HOMEOWNERSHIP – A KEY TO FINANCIAL SECURITY
Owning a home can be good for you financially AND personally.
1. It will be yours and yours alone. The freedom of owning your own home can’t
even begin to compare to the restrictions that renters experience. You can paint
the walls whatever color you like; you may hammer a nail wherever you want – all
without the hassle of a landlord.
2. Life-style. Homeowners are a different breed. When you live in a neighborhood
or a building that is basically owner-occupied, your neighbors, like you, have
invested in and care about their property. Quite naturally, they’re willing to
invest more of their time, money, and efforts to improve their property and
community…which, in turn, improves the value of your property!
3. Equity buildup. Rental payments are gone once you have made them. With each
mortgage payment, you are “buying” something tangible, building up equity. The
longer you own your home, the larger your equity.
4. Keep up with inflation. A home is an investment that helps you keep up with
inflation. Although not all homes appreciate at the same rate, and some years
are better than others, real estate has historically kept pace with and usually
appreciates faster than the rate of inflation.
5. Income tax benefits. All interest paid on a mortgage is deductible for income
tax purposes. AND, in the early years of a mortgage, most of your payment is
interest! Remember too, that property taxes are deductible, and also that other
special tax deductions, for example, energy credits, are available to
6. Payback on improvements. A renter who makes any property improvements gets no
financial benefits from them if he/she relocates. As a homeowner, you can
realize some or all of the costs of improvements when you sell your home.
7. Trade-up value. Even if your first home isn’t your “dream home,” you will be
working your way up to it when you buy any home. With appreciation and possibly
some improvements, it may provide you with enough equity to make a down payment
on your dream home later.
8. Security for retirement. Unlike rent, which goes on forever, the mortgage on
your home will be paid someday, providing you “rent-free” living for your golden
9. Investment property. For some, second single-family homes or condos are
proving to be good income investments and tax shelters. You will be realizing
profits and tax benefits from renters who don’t yet know the benefits of owning
10. Don’t let the mortgage interest rate fool you. You pay much less than the
mortgage rate of your loan; the interest you pay becomes tax deductible.
THE HOUSE YOU
LOOK AT TODAY AND WANT TO THINK ABOUT UNTIL TOMORROW IS THE SAME HOUSE SOMEONE
ELSE LOOKED AT YESTERDAY AND MAY BUY TODAY.
your right of choice. 1. Be prepared by clarifying your own priorities, getting
your financial qualifications in order, researching neighborhoods, and finding
an excellent agent to represent you. 2. Know you are protected by the common
terms of the Purchase agreement, giving you a “contingency period” typically 17
days, during which you can investigate all condition issues, neighborhood,
Covenants and Restrictions, financing, zoning and usage, and ALL questions you
may have. If you are not satisfied within this time limit, you may recover your
deposit and walk, no risk. 3. This is not the time to cut corners and increase
THINGS TO THINK ABOUT IF YOU ARE BUYING REAL ESTATE.
Consider spending less than you can. Many of us are a little
spoiled. If your lender advises you that you can qualify for $1,000,000 how
about looking for a home in the $800,000 range, so you can live there without
every night stress. The $350,000 home you saw is what your $500,000 would have
bought you two years ago, so enjoy the savings and don’t push yourself.
There is no such thing as the perfect home at any price. We think if we could
afford $200,000 more, if we were 50 pounds lighter, if the day had another 3
hours in it. All this kind of thinking is as worthless as it is futile. Find the
home that has something special that makes you want to come home to it every
day, and remember where you live now has some wrinkles too! KEEP IN MIND... the
difference between "STYLE" and "SUBSTANCE". Substance is the things you cannot
change, such as location, view, lot size, area noise, schools, floor plan (well
maybe). Style can always be changed. And don't let the style overwhelm your
Right now is a phenomenal opportunity, because prices AND
interest rates are low. Any financial professional will tell you that interest
rates follow Treasury securities (and the long explanation is that because
mortgages too are sold off in bundles, and those investors won’t buy mortgages
if they can get the most similar investment, T-bill, for more interest on their
dollar.) And with the phenomenal debt the U.S. is spending, it absolutely must
start offering higher interest rates to make the Treasury notes and bonds and
bills go out the door in the enormous numbers we now need to sell to pay our
bills. If your purchase goes down 15%, and your interest rate goes up 2.5% (from
4.5% to 7%, a reasonable rate, frankly), your 80% mortgage on your $1,000,000
house will go from $4,016/mo P+I at 4.5% to an 80% loan on your $850,000 house
at $4,522/mo P+I at 7%. Interest is much more expensive than price.
Sellers are naturally shell-shocked. If everything is right about a house except
the price tag, and you are making an honest assessment of value on it, put your
offer in writing. Most sellers don’t know where to put their prices, and they
don’t want to look panicky. But if they weren’t desiring to sell, they wouldn’t
be out there in this market! Give your agent the opportunity to bring you back
the deal you want.
FIVE STEPS TO REAL ESTATE PURCHASE:
10 MISTAKES TO AVOID WHEN BUYING
BUYER PRIORITY FORM
10 TIPS FOR FIRST TIME BUYERS
10 QUESTIONS TO ASK LENDERS
GETTING THE BEST DEAL IN TODAY'S
IMPORTANT THINGS TO KNOW WHEN BUYING
PROPERTY IN SAN DIEGO COUNTY
PROPERTY TAXES IN SAN DIEGO
2 SIDES TO YOUR DECISION - Large Down
Payment vs. Small Down Payment
BENEFITS OF HOMEOWNERSHIP
It is sometimes hard to look at the mortgage bill
when it comes in and not flinch a little. But the benefits, especially
when you live in Southern California, the greatest commodity market
there is, not to grin a little arrogantly. For our dollars we get:
Investment return. And not only on the equity
we build with improvements, not only on the appreciation we get to
keep as the values continue to go up, but leveraged ,
meaning that if your home appreciates 10% and you have only 25% in
equity and the rest is mortgage, that 10% is still all yours, and your
25% investment is returning to you a total of 40% return on your
Income tax savings. Absolutely deductible from
your income earned every years is the total of the annual interest on
your mortgage (up to $1,000,000 mortgage amount or the original
purchase mortgage amount + $100,000 new mortgage, whichever is less)
and the total amount of your property taxes. In the early years of a
mortgage this is about 90% of your monthly payment and makes a
substantial difference in our net income/tax status.
Stability. It is possible to plan, since you
know your housing costs and occupancy.
Savings for the Future. Just making the
payments on the mortgage builds equity, money that you can depend on
should you ever need to. And yes, we in San Diego may have a little
more than the friends and relatives in other parts of the country,
whose prices are more sluggish in appreciating.
Roots. One of the reasons our government made
tax deductions for homeowners decades ago, is that having a “place of
our own” enhances our attachment to, sense of belonging and sense of
responsibility for the home, community, town or city, state and even
country we live in. Sociologists find that children are much more
confident and happy when they have a sense of their own place.
