When deciding to buy a home, it’s wise to take a moment to think about your current financial situation and how buying a house will change your current situation.

Ask yourself the following questions:

• Is my income stable and do I have a monthly budget? Do I have disposable income each month, or am I living from paycheck to paycheck?

• Am I planning to live in the area for at least three to five more years?

• What’s my current rental payment and what can I reasonably afford for a monthly mortgage payment?

• How much will property taxes and property insurance or condo dues cost?

• Am I currently able to save and/or contribute to a 401(k) or other retirement savings plan? Would I be comfortable diverting part or all of those scheduled savings into a mortgage payment for the next few years?

• What’s my current tax bracket and what will my new housing payment look like after figuring in the tax benefits?

• Will I have cash reserves left after closing in case the property needs repairs? Will I have money left to buy furniture and move?

• Is my employment situation stable? If I were to lose my job, do I have a safe fallback plan?

• Do I have the support of parents or other family members in case of a cash crunch? Do I have untapped credit available on credit cards?

• It’s easy! We chat for 15 minutes on the phone and, based on our conversation, I can give you a rough idea how much you can afford.  I will prepare a personal Loan Analysis for you based on our conversation

 

What paperwork will I need for my loan application / package?

To get started, we will need the following documentation:

• Two most recent pay stubs

• W-2 forms for two previous years of employment

• Federal tax returns for two previous years

• Checking, savings, and brokerage account statements for past 2 months

• Most recent IRA and/or 401(k) account statements

• Photocopy of driver’s license and green card or visa (if applicable)

Once we have talked on the phone and reviewed your loan documentation we will pull your credit report and upload your loan application to one of our lenders. You will then have a 90-day commitment to obtain a mortgage for a specific amount from a specific lender based on the down payment you have available.

 

How can I get a loan pre-approval letter?

• I will issue the pre-approval letter once you complete the mortgage pre-approval.

• Our pre-approval letter will state unequivocally that you are fully approved for the loan.  subject only to a property appraisal and title report.

In the California, a true conforming loan for a single family home is under $424,101, a high balance conforming loan is under $612,950 (San Diego, call for your specific county) and a jumbo loan is over $612,950. True conforming loans have the very best rates and our jumbos are slightly higher, but very competitive.  Ask me about a “piggy-back” loan to get a conforming first mortgage with an affordable fixed rate second mortgage.

 

Here are the conforming limits for multi-family units (San Diego County, call for your specific county):

• Conforming: $543,000 for 2 units; $656,3350 for 3 units; $815,650 for 4 units.

• High Balance: $784,700 for 2 units; $948,500 for 3 units; $1,178,750 for 4 units

• FHA: $612,950 for 1 unit; $784,700 for 2 units; $948,500 for 3 units; $1,178,750 for 4 units.

Should I get a fixed or adjustable loan?

One of your first decisions should be between a fixed rate (the interest rate and monthly payment remains constant for life of the mortgage) or an adjustable rate (the interest rate is adjusted — either up or down — at specified times during the mortgage term).

Adjustable Rate Mortgages (ARMs) start with a lower rate than fixed loans, but are subject to fluctuation after a specified period. They may be a good choice if you are fairly sure that you will not be owning the home for an extended period of time (more than five to seven years). However, you need to be sure that the adjustable rate is low enough to justify the risk that you will be in the home longer than you had planned.

• Easier to budget, since your payment is always the same

• No possibility of an interest rate change making your mortgage payment suddenly unaffordable

• No anxiety over interest rate fluctuations

• More income needed to qualify because of higher initial mortgage rate

• If interest rates go down in the future, you will need to refinance to get a lower payment

• Fixed rate loans are not assumable by a new buyer of your home

• If you make extra principal payments, you will shorten the life of your loan, and save on interest, but your monthly payment will not decrease.

• Lower initial monthly payments so you can “grow into” your mortgage

• You can choose whether you want the initial rate fixed for 3, 5, 7, or 10 years

• You may qualify for a larger mortgage, thus a higher purchase price

• Most ARMs can be assumed by a new buyer when you sell your home

• Good option if you plan to own the home for less than 10 years

• If you make extra principal payments during the fixed period, your payments may actually decrease at the next rate adjustment.

Please don’t underestimate the importance of a experienced real estate agent. A great agent will save you time, be a great resource help you negotiate a great deal! Your real estate agent can literally make or break the deal for you.

These are the qualities of a good agent:

• Has earned an impeccable reputation in the local real estate community

• Works full-time at being a realtor

• Values your time

• Is an active listener

• Won’t let you pay too much for a property

• Is a skilled negotiator

• Is comfortable discussing both the pros and cons of a particular property or neighborhood

I work with some great agents I would be happy to refer you to a superior realtor — just ask me!

