing, and discuss their observations objectively as they walk through. It goes without saying that your children and pets should not be on the premises either.

If your realtor has scheduled an open house, you may want to notify the neighbors, and assure them that they'll be welcome. They'll jump at the chance to poke around in your house, and sometimes they can turn up a buyer among their friends. In preparing for an open house, you should:

Pull the drapes back
Light lamps
Simmer a few drops of vanilla on the stove
Light your fireplace
Set the dining room or kitchen table if you have particularly nice linen or china
Put fresh towels in the bathroom
Leave the house so your realtor is free to deal with prospective buyers in a professional manner.

TIP: When preparing your home, think about the techniques that are used to show builders' model homes.

How long has your house been on the market?
Professional appraisers sum up their entire body of knowledge in three words -- "Buyers make value." Your home is worth as much as some member of the buying public will come forth and pay for it. After it's been on the market for months, you've been given a clear message that the property may not be worth what you're asking for it. This is particularly true if there haven't been many prospects coming to see it. What you do at that point depends on whether you really need to sell, and whether you're working with a time limit. If you're not really motivated to move soon, you can always wait - years if necessary - and hope inflation will catch up with the price you want. The problem is that in that time, your home begins to feel shopworn. Buyers become suspicious of a house that's been for sale for a long time. If, however, you really do need to sell, discuss with your realtor a schedule for dropping your price gradually until you find a level that attracts buyers. There's no point in saying, "We simply can't sell our house." Anything will sell if the price is right.

If you’re buying another home
Don’t spend a great deal of time worrying about what will happen when you're selling one home and buying another. You're not alone. realtors , lawyers, and title and escrow companies have had plenty of experience in arranging contracts and loans so that the two transactions dovetail smoothly. It's best to list your present home for sale first.

Selling and buying a home is a very emotional event and if you create a "race" by locating your replacement property before you sell your current home, you may lose it to another buyer, who does not need to sell in order to buy. If you do find just the house you want, you can always put in a purchase offer contingent (dependent) on selling your present one. However, in a hot market you will have difficulty getting the house you want this way.

Sometimes the seller will sign a contract agreeing to wait a certain period of time while you find a buyer for your house - sometimes not. What would you do if you were presented with such a proposal, from a buyer who also has a house to sell? If you do find that you need to buy the next house before you've received the proceeds from the present one, lending institutions can sometimes make you a short-term "bridge" loan to tide you over between the two transactions. Make sure you fully understand the exposure and emotional investment before proceeding with this type of loan.

Listing Real Estate

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Realtors and buyers often work together without a written contract, but the opposite is true for realtors and sellers. On the listing side, written contracts are overwhelmingly the rule, not the exception. A listing agreement is a binding legal contract that shouldn't be taken lightly. The necessity of reading the contract carefully and understanding what it means before you sign it can't be overstated. If you need legal advice, consult an attorney.

Listing contracts vary considerably from place to place. However, most realtors use established listing agreement forms that are the de facto industry standard in their area or are dictated by their brokerage company. Everything on these preprinted forms is negotiable.

Here are some basic terms to consider:

1. Term of the Agreement. A longer agreement benefits the agent because it allows him or her more time to find a buyer for your home. In a weak market, that's okay, but if homes are selling quickly, you don't want to be committed to one agent for more than a few months. If the home doesn't sell within the initial period and you're satisfied with the agent's efforts, you can offer to extend the term of the agreement before it expires.

2. Commission. Although commissions are negotiable, most areas have a standard percentage that agents expect to receive. This amount usually is 6 percent of the sales price, but you will find agents who accept 5 percent and agents who ask for 7 percent. Whether you want to pay the percentage that's typical in your area or negotiate a lower rate is up to you. A lower commission will save you money. A higher commission will give the agent more incentive to invest in marketing your home. Other agents can find out how much commission is offered on your home through the MLS. The agent's commission technically shouldn't be renegotiated as part of the purchase agreement between the seller and the buyer, but some agents will give a little to close a price gap between the seller and buyer, consequently making the transaction viable.

3. MLS. A listing agreement typically authorizes your agent to post your home in the Multiple Listing Service (MLS). Unless you're selling a very exclusive property or have serious personal privacy concerns, the MLS is a no-brainer because it helps the agent market your home to the widest possible group of potential buyers. Today, most MLS databases are accessible by consumers on the Internet. The public does not have access to commission information on the listings.

4. Lockbox. A lockbox is a tiny key-holding safe that can be inconspicuously attached to the front of your property. Any agent who has the means of accessing the lockbox (e.g., the key or combination) can retrieve the keys to your home, unlock your door and show your home to prospective buyers even when neither you nor your agent is present. If you're concerned about strangers entering your home alone, don't authorize a lockbox. If your home is vacant, located in a low-crime area or if you've removed your valuables and are willing to take the risk, a lockbox might be reasonable. The more people who see the property, the better chance you'll have of selling it for a favorable price.

Selling My Property

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Making a good first impression can mean the difference between receiving serious offers for your home or being subjected to months of lookie-loos dropping by but never buying.

How can you ensure that your home will make the best impression possible? Here are six tips for savvy home sellers:

1. Focus on curb appeal. The outside of your house can be the source of a very good first impression. Keep the grass well-watered and mowed. Have your trees trimmed. Cut back overgrowth. Plant some blooming flowers. Store toys, bicycles, roller-skates, gardening equipment and the like out of sight. Have at least the front of your house and the trim painted, if necessary. Sweep the porch and the front walkway. After dark, turn on your front porch light and any other exterior lighting.

2. Clear out the clutter. Real estate agents say buyers won't purchase a home they can't see. If your home has too much furniture, overflowing closets, crowded kitchen and bathroom countertops or lots of family photos or collectibles on display, potential buyers won't be able to see your home. Get rid of anything you don't need or use. Fill up your garage or rent some off-site storage space if that's what it takes to clear out your home.

3. Use your nose. Many people are oblivious to scents, but others are extremely sensitive to offensive odors. To eliminate bad smells, bathe your pets, freshen the cat litter box frequently, shampoo your carpets, dry clean your drapes, and empty trash cans, recycling bins and ash trays. Place open boxes of baking soda in smell-prone areas, and refrain from cooking fish or strong-smelling foods. Introduce pleasing smells by placing flowers or potpourri in your home and using air fresheners. Baking a fresh or frozen pie or some other fragrant treat is another common tactic.

4. Make all necessary repairs. Buyers expect everything in their new home to operate safely and properly. Picky buyers definitely will notice-and likely magnify -- minor maintenance problems you've ignored for months or even years. Leaky faucets, burned-out light bulbs, painted-shut or broken windows, inoperable appliances and the like should be fixed before you put your home on the market. These repairs may seem small, but left undone they can lead buyers to question whether you've taken good care of your home.

5. Introduce lifestyle accessories and make your home as comfortable and attractive as possible. Set the dining room table with your best dishes. Put out your only-for-company towels. Make up the spare bed. Hang some fresh curtains. Put some logs in the fireplace. Use your imagination.

6. Get a buyer's-eye view. Walk up to your home and pretend you've never seen it before. What do you notice? How do you feel about what you see? Does the home seem inviting? Well-maintained? Would you want to buy this home? Your answer should be an enthusiastic yes!

Real Estate Preperation

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When preparing to put your home up for sale, your first concern is the home's exterior. If the outside, or "curb appeal" looks good, people will more than likely want to see what's on the inside. Keep the lawn and landscape nicely manicured. Trim the bushes and season permitting, plant some flowers. Be sure your front door area has a "Welcome" feeling. A fresh coat of paint on the front door looks great.

Of all the rooms inside your home, pay special attention to the kitchen and bathrooms. They should look as modern, bright and fresh as possible. It is essential for them to be clean and odor free. A fresh coat of paint just may do the trick. Have any leaky faucets taken care of. A call to a plumber is a wise investment.

Since you want your home to look as spacious as possible, remove any excess or very large furniture. Make sure that table tops, dressers and closets are free of clutter. Don't use your garage, attic, or basement to store these extra things. These areas also need to have the impression of space. Instead, put them into storage. Make sure walls and doors are free of smudges and look for anything that might indicate a maintenance problem, such as cracked windows, holes in the wall or stained ceilings.

Finally, if your basement shows any signs of dampness or leakage, seal the walls.

Quick tips for showings:

Keep counter tops cleared
Replace all burned out light bulbs
Open all drapes and window blinds
Put pets in cages or take them to a neighbor
No dirty dishes in the sink
No laundry in the washer/dryer
Clean or replace dirty or worn carpets
Put on soft music
Burn wood in the fireplace on cold days, otherwise, the fireplace should be clean

Always look at your home from the buyer's point of view. Be objective and be honest.

Getting Real Estate Ready

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From experience, realtors also know that a "well-polished" house appeals to more buyers and will sell faster and for a higher price. Additionally, buyers feel more comfortable purchasing a well-cared for home because if what they can see is maintained, what they can't see has probably also been maintained. In readying your house for sale, consider:

how much should you spend
exterior and curb appeal
preparing the interior

How much should you spend
In preparing your home for the market, spend as little money as possible. Buyers will be impressed by a brand new roof, but they aren't likely to give you enough extra money to pay for it. There is a big difference between making minor and inexpensive "polishes" and "touch-ups" to your house, such as putting new knobs on cabinets and a fresh coat of neutral paint in the living room, and doing extensive and costly renovations, like installing a new kitchen. Your realtor, who is familiar with buyers' expectations in your neighborhood, can advise you specifically on what improvements need to be made. Don't hesitate to ask for advice.

Maximizing exterior and curb appeal
Before putting your house on the market, take as much time as necessary (and as little money as possible) to maximize its exterior and interior appeal. Tips to enhance your home’s exterior and curb appeal:

Keep the lawn edged, cut and watered regularly.
Trim hedges, weed lawns and flowerbeds, and prune trees regularly.
Check the foundation, steps, walkways, walls and patios for cracks and crumbling.
Inspect doors and windows for peeling paint.
Clean and align gutters.
Inspect and clean the chimney.
Repair and replace loose or damaged roof shingles.
Repair and repaint loose siding and caulking.
In Northern winters, keep walks neatly cleared of snow and ice.
During spring and summer months consider adding a few showy annuals, perhaps in pots, near your front entrance.
Re-seal an asphalt driveway.
Keep your garage door closed.
Store RVs or old and beaten up cars elsewhere while the house is on the market.
Apply a fresh coat of paint to the front door.

Maximizing interior appeal
Enhance your home’s interior by:

Giving every room in the house a thorough cleaning, as well as removing all clutter. This alone will make your house appear bigger and brighter. Some homeowners with crowded rooms have actually rented storage garages and moved half their furniture out, creating a sleeker, more spacious look.
Hiring a professional cleaning service, once every few weeks while the house is on the market. This may be a good investment for owners who are busy elsewhere.
Removing the less frequently used, even daily used items from kitchen counters, closets, and attics, making these areas much more inviting. Since you're anticipating a move anyhow, holding a garage sale at this point is a great idea.
If necessary, repainting dingy, soiled or strongly colored walls with a neutral shade of paint, such as off-white or beige. The same neutral scheme can be applied to carpets and linoleum.
Checking for cracks, leaks and signs of dampness in the attic and basement.
Repairing cracks, holes or damage to plaster, wallboard, wallpaper, paint, and tiles.
Replacing broken or cracked windowpanes, moldings, and other woodwork. Inspecting and repairing the plumbing, heating , cooling, and alarm systems.
Repairing dripping faucets and showerheads. Buying showy new towels for the bathroom, to be brought out only when prospective buyers are on the way.
Sprucing up a kitchen in need of more major remodeling by investing in new cabinet knobs, new curtains, or a coat of neutral paint.

Real Estate List Price

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During this phase of the home selling process, your realtor will help you set your list price based on:

Pricing considerations
Comparable sales
Market conditions
Offering incentives
Estimating net proceeds

Pricing considerations
In setting the list price for your home, you should be aware of a buyer’s frame of mind. Consider the following pricing factors: If you set the price too high, your house won’t be picked for viewing, even though it may be much nicer than other homes on the street. You may have told your realtor to "Bring me any offer. Frankly, I’d take less." But compared to other houses for sale, your home simply looks too expensive to be considered. If you price too low, you'll short-change yourself. Your house will sell promptly, yes, but you may make less on the sale than if you had set a higher price and waited for a buyer who was willing to pay it.

TIP: Never say "asking" price, which implies you don't expect to get it.

Using comparable sales
No matter how attractive and polished your house, buyers will be comparing its price with everything else on the market. Your best guide is a record of what the buying public has been willing to pay in the past few months for property in your neighborhood like yours. Your realtor can furnish data on sales figures for those "comps", and analyze them for a suggested listing price. The decision about how much to ask, though, is always yours.

The list of comparable sales a realtor brings to you, along with data about other houses in your neighborhood presently on the market, is used for a "Comparative Market Analysis (CMA)." To help in estimating a possible sales price for your house, the analysis will also include data on nearby houses that failed to sell in the past few months, along with their list prices. This CMA differs from a formal appraisal in several ways. One major difference is that an appraisal will be based only on past sales. In addition, an appraisal is done for a fee while the CMA is provided by your realtor and may include properties currently listed for sale and those currently pending sale. In a normal home sale, a CMA is probably enough to let you set a proper price.

A formal written appraisal (which may cost a few hundred dollars) can be useful if you have unique property, if there hasn't been much activity in your area recently, if co-owners disagree about price, or if there is any other circumstance that makes it difficult to put a value on your home.

TIP: If you do order a market value appraisal, make it clear you don't need an elaborate, or full narrative report -- the kind that's complete with photos of the house and neighborhood, a map specifying the site, and floor plans is sufficient.

Consider market conditions
A Comparative Market Analysis (CMA) often includes Days on the Market (DOM) for each comparable house sold. When real estate is booming and prices are rising, houses may sell in a few days. Conversely, when the market slows down, average DOM can run into many months. Your realtor can tell you whether your area is currently a buyer's market or a seller's market. In a seller's market, you can price a bit beyond what you really expect, just to see what the reaction will be. In a buyer's market, if you really need to sell promptly, offer an attractive bargain price.

Offering incentives
Some sellers list at the rock-bottom price they'd really take, because they hate bargaining. Others add on thousands to the estimated market value "just to see what happens." If you want to try that, and if you have the luxury of enough time to feel out the market, sit down with your realtor and work out a schedule in advance. If there haven't been many prospects viewing your home after three weeks, you may need to lower your list price. If that doesn't bring any prospective buyers, you may need to lower your list price again. Plan on doing that regularly until you find a level that attracts buyers. Make a written schedule in advance, before emotion takes over and you're tempted to dig your heels in.

Sometimes cash incentives are as effective as lowering the price, especially in the lower price range where buyers may be "cash poor." You may offer to pay some or all of a buyer's closing costs and discount points required by the buyer's lending institution. If you haven't had much traffic through your house and you’re in a hurry to sell, you may want to add the offer of a bonus to the selling broker, in addition to their commission. An example of the wording for such an offer may be "to the broker who brings a successful offer before Christmas."

Estimating net proceeds
Once you’ve been given an estimate of market value by your realtor, you can get a rough idea of how much cash you might walk away with when the sale is completed. This can be particularly useful as you start looking for another home to buy. From the estimated sales price, subtract:

Payoff figure on your present loan(s)
Broker's commission
Any prepayment penalty on your mortgage
Attorney's fees, if any
Unpaid property taxes

In addition, your realtor can tell you whether local customs or rules dictate that the buyer or seller to pay for the following items:

Title insurance premium
Transfer taxes
Survey fees
Inspections and repairs for termites and the like
Recording fees
Homeowner Association transfer fees and document preparation
Home protection plan
Natural hazard disclosure report

As far as closing costs are concerned, you and your eventual buyer may agree on any arrangement that suits you, no matter what local practice dictates. Your realtor will assist you in estimating what your final closing costs will be.

Housing Market Info

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Homeowners have a seemingly insatiable appetite for information about the housing markets. "Are prices going up? How's the market? Is now a good time to sell?" they ask. Research reports and newspaper articles provide useful answers, but the information is usually buried in economic jargon. What is a "median price" anyway? What does "seasonally adjusted" mean? Does anyone understand "unsold inventory index?"

To help you follow the numbers, here are some helpful definitions:

Median price. An oft-cited indicator of the strength and direction of a housing market, a median price is the midpoint of all the prices of homes sold in a given area during a specified period. Midpoint means half the homes sold for higher prices and half the homes sold for lower prices. The median isn't the same as the average, which would be calculated by totaling all the prices and dividing by the number of prices. The median price can be affected over time by the characteristics and sizes of homes sold as well as price trends. For example, if the market shifts from starter homes to luxury mansions, the median price will increase even if homes are not appreciating in value.

Seasonally adjusted. Housing markets are naturally more active in the spring and summer months because people prefer to move during the longer warmer days and between school years. That pattern means it's difficult to make meaningful comparisons between results for different months or quarters of the same year. To overcome this hazard, economists statistically tweak the reported number of homes sold during various periods to reflect seasonal variations. The tweaked numbers are denoted as "seasonally adjusted."

Price discount. The "price discount" is the percentage difference between the seller's initial asking price and the actual purchase price of the same home. For example, if a home were priced at $200,000 and sold for $190,000, the discount would be 5 percent. Price discounts are usually reported as an average for a set of home sale transactions. A small percentage, on average, means the market favors sellers, while a large average discount signals a buyer's market.

Unsold inventory index. This index, which indicates the pace of the market, is calculated by measuring how long it would take for all the homes currently on the market to be sold at the current rate of sales. A smaller index is a positive sign for sellers, while a higher number is good news for buyers.

Affordability index. An affordability index measures whether a typical family can qualify for a standard mortgage to purchase a typical home. A "typical" family is defined as one that earns the median income in a given area, and a "typical" home is defined as a median-priced single-family house in the same area. An index value of 100 means a median-income family has exactly the amount of income needed to purchase a median-priced home. A number higher than 100 means the family's income is more than adequate, while a number less than 100 means the typical family can't afford to buy the typical home.

Pricing Your Property

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When the time comes to price your home for sale, you may be tempted to start with the price you paid for it, add a healthy markup and call it a day. Unfortunately, that strategy is unlikely to result in a true reflection of your home's market value.

Here are six strategies to help you figure out how much your home is worth:

1. Abandon your personal point of view. How much will a ready, willing and able buyer be willing to pay for your home? Buyers don't care how much you paid for the home, how many memorable moments you and your family shared in the home, how much cash you need for the down payment on your next home or how much time and money you've invested in your home's hardwood floors, fresh paint, lush landscaping or other improvements.

2. Get a couple of CMAs. Invite at least three real estate agents to visit your home and give you their opinion of its likely selling price. Ask for a "comparative market analysis" (CMA), which shows the prices of comparable recently sold homes, on-the-market homes and homes that were on the market, but weren't sold. The on-the-market homes are the "competition" for your home. Ask the agents why each home was included in the CMA and whether any other comparable homes were eliminated from the CMA. Price recommendations based on CMAs aren't gospel. Some agents will tell you to under-price your home in hope of sparking a bidding war. Others will suggest a flatteringly high price to "buy" your listing only to demand a price reduction a few weeks later.

3. Do your own market research. Go to open houses in your neighborhood and try to make an impartial assessment of how those homes compare to yours in terms of location, size, amenities and condition. Assuming all the asking prices were the same, would you buy your home or someone else's?

4. Calculate the price per square foot. The average price per square foot for homes in your neighborhood shouldn't be the sole determinant of the asking price for your home, but it can be a useful starting point. Keep in mind that various methodologies can be used to calculate square footage.

5. Consider market conditions. Are home prices in your area trending upwards or downwards? Are homes selling quickly or languishing? Will your home be on the market in the spring home-buying season or the dead of winter? Are interest rates attractive? Is the economy hot or cold? Will you be selling in a buyer's market or a seller's market? Is the local job market strong or are employees fearful of staff reductions?

6. Sweeten the transaction terms. Some buyers have needs that go beyond the bottom line. If you're willing to close escrow quickly, you'll attract buyers who want to move in right away. If you can offer seller-financing, your home will appeal to buyers who need to stretch their financial resources. A lease-option can help first-timers who need down payment assistance. The more creative and flexible you can be in meeting the buyer's needs, the more success you'll have in pricing your home to sell.

Property Appraisal

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Your home's market value is an important factor in a long list of financial decisions, including selling the home, refinancing your mortgage, borrowing against your equity, estimating your annual property tax bill, buying homeowner's insurance, calculating the expected return on remodeling costs, managing your other investments, estate planning and so on. The trick is figuring out how much your home is worth -- and remembering that how much you paid for it months or years ago isn't relevant to its current market value. It's not a bad idea to gather information from several sources and compare the findings, rather than relying on just one approach to home valuation.

Here are four suggestions to start:

Call a couple of realtors. Even if you're not planning to sell your home right away, many realtors will be willing to prepare a comparable market analysis (CMA) for you as a marketing service with the goal of getting your business whenever you decide to move. A CMA shows the prices of recently sold homes that are comparable to yours and the prices of comparable homes on the market. A market-savvy realtor can give you a rough idea of what your home would be worth, given its size and condition and local market conditions.

Purchase a professional appraisal. Unlike a CMA, a professional appraisal is rarely free. However, the several hundred dollars you'll pay for an appraisal, depending on size of your home and the complexity of the work, could be money well spent if you're making a major financial decision that hinges on the value of your home. Appraisers rely on an in-person inspection of your home, recent sales of comparable homes and other data to arrive at an opinion of value. The appraiser's report is a full-blown description of your home and the criteria used to formulate the valuation.

Go to neighborhood open houses. Open houses are a good opportunity to view comparable homes for sale in your neighborhood and chat with real estate professionals about the local real estate market. Two caveats: It's not easy to be objective about your own home and you shouldn't assume that the listing price on a for-sale necessarily reflects the home's true market value. If you keep those points in mind, information gathered at open houses can be worth considering along with data from other sources.

Do research online. A number of Web sites offer home valuation information free or for a fee, including this one - But this service isn't useful if you don't use it!

TIP: Price per square foot is a time-honored method of real estate valuation and not a bad rule of thumb. However, it doesn't account for a choice location, a move-in-ready home or personal criteria and you should factor in how the property was measured and whether the square footage includes the garage or other detached buildings on the property.

Real Estate Appraisal Info

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If you've ever watched "Antiques Roadshow" on PBS, you're already familiar with the concept of an appraisal. The idea is similar in the realm of real estate valuations. Each property is unique, and the appraiser relies on his or her general expertise and specific research to arrive at an opinion of value. Appraisals are an infrequent experience for most consumers, who consequently tend to have some misconceptions about the process and the results.

Here are some myths and facts:

Myth: The primary purpose of an appraisal is to make sure the buyer doesn't pay too much for the house.

Fact: An appraisal provides valuable information for the buyer and the seller, but the appraiser's primary mission is to protect the lender. Lenders don't enjoy owning overpriced property any more than they relish lending money to irresponsible borrowers. That's why the appraisal takes place before the lender grants final approval of the buyer's loan.

