Category Archives: buyer advice

How to Cope with the Lack of Housing Affordability of the Bay Area

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People are leaving the bay area and it’s depressing. They leave to find more affordable rent or more affordable housing with smaller mortgage payments. Seeing them go is sad. Yes, we can keep in touch. We can teleconference. We can videochat. We can be penpals. But the ability to plan in person hangouts with them is gone, or just more sparse.

There are some affordable routes to homeownership– I wanted to talk about them. They fall into the category of starter homes. They often pertain to condo living, mobile home living, or manufactured home living that lets people stay in the bay area and save up for larger purchases.

One example that can be found in Alameda, Santa Clara, and San Mateo county is the $400,000 1 bedroom condo. I see them practically everywhere. What does it take to purchase? Well, first understand that the loan rates are at historic lows. This means you will need anywhere from 5%-20% down plus about $10,000 of closing costs. If you can save that in 1-2 years you can stay in the bay area and make the purchase. Why are there so many available? There may be a high turnover rate for them because others have saved money to buy more property. People may be tired of paying HOA payments and finally saved up for a single family home. Investors may have earned enough to purchase more investment property and they need to 1031 exchange the existing property. Just because there’s a lot of inventory in this price range does not mean it is undesirable.

If you need something even more economical, let’s talk about mobile homes. Mobile homes are module-style homes that sit on rented land for which you pay a monthly space rent. The sum of your space rent and mortgage could still be smaller than paying rent. Not only that, but because it is an investment, you can sell it later down the line, making it superior to renting. These purchases are often sub $300,000 even in high cost areas like San Jose. The one thing I would caution is that sometimes mobile homes do not appreciate as fast as single family homes, so do not expect a huge boost of equity. With a lower purchase price and lower dollar per square foot cost, you could have spacious living areas at a fraction of the price.

What do you do after purchasing these places? The hope is to save for larger purchases. By selling your starter place, you can step up to your next purchase.

Looking at properties? How to turn yourself from lookie lou into serious buyer.

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The Casual Surfer

Looking at real estate listings online has been a pastime by many individuals who want to kill time. It’s like browsing on TikTok– a menagerie of things to look at without end and can be addictive. There is joy to look at these listings and then move on with your day.

Your Time to Get Serious

After a while you may be wondering: What’s out there for me? That is when you need to qualify for a loan approval letter. Call your HR at work or go to your local bank to get leads on getting approved for a home loan. Why is this important? Doing this defines your search and places maximum values on your affordability. You wouldn’t go car shopping without knowing how much money you have in the bank, right? The same principle applies here.

Getting Your Loan Approval on Time for that Dream Home

The most dreadful situation is wanting to purchase a home and then not being ready to buy it. This happens when you do not have the loan approval and you see a house you like. These houses are competitive– with offer deadlines as early as 5-7 days from the time you see it. Waiting for an approval then making an offer will take too long and will be very stressful.

Plan Ahead

You’re going to find that getting a loan approval and sitting on it for 6-12months is a great spot to be in– you can browse homes on the weekends and evenings until you find a place you like. Some buyers want something much sooner and sometimes a long search isn’t possible. This happens when buyers search out of town and every weekend they see property is a long trek that wears them out. Be mindful of how much time you spend browsing homes and make a firm decision with your counsel.

Immediate Relief for California’s Housing Crisis? All it Takes is a Change in Mindset

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The housing crisis being described right now in the media is one wherein prices are high, demand is high, and supply is low. Economists can predict a recession only due to the cyclical nature of our housing and stock market, but they cannot provide a reason for the future downtown. One offered solution is to build more houses because building more houses provides supply to the market and can reduce prices. To some extent I think this is true. But there’s a more fundamental problem that plagues our housing crisis: our idea of privacy and ownership.

What I’m proposing isn’t original. We already have multigenerational families who live under the same roof (grandparents, parents, kids, nephews, etc.). What I propose is that people change their mindsets about individually owning a house and decide to band together with friends and family to all own the same piece of property together. Our legal system already accommodates this arrangement in place through the use of tenancy in common or joint tenants—legal titles of persons who wish to own property. These legal titles go on public record and tell the world how the property will convey if that person passes away.

Here’s an example: Jones and Mary have been friends for 4 years and they both found themselves complaining about the rising prices of housing in the Bay Area. They each have their own families and they can qualify for a home loan but their maximum purchasing power is lower than the houses they intend to purchase.

So what if they approached the same lender and decided to buy a house together? I think they would have to make several considerations first: whether everyone’s on board with it, how will they take title, and does it make sense financially?

Let’s just skip to the financial picture: if you split a mortgage payment with another family unit, you’ll be really pleased about how affordable it is versus renting the same amount of space. Not only will you never have a landlord asking you to move out, but you’ll be building equity over time which can be later cashed out.