Freedom and expression of individuality. When
you rent, you are always subject to the judgments of your landlord.
When you own, you can, within zoning and neighborhood restrictions,
develop and dress your home to suit your personal tastes and needs.
And the money you put into doing so goes into your pocket, not someone
Control. You decide when,
you decide who, you decide how much. No landlord tells you to move. No
landlord tells you what to do or not do. And over time, you silently
increase your control, so that someday, when the mortgage is paid off,
the property can become your retirement nest, all paid for and done the
way you wish it to be.
5 STEPS TO A REAL ESTATE PURCHASE
1: GETTING READY
1) Analyze what is most important to you: (for
As you are home shopping, keep in mind the
difference between “STYLE” and “SUBSTANCE”. Substance is the things you
cannot change, such as location, view, lot size, area noise, schools,
floor plan (well, maybe). Style can always be changed. And don’t let the
style overwhelm your substance considerations!
2) Explore Neighborhoods: Prices, Convenience, Schools, Services,
Amenities, Noise, Economic Trend, Safety, Other. Driving various
communities to look them over, talking to homeowners and shop owners,
visiting open houses and yard sales, interviewing police and school
personnel, attending religious services or enjoying local events,
local favorite restaurants and asking for the best auto service shop,
for example, are ways of “trying on” a community to see if it fits your
pictures and lifestyle.
3) Talk to Lenders: Lender prequalification is a brief, non-obligation
meeting with a loan specialist to determine what size financing you can
qualify for and to learn of the many loan types available. I recommend
talking to at least two lenders. You will depend on this
prequalification information, and you want to be sure it is clear. You
should learn about current loan types, down payment requirement, loan
costs, property requirements (some loans have restrictions against
“fixers”, for example). You need NOT pay any credit or application fee
or lock feeds unless you CHOOSE to commit to one lender, because you
feel he/she will serve you and take care of you especially well as YOU
want. You may ask the loan specialist to run your credit report (which
will cost you about $50) if you have any concerns. Your loan specialist
can advise you how to clear up credit issues or direct you to lenders
who make loans to people with significant credit defects. We recommend
that you obtain a Pre-Approval letter for delivery with your offer. The
lenders will fax a copy to me for my file and send an original to you,
if you so instruct. Rates are not the only important factor in choosing
a lender. You want one who can deliver, who will live up to the
promises. And one who will treat you like a client and put your best
interests first in seeking out the best loan sources.
I have had excellent rates and service from:
NOTE: Some lenders offer to deliver a written
"pre-qualification" at the price you wish to offer on a property, rather
than your real ability, thinking they are "helping" in your
negotiations. My experience proves that it is always best to negotiate
from strength, to let the seller know your offer reflects his value, not
your wallet, and more importantly, not to discard your offer because it
is on the edge! So please have your lender give you their best written
4) Choosing a Realtor. Any time during the
explorations, whenever you feel ready, you will want to choose a real
estate agent to represent YOU. Don’t be a “customer”, be a “client”.
Under the law and the Code of Ethics, once you make a client
relationship with an agent, he owes you a FIDUCIARY relationship to put
your best interests ahead of all other considerations. He or she will
learn what your preferences and priorities are, search all the various
resources for the best properties, be responsible for protecting you
regarding choices, inspections, disclosures, neighborhood, and all
issues that could affect your pleasure in the property, negotiate to
your best interest, manage all the details of the transaction and escrow
This may be someone a friend or family member has referred you to,
someone you meet at an open house, or someone who does a great job when
you call on an ad or a sign. It is appropriate to interview Realtors
before making a commitment to work with them. You will want to discuss
the exploring you have done, your expectations, your financial
parameters, how you would like your Realtor to manage your search and
resulting transaction. Do you feel the agent you are interviewing is the
person who will be aware, conscientious, knowledgeable, and absolutely
trust-worthy in taking care of YOU so that you can concentrate on
choosing your best home. ( NOTE: Your Realtor's job is to serve
your best interests. You may be wise to consider whether the listing
agent on a property you want to buy, who is already contracted to serve
the seller, can also negotiate for your best deal? If you want the best
home and the best price, look for the agent who gives commitment to your
best interests first. I personally do not represent buyers
on my listings except in very rare circumstances (twice in my career).
Regardless of my personal ethical standards, I believe the buyer and
seller have greater peace of mind when they KNOW where I stand for sure,
and piece of mind is all. Should I have a buyer for whom one of my
listings is just right, I will present the property to him and help him
understand all the issues about the property. Then when he decides to
make an offer, I will recommend him to the best Realtor I think he will
love and trust, so that BOTH buyer and seller have the confidence of
fiduciary support. This is more likely to close the sale than an agent
who wants two sides of the commission.
WHY WORK WITH ONE REALTOR. The fact is
that the "hot" property, one that not only looks good but is priced
well, is FIRST going to be presented to clients who agents expect to buy
through them, and later, if not sold, to those who might be shopping
around. It is also true that the search process is a deeper learning
time, and the agent who has
your whole experience can better service you. You will also find that
when you are buying a home, you will begin getting advice from everyone.
Although these are people you trust, please keep in mind that old maxim
"a little knowledge can be a dangerous thing," and check any concerns
with your Realtor, who is a full-time, up-to-date and inside-resource
HOW REALTORS WORK. Most of what Realtors do is “behind the
scenes.” Previewing homes, researching new listings and comparable
sales, gaining market knowledge, keeping current on laws, financing,
practices and trends, all adds up to about 10 hours “off stage” for
every hour “on stage.” Realtors are traditionally paid entirely on
commission, which we receive only when your needs are met and you are
satisfied. We are generally paid from the seller’s proceeds at the close
of escrow. It is also possible to sign a “Buyer Broker” contract, which
will mean you are paying the commission to your agent. You can build the
commission into the purchase price, just as the seller does with his
brokerage fee. Talk to your agent about limits of his/her service, what
you can and should expect, and the best way for you to get what is most
important to you.
UTILIZING OUR SERVICES IN ACQUIRING YOUR HOME:
Often builders work with Realtors in marketing their homes to buyers.
This gives the builders access to broker clients, and to buyers who may
not be confident buying directly without a representative. There are few
new home subdivisions in the “metropolitan” /coastal areas I serve, but
we can be sure you are informed about those developments.
Most of our inventory is resale homes. This inventory is available to us
through the “MLS” (Multiple Listing Service), through networking with
agents who share properties they are going to be representing (vital in
this extremely tight market and a benefit when really “good” things are
about to come on), by staying alert to For Sale By Owner properties, and
frequently by making direct approaches to owners.
OUR BUSINESS APPROACH
Our business approach is a little different than most Realtors. We
believe absolutely in designing our efforts to suit the needs and
preferences of our clients, rather than following a "standard" program
of operation. And the other primary difference is we do not represent
both buyer and seller in the same transaction. We believe the ultimate
objective is the client's peace of mind. If the transaction is well
managed so that the client feels his needs were served first and he was
counseled toward wise decisions, he has confidence that he did the best
he could have done.
