Irvine Real Estate and Mortgage Process

There are many important steps to take in buying a home-from figuring out what type of home you want to getting a mortgage. This guide highlights some of the major choices, offers helpful suggestions, and explains some terms which may be unfamiliar, we have created this guide to provide an extremely good overview of the purchase process.

There are many variables in choosing a home: how large a home you want and need; where it is located; and whether it is old or new, in perfect condition or a "handyman's special." Once you determine these factors, you can find a real estate agent and begin looking in earnest.

Limit the Location

For many people, the location of a home is their most important consideration; you may wish to be near work, friends and family. If you have not already chosen a neighborhood, you may want to walk or drive through several areas to "get a feel" for them. You might also talk to friends and acquaintances to find out about schools, tax rates, public transportation, and other services.

Understand the Market

Calculate how much you can afford to pay, both in down payment and in a monthly mortgage, and spend some time looking at a variety of homes in your price range. Open houses are a good way to get a feel for what is available and how much it costs. This will help you understand the market and clarify your own preferences. You may not be able to meet all your preferences; you must decide which criteria are most important to you.

Choose a Real Estate Agent

Although you may locate your home through newspaper ads, "For Sale" signs, or word of mouth, using a real estate agent is often the most efficient means. Usually the agent is paid by the seller, so this service should be free to you. Be sure to check the financial arrangements before entering an agreement.

One way to meet real estate agents is at open houses, where you can talk without feeling committed to them. Another way is by word-of-mouth, getting a referral from someone who has recently bought a house.

Your real estate agent needs to know as much as you do about what you are looking for in a home. Then, he or she can give you important information about the communities that interest you, show you houses that meet your needs, and ultimately help you make an offer and buy a home.

Our lender wants to help you determine how large a mortgage you can afford to take on without financial strain. To establish this amount, they will examine three aspects of your financial situation: your credit report, your income and the amount you can put into a down payment.

Credit Report

The lender will check for any previous foreclosures, bankruptcies and delinquencies in payment. Recent history matters most, and the lender is often understanding if there is a clear explanation for a past payment problem.

Income

Any lender will look for two things: employment stability and ability to meet projected expenses. While the length of time with a current employer is a factor, frequent job changes along a career path are perfectly acceptable.

Typically, 28% of your gross monthly income (income before taxes) should cover all your housing expenses: principal and interest payments, taxes and mortgage insurance. Housing expenses and any long-term credit debts (such as credit card or car payments) should be covered by 45% of your gross monthly income. These figures are simply a guide; other factors can impact them.

Down Payment

The down payment is the amount of actual cash you pay toward the purchase price of a home; your mortgage makes up the remainder of that cost. Although the Federal National Mortgage Association (Fannie Mae) allows borrowers to pay as little as 3% in a down payment, most lenders recommend a minimum payment of 5%. The higher your down payment, the lower your mortgage-and therefore, the lower your subsequent monthly costs.

Once you have found a home you want, it is time to make a deal. Arrive at a price, determine any conditions you wish to place on the sale, and make an offer. From there you and/or your real estate agent can negotiate a final agreement with the seller.

The Offer

Make your offer via a Contract to Purchase, a document stating the agreed sales price, date of sale, and any conditions of purchase. These conditions may include an attorney's review, a satisfactory inspection of the property and the ability to get a mortgage. They may also include more specific things; for instance, if you believe the sale price includes the dining room chandelier, that should be specified; if you need to sell your current home first, that should be specified. An Offer Sheet is a binding legal document; the only legitimate reasons to coronak the agreement are those stated specifically in the document.

The seller may accept your offer, reject your offer, or make a counter-offer. If they accept your offer, both you and the seller will sign the Offer Sheet. The signing of this document is generally accompanied by a small payment of "earnest money," the giving and receiving of which indicates good faith on the parts of both the buyer and the seller. This payment is placed in an escrow account (an account overseen by a neutral third party where money is held for a specific purpose). This money becomes part of the amount accompanying the Purchase and Sale Agreement.

The Terms of the Contact

There is a brief period of time, usually one to two weeks, during which the Purchase and Sale Agreement will be negotiated. During this time you may have the house inspected; if any problems emerge-from a leaky roof to the presence of lead paint-you may require the seller to take care of them, or you may wish to reconsider your offer.

