Straight Talk About Real Estate

There are many different types of loans available nowadays. There is probably one that will fit your situation. However, depending on how bad your credit is, expect to pay higher interest rate and points, and/or put a higher down payment.

If you have A paper credit, you can have your choice of loans with the best rate. B paper will get you slightly higher rate and points. If you have to use a sub-prime lender, you can expect quite a higher jump in the rate, also a pre-payment penalty will be part of the conditions. Make sure you understand all the terms of the loan before you agree to it.

According to a report by CNN, “Americans are buying homes that are bigger and contain more luxury features than ever. By some accounts, the million-dollar-plus home is now the strongest segment of many housing markets.”

Where are these million dollar homes? Among the states, California has the highest percentage of million-dollar homes at the last Census Bureau report. At the end of 2003, 4.1 percent of all homes in California were worth a million or more. Somehow, this doesn’t surprise me. I would venture to say the percentage is much higher now in 2006.

Read more.

The difference between a 30-year fixed rate and a 5-year fixed rate is only about 1/4%. Unless you have fairly definite plans to sell the house within 5 years, I think it is worthwhile to go with a 30-year fixed loan. You may want to convert the house into a rental, in which case, you will have a nice low rate, pay off the loan, and have a nest egg.

When property changes ownership, the County Assessor is required by California property tax law to revalue property to determine the property taxes owed. This means when you buy a house, expect to receive one or supplemental tax bills, depending on when your escrow closes.

If you have an impound account, the supplemental tax bills are not mailed to your lender to pay through your impound account. It is your responsibility to pay these bills directly to the Tax Collector.

If you have any questions concerning this, contact your local Tax Collector’s Office.

As I mentioned in the last post, the first installment for property taxes is due November 1. It becomes delinquent on December 10 at 5PM, at which time a 10% penalty is added to taxes due.

The second installment is due February 1 and becomes delinquent on April 10 at 5PM, at which time a 10% penalty is added to taxes due..

If the delinquent dates fall on a weekend or holiday, taxes are not delinquent until the next business day.

State law stipulates that it does not permit the Tax Collector to excuse penalties on late payments. That means there is no mercy. No matter how valid your reason for being late, the law says the 10% penalty must be applied. Even if it is one day late, the 10% penalty will be applied. So don’t wait until the last minute. It is a hefty penalty.

Property taxes in California re governed by state law and collected by the county. The County Assessor determines the assessed value of the property.

The tax year and due dates are rather confusing. The Fiscal Year begins July 1 and ends June 30. November 1 is the due date for the first installment covering the period July 1 to December 31.

The second installment is due February 1 covering the tax period from January 1 to June 30.

This information is useful to calculate prorations you buy and sell. You can figure out whether you will be getting a credit or a debit.

What is the purpose of the final walk-through and when is it done?

The final walk-through is usually done about 5 days before closing escrow. The purpose is for the buyer to verify that the condition of the property is substantially the same as the day the contract was signed and that all agreed on repairs have been made.

Most contracts will state that the final walk-through is not a contingency to closing. That means, the buyer cannot say at the walk-through that he doesn’t like it and doesn’t want to buy the house afterall.

What happens if the condition of the house is not the same? An amount of money can be left in escrow from the seller’s proceeds to pay for the repair. Then escrow can close and the buyer can be assured that the seller will pay for the repair.

What if the house was still furnished during the walk-through and a problem is not discovered until after closing? The buyer has to remember that they are not buying a new house, and normal wear and tear are a part of the sale. However, it there is a major defect that was obviously known to the seller but was not disclosed, the buyer should first contact the seller asking them to remedy the problem. If they do not cooperate, then legal action should be taken.

If you are getting a loan for the purchase of a property, you will be signing loan documents before closing. Allow at least half an hour to sign everything. If you intend to read through all the fine print, expect to be there 2-3 hours. Most of the document are boiler-plate verbage. What is of most concern is to read through the terms of the loan, payment conditions, and if there is any prepayment penalty. By the way, make sure names and property address on the document are correct.

Fixed, ARM, neg am, 5/1, 10-year fixed…these and many more are the choices before you as you shop for a loan for purchase or refinance. Which one is right for you?

There are three questions you need to ask yourself?

1. What is your budget?
Your payment plan has to fit your budget and ability to pay. For example, I would love to have my house paid off in 15 years, but the monthly payment on a 15-year loan is about 30% higher than a 30-year loan. Can I afford the payment?

2. How long do I forsee keeping this property?
If you think you will very likely sell your property within 5 years, you may want to get an adjustable rate mortgage (ARM). However, if you foresee yourself moving, but you will keep the property as a rental, you will want to choose a fixed rate loan to eliminate the risk of rates going up in the future.

3. Do you think rates are likely going to go up or down in five years?
This is your judgement call base on your own research and prediction. No one can give you any kind of guarantee. I’ve seen home loan rates as high as 16-18% in the mid ’80s, and as low as 4% in the past years. If you think rates will go up, you would want a fixed rate so your payments will not change. If you think rates will not go up, or even possibly go down, you would want an adjustable rate to take advantage of the lower rates.

If the fixed rates are relatively low, I prefer getting a fixed rate loan. Even if you think you will sell within five years, you don’t really know what the future holds. If you may end up living there longer, or keep the property as a rental, you will have a nice low fixed rate, even if the market rate goes up.

Nowadays, there is hardly any difference in the rate between a short term loan like a 5- or 7-year loan. Do the math and see what the dollar difference is in the best and worst case scenerios.