Real estate 101: What new home buyers need to know

By Colleen Kane, CNBC Writer

So you've decided to buy a house, but you're not sure if your finances are quite up to speed. Even if you hope to buy six months from now, there are numerous improvements and adjustments to be made in the interim, prior to taking on a mortgage.

First-time home buying is well documented as an arduous process, and much of that can be attributed to the sheer number of new and unexpected issues. Therefore, the more you know, the better you're likely to fare. Here, briefly, are some aspects buyers should consider when shoring up finances to buy a house.

Knowing is half the battle. To start, learn as much as possible about the process that will soon temporarily take over your existence. When Corinne Weiner and her fiancé recently bought a home in upstate New York, she says it was one of the most stressful experiences of her life, "but that was mostly because we had a completely incompetent 'team' between the brokers and the bank. So advice number one: get references on those people." She also recommends a book by CNBC's own Suze Orman, The Money Book for the Young, Fabulous, and Broke which breaks down the house-buying process in simple terms, and has exercises to make sure buyers can handle the responsibility.

While you've got the researching cap on, Cathi Brese Doebler, author of Ditch the Joneses, Discover Your Family recommends shopping around to see which banks give the best rates. "Also, ask people you trust who have mortgages which banks they use and what they think of their experience having a mortgage through that bank."

What can you realistically afford? To determine your price range, use the online calculators, then see if the bank agrees by trying to get pre-approved. "this will bring you back down to Earth so that you can begin shopping in the appropriate price range," says Gail Cunningham, Vice President of Public Relations for the National Foundation for Credit Counseling.

Doebler offers this clever and helpful challenge: "Months before you buy a home, begin putting the amount of money that you will have to use for a house payment into a separate bank account. Save that money rather than spending it for those months, and see how you do at managing your other bills with only the money that is left."

Don't forget to take taxes into account when calculating, cautions Doebler. She also advises not to leave out the not-too-distant future in these estimates. If children come into the picture, can you still afford this house on what might become a single income?

Lynn Ballou, CFP, Principal of Ballou Plum Wealth Advisors, points out other costs that might be overlooked by unsuspecting homebuyers during the initial stages: homeowner's dues ("in our area, $250 a month is pretty average") utilities including the cable for TV and internet, water and garbage, property insurance ("In California, a $1 million umbrella policy can run you $200 — $350 per year"), moving, furnishing, and maintenance of the home.

Oh yeah? Prove it! When Andy Payment of Atlanta, Georgia applied for a mortgage, it was an ordeal. He recalls several back-and-forths with the lender to demonstrate that they had the money to put down on the home and pay the mortgage in the short term.

Among the hoops they had to jump through: Hold the down payment (5%, in his case) plus closing costs in a savings account for more than two months and provide bank statements to demonstrate that it was earned and not gifted. "We didn't realize this was necessary, so only sent statements for our checking/savings accounts (vs. 401(k), stock, other liquid assets)." He also had to hold two months of mortgage payments in savings to demonstrate we could pay the actual mortgage.

How's that credit score looking? Six months is a good amount of time to start preparing your finances in anticipation of buying a home, Cunningham says, because it takes time to clear up old forgotten debt and have it cycle through to the credit report and score.

First she recommends that the buyer should get credit reports from all three bureaus, to avoid any surprises, and review them all for inaccuracies, which must then be disputed.

"Make sure that any old negative information that should have rolled off, has. Pay off any lingering old bills that you've forgotten about. If you're behind on any payments, get caught up."

Next, check your credit score, which you'll want to nudge up to as high a number as possible. This is where paying down your debt comes in, aiming for an amount that doesn't equal more than 30% of your line of credit.

Cunningham offers the tried and true credit score advice: "Make sure that you have at least three open and active lines of credit. You need this many for the credit score to have enough data to crunch. The model also likes for you to have a good mix of credit. For instance, an open-ended account (general purpose card), a closed-end account (car payment) and a personal loan. This demonstrates that you can handle multiple types of credit responsibly."

Finally, here's a piece of less traditional credit wisdom, courtesy of Chip Poli, owner of Poli Mortgage Group, Inc. "Credit reporting sites supply a score calculated by something called 'VantageScore' and it trends much higher than the FICO scoring used by the mortgage industry. Consult with your loan officer and find out what your true credit score is. It's vital to start the prequalification process early."