Your realtor will open an escrow account with a local escrow company and you will deposit your earnest money (EMD) (usually 3% of the purchase price) into that account. A preliminary title report will also be ordered and you realtor will provide you with a copy when it arrives.

From this point forward, the escrow company will be coordinating the purchase of your home, making sure all monies are accounted for, and ensuring that you are purchasing the property with a clear title.

As soon as you are in escrow, we will discuss locking in your interest rate. Mortgage interest rates change daily, sometimes hourly, depending on how the mortgage-backed security (MBS) market and Wall Street traders respond to economic news on any given day.

Normally, I recommend that you lock in your rate for the next 30 days, which is the typical escrow period. The alternative to locking in your rate as soon as you get into escrow is to let it “float”, and hope that rates will be better when you get closer to your closing date.  We constantly monitor the MBS market to be able to give you the best available advice.

Points are fees you pay in advance to receive a lower interest rate in the future. One point equals 1% of the loan amount. When deciding whether you should pay points, keep in mind that the more points you pay, the lower the rate. A general rule of thumb is: for each 1.0  point that you pay, you will save .25% in the interest rate.

Paying points may make sense in your particular case. Once you are in escrow, I will give you choices from various rates/points combinations. We will look at whether you will save enough on your monthly payment to justify the payment of points upfront.

• Origination Fees: Often called “points”, this is a one-time charge used to lower the interest rate. For example, if you want a 30 year fixed rate at 0 points, the rate might be 4.5%, but if you pay 1 point, the rate would drop down to 4.25%. One point is equal to 1% of the loan amount; on a loan of $500,000, the point would cost you $5,000 in additional closing costs.

• Appraisal: This is a one-time fee – a statement of property value – performed by a licensed property appraiser. The fee ranges from $495 to $650, depending on the purchase price of the property and the type of property.  We always provide a copy of the appraisal to our clients once it is completed.

• Credit Report Fee: For running your credit report.  Ranges for $25.00 to $75.00 depending on the number of borrowers.

• Escrow Fee: This is a one-time fee charged by the escrow company to administer your escrow. This working with the title company, the coordination of buyers’ and sellers’ funds, paying off loans on the property, making sure you take clear title to the property, and making various payments to third parties such as appraisers.

• Title Insurance Fees: You will purchase two title insurance policies: the lender’s title policy —ALTA — which protects the lender against loss due to defects on title, and a buyer’s title policy — CLTA — which protects you from title defects as long as you own the home. These are both one-time fees, although, if you refinance in the future, you will need to purchase a new lender’s policy.

• Miscellaneous Title Charges: The title company may charge fees for recording the deed of trust, document preparation, notary, email receipt of loan documents. These are all one-time charges and are fairly minimal.

These are fees you first pay at closing, then continue to pay as long as you own the property.

• Prepaid Interest: Depending on the date your transaction closes, this charge varies. If your loan closes at the beginning of the month, you will probably have to pay the maximum amount of prepaid interest. If your loan closes at the end of the month, you will only have to pay a few days’ interest. Either way, this is a tax deductible item.

• Taxes and Hazard (Fire) Insurance: You will pay your first year’s insurance premium at the closing and any property taxes that may be due.

• A few days before the closing (the date the property officially becomes yours), your real estate agent will set up an appointment for you to sign papers either at the escrow company, or at home with a mobile notary.

• Please bring a copy of your driver’s license or passport for ID to the signing appointment.

• The final amount due at closing can be in the form of a cashier’s check or a bank wire and must be received the day before the closing.

• The funds for your new loan will arrive at the title company the day before closing as well.

• Your escrow officer will notify everyone when your transaction has been recorded at City Hall, and you will receive your keys that day.

Your first payment is due the first day of the month after your loan closes. For example, if your loan closes October 15, your first payment is due December 1.

Why a time lag? When you close escrow, you will be paying prepaid interest from funding date to the end of that month. Example: if you close escrow on October 15, you will pay prepaid interest from October 15 to October 31. Your first mortgage payment due December 1 covers interest from November 1 to November 30.

Keep in mind that although your payment is due on the first day of the month, it’s not considered late

until after the 15th day of the month. Being late on a mortgage will negatively impact your credit score.

Supplemental Taxes are property taxes due after your sale due to you buying the property at a higher “assessed value” than the previous owner.

For Example: The previous owners of the property bought their home in 1990 for $300,000. Their tax bill was $4,890.00 when they sold the property to you in 2010.

You buy the property for $550,000 in 2010. Your new annual tax bill should be $6,875.00 (1.25% of your purchase price). Until the Tax Assessor reassesses the sale, which usually takes 2 – 4 months are your close of escrow. After the reassessment, your supplemental tax bill will be $1,985.00. ($6,875.00 your new tax amount - $4,890.00 their old amount.)