The other considerations are rather straightforward. You and your spouse come to terms on whether you can live with another family if it means getting higher purchasing power. Taking title is also somewhat straightforward. If you don’t want to have other persons on title to take your share when you die, then choose tenancy in common which lets your heirs take the share upon your death. This is of course a legal matter so please do your research in this manner, but the common sense approach is to let non-family members not take your share when you pass.

I think at this point your gut might be saying as an objection: but why do I have to compromise my housing situation just because they bay area is so expensive? One reply to this objection is that our society has built of the idea of individual ownership for everything that we likely have not considered the possibility for owning the same house with multiple people. And yet, when we rent, we seem to have no problem splitting the rent between people as if there were no compromise whatsoever. So if people split the mortgage together, is it any different than people splitting a rent check between each other?

Lastly, I think the major hurdle in getting this all started is this: I don’t think people know how to approach other people to decide to buy property together. It’s a foreign thing to suggest to others and it could make people think less of you. “You’re asking me to split a mortgage with you because you don’t make enough money to support your own family?” It’s a disgusting thought but I think people have a lot of pride in their family to solely provide for their own families that if they ask for help in any way they are perceived as weak and getting a handout. Another consideration is that it’s almost like writing a will—everyone should do it but no one gets around to it. But if people can communicate their financial situation better to others and if they weren’t ridiculed for it, or if a service did that, people could be better off. All it takes now is for people to band together, band their finances together, and see a mortgage lender together, which is something that rarely happens but I think needs to happen more if you want to see immediate relief in this so-called housing crisis.

 

The KnowHow Involved in Submitting a Purchase Agreement is Quite Large and Involved

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Unaware buyers may think submitting a purchase agreement is something done automatically by a Realtor. It is quite the opposite. Submitting a purchase agreement is a careful and deliberative process with hundreds of moving parts and lots of consideration required for the Realtor before making the submission. We’ll go over some of the considerations that take place before submitting the offer.

The residential purchase agreement is 16 pages long. It used to be a single page before 1970, but has been added over time to cover stipulations that are necessary for both parties to clarify. Whenever a lawsuit occurred, more language was added, to both parties’ benefit.

Seeing the perfect house and then moving on to sign a 16 page document can be cumbersome. Clients of mine who work 8 hours and then have to sit down to read 16 pages of small text will feel burdened. Others want to do the close reading with me and I’ll gladly do it. Others want the paraphrased version. As long as they understand that they must read and understand it before signing, it’s up to them how deep they want to engage the document.

One thing I will say is that I know this document like the back of my hand—I know where the most important clauses are, where to ask for certain things at certain points, and how to modify certain clauses to get the most out of the exchange. That is why pairing up with a Realtor to draw up this document is necessary.

One know-how aspect of modifying this document is to make sure the buyer complies with any point of sale ordinances and customs of the local area. There are transaction-related customs that buyers and sellers adhere to that streamline the process of purchase. While all items in the agreement are negotiable, having a streamlined purchase agreement simplifies the seller’s reading of the purchase agreement, which allows them to compare the submission with others. Think of it like tailoring a resume to fit the employer. That is what happens every time we submit the offer.

A second know-how aspect of offer submission is the Realtor’s ability to gather information and sleuth around, and take that information back to the buyer to have the offer submission be the best it can possibly be. This intel gathering could include getting comparable sales data for the buyer, and also chatting with the listing agent to determine the amount of submitted offers. If the number of submitted offers are unknown, the best alternative is figuring out how much interest exists on that particular property, by figuring out the number of times it was shown, how many people attended open house, etc.

Ultimately the Realtor will write in specific clauses, add addenda, and make other pertinent suggestions to make the offer submission not only flawless, but free from vagueness and keep buyers out of court. Realtors ultimately have the bird’s eye view to clarify language and get ambiguity out of the picture at a time where everything must be written down and accounted for. If a novice were to make these acts without knowing the local laws, point of sale ordinances, or customs of offer submission, one would not get very far in the process and may be overlooked. Sellers perceive incompetent offer submissions are time wasters and may be overlooked. When this happens, the perfect house you saw may not be available for you.

I hope I outlined the various facets of how a Realtor aids buyers in the offer submission process and how critical this step is in the home purchase process. I make it a point to draw up the purchase agreement in a few hours time to keep my buyer within the offer submission schedule, but just know that I am proofreading the contract several times and reviewing laws as needed to keep my buyer’s interests preserved and at heart.