How much can you pay up front? "One obvious tip: start saving," says Cunningham. "Even if you qualify for a low down payment loan, the lender will still want to see that you have significant savings. This is a further protection for them against loss, and demonstrates that you can weather a financial hiccup if one should come along."

The more money you can put down as a down payment, the lower your mortgage will be. "I personally cleaned out my IRA for the down payment (as long as it's under 10K you don't get penalized) because I'm young and can boost it up again," says Weiner.

Now, sit. Stay! Part of proving your mortgage-worthiness is demonstrated stability, so prospective home buyers should plan to stay put in their current living situation and job. "I can't tell you how much hassle I got because I switched jobs a few times in the past two years," says Weiner, who had changed careers and moved during that time. "I actually had to write a letter to the underwriters explaining why I changed jobs so much!"

Fortunately, homebuyers of the future now have plenty to keep them occupied while staying put.

Home sales inching up

By Les Christie, staff writerFebruary 23, 2011: 11:15 AM ET

NEW YORK (CNNMoney) -- Sales of existing homes recorded modest gains in January, the third straight month of month-over-month increases.
According to the National Association of Realtors, homes sold at an annual rate of 5.36 million in January, up 2.7% from December and 5.3% higher than January 2010 sales. At the same time, the median home price fell 3% to $158,000, compared to a year earlier.
It was the first time in seven months that the monthly sales total was higher than the year before.
"The up trend in home sales is consistent with improvements in the economy and jobs," said Lawrence Yun, NAR's chief economist.
The report was slightly stronger than expected. A consensus of experts surveyed by Briefing.com had expected sales to hit 5.23 million.
Yun pointed out that home sales have benefited from unusually favorable conditions: Mortgage rates are still very low; there's a large supply of homes to choose from; and home prices have fallen to near post-housing bust lows.
One factor holding buyers back is the still tight mortgage lending.
"Buyers have been constrained by unnecessarily tight credit," said Yun. "As a result, there are abnormally high levels of all-cash purchases, along with rising investor activity."
NAR reported that all-cash sales went up to 32% of the total, up from 26% a year earlier. It estimated the percentage of investor purchases hit 23%, up from 17% a year ago.
"Unprecedented levels of all-cash purchases -- primarily of distressed homes sold at deep discounts -- undoubtedly pulls the median price downward," said NAR president, Ron Phipps.
Whatever the source of the sales, they do have a welcome impact on supply. Inventory dropped 5.1% to 3.38 million units, a 7.6-month supply at the current rates of sales. That was the lowest inventory level in more than a year.
Normally, a five- or six-month supply is considered a good balance between supply and demand. That's when sellers will start to regain some of the "pricing power" they've lost in the bust.
Right now, said Hoffman, "Sellers are desperate to sell and buyers bidding low." 

10 Less Obvious Things to Consider When Buying a House

10 Less Obvious Things to Consider When Buying a House

There are a lot more than 10 things that you need to consider when buying a house, but we all need to start somewhere. The idea behind this list is to get you thinking not just about the activity of buying a house, but about how you will live in your new home!

1. Where do you work? It might be obvious to you, but I find that not everyone really thinks about how their lifestyle could change by either living close to, or far away from, home.  If you work in the city, but are recharged by the country, is there somewhere that you could look that would allow you to commute? If you want to maximize your time at home, have you considered an area close to where you work?  Of course, keep in mind that your job situation could change, so you want a location that would allow you to consider jobs in other areas without the necessity of moving.
2. What do you do on weekends and evenings? Do you run or walk? You should look at places that have sidewalks or running trails. If you kayak, do you want to be near a lake or river?  Is going to the theater your favorite evening activity?  Living out in the country might not make this easily accessible.
   