Myth: Appraisers use a specific formula (e.g., price per square foot) to figure out exactly how much each home is worth.

Fact: Appraisers weigh the location of the home, its proximity to desirable schools and other public facilities, the size of the lot, the size and condition of the home itself and recent sales prices of comparable properties, among other factors.

Myth: Good housekeeping can improve a home's valuation.

Fact: Appraisers aren't interested in dirty dishes or dusty dressers, but they do notice such signs of neglect as cracked walls, chipped paint, broken windows, torn carpets, damaging flooring and inoperable appliances.

Myth: Anyone who has a clipboard and business cards can be an appraiser.

Fact: Federal law requires states to establish minimum standards and licensing practices for real estate appraisers. In California, for example, trainees must take several courses, pass an examination and complete 2,000 hours of supervised experience.

Myth: Appraisers have no obligation to reveal home defects to buyers.

Fact: If the buyer is applying for a mortgage that will be insured by the Federal Housing Administration (FHA), the appraiser must survey the physical condition of the home and disclose potential problems to the buyer. No such obligation exists for non-FHA mortgages.

Myth: An appraisal is identical to a home inspection.

Fact: The new FHA disclosure requirement notwithstanding, an appraisal isn't a substitute for a professional home inspection. The appraiser formulates an opinion of the property's value for the lender, while the inspector educates the buyer about the condition of the home and its major components.

Myth: If the appraiser's opinion of value is lower than the purchase price, the buyer won't be able to purchase the home.

Fact: A transaction can sometimes survive a "low" appraisal if the seller reduces the purchase price, the buyer makes a hefty downpayment or a separate escrow account is set up to fund repairs that will increase the value of the home. On rare occasions, an appraiser will reconsider his or her opinion if new evidence supports a higher valuation.

More Tax Advice

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Check with your tax consultant on the factors that may affect taxes resulting from the sale of your home. For example:

Whether you purchased the home or acquired it by gift or inheritance
Whether you used your home partly for business or rental
Costs associated with selling your home
Home improvements or additions, which may help to offset capital gains
Gain from the sale of a prior home on which tax was postponed prior to the enactment of the federal Taxpayer Relief Act of 1997

Real Estate Agent

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The selling process generally begins with a determination of a reasonable asking price. Your real estate agent or realtorcan give you up-to-date information on what is happening in the marketplace and the price, financing, terms and condition of competing properties. These are key factors in getting your property sold at the best price, quickly and with minimum hassle.

Marketing
The next step is a marketing plan. Often, your agent can recommend repairs or cosmetic work that will significantly enhance the salability of the property. Marketing includes the exposure of your property to other real estate agents and the public. In many markets across the country, over 50% of real estate sales are cooperative sales; that is, a real estate agent other than yours brings in the buyer. Your agent acts as the marketing coordinator, disbursing information about your property to other real estate agents through a Multiple Listing Service or other cooperative marketing networks, open houses for agents, etc. The realtorCode of Ethics requires realtors to utilize these cooperative relationships when they benefit their clients.

Advertising is part of marketing. The choice of media and frequency of advertising depends a lot on the property and specific market. For example, in some areas, newspaper advertising generates phone calls to the real estate office but statistically has minimum effectiveness in selling a specific property. Overexposure of a property in any media may give a buyer the impression the property is distressed or the seller is desperate. Your real estate agent will know when, where and how to advertise your property. There is a misconception that advertising sells real estate. The NATIONAL ASSOCIATION OF REALTORS studies show that 82% of real estate sales are the result of agent contacts through previous clients, referrals, friends, family and personal contacts.

Security
When a property is marketed with an agent's help, you do not have to allow strangers into your home. Agents will generally pre-screen and accompany qualified prospects through your property.

Negotiating
The negotiation process deals with much the same issues for both buyers and sellers, as noted above under the buying process. Your agent can help you objectively evaluate every buyer's proposal without compromising your marketing position. This initial agreement is only the beginning of a process of appraisals, inspections and financing -- a lot of possible pitfalls. Your agent can help you write a legally binding, win-win agreement that will be more likely to make it through the process.

Monitoring, renegotiating and closing
Between the initial sales agreement and closing (or settlement), questions may arise. For example, unexpected repairs are required to obtain financing or a cloud in the title is discovered. The required paperwork alone is overwhelming for most sellers. Your agent is the best person to objectively help you resolve these issues and move the transaction to closing (or settlement).

You be the judge
Real estate transactions involve one of the biggest financial investments most people experience in their lifetime. Transactions today usually exceed $100,000. If you had a $100,000 income tax problem, would you attempt to deal with it without the help of a CPA? If you had a $100,000 legal question, would you deal with it without the help of an attorney? Considering the small upside cost and the large downside risk, it would be foolish to consider a deal in real estate without the professional assistance of a realtor!

Real Estate FSBO Advice

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Granted, some people are able to sell their own homes without the services of a real estate agent. Some of these successful do-it-yourselfers are very experienced home sellers. Others are transferring ownership of their home to a child, a coworker or a tenant who's already living in the home. These circumstances are the exception, not the norm, however. For most people, a for-sale-by-owner (FSBO) transaction simply isn't in the cards. Here are five reasons why.

1. FSBOs can't list their home in the MLS. FSBOs aren't permitted to put their home in the multiple listing service (MLS) because these industry membership organizations are open only to licensed real estate brokers and agents. FSBOs are also locked out of many home search engines and Web sites, including this site. Sure, a determined FSBO can put a for-sale sign in his or her front yard and run a tiny advertisement in the local newspaper, but the home won't receive nearly as much exposure as it would through the MLS.

2. Agents won't show FSBO homes. In a typical home sale, the buyer's agent receives a percentage of the commission that the seller pays the listing agent. Without a listing agreement, there's no guarantee that the buyer's agent will be compensated for his or her services, unless the buyer has signed a buyer's brokerage agreement that specifically provides for such compensation. Even if a FSBO offers to pay the buyer's side of the commission, most agents won't want to go through a transaction with an unsophisticated self-represented seller across the table. That means the pool of potential buyers for FSBO homes is limited primarily to un-represented and probably unqualified prospects.

3. FSBOs usually overprice their home. Like most homeowners, most FSBOs honestly believe their own home is worth more than comparable homes in the same neighborhood. Usually, they're wrong. A real estate agent can provide an update on market conditions, an assessment of the likely selling price of the home and tips for improving the home's buyer appeal. Overpricing a for-sale home is a sure way to deter potential buyers.

4. Buyers will feel intimidated. Potential buyers will spend less time in a for-sale home if the owner is present during the showing, and they'll be shy about discussing its pluses and minuses with their own agent if the owner is within earshot. Buyers will also be less inclined to make an offer if they know they'll be negotiating directly with the seller. Having an agent on each side creates an effective emotional buffer between the seller and buyer.

5. FSBOs are likely to stumble into legal trouble. Real estate transactions are fraught with potential liability for unwary sellers, particularly in states that have extensive disclosure requirements (e.g., California). A FSBO who overlooks even one required form or legally mandated disclosure could face a protracted and expensive buyer lawsuit after the transaction closes.

Real Estate Appraisal

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If you're buying a home, it helps if you have an estimate of the home's value. Together with comparable home sales, estimates of a home's value will help you come to an appropriate bid or purchase price. What's more, a home's value will determine the amount of financing a lender will extend.

If you're selling a home, knowing the estimated value will help you set an asking price and help you determine an acceptable range of bids to consider. For most of us, our home is the most valuable single asset we'll ever own -- it's important to know what it's worth.

Knowing your home's valuation is critical if you are:

planning renovation or improvement projects
looking to refinance
taking out an equity loan to finance other life events, such as college tuition
obtaining the right amount of insurance coverage
developing an estate plan

Obtaining an estimated valuation of your home is the first step in determining its current worth. Estimates provide valuable raw ingredients to move forward with investigating a home purchase or sale. Estimates, however, should not replace the use of licensed appraisers. Call upon the resources of a licensed appraiser during any formal process that requires the determination of a home's value.

To get an estimated home valuation, use some of the free tools that are available on the Web. Domania's Value Check requires you to register to use it for free, but it's worth the quick effort. Home values also can help with tax appeals and removing private mortgage insurance. What's more, with estimated valuation tools you often can determine potential future value of your home, as well as understand what your possible equity position is, based on current value.

Get a smart start with tools such as Value Check. And, remember, consult a licensed appraiser when the time or demand is right.

Real Estate Tax Shelter(s)

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You save taxes when you buy it. You save taxes while you own it. You save taxes when you sell it.

The mortgage interest deduction and the deduction for property taxes are, to most Americans, sacred. These deductions have been around since time immemorial and the purpose was to encourage home ownership, said Leonard W. Williams, a certified public accountant in Sunnyvale, CA.

Mortgage interest deduction

All but the very wealthy homeowners deduct all the mortgage interest they pay and consider that the primary tax benefit to home ownership.

IRS Publication 936 "Home Mortgage Interest Deduction" says, in general, joint tax filers can deduct all the interest on a maximum of $1 million in mortgage debts secured by a first and second home, plus the interest paid on a maximum $100,000 in home equity loans. The maximums are halved for married tax payers filing separately.

Watch out for those popular 125 percent equity-loans. Your equity tax deduction is limited to the lesser of the $100,000 maximum and the home's fair market value, determined by a complicated formula found in Publication 936.

The mortgage interest deduction, along with other itemized deductions are included on "Schedule A, Itemized Deductions" to reduce your taxable income and ultimately your tax bill.

"If that total exceeds the standard deduction ($3,550 for married couples filing separately, $4,250 for singles, $6,250 for heads of household and $7,100 for married couples filing joint returns) then you get it deducted from your adjusted gross income," said Peter Vernaci, a certified public accountant from San Jose.

Mortgage tax credit

The Mortgage Credit Certificate (MCC) program allows some first time home buyers to benefit from a mortgage interest tax credit.

An MCC, which you first must obtain from your local housing department before you get a mortgage, gives a qualified first-time home buyer a federal income tax credit of up to 20 percent each year the buyer keeps the same loan and lives in the same house.

As explained in IRS Publication 530, "Tax Information for First-Time Homeowners," the credit is subtracted, dollar for dollar, from the income tax owed. For example, if you paid $10,000 in interest, your tax credit would be $2,000. The remaining 80 percent of the interest _ $8,000 is taken as a typical mortgage interest deduction.

You can see the tax credit's benefit immediately in your paycheck by adjusting your W-4 exemption status to reflect the credit. In some cases, lenders will qualify you for a loan based on the monthly mortgage payment minus the tax credit, enabling you to qualify for a bigger loan.

Points

Home buyers also get to fully deduct all points associated with a home purchase mortgage. Sometimes called "origination fees," "loan discounts" and "broker discounts," each point is one percent of the financed amount. In many cases, the buyer can also deduct points on the buyer's mortgage that are paid by the seller.

Points on refinanced mortgages are also deductible, but over time.

"If you refinance, you have to amortize the deduction for points over the life of the loan, but if you refinance again you get to write off the balance of the points from the old refinance," said Vernaci.

Taxes

Property taxes, referred to as "real estate taxes" in Publication 530, are also deductible from your income. Be careful not to deduct escrow money held for property taxes, but not actually used to pay them, say until the next tax period. Local tax refunds reduce your deduction by a like amount.

Home sales

Even when you sell your home, it continues to be a tax shelter, for a few homeowners.

"The broker's commission, title insurance, any of the legal fees, administrative costs, inspection fees. Those are selling costs, and as expenses of the sale, they are deductible from the gain," said Vernaci.

Your gain is your home's selling price, minus deductible closing costs, minus your basis. Publication 530 also offers a worksheet to help you figure your basis - the original purchase price, plus capital improvements, minus any depreciation.

Thanks to the 1997 Taxpayer Relief Act, however, many home sellers no longer suffer a taxable gain.

That's because, under the act, sellers get to keep, tax free, up to $250,000 in capital gains ($500,000 for married sellers who file taxes jointly) on sales of homes used as a principal residence for two of the prior five years.

"If the gain is less than the $250,000/$500,000 exclusion, then those sales expenses are a kiss-off. They aren't written off against taxable income, hence they don't save any taxes," Williams said.

Real Estate Tax Benefits

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They say there are only two things you can count on in this world: death and taxes. But when it comes to owning a home, it appears there may be a third. And that is the favorable treatment of home ownership by the Internal Revenue Service.

1. The purchase

When buying your own home, most of the expenses are not tax deductible. But there is one exception that is worth finding.

The IRS says you can deduct interest in the year that it is paid, and that is usually part of each monthly loan payment. In addition, if the day you purchase is on any day other than the first of the month, you will likely pay a charge for "daily interest" between the day of closing and the end of the month. Look on line 901 of your HUD settlement statement.

Much more importantly, the IRS says that, in most cases, loan discount points and origination fees are tax deductible to the buyer, regardless of who pays them. Look at lines 801 and 802 of your settlement statement and see if you hit the jackpot. This is a particularly unusual deduction because you get the benefit even if the seller paid your closing costs. And because origination fees of 1% and more are common, this can amount to a lot of cash.

2. Mortgage interest

In general, you can deduct interest charged on a loan used to acquire or improve your principal residence in the year that it is paid. In the early years of a loan, most of your monthly payment is interest, so this can really add up. If you are in a 28% federal tax bracket, this can have the effect of lowering your borrowing costs by almost a third, depending on which state you live in. This is truly nothing more than a subsidy to home owners, and it's a very popular deduction.

In addition, you can always deduct interest on an additional $100,000 of mortgage debt, which can be used for any purpose. This is called the "Home Equity Loan" exception, and it allows you to tap into your home equity for any purpose. This gives home owners the ability to do what is called "debt-shifting." For example, if you live in an apartment and have a credit card balance of $10,000 at 18% interest, none of that interest would be deductible. But if you bought a house, obtained a home equity loan for $10,000 and paid off the credit card, then ALL of the interest expense becomes automatically deductible. Furthermore, the rate on the home equity loan is likely to be around prime plus one or two, usually much lower than credit card rates. This same technique works with any and all personal debt, from car loans to consolidation loans - with only one hitch. In every home equity loan, you have pledged your house as collateral for the loan. If you fail to pay the payments as agreed, you could lose your house to foreclosure. So be careful in using this technique.

3. The sale

This is the best. In fact, I can hardly believe this myself. Here's how it works:

If you have owned and occupied your principal residence for at least two of the past five years, you can earn up to $500,000 on the sale of that house and pay no federal income tax whatsoever. That's assuming you are married - singles get up to $250,000 tax free. And here comes the kicker:

You can do this as often as every two years for the rest of your life.

This is as good an excuse for getting married as I have ever heard. Buy a fixer-upper in an up and coming neighborhood, work on it nights and weekends for two years, then sell it at a nice profit and pocket the cash, totally free of federal taxes. And most states recognize the federal exclusion, so you put the cash away totally tax free. You don't have to re-invest, you don't have to be age 55, and you can do this every two years forever. No, I'm not kidding.

The one restriction is that you MUST own and occupy the house as your principal residence, so don't try this on a rental property by pretending you live there when you don't. And there are some unclear rules about how you can take a partial exclusion if you live there less than two years, but we don't really know what they mean yet, so I recommend you stay there two years.

Many of these benefits came into being with the 1997 tax law, but lots of folks are just finding out about them now, so buy and sell to your heart's content. Just don't plan on staying forever!

Loan Closing Advice

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You should keep a copy of every document you signed your name to at the closing meeting. It’s especially important to keep a copy of your settlement form. You will find it useful when you file your taxes and if you sell your home. For example, the real estate taxes and loan discount points you paid as part of your closing costs are tax deductible. So, when you file your taxes, you will need to refer to your settlement form to get these amounts.

In addition to the closing documents, you should keep all insurance records, such as homeowner’s and title insurance. You would need to have access to your homeowner’s policy if, for example, someone were to sue you because they were injured on your property. You would refer to your title insurance policy if you were to find a flaw in the title after you bought the house. It’s a good idea to keep these important records in a safe place. You may store them in a safety deposit box or a bank vault in addition to keeping a copy of them in your home.

Making your loan payments

Your mortgage note (one of the closing documents you signed) states the terms of your mortgage, including the date on which your payments must be made, the location to which they must be sent, and the penalty charged for late payments. Usually after the closing meeting, your lender sends you a coupon book to simplify the mortgage payment process. Each month, tear off a new page from the book and mail it with your check. Remember to write your loan number on the check to ensure that your payment is credited correctly. Some lenders can automatically deduct your monthly payment from your checking account. This saves you time and postage costs. And, it can prevent the possibility of missing a payment. You can ask if your lender provides this service.

If servicing of your loan transfers

At the closing, your lender is legally obligated to provide a statement showing how frequently your lender transfers (or “sells”) servicing on mortgage loans to a third party. This means that someone other than the lender who originated and approved your loan will service the loan. Servicing includes the collection and processing of your monthly payments. You must be notified of the transfer by both your original lender and the new lender. Remember, never send your mortgage payment to a different party until you’re officially notified of the transfer by your lender. In some instances, your lender may sell your mortgage to an investor, such as Fannie Mae®. This is how Fannie Mae makes sure lenders don’t run out of mortgage money. However, you would still send your monthly payment to the lender who services your loan.

If you have loan questions

Any time you have questions about the terms of your loan or run into complications, contact your lender. You may have an emergency that changes your financial situation. For example, if you’re laid off from your job or if you’re sick and temporarily unable to work, you should contact your lender immediately if you have a problem making your monthly mortgage payment. Otherwise, you risk losing your home. Your lender should be willing to work with you to resolve the problem. Various types of relief may be offered to give you additional time to make the payment. At the end of each year, your lender will be in contact with you. You’ll receive a statement that shows your mortgage balance and the total amount you’ve paid in principal and interest. You’ll need to know the amount of interest paid to file your taxes. The tax deduction for interest alone may save you thousands of dollars in federal income taxes. Especially in the early years of your mortgage, the bulk of your monthly mortgage payment is interest.

Home maintenance checklists

Your mortgage requires that you adequately maintain your property and not allow it to deteriorate. And, as a homeowner, you can’t afford to sit back and defer maintenance. You can extend the life of appliances and fixtures and avoid expensive repairs by doing routine maintenance yourself. It’s a good idea to set up a budget for your home’s regular maintenance and unexpected repairs. You may want to budget 1 percent of the purchase price of your house to cover annual maintenance and repairs. You also want to adhere to a regular savings plan to cover essential bills, emergency repairs, and large, periodic expenses such as property taxes and homeowner’s insurance (if they’re not held in an escrow account by your lender). Some financial advisors suggest saving 5 percent of your take-home pay. You must commit this amount every payday to make it happen. The following seasonal checklist will give you an idea of what you can do in the fall and spring each year to maintain your home:

Spring checklist

Outside Items --

Check all weather stripping and caulking around windows and doors, especially if you have air-conditioning.
Check outside of house for cracked or peeling paint; caulk and repaint as necessary.
Remove, clean, and store storm windows (if removable).
Check all door and window screens; patch or replace as needed; put screens up (if removable type).

Inside Items --

Replace filters on air-conditioners.
Check and clean dryer vent, stove hood, and room fans; change or clean filters on furnace.
Check seals on refrigerator and freezer; clean refrigerator coils; clean burner surfaces; adjust burners.
Clean fireplace; leave damper open for improved ventilation if home is not air-conditioned.
Check basement wall and floors for dampness; if moist, remedy as appropriate.
Clean dehumidifier according to manufacturer’s instructions.
Check for leaky faucets; replace washers as necessary.
Check attic for proper ventilation; open vents.
Clean drapes and blinds; repair as needed.

Fall checklist

Outside Items --

Check all weather stripping and caulking around windows and doors; replace or repair as needed.
Check for cracks and holes in house siding; fill with caulking as necessary. Remove window air-conditioners, or put weatherproof covers on them.
Take down screens (if removable type); clean and store.
Check storm windows and doors; clean and repair as needed; put back up (if removable type).
Drain outside faucets.
Clean gutters and drain pipes so that leaves won’t clog them.
Check roof for leaks; repair as necessary.
Check flashing around vents, skylights, and chimneys for leaks.
Check chimney for damaged chimney caps and loose or missing mortar.
Check chimney flue; clear obstructions; make sure damper closes tightly.

Inside Items --

Check insulation wherever possible; replace or add as necessary.
Have heating system and heat pump serviced; have humidifier checked; change or clean filters on furnace.
Drain hot water heater; remove sediment from bottom of tank; clean burner surfaces; adjust burners.
Check and clean humidifier in accordance with manufacturer’s instructions.
Clean refrigerator coils.
Clean fireplace.

Escrow Advice

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Escrow opens when the buyer and seller sign a sales contract, commonly called a real estate purchase agreement and receipt of deposit. The contract, along with any additional instructions, serves as instructions for the escrow officer.

Escrow assures that the lender releases the home purchase funds at or about the same time that the deed is recorded to reflect new ownership. Escrow includes depositing, with a neutral third party, funds, documents and instructions necessary to complete the transfer.

Because the real estate transaction involves large sums of money and reams of documentation, escrow is not always a predestined, step-by-step process, but can become a confusing end game of details, nit picking and overlapping procedures. It requires preparation, attention to detail, and desire from both sides to close the deal.

Regional custom will dictates who (the buyer or the seller) chooses the neutral third party and who that third party will be. A neutral third party can be an escrow officer from an escrow company, someone from a title company or from a title and escrow company. Some regional areas use title and escrow attorneys. Custom and market conditions also dictate which escrow costs the buyer or seller pays. The amount typically totals about 1 to 2 percent of the cost of the home.

Choosing an escrow officer is much like choosing any real estate professional. Get several referrals from trusted people, then compare services, cost and convenience.

Your escrow officer opens escrow by assigning your escrow an account number and collecting the contract and other instructions, the buyer's deposit and perhaps additional proceeds or documents related to the transaction. Deposits are either applied to the purchase price, or returned should the deal fall through.

The buyer orders title insurance, to protect him or her against blemishes on the title, and he or she orders a preliminary title search to determine if there are any claims against the title.

The contract and escrow instructions likely contain contingencies for home insurance, flood insurance, home inspections, financing, repairs and other tasks either the buyer or seller must complete before the transaction can progress. Each time a contingency is met, the buyer or seller signs off with a contingency release form or letter copied to all parties, including the escrow officer.

At some point, parties will receive a preliminary title report which summarizes the condition of the title, including easements and liens, claims and encumbrances against the property. The seller must resolve any claims against the title, or they could stall the deal.

The title company may check once again and produce a final report to be sure existing claims have been removed and that no claims have been filed since escrow opened.

Once the loan is funded, contingencies are released, the title is cleared, the buyer inspects the property and decides how to take title, only a few loose ends must be tied before close of escrow.

Remaining paperwork to sign a few days before close includes the buyer's grant deed, any final escrow instructions or contingency releases, the settlement sheet of disbursements, title reports, the deed of trust lender forms, inspection reports, tax statements -- and a rental agreement if the seller will live in the home for some time after escrow closes.

Escrow closes and the deal is sealed when the escrow office records a new deed in the buyer’s name, the seller gets paid for the home, and all other monies are disbursed.