WHAT WILL IT COST ME?
Buying a home, like buying a car, is
both paying the cost of the property you purchase and the cost of the
fees and expenses associated with the purchase and subsequent support of
the property. While each transaction varies according to its specific
purchase agreement, location and condition issues, following is a
general approximation of costs:
Purchase Price $________________
payment $________________ (most usually 3-20% of the price)
Amount $________________ (remainder of purchase price)
Interest Rate _____% [ ] Fixed [ ] Adjustable [ ] Other Term
of Loan in Years _____
Estimated Closing Costs:
*These costs can vary greatly among lenders and types of loans.
The BEST source of these costs is your lender, who is required
to provide you a Truth in Lending Statement when you
Origination Fee (great range, usually 1%-2%
of the loan)
Appraisal Fee (typically $350 - $500, higher
for luxury homes)
Document preparation Fee (again, great
variation, but $500-$1000 most typical)
Underwriting/Processing Fee (estimate 1%)
75.00 Tax service for the life of the loan
Title policy for lender coverage (Loan Amount
x approx. .002>)
Loan tie in fee (average $65)
Flood certificate (if relevant $30-50)
Prepaid interest (from date of close to 30
days prior to first payment due, payments always pay
interest 30 days in arrears.)
Private mortgage insurance (if loan more than
80% of value, Generally .5% of Loan amount)
Reserve Impound Account (required if more
than 80% loan)
2 mos. PMI (2/12th of above)
2 mos. Fire/extended coverage insurance
2-6 months property taxes, depending on time
Other Settlement Costs: (These costs also vary slightly among
Escrow fee (seller and buyer each pay ½,
rising scale with price of transaction, estimate price x
.0025 decreasing with higher prices, sometimes added fees
for document drawing, processing)
Homeowner’s Association Documents, transfer
fee, move in/out (typical $200 – 400)
Recording Fees ($100 average, more if special
Notary Public or Loan Signing Service Fees
($20 - $175 typical)
OTHER PURCHASE COSTS:
Inspecting Contractor ($400 – 1000 depending
on property, issues)
Prepaid 1-year Homeowner’s or Fire+Extended
Home warranty Policy, if
desired, negotiable seller or buyer to pay VA and FHA loans
have requirements for sellers to pay certain typical “Buyer”
costs, and have some additional fees. Check with lender.
ESTIMATING MONTHLY COSTS:
Principal and Interest *
1/12th Annual Property Taxes*
Annual F&EC Insurance
Monthly Gas & Electric
Water, Sewer, Trash
telephone, TV, internet
Gardener, Pool Service
Interest and property taxes are deductible on
your income taxes, giving you government subsidy for about
90% of your payment initially, declining as the portion of
your payment attributable to interest decreases. **Financial
advisors recommend a dedicated savings of 2-4 months of
Principal, Interest, Taxes, insurance and HOA dues.
Step 2: THE SEARCH
plan is a team effort. Your Realtor will review all available properties
on the Multiple Listing Service and other sources to show you the best
"matches" to your priorities and best values. However, keeping your ear
to the ground can not only serve to refresh her mind about features you
desire, but can often develop new communication and ideas.
choose whether you want information to drive-by or make appointments to
visit each prospective property (exteriors can be significantly
misleading) with your Realtor. At each property take note of the
neighborhood, condition, livability, improvements you could make to
enhance your investment, other vital features to you.
Search continues until you find the RIGHT home AND until you have
sufficient information in your own mind to feel reasonably confident
about values, how much home you can get for the money you wish to spend.
INVESTIGATE THE NEIGHBORHOOD AS WELL AS THE HOME
Talk to at
least 5 neighbors and merchants.
local community meeting, if possible, especially if buying a
If you are
involved in any religious group, sport or other association, attend
the local group.
If you have
school children, visit the local schools; statistics don’t tell the
Enjoy a meal
at the local restaurants, coffee shop, and listen in to your fellow
If there are
local newspapers, community publications, community centers or
descriptive materials, check them out.
A stop at the
local library is always a site to find helpful people.
community police liaison.
An offer is made on your price and terms and preserves your right of
choice. It does not bind you until it is accepted and that acceptance is
communicated to you. Furthermore, the contract currently in use in
California gives Buyers (can be changed in negotiations but typically) a
17-day “Contingency Period” during which he may investigate any and all
concerns, and verify that his financing and insurance will be available.
If he is not satisfied during this time, he may withdraw from the
contract without risk of losing his deposit. Therefore, sometimes it is
wise to make an offer as quickly as you can feel ready to do so, to
preclude losing your right of choice to some other buyer who makes a
deal while you are researching or thinking. Your offer can be
conditioned on your being satisfied about the questions you have and
will be conditioned on your investigation of condition and other
safeguards. Offers that are conditioned on buyer obtaining a loan (as
are most offers) will have the further protection of being conditioned
upon the appraisal satisfying the lender that the value of the home at
least meets the price you are paying, since under California law, the
lender’s only security for the purchase money mortgage IS the property.
Step 3: THE OFFER
states your price. Contrary to buyer mythology, there IS NO formula as
to how much to offer, since sellers do not list with a consistent
relation to value. It is usually true, however, that a property which
has been on the market for a period of time may be more flexible than a
“new listing”, unless the seller has already decreased his price
appropriately. Recent “sold” prices on similar properties are your best
also presents your terms of payment (deposit, down payment and loan type
or cash) since some loans are less costly and "iffy" to sellers than
others. It will include your dates of closing and possession, ALL
contingencies (issues to be resolved to your satisfaction or you may
cancel the contract without forfeit of earnest money deposit, such as
obtaining loan, inspections by contractors, termite companies,
engineers, title company, and any other concerns of the buyer). It also
addresses who pays what fees, disclosures by the seller, personal
property (usually unattached appliances), procedures and legal
recourses, time limits.
California our legal system presupposes fully informed and knowledgeable
transactions. You will notice as your offer is prepared that there are
many conditions for your investigation and full disclosure by owners and
agents or severe penalties. California's real estate laws are very
buyer-friendly and protective.
will usually take the completed offer and "present" it to the sellers
and their agent. The timing for presentation will depend on particular
seller circumstances. As soon as possible the sellers will respond.
Because of all the technical detail in our contracts, rarely is an offer
simply accepted without at least some caveat addendum or minor change.
Most likely you will receive a Counter-Offer. The Counter-offer accepts
all the terms of your offer except the items addressed in the Counter.
You may counter the Counter-offer or accept it as is. And back and
forth. It can take a few hours, days or weeks to complete the
"negotiation" of an offer. This will depend on geography, competition,
and complexity of the transaction. Some offers just do not work out,
and, in this case, your deposit is immediately returned to you by your
market, you will need to be savvy to get your offer accepted. This means
having all your research done and being ready to go. You want the
strongest Pre-Approval letter your lender can write. You may want to
authorize your agent to disclose your exact FICO scores (if they are
impressive) or provide a copy of your savings account or brokerage
account statement (you may black out the account numbers), whatever it
takes to make the seller sure you CAN perform. You will also want to
choose an agent whose reputation and relationships in the industry will
give you an edge, and whose knowledge will find you the competitive
corners and protect you at the same time. You will want to offer to give
up whatever “small things” you can to get the “bigger things” you want.