3. Are you handy? Do you want to be handy? You may have dreamed of living in an old Victorian home, but if you hate working on your house, this might not be the right choice for you. Is your dream house near the water? It might require even more upkeep than homes further inland. That might be a great trade-off for you--or not. You need to be honest with yourself about how much time, and money, you have to spend on maintenance of your future home.
4. Yard or no yard? For some buyers, a lush yard is a must-have. There are alternatives, however, that you should think about. If you buy in a community that is close to a park, you might be able to get a lot of the benefit without a lot of the expense and time required by a yard. How much of your own green space you need makes a big difference in the type of property you buy.
5. Will your living situation change while you own the house? Is this a transitional house for you? Will you start out with a roommate and end up with a spouse and child? Will you have children moving out over time? Does the house suit your empty nest situation or will you want to sell at that point?  As you age, will you be able to stay in the house, or is this a house that will be great for a couple of years, but not where you will spend your golden years? Some houses are 3 year houses and others are homes for a lifetime. You don't need to know which one your purchase will be, but for most a 1 bedroom condo does not allow much room for a changing life situation.
6. Are you stretching so much that furniture will be a dream?  Some people don't mind  deferring the pleasure of sitting on a coach and still others like to entertain from day one. Just make sure you understand what your financial picture will allow after you buy your home.
7. Where will you be willing to sacrifice? Rarely, if ever, do buyers find a house that is ideal in every way. If you have to compromise, what will you be willing to give up? Closet space for larger yard? Remodeled kitchen for main-level laundry?
   
8. Who has the final say? Are you the sole purchaser of this house? Does a spouse or parent have something to say about the house that you purchase? If you must have agreement from another party, whenever possible, you should see properties together. When things are a good deal and in good condition, they won't wait for you to schedule a second showing!
9. Which is more important: Your Stuff or Your Lifestyle?  If you have always dreamed of a contemporary condo, then you might need to make other accommodations for the 10 boxes of holiday decorations you move along with you. If you can't bear to be separated from Granny's quilt collections or Uncle Joe's tractor collection, then you should factor space for  that into your 'must have' list.
10. Are you ready for the responsibility? One thing that we have all learned from the recent housing crisis is that conditions change.  When you buy your new home, you should be willing to accept whatever the future brings (to the best of your ability). Don't take out an ARM loan if you can't afford the possibility of a larger payment. Be aware that your homeowners dues will go up.  Have a plan for what happens if you lose your job.  We can't know every challenge that we might face, but we can create the best possible situation for success by thinking ahead.
    

Buying a home can be a very exciting, and stressful, time. Thinking about some of these issues before you write the contract will hopefully make owning the home a more satisfying and successful experience!


Holly Weatherwax, Associate Broker

Dismal housing stats signal that now is the time to buy

 

CLARKONOMICS: It doesn't matter what publication you pick up, there's one bad number after another after another in the mortgage market. According to the Commerce Department, the sales rate for homes last year is the lowest on record since records started being kept 47 years ago! Then I also heard a Dow Jones reports that of the 28 major metro areas, every single one had a decline in home values at the end of 2010!!
The combination of anemic sales rates and declining prices creates fear and anxiety. A large numbers of home are vacant for a variety of reasons. But I will tell you the problems mean opportunity. I've been a buyer of distress real estate during the downslide of the last couple years. Looking back now, I see I was actually too early getting in the game. But I'm not upset because the opportunity of owning over time remains so positive.
We've reached a buyer's strike and sellers are starting to capitulate in price. Looking at Realtor.com, I noticed that listing after listing said "price reduced" no matter whether I was looking at high-end mansions or entry-level townhomes. Sellers are finally coming to recognize that if you want a buyer, you'd better offer a really good price.
I recall the great deals people scored in the late 1980s during the regional depression in the Mountain States following the savings and loan crisis. In Denver, people bought office buildings at a total cost per square foot that was less than tenants might pay per square foot for rent in a year now.
Meanwhile, on the financing front, interest rates have inched up from their recent historic lows...but they still remain very favorable. The opportunity is there. If you are afraid to buy, I don't want you to say, "I wish I would have done it in 2011." Does that mean recovery will come in 2012? I have no idea. But the opportunity right now is extraordinary.

How to Disclose “No Building Permits”

How to Disclose “No Building Permits”

DEC
04
2010
The House Detective: by Barry Stone, Certified Home Inspector

Dear Barry: We just listed our home for sale and are worried about disclosure liability. In the past year, our home has been completely remodeled without building permits. Some of your articles have stressed the importance of disclosing non-permitted work. We plan to follow your advice but are worried that this may not eliminate our liability. What can we do to sell our home without problems turning up later? Eugene

Dear Eugene: You are wise to approach this issue with caution and concern. In today’s business world, liability lurks around every corner. We can be sued for doing something wrong or doing nothing wrong, and in either case, attorneys are waiting to be hired. Liability can never be fully eliminated, but it can definitely be reduced, and real estate disclosure is a sure way to practice this principle.

