GUIDELINES FOR BUYER’S PREPARATION TO PURCHASE RESIDENTIAL PROPERTY
During the purchase process, my team and I will keep you constantly updated so you will always be prepared for the next step and be informed throughout the transaction.
Loan pre-approval is important to see your buying power. If you do not have a lender, I can recommend lenders that have been successfully used several times.
It is best to be pre-approved or at least pre-qualified. This gives more leverage when presenting an offer and many times is required.
Once a property is found, the offer is sent to the seller’s agent to present to the seller. Included in the offer paperwork is the purchase price where the standard deposit is usually 3%. Escrow instructions are also presented in this paperwork with other pertinent information. The paperwork is called California Residential Purchase Agreement and Joint Escrow Instructions. Referred to as the RPA. This is a standard California Real Estate Association form referred to as CAR form used by most real estate agents in California.
Note: Once an offer is submitted, the buyer has a 3-day recession period. When the seller accepts the offer and the offer is delivered to the buyer, most always, the seller cannot cancel unless the buyer defaults on the contract.
The offer can either be accepted in entirety, rejected or a counteroffer needs to be made by the seller. If the buyer accepts the counteroffer, the items outlined in the counteroffer supersede the items in the original offer. Items not mentioned in the counteroffer are maintained in the original RPA e.g., escrow instructions and who is responsible for what etc.
A counteroffer from the seller can be countered back by the buyer until an agreement is made or either the buyer or seller accepts the counteroffer. If a counteroffer is not accepted, there is no deal or legal recourse of previous transactions in the offer process.
After an accepted offer, the listing agent usually opens escrow from instructions of the offer. Escrow is a neutral party in the transaction. It is standard for the seller to pick the escrow company. The 3% deposit is recommended on the day of opening escrow although must be in by 3 days after opening escrow. The deposit is part of the down payment. Approximately 3-5 days before the close of escrow, the balance of the down payment will be due. This is the difference between deposit and the full down payment.
**Always call the escrow rep to verify exact instructions before wiring money**
There are other expected costs and processes throughout the escrow and loan procedure. Our team will do our very best to keep you informed and explain what is being done. Feel free to inquire at any time. It is the law that you are given all costs, and nothing is hidden. About 4-5 days before escrow closes, you will sign and review closing disclosures of everything. After signature, there is a 3 day waiting period prior to signing the loan documents.
The main contingencies in an offer are loan, home inspection and appraisal. There may be other contingencies although these are the most standard. Contingencies are for your protection. If something is not right, we address these items and may end the purchase process if you desire so your deposit will not be at risk.
The loan contingency is very important and standard removal is 17 days. During this time, you will be working hand and hand with the lender where I am not involved with your finances and items requested from your lender. Even though you may have approval and cleared to close, it may not be completely cleared. I have seen where underwriters will ask for items up until the day of close and the loan doesn’t fund. You will need to speak to your lender to see if everything is in line and you are comfortable with me to remove the loan contingency. I stay in contact with the lender although your communication will be much more detailed. If the contingency is not removed, we may receive a notice to perform where there is a 2 day period to remove the contingency. Once the contingency is removed, your deposit could be at risk so it is VERY important when the lender requests items, you get them to the lender accurately and immediately!
The buyer chooses the home inspection company. This is to find any structural or major problems with the house, which if not acceptable, repairable or replaceable can terminate the offer. The buyer usually is responsible for payment on completion of the inspection. It is paid to the inspection company. The buyer and their agent can be present although it is not necessary. I can recommend companies often used that have a professional and accurate track record if you do not have one. This is to be done right away after escrow opens, usually within a week although the sooner the better. On average, inspections are about $500.00 and may go up or down depending on the size and difficulty of the property.
Note: In addition to the standard home inspection, it is recommended to have a sewer inspection on properties 30 years or older. Foundation expert on properties 40 years and older and roof top AC on properties 10 years and older. Pest inspection for wood destroying pests and organisms should be done on all properties. This is at the buyer’s expense for added assurance of a sound property. You may choose your own or I have referrals.
Most chimneys in CA will have some issues due to movement in the earth and them being brick. They usually do not cause major issues. Repairs can run between $8000-$10,000 in some cases, which you need to consider weighing the pros and cons with funding the loan and closing escrow on time. A lot of times in the MLS they will put a decorative fireplace/chimney to protect the seller of possible expensive costs.