If you can be flexible on closing or possession, say so in writing. If
you have a big deposit, put it down. Shorten any contingency time frames
you can. Offer a penalty fee if you fail to perform except for
substantial issues. Don’t ask the seller for trivia, focus on the prize!
NOTE: Protracted negotiations seem to generate more assumptions and
suspicion between the parties. Negative thoughts cost money on both
sides as trust erodes and fear breeds protection issues. So most agents
try to conclude negotiations before hackles interfere with logic and
Step 4: THE ESCROW
"Escrow " is
a process and an administrator of your contract. An Escrow Company will
receive your deposit and the seller's deed, and be the administrator of
all conditions in the contract until satisfied. When you have been
satisfied on all your contingencies and negotiated any new issues with
the seller, when you lender has approved you and appraised the home to
at least the value you are paying, when your new homeowner's insurance
is ready, when you have signed all final escrow instructions and loan
documents, the escrow will order the lender to produce your loan funds,
collect the balance of funds you owe, and will record the deed to your
name. Upon "confirmation" of recording clear title by the Title Company,
you become the owner!
During escrow you will:
1. Execute instructions to the Escrow Company, who, as the
impartial "stakeholder", will administer the terms of your contract.
Unlike your agent, who is an advocate for you, escrow can only operate
under mutually agreed instructions from Buyer and Seller (or a Court
2. Complete loan application, verification authorizations, and
supporting data. Your lender will order the appraisal and
coordinate all loan requirements. You may anticipate a few additional
requests as the underwriting progresses. Hopefully you have chosen a
loan agent who can wisely guide your application and counsel you on the
management of any problems. When loan approval is communicated
(generally 14-21 days), you are then poised to finalize your personal
arrangements for readying balance of funds, moving arrangements and
scheduling any work you want done after close but before move-in. (see
3. Receive disclosures. By law sellers have a
responsibility to reveal to you the true condition of the property as
they know it. “As is” in California does not mean buyer be fool”. It
means the seller does not PRE-agree to fix or warranty, but he is still
responsible for providing disclosures, and can agree to provide termite
certification, specific repairs, or credit for work not to be done,
which can be negotiated or RE-negotiated after inspections are
4. Arrange and pay for inspections of structural stability
and operating condition of the home by a licensed contractor, and
optionally, engineer, toxic hazards specialist, repair or remodeling
contractors, heating, pool, and professionals for any other concerns you
may have. Usually (depending upon contract terms) the seller will
provide a termite inspection for your review. You will also receive
disclosures from the seller and agents. All of these issues are to be
studied and clarified so that by the end of your "inspection
contingency" period, generally 17 days, you can deliver to seller an
acceptance, cancellation, or request for repairs/credit. Neither your
request nor his response is absolute, and negotiations are sometimes
reopened in light of new information.
5. The title company will provide a report showing the current
condition of title, which serves as a roadmap for Escrow to clear off
all un-agreed liens. This includes loans, judgments, easements,
restrictions and covenants, who is currently on title, taxes and special
assessments and their payment status, and any other issues that could
affect you receiving clear title. Easements and covenants, conditions
and restrictions are most important for you to review, since they
usually "run with the title". Liens and other encumbrances may be
eliminated by escrow.
6. A Home Warranty Plan may be paid by either buyer or
seller, or waived, and is a 1-year warranty (renewable) for major
systems of a home. If you choose to have one, you will want to select
the company and advise escrow before closing.
7. Loan approval is usually the last contingency to be satisfied.
At this point the seller is able to be fairly certain everything is in
place to make the sale go through. He will do the agreed repairs and
order the termite work completed. Within the week prior to closing, you
will do a final "Walk-Through Inspection" with your agent, to determine
that the home has been maintained according to the contract, that Seller
repairs are complete. Buyer then signs an Approval of the Walk-Through.
Loan Approval is also the appropriate time to make appointments with
your movers for the possession date, to contact utilities, phone, cable
TV, newspapers, alarm company, if any.
8. When all the elements of the contract are completed, escrow will
verify that they are complete. Then escrow will order the lender
to deliver their loan documents for Buyer execution, and Buyer will be
contacted to arrange a sign-up meeting. At this time escrow is able to
make a final estimate of funds the buyer will need to provide to cover
the balance of down payment and closing costs. Most closing funds need
to be in the form of a Cashier's Check or wired funds, check with escrow
to determine your requirements.
9. Recording ("Closing") takes place when the contract specifies
AND all monies from the buyer and the lender are in escrow. The title
companies notify the title officers, who notify the escrow officers, who
notify the agents of "Confirmation". You will be entitled to keys and
possession according to your contract, usually through your Agent.
Escrow will provide a settlement package to you with a summary of their
Financial Transaction Record for your files and tax advisor, usually a
small refund check on closing funds (which they always overestimate to
allow for a day or two delay and change in prorate monies) of $1-200,
and copies of final papers you may not have in your file. Your Deed will
be mailed to you by the County Recorder. The Title Company will mail
your Title Insurance Policy to you.
A trauma equal to nothing, short of death and taxes. That occasion
when you discover everything you own is also overweight, uncoordinated
and at the same time too-much and too-little. The event immediately
preceded by a gala visit from the dirt fairy and immediately followed by
a simultaneous breakdown at the phone company, cable tv company and your
water heater! Your Aunt Sadie’s handmade baroque umbrella stand survives
a five-story fall and being loaded on the van under the piano. Your only
real Rosenthal china shatters as the truck shifts gears. Your old carpet
reveals sun-bleached patches of memories. Your new floors stain
instantly with the dog’s displacement anxiety just where you don’t want
to put furniture. Boxes shrink as you pack and swell on the trash curb
…and the newspaper boy at your new home arrives with the automatic
sprinkler “on” button. The spare tire on our car is under the load. And
a new neighbor arrives with a casserole and warm hand. Your coffee pot
shows up in the nick of time and your daughter wanders in with a new
best friend from across the street. And you begin to suspect you may
live as you unpack and enjoy things you haven’t noticed in years. It
could be worth it!
A few helpful contacts:
Change your address with Post Office online:
For information about school districts across the
To notify the IRS about your new address and to find
out if your moving expenses are deductible:
To change your
address at the Social Security Administration: 1-800-772-1213.
of hazardous materials like paint and motor oil you might have left over
your garage when you move
out, call 1-800-CLEANUP.