Money may be held in escrow after the close to pay contractors for unfinished work.

Home Loans

Fri, 18 May 2012 23:05:04 +0000

I want to review some of the costs you can expect to pay associated with any new home loan. With any luck, the builder or seller will agree to pay at least some of these expenses for you. But regardless of who pays them, these costs are part of the price of buying your next home, so let's take a look. They are closing costs, loan discount points and prepaid items.

Closing costs are the actual expenses that the lender incurs in the origination of a new home loan. Some of the costs are related to your loan application, such as the expense of newly updated credit reports on all applicants. Other fees are related to the house itself, such as the appraisal of the property. Others are payment to the lender for processing your application, such as the loan origination fee. All these costs are lumped into a broad category called "closing costs." Unless the seller offers to pay them for you, this area of expenses is charged to the buyer, and often runs between 2 and 3 percent of the amount being borrowed. Because different states have different fees and taxes that are a part of these costs, it's impossible to generalize nationwide. So it's important that you talk with a reputable lender ahead of time about what costs you can expect to pay in your part of the country.

Loan discount points are, in essence, a form of prepaid interest. One discount point is exactly equal to one percent of the amount being borrowed. It is paid in cash at closing to the lender as a form of interest. Discount points have the effect of lowering the stated interest rate you will pay on the loan you obtain. For example, a lender might offer you a 30 year fixed rate loan at 8% with zero points or the same loan at 7.5% with 2 discount points. Because the points are considered interest, the yield to the lender is approximately the same. So why, you are asking, would I want to pay points? You probably won't, but sometimes new home builders or employers will offer to pay up to a certain number of points as an incentive, and I want to make sure you get everything that's coming to you.

Last, there is the issue of prepaid items. Most home lenders want you to set up what is called an "escrow" account. This is nothing more than a savings account that the lender holds. Every month you will, in addition to your regular loan payment, deposit a sum for property taxes and for homeowner's insurance into this account. And when the next bill comes due for taxes or insurance, your lender will make the payment for you. The reason that all this matters today is that, on the day of your purchase, you will be required to set up an escrow account with about 9 months worth of taxes and about 2 months worth of insurance payments. In addition, you will have to pay for the first year's insurance policy in full. These costs are called prepaid items, and you must pay for them yourself.

Because regulations and customs vary from state to state, the amount you need at settlement may be more or less than the amounts I have discussed here. Talk to a reputable lender to get an accurate estimate of how much you will need to buy your next home.

Closing Costs

Fri, 18 May 2012 23:05:04 +0000

Who pays which closing costs varies in all localities and is open for negotiation between the buyer and seller. It is possible to have a sales agreement in which either the buyer or seller pays all the closing costs. Or, to lower your costs, you may have the seller agree to pay just certain fees. For example, you could negotiate that the seller pay for the title search service, the county and state recording fees and tax, and the closing agent’s document preparation fees. The agreement that you and the seller reach needs to be specified in the sales contract. The success of negotiations depends on such factors as how eager the seller is to sell and you are to buy, the quality of the home and how long it has been on the market, and whether other potential buyers are interested.

Mortgage-related closing costs

Depending on your situation, the following costs for getting a mortgage must be paid at or by closing. These costs cover items that were part of the loan application process:

Loan origination fee -- The loan origination fee covers the administrative costs of processing the loan. It may be expressed as a percentage of the loan (for example, 1 percent of the mortgage amount).

Loan discount points -- Loan discount points are the dollar amount paid to a lender for making a loan. Each point equals 1 percent of the mortgage amount. For example, if you take out a $100,000 loan, one point equals $1,000. The more points you are willing and able to pay at closing, the lower your interest rate should be.

Appraisal fee -- The appraisal fee pays for the appraisal, which the lender uses to determine whether the value of the property is sufficient to secure the loan should you default on the loan. This is usually paid by you when you apply for the mortgage and may appear on the settlement form as “POC,” or “paid outside closing.”

Credit report fee -- The credit report fee covers the cost of the credit report, which the lender uses to determine your creditworthiness. You probably also paid this fee when you applied for the mortgage, so it may appear on the settlement form as POC.

Assumption fee -- An assumption fee is charged if you take over the payments on the seller’s existing loan. The fee may range from several hundred dollars to 1 percent of the loan amount.

Prepaid interest -- Interest is the fee you are charged for borrowing money from your lender. You will probably have to pay the interest on the mortgage from the date of settlement to the beginning of the period covered by the first monthly mortgage payment. For example, suppose you settle on February 10. Your first monthly payment begins to accrue on March 1 and will be payable at the beginning of April. At closing you may be required to prepay the interest for the period from February 10 through the end of February. This means that if you settle later in the month, your closing costs will be less than if you settle early in the month.

Escrow accounts -- Escrow accounts (or reserves) will be required if your lender will be paying your homeowner’s insurance and property taxes. Your lender sets up the escrow account by adding the cost of the insurance policy and taxes to your monthly mortgage payments. That portion of your payments is kept in reserve until the bills are due. Each year, the bills will be sent directly to your lender, who will make the payment for you.

Government-imposed closing costs

Most state and local governments impose property taxes, recording fees, and transfer taxes.

Property taxes -- Property taxes for the real estate you own must be paid annually to the local government. Property taxes are the most common expense to be prorated between the buyer and seller. This process is referred to as an “adjustment.” (Other typical adjustments include annual homeowners’ association or condominium fees and unpaid water or utility bills.) Your closing agent will split the taxes so that you take responsibility for them at closing. If the seller already has paid taxes beyond that date, you reimburse the seller. Or, if taxes for the current period have not yet been paid, the amount owed is deducted from your settlement payment. Your lender may include property taxes in your monthly mortgage payments and put them in an escrow account for you.

Recording fees and transfer taxes -- Recording fees and transfer taxes are charged by most states for recording the purchase documents and transferring ownership of the property. Your closing agent will usually calculate these costs as a percentage of the sales price. In some localities it is customary that the seller pay one fee and the buyer pay another. Your real estate sales professional can advise you about this.

Review A Closing

Fri, 18 May 2012 23:05:04 +0000

The final days and weeks before closing can be a stressful period for both buyer and seller. For example, you may have second thoughts about the prospect of taking on such a large debt. Or you may worry that something will happen to prevent the sale -- and indeed the house is not yours until you close on it. The signed sales contract and the signed loan commitment letter obligate both you and the seller to complete the transaction. In fact, if you fail to do so, not only will you forfeit your deposit but you may also find yourself in a lawsuit.

This checklist reviews what needs to happen in the final weeks before closing -- such as the title search, a survey of the property, and your final walk-through inspection.

Review the commitment letter

Be sure you understand any conditions of the loan offer that are stated in the lender's commitment letter. Check to see if all conditions have been met before closing. For example, if the home you are buying has been found to be in violation of a building code or zoning regulations, the lender may specify that those problems must be corrected before the closing. If the seller has agreed to make repairs required by the lender, you need to make sure the work is finished and done properly before closing.

Set the closing date

An estimated closing date usually is specified in the sales contract. After your mortgage loan is approved and the commitment letter is accepted, a firm closing date needs to be set. Usually the real estate sales professional, the lender, and the closing agent coordinate a date with you. You need to be sure that closing takes place before the lender's commitment expires and while the interest rate lock-in, if there is one, remains valid. You should request from your closing agent a statement confirming the date, place, and time and a list of items you need to bring to the closing meeting.

Select an attorney

Because the loan closing is a legal transaction, you may want to hire a real estate attorney early in the application process. Your attorney will review your sales contract before you sign it and represent you at closing. Your personal attorney's fee is not part of your actual closing costs, so you will need to budget for this expense separately. If you seek a personal attorney, ask questions such as these: Does the attorney have substantial experience in real estate transactions? What is the attorney’s charge for reading sales contracts or other documents and giving advice about them? What is the attorney’s charge for being present at closing?

Select a closing agent

You'll need a closing or “settlement” agent to coordinate closing activities, such as preparing and recording the closing documents and disbursing funds. The types of services provided will depend on the closing agent you hire. Usually the closing is conducted by title companies, escrow companies or attorneys, but it can be held at the lender’s or real estate professional’s office. You may be able to save some money by shopping for a closing agent. Your real estate sales professional and lender should be able to give you some recommendations. Or, you can get referrals from a recent home buyer.

Secure title services

You need to make sure that a title search on the property has been made and that you have obtained title insurance before the closing meeting. A title search is required to prevent fraudulent sales. Lenders want to be sure that the seller is indeed the owner of the property. The title search also attempts to uncover any liens (legal claims against a property on the title). Any claims against the property must be paid before (or often at) closing. Title insurance is required as further assurance that the seller is giving you a “marketable title.” A lender’s policy protects the lender in the event a flaw in the title is detected after the property has been bought. The owner’s policy protects you. You should get both types of policies. Obtaining a combined lender’s/owner’s policy will save you some money. You may also get a price break if the title company that previously insured the title will give you a "reissue" policy. The buyer typically pays for the title search and both types of title insurance. Your closing agent will coordinate both title services before the closing meeting.

Order a property survey

The lender may require a survey, or plot plan, of the property. This is done to confirm that the property’s boundaries are as described in the sales contract. Usually the buyer pays for the survey and the lender orders it. You may be able to save some money by requesting an “update” from a surveyor who has surveyed the property previously.

Order a termite inspection

In many locations, homes must be inspected for termites before they can be sold. You need a certificate from a termite inspection firm that states that the property is free of both visible termite infestation and termite damage. Usually the seller pays for this and the seller's real estate sales professional orders the termite inspection. But you will want to make sure that the original certificate is delivered to your lender at least three days before closing. This will give the lender time to review it and address any problems.

Obtain homeowner's insurance

Your lender will require that you purchase homeowner's or “hazard” insurance, which protects you and the lender from loss in the event the house is damaged or destroyed. Coverage must be equal to at least the replacement costs of the property. Most home buyers purchase a homeowner’s package of insurance that includes personal liability insurance (in case someone is injured on your property), personal property coverage (which covers loss and damage to personal property due to theft and other events), and dwelling coverage (which protects your actual house against fire, theft, weather damage, and other hazards). If you live near a body of water, you may also want to get flood insurance as part of your homeowner’s protection. You will want to get quotes from several insurance companies and compare rates on the same types and amounts of coverage. Lenders typically want the first year’s premium to be paid at or before closing. Your lender may add the insurance cost to your monthly mortgage payments and keep this portion of your payments in an escrow account (or reserve). Then, the lender pays the insurance bill when it is due each year.

Inquire about mortgage insurance

Mortgage Insurance (MI) helps protect the lender in case of a foreclosure (the legal process that a lender may use to take ownership of your home if you fail to make your monthly payments). Typically, the lender will require this insurance if your down payment is less than 20 percent of the purchase price of the property. The lender orders MI from a mortgage insurance company after your loan is approved. You will not need to apply for insurance yourself. You may be required to pay the full first year's premium at closing. Renewal premiums will be added to the monthly mortgage payments you make to your lender after closing and will be put into an escrow account. Many MI companies offer programs that require no upfront payment at closing, but they may require a slightly higher monthly payment.

Obtain well and septic certifications

If your property is not served by public utilities, you will need local government certification of the private water source and sanitary sewer facility before closing. Usually the county government performs the certification.

Inquire about a certificate of occupancy

If you are buying a new house, a certificate of occupancy needs to be provided at closing. This certificate is legally required before you move into a newly constructed home. The builder obtains the certificate, usually from the city or county. An inspection may also be required to see if the property meets local building codes.

Go on the final walk-through inspection

Your sales contract should have included a clause allowing you to examine the property within 24 hours before closing. The real estate sales professional usually will accompany you on the walk-through. This is your opportunity to make sure that the seller has vacated the house and left behind whatever property was agreed upon. You will want to check that all lights, appliances, and plumbing fixtures are in working order. You will also want to make sure that all conditions of the sales contract have been met. If you observe major problems, you have the right to delay the closing until they are corrected, or you could ask that the moneys be placed in an escrow account at closing to cover major repairs to be completed.

Closing a Home

Fri, 18 May 2012 23:05:04 +0000

The mortgage loan closing (or settlement) is the meeting at which you take official ownership of the house. You’ll be required to sign many papers and pay your closing costs at the meeting in order to take possession of your new home. Technically, two separate closings occur at this time: the closing of your loan and the closing of the sale. Then, at the end of the meeting, you get the keys to your new home! Although the closing process varies from state to state, and even within the same county or city, certain activities are standard. It is to your benefit to understand the many activities that need to occur before, during and after the closing meeting and their costs.

Closing activities checklist

In the weeks before closing, you’ll need to make some important decisions. Your lender, real estate sales professional, and closing agent will be handling many pre-closing activities. But you still need to be aware of them and know who typically arranges and pays for each activity. We have provided a checklist that will help you prepare for your loan closing.

Closing costs checklist

No later than three business days after your loan application was received, your lender should have delivered or mailed to you a “good faith estimate” of the total charges due at closing and a copy of the government publication Settlement Costs: A HUD Guide. Then, one business day before the closing meeting, your closing agent must allow you to review a copy of your two-page settlement form -- called the HUD-1 Settlement Statement. The good-faith-estimate is based on the lender’s typical loan origination costs for the area where your home is located. So the estimate usually changes between application and closing. That is why you’ll want to review your settlement form before the closing meeting. It will show you the actual amount of money you’ll need to bring to closing.

Remember that you’ll need to pay your closing costs in the form of a certified or cashier’s check. Personal checks usually aren’t accepted. Closing costs vary widely depending on price, location, and other factors. Overall, you can expect your closing costs to amount to between 3 percent and 6 percent of the sales price. We have provided a checklist that will help you understand your closing costs.

What happens at closing

The closing meeting is where ownership of the home is officially transferred from the seller to you. Your closing agent coordinates all of the document signing and the collection and disbursement of funds. Your main role at the closing is to review and sign the numerous documents related to the mortgage loan and to pay the closing costs. The closing is a formal meeting typically attended by the buyer(s) and the seller(s) (and their attorneys if they have them), both real estate sales professionals, a representative of the lender and, of course, the closing agent. The meeting takes about one hour and usually is held at the closing agent’s office. Or, you may live in an area where there is no formal closing meeting. Instead, an escrow agent processes all the paperwork, arranges for all documents to be signed and collects and disburses the required funds. The steps below explain what happens during and after the closing meeting:

First, the closing agent reviews the settlement sheet with you and the seller and answers any questions. Both you and the seller sign the settlement sheet.
The closing agent then asks you to sign the other loan documents, such as the mortgage note and Truth-in-Lending statement.
Evidence of required insurance and inspections is also presented (if it wasn’t previously given to the lender).
If everyone agrees that the papers are in order, you (and the seller) submit a certified or cashier’s check to cover the closing costs and the balance of funds due (if applicable). And, the check from the lender covering the mortgage amount is submitted to the closing agent.
If the lender will be paying your annual property taxes and homeowner’s insurance for you, a new escrow account (or reserve) is established at this point.
You receive the keys to your new home.
After the meeting, the closing agent officially records the mortgage and deed at your local government clerk’s office or registry of deeds. This legal transfer of the property may take a few days after closing. The closing agent usually will not disburse the funds to everyone who is owed money from the sale (including the seller, real estate professionals, and the lender) until the transaction has been recorded.
It is at the point of deed recordation that you become the official owner of the home.

Closing documents

You will receive a number of important documents at the closing meeting. Review this list of documents before you go to the closing table, so that you will be prepared for the documents that you will receive.

HUD-1 Settlement Sheet -- The settlement sheet itemizes the services provided and lists the charges to the buyer and the seller. It is filled out by your closing agent and must be signed by both you and the seller. You should have been allowed to review this form on the business day before your closing meeting so that you will be able to know your closing costs in advance.

Truth-in-Lending (TIL) Statement -- Within three business days of applying for a loan to purchase a home, your lender should have given you this document, which outlines the costs of your loan. You receive it at that time so that you may compare the loan costs with those of other lenders. The TIL statement also discloses the annual percentage rate (APR). The APR is the cost of your mortgage as a yearly rate. This rate may be higher than the interest rate stated in your mortgage because the APR includes any points, and certain other costs of credit. The TIL statement also discloses the other terms of the loan, including the finance charge, the amount financed, the payment amount, and the total payments required. It is possible that the APR calculated at your loan application will change at closing. That is why your lender is required to give you the final version of your TIL statement at or prior to the closing meeting.

The note -- The mortgage (or promissory) note is a legal “IOU.” The note represents your promise to pay the lender according to the agreed terms of the loan, including the dates on which your mortgage payments must be made and the location to which they must be sent. The note also details the penalties that will be assessed if you fail to make your monthly mortgage payments. And, it warns you that the lender can “call” the loan (require full repayment before the end of the loan term) if you violate the terms of your note or mortgage.

The mortgage -- The mortgage is the legal document that secures the note and gives the lender a legal claim against your house if you default on the note’s terms. In effect, you have possession of the property, but the lender has an ownership interest (called an “encumbrance”) until the loan has been fully repaid. The mortgage restates the basic information found in the note. It also states your responsibilities to pay principal and interest, taxes, and insurance on time; to maintain hazard insurance on the property; and to adequately maintain the property and not allow it to deteriorate. If you consistently fail to meet these requirements, the lender can demand full payment of the loan balance or foreclose on the property, sell it, and use the proceeds to pay off the outstanding loan and the foreclosure costs. In some states, a “deed of trust” is used instead of a mortgage. By signing a deed of trust, you receive title to the property but convey title to a neutral third party (called a trustee) until the loan balance is paid.

Affidavits -- You may be asked to sign numerous affidavits. For example, you may be required to sign an affidavit of occupancy, which states that you will use the property as a principal residence. Or you and the seller may need to sign an affidavit that states that all of the improvements to the property that were required in the sales contract were completed before closing. Ask your lender whether you’ll be required to sign any affidavits at closing.

The deed -- Only the seller signs the deed at closing. It is the document that transfers ownership from the seller to you. Your name and the names of any other buyers appear on the deed. You’ll receive a copy of the deed at the closing. The closing agent then records the deed (with you listed as the new property owner). The deed will be sent to you after it is recorded.

Conditions and Terms

Fri, 18 May 2012 23:05:04 +0000

There's a lot to consider before you sign a real estate purchase agreement. If the terms and conditions of the deal aren't acceptable, you might want to pause and think twice, even if the purchase price is more than satisfactory. After all, the price will be moot if the transaction never closes. The typical residential real estate purchase contract is complicated, densely written and packed with legal jargon, but don't use that fact as an excuse for not reading the entire contract. Take your time and read slowly. Ask questions about anything you don't understand. Be flexible and willing to negotiate.

The following five points are among the many items that merit attention:

Bidding Wars

Fri, 18 May 2012 23:05:04 +0000

In many of today's strong real estate markets, home buyers can expect to face multiple offer situations. Multiple offers are a classic example of economic realities because they appear when the supply of homes for sale is limited and the demand for good-condition homes is strong. Buyers hate multiple offers because they push up home prices and create an extremely stressful home-buying experience. Knowing a few tricks of the trade can make the difference between walking away disappointed and purchasing the home of your dreams at a fair price.

How can I make my offer more attractive to the sellers?
Offer the highest price you can. Get pre-approved, not just pre-qualified, for your mortgage and attach a copy of the pre-approval letter to your offer. Make as large a down payment as you can and provide documentation showing the source of your down payment (e.g., a bank statement). If your current home is in escrow, provide information about that transaction. Avoid unnecessary contingencies. (Waiving your inspection or financing contingency can make your offer attractive, but it's foolish.)

Tip: If the equity in your current home is the source of your down payment, make your offer contingent on obtaining financing, but not on the sale of your home. If your home doesn't sell, you won't have the down payment and you'll get out under the financing contingency, suggests Bob Stallings, broker/owner of RE/MAX Real Estate Specialists in Long Beach, California. Finally, include a personal note about why you want to buy the home. All else being equal, some sellers are influenced by these communiqués.

My offer didn't prevail in a multiple offer situation. Can I find out why?
Neither the sellers nor their agent is obligated to reveal any information about the decision. As a courtesy, agents frequently will point out shortcomings of a rejected offer, but without disclosing details of the accepted offer. "Until a transaction is closed, it's crucial that everything remain unknown in case that property has to come back on the market," explains Carole Geronsin, a Realtor-associate with Prudential California Realty in Anaheim Hills, California. "I sold a property where [the buyer was making] a relocation transfer. A week and a half later, the company decided they were not going to transfer that executive. What would have happened if I had gone around saying, 'It sold for this amount?' You can't do that."

Can I submit an offer on a home in escrow?
Yes, but agents say you would be wiser to move on to another home, particularly if there are formal back-up offers. Even if your offer tops the accepted agreement, the sellers would have great difficulty canceling the escrow.

My agent says the sellers are getting multiple offers and accepting them only by fax. How can we be certain my offer was considered?
The temptation to suppress a buyer's offer arises when an in-house offer (one from a buyer who is represented by the seller's agent or another agent from the same brokerage company) is competing with an outside offer (one from a buyer represented by a different brokerage company). Even though an in-house offer nets a double commission for the brokerage (and sometimes the agent), the agent must present all outside offers to the seller as well. Failure to present an offer is a very serious ethics violation. The only exception occurs when the seller specifically declines to consider an offer, perhaps because a good offer is being negotiated or the home is already in escrow. If you suspect your offer hasn't been presented, your agent can request a written statement from the seller acknowledging your offer. If the written statement is not provided, your agent can call the seller's agent's broker or manager.

Can I knock on the sellers' front door and tell them personally why they should accept my offer instead of the other offers they received?
If you happen to meet the sellers during a scheduled showing, go ahead and compliment whatever you like about their home. Resist that urge to pound on the front door, however. This tactic works occasionally, but many sellers strongly dislike having their privacy invaded. REALTOR® Judy Sheller of The Bizzy Blondes team with RE/MAX Westside Properties in Culver City, California, recalls one instance when an infuriated seller actually ripped up an offer from an intrusive buyer. The agents won't be too thrilled with your behavior either.

Should I wait outside the home in my car while my offer is being presented, so I will be able to respond right away?
Years ago, when a seller countered more than one offer, the buyers' agents would rush the counteroffers to the buyers, get their signature, then race back to the seller's home or the seller's agent's office. Whoever returned first with a signed document would win the race and open escrow. To improve their chances of purchasing the home, buyers would wait in their cars outside the home while the offers were being presented to the seller. That way, they could sign any counteroffer and be the first to return it. New provisions in most counteroffer forms have eliminated this silliness by stating that no counteroffer is in effect until it is signed by the buyer and accepted by the seller. This practice allows the seller to wait until all the counteroffers have been returned before making a decision.

I have lost seven homes in multiple offer situations. Should I blame my agent?
The answer depends on why your offers weren't accepted. "Buyers always jump to the conclusion that it's the agent's fault. If you're writing offers on houses in the $350,000 range, and all your offers are for $300,000, you're not going to get those houses. You need to be realistic," says Sheller. On the other hand, your agent needs to know how to operate in this market. "I have been in transactions where had an agent been more savvy and more aggressive, the client would have got the property," says Geronsin. She recalls one situation when a buyer's agent called her after the seller had accepted another offer and said his buyer wanted to bid higher. "I said, 'I told you we had multiple offers and you had to come in with your best price. You didn't do it. Now it's too late.' That is the fault of the agent," she says.