When selling a home, every defect you disclose is removed from the list of potential liabilities. But beware: With non-permitted additions and alterations, the ways that you frame your disclosures can make a critical difference. Many sellers make a fatal mistake at this point in their transaction. Instead of simply declaring that the work was done without permits, they state or infer that the work was all done “according to code.” Disclosures of that kind are often made with utmost sincerity, but with little or no actual knowledge of building codes.

Sellers who are not professional contractors, building inspectors, or architects have no idea whether improvements were done according to code. The code books are voluminous, exhaustively complicated, and not easily understood by persons outside of the construction professions.

When you disclose that work was done without permits, you should state that “no guaranty is made regarding compliance with building codes.” You should also recommend that buyers hire a qualified home inspector to evaluate the condition of the improvements, as well as the rest of the property. With that kind of disclosure, you should be reasonably safe from complaints after the close of escrow.

3 reasons to use a mortgage broker

3 reasons to use a mortgage broker

Tara-Nicholle Nelson
Inman News™

Q: What are the pros and cons of working with a mortgage broker vs. a mortgage lender? –Malik

A: There are several, although in some respects, the gap between mortgage brokers and mortgage bankers has narrowed in the wake of the foreclosure/housing market crisis.

Generally speaking, mortgage brokers are licensed, independent contractors associated with independent, licensed brokerage companies, who work on 100 percent commissions to connect mortgage consumers (those seeking to finance a home purchase, and those seeking to refinance their current homes) with loans from a variety of mortgage banks and lenders.

Mortgage bankers or lenders, on the other hand, are usually employees of a mortgage bank who work on some combination of salary and commissions to connect borrowers primarily with loans funded by their employer. Walk into a bank off the street and the person who handles your loan application is a mortgage banker.

After the bubble, more and more mortgage brokers have become their own banks, meaning that a small portion of the loans they originate are actually funded by their own companies. Similarly, more and more bankers are also brokering loans through external companies. But, still, their primary job is to connect consumers with the loan programs offered by their employer.

From the outset, it’s only fair to state that my bias is toward working with a mortgage broker. I have known great mortgage brokers and crooked mortgage brokers, and I have worked with both brokers and bankers.

But the customer service extended by an honest, experienced, effective and reputable mortgage broker blows that of even a great mortgage banker out of the water, nine times out of 10.

With that said, I’ve had even my own favorite mortgage broker send our mutual clients to a mortgage bank in situations where the bank or a homebuilder was offering truly significant incentives for working with that bank. (Now, that’s honesty.) So there are some occasions on which a mortgage banker is the way to go.

Alright, let’s get to pros and cons. First: options. Mortgage brokers generally have more options than mortgage bankers, meaning more lenders at their disposal from which to choose. During the subprime era, that often meant that some bankers couldn’t do deals that mortgage brokers — who had contacts with will-lend-to-anything-moving banks — could.

These days, it’s more an issue of shopping to get you the best interest rate. Reputable mortgage brokers will vie for your business by trying to find the very best interest rate and terms for which you qualify among all the lenders they work with, including their own company, if it also operates as a bank.

Again, some bankers also broker loans outside of their banks, but they tend to have fewer lender, loan program and rate options available than a broker does.

Now, let’s talk about speed and customer service. The fact is, brokers usually work on 100 percent commission, which means that they want to get your deal done. Bankers are on a partial commission/partial salary.

This is a critical distinction in a world where the traditional mortgage banks have made it very difficult for a loan to get approved, underwritten and funded; for all these things to happen, you need someone who:

* Is skilled at the art of mortgage; has loads of workarounds up their sleeve; and has a history of overcoming obstacles that come up;
* Is truly motivated to close every single transaction they work on;
* Has the relationships with various lenders’ underwriters to get things done in a timely manner; and
* Wants — even needs — referrals from you and your broker or agent to generate more business in their long-term business plan.

These characteristics much more often describe mortgage brokers, in my experience and opinion, than mortgage bankers or lenders.