For referrals to useful
service people, you are welcome to visit my website ,
FORWARDING YOUR ADDRESS
[ ] Post office
[ ] Charge accounts, credit cards
[ ] Subscriptions – need several weeks advance notice
[ ] Friends and relatives
[ ] Transfer funds, arrange accounts in new city
[ ] Brokerage account(s) re-establish with new contacts
[ ] Arrange wiring or cashier’s checks for closing real estate
transaction. Be sure to ask your bank if their cashier’s check is drawn
on a California institution.
[ ] Arrange any credit references needed.
[ ] Notify of new location for coverages – life, health, fire, auto,
UTILITIES. . . at both locations!
[ ] Gas and Electric
[ ] Water
[ ] Telephone, computer, cable
[ ] Heating fuel
[ ] Security system
[ ] Motor club membership
[ ] *Get refunds on any deposits paid
[ ] Ask doctor for referrals, and to transfer xrays, prescriptions, etc.
[ ] Obtain birth and medical records
CHURCH, CLUB, CIVIC ORGANIZATIONS
[ ] Transfer memberships
[ ] Ask for letters of introduction
[ ] Investigate need for licenses, vaccinations, etc at new location
[ ] Obtain records, prescriptions, etc from old veterinarian, as well as
travel suggestions for moving your pets.
[ ] Empty freezer, pantry, and plan use of foods. Use charcoal or baking
soda to control odors.
[ ] Have appliances serviced for moving
[ ] Arrange cleaning of home and rugs/carpets, clothing for packing and
[ ] Arrange packing/unpacking help, method of moving payments, date and
time of delivery.
[ ] Plan special needs for children, pets
[ ] Have enough cash for moving travel, tips, expenses and costs until
your banking is established at new location.
[ ] Arrange safe transfer of jewelry, documents if by yourself or
[ ] Be sure close friends and family have your cell phone access and new
home phone, including how many days you are expecting to be on the road.
[ ] Make a final check of ALL drawers, closets, shelves.
[ ] Leave all old keys
AT NEW HOME
[ ] Verify status of all pilot lights, systems
[ ] If not done by seller, have appliances checked out.
[ ] Locate mail held for your arrival
[ ] Reigster to vote
[ ] Have new address recorded at DMV, and register car(s), apply for new
drivers license(s) if necessary
[ ] Register at schools
[ ] Register at new place of worship
[ ] Meet with new doctor, dentist, veterinarian, etc.
[ ] Begin collecting references for hair, restaurants, clubs, coaches,
organizations, handyman, electrician, plumber, designers, etc.
[ ] Make finding one new great thing about your new location every week
MOVING IS A GREAT OPPORTUNITY!
• TO evacuate dust balls from hiding places the CIA would admire.
• TO find new treasures in overlooked old belongings.
• TO give appreciation to old neighbors and service people.
• TO reaffirm gold friend-ships and initiate new possibilities.
• TO leave unfinished projects and guilt for new and smarter promises.
• TO pare down the things that own us and spotlight the cherished
• TO completely clean, and to notice how told the tree we planted has
• TO store up great ideas and experiences to bring to new associations.
• TO be the new person you’ve been working to be without anyone dragging
in the old one.
• TO try your other favorite styles and colors.
• TO learn new places and have new adventures.
• TO turn snow skiing into water skiing, turn barefoot into high heels.
• TO dance again.
MOVING WITH KIDS
Every year one out of five American families move. One of the most
important issues to anyone with kids is their reaction to the news that
they are moving, and their adjustment to the new home. Being informed is
very important to children. One of the worst mistakes adults can make is
to assume they don’t care or won’t understand. Fear is greatly increased
by ignorance. Even the child who resents and objects to the move will
cope more capably if “kept in the loop.” Other factors depend on age.
Kids under the age of six may worry about being left behind or being
separated from their parents. If you go on an orientation or
house-hunting trip beforehand without the children, it’s very important
to reassure kids this age that you will be back; bring something unique
about the new area back to them. It’s very important for them to express
their feelings and fears about the move. Give them a job to do. Have
them be responsible for boxing up their favorite toys, and “labeling”
their boxes with crayons and stickers.
Elementary kids are usually most concerned about how their daily
routines will change. Showing them pictures, videos and magazines of
their new home will help a lot, especially if you can find new places in
advance for the things they like to do. If your children take dance
lessons, find and share information about the new dance studio they can
go to. If they take karate, or play soccer, even if their favorite thing
to do is go to the park or the pizza parlor, find these places in your
news neighborhood and get photos, brochures, or videos.
These kids are most concerned with fitting in. They may react angrily to
the move, even insist they are not going. This is usually due to the
total lack of control they have over everything important in their
lives, friends, school and jobs, being disrupted. These children can be
very worried about making new friends and what will be different in the
new school. They are curious about the clothing, hairstyles, bicycles,
cars, etc., that kids in the new city will have. Photos of these things
are very helpful, and including them on an orientation trip is nice, but
if not, do visit the school and take detailed photos/videos for them.
Perhaps the principal could arrange a pen pal with someone who might
match up well.
Give young children an entertaining
travel kit for the move.
Give older children a diary for
recording the trip and move.
Arrange a going away and remembering
you party for your older children and their friends, with
pre-addressed envelopes for your children to give out, and
invitations for their friends to visit.
Give children of all agents a special
address book and stationery set for keeping up with friends.
Take videos of the new home, if the
kids won’t get to see it before the move. Arrive well before the
movers so kids can explore and become acquainted with the home
before the movers take all your attention.
Give each child a responsibility
during the mover’s delivery, working on their room, supervising
younger siblings, painting or arranging furniture, preparing meals
and/or doing some kitchen organization, taking care of the dog
and/or cat in the back yard in or out of his/her travel cage.
Take time with the family as soon as
possible to explore the museums, sights and recreation in your new
Plan time with your children
immediately after their first day at school to meet new needs they
Arrange a visit to new schools and a
meeting with the teacher before the actual first day of attendance.
Encourage the children to bring new
friends home. Perhaps a welcome party instead of birthday, where all
the children would get little presents, in a swap kind of thing.
TO AVOID WHEN BUYING A HOME
Looking for a home without getting
pre-approved. This written letter from a lender demonstrates to a
seller that you are a serious and qualified buyer, and gives you
more clout in your negotiation and greater peace of mind.
Making oral agreements. Since your
written contract will probably prevail, all your commitments should
be in writing. This provides clarity as well as proof.
Choosing the wrong lender. In
addition to the best rates quotes (remember the "promise her
anything" commercials!), you want a lender with the intention,
knowledge and clout to perform whatever they promise. On the day or
week before closing you don't want a lender to say they can't
deliver and find yourself squeezed into taking what's left or losing
the property. Discounts DO happen, but often they are made to "buy"
business where the business is not "earned".
Failing to obtain a lock on your loan
in writing. Specifics on your interest rates, terms and loan amount
can be "locked" for you for a period of time to allow you to shop
without concern about market rate fluctuations. Talk to your lender.