The Consequences of Rising Interest Rates for Borrowers in their New Home Loans

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Every once in a while you will hear that the Federal Reserve and its power to influence the money supply will raise interest rates. I intend to talk briefly about how this directly affects the consumer who intends to obtain a home loan after the rate increase. The main objective is to find out how much monthly additional funds are required for the mortgage payment. After doing this analysis, we will decide whether the rate increase is too costly or if it is affordable for the borrower of the funds. This analysis is not applicable for those who wish to make cash only purchases, however those who are debating between the cash purchase and the loan purchase can continue reading to get an idea of the cost of the monthly loan payments.

First let us start with a few assumptions: Let us suppose you want a 30 year fixed loan, 4% interest rate, $500,000 loan amount. With this information, we can now solve for the monthly payments. The monthly payment is $2387.

Scenario 1: What if the interest rate rises to 4.5%? The payment rises to $2533. That is a $146 difference.

Scenario 2: What if the interest rate rises to 5%? The payment rises to $2684. That is a 297 difference from the original amount.

Let’s make an interpretation of these data. Namely, what is an extra $146 a month, or $1752/yr? That amount could be the amount of your monthly coffee bills, or monthly going out for good cost. It could be a fraction of your grocery cost. In the big picture, the increase is not that much.

One objection to this is that it could be substantial if you don’t have that much extra funds, or you have a very demanding lifestyle where you need to eat out a lot.

One reply to this objection is that the cost to obtain this money is inexpensive. When we take out a home loan, we are accelerating our means to purchase a home. In return, you make payments to cover the loan until the loan is due or paid in full. Imagine if you had to wait until you saved $600,000. Wouldn’t that take a while, conventionally speaking? Instead, isn’t it faster to save up $100,000 and get the rest in the form of a loan? That is what the loan accomplishes. The rate increases are inconvenient to the borrower but they may not be as groundbreaking as people believe.

In summary, you might find interest rate increases inconvenient, and they might be more than inconvenient when the rates spike. However if the increases are only in small increments, you might find the cost of the monthly mortgage payment to be slightly more expensive, but tolerable, and not earth shattering as some people tend to believe.

 

Notes on Reading Home, Roof, and Termite Inspections

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After your purchase agreement is accepted you will usually have a window of time to perform inspections. This is your chance to investigate the condition of the property. The most common inspections obtained are the home, roof, and termite reports.

Home Inspection

The home inspection is a general overview of the house, outlining the materials used, the useful remaining life of the structures, and any notable safety or health issues. Pictures are included. As a future homeowner, you will want to look over these items to see which items will need immediate action after possession. Earmarking the document for this purpose will keep you updated on maintenance. Generally, smaller issues can sometimes grow into larger issues over time.

Roof Inspection

While the home inspection mentions the roof, a separate roof inspection is always preferred since it is likely to be more detailed and generated from a roofing contractor (versus a more general contractor or inspector). The roof will mention the immediate deficiencies and the remaining useful life of the roof. An additional charge could get you a 2 year warranty on the roof if you elect the company for the repairs.

It’s best to make roof repairs over the summer while roofing contractors are not busy. I have tried to setup roof repairs during the rainy season for my clients and it is not fun since roofers are booked months in advance.

Termite Inspection

The termite inspection does not only look out for termites– it looks out for damage to any wood members in the house, whether it be from termites, or fungus damage. The findings should be read together with your real estate professional. A bid for work can be found at the end of the document. The lender generally does not have access to this document unless it is explicitly stated in the purchase agreement, however some government related financing agencies may require that work from the termite inspection be completed before loan funds can be given to the escrow company. This is called Section 1 Termite Clearance.

Dealbreakers

Sometimes after review of the report, there might be substantial work in one area of the house that the buyer cannot afford or prefers not to repair. In this instance the buyer has the right to back out if the inspection contingency exists. An alternative to backing out would be to return to the seller to renegotiate the price. Renegotiation will change the original terms of the contract so expect the seller to defend the original terms of the contract, and proceed accordingly. I really cannot specify what constitutes a dealbreaker. People who want turnkey houses may be very picky over those who have decided in advance that they are willing to make repairs.

When to Repair

Buyers, as future homeowners, are at a significant advantage when they can repair after close of escrow versus repairing before escrow closes as a condition of loan funding. Making repairs after close of escrow allows homeowners to shop around the work and the bid and potentially secure same quality contractors at a lower cost. The homeowner may even be able to some repairs themselves. On the contrary, when buyers must repair before close of escrow, their options may be limited only to those contractors who can make the repairs in a timely manner. The repairs may need be done exclusively by a licensed contractor which may limit the buyer’s ability to make the repairs themselves since doing so may pose a risk to their loan funding.

Buying a New Home? Prepare for Potential Delays and Progress Conservatively

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Being Flexible

It’s not all the time that there are delays in real estate transactions, however preparing for them is a humble gesture of showing all the professionals helping you that you are flexible.

