The first step in buying a home is qualifying for the loan. This step involves speaking with a qualified lender, providing your financial information, and determining what price range and loan amount you can afford within the lender’s guidelines. Different loans have different requirements and guidelines that must be met. To purchase a home with FHA financing, you will need to have a minimum credit score of 620 and purchase as occupied property. To buy a home with a conventional loan, you’ll need a minimum credit score of 720, and depending on your finances, the down payment can range from 5% to 20%.
If you purchase a duplex, triplex, or four units, the down payment can be 20% for owner-occupied housing and 25% for non-owner-occupied housing. Lender guidelines have changed a lot since the market boom. I remember when the real estate market was going up, lenders would offer 100% financing and you could buy 4 units with 5% down, that’s not possible anymore unless you’re a veteran. If you want to purchase a 2-4 unit residential income property, the down payment is a minimum of 20-25%. If you are an investor purchasing an income property of 5 units or more, you will need to make a 30-35% down payment. These are typical lender guidelines and vary from lender to lender.
When looking for the perfect house to buy, there may be a few things that are important to you, like finding a house in the right place with a good design and in good condition. On the other hand, you may be looking for a bargain and planning to do an extensive remodel. There are many options and this is something to consider. You can buy a house to remodel or buy a house that is already remodeled so you don’t have to do any work.
If you are buying a rental income property, you will have other search criteria that are important, such as finding a property with a high capitalization rate. For example, more than 7% is considered a good cap rate. You will also want a building with a good distribution of units. 2 bedrooms and 3 bedrooms are good, you don’t want the property to be only 1 bedroom. A good mix of units is good. Rentals must be at market value. You may not want a property that is rent controlled. You will have to choose whether or not you want to have section 8 tenants. Some buildings have section 8 tenants. If you buy a building that has section 8 tenants, you will have to transfer it to your name and you may lose a month’s rent during the section 8 transfer process. This is something that needs to be addressed with the previous owner before it is too late.
In my experience, it has happened twice that when previous owners are on escrow in transactions involving income properties with section 8 tenants, the previous owners like to keep the section 8 money that comes to them after closing. of the guarantee deposit. If they can get away with it, they will, stay tuned for this. Another thing that is important is finding a property that is well maintained and cared for because you, the owner, will be responsible for ongoing maintenance and repairs. Additionally, as tenants move in, you will need to repaint the units and replace carpet as needed and perform cleaning and maintenance before you can rent the vacant unit. It is easier to prepare a well-maintained unit for rental than it is to prepare a unit that needs to be completely renovated.
When writing the offer, negotiating the best price and terms is very important and can be the most difficult part of the home buying process for some people. Things like negotiating the price. Have you checked the COMPS and recent comparable sales in the local area? Did you consider the condition of the property? Is your monthly payment within your budget? Do you have enough money for a down payment and closing costs? Do you have enough money to make the repairs that need to be done before you move? These are things to consider when buying a home or property.
After opening escrow, you should have your home inspected as soon as possible. You only have 17 days on a standard purchase contract to inspect your home and approve all matters affecting the property. This includes approving the appraisal report, title report, disclosures, if it’s a condo, CC&R association rules and regulations as well.
Review the contract and make a list of important dates. These will include such things as the contingency terms of the contract and the actual closing date. Try to stay within the terms of the contract. Some banks and sellers charge a daily fee for an escrow extension.
Review the escrow instructions to make sure they are correct before you sign them.
Thoroughly review the disclosures, title report, and natural hazards report before signing and approving them.
Escrow closing can sometimes be delayed while waiting for loan documents. This can be a frustrating time for agents and buyers. To make sure this doesn’t happen to you, make sure you’re qualified by a knowledgeable lender first. Providing your lender with all the necessary documentation is a requirement for the lender to give you final loan approval. There are also financing conditions before obtaining the loan documents. Please note that the lender will not prepare and submit loan documents to escrow until all of the lender’s conditions have been met.
As your closing date approaches, you’ll need to sign your loan documents and transfer the balance of the down payment and closing cost funds needed to close the sale.
It is a good idea to schedule a final walk-through of the property not as a contingency of the sale, but to ensure the condition of the property and to make sure all required repairs and termite work have been completed.
Ask the closing agent to provide you with a copy of all the documents you will need to sign before your signing appointment. This may not be possible due to time constraints. But if you can review the documents in advance, the signing will go smoothly. Good luck! If you need an agent to help you with your purchase, I’d be happy to have you as my client. Please contact me.