Using a dual agent. Your agent has a
"fiduciary" duty to act in your best interests. The seller's agent
has the same duty to his client. Unless negotiating for your best
price and terms is not in your best interests, or the agent's skill
in negotiating is negligible, the conflict of one agent representing
both seller and buyer is inherent. Using agents in the same office
is not a problem, however, since 1) not doing so would limit your
choices too much and 2) the office has enormous liability to protect
the interests of both and makes extra effort. Your best choice is an
agent with integrity and skill. The rest is just work.
Thinking you are saving by not hiring
a professional home inspection, or hiring the cheapest. If you don't
squeeze a melon you lose $2.00. A house is not a melon. Many
problems that are safety or operation issues can be negotiated with
the seller. It is also an excellent learning experience for future
improvements and maintenance.
Signing documents without reading
them. Your purchase contract, escrow instructions, written
agreements for repairs, credits or other amendments, loan documents
- all should be read to verify that the writers have the same
understanding, and that they correctly express your wishes.
Expecting everything to be smooth.
Don't wake Murphy! The best transaction is a coordination of dozens
of minds and matters. There will be another day. Keeping a sense of
humor, a sense of balance, and an open mind will not only preserve
your mental health, but probably earn you a much more successful
purchase. Good will is always more effective than pressure and
Scheduling your moving day too
tightly. Most purchases "close" when they are expected to do so, but
everything from computer snafus to banking errors (when they lose
things!) can cause delays. Giving yourself a week overlap can also
give you time to move safely and orderly and to enjoy the
well-meaning interruptions of friends.
Being afraid to ask. You are the
Principal. You are the client. You are the person with the money.
You are the person who is giving the seller a reason to move. You
have the right to understand and the right to be heard. You do not
get to dictate, because there are other people involved, but you
should have a sense of what happens and why. And you should have a
feeling of being well served by your Agent and Brokerage.
THESE ARE THINGS TO CONSIDER BEFORE YOU START LOOKING, SO YOU ARE
DIRECTED BY YOUR CHOICES
Mark each of the following with :
M – must have
L – like to have
D – dream house would include
N – not relevant
____ Location __________________________________________
____Convenience to Work _________________________________
Parks, Rec facilities_________________________
____M___Bedrooms ____________ Baths
____L___ Bedrooms ____________
____Family room __________________________________________
____Floor Plan ___________________________________________
____Garage ____Workshop ____Storage ___________________
10 TIPS FOR FIRST TIME BUYERS
THINK CREDIT. See a recommended real
estate loan officer to get “pre-approved” (so you know what your
limits are), to learn the many options that are available for you,
and to address any credit issues. Poor credit will make you a bigger
risk in lender eyes, which means higher rates and higher monthly
payments. Make a point of paying credit card bills, auto loans, rent
and other payments on time, and if you have had a problem or
several, talk to a loan officer about how to “clean” that up. Ask
your lender and/or agent to explain the benefit of “leverage”, so
you can consider that in making loan decisions.
LEARN THE TAX BENEFITS. Most people
appreciate the shelter, investment, independence, and security
benefits of owning their own home. But many people do not understand
the financial benefits of tax savings. For example, all the interest
and property taxes paid, are deductible on your annual tax filing.
This is generally MOST of your mortgage payment the first half of
the loan and a big savings after your add your tax savings back into
your monthly income. Furthermore, most of the gain in a real estate
investment will go into your pocket – if it is your primary
residence, you might keep ALL the gain; if it is an investment,
capital gains taxes are significantly lower than income tax rates,
so you can keep most of it. See your tax professional.
BECOME CLEAR ABOUT THE ROLE OF YOUR
REAL ESTATE AGENT, what they do, how they will represent YOU, how
the system works. Your choice of agent can make a HUGE difference in
the dollar and peace of mind results of your purchase. There are so
many of us, it shouldn’t be hard to find one that will give you
confidence, support, integrity, information and success in the way
YOU define it!
LOCATION. The last part of your
getting ready work is to explore different neighborhoods in your
anticipated price range, and determine what will work best for your
household needs – commuting, schools, shopping, recreation, social
activities – and start focusing on those communities.
Once you have chosen the home, BE
CLEAR ABOUT YOUR OFFER. There are few rules, since almost everything
is negotiable. The most important thing to keep in your mind is your
objective. Personalities, niggly irrelevant details (in YOUR
judgment) will come up and skew your thinking. Keep the big picture
in mind. Just because the seller comes down doesn’t mean you have to
go up, if you are already at what that house is worth to you. BUT if
the process gets stressful, don’t give up a good counter offer
because the seller (or it could be his agent) is unpleasant or
antagonistic or whatever. When the house is yours, they will be
gone! And don’t let time become your enemy. People under pressure
usually make less reliable decisions. Give yourself and your seller
enough time, AND respect those commitments you make. The best friend
you have in your negotiations is good will.
Work closely with your agent to BE
SURE THAT ALL YOUR CONCERNS ARE ADDRESSED AND SATISFIED DURING THE
EARLY "CONTINGENCY" PERIOD. Saving $100 on a home inspection can
cost you $1000's later, this is one place you don’t want to go for
the cheapest, get excellent! Any questions you have should be
discussed with your agent, so that he or she may advise and work
with you on their resolution.
Your lender should start your process
immediately and keep you informed. When to "lock in" your loan is
something you should discuss with him, but remember, no one has a
crystal ball. Be sure to explore all your financing options. And
DON’T DO ANYTHING TO DEPLETE ANY OF YOUR CASH ON HAND UNTIL YOU HAVE
CLOSED THE PURCHASE unless your lender approves it first. Running
out a week before close to contract for a new car with gravely shift
your financial picture and may jeopardize your purchase.
LOOK FOR GIFTS AND GRANTS. Some loan
programs provide assistance to buyer with grants for down payment
and closing costs. There are employee incentives, some community
groups, and the federal government has special loans for veterans,
teachers and police officers.
Try to stay relaxed. There are a lot
of people and elements in a purchase transaction that could cause
delays or problems. Even in this high-tech world a power or
personnel failure can cause problems. You might ask your agent for a
check list so that you can track what is happening, keep ahead of
your obligations. And BE GOOD TO YOU. Soon you will be unpacking in
a wonderful new home which, in San Diego, is bound to be not only
your personal nest, but a source of great dollar return at some
he time to start is now. GETTING
READY IS ALSO GETTING WISE. As you explore you will meet people you
KNOW are the answers you seek. It’s like love, you know when you
know. No one owns you until you sign a contract with them. YOU are
the client. You decide who and when and how much!
HAVE FUN, THE TRIP IS A GREAT RIDE AND
10 QUESTIONS TO ASK LENDERS:
What are the most popular mortgage
loans you make? Why?
Which type of mortgage plan to you
think would suit us? Why?
Are your rates, terms, fees and
closing costs negotiable?
Will I have to buy Private Mortgage
Insurance? If so, how much will it cost and how long will it be
Who will service the loan?
What escrow requirements do you have
– such as number of days in advance of closing that money has to be
deposited, time for review after documents are signed, etc. etc.