It is standard for the seller to pay for a 1 year home warranty. This usually covers all major appliances, some plumbing, water heater etc. You usually can have the home warranty upgraded if you would like more items covered. (This is really nice to have and I have found it to come in handy.)
A pest inspection is to be performed and many companies will do this for under $200 depending on the size and difficulty of the property. Most homes in Southern California have termites so the home may need to be treated or repaired. This inspection is looking for wood destroying organisms and pests because it is not always termites. This is negotiable although usually the seller takes care of the majority of the cost if infestation is present.
The appraisal usually needs to be done to make sure that the property is worth the amount of the purchase price for what is borrowed on the loan. The lender orders the appraisal. The appraiser is a 3rd party who has no affiliation with the buyer or the seller and is a neutral party. It is standard for the buyer to pay for the appraisal, this is reconciled in escrow usually. On average the appraisal is around $400-$600 depending on the size, age as well as different appraisal factors. You want to make sure the property appraises for the accepted price, especially for the loan. If it doesn’t appraise, we can ask for a reduction in price or you can bridge the gap of appraisal and accepted price with your own additional funds. In some cases with loans, the lender may give an appraisal waiver where an appraisal does not need to be done.
During escrow, a preliminary title report is done to see where the title of the property stands. We want to make sure there is a clear title by a licensed title company. If there are items that are strange on the title (clouded title) these items will need to be addressed to clear them off the title by the title company. They work hand in hand with escrow. It is standard for the seller to choose and pay for the title company.
Homeowners insurance is mandatory for a loan due to devastating occurrences. This covers the cost of replacement of the structure or property to bring it back to its value. Homeowners insurance protects the buyer and the lender. Homeowners insurance can be wrapped into the loan payment or paid directly to the insurance company. This is the preference of the buyer. After an accepted offer, the buyer should get on this right away, find an insurance company and have the policy in place. The lender and escrow will want copies. If you do not work with an insurance company, I have recommendations for you to interview.
Property taxes can also be wrapped into the loan in your monthly payment. This is called an impound account. If they are paid outside your mortgage payment, you will receive a property tax bill in October from the county tax collector, where you will have 2 installment payments. The 1st payment is due November 1st and delinquent on December 10th and the 2nd payment is due February 1st and delinquent April 10th. Property taxes are assessed at about 1.25% of the property value.
*Be prepared to receive a 1-time supplemental tax bill for the difference in the previous amount of the property to the new assessed value as you purchase your property. More detailed information can be found on the county tax assessor’s website for your county.
Be prepared to receive several documents to be signed electronically via the internet. The program most used is called DocuSign. They will primarily be sent to you by the transaction coordinator (TC) on our side. Please have them signed and back to the TC as soon as possible. This also holds true for your lender! It is imperative to have documents requested by the lender back to them expeditiously. Quick and accurate return of documents helps greatly with the closing process. Some of the various disclosures and paperwork you may see are Natural Hazard Disclosure, Lead Based Paint, Megan’s Law, Earthquake, Seller’s Property Questionnaire, Transfer Disclosure Statement, HOA documents… to name a few. Please try not to be overwhelmed and most of what comes over is standard procedure in the process of escrow. Many items can still be requested by the underwriter up until the funding of the loan is received. This can be very frustrating because they may ask for things that seem menial or for things you have already given them. Again, get them to the lender accurately and expeditiously because your deposit could be at risk or the property may not close on time.
All cost by law are disclosed and you will be asked to review and sign the closing disclosure. There is a 3 day waiting period and then you will sign you loan documents, which I am warning you, is a lot of signatures and papers.
The final portion of down payment will be instructed to you by escrow of the exact amount to wire with instructions.
**Always call the escrow rep to verify exact instructions before wiring money**
Your lender and escrow will be in communication. The wire usually takes place after signature of loan docs. When you sign loan docs, the lender sends to escrow who in turn will contact you for you to wire the remainder of your down payment.
Once the wire from the lender of the loan money is received, the title company records the new ownership with the county clerk. After recording, escrow calls or emails me with confirmation, and it is closed. The property is yours!
Welcome home
Please Note:
When you purchase a home, the record of the purchase becomes a part of the public record. There are companies who will start sending you some very official looking mail. Most, if not all of these mailings, will request that you send money in order for them to provide some sort of service. These mailings are a scam. Be on the watch for them so that you don’t fall victim to these companies. Please feel free to contact me if you receive any such mail and are not sure if it is a scam or an important piece of mail.