Early Stage vs. Late Stage Development

After recently closing a few new home sales, there’s a few important things to point out. The first is that each builder has their own phases of development. When the builder’s offering matures, there are less variables that can delay the transaction. It’s always best to ask the builder which phase they are in. It’s one of the first things I ask. Prices might be better at the start, however expect delays since the builder is working with the city, contractors, and multiple parties. If it’s a later stage development, you might be able to pay a little more but you get the security of the builder’s track record for that specific development.

How to Protect Yourself

After you sign the purchase agreement with the builder who is the seller, you have certain liberties of when you give notice to landlord to vacate or when your rate lock starts for your interest rate, assuming you are getting a loan. If you do these items as late as possible, you’ll find you will leave elbow room in the transaction for delays.

Another way I can offer advice for creating leeway is to let your move out date from your rental be later than the closing date of your home purchase. Doing this gives you a huge cushion to move and for any delays.

Why Do Delays Happen in the First Place?

Delays happen because multiple parties are trying to achieve the same goal, and you can see that if one party falls short of the promise, everything else is held back. One of the reasons why real estate brokers and salespersons are so valuable is because your professional can detect and resolve issues before they become game breaking delays. Delays can also occur when the seller or buyer do not perform, so it is also critical that you, the client, performs in the best way possible.

Are you a tire kicker or a home buyer?

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Are you a tire kicker or a home buyer?

In the advent of a more transparent real estate market, where listings are found all over the internet, it is sometimes thought of by persons that browsing a few listings on their phone makes them a home buyer, without much consideration to their qualifications. You might call these people “tire kickers”. What I want to do in this article is distinguish between a tire kicker and a home buyer, and give advice on how you can be in the latter camp.

Tire kickers are often those people who might browse around and window shop without any intention to buy. Tire kickers exist in a retail environment where persons are encouraged to look around to decide to buy or not. Tire kicking may not be a bad thing. In fact, those who enter stores and don’t buy anything might return to buy at a future date, or by word of mouth, recommend the store to somebody else.

Let me know talk about online tire kickers. Online tire kickers might have the quality of browsing for goods online and even adding something to their shopping carts and never check out and pay for anything. They might flirt with the idea of owning something and add it to a cart or wish list, but never pay. Back end engineers often spend lots of time wondering how they can convert these tire kickers into real buyers. Ergo, much time is spent programming guest registration and check out instructions to make sure these people can seamlessly enter credit card information for a purchase.

So far, we have seen that tire kickers have some vague interest in owning something but may not follow through with it. At this point, we could venture into the philosophic question of rational choice theory, but we might bracket that conversation for a later time and just focus on the “what” instead of the “why”.

Let us know jump back to owning a home in real estate. Owning a home in real estate is a serious step in one’s life and, often, such a decision is not possible without evaluating one’s life circumstances. If the life circumstances are right and buying a home is part of that master plan, then that is often the first step in converting a person from a tire kicker to a home buyer.

The next step to converting a tire kicker to a home buyer is by loan/ bank qualification. Homebuyers need to speak to a loan agent or present their bank statement to their real estate agent to show they have the means to make a purchase.

There’s no nice way to say it, but if you have not researched the means to purchase a home, you are not a homebuyer! People sometimes forget that homes require money to purchase. This money will either come from your personal bank account, a gift from a family member or friend, or from a banking institution who will lend you the money, less the down payment and closing cost fees.

Once you have identified your home buying qualifications, which alludes to your purchasing power, then you can meet with your Realtor to find out just exactly how much “house” you qualify for. This is when returning to the phone and the desktop might be relevant to look for houses. Your pricing parameter is clearer and your home search is more concrete. Not only will you have more confidence in home buying, but you are more likely to succeed in purchasing a house than those who do not get qualified first.

I hope I have outlined the steps to convert yourself from a tire kicker to a home buyer, which in summary is to identify whether your life circumstances demand and tolerate a purchase for a home, and then produce a loan qualification letter that states an official banking institution has given you the OK to make the purchase. I think one reason I wrote this article is because I speak to hundreds of buyers daily on purchasing a house, and many of them are casually looking without much of a plan, and this is frustrating for them since they expect to buy a house just because they can look it up online, and frustrating for me because it is not a good use of time. What I can say is that tire kickers might also specify a time in the future where they might be thinking of buying, and that might be another talking point for the future. Buying a home depends heavily on the readiness of the buyer/consumer, and I am not one to rush anyone into a complex process, but homebuyers are not homebuyers until they are qualified!

Buyer Beware: Preserving your Sanity in a Low-Inventory Market

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Homer thinking hard about his next home purchasing strategy

When buyers want to purchase real estate and there’s not too much being offered, losing out on offers can be frustrating. What I want to discuss is how to maintain a calm and positive frame of mind while looking for property so that you will not give up.

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