How long is your lock-in period? Will
I be able to obtain lower rates if they drop during the lock in
How long will the loan approval
How long will it take to close the
Are there any charges or penalties
for paying off the loan before its final due date?
Source: www.Realtor.org magazine.
FIRST TIME HOMEBUYER FINANCIAL HELPS
There are some great programs available
to help people get into the expensive California real estate market.
First, a “First Time Homebuyer” is defined as someone who has not owned
a principal residence in California in the past 3 years”, and this is
verified by their reviewing your tax returns for deductions for property
tax or mortgage interest.
Adding several hundred dollars to your monthly income (or conversely
taking several hundred dollars off your mortgage payment) is the MCC
or MORTGAGE CREDIT CERTIFICATE. This program allows an accepted
participant to take a direct credit against his taxes for 20% of his
total primary residence mortgage interest. If your loan is $400,000 at
6.5% for example, that is $26,000 in annual interest. A 20% credit would
mean $5200 off the federal taxes (state does not participate) you would
owe for the year or a monthly saving of $433. That’s a lot of money. It
is important to note the difference between Credit and Deduction. In
this case you still get to deduct 80% of the total annual interest from
your annual taxable income, which gives you a savings in ratio to your
tax rate, or something between 10% and 35%. A credit gives you total $1
for $1 savings off the tax you owe, 100% savings. AND this credit stays
with you for the entire time you reside in that property. AND if you
refinance for any reason, you can extend the MCC benefits by RE-applying
for the program under the new loan program even though you are no longer
a first time homeowner.
This is not new. The MCC program has been
in effect since 1986 and is fully familiar to tax and IRS professionals.
Of course this is not for the wealthy among us. To qualify your
household income must not exceed $82,800 for 1-2 persons, $95,220 for
more persons, and the price of the property must not exceed $508,700
resale, $490,000 new, or $567,166 for a duplex and the duplex must be at
least 5 years old. All of San Diego County offers the MCC except
Del Mar and Solana Beach, but their prices are probably too high
regardless. You obtain this MCC certificate by applying
through your lender, and it must be an approved MCC lender. You can go
to www.AHAhousing.com or call Kathy Stone at AHA 619-469-2002 for
details and lender names. Occasionally the municipalities run out of
funds, but only briefly.
There are some limitations such as no CalHFA, negative amortizing,
adjustable loans that change rate within 3 years or less, or interest
only that change payments within 5 years, loans, but most regular
financing qualifies. AND once you have qualified income improvements do
NOT disqualify you! And there are some prorated payback taxes if you
sell before 9 years but they are pretty minimal and prorated. See the
website for details.
Another First Time Homebuyer help is through Downpayment Assistance
Programs. These change all the time, so it is necessary to talk to a
qualified lender who specializes in these program. But examples are:
Low Income (80% of your Median Area
Income – google “American Fact Finder” to get yours): will provide
downpayment required above of 1% buyer contribution of purchase price at
very low or 0% interest, sometimes these include equity-sharing or
appreciation-sharing paybacks at sale, but again, PART OF SOMETHING IS
BETTER THAN NONE OF EVERYTHING. There are also programs for Moderate
Incomes (110-115% of Median Area Incomes). In the City of San Diego,
contact www.sdhc.net,San Diego Housing Commission, Vicki Monce
619-578-7491. These downpayment assists can be huge to make loan
payments affordable for the homebuyer. Do not miss out!
Layering programs. It is possible
and in fact ADVISED to use the MCC and Downpayment assistance. Some
people have been able to use 3 or 4 programs at one time. This is why
you want a savvy lender.Best place to find these savvy lenders is to
write Kathy Stone at ahahousing.com or call her at number above. Source,
GETTING THE BEST “DEAL” IN TODAY’S
The Girl Scouts and Boy Scouts are right.
It is always best to be prepared. If you are a buyer in today’s housing
market, it only makes sense. When the good ones are gone in a matter of
hours or several days, to take advantage of the BEST opportunities a
buyer needs to be prepared, act fast, be flexible, and understand the
Preparation means: 1) Starting with a
“Pre-Approval” letter from a reliable lender. This free,
no-obligation,information-full process will tell the seller your offer
is worth giving serious consideration because you CAN perform. It also
gives you the power of being armed with confidence and knowledge of the
financing options at your choice and how they suit your financial
picture. 2) Being familiar with the community. Will the schools suit my
children? Where will we shop? How is the commute? Does the social,
economic, and demographic structure fit my lifestyle? What are the
community concerns and benefits? Are the worship, health, leisure and
other issues in line with my priorities? 3) Understanding personal and
household priorities. This is a great personal or family experience if
you all share and listen to each other’s priorities.
Acting Fast may require some critical adjustments. 1) You can’t make a
quick decision if you are not versed in the market, confident in your
lender, and managed with related issues like the sale or rental of your
existing home. 2) Can you talk with your employer about PRE-arranging
permission to run out the door and make up time later when your Realtor
calls with “this is it!” news. Recently we sold 3 homes on day one. If
our clients had not had lunch freedom, we would be in second place.
Second place doesn’t move in.
Flexibility can be a huge
negotiating factor. We have a client in a home today in spite of
multiple offers on the same home, because that client could say to the
seller, yes, we will close in 30 or 90 days, whenever you find a home.
We have a sale that is under asking price, because the buyer could offer
the seller completely “as is” including accepting all the responsibility
for termite, smoke detectors, water heater strapping, toilet
retrofitting and similar details that just were too “complicated” for
the seller with an entire life to move. Another area of flexibility
might be allowing the seller to close, pocket his money, then rent back
until job change is complete, new home is finished, baby is a month old,
Understanding the process, all the above
and all the after, means having a perspective on what is “typical”, what
is “next”, what is really important right this minute. People lose
chances, because they have to finagle their best nickel right now,
because they feel emotionally put out although the issue is genuinely
normal for this area and time, because they lose sight of their
priorities in the rush to “win”. While good counseling is consequential
throughout the process, it is critical at this time. A buyer’s first job
is to “Get the Accepted Offer”. His next job is to complete his
knowledge of the property (too expensive and involved to do ahead of
time on every prospective property) and to refine the purchase contract.
And finally, to close, to fine tune, arrange and manage all the details
and created obligations.
It is said that making money in real
estate is not in the Selling, but in the Buying!
Contingent offers are a fairly normal part of the residential sales
world. Most buyers are living somewhere when they go to buy a home.
Realtors, escrows, and lenders are all familiar with these transactions
and know exactly what and how to do it. Buyers and sellers are not.
Sellers, predictably, prefer offers without contingencies for sale,
because this contingency in effect adds the if's and but's of another
entire transaction, which must close in order for the seller's deal to
close. Usually therefore a seller will agree to a contingency sale if he
is given a little compensation...usually
a little higher price or something else. Seller's with difficult to sell
properties will often accept a contingency. Many buyers can avert
contingency purchases by arranging "interim" or "bridge" financing to
carry them for 1-3 months from the close of the new property to the
closing of the sale of the old property. This adds the dollars to their
cost that might otherwise go to the seller for allowing a contingency.