Negotiating Tips

Fri, 18 May 2012 23:05:04 +0000

Negotiating a purchase agreement is perhaps the trickiest aspect of any real estate transaction. Most home buyers and home sellers want to arrive at a win-win agreement, but that's not to say either side would regret getting a bigger "win" than the other. Successful negotiating is more than a matter of luck or natural talent. It also encompasses the learned ability to use certain skills and techniques to bring about those coveted win-win results.

Here are six tips and suggestions to turn negotiation into agreement:

6. Ask for advice. Successful REALTORS® tend to be experienced negotiators. They've seen what works and what doesn't in countless real estate transactions, and they've established a track-record of bringing buyers and sellers together. Consult your REALTOR® about negotiating strategies, win-win compromises and creative alternatives.

Property Negotiation

Fri, 18 May 2012 23:05:04 +0000

The natural focal point of a real estate purchase contract is the selling price of the home, but the price isn't the only factor that determines the net bottom line for both the buyer and the seller. Is a bargain for the buyer really a bargain if he or she is paying all the transaction costs? Is a top price for the seller really a top price if the buyer wants all the furniture to be included in the purchase price? Or if the buyer they can't come up with the down payment or qualify for a mortgage?

Before you decide to go ahead with a great price, here are five other bottom-line points to consider:

Tip: Ask your real estate agent to go over the standard contract with you before you receive or make a purchase offer. That way, you'll know what to expect and be prepared to negotiate the best deal you can get.

Safety Inspection

Fri, 18 May 2012 23:05:04 +0000

Homes that appear perfect can harbor serious health hazards that have yet to be discovered. The current owner may know nothing about them. Most home inspectors can perform the proper tests to ensure that your home is as safe as it can be. Here are some important tips:

1. Inspect your home inspector before the home inspection.
Most states do not require the licensing of a home inspector. In most cases, if you have a problem with a major defect after settlement that was not disclosed to you by the home inspector, the inspector's financial liability to you is limited to the inspection fee that was paid. So do your homework to determine that your home inspector is competent and has the ability to provide all necessary environmental inspections, such as water, radon and lead testing in addition to the general home inspection. Simply being a member of a trade association, or being "popular" in the neighborhood does not constitute competency or guarantee that you are going to be satisfied with the home inspection. Additionally, you are going to spend two to three hours with your inspector going through the home you are contemplating purchasing and will want to make sure that the inspector's personality and disclosure style are compatible with your expectations. You can receive a free "Hiring a Home Inspector Checklist" from www.hometest.com, a national, independent authority on the home inspection process.

2. Make sure the home inspection contingency is properly worded.
The home inspection contingency specifies what items in the home you have the right to inspect and under what terms and conditions you can require the seller to repair items or allow you to cancel the contract. Home inspection contingencies can be of a specific nature, whereby you are only allowed to inspect specific items, or can be of a general nature, where you are allowed to inspect the home for any structural, mechanical or environmental concerns. It is important to make sure that your home inspection contingency is a general contingency that gives you a ten day opportunity, after signing the sales contract, to hire a home inspector of your choice to inspect the property for any structural, mechanical and environmental concerns that you or the inspector may decide to inspect. The contingency should give you the right to decide to not proceed with the purchase of the home, or ask the seller to make appropriate repairs. Additionally, the removal of a contingency should stipulate as to how and by whom the repairs will be made and that the repair will be verified to be satisfactory by your home inspector prior to settlement as part of the final walk through process. For a free guide that includes recommended wording for your home inspection contingency, visit hometest.com.

3. Make sure your home inspection includes environmental inspections.
Determining if your new home is environmentally healthy is as important as determining if it is structurally and mechanically sound. An overwhelming amount of information from recent studies shows that environmental hazards in homes are contributing to chronic diseases. Although there are a host of environmental issues that can affect your health, the primary issues in housing are drinking water, radon, lead dust and mold and mildew. Read more about important environmental aspects to consider before you purchase a home.

4. Test the water.
Safe water for drinking cooking and bathing is an absolute necessity for maintaining a healthy lifestyle. However, a significant number of homes do not contain water that is considered to be safe or healthy. Most public water supplies obtain their water from underground aquifers. The water is tested and treated for contaminants found in the water. Although water leaving a public water supply may be tested and considered safe before leaving the plant, it must travel through underground piping that may be old and deteriorating and may contain lead and other contaminants that leach into the water. Additionally, the plumbing supply in the home may contain lead solder or have lead in fixtures that may contaminate the water. Private wells obtain their water from aquifers just as many municipal systems, however the water is not tested and treated for contaminants that are commonly found by the municipal system. As a result, the testing of the private well is solely up to the homeowner. Most lenders will require that the well water is tested, but many only request a bacteria test. To learn more about water testing and testing products that can be used by your home inspector visit www.hometest.com.

5. Test for radon.
Radon is a radioactive gas that has been in found in homes across the United States. It comes from the natural breakdown of uranium in soil, rock and water and gets into the air you breath. Radon typically moves up through the ground and into your home through the foundation. Radon enters through cracks and holes in the foundation and can even seep through the foundation itself. Once radon is in your home it becomes trapped as a result of modern homes lacking a significant amount of ventilation. Additionally, radon can enter the home through well water. Any home can have a radon problem. This means new and old homes, well-sealed and drafty homes, and homes with or without basements. In fact, it is estimated that nearly one out of every fifteen homes in the United States is estimated to have elevated radon levels. Elevated levels of radon gas have been found in homes in every state. Radon gas is listed as a Class One human lung carcinogen. Prolonged exposure to high levels of radon gas can cause lung cancer. As a result, the EPA and the office of the Surgeon General recommend that all homes be tested for the presence of radon. Because radon is invisible and odorless, a simple test is the only way to determine if a home has high radon levels. In the event the test should reveal a high level of radon, mitigation systems costing between $800-$2000 can be installed to correct the situation. For more information on radon testing kits that can be used by your home inspector visit www.hometest.com.

6. Test for lead.
Lead is one of the most toxic elements known to man. It was used extensively for many years in residential paint and was not banned in the United States until 1978. As a result, over 75% of the nations housing contains lead-based paint. Exposure to lead causes permanent damage to the nervous system, especially in children and pets. The Centers for Disease Control name lead poisoning as the number one preventable environmental disease affecting our nations' children. Exposure to lead causes reduced I.Q., reading and learning disabilities, reduced attention span, even Attention Deficit Disorder (ADD). Lead paint exposure is normally not a result of chewing on lead paint chips. Rather, it is a result of being exposed to invisible lead dust that may be on windowsills and floors in the home. As the lead paint ages and deteriorates, or is disturbed by repainting or remodeling, invisible lead dust is created. Normal vacuuming does not remove the lead dust because the small particles pass through the bags and filter. In the event a home has a lead dust problem, it can normally be corrected by paint stabilization through repainting and specialized cleaning using a special HEPA vacuum. It is important to dust test any home built prior to 1978, especially if you have children or pets. Lead dust testing can be accomplished by a home inspector, environmental inspector, or can be done by the homeowner upon moving into the home. Visit www.hometest.com for more information on lead dust testing products, as well as a complete kit on maintaining a lead safe home.

Home Inspector Worksheet

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Though a final assessment can be made by an inspection service company, this checklist can serve as a reminder of some things to consider to make wise buying decisions.

Check the foundation, floors, walls and poured concrete.
Make sure there's no evidence of water seepage or moisture problems.
Minor settling cracks are usually not structurally significant.
Make sure there's drainage.
If necessary, make sure there's a sump pump for sanitary and foundation draining.
Check to see if the crawl space is dry.
Inspection by qualified exterminator is necessary for existing and potential problems related to wood rot and termites.
Check the condition of flooring, whether plank or plywood.
Check for solid construction of bridging and joists.
Check walls, whether drywall or plaster. Make sure there are no water marks.
Make sure the attic is sufficiently insulated and ventilated.
Check that the fireplace damper is in working order, and flues to the chimney are clear.
On heating and air-conditioning systems, check what minor periodic maintenance is required, such as oil fan motor, lubricate bearings, clean humidifier, replace filters, etc.
Check the hot water system -- type and gallon capacity. How long has the present unit been in service?
Check the electricity to make sure that the standard house current, number of circuits, outlets and fuses or circuit breakers are sufficient for everyday needs, and the condition of wiring is good.
Check for good water pressure throughout house and that the tie-in to local water supply facilities, etc. are all in working order.
Bathroom and kitchen fixtures should be in good shape. Make sure the range, refrigerator, dishwater/disposal, laundry facilities, etc. are all in working order.
Check exterior lot and landscaping. Is it properly graded or contoured? Are trees and shrubs sufficient for your needs?
Check that fences, walls, patio and driveway are in good condition.
Be sure exterior walls are suitable to weather conditions. Check doors and windows. Are they easy to open and close (or replace) for storm/screen removal or installation?
Are the roof, gutters and downspouts in good condition?
Is the garage door or opener in good working order? Is there sufficient electrical and heating access in the garage?

Buyer Problems

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Strange things happen in hot real estate markets, and some of these things can be detrimental to sellers, buyers and the whole real estate experience. One such hot-market phenomenon is that some buyers decide to not make a professional inspection a contingency of their offer to purchase a home. Waiving the inspection contingency may help them prevail in a multiple offer situation, but it can prove foolish.

Fred Friedland, a realtor with the St. Francis Wood office of Prudential California Realty in San Francisco -- one of the nation's hot real estate markets -- says he has seen three all-cash, no-inspection offers in recent months. "I would never advise a buyer to not have inspections, but it seems it's being done," he says. "And they're the ones who are getting the property." Sellers naturally favor offers that don't contain an inspection contingency because it's tantamount to selling their home as-is. Regardless of the home's condition, the buyers can't insist on the seller making any repairs that aren't otherwise provided for in the purchase contract.

Of course, the buyers may not have much leverage in a hot market anyway because the seller may be holding formal back-up offers and other eager buyers may be waiting in the wings. Nonetheless, the risks to the buyer of not having a professional inspection as a contingency are considerable. "The buyers face a huge risk in terms of buying a property with an unforeseen defect," warns Friedland.

He recalls one instance when an inspector discovered that a home had been built on a sewer easement. "The value of the property went to zero," he says. Friedland recalls another case in which the sellers of a 1897 Victorian home provided a pest control report showing the property needed $2,400 in mitigation work. The buyers hired a home inspector who happened to be a licensed pest control expert as well. He noticed some additional termite damage that would cost thousands of dollars more to repair. In fact, the home was being eaten alive from the ground up. "The sellers were trying to minimize the appearance of how much damage there was," Friedland believes.

While these are extreme cases, buyers who waive the inspection contingency have no protection from a host of lesser, yet still costly potential defects in a home. A leaking roof, faulty electrical wiring, malfunctioning major appliances, a defective heating or cooling system and many other problems can result in thousands of dollars of unexpected repair costs at a time when most buyers are strapped for cash.

Waiving the inspection contingency doesn't mean the buyers are buying blind. They can see much for themselves, and Friedland mentions that a buyer who is a general contractor probably can assess a property without an inspector's report. Also, some state disclosure laws force sellers to reveal any material problems of which they are aware. However, many sellers are blissfully ignorant of serious defects in their home, and they naturally can't disclose what they don't know.

Finally, a buyer's purchase offer might contain a right to have a professional inspection even though approval of the inspection report won't be a contingency of closing the transaction. If the inspector uncovers substantial problems, the buyers can attempt to find another way to cancel the escrow.

The bottom line is that waiving the inspection contingency is rarely worth the risk, particularly because it doesn't ensure a price discount in a strong market. Friedland says well-informed buyers much prefer to move on to another home rather than pass on the inspection. "They've always felt they would rather not get the property if they wouldn't be allowed to have the inspection," he says.

Home Inspection

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Years ago, home inspections were unheard of in residential real estate transactions. Instead, buyers simply relied on their own impressions of the home and the representations of the seller's real estate agent. Today, the process is dramatically different. Most real estate purchase contracts give the buyer fairly broad rights to order one or more professional inspections of the home before completing the purchase.

The right to have inspections comes with the challenge of hiring diligent and competent inspectors. Finding the right person isn't as easy as it may seem because in most states, just about anyone with an official-looking checklist and a flashlight can set up shop as a home inspector. The exception to this free-for-all is that special training is required to perform inspection or remediation work for such potentially hazardous materials as asbestos and lead-based paint.

A good real estate agent should be willing and able to recommend several well-qualified home inspectors. The tricky part is selecting the best candidates among the group. Here are six of the many factors to consider:

1. Qualifications. Ask open-ended questions about the inspector's training and experience as it relates to home inspections. The inspector should have some training in construction and building maintenance standards and a track-record of experience in the home inspection business. Depending on the location and age of the home, you may need to hire an inspector who's qualified to deal with asbestos, lead-based paint or other potentially hazardous substances. You may also need to hire a geologist or structural engineer.

2. Scope. Ask the inspector which components of the property are -- and are not -- included in his or her inspection. Will the inspector check out the roof? How about the swimming pool? The built-in appliances?

3. Sample report. Ask the inspector to provide a sample of his or her checklist or inspection report. Does the report include a narrative description or just check-off boxes? Is the information presented and explained clearly and completely? Does the report highlight any problems that could present a safety hazard?

4. References. Ask the inspector for the names and telephone numbers of several homeowners who have used his or her services. Call those people and ask them whether they were satisfied with the report and other services they received. Be sure to talk to some people who have owned their home for a few months or longer. Some problems overlooked by an inspection can take a while to surface.

5. Memberships. Many good inspectors don't belong to a national or state association of home inspectors. However, all else being equal, an association membership is often a plus. These groups provide their members with training and certification programs and up-to-date information about industry practices and inspection standards.

6. Errors and omissions. Even top-notch inspectors are only human and can make errors or overlook problems they probably should have noticed. Ask about the company's policy in such situations. Does the company have insurance for errors and omissions? Does the company or individual inspector stand behind the report? Many companies ask customers to sign a waiver limiting the company's liability to the cost of the inspection.

Lender Thoughts

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In processing your loan, the lender will be primarily interested in two things: the property that you plan to buy (because it serves as collateral for the loan); and your financial situation and your credit history (because they will determine your ability and your willingness to repay the loan). The lender will request an appraisal of the property, require a credit report of you and any co-borrowers and verify the information in your loan application. Let's look at each of these steps in turn.

Obtain a property appraisal -- The lender will arrange to have a professional appraiser estimate the market value of the house you plan to buy. The lender is interested in the value of the property because it serves as collateral for the loan. The lender wants to make sure that the value of your home would support the amount of your mortgage. The appraiser looks at what the home is worth today and how the neighborhood may affect future property value. The appraiser evaluates the property’s age, structural soundness, and other physical characteristics, as well as location factors such as surrounding homes, access to transportation, and even how zoning and taxes may affect the property in the future. Your lender will not loan you more than a given percentage of the value of the property (called the “loan-to-value ratio”). Once completed, the appraiser will send appraisal forms directly to your lender.

Obtain your credit report -- Your lender orders a credit report on you and your co-borrower to verify information you’ve already supplied on your application and to see how you’ve handled past debt and credit accounts. A credit report supplied by a credit reporting agency can tell the lender how much you owe, how often you borrow, and whether you pay your bills on time. All of these things can help the lender understand how well you might repay a mortgage loan. Your lender may ask you for a written explanation of any problems that appear on your credit report. Even one late payment on just one account may require an explanation from you. Just respond promptly with a truthful statement about whatever may have caused the late payment. In fact, if you know you have a credit problem, it may be to your advantage to talk to a loan officer about it at the time of your loan interview - rather than wait until a credit report prompts your lender to ask you about the issue.

Verify your employment and assets -- Your lender will verify information about your jobs and your savings and checking accounts. Usually, the lender sends forms to your employers asking about your job history and current salary and to your banks asking about your assets (checking and savings accounts, etc.).

Verify your housing payments -- If you currently rent, your lender will send a Rental Verification Form to your past landlords to inquire about your rent payment history. If you currently have a mortgage, the lender will send your current mortgage lender a Request for Mortgage History Rating. That rating will provide your lender with information on how you handled mortgage payments in the past.

Establish loan-to-value ratio -- Usually, the amount of your loan can be no more than 95 percent of the appraised property value or 95 percent of the sales price of your home, whichever is less. So if the appraised value is less than the purchase price you have agreed on, the amount of your mortgage may be smaller than you anticipated, and you will have to come up with a larger down payment or renegotiate with the seller the amount of money you will pay for the home.

Obtain approval of a mortgage insurer -- If your down payment is less than 20 percent of the purchase price of your home, your loan generally will require mortgage insurance. If mortgage insurance is a requirement, the loan will also have to meet the underwriting standards of the mortgage insurer. If you are obtaining an Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or Rural Housing Service (RHS) loan, the loan must also meet those standards.

Tips to speed up the approval process

To ensure that your mortgage application may be processed as quickly as possible, it’s important to bring all the proper information to your loan application interview. It is vital to provide current, accurate information during the interview. If your lender checks your credit history or your employment or your current bank account balances and finds discrepancies with your application, major delays may result, and more information may be needed. Be up front with any past credit problems. Your explanation of why loan payments were late or how a bankruptcy was handled will help your lender in fairly assessing your loan application. Your honesty and cooperation in providing required documents promptly will make the application process run smoothly. During the loan review process, your lender may ask you to sign and return additional documents such as a notarized gift letter (if you are receiving gift money toward a down payment). Be sure to get these documents to your loan processor promptly.

How the lender views your application

Your mortgage loan file is designed to provide information the lender needs to evaluate the risk involved in lending you money - the likelihood that you will or will not repay the loan. Lenders look at the “four C’s” of Credit - capacity, credit history, capital, and collateral. Lenders follow industry guidelines that specify how much of a mortgage you can qualify for based on your monthly mortgage payments and your total monthly debts. In general, your monthly mortgage payments (including mortgage principal, interest, taxes, and insurance) should not exceed 28 percent of your gross monthly income and your monthly debts (including your mortgage payment) should not exceed 36 percent of your gross monthly income. These are merely guidelines. A lender may be willing to lend you more based on your individual circumstances.

Capacity -- Can you repay the debt? Lenders ask for employment information: your occupation, how long you have worked, and how much you earn. They also want to know your expenses: how many dependents you have, whether you pay alimony or child support, and the amount of your other obligations.

Credit history -- Will you repay the debt? Lenders look at your credit history: how much you owe, how often you borrow, whether you pay your bills on time, and whether you live within your means.

Capital -- Do you have enough cash for the down payment and for closing costs? Do you need a gift from a relative? Will you have a cushion left after your home purchase, or will you spend your last penny at closing?

Collateral -- Will the lender be fully protected if you fail to repay the loan? Lenders must be sure the value of the property you are buying is sufficient to back up your loan.

If your loan is denied

Lenders are required to explain in writing their decision to deny credit and have 30 days from the submission of your completed application to tell you if and why your loan is not approved. A completed application includes your written application and all necessary requested information.

Understand why your loan was not approved -- Perhaps your loan application was rejected on the basis of a credit bureau report. Or perhaps the lender's qualifying formula shows that you have insufficient income or too much debt to afford the house you are proposing to buy. In either of these cases, there are steps you can take. For instance, if you are refused credit because of a poor credit rating, you are entitled to a free copy of the report from the credit reporting agency. You can then challenge any errors and can also insist that the credit reporting agency include your side of any unresolved credit disputes in its reports. If your credit history is not adequate, you should start repaying debts to get current.

Once you have improved your credit profile, you may be in a position to begin house hunting and apply for a mortgage loan again. Many lenders have a second level of review for denied loans, and you may wish to ask about this. You should also consider the following:

Investigate affordable housing loans -- If you have insufficient funds for closing costs and a down payment, or insufficient income to afford the house you want, you should investigate alternative financing arrangements. Fannie Mae®, has designed a wide range of loan programs for low- to moderate-income borrowers, including its Community Home Buyer's Program(SM), Fannie 97® (a 3 percent down payment loan), Housing Finance Agency Programs, and others. These loan programs allow a lower down payment, more flexible underwriting ratios, and a nontraditional credit history. For a list of lenders in your area who offer these programs, simply call Fannie Mae toll-free at 1-800-7FANNIE (1-800-732-6643).

Seek outside home counseling help -- If you have credit problems, seek the help of a nonprofit credit counseling agency. If local help is not available, obtain home-buying guidance directly from specialists on Fannie Mae's HomePath staff. Just call toll-free: 1-800-7FANNIE (1-800-732-6643).

Your Loan

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Before you apply for a loan, you will need the following:

Pre-qualification letter -- Lender pre-qualification provides a ballpark estimate of how large a mortgage you can afford. While it doesn’t obligate the lender to approve your loan, it’s a way to help ensure that you will apply for a mortgage loan within your price range. If you’ve met with the lender to get pre-qualified for a loan, you will have a good idea of the maximum mortgage amount you can afford and will have focused your house search on properties within your price range.

Ratified sales contract -- Most loan applicants go to their loan interview with a ratified contract of sale on a house in hand. Typically, your real estate sales professional has presented your offer to the seller of the property and helped you negotiate any sales contingencies with the seller (such as making repairs, settling by a certain date, etc.). A ratified sales contract means both the buyer and the seller have signed off on the final offer. This final sales contract is the starting point for the loan application interview. Your ratified contract will specify the amount of your down payment, the price you will pay for your house, the type of mortgage financing you will seek, and your proposed closing and occupancy dates. When you meet with your loan officer, you will need to communicate all these terms specified in the sales contract.

Earnest money deposit -- This is a “good-faith” payment you submitted with the offer to show the seller that you are serious. The earnest money is deposited in an escrow account and will be applied to your closing costs. Sometimes, your lender will want you to bring a receipt for the earnest money deposit along with your sales contract to the initial loan application meeting.

Home inspection report -- Obtaining a satisfactory home inspection report should be one of the terms in your sales contract. As part of your decision to go ahead and buy a certain house, you will want the peace of mind that comes from having hired a professional house inspector who has evaluated the structural and mechanical conditions of the property. The home inspection report can identify problems before you purchase a home. If you put a contingency clause into your purchase agreement stating that the purchase of your home depends on a satisfactory home inspection report, then you will be able to cancel the sales contract if serious problems are identified, or you may be able to get the seller to agree to pay for needed repairs or renegotiate the terms of the purchase.

Information your lender needs at application

Typically, you will complete the Uniform Residential Loan Application when you meet with your lender. This standard residential mortgage loan application is a four-page document that asks in-depth questions about you, your income, your assets and liabilities, and your credit and asks for a description of the property you wish to buy. In some cases, the lender may ask you to fill out your loan application before your interview. You will then bring your completed application form to the interview. Or, you can mail or fax the application to your lender prior to your appointment. Some lenders may even let you fill out your application over the telephone with a loan officer. By receiving your completed application before your meeting, your lender will be better prepared to advise you. Ask your lender what to bring to your initial loan interview. It may take a bit of time to gather all the required information. However, knowing what to bring will result in fewer delays in the processing of your loan. And that will save you time in the long run.