In today’s market, you may need to remove contingencies in 10, 12 or 14 days to best other offers on a foreclosure or even an individual sale. You might get to the end of a long transaction buying a bank-owned property and find your transaction in jeopardy if your loan doesn’t fund within a matter of a couple of days (despite the bank/seller having dragged its feet for the six preceding weeks).

My experience is that mortgage bankers rarely have the gumption or the power to speed up the underwriting and funding processes in these sorts of situations, while some brokers can.

And bankers certainly aren’t able to close transactions as quickly — overall — as top-notch mortgage brokers can. Because this can be the difference between getting a particular home or not, I personally choose to work with mortgage brokers.

Many of the shadier brokers have self-selected out of the business, as loans are so much harder to do these days. You can eliminate much of the rest of the shady factor by working with a mortgage broker you find by referral; get one from friends or relatives who are very, very happy with their experiences, and ideally have worked with their broker over many years.

With that said, there are a couple of circumstances when I advise people to talk to a mortgage banker rather than a broker.

First, when you are buying a new home, many homebuilders have relationships with lenders that can save you thousands and thousands of dollars off closing costs, homeowners association dues or even upgrades to the property.

In these cases, it may make sense to work with the lender, though I do recommend also talking with a mortgage broker just to make sure you’re not taking a hit on the interest rate or otherwise getting a raw mortgage deal for what sounds like a good incentive.

Second, many who are refinancing find that their current mortgage lender may offer a no-fee refinance. Again, I’d encourage you to get a rate quote from a reputable mortgage broker, if you are trying for a no-fee refi with your current lender, to make sure the fees aren’t simply being recouped in the form of higher interest.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Signals That Indicate the Real Estate Market Has Bottomed

Signals That Indicate the Real Estate Market Has Bottomed

Millbrae, CA (Vocus/PRWEB) January 27, 2011

Three real estate recessions have hit California during Wayne Gomes' 32 years as a San Francisco Peninsula REALTOR®. Gomes has studied the similarities in the housing market meltdowns, and his knowledge and expertise is useful for identifying signs and signals that might indicate the real estate market has reached the bottom-and how to capitalize on it.

The 1981 California real estate crash saw interest rates for home loans soar as high as 17%, nearly unimaginable in today's housing market. The second recession began in 1989 and lasted a little over 5 years. This housing bust harmed more than the real estate sector, dragging the entire California economy down with it. The third is happening right now.

Strategies for buying and selling-whether it's an investment property, apartment building, commercial real estate, or a primary residence-have differed in these diverse economies. Yet according to Gomes, a single commonality exists among the three major housing crises in California since 1980: a lack of confidence in real estate investments!

"When I hear people say that they are better off renting a home than buying a home, that person's perception is that the market is still on a downward slide," says Gomes. "If they say they want to jump into the market while they can still get a great price, they are obviously of the opinion the bottom is history, or at least close at hand. The negative opinion is the one people really want to pay attention to when looking for a bottom. When fear is great and coupled with the right economic ingredients, a bottom is created."

Despite the Recession, according to Gomes, the San Francisco Peninsula real estate market bears great values right now. Gomes and other agents are beginning to see large investors buying up investment properties. "

The presence of large investors is a sign of bottoming, as it indicates a renewed confidence in the market for some specific reason," says Gomes. "The market is more complex this time around than in past recessions, but I believe the signs will be the same for seeing a bottom."

Gomes cautions that not all Bay Area buyers will see the market rebound within the same timeframe. Price changes in real estate in Burlingame will likely differ from real estate in Millbrae, or even real estate in San Bruno. Buyers will encounter different bottoms regionally, and therefore, markets will rebound at different intervals. Regardless of regional variances, Gomes contends that the Peninsula real estate market, on the whole, is trying to getting some footing right now.

"People seem to be betting on rising confidence in the real estate market," said Gomes. "That's good news for everyone."

About Millbrae Realtor Wayne Gomes
With over thirty years of experience selling homes, condos, apartment buildings and commercial real estate, Wayne Gomes knows the ins and outs of Bay Area Peninsula real estate. Located in the heart of Burlingame, Gomes serves the San Francisco Peninsula communities of Burlingame, Millbrae, Hillsborough, San Mateo, San Bruno, South San Francisco, Belmont, Redwood City, San Carlos, Daly City, Woodside, Pacifica, Brisbane, Colma, El Granada, Foster City, Half Moon Bay, and Montara.

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