Contingency offers generally carry a
"72-hour Clause" as part of the agreement, under which clause the seller
has the right to continue to offer the property for sale and, if he
receives another acceptable offer, to issue to the Buyer a 72-hour
notice to release his sale, financing and other contingencies and prove
he can perform or release the contract within 72-hours. Since a
NON-contingent-for-sale contract has a 17-days for inspections and
financing and all other investigations period under which the buyer can
withdraw with no loss of deposit, I generally try to make the 72-hour
clause effectible AFTER the release of all other contingencies, but I
don't always get my way.
The point of a contingency is to protect
a buyer's deposit. so as long as any contingency stands the buyer is
protected from loss. Generally, a contingent buyer would be smart to
obtain a good deposit from HIS buyer so that if he has to default
because his buyer defaults, the deposit lost is effectively paid by his
buyer. And risks are always more or less in any specific situation, the
only sure escrow, we say, is a closed one.
IMPORTANT THINGS TO KNOW WHEN BUYING
PROPERTY IN SAN DIEGO COUNTY.
San Diegans benefit from California’s
Proposition 13 Tax Law. This means that all property taxes are
assessed automatically at 1% of the purchase price and cannot be
increased more than 2% a year, unless by special vote of the people.
Therefore, property taxes are stable and become a lesser part of
your budget at time goes on and property values go up!
San Diego law in general promotes
transactions with informed buyers and informed sellers, with
detailed disclosure laws in place, and courts that frown on “tricks”
or “deceit”. Inspections and investigations are supported and even,
in the standard contract form provided by the California Association
of Realtors, enumerated for people’s easy consideration.
If you are over 55 and have moved
from another California county and buy a new home in San Diego at
not more than 105% (- 110%) (or after a year of the price of the
home you owned previously, you may qualify to bring your old,
assumedly lower, property tax base with you.
The Code of Ethics and Law in
California allows buyers to be represented by their agent, rather
than seeing the commission as paid by the seller and all agents’
fielty, therefore, to the seller. I personally believe it is wise
for a buyer to be represented by an agent OTHER than the seller’s
agent, but dual agency is allowed in California.
We work with Escrows in California,
rather than attorneys, who process our transactions. The Escrow is a
neutral professional third party, holder of money and deeds and
documents, who will manage the “closing” as a process of getting
things done, so that on the Date of Closing, there is no table or
meeting, and the finality is the administrative recording of the
deed and transferring of funds. Buyer and Seller are not present.
Owning property in California,
particularly in Southern California, and MOST particularly in San
Diego, which has yet to be spoiled, is like owning a commodity.
While homeownershipis indeed the traditional shelter and center for
family and friends, it is also a very high demand investment
vehicle. With its significant tax benefits and exemptions, its
worldwide recognition for livability and desirability, and
reflecting one of the country’s most diverse and successful
economies. You can expect your home here to exceed the return on
most other investment substantially!
PROPERTY TAXES IN CALIFORNIA
In the early 80’s the citizens of
California voted for “Proposition 13” which became law. This means that
our property taxes are NOT subject to periodic assessment, are NOT
subject to the whimsical decisions of politicians, are NOT determined by
Property taxes in California are established at 1% of the Purchase Price
of the Property, and subject to a minimum 2% annual increase.
Neighborhoods or municipalities can vote to increase their own taxes by
agreeing to add bond issues for special improvements, but history is
showing the citizenry slow to do this. You will notice that your
property taxes will be slightly more than the 1% figure, because there
are a few old outstanding bond issues that predated Proposition 13.
However, they usually don’t exceed 1/10th of a percent.
This does mean that your neighbor may pay lower taxes than you do,
assuming values and purchase prices have increased, but your new
neighbor will pay more than you. What it does is give stability and
plan-ability to your budget.
Purchase price $500,000
1% Property Taxes = $5000 first year
$5000 + 2% max. increase = $5100 second year
San Diego County Tax Assessor has a wonderful office ready to answer
questions kindly and carefully at any time. Feel welcome to call them
with any questions at 619-505-6262.
TWO SIDES TO YOUR MORTGAGE DECISION:
• Large down payment –vs- small down payment,
• Pay off early –vs- stretch to term.
*Best person to discuss this with is your financial advisor.
Your “mortgage” (now called Deed of
Trust) performs several functions, and giving your consideration as to
how to best maximize this performance is the question at hand.
Your mortgage is temporary lump of money that permits you to pay enough
to the seller to take over “ownership” of the property. In many cases,
mortgages are not forever commitments, because the borrower will not be
living in the property long enough to pay it off. The borrower is using
the mortgage until he moves out and pays off the mortgage through his
sale. For these people, making additional payments with the intention
of paying off the mortgage may not be relevant. For those who intend
the property as their forever home, paying down and eventually off the
mortgage may be a primary goal. Which are you?
Your mortgage also entitles you to a tidy
little tax savings from Uncle Sam. Since you are allowed to “write off”
the full amount of the interest paid on your primary residence and
second home during your tax year, as well as your property taxes paid,
this generally major portion of your mortgage payment is effectively
subsidized by the I.R.S. For example, if
you have a $250,000 mortgage balance at 8% interest, your interest for
the year would be around $20,000. Deducting $20,000 from your annual
income is significant. For those in the typical 28% (federal) + 9%
(state) brackets, this would result in a reduction in taxes due of
$7400. Now that is better than mud in your eye, no? And when you
calculate that saving over the year during which it is earned, it
effectively reduces your actual monthly payment by $616 per
month! Another way to look at this is that after the tax saving, your
effective interest rate because of Uncle Sam sharing the cost is more
like 5.04% (8% - 37% deducted = 5.04%) The point is that the sooner
you reduce the balance on your mortgage, the sooner you reduce your
Well yes but…
Okay, point two. Your mortgage allows you
to keep your money somewhere else. Where you keep it is between you and
your financial counsel, however, IF you keep it in a vehicle that is
paying you the same rate that you are paying out, you are breaking even
AND you are keeping your money liquid in case of emergency AND you are
having an opportunity to make money with that money.
It comes down to philosophy, life timing and comfort decisions. And
finally, I always think it is wise to pay more than your
mortgage payment every month. And I recommend that this payment go into
a special account for “reserves” against maintenance costs, just as you
would do with a condominium fee, and savings toward transfer to a smart
investment/savings, rather than to the lender. This way you HAVE the
money to pay should something get tight, can earn interest on the money
while retaining the U.S. tax benefits, and have that emergency control.
Some people take their estimated property tax 1/12th, homeowner’s
insurance 1/12th, and an extra $100 - $200 per month and write it
automatically to a special account for “when”. Some people choose to pay
these tax and insurance dollars to a lender impound account and
supplement each monthly principal and interest to pay down their loan
faster. It’s a choice. And each way is better for some people. Just know
that there is a choice.
*See your financial expert for limits and exceptions if your numbers
are very high.