Decisions you make at application

By the time you go to your loan interview, you may have already determined the type of mortgage you want and the mortgage amount. Other important information may need to be determined at the time of your loan application. The lender will need key information about the following:

Type of mortgage -- Your loan application asks you to specify the type of mortgage you want. Your lender will most likely offer you a variety of fixed-rate or adjustable-rate mortgages with various repayment terms. There are also balloon mortgages, Two-Step Mortgages®, Fannie Mae's Community Home Buyer’s Program(SM), FHA and VA loans, and many others. It’s advantageous to learn about the various types of mortgages available to you before you apply for your loan. In fact, it makes a lot of sense to see what types of mortgage loans are available even before you start the house-hunting process. The type of mortgage you choose will directly affect how much house you can afford - and the amount of your monthly mortgage payments. If you bring a ratified sales contract to your loan application interview, it may specify the type of financing you want. Your contract to buy the house may depend on your ability to secure or receive a commitment for the type of loan you specify. If you are coming to your loan interview without a specified type of loan in mind, be sure you’ve done your research beforehand to know which type of financing is best suited to your lifestyle and budget.

Mortgage amount -- This is the amount of money you want to borrow. Again, this is a decision you most likely will have made before the loan application. Your requested mortgage amount will be based on the purchase price of your new home and the amount of money you will be putting toward a down payment. Before actually applying for a loan, many borrowers find out how much they can afford by getting pre-qualified by a mortgage lender. However, if you have been pre-qualified, remember that your prequalification letter from a lender is only a ballpark range of your buying power. It doesn’t obligate the lender to approve your loan for that full amount. The lender can approve you for the amount requested, or a lesser amount, or nothing at all, depending on other factors such as your credit and the appraised value of the property. If your loan application reveals you as creditworthy, it is likely that your pre-qualification amount will be close to the actual amount of mortgage funds a lender will be willing to loan you.

Down payment -- Some loan programs offer 3 percent down payments if you meet certain income standards. The Veterans Administration (VA) and the Rural Housing Service (RHS) offer no-down-payment loans. However, most lenders expect home buyers to have enough money available to make a down payment of at least 5 percent of the value of the home. If you can afford to put more money toward a down payment, it will reduce the amount of your monthly mortgage payments. The lender will want to know how much money you plan to put down and the source of those funds. Sources you may draw upon include savings, stocks and bonds, Individual Retirement Accounts (IRAs), pension funds, real estate holdings, life insurance policies, mutual funds, and employee savings plans. Under some mortgage programs, such as Fannie Mae’s Community Home Buyer’s Program(SM) with the 3/2 Option®, part of your down payment may come from a grant from a nonprofit housing provider in your community. You may also rely on a gift of money given to you by a parent or another relative that need not be repaid. If you use gift money for a down payment, you will need to present a letter to your lender that states the amount of the gift, is signed by the giver(s), and is usually notarized by a third party.

Settlement date -- In your sales contract, you specify a time frame in which you wish to close on your new home (usually 30, 45, or 60 days from the time you have a ratified sales contract). If you have a limited time frame, ask your lender about any type of express services that may allow for less documentation and alternative means to verify information you’ve furnished on your application. You will need to tell your loan officer the approximate date you would like to close your loan, so that your loan processing will coincide with this date.

Lock-in interest rate -- Mortgage interest rates may increase between the day you apply for your mortgage and when you actually close on your home. That’s why many mortgage lenders offer loan applicants a rate lock-in, which guarantees a specified interest rate for a set period of time. If you opt for a lock-in, make sure the expected closing date is well within the lock-in period. Ask the lender if the rate can be locked in at the time of application or only at loan approval, how long the lock-in remains in effect, whether there is a charge for locking in the rate, and if you can also lock in points.

Application costs you pay

In addition to the information described earlier, you should also bring your checkbook to the interview. Although costs and terms vary among lenders, most lenders require you to pay an application fee, a credit report fee, and in some cases a separate appraisal fee at the time of your loan application.

Application fee -- The application fee covers the lender’s cost to process the information on your loan. Often, the fee includes the appraisal - which is the cost the lender will pay a professional appraiser to estimate the value of the property you plan to purchase.

Appraisal fee -- An appraiser is a person who is qualified by education, training, and experience to estimate the value of real and personal property. Appraisers usually charge one fee for a single-family home and slightly higher fees for a two-family, three-family, or four-family home. Appraisals for government-insured loans, such as a FHA (Federal Housing Administration) loan or a VA (Department of Veterans Affairs) loan, need to be done by FHA- or VA-certified appraisers and may cost you less than those for other types of loans.

Credit report fee -- The credit report fee covers the lender’s cost for ordering a credit report on you from a credit reporting agency. This report will verify information that you supply on your application and will supply additional information from the credit agency’s own files and from the public record. When a credit report is received, your lender will check it against your application and look for any discrepancies. You may be asked to explain information in your credit report.

If you change your mind

Check with your lender to see if there are any circumstances under which you would be entitled to a refund of your application or credit report fee. In some cases, you can only get a refund of your application fee if your lender does not approve or deny your application in the time agreed upon (usually 30 days from the date of your completed application).

Application legal requirements

Legally, your lender is required to furnish you with several types of documents and information in conjunction with your application for a mortgage loan. This information includes the following:

Annual percentage rate -- Also known as the APR, this percentage figure combines the interest you will pay with certain closing costs, any points, and other finance charges and divides the total amount by the term of the loan. The result is your "effective rate of interest." The APR must be disclosed to you according to federal Truth-in-Lending laws within three business days of when you apply for a loan, or prior to or at closing for a refinance.

Disclosure about ARMs -- Federal law requires your lender to give you information either when you receive an application form for an ARM or pay a non-refundable fee - whichever comes first. Your lender should provide you with a written summary of the important terms and costs of the loan, the past performance of the index which the interest rate will be tied, and a copy of the booklet Consumer Handbook on Adjustable-Rate Mortgages.

Good-faith estimate -- Within three days after you have submitted your application for a home loan, the lender is required by federal law to provide you with an itemized estimate of the costs to close (or settle) the loan. This report is referred to as a “good-faith estimate.” It is a ballpark estimate of how much money you will need to pay at the closing table along with the seller's costs. Costs can and will vary from the actual amounts indicated, so be sure to take this for what it is - an estimate.

Guide to settlement costs -- The lender must also give you a copy of the government publication Settlement Costs: A HUD Guide. This publication describes the settlement process and nature of its charges, provides information about your rights, and includes an item-by-item explanation of settlement services and costs. The lender has three business days after your written application is taken to give this guide to you.

Authorization forms -- You may be asked to sign several authorization forms that will allow your lender to verify the information on your application. These include the authorization of credit investigation and authorization to verify your employment, past rental or mortgage payment history, and bank deposits. When compiling a credit profile of you, your lender must certify that the credit report will only be used for the purpose of qualifying you for a mortgage loan. As part of the credit evaluation process, your lender cannot seek any subjective information from your neighbors or co-workers concerning your character, reputation, or other personal aspects unless you receive notice. These limitations are set by the Fair Credit Reporting Act. Under the Equal Credit Opportunity Act, your lender cannot discriminate based on race, color, national origin, sex, marital status, age, religion, and the fact that all or part of your income comes from a public assistance program, and your exercise of any rights under the Consumer Credit Protection Act. Your lender also cannot ask questions about your future parenting plans, although the lender may ask about the current number of children you have and their ages.

Alternative documentation loans -- An alternative-doc (or alternative documentation) loan uses methods other than traditional documentation to verify information. Instead of sending a letter to the borrower’s employer, the lender asks for the applicant’s last two annual W-2 forms and a month’s worth of computerized pay stubs. The lender may then make a phone call to the employer to verify the documentation. Instead of sending a letter to the bank, the lender accepts the borrower’s bank statements for the preceding three months, and 12 months of canceled checks substitute for the letter of verification mailed to the landlord or the previous mortgage lender. Before your loan interview, ask whether your lender offers alternative documentation - and find out if you may be eligible. In most cases, alternative documentation can be used for salaried individuals who receive a computerized (as opposed to handwritten) paycheck. Self-employed individuals or those who earn commissions will most likely not be able to use alternative documentation for employment verification.

Apply for a Mortgage

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Once a simple task that meant comparing fixed rates from among perhaps a dozen or fewer savings and loan companies, the mortgage hunt today is like finding your way through a maze.

There are dozens of loan types and hundreds of loan programs available through thousands of mortgage brokers, bankers, lenders, finance companies, credit unions, even stock brokerage firms. Contrary to popular belief, finding a mortgage doesn't begin with an application.

Education is a better first choice. Mortgage information sources are as vast as the number of mortgages available. Web sites, topical newspaper articles, mortgage books, consumer seminars and workshops, financial planners, real estate agents, mortgage brokers and lenders are all available to assist you along the way.

First and foremost, you must determine how your mortgage payment will fit your current budget and, to some extent, your future obligations 15 to 30 years down the road.

If you discover too late that you can't afford your mortgage, you'll not only face the possibility of losing the roof over your head, but you could also damage your ability to purchase a home later.

Examine your finances

If you can afford to buy a home, you must then determine how much mortgage you can afford. Lenders are apt to put your loan application in the best light and qualify you for as much as they are willing to lend, which can be more than you can afford.

It's up to you to take stock of your income and expenses, both current and projected, to determine what you can comfortably manage each month. Along with your mortgage payment, don't forget related insurance, taxes, homeowner association dues and any other costs rolled into the mortgage payment.

Shopping for a loan

When you are ready to shop for a loan you have two basic types of mortgage stores to shop -- direct lenders and mortgage brokers.

Direct lenders have money to lend. They make the final decision on your application. Brokers are intermediaries who, like you, have many lenders from which to choose. Lenders have a limited number of in-house loans available. Brokers can shop many lenders for each lender's store of loans. If you have special financing needs and can't find a lender to suit them, an experienced broker may be able to ferret out the loan you need. Mortgage brokers, however, are paid with a slice of the amount you borrow, some more than others, some less. Internet brokers today perhaps receive the smallest cut, sometimes none at all, and can prove to be a real bargain.

Along with shopping the source, you'll also have to shop loan costs, including the interest rate, broker fees, points (each point is one percent of the amount you borrow), prepayment penalties, the loan term, application fees, credit report fee, appraisal and a host of others.

Apply for a loan

The application process is the easy part -- provided you've gathered documents necessary to prove claims you make on the application.

The application will ask for information about your job tenure, employment stability, income, your assets (property, cars, bank accounts and investments) and your liabilities (auto loans, installment loans, mortgages, credit-card debt, household expenses and others).

The lender will run a credit check on you to take a look at your credit status, but you'll have to supply additional documentation including paycheck stubs, bank account statements, tax returns, investment earnings reports, rental agreements, divorce decrees, proof of insurance, and other documentation. If the lender deems you creditworthy, it will likely hire a professional appraisal to make sure the value of the home you are about to buy is truly worth your loan amount.

Select a Mortgage

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A fixed-rated mortgage comes with an interest rate that remains the same for the life of the loan.

The life or term of a mortgage is 30 years by industry standards, but 15 and 20-year term loans are also available.

Shorter term loans come with cheaper interest rates. A 15-year mortgage's interest rate is typically one-quarter to one-half percent lower than a 30-year mortgage. Both the cheaper rate and the shorter term mean you'll also pay less over the life of the loan than you would if you borrowed the same amount of money with a long term loan.

Monthly payments of a shorter term loan, however, are generally higher than the same loan for a long term because the larger payments of the short term loan are necessary to repay the debt sooner.

A long term loan with smaller monthly payments can be easier to budget, but if you have a stable salary that allows you to afford the larger monthly outlay, the shorter term loan could be to your advantage.

Whatever term you choose, fixed rate mortgages protect you from the risk of rising interest rates. Of course, since you are locked in to a given rate, you could end up with a rate higher than the going rate should rates fall.

The second major category of mortgages are ARMs. They come with interest rates that adjust up or down, depending upon current economic trends.

An ARM's rate is based on a money market index. The one-year U.S. Treasury bill is commonly used because its yield is similar to the 30-year U.S. Treasury bill used to set rates on 30-year fixed mortgages. ARMs might also be tied to other indexes, including certificates of deposit (CDs) or the London Inter-Bank Offer Rate (LIBOR) rates, among other regularly published indexes.

To come up with the ARM rate, the lender will add a "margin," usually two to four percentage points, to the index.

Initially, the ARM rate is lower than the fixed rate, from about a quarter point to two points or more, depending upon the economy. When the first adjustment occurs (from six months to many years) and how often the rate adjusts, depends upon the terms of the loan. After the first adjustment occurs, subsequent adjustments can occur every six months, once a year, or during larger periods. The adjustment period is disclosed in the loan.

ARMs generally have limits or "caps" on how high it can adjust during each adjustment period as well as over the life of the loan.

The caps protect you from drastic market changes, but ARMS don't offer the stability of a fixed rate loan.

ARMs' lower initial rate, however, can help you qualify for a larger loan or start you off with smaller payments than you'd have to pay for the same mortgage with a higher fixed rate. And if index rates fall with an ARM, of course, so does your monthly mortgage.

ARMs could also be a good choice for someone who knows his or her income will rise and at least keep pace with the loan rate's periodic adjustment cap. If you plan to move in a few years and are not concerned about the possibility of a higher rate, an ARM also could be a good choice.

Mortgage Alternatives

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If, you anticipate living in your home for many years, the interest rate may be the main factor for you. If you expect to keep the house for only a short period of time, the closing costs may be more important to you. If you want to have ended any mortgage debt by the time you are facing your children's college bills or your own retirement, you may wish to consider a shorter term loan such as a 15-year fixed-rate mortgage. If your own retirement is years away, you may be less inclined toward a shorter-term loan, preferring to extend payments over a longer period of time through taking on a 30-year mortgage loan.

How important to you is the certainty of a fixed mortgage payment each month? If you want to make sure your mortgage payment remains the same each month, then you'll want to focus on various fixed-rate loans. If you are comfortable with periodic changes to your mortgage interest rate, then you may be inclined to consider adjustable-rate mortgages.

Fixed-rate mortgage loans -- A fixed-rate mortgage ensures that your interest rate (and your payments) will stay the same over the life of your loan - which may be an important consideration if you plan to stay in your home for several years. When you choose the length of your repayment (usually 15, 20 or 30 years), keep in mind that while shorter term loans may have higher monthly payments, they also let you pay less interest and build equity faster.

30-year fixed-rate mortgage loan -- The advantage of a 30-year fixed-rate mortgage loan is that it is the easiest to qualify for, and it gives you an excellent opportunity to keep your mortgage payments reasonable by making monthly payments over a long period of time. This mortgage loan may be ideal if you plan to remain in your home for years and wish to keep your housing expense low and use any extra cash for other purposes. This loan also provides maximum interest deduction for tax purposes.

20-year fixed-rate mortgage loan -- The 20-year mortgage often offers a lower interest rate compared to a 30-year loan. This mortgage amortizes principal and interest over a 20-year period, 10 years less than the traditional 30-year mortgage. This may save you a considerable amount of total interest paid over the life of the loan.

15-year fixed-rate mortgage loan -- The advantage of a 15-year mortgage is that its interest rate is lower than a 30-year or 20-year mortgage. Such a shorter-term mortgage will save you a significant amount of interest over the life of the loan. By paying off the mortgage more quickly, you also build up equity in your home sooner. A 15-year mortgage can let you own your home clear of debt earlier, which may be important if you are approaching retirement or have other large expenses to cover such as financing your children's education. However, the monthly payments you make on a 15-year mortgage will cost you more than those you would make on a 30-year or a 20-year mortgage loan for the same total mortgage amount.

Adjustable-rate loans -- With an adjustable-rate mortgage (ARM), the interest rate you pay is adjusted from time to time to keep it in line with changing market rates. This means that when interest rates go up, your monthly mortgage payments may go up as well. On the other hand, when interest rates go down, your monthly mortgage payments may also go down. ARMs are attractive because they may initially offer a lower interest rate than fixed-rate mortgages. Since the monthly payments on an ARM start out lower than those of a fixed-rate mortgage of the same amount, you can qualify for a larger loan. The chief drawback, of course, is that your monthly payments may increase when interest rates go up. The types of people who typically benefit from an ARM are those that are planning to move or refinance in the near future, people with a high likelihood of increasing their income in later years, and people who need lower initial interest rates on their mortgage to be able to buy a home. How much your payments can increase will depend on the terms of your mortgage.

Before applying for an ARM, be sure you know how high your monthly payments could go - the so-called "worst-case scenario." An ARM has two "caps" or limits on how large an interest rate increase is permitted: One cap sets the most that your interest rate can go up during each adjustment period and the other cap sets the maximum total amount of all interest adjustments over the life of the loan. The rates on an ARM usually change once or twice a year, and there is typically a lifetime rate cap (or limit) on both the amount of each individual rate adjustment and the total amount the rate can change over the whole term of the loan. For example, if your loan starts at 5 percent, has a 2 percent per-adjustment cap, and a lifetime adjustment cap of 4 percent, you know that your loan might go up to 7 percent the first time the rate changes. You also know that the rate can never go over 9 percent over the life of the loan (5 percent start plus 4 percent lifetime cap). Only you can determine if you would feel comfortable paying this interest rate sometime in the future.

Some ARMs offer a conversion feature, which allows you to convert from an adjustable-rate to a fixed-rate loan at only certain times during the life of your loan. Ask your lender about this feature when researching ARMs. One important thing to know when comparing ARMs is that the interest rate changes on an ARM are always tied to a financial index. A financial index is a published number or percentage, such as the average interest rate or yield on Treasury bills. The most common types of ARMs are listed below.

CD-indexed ARMs (certificate of deposit) -- These ARMs adjust to a Certificate of Deposit (CD) index. After an initial six-month period, the initial rate and payments adjust every six months. The standard form of these ARMs comes with a per-adjustment cap of 1 percent and a lifetime rate cap of 6 percent. Some of these ARMs offer an option to convert to a fixed-rate mortgage at specified interest adjustment dates.

Treasury-indexed ARMs -- These ARMs are indexed to the weekly average yield of U.S. Treasury securities adjusted to a constant maturity of six months, one year, or three years. Depending on which three of these security index schedules you choose, the interest rate on your ARM will adjust once every six months, once each year, or once every three years. Per-adjustment caps and lifetime rate caps vary, depending on the type of Treasury-indexed ARM you choose. Some of these ARMs offer an option to convert to a fixed-rate mortgage at specified interest adjustment dates.

Cost of funds-indexed ARMs -- Cost of Funds-indexed (COFi) ARMs are indexed to the actual costs that a particular group of institutions pays to borrow money. The most popular index of this type is the COFi for the 11th Federal Home Loan Bank District. COFi ARMs can adjust every month, every six months, or every year and the per-adjustment caps and lifetime rate caps vary, depending on the type of COFi ARM you choose. Some of these ARMs offer an option to convert to a fixed-rate mortgage at specified interest adjustment dates.

LIBOR-based ARMs -- The London Interbank Offered Rate (LIBOR) is the interest rate at which international banks lend and borrow funds in the London interbank market. You may choose an ARM that adjusts to the LIBOR every six months. This six-month LIBOR ARM typically has a per-adjustment period cap of 1 percent and is offered with either a 5 percent or a 6 percent lifetime rate cap. It can offer the option to convert to a fixed-rate mortgage.

Initial fixed-period ARMs -- You may wish to look into a special type of ARM that doesn't adjust your interest rate until several years after you take out the loan. These loans offer you several years of fixed payments before there is an interest rate change. You can get a three-, five-, seven-, or ten-year fixed-period ARM. This means your interest rate would be the same for the first three, five, seven, or ten years and then, at the end of your chosen fixed-rate period, your interest rate would adjust every year. This type of ARM protects you against rapid interest rate increases in the early years of your loan.

Two-step mortgage® -- The Two-step is a special type of ARM because it adjusts only once - either at seven years or at five years. After that initial adjustment, the mortgage maintains a fixed rate for the remaining 23 or 25 years of a 30-year mortgage repayment term. For example, if your initial interest rate were 8 percent, you would pay that rate for the first seven (or five) years. Then, for the remaining 23 (or 25) years, you would pay an interest rate that is indexed to the value of the 10-year US Treasury security on the adjustment date. This new rate can never be more than 6 percentage points higher than your old rate. There are no limits on how much lower the adjusted interest rate can be. The Two-step, then, provides the benefit of initial low rates with the stability of longer term financing. If you continue living in your home beyond the loan adjustment date, the Two-step offers the assurance of a fixed rate for the remaining term of the loan. At the adjustment date, there is no additional refinancing cost, no forms to complete, and no re-qualification necessary.

Government loans -- The Federal Housing Administration (FHA), the US Department of Veterans Affairs (VA), and the Rural Housing Services (RHS) are three agencies that offer government-insured loans. To obtain these loans, you apply through a lender that is approved to handle them. All require that the properties being purchased meet certain minimum standards. Here is some more information about various government loan programs:

FHA loans
With FHA insurance, you can purchase a home with a very low down payment (from 3 percent to 5 percent of the FHA appraisal value or the purchase price, whichever is lower). FHA mortgages have a maximum loan limit that varies depending on the average cost of housing in a given region.
VA loans
The VA guarantee allows qualified veterans to buy a house costing up to $203,000 with no down payment. Moreover, the qualification guidelines for VA loans are more flexible than those for either FHA or conventional loans. If you are a qualified veteran, this can be an attractive mortgage program. To determine whether you are eligible, check with your nearest VA regional office.
RHS loans
The Rural Housing Service, a branch of the US Department of Agriculture, offers low-interest-rate homeownership loans with no down payment requirements to low- and moderate-income persons who live in rural areas or small towns. Check with your local RHS office or a local lender for eligibility requirements. For the location of RHS State Offices and details on RHS loans, see the RHS home page.
State and local loan programs
A number of states sponsor programs to help first-time home buyers qualify for mortgages. Local housing agencies also offer attractive loan terms to eligible home buyers in some areas. These programs typically offer very attractive loan terms (low down payment or low interest rate) to first-time home buyers who meet specified income guidelines. Some state and local programs may also offer down payment and closing cost assistance. (Check with your state housing authority. The phone numbers usually can be found in the government “blue pages” of the phone book.)

Balloon loans -- These short-term loans (usually 5, 7 or 10 years) offer lower interest rates, but only a piece of what you borrow is paid off during the term of the loan. At the end of the term, you pay off the remaining balance in a lump sum or refinance it. If you think you will be selling or refinancing your home in 5 to 7 years, you may benefit from obtaining a balloon mortgage. The interest rate on a balloon mortgage is lower than that of a fully amortizing fixed-rate mortgage. You begin paying under a balloon mortgage an initial rate, 7 percent for example. You would continue paying that 7 percent rate for the first 5, 7 or 10 years, based on the term of your loan. At the end of your 5, 7 or 10 year term, all of your outstanding loan balance would be due.