The Purchase and Sale Agreement

A Purchase and Sale Agreement is a written contract signed by both the buyer and seller stating the terms under which the sale will be conducted. In addition to the agreed upon sales price and closing date, this document also addresses such issues as the broker's fee, legal documentation, and precisely what is included in the purchase, such as curtains and light fixtures.

After a Purchase and Sale agreement is signed, the buyer places a specific amount of money-typically at least 5% of the final price-in an escrow account; at closing this money becomes part of the down payment. For example, if you are buying a house for $100,000, with a down payment of $20,000, you will pay $5,000 into escrow. You will pay an additional $15,000 at the closing.

Lenders, such as mortgage companies, also establish escrow accounts into which homeowners pay monthly amounts to be used for taxes and insurance.

Each mortgage monthly payment is divided into "principal" and "interest." The principal is the money you borrowed, while the interest is the fee charged for borrowing the money. At first, most of your monthly payments will go toward interest; this is because you have paid back very little of the borrowed money. As you pay down the loan, you owe less money, so you pay less interest; more of each payment goes to principal.

While all mortgage payments are divided this way, there is a wide variety of interest rates and payment structures. You will need to need to examine them carefully to determine which is best for you.

Rates and Points

Mortgages are usually offered as a series of rates with corresponding points; a point is equal to 1% of the total value of a loan. One point on a $100,000 loan is $1,000. Points are a one-time charge by the lender; they are not applied to the loan amount. You may, for example, choose between an 7.5% loan with no points, a 7% loan with 1 point or a 6.5% loan with 2 points.

Deciding which rate and point structure is right for you is a matter of determining the coronak-even point; typically, this is six years. Therefore, if you are planning to stay in the house for longer than six years, a loan with points is probably a good idea. If you are likely to move within six years, it may not be.

Fixed- and Adjustable-Rate Mortgages

Choosing between a fixed-rate mortgage or an adjustable-rate mortgage (ARM) depends on many factors. At first, ARMs typically offer lower interest rates than fixed-rate loans; if you think you may move soon, this may be a good choice for you. ARMs are also a good choice if you think interest rates may go down. Because ARMs can only increase (or decrease) a set amount it is easy to calculate your greatest risk with this type of loan. With a fixed-rate loan you will make the same payment every month for the duration of the loan. Many people find that certainty comforting. This also may be a better choice if you think you will stay in your home for the duration of the loan: 15-30 years.

Time Frame

Typically, processing credit reports, appraisals, verifications and title work takes about three weeks. It may take another two to three weeks before all the paperwork is complete and you are ready to close. Thirty days is a standard time to allot between signing the Purchase and Sale Agreement and closing the sale.

Generally, the closing is a formal meeting between the buyer, the seller, the real estate agent(s) and representatives of the lending company. Depending on what State you are in you may want a lawyer to be with you for this procedure, since there are many legal documents involved. At the closing, you will sign these documents, pay the closing costs and get the keys to your new home.

After this meeting you will begin building your personal equity in your home.

Closing Costs

In addition to the price of the property, there are expenses incurred by both the buyer and the seller in transferring ownership of a property; these are known as "closing costs" or "settlement costs." They include any credit report fees, legal fees, fees for government records, title insurance, appraiser's fees, surveys and other costs related to determining the ownership and condition of the property and your ability to sustain a mortgage. Closing costs are generally 1%-2% of the total mortgage, although not all fees apply and some fees are negotiable.

Equity

Equity is the amount of financial interest you have in your home. It is the total fair market value of your home, less the amount still left to pay on the mortgage. For example, if your home is worth $100,000 and you owe $40,000 on your mortgage, you have 60% equity in your home. Your equity includes your down payment, the amount of mortgage payments applied to principal, and any amount that your home gains in value after you purchase it.

The Life of Your Loan

We do not necessarily hold onto all the loans it issues: some go to the Federal National Mortgage Association (Fannie Mae) or the Federal Home Mortgage Loan Corporation (Freddie Mac) and some may become part of our portfolio. Whatever agency "holds" the loan receives the interest payments.