Now is the time to buy California Real Estate!!!

Now is the time to take advantage of the buyers market and find that special property.  Before you begin looking for a home, it is important that you get Pre-Qualified. Once you are Pre-Qualified, you will have a better idea of what your payments will be and the home price you can afford. Also, a Pre-Qualification Letter will help to strengthen your purchase offer because it shows the seller that you have already made arrangements for your financing.

In most cases, a Pre-Approval letter will be required depending on seller requirements. This is typically the case with Bank Owned or REO Properties. For example, if the seller is Bank of America, they will ask that you get pre-approved through one of the Bank of America Loan Officers whose name and contact information will be provided by the listing agent. This lender is called a “direct endorsement lender” and is a bank requirement. Keep in mind that the buyer is not required to obtain financing from this direct endorsement lender to close the transaction.

Down Payment Requirements

Down Payment Requirements will depend on the loan program type. Conventional Loans have the least amount of restrictions with regard to acceptable property types and require at least 20% down when buying a house.  However, condo and townhome projects are proving to be more difficult depending on the Home Owners Association (HOA) financials, owner occupancy rate, and pending litigations.

All Cash Buyers and currently dominating the market right now and account for the largest share of escrows in the San Fernando Valley area I serve.  All Cash Buyers are the most successful in this current market situation because the banks want all cash buyers right now given the tight lending standards. 

This leaves the Low Down Payment financing programs requiring less than 20% Down Payment including the Cal HFA-30 (5 % down) and FHA (3 ½ % down) with a very small percentage of closed escrows.

Closing Costs

You will be required to pay fees for escrow services, title insurance, loan origination, loan processing, underwriting, appraisal, notary, recording and other misc. fees. These fees must be paid by the buyer/borrower prior to the close of escrow. Typically, the closing costs will range between 2-3 % of the sale price.

Additionally, the buyer should have Reserve Funds of anywhere between 2 to 6 months PITI (Principal, Interest, Taxes and Insurance) to show the lender that you are able to afford the payment should something unforeseen happen. In short, the smaller the down payment, the more reserves the lender will likely want to see and the more fees the borrower will likely have to pay.

Qualifying for the Mortgage

Your mortgage payment to the lender includes the following items (PITI):

1. The principal payment on the loan (P)
2. The interest payment on the loan (I)
3. Property taxes due on the home (T)
4. The homeowner’s or hazard insurance (I)
 

Your total monthly PITI and all other debts (including car loans, personal loans, credit cards, student loans, etc.) should range between 35-42 % of your gross monthly income.