Some lenders will permit you to extend your loan beyond the balloon date if you pay a fee and refinance your loan based on the then current interest rate. It is important to find out before you enter into a balloon mortgage whether your lender will allow you to refinance. Not all lenders will promise to extend your loan beyond the balloon date. This type of loan should not be pursued if you have concerns about meeting the refinance conditions or think the balloon term will be due before you are ready to move or refinance.

Affordable housing loans -- For households of modest means, the greatest barriers to homeownership are coming up with the down payment and closing costs and managing housing expenses that often are higher than those of the qualifying guidelines allowed in traditional mortgage lending. Fannie Mae, in cooperation with housing providers, offers low- and moderate-income households mortgage loan options that help overcome common barriers to homeownership. These mortgage loans offer flexible underwriting ratios, allowing you to use more of your monthly income toward housing costs than other mortgage loans allow. Also, these loans require less cash at closing and for a down payment, making it easier to get into a home sooner.

Fannie Mae's Community Home Buyer’s Program® -- Fannie Mae's Community Home Buyer’s Program provides financing for low- and moderate-income home buyers who represent a good credit risk but who might not qualify for home financing based on traditional lending criteria. Generally, if your household income is no more than 100 percent of your area median income, you are eligible for this type of loan. However, if the home you buy is in certain geographical areas, there is no income limit to be eligible for this program. Your local lender or Fannie Mae® can advise you of the median income in your area.

The Community Home Buyer’s Program builds flexibility into the lender’s standard lending requirements. This increases your purchasing power and decreases the total amount of cash needed to purchase a home. The same flexibility also allows you to build a nontraditional credit history. For example, if you do not have a credit history that is reflected in a credit report, your demonstrated willingness and ability to repay on a timely basis may be documented by verifications from utility companies, current and previous landlords, and other sources of credit or service where you were, or still are, required to meet a regular financial obligation.

3/2 Option® -- An important feature of the Community Home Buyer’s Program is the 3/2 Option. The 3/2 Option makes it easier for you to accumulate the minimum down payment necessary to obtain a mortgage. By taking advantage of the 3/2 Option, you can buy a home with a 3 percent down payment of your own funds instead of the 5 percent down payment usually required by lenders. The remaining 2 percent of the down payment can be supplied by a relative as a gift, or it can come from a nonprofit organization or a state, federal, or local government program in the form of a grant. To be eligible for the 3/2 Option, your household income, in most cases, may not exceed 100 percent of your area median income.

Fannie 97® -- The Fannie 97 mortgage lets you buy a house for as little as a 3 percent down payment. This type of mortgage may be ideal for the borrower who has enough income to handle the monthly mortgage payments but has difficulty accumulating cash for the down payment. The mortgage is available only to home buyers earning up to 100 percent of the area median income, with exceptions for certain high-cost areas and where the loan is made in connection with a federal, state, or local government program, where income limits are legislatively imposed. The mortgage is available with either a 25-year or 30-year term. With Fannie 97, closing costs may be paid by gifts from family members or by grants or loans from nonprofit organizations or government agencies.

FannieNeighbors® -- FannieNeighbors provides added flexibility to the CHBP by removing the income limit if you are purchasing a home within a designated central city or eligible census tract. Click here for a list of designated eligible cities. A central city is defined by the US Office of Management & Budget (OMB) to be the largest city in a metropolitan area and other additional cities that have populations of at least 250,000 or meet certain criteria for employed residents living in a city. A census tract is defined as an area with a population that is at least 50 percent minority or an area that has a median income at or below 80 percent of the median family income for the Metropolitan Statistical Area (MSA). However, the income limit is not removed if you are using FannieNeighbors with the 3/2 Option or Fannie 97.

Home improvement loans -- If you're looking to buy and renovate - or refinance and renovate - a home, look into Fannie Mae's HomeStyle® mortgages. With a HomeStyle mortgage, you can buy or refinance a home and pay for home improvements all with one loan.

HomeStyle® mortgages -- Today, more people are purchasing older homes in need of repair and renovation or are choosing to improve or enlarge their current homes. As a result, there is an increasing need for mortgages that combine the cost of purchase and renovation. Fannie Mae's HomeStyle® mortgages allow you to do just that. With Fannie Mae's HomeStyle® mortgages, you can finance your new home and renovation at the same time and with one loan. This loan is based on the amount that the house will be worth after the renovation is completed. These loans require two appraisals: an appraisal of the current market value of your home and a second appraisal of the value of your home after the renovations will be complete.

With the HomeStyle Standard Mortgage®, home buyers can complete improvements or repairs at low mortgage interest rates. With the HomeStyle Community Mortgage®, low- and moderate-income borrowers can purchase and improve their home with as little as 3 percent down, and use a gift, a grant, or a government or nonprofit loan to pay the remaining 2 percent of the down payment. This feature is called the 3/2 Option®.

Do you plan to purchase and improve a home but not use the property as a primary residence? If so, the HomeStyle Investor Mortgage® allows you to do just that. You are eligible for the same low rates and this mortgage can be used for purchase of a one- to four-unit property. For information on home improvement lenders near you, see the state-by-state directory at www.homepath.com.

Basic Mortgage

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Your home is collateral for your mortgage loan, which is also a legal contract you sign to promise that you'll pay the debt, with interest and other costs, typically over 15 to 30 years.

If you don't pay the debt, the lender has the right to take back the property and sell it to cover the debt. To repay the debt, you make monthly installments or payments that typically include the principal, interest, taxes and insurance, together known as PITI.

Principal -- The principal is simply the sum of money you borrowed to buy your home. Before the principal is financed you can give the lender a sum of cash called a down payment to reduce the amount of money that will be financed.

Interest -- Usually expressed as a percentage called the interest rate, interest is what the lender charges you to use the money you

borrowed. As well as the given rate, the lender could also charge you points, and additional loan costs. Each point is one percent of the financed amount and is financed along with the principal.

Principal and interest comprise the bulk of your monthly payments in a process called amortization, which reduces your debt over a fixed period of time. With amortization, your monthly payments are largely interest during the early years and principal later.

In addition to your principal and interest, your mortgage payment could include money that's deposited in an escrow or trust account to pay certain taxes and insurance.

Generally, if your down payment is less than 20 percent, your lender considers your loan riskier than those with larger down payments. To offset that risk, the lender sets up the escrow account to collect those additional expenses, which are rolled into your monthly mortgage payment.

Taxes -- The taxes are property taxes your community levies based on a percentage of the value of your home. The tax is generally used to help finance the cost of running your community, say to build schools, roads, infrastructure and other needs. You must pay property taxes even if you don't need an escrow account and even after your mortgage is paid off.

Mortgage Loan

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The mortgage is a legal document that secures the note and gives the lender a legal claim against your house if you default on the note's terms. In effect, you have possession of the property, but the lender has an ownership interest (called an "encumbrance") until the loan has been fully repaid. The lender agrees to hold the title or deed to your property (or in some states, to hold a lien on your title or deed) until you have paid back your loan plus interest.

Mortgage amount and term
The mortgage amount is the amount of money you borrow from a lender to pay for your house. The term is the number of years over which you can pay back the amount you borrow. The length of your mortgage repayment period will directly affect your monthly mortgage payments. For the same mortgage principal amount, you will find that the shorter your repayment period is, the higher your monthly payments will be, but the total interest you pay over the life of the loan will be less. On the other hand, the longer your repayment period is, the lower your monthly payments will be, but the total interest you pay over the life of the loan will be more. The most popular mortgage term is 30 years. By extending payment over 30 years, you keep your monthly housing costs low. If you can afford higher monthly payments, you can select a mortgage term that is shorter: there are 20-year, 15-year, and even 10-year fixed-rate mortgages available from most mortgage lenders.

Amortization
During the term of your loan, you will pay back your mortgage by making regular monthly payments of principal and interest. In the early years of your loan, most of the money you pay will be for the interest you owe. Toward the end of the term of your loan, you will be paying primarily principal. This type of repayment method is called amortization.

Fixed interest rate
Some mortgages have an interest rate that is fixed for the entire term of the loan. One advantage of a fixed-rate loan is that you know your interest rate will never change over the term of your loan.

Adjustable interest rate
An adjustable-rate mortgage (called an ARM) has an interest rate that varies during the life of the loan. The interest rate with an ARM may increase or decrease based on market interest rates. Consequently, your mortgage payments may go up or down.

Down payment
The down payment is the part of the purchase price that the buyer pays in cash and does not finance with a mortgage. The larger your down payment, the less you will need to borrow. The less you need to borrow, the smaller your mortgage payments will be. Lenders often view mortgages with larger down payments as more secure because you have more of your own money invested in the property. However, you may have as little as 3 percent to 5 percent of the purchase price for a down payment. Lower down payments help many people afford homes of their own sooner.

Closing costs
The closing, also known in some areas as the settlement, is the final step -- the act of transferring ownership of the home to you. The closing usually takes place at a financial institution, like a bank or savings and loan, and is designed to ensure that the property is all set to be transferred to you. Each state has its own rules as to what costs must be paid at the closing. Common items to be paid at the closing are: transfer taxes and recordation taxes; title insurance; the site survey fee; loan discount points; attorney fees; and various fees for preparing the legal documents. When talking about closing costs, rather than discussing all of these fees individually, closing costs are talked about as a percentage of the sales price or the loan amount. Although you can try to get the seller to pay some part of the fees, closing costs generally range from 3 percent to 6 percent of the sale price of your home.

Discount points
Points (also called “discount points”) are a type of fee that you pay to your lender. Simply put, a point is equal to 1 percent of the loan amount. One point on a $100,000 loan is $1,000; on a $200,000 loan, it is $2,000. Discount points represent extra money you can pay to the lender at closing in exchange for a lower interest rate on your loan. For each point you pay for a 30-year loan, your interest rate is generally reduced by about 1/8th (or .125) of a percentage point. So, if the current interest rate on a 30-year mortgage is 8.5 percent, paying 1 point means you could get that mortgage for an interest rate of 8.375 percent. For example, you are shopping for a 30-year mortgage loan. A lender quotes you an interest rate for a 30-year, $100,000 mortgage at 8.5 percent. You can choose not to pay any discount points at closing and pay 8.5 percent interest. If you are more interested in paying less interest, you can ask the lender to quote you interest rates with your paying 1, 2, or 3 discount points. Usually, the longer you plan to stay in your home, the more sense it makes to pay discount points.

Conforming and nonconforming loans
The term “conforming”, as opposed to “nonconforming”, is sometimes used to explain loans that offer terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are two private, secondary mortgage market companies that buy mortgage loans from lenders, thereby ensuring that mortgage funds are available at all times in all locations around the country. The most important difference between a loan that conforms to Fannie Mae/Freddie Mac guidelines and one that doesn't is its loan limit. Fannie Mae and Freddie Mac will purchase loans only up to a certain loan limit (currently $252,700). So, if your loan amount will be for more than the conforming loan limit of $252,700, you may be asked to pay a higher interest rate on your mortgage. Your mortgage loan may also follow slightly different underwriting requirements, particularly in regard to your required down payment amount. Check with your lender about this if you are taking out a large loan amount. Nonconforming loans are sometimes called jumbo loans.

Effective Offer Writing

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Do not rely on the someone’s word when making deals. Verbal contracts are not enforceable in real estate. You should enter into a written agreement, which is an oral or written agreement to do or not to do a certain thing, which starts with your written proposal. This proposal not only specifies price, but all the terms and conditions of the purchase. For example, if the sellers said they'd help with $2,000 toward your closing which is this has different meanings in different states, in some states a real estate transaction is not consider "closed" until the documents record at the local recorder, that is, the public official who keeps records of transactions that affect real property in the area, sometimes known as a "registrar of deeds" or "county clerk," s office, in others, the "closing" is a meeting where all of the documents are signed and money changes hands, costs, be sure that's included in your written offer and in the final completed contract, or you won't have grounds for collecting it later.

Any real estate agent will always have a variety of standard forms, including the all important Residential Purchase Agreement, that are kept up to date with the changing laws. When you use an agent, these forms will be available to you. In addition, agents can cover the questions that need to be answered during the process. In many states certain disclosure laws must be complied with by the seller, and the real estate agent will ensure that this takes place.

If you are not working with an agent, keep in mind that you must draw up a purchase offer or contract that conforms to state and local laws and that incorporates all of the key items. State laws vary, and certain provisions may be required in your area. After the offer is drawn up and signed, it will usually be presented to the seller by your realtor, by the seller's realtor if that's a different agent, or often by the two together. In a few areas, sales contracts are typically drawn up by the parties' lawyers.

The purchase offer you submit, if accepted as it stands, will become a binding sales contract (known in some areas as a purchase agreement, earnest money agreement or deposit, that is, a sum of money given in advance of a larger amount being expected in the future, often called in real estate as an "earnest money deposit," receipt). It's important, therefore, that it contains all the items that will serve as a "blueprint for the final sale." These purchase offer items include such things as:Address and sometimes a legal description of the property Sale price Terms -- for example, all cash or subject to your obtaining a mortgage, that is, a legal document that pledges a property to the lender as security, that is, the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds, for a given amount Seller's promise to provide clear title (ownership) Target date for closing (the actual sale) Amount of earnest money deposit accompanying the offer, and whether it's a check, cash or promissory note, that is, a written promise to repay a specified amount over a specified period of time, which is a legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time, and how it's to be returned to you if the offer is rejected -- or kept as damages if you later back out for no good reason Method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller Provisions about who will pay for title insurance, survey, termite inspections and the like Type of deed to be given Other requirements specific to your state, which might include a chance for attorney review of the contract, disclosure of specific environmental hazards or other state-specific clauses A provision that the buyer may make a last-minute walk-through inspection of the property just before the closing A time limit (preferably short) after which the offer will expire Contingencies, which are an extremely important matter and discussed in detail below

If your offer says "this offer is contingent upon (or subject to) a certain event," you're saying that you will only go through with the purchase if that event occurs. The following are two common contingencies contained in a purchase order: The buyer obtaining specific financing from a lending institution. If the loan can't be found, the buyer won't be bound by the contract. A satisfactory report by a home inspector "within 10 days (for example) after acceptance of the offer." The seller must wait 10 days to see if the inspector submits a report that satisfies you. If not, the contract would become void. Again, make sure that all the details are nailed down in the written contract.

You're in a strong bargaining position -- meaning, you look particularly welcome to a seller -- if: You're an all-cash buyer; or You're already pre-approved for a mortgage; and You don't have a present house that has to be sold before you can afford to buy. In those circumstances, you may be able to negotiate some discount from the listed price. On the other hand, in a "hot" seller's market, if the perfect house comes on the market, you may want to offer the list price (or more) to beat out other early offers.

It's very helpful to find out why the house is being sold and whether the seller is under pressure. Keep these considerations in mind: Every month a vacant house remains unsold represents considerable extra expense for the seller; If the sellers are divorcing, they may just want out quickly; and Estate sales often yield a bargain in return for a prompt deal.

You will need earnest money. This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show "good faith." A realtor or an attorney usually holds the deposit, the amount of which varies from community to community. This will become part of your down payment.

Seller's response to your offer: You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified of acceptance. If the offer is rejected, that's that, and the sellers could not later change their minds and hold you to it.

If the seller likes everything except the sale price, or the proposed closing date, or the basement pool table you want left with the property, you may receive a written counteroffer, with the changes the seller prefers. You are then free to accept or reject it or to even make your own counteroffer. For example, "We accept the counteroffer with the higher price, except that we still insist on having the pool table."

Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side's proposal.

Withdrawing an offer: Can you take back an offer? In most cases the answer is yes, right up until the moment it is accepted, or even in some cases, if you haven't yet been notified of acceptance. If you do want to revoke your offer, be sure to do so only after consulting a lawyer who is experienced in real estate matters. You don't want to lose your earnest money deposit, or find yourself being sued for damages the seller may have suffered by relying on your actions. For Your Home

For sellers: calculating your net proceeds: When an offer comes in, you can accept it exactly as it stands, refuse it (seldom a useful response), or make a counteroffer to the buyers with the changes you want. In evaluating a purchase offer, you should estimate the amount of cash you'll walk away with when the transaction is complete. For example, when you're presented with two offers at once, you may discover you're better off accepting the one with the lower sale price if the other asks you to pay points to the buyer's lending institution. Once you have a specific proposal before you, calculating net proceeds becomes simple. From the proposed purchase price you can subtract: Payoff amount on present mortgage; Any other liens (equity which is a homeowner's financial interest in a property, equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens, loan, judgment, that is, a decision made by a court of law, in judgments that require the repayment of a debt, the court may place a lien against the debtor's real property, that is, land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof, as collateral for the judgment's creditors); Broker's commission; Legal costs of selling (attorney, escrow agent); transfer tax which is state or local tax payable when title passes from one owner to another, es; Unpaid property taxes and water bills; If required by the contract: cost of survey, termite inspection, buyer's closing costs, repairs, etc.

Your present mortgage lender, that is, a term which can refer to the institution making the loan or to the individual representing the firm, for example, loan officer, that is, also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institutions are often referred to as "lenders," may maintain an escrow account which is once you close your purchase transaction, you may have an escrow account or impound account with your lender, this means the amount you pay each month includes an amount above what would be required if you were only paying your principal which is the amount borrowed or remaining unpaid, the part of the monthly payment that reduces the remaining balance of a mortgage, and interest, the extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due, the lender pays them with your money instead of you paying them yourself, into which you deposit money to be used for property tax bills and homeowner's insurance premiums. In that case, remember that you will receive a refund of money left in that account, which will add to your proceeds.

Mental Control

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Do you remember when you bought your first home? It was, do doubt, an indescribable feeling of delight. The right home. The right neighborhood. You fell in love after your first walk through. Then came the nervous times. Will you be able to afford it? Will the sellers accept what you offer? How soon can you get the keys? These great feelings are a good sign you found your home, but don't let your emotions get the best of you!

The price is an important consideration before rushing to buy. Your lender, which is a term that can refer to the institution making the loan or to the individual representing the firm, for example, loan officer which is also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institutions are often referred to as "lenders," says you can afford to buy the home you adore, but are you comfortable with the monthly payments you'll be obligated to make? Is the down payment within your means? Will you have enough cash to pay transaction costs and moving expenses? If the house needs major repairs, remodeling or redecorating can you save the necessary funds within a reasonable time period?

The condition of the home is also important! Next to price, this is probably the most important consideration. How is the roof? Are the floors level? Does the electrical and plumbing work and appear sound? Is the home disaster-ready (e.g., bolted to the foundation in earthquake country)? A fixer-upper home with lots of potential can be a great find or a money pit. Will you be able to meet the financial challenges and live with the mess and inconvenience while the home is being brought up to your expectations?

Make sure you consider the size. The right combinations and configuration of the rooms is important. If you don’t have enough bathrooms and bedrooms and storage, your home is not going to be the pleasure it should be! Is that small closet less den really big enough for your child's bedroom? Is one bathroom adequate and if not, what are the real costs and headaches of adding a second one? Does the kitchen have enough cupboard and countertop space? Is the garage wide enough and deep enough for your vehicles? Will your piano really fit in that alcove near the staircase?

The comfort level of a home greatly depends on heating and air conditioning. Does it have a heating system that you can be happy with? Is central air something you want? Are those climate controls important to you? Are the windows large enough and positioned to create cross ventilation? If the house has two stories, are you comfortable with the idea of walking up and down stairs every day? Is there a downstairs bathroom (and bedroom, if needed) for guests who can't navigate the stairs?

The style of the home should appeal to you. Is the design and architecture of the house too modern or too traditional for your preferences in furniture and home furnishings? People move to a new home every seven years, on average. If you wanted to sell your home or were forced by unexpected circumstances to sell it, how easy would it be to find a ready, willing and able buyer?

Comparison Shopping

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Print out this worksheet and make notes about the homes you visit.

Features	House #1	House #2	House #3
Address
Price
Location
# Bedrooms
# Baths
Square Feet
# Garages
Family Room
Air Conditioning
Formal Dining Room
Pool
Spa/Jacuzzi
Lot Size
Landscaping
Kitchen
Floor Plan
Storage Space
Condition
Extras (specify)
Curb Appeal
Commute Time

Neighborhood Features

Neighborhood	House #1	House #2	House #3
Crime Rate
Quality of Schools
Traffic
Proximity to:	House #1	House #2	House #3
Schools
Hospitals
Shops
Transportation
Cultural Activities

Overall Opinion

	House #1	House #2	House #3
Overall Opinion

Home Selection

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After a neighborhood has been selected, or several areas, you should begin your home search in earnest. It doesn't pay to buy a home in an area you will not be happy with! Your wish list can remind you which features are absolute requirements and which amenities you'd like to have if possible. When narrowing down your home search, consider: Types of homes Home purchase considerations Home comparison chart What to do when you’ve found the right home for you

In addition to single family homes (one home per lot), there are other forms of home ownership! Multifamily homes: Some buyers, particularly first-timers, start with multiple family dwellings, so they'll have rental income which is the amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments, to help with their costs. Many mortgage which is a legal document that pledges a property to the lender as security, that is, the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds, plans, including VA and FHA loans, can be used for buildings with up to four units, if the buyer intends to occupy one of them.

Condominiums: With a condo, you own "from the plaster in" just as you would a single house. You also own a certain percentage of the "common elements" -- staircases, sidewalks, roofs and the like. Monthly charges pay your share of taxes and insurance on those elements, as well as repairs and maintenance. A homeowners association administers the development.

Co-ops: In a few cities, cooperative apartments are common. With those, you purchase shares in a corporation that owns the whole building, and you receive a lease, that is, a written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time, to your own apartment. A board of directors supervises management. Monthly charges include your share of an overall mortgage on the building.

The following Home purchase considerations should be taken seriously. Most buyers' first consideration, after neighborhoods are chosen, is the number of bedrooms. As you begin to view homes, keep the following purchase and resale considerations in mind: Weigh your needs, budget and personal tastes in deciding whether you want a home that’s a newly constructed home, an older home or a home that requires some work -- a "fixer-upper." One-bedroom condos are more difficult to resell than two-bedroom ones. Two-bedroom/one-bath single houses generally have less appeal than houses with three or more bedrooms, and therefore less appreciation which is the increase in the value of a property due to changes in market conditions, inflation, or other causes, potential. Homes with "curb appeal" (a well-maintained, attractive, and charming view-from-the-street appearance) are the easiest to resell. When resale is a possibility, don't buy the most expensive house on the street, or anything that is unusual or unique. The best investment potential is traditionally found in a less expensive, more moderately sized home on the street.

While house-hunting, it's a good idea to make note, that is, a legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time, about what you see because viewing several houses at a time can be confusing. Use our home comparison chart to help you keep track of your search, organize your thoughts and record your impressions.

Home Hunt

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Every neighborhood is different. It is strongly recommended that you research the neighborhood you plan on living in before buying your home. It is even advisable that you park nearby and walk to neighborhood after the normal work day is done to see what the area is really like! Depending on your own particular needs and tastes, some of the following factors may be more important considerations than others: quality of schools property values traffic crime rate future construction proximity to schools, employment, hospitals, shops, public transportation, prisons, freeways, airports, beaches, parks, stadiums and cultural activities such as museums, concerts and theaters.

Approval Letters

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You probably realize you should get a mortgage, that is, a legal document that pledges a property to the lender as security which is the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds, pre-approval letter from a lender, that is, a term which can refer to the institution making the loan or to the individual representing the firm, for example, loan officer which is also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution and are often referred to as "lenders," before they begin seriously shopping for a home. But the reasons for this advice aren't always clear, and buyers sometimes are dismayed by the amount of paperwork involved. Here is some of the reasoning behind the advice:

Pre-approval and a pre-qualification letter are not the same! A pre-approval letter is more important and trustworthy! Getting a pre-qualification letter is easy. You just call a mortgage broker which is a mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships, or lender, provide some basic financial information, then wait a few minutes for the letter to come through your fax machine. Getting a "pre-qual" from a Web site is just as easy. Enter some information, click "submit" and voilà. A pre-approval letter, on the other hand, involves verification of the information. Rather than taking your word on faith, the lender will ask for documentation to confirm your employment, the source of your down payment and other aspects of your financial circumstances. Granted, a pre-approval is more time-consuming (and possibly more stressful) than a pre-qualification The additional due diligence is exactly why the pre-approval carries more weight.

You should know how much money you can afford to borrow, i.e., how large of a monthly payment you can afford. Most home buyers have a rough idea of how much they would feel comfortable paying every month on their mortgage. However, there's no quick-and-dirty way to translate that monthly payment into a specific maximum mortgage amount because other factors -- down payment percentage, mortgage insurance, property taxes, adjustable interest rates and so on -- are part of the calculation. And, you might not be qualified to borrow as much as you think you should be able to borrow, depending on your income which is the amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments, your debt which is an amount owed to another and your credit history, that is, a record of an individual's repayment of debt, credit histories are reviewed my mortgage lenders as one of the underwriting criteria in determining credit risk,.

This will give you more clout with any seller. Sellers often prefer to negotiate with pre-approved buyers because the sellers know such buyers are financially qualified to obtain the financing they need to close the transaction. A pre-approval letter is an especially favorable point in a close multiple offer situation. And, you might feel more confident about making an offer with a pre-approval letter in hand and the knowledge that you'll be able to obtain a mortgage.

Real Estate Ads

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4B/2B -- four bedrooms and two bathrooms. "Bedroom" usually means a sleeping area with a window and a closet, but the definition varies in different places. A "full bathroom" is a room with a toilet, a sink and a bathtub. A "three-quarter bathroom" has a toilet, a sink and a shower. A "half bathroom" or powder room has only a toilet and a sink.

assum. fin. -- assumable financing

Closing Costs: This has different meanings in different states, in some states a real estate transaction is not consider "closed" until the documents record at the local recorder which is the public official who keeps records of transactions that affect real property in the area, sometimes known as a "registrar of deeds" or "county clerk," s office, in others, the "closing" is a meeting where all of the documents are signed and money changes hands, costs -- the entire package of miscellaneous expenses paid by the buyer and the seller when the real estate deal closes. These costs include the brokerage commission, mortgage which is a legal document that pledges a property to the lender as security, that is, the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds,-related fees, escrow or attorney's settlement charges, transfer tax which is state or local tax payable when title passes from one owner to another, is, recording fees, title insurance and so on. Closing costs are generally paid through escrow.

CMA -- comparative market analysis or competitive market analysis. A CMA is a report that shows prices of homes that are comparable to a subject home and that were recently sold, are currently on the market or were on the market, but not sold within the listing period.

Contingency -- a provision of an agreement that keeps the agreement from being fully legally binding until a certain condition is met. One example is a buyer's contract which is an oral or written agreement to do or not to do a certain thing, dual right to obtain a professional home inspection before purchasing the home.

dk -- Most often refers to a deck

Expansion pot'l -- expansion potential mean that there's extra space on the lot or the possibility of adding a room or even an upper level, subject to local zoning restrictions.

Fab Pentrm -- fabulous pentroom, a room on top (but under the roof) that has great views

FDR -- formal dining room

Fixture -- anything of value that is permanently attached to or a part of real property which is land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof, . (Real estate is legally called "real property," while movables are called "personal property.") Examples of fixtures include installed wall-to-wall carpeting, light fixtures, window coverings, landscape, that is, adjustable rate mortgages have fluctuating interest rates, but those fluctuations are usually limited to a certain amount, those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps," some arms, although they may have a life cap, that is, for an adjustable-rate mortgage (arm), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year, there is a limit on how much that payment can change each year, and that limit is also referred to as a cap and so on. Fixtures are a frequent subject of buyer and seller disputes. When in doubt, get it in writing.

Frplc, fplc, FP -- fireplace

Gar -- garage (garden is usually abbreviated as "gard.")

Grmet kit -- gourmet kitchen

HDW, HWF, Hdwd -- hardwood floors

Hi ceils -- high ceilings

In-law potential -- potential for a separate apartment, subject to local zoning restrictions

Large E-2 plan -- this is one of several floor plans available in a specific building

Listing -- an agreement between a real estate broker and a home owner that allows the broker to market and arrange for the sale of the owner's home. The word "listing" is also used to refer to the for-sale home itself. A home being sold by the owner without a real estate agent, that is, a person licensed to negotiate and transact the sale of real estate, isn't a "listing."

Lo dues -- low homeowner's association dues. But find out how "low" the dues are compared to other dues in the area.

Lock box -- locked key-holding device affixed to a for-sale home so real estate professionals can gain entry into the home after obtaining permission from the listing agent

Lsd pkg. -- lease which is a written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time parking area. May come with additional cost.

MLS -- Multiple Listing Service. An MLS is an organization that collects, compiles and distributes information about homes listed for sale by its members, who are real estate brokers. Membership isn't open to the general public, although selected MLS data may be sold to real estate listings Web sites. MLSs are local or regional. There is no MLS covering the whole country.

Nr bst schls -- near the best schools

Pot'l -- potential

Pvt -- private

Pwdr rm -- half bathroom or powder room

Title Insurance -- an insurance policy that protects a lender, that is, a term which can refer to the institution making the loan or to the individual representing the firm, for example, loan officer which is also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution’s are often referred to as "lenders" or owner's interest in real property from assorted types of unexpected or fraudulent claims of ownership. It's customary for the buyer to pay for the lender's title insurance policy.

House Search

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Location is a very important consideration! It really is all about 'Location, Location, Location!' Location is very important! You will probably only want to drive so far to a job. Are the schools good? How about shopping centers, public transportation, seniors services and other public amenities? Will your new home be next to a vacant lot or a commercial property? Even a picture-perfect dream home can be a mistake if it's in an undesirable location, and a poor-location home can be a particularly bad choice if you anticipate reselling the home within a few years.

You and your partner should know before hand what you want in a home. You'll save yourself a lot of grief if you talk over important issues before hand. Find the features you must have, would like to have, definitely don't want and would prefer not to have. Your goal is to find the right home for your family without falling in love with one that doesn't suit your needs. Tip: Start compiling your wish list by thinking about what you like and dislike about your current home.

Study the issues! Know what you're getting into and where you're getting into it at! Its not a bad idea to visit a neighborhood after hours for several days to see how quiet the neighborhood is when people are home from work! Learn what it means to buy a home! Not long ago, consumers had very little access to information about recent home sales prices, market trends, homes on the market, neighborhood statistics and the home-buying process. Today, all this information and more is available on the Web. Go surfing. Get educated. Become empowered.

Pre-Approval is important for your mortgage, that is, a legal document that pledges a property to the lender as security, that is, the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds,. Your top-dollar home price is a function of your household income which is the amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments, your creditworthiness, interest rates, the type of loan you select and how much ready cash you have for the down payment and closing, that is, this has different meanings in different states, in some states a real estate transaction is not consider "closed" until the documents record at the local recorder which is the public official who keeps records of transactions that affect real property in the area, sometimes known as a "registrar of deeds" or "county clerk," s office, in others, the "closing" is a meeting where all of the documents are signed and money changes hands, costs, among other factors. Rather than guessing or estimating how much you can afford to spend, ask a lender which is a term which can refer to the institution making the loan or to the individual representing the firm, for example, loan officer which is also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institutions are often referred to as "lenders," or mortgage broker which is a mortgage company that originates loans, then places those loans with a variety of other lending institutions with whom they usually have pre-established relationships, to give you a full assessment which is the placing of a value on property for the purpose of taxation, and a letter stating how much you're qualified to borrow. The true amount may be much more or much less than you think.

Checklists are a very handy tool, especially when touring multiple homes! Rather than relying on memory, make note, that is, a legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time about the homes you visit. Turn your priorities into a personalized home-shopping checklist and use it track the features of each home.

Your Wish List

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You will find the following chart useful.

Ideal price	_________________________
Number of bedrooms - minimum	_________________________
Number of bathrooms - minimum	_________________________
Garage - number of cars	_________________________
Lot size	_________________________
Age of house	_________________________
Square feet of house	_________________________
Style of house	_________________________
Number of floors	_________________________
Type of neighborhood	_________________________

Rate the features below on a scale of 0 to 10, with 0 being those things you absolutely "don't want" and 10 being those things you "must have."

Eat-in kitchen	0 1 2 3 4 5 6 7 8 9 10
	Don't want Like Need Must have

Separate dining room	0 1 2 3 4 5 6 7 8 9 10
Separate dining room	Don't want Like Need Must have

Fireplace	0 1 2 3 4 5 6 7 8 9 10
	Don't want Like Need Must have

Family room	0 1 2 3 4 5 6 7 8 9 10
	Don't want Like Need Must have

Finished basement	0 1 2 3 4 5 6 7 8 9 10
Finished basement	Don't want Like Need Must have

Pool/jacuzzi	0 1 2 3 4 5 6 7 8 9 10
	Don't want Like Need Must have

Patio/porch	0 1 2 3 4 5 6 7 8 9 10
	Don't want Like Need Must have

Homeowner Association amenities (security gate, community pool and tennis courts)	0 1 2 3 4 5 6 7 8 9 10
	Don't want Like Need Must have

Yard	0 1 2 3 4 5 6 7 8 9 10
	Don't want Like Need Must have

View	0 1 2 3 4 5 6 7 8 9 10
	Don't want Like Need Must have

Other features you want in a home:

Other features you don't want in a home:

Find your Dream

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Your lifestyle is important when considering what you want in a home. If you love to make food, you'll want a well-equipped kitchen. If you love to garden, you'll want a yard. If you want to work at home, you may want a room for a separate library or home office. A person with many cars needs a big garage!

A good idea is to write on a piece of paper all of the things you want in a home. The paper stage is where you let your wildest imagination flow. Later you will pick and choose things that are realistic and fit within your budget and lifestyle.

If you are planning to only live in your home for a short period of time you will have different needs than if you are planning to live for a longer period of time in the residences. Your needs will be different. If you are newly married, you might not be concerned with a school district right now. But you could be in several years. Will you move then -- or is the house you are looking for now in a neighborhood where good schools are available? If you have aging parents, might they need to live with you in the near future? Consider arrangements that fit everyone.

Often, it is the location of a home that is more important than the features. Of course all of these things must fall within your price range! If you can pick a community and/or the maximum amount of distance you are willing to travel, this will go a long way to helping you decide where you want to live.

Shopping, police and fire protection, medical facilities, school and day-care, traffic and parking, trash and garbage collection, are all important factors when considering the location of your home.Driving or walking around neighborhoods, looking at street maps of various neighborhoods, and talking with people you know who live in the neighborhood will help you better understand the pluses and minuses of communities you are considering.

Consider what you really want and the advantages of different types of living. Do you want a condominium or a home? A town house or a detached single-family home? In terms of construction materials, do you want brick, stone, stucco, wood, vinyl siding, or another building material? Can you make repairs on an older home or does a brand new home suit your needs better?

A REALTOR Can Help

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Buying power is important! It is what determines how much you can afford. Buying power is simply your financial reserves plus your borrowing cap which is adjustable rate mortgage which is a legal document that pledges a property to the lender as security which is the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds have fluctuating interest rates, but those fluctuations are usually limited to a certain amount, those limitations may apply to how much the loan may adjust over a six month period, an annual period, and over the life of the loan, and are referred to as "caps," some arms, although they may have a life cap, that is, for an adjustable-rate mortgage (arm), a limit on the amount that the interest rate can increase or decrease over the life of the mortgage, allow the interest rate to fluctuate freely, but require a certain minimum payment which can change once a year, there is a limit on how much that payment can change each year, and that limit is also referred to as a cap, acuity. If you give a real estate agent which is a person licensed to negotiate and transact the sale of real estate, some basic information about your available savings, income which is the amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments, and current debt which is an amount owed to another, he or she can refer you to lender, that is, a term which can refer to the institution making the loan or to the individual representing the firm, for example, loan officer, that is, also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institutions are often referred to as lenders best qualified to help you.

After you have been pre-qualified or are confident you know how much you can afford you are ready to search for your home. This is the time to choose a real estate licensee. When picking a real estate agent look for one who is also a realtor. A (c)Realtor is a member of the NAR, a real estate trade association, and all members agree to abide by a 17 articles in their Code of Ethics. A (c)Realtor has many resources and can assist you in your search. It is important to have a licensed real estate agent if you are not completely sure of the process of homeownership and the art of purchasing a home from start to finish.

No matter what anyone says, it is your job to find the home that is right for you. Even the best deal is worthless if you are not happy with it. Your agent can assist you in the selection process by providing objective information about each property. Agents who are realtors have access to a variety of informational resources. realtors can provide local community information on utilities, zoning, schools, etc. There are two things you'll want to know. First, will the property provide the environment I want for a home or investment? Remember to consider whether your property will hold it's value when you are ready to sell.

Considering the price, financing, terms, date of possession and often the inclusion or exclusion of repairs and furnishings or equipment are all important factors when considering a home and negotiating a price.. A well written purchase agreement can provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to a purchase. An agent will know what is required to purchase a home - whether it be inspections or contracts.

Once negotiations is complete, you must evaluate the property. Of course , depending on the area and property, this could include inspections for termites, dry rot, asbestos, faulty structure, roof condition, septic tank and well tests, just to name a few. Your agent can assist you in finding qualified responsible professionals to do most of these investigations and provide you with written reports. You will also want to see a preliminary report on the title of the property. Title indicates ownership of property. The title to most properties will have some limitations; for example, easement which is a right of way giving persons other than the owner access to or over a property’s (access rights) for utilities. Your agent, title company which is a company that specializes in examining and insuring titles to real estate, or attorney (lawyer) will be of help if an issue comes up during or after the transaction.

Your agent can help you in understanding different financing options and in identifying qualified lenders. Often it is advisable to become pre-qualified. This will ensure that you do not get your heart set on a property you cannot afford or purchase because of other issues (such as credit) and will enable you to find and purchase the best home for your needs in the least amount of time.

Your closing (this has different meanings in different states, in some states a real estate transaction is not consider "closed" until the documents record at the local recorder, that is, the public official who keeps records of transactions that affect real property in the area, sometimes known as a "registrar of deeds" or "county clerk," s office, in others, the "closing" is a meeting where all of the documents are signed and money changes hands) or settlement will come after you have found and purchased your property. This is the last step you take in purchasing a property.

A real estate transaction is a big, important deal. Any given transaction will usually exceed $100,000. If you have a $100,000 income tax problem you would not attempt to resolve it without a licensed professional. It is in that vein you must seriously consider using a licensed professional. Not all, even most transactions handled without a (c)Realtor go without problems. But if you are the person who has a problem, you do not want to be without a professional who handles real estate issues and problems on a daily basis!

Confidence and Experience

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Do not be intimidated when buying your first home. It can be intimidating, but remember, millions have gone before and found the experience quite exciting and even easy. The price you can afford, finding a loan are probably the most important factors. You may ask yourself other questions as well. Where will I come up with a down payment, and how much will I need? Should I buy a new or resale home, and which will go up in value? Should I use an agent or look at homes on my own?

Here is some helpful advice. Remember to keep these things in mind when you look for a home.

Your real estate agent should explain everything involved in the buying process. The concepts are relatively simple. Just because we don't apply for a thirty year mortgage, that is, a legal document that pledges a property to the lender as security, that is, the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds, once a week doesn't mean we have to take the first one that comes along. You'll need to learn some new terms, apply some new concepts and take the time to understand what you're getting into. If anything happens at any point in the process that doesn't make sense to you, simply demand a full and complete explanation. If it still doesn't make sense, seek help from someone you trust like your CPA, your banker or maybe your friendly online real estate columnist.

Please remember that the buyer is the most important person in the buying process. Not the banker. Not the agent. Not the seller who needs YOU to complete the transaction! The agent talks fast and seems to have an answer for everything. The lender, that is, a term which can refer to the institution making the loan or to the individual representing the firm, for example, loan officer which is also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution are often referred to as "lenders," may decline your loan application which is the form used to apply for a mortgage loan, containing information about a borrower’s income, savings, asset which is items of value owned by an individual, assets that can be quickly converted into cash are considered "liquid asset which is a cash asset or an asset that is easily converted into cash, s," these include bank accounts, stocks, bonds, mutual funds, and so on, other assets include real estate, personal property, and debt which is an amount owed to another, owed to an individual by other, debts, and more, and on and on. But the truth is that you, the buyer, are the one person in this transaction that makes it all happen. If you decide to not buy, the entire process comes to a grinding halt. So flex your consumer muscle and take command of this process. Surround yourself with a team of professionals that you have confidence in and make them work for you.

Ownership Advice

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If you are a young person, you probably don't spend much time thinking about your first home. Perhaps you're more concerned with academics, athletics, parties, dating and future career possibilities. Even if this is true there are a number of good reasons to start learning early in life about the costs of buying a home and the responsibilities of homeownership.

The following represent a few things you may wish to think about as you move through life and ultimately to homeownership.

Establish good credit habits and a favorable credit history which is a record of an individual's repayment of debt which is an amount owed to another, credit histories are reviewed my mortgage which is a legal document that pledges a property to the lender as security which is the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds, lender, that is, a term which can refer to the institution making the loan or to the individual representing the firm, for example, loan officer which is also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution’s are often referred to as "lenders," as one of the underwriting criteria in determining credit risk,. Get a credit card and use it responsibly. Apply for an automobile loan and make your payments on time every month. If you're renting an apartment, put your own name on the lease which is a written agreement between the property owner and a tenant that stipulates the payment and conditions under which the tenant may possess the real estate for a specified period of time, and the utility bills and make sure the rent and the bills are paid every month.

Start saving for a down payment and closing and this has different meanings in different states, in some states a real estate transaction is not consider "closed" until the documents record at the local recorder which is the public official who keeps records of transactions that affect real property in the area, sometimes known as a "registrar of deeds" or "county clerk," s office, in others, the "closing" is a meeting where all of the documents are signed and money changes hands, costs. It's possible to purchase a first home in many parts of the country without much in the way of savings. But in high-cost housing areas, starting to save early can be enormously beneficial because you'll get the advantage of compounding interest and have a longer period of time to grow your investments. Open a savings account or a stock brokerage investment account and make regular deposit which is a sum of money given in advance of a larger amount being expected in the future, often called in real estate as an "earnest money deposit,".

Become knowledgeable about real estate Your local library and bookstore probably have at least a few shelves of books about financial management and buying a home. Take note which is a legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specified period of time. Make a financial plan for yourself. You can learn a lot about real estate, budgeting and credit on this website too!

Decide where you want to live Young people think they will continue living in their own home town when they get older, but people are more mobile than ever and chances are good you'll one day live in another city or even another state. Again, the library, bookstore and Web can be excellent resources for information about housing costs and homeownership opportunities around the country.

Young Buyer

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You don't necessarily need the full twenty percent down payment. Many lenders are very interested in lending you as much as 95% of the purchase price of your home, at very favorable interest rates. These banks are willing to spread out the payments over a long period of time so that you can afford the house you want. Everyone wins when a loan is approved, however, if you are too risky, in the long run everyone loses. In this case it is better for everyone involved if you decide to wait.

If you have a steady job and a reasonable credit history, that is, a record of your repayment of debt, that is, an amount owed to another, credit histories are reviewed by mortgage, that is, a legal document that pledges a property to the lender as security which is the property that will be pledged as collateral for a loan, for payment of a debt, instead of mortgages, some states use first trust deeds, lender which is a term which can refer to the institution making the loan or to the individual representing the firm, for example, loan officer, that is, also referred to by a variety of other terms, such as lender, loan representative, loan "rep," account executive, and others, the loan officer serves several functions and has various responsibilities: they solicit loans, they are the representative of the lending institution, and they represent the borrower to the lending institution’s are often referred to as "lenders," as one of the underwriting criteria in determining credit risk, there is a good chance that you can find a home lender who will lend you most of the purchase price of your new house.

There are many reasons why a lending officer will bend over backwards to complete a loan. One main reason the lender is willing to lend you up to 95% of the value of your house is that history has shown real estate to be such an excellent investment. Lenders expect that your home will be worth more in the future than it is today - so their investment in your home is considered very safe.

If you think about it, America's largest and strongest corporations borrow at what is known as the "prime rate, that is, the interest rate that banks charge to their preferred customers, changes in the prime rate are widely publicized in the news media and are used as the indexes in some adjustable rate mortgages, especially home equity lines of credit, changes in the prime rate do not directly affect other types of mortgages, but the same factors that influence the prime rate also affect the interest rates of," and that today you can borrow a home loan - fixed at the same rate for many years - at substantially less than the prime rate. Lenders have found that home loans tend to be excellent investments, and you benefit every month when you make your loan payment.

Income Requirements

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Determining your monthly income is an important first step. This includes regular & recurring income that can be documented. If you can not document or prove the income you wish to report or if it does not come up on a tax return you can not use it for qualifying purposes. You can use sources of income that are considered unearned such as gambling (legal) winnings, settlements, and alimony. If you own property or other income producing assets like stocks (dividends), the income from these things can be used in an estimated format.

You will need to calculate monthly debt loads including all debt obligations such as credit cards and loans as well as other monthly obligations such as owed monies (child support / alimony) and re-occurring debt. Revolving debts such as credit cards use a minimum monthly payment system for this calculation. Installments use current monthly payments to calculate your debt loads. You do not need to consider a debt if it is scheduled for payoff in a time period of less than 6 months. Taken as a whole it is considered a monthly debt service.

The most important thing to understand about this is that mortgage loan officers do not want to over burden anyone. They want you to have the ability to repay what you owe. Different lenders have different formulas. The following is a rough idea how to look at the numbers :

If your monthly expenses, including payments for insurance and taxes exceeds 28% of your gross monthly income, you should expect problems. An easy way to calculate extra home expenses such as taxes, insurance and other items is to consider about 12% of your income to go towards these things. The rest can be used for other things such as interest and principal, that is, the amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.

Additionally, Total housing expenses (monthly) and total debt service (monthly) combined should generally be less than 40% of your gross monthly income. The lender's underwriting requirements may be exceeded and the application denied if these amounts are exceeded.

Every situation is different. It is not uncommon to encounter flexibility in the 25% and 40% general guidelines. If you are able to purchase a home by borrowing less than 80% percent of the value of the home by putting down a large cash down payment, qualifying rations are much different and less critical. For example if Paul Allen, or Steve Forbes, or your rich relative is willing to co-sign the loan, any lender will definitely be less caring about guidelines discussed here. These guidelines are simply a general rule of thumb meant to educate you on the mindset of mortgage lenders.

Buying an Affordable Home

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There are a few easy tricks to help you find the amount of mortgage you should take on. Because this method does not take into account many factors, you should be sure to consult with a qualified expert. Banks will generally not lend a person too much money, so for this reason it can be difficult to get into too much trouble. Problems generally occur when a person takes on more debt after they have received their mortgage loan. Another pitfall involves miscalculation another co-borrower's (wife, husband, etc) earning power. If your co-borrower encounters problems, you are both legally responsible for loan repayment. Borrowing power also depends on all persons involved.

Often a first time buyer's main concern is down payment and closing costs. The amount of savings accumulated will be a first time buyer's most important consideration. If you do not have the amount required, (usually 3-5% of the total loan amount) it is advisable to save for your down payment by putting an amount of money from your paycheck away into a savings account. Monies in your checking and savings accounts, mutual funds, stocks and bonds, the cash value of your life insurance policy, and gifts from parents or other relatives may all be suitable sources for a down payment. You may need to rent for several years before you are ready to buy your first home.

Putting less than 20 percent down often means you are required to purchase PMI (private mortgage insurance) for your home. This will add approximately 1% to your monthly payments and is added to the overall loan amount. In considering your down payment, this is an important consideration. There are also moving expenses and decorating and furnishing as well as any required repairs to the new home (if a resale home) that will need to be examined while considering your down payment amount. If you are considering other large purchases such as a new car, this should also be considered. Additionally, a mortgage lender will often wish to see a few months worth of mortgage payments over and above the down payment amount in reserve.

Beyond a simple down payment, you will be required to come up with closing costs. Closing costs are separated into what are called "non-recurring closing costs" and "pre-paid items." Non-recurring closing costs are any items which are paid just once as a result of buying the property or obtaining a loan. "Pre-paids" are items which recur over time, such as property taxes and homeowners insurance. A lender makes an attempt to estimate the amount of non-recurring closing costs and prepaid items on the Good Faith Estimate which they must issue to the borrower within three days of receiving a home loan application.

Beyond having the proper amount of funds for the down payment and closing costs are other factors. Earnings and credit are considered carefully. Lenders use existing guidelines to determine the size of loan you are eligible to receive. The amount you owe on existing debt is very important. Also, credit ratings are taken to mean quite a lot. Perhaps even more important than this is your earnings history. This is the amount of money you have earned over a consistent period of time.

Calculations that are used in determining whether a borrower can qualify for a mortgage. There are two ratios. The "top" or "front" ratio is a calculation of the borrower’s monthly housing costs (principle, taxes, insurance, mortgage insurance, homeowner’s association fees) as a percentage of monthly income. The "back" or "bottom" ratio includes housing costs as will as all other monthly debt.

A general rule of thumb is that you should not buy a home whose payment, taxes and income is greater than about 35% of your monthly gross (pre tax) income. This is called a housing expense ratio and is used by most mortgage lenders. The amount of money owed to various creditors for long term debt should be no more than 40 percent of your gross monthly income. This is known as the debt to income ratio.

Home Ownership Advantage

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You probably have a good reason to buy the home you have been looking at. You may have a particular community in mind and wish to have the feeling only permanent residence can give you, with the community involvement and activities this can provide. Perhaps you just need a larger living area to accommodate your large and growing family. Some simply want more freedom that renting simply doesn't provide.

Whatever the reason, be it tax savings from mortgage interest deductions, or the forced savings plan a home affords in it's value build up, that is over time you will accumulate what mortgage lenders will call equity. And while renters face yearly increases, a homeowner will have a consistent payment year after year, that while at first can be difficult, will seem more and more easy as time goes on because of the effect of inflation.

There are a few considerations though. As a homeowner, you will lose a certain amount of mobility. As a renter, you can pick up and move to new locations relatively easily while home owners must first sell their existing home before moving. And even though your mortgage payments can often be less than a renter's taxes and repairs can often drive the prices to a level that is much closer to, if not greater than a renters. With the possibility of foreclosure always at the door, if you fail to keep up your payments, the lender may sell the mortgaged property. Home foreclosure can result in the loss of not only your house but also your investment and good credit rating. It is important to keep this in mind before buying your dream home.

Buy vs Rent

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If you itemize your deductions, you are not alone! Most homeowners do in fact itemize their deductions. This allows them to deduct home mortgage interest, state income taxes, property real estate taxes, gifts to charity, as well as medical and dental expenses, personal property taxes and even moving expenses!

To decide if you should continue to rent or to take the plunge and buy, you should compare your monthly rent to the computed figured generated by calculating the purchase price and down payment of your home, your annual income, existing debt, property taxes, home insurance, and length of the loan. Often a specialist in home buying or accounting will be in a position to help.

These are not the only costs to home ownership, only the most obvious. Along with your monthly payment, and large initial expenditure of the down payment, property taxes, homeowners insurance premiums, and closing costs which generally hover around $1000 - even your credit check will cost money. Be careful of 'points', which is one percent of the total loan amount paid up-front for lower rates. These are not always with paying and should be considered carefully. Insurance fees, survey charges, home inspections, attorney and escrow fees as well as loan originations can drive the total costs higher than you may expect, so be sure to either consult with a knowledgeable real estate agent,, or do your homework!

Beyond the seeming mountain of expenses there are benefits to owning that should not be ignored. These long term benefits include having a house that will appreciate, that is, be worth more than what you purchased it for when sold. Of course this amount depends on the state of your mortgage and the housing market when you decide to sell your asset, a few factors to consider when computing this price is appreciation and inflation. Both of these will drive the price of your home up. A professional can help you set the proper price of your home and give you some idea of how much your home will be worth in the future.

Being mobile and having the lifestyle you want is another major reason for owning your own home. Mobility is the freedom to take the job in another city or state or move because of a relationship. Mobility is far easier when renting. Lifestyle can often be enhanced by living near parks and recreation that suits your individual taste. Renters can often find locations that allow them to live a more ideal lifestyle for a lower cost.

Renting, although with it's advantages does not include the joys of owning either. While an advantage to renting is having the responsibility of maintenance, general upkeep and safety shifted to the Landlord, homeownership affords you the position of driver's seat You will shoulder the expenses, but reap the rewards of improving your living space the way you see fit.

Renting and Homeownership both have their advantages, each with its highs and lows. As a homeowner, I can say unequivocally, that homeownership is definitely the way to go!

Checklist for Home Buyers

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Working consistently is one of the most important factors a lender will want to see. Steady employment is a critical and crucial factor in deciding not only how much to lend, but at what rate. The lack of steady employment does not mean you can not get a loan, but will effect the outcome. An important factor in this consideration is if you have held the same job for the last two years. If you have moved to a new job, it is often favorable if you have moved and received the same or more pay.

If you have not been working steadily for at least two years, it is important to show why there was a lapse in employment. For example, if you were just discharged from the military, recently finished school, work seasonally with work gaps between seasons, were temporarily laid off, or had an illness that prevented you from working, you may still be able to qualify for a mortgage loan.

If you have been working steady, your job of receiving a mortgage loan, and at a lower rate will be considerably easier. If you have had a lapse, but can demonstrate why and a complete history, the lender will have the evidence needed to initiate your mortgage loan.

If you have not been steadily employed for the last two years, you job will be considerably more difficult. If you were dismissed with a cause, have big gaps in your employment record, or noticeable gaps in income that are hard to explain. You may wish to postpone your purchase until a satisfactory employment record can be shown.

Another factor that is considered is credit. Your credit record is checked before a loan will be issued. Mortgage lenders want to see a record of dept and payment. They will want to build confidence that you can pay the increased dept. Some of the things that are examined on the report is how much debt you have incurred , that is how much outstanding debt you still owe as well as a steady payment history and how long you have left to pay off existing debt.

Credit bureaus will keep a detailed record of most American consumers. compile these reports by obtaining information from a wide range of sources--credit card companies, banks that have given you car loans, department stores and gasoline companies that provide credit cards. If you do not have a credit card and have never borrowed money, a credit history will need to be established by showing monthly rent payments and/or utility company payment histories. Your lender can provide more information on the necessary requirements.

Your credit card record is available by contacting your credit bureau. These places are usually listed in your local yellow pages under Credit Reporting Agencies and will provide you with a copy of your report, usually for free or for a small fee. The larger companies are TRW (Experian), Equifax, and CBI as well as Trans Union. You can contact any of them for your credit report. Online credit report publishers are also available for a small fee.

If you have a good credit record, this means you have a good history of getting your bills paid on time and can prove that with a credit report or by putting together a non-traditional history of credit. The lender credit standards vary, but being late on a payment or having your report examined a few times doesn't mean you do not have a good credit history, but you may need to explain why. If you show a pattern of not paying accounts, it will ultimately affect your credit. Good credit gives the mortgage lender confidence that you are willing and able to pay your bills in a timely fashion.

If you have an unsatisfactory credit history, this probably means you do not pay your bills on time or have not paid your bills on time for one reason or another. You may need to explain why you have not paid your bills on time. A bad history tells the mortgage officer that you have more credit responsibilities that you can handle. Things that are considered negative are repossessions, late payments, accounts turned over to third party collection agencies, as well as judgments and liens - and of course bankruptcies. Bad information in your file may lead creditors to deny credit to you. If the report shows unfavorable and is accurate, you may wish to delay your purchase. You may want to improve your credit by consistently paying bills on time and paying down your existing debt.

Most home buyers require a mortgage loan from a bank or other financial institution. Very few loans are 100%. Most lenders insist that you contribute a varying amount of money towards the purchase price of the home. These days many buyers put down as little as 3 to 5 percent of the total purchase amount.

For a $100,000 home, a 5 percent down payment requirement would be $5,000. You also will need to pay a number of additional costs, called closing costs, that cover the legal transference of a property to your name and other costs associated with your taking out a mortgage. Closing costs generally range from 3 percent to 6 percent of the sales price of the home. So, if you were to buy a $100,000 house with a 5 percent ($5,000) down payment, you could expect to pay between $3,000 and $6,000 in closing costs. Think about how much houses cost in your area and the type of mortgage down payment your loan will require. Then calculate the funds you have available to you for a down payment and closing costs.

If you have the down payment required, your employment history is in order and your credit is reasonably sound, congratulations! You are ready to purchase your home today! You can get pre-qualified immediately. This process will allow you to shop for the home of your dreams while knowing how much money you are able to spend. Remember: Have Fun!

Are We at the Bottom?

Fri, 18 May 2012 23:05:04 +0000

Everyday, we have walk-ins at our office that express that they think the market will soften some more, and that they are going to wait it out to buy.

Now I cannot predict the future, so I am not sure if this is the bottom, but it surely is not near the top! The only way we will know when we have hit bottom is when the prices are already climbing back up. I can't see the market getting drastically worse. It may go down a little bit more, but should not be enough to stop someone from putting an offer on a property that they like.

I think when the media describes San Diego's market as a whole, it makes it seem much worse that it really is. Downtown San Diego is a completely different market. Real estate consultants are saying that downtown is one of the best areas for long-term investment.

Prices are down nearly 30%, and now is the time to buy in Downtown. Properties are going off the market faster than a few months ago. Already we are seeing multiple offers on properties that are either priced to sell, or are in a highly desirable development. Many times in this situation, the condo sells for above asking price!

So the people who continue to wait out the market for a year or so, may miss out on Downtown's best deals.

-Ashley Souza

Are We There Yet?

Fri, 18 May 2012 23:05:04 +0000

By Nathan Moeder, The London Group

November 2005, the peak of the market here in San Diego, seems like a different world ago. Since then everything has been in flat-out turmoil (subprime) or just plain limbo (sidelined buyers and investors). Predicting the precise bottom of the market is nearly impossible – just like trying to buy a stock at the cheapest price. And we don’t realize we’ve hit bottom until there is hindsight. But here is some interesting data that may suggest stabilization is around the corner (or maybe we’re rounding it now?).

The price-to-income ratio is one metric to determine if the housing market is affordable and sustainable. It’s simple – take the price of the median home and divide it by the median income. For the 1980 to 2000 period this ratio reached a low 4.1 (1985 and 1996). In 1989 it reached a high of 5.7. But the 2000’s yielded much higher ratios, reaching 9.0 in 2006. The reason for this was lower interest rates, new mortgage vehicles, and lax underwriting……..or basically just the ability to finance and how much.

This statistic is now the center of debate of those trying to predict the market. The most common argument is that that the price-to-income ratio must fall back to historical norms (in the 4.0 range) for the market to be in equilibrium. However, past is not prologue, and just like reading any ancient script, you must consider the context. The context here is leverage. To say that price-to-income ratios will return to the 4.0 level is to suggest that we will be in a high interest rate environment. I agree that is where we are heading, but the interest rates at those price- to-income levels would mean that 30-year mortgages return to the double digits. In the 1980’s the average 30-year mortgage cost you 12.7%. In the 1990’s it was 8.1%, which was a market that was affected more by job loss than the high cost of housing.

The adjacent table depicts the change in leverage between the past 20 years and where we are today. The average interest rate was 10.3% and price-to-income ratio was 4.6 for the 20 year period from 1980 to 2000. However, if we assume that 30-year mortgages will be at 6.5% to 8.5% over the next couple years, consumers can afford to finance 18% to 43% more compared to the prior 20-year period. This translates to a price-to-income ratio of 5.3 to 6.3.

So where are we today? The price-to-income ratio has dropped back to 5.8. In addition, the Case-Shiller index demonstrates that prices have receeded to 2003 or 2002 levels. This information is shown the following chart along with the percentage of income that is spent on housing. Currently, 36% of income is spent on housing, which it hasn’t been since 2000 - 2001. This is also less than the late 1980s and early 1990s period. But if the price-to-income ratio fell to the 4.0 range, the correlating percentage of income spent on housing would be 25% to 29% - which would be lower than even the lowest point in the past 20 years.

(click on chart for larger version)

It’s hard to picture that the fundamentals of housing affordability in San Diego could fall to its lowest levels in 20 years. And if it did, we would have more severe economic conditions than just a housing slump, which means that qualified buyers and affordability wouldn't necessarily be the problem. But when the micro-markets of San Diego stabilize it will be at different times, largely due to the concentration of foreclosures. Currently there are already some initial signs of stabilization in some of the coastal neighborhoods in San Diego. I don’t know if we’re there yet, but it might be closer than we think. The next question is: how long will we be there?

The Long and Short of Short Sales

Fri, 18 May 2012 23:05:04 +0000

From InmanWiki

If you are in the market to buy a home, you have no doubt heard the term "Short Sale". No, this does not refer to sellers who are under 5' tall. A "short sale" is industry jargon for a seller who owes more on the property than what it is worth. The seller in this situation needs the lender to accept a "short" loan payoff, or in other words accept less than the full amount due on the loan. So how does that effect you the buyer?

First of all, short sales require the lender to agree to the reduced pay off. Therefore, when you negotiate on a short sale, you are negotiating with two parties: The seller who owns the property, and the lender who holds the loan. You need the approval of both parties to get your offer accepted. It is important to make sure the seller has received preliminary approval from the lender, because if the lender does not agree to the terms you will have no contract. Therefore, it is important to question the seller and/or the seller's agent to make sure the process is in place, and that the bank will cooperate. This process requires the seller to submit documentation to the lender demonstrating hardship, along with evidence that the market value is less than the outstanding loan.

Secondly, be prepared for a long process. Dealing with banks in a situation like this can sometimes be comparable to getting allergy shots... it can be a long, drawn out, and ultimately aggravating experience. Often, you are dealing with layers of bureaucracy, and this can slow the process down. So short sales usually require patience on the part of buyers. It is also important to have interest rate protection during this process. In a normal transaction, buyers will typically lock in interest rates for 30 to 60 days. That may not be enough time for a short sale, and you want to avoid being 45 or 60 days into the sale only to find out that your rate lock expired, and your interest rate just went up 1/4%. Plan for the worst case. It is good practice to include in the purchase agreement a time frame for lender approval, with a clause that gives the buyer the right to cancel the transaction if the lender does not approve the sale after a certain period of time. This way, as a buyer you are free to pursue other properties if the lender is dragging their feet.

Thirdly, be prepared for potential issues at close of escrow if the owner is still living in the home. Often times, sellers in this situation are angry and frustrated, and on occasion can damage the property, remove appliances, fail to maintain the landscaping, leave the property dirty and full of debris, or take other actions that will cost you money. Be sure to do a walk through prior to close of escrow. Since the seller theoretically has no money, any issues at close typically have to be negotiated with the bank.

Lastly, lenders like to sell properties "as is" in these situations, as they do not want to get into negotiations over property repairs. This is okay, but make sure you as a buyer have the right to inspect the property to your satisfaction, and the ability to cancel the contract if the inspections uncover issues with the property. And if there are issues that come up, you can certainly request that the bank resolve them. They are under no obligation to do so, but if the request is reasonable and it makes business sense for the bank to agree, they usually will.

Short sales can be fairly straightforward, or very complicated. This depends on the stance of the lender. Some banks are much easier to deal with than others when it comes to short sales. As always, you should seek out an experienced, professional real estate agent to help you navigate these waters.

Time is Ripe to Buy in Downtown San Dieg..

Fri, 18 May 2012 23:05:04 +0000

A condo-market meltdown has put the dream of owning a piece of downtown San Diego within the reach of more Valley residents.

Tightening credit and pain caused by rising payments on subprime loans have put the brakes on new-condo sales, sending prices plummeting and strapped buyers running for the exits.

While still lofty, prices for some units are now more than 30 percent below previous highs and still falling.

A new 725-square-foot "bank-owned" studio, two blocks from the San Diego Padres' ballpark, is listed at $189,900, down from $289,900 at the end of September.

"Prices are at least starting to make sense," said Stanley Paul Cook, a former Phoenix resident who is now a San Diego real-estate consultant.

He noted that real-estate speculation over the past few years pushed average San Diego home prices near $700,000, making it one of the nation's most expensive housing markets.

But the deals probably won't last. Construction of new condos has dramatically slowed, and when the existing units are sold, prices are expected to creep up. After all, it is San Diego, still one of the country's most desirable places to live.

Falling mortgage rates and a possible increase in the size of loans that can be sold to government-backed agencies also could help jump-start the stalled market. And there is increasing interest from foreign buyers who get an additional discount due to the weak dollar.

But for now, terms like "short sale" and "lender-owned" have become the bywords of the real-estate market downtown, along with "desperate" and "make offer."

Lockboxes for real-estate agents cover railings outside buildings. Inside, residents come home to find foreclosure notices on their neighbors' doors.

Tiny 'treasures'

The building boom, spurred by an aggressive downtown redevelopment effort and the construction of the Padres' Petco Park, brought thousands of new condominium units to downtown San Diego in the past few years.

Real-estate speculators fueled the frenzy, flipping (selling, often before taking occupancy) properties from building to building while creating an artificial demand that sent prices through the roof. "The market was so good and prices were going up so fast that we were oblivious to any kind of a peak," said Ken Baer, an agent with Willis Allen Real Estate in San Diego. "We knew things were high but thought they would keep going up."

Unit 211 in Discovery at Cortez Hill, for example, sold in 2002 for $409,000 and in 2004 for $699,000. The unit sold to a Phoenix couple in December for $470,000.

Downtown, there are more than 1,000 condominiums on the market in a roughly 125-block area. That is up from 700 last year and 500 in 2005.

Of the 1,000 units, about 400 are in new buildings that are just being completed.

Most of the others have been built within the past few years, and many, bought by speculators, have never been lived in.

They are generally small. One-bedroom and studio units, some under 500 square feet, make up the largest category of unsold condos on the market.

"An entry-level condo that sold for $400,000 a year ago is practically impossible to sell at that price in this market," said San Diego real- estate agent Mark Mills. As a result, prices are dropping fast for the small condos, and many are landing in foreclosure.

Some frustrated owners, now struggling to sell their properties, blame the developers for building so many small units.

But with the high cost of land and construction, Mills noted the tiny condos were the only way some developers could make their projects make economic sense.

The Centre City Development Corp., a non-profit agency that is spearheading the redevelopment of downtown San Diego, reported that the agency has assisted in the development of 7,200 condominium units in more than 50 projects downtown since 2001.

That has helped push the downtown population to 30,000 from about 10,000 at the start of 2000. Another 60,000 are forecast to move downtown, bringing the population to 90,000 by 2030.

"You can't beat it. Everything is close by," said Gary Smith, a longtime downtown resident and president of the Downtown San Diego Residents Group. "You drive to the golf course on weekends but walk to everything else."

Although new construction has fallen off dramatically, more than 1,300 units are expected to be completed in the next two years. Thousands more have been approved and are waiting to be built.

Converted to hotels

While some condo projects are being abandoned or put on hold, others are being reinvented as hotels, apartment houses and office buildings.

"Before, they were all condominiums," said Sherm Harmer, chairman of the Downtown Residential Marketing Alliance, which promotes downtown housing. "Now, it's a mix."

The Centre City Development Corp. plans to use the lull in condo construction to catch up on infrastructure improvements. That includes the development of 10 new parks, a new public library and waterfront improvements, among other projects.

Upside down

The downtown condo market peaked in late 2006 when sales slowed and prices started to fall.

"Everything went into the crapper the same time I bought this place," Vern Scholl said of his 1,550-square-foot penthouse in the Park Place complex downtown. Scholl paid $1.9 million for the unit in 2006 and had been trying to sell it ever since. He originally asked $2.3 million but was trying to negotiate a short sale for $1.65 million prior to its sale for $1.5 million at a January foreclosure sale.

"What do you do when you owe more than it's worth?" he said.

Lew Breeze, a number cruncher and real-estate agent, estimates that there were 20 foreclosure properties on the market a year ago and now there are more than 100. There are even more short-sale deals.

A short sale occurs when a lender agrees to take a loss on the sale of a property in order to avoid the foreclosure process and the possibility of a greater loss.

Short sales also allow owners to get out from under properties they can't afford without incurring the stigma of foreclosure.

An Aqua Vista penthouse that sold for $2.1 million in 2004 is now on the market as a short sale for $1.2 million.

Turnaround ahead

A slowdown in new construction eventually is expected to lead to a short supply, particularly if a ramp-up in new construction lags behind the falling supply of units.

Baer added that foreign investors, particularly from Canada, are beginning to snap up the units, gaining deeper discounts with the declining value of the dollar.

He believes there is also considerable pent-up demand out there from people who have always wanted to live in San Diego but were put off by the high prices.

While sellers scramble, civic officials remain pragmatic about the situation.

Barbara Kaiser, vice president of real-estate operations for San Diego's Centre City Development Corp., said the city is still processing design review and zoning changes for new residential projects.

"People are positioning themselves for the next boom," Kaiser said.

Max Jarman
The Arizona Republic
Feb. 9, 2008 10:24 PM