This post first appeared in the November edition of Cirios Trends: Getting to the Bottom of the Housing Market

When trying to determine if they can afford to buy their first home, many first time homebuyers leave out a whole host of costs that then become
unwelcome surprises once they’re already emotionally invested in a purchase.

There are a whole host of fees and costs that neither Realtors or lenders are terribly excited to tell you about, preferring to gloss over the details until they have you well along in the process.

It’s imperative to sit down and budget all the out-of-pocket expenses that go into buying a home, in addition to the down payment and of course monthly recurring payments to arrive at the total cost, err, joy of homeownership.

Keep in mind that these are the realities of buying, and eventually owning a home. They should be accepted, evaluated and budgeted just like more widely quoted expenses like interest rates.

But a quick scan of a list of the fees included in an estimated HUD (effectively a list of all costs associated with a home purchase) can show be a bit intimidating:

- Loan Origination Fee
- Document Fee
- Processing Fee
- Tax Service Fee
- Appraisal Fee
- Credit Report Fee
- Messenger Fee
- Flood Cert Fee
- Escrow Fee
- Notary Fee
- Recording Fee
- Other Title Fee
- Monument Fee

Now that is a lot of fees! Some are no more than $10, but others can be hundreds or even thousands of dollars. When you first meet with a lender to discuss pre-approval, always ask for a list of fees or a sample HUD statement so you can have this information ahead of time.

In addition to closing-related fees, buyers also need to be aware that they may need to pay pro-rata property taxes. Pro-rata what?

In California, property taxes are due twice a year, February 1st and November 1st. So, depending on when you buy your house, you may have to pay taxes to carry you through to the next payment at the time you make your purchase.

On top of these lesser known fees and costs, you have the down payment to consider, which in most cases is the biggest out-of-pocket expense for any home purchase.

Don’t forget moving costs, buying furniture, repainting and any other initial maintenance items that your particular home may need. Also, don’t forget upkeep, which should be expected to be around 1% of your home’s cost, per year.

Although potentially intimidating, any potential home buyer should take the time to make a detailed budget of these costs, after careful research and consultation with both a real estate broker (like Cirios!) and mortgage lender.

Then, based on your own budget and the mortgage calculator resources available online (see previous edition of Cirios Trends for thoughts on mortgage calculators), you can ultimately arrive at how much home you can afford.

Then … it’s time to go shopping!

This post first appeared in the September edition of Cirios Trends: Getting to the Bottom of the Housing Market

For all you first time homebuyers rushing out to buy a home before the current $8,000 federal tax credit disappears in December, perhaps now is the time to stop, breathe deeply and assess your financial situation and target market before jumping into such a hefty commitment. Besides, if Congress has its way, there is no rush to take advantage of a tax break. Currently, there are at least 3 different proposed bills seeking to extend and/or expand the current first time homebuyer tax credits.

The leading proposal, HR 2801 – the Home Ownership Moves the Economy (HOME) Act of 2009, introduced in June by Howard Coble (R-NC) and co-sponsored by members from both parties, seeks to extend the current tax credit until January 1, 2011. The bill would also expand access to more potential homebuyers. The HOME Act would remove income restrictions (the current credit “phases out” for singles making more than $75,000 and couples making more than $150,000 annually) as well as extend the tax credit to all homebuyers, not just first time buyers.

A prospective home buyer can glean some important insight from the recent tax credit proposals. First, Congress is standing firmly behind its belief that a healthy housing market is key to our nation’s economic recovery and appears committed to propping up the collapsing housing market by extending financial support to a wider swath of potential buyers.

Second, with the high-end real estate market feeling downward pricing pressure, Congress appears ready to extend taxpayer support to the housing market as a whole, rather than to lower-priced homes only.

So what does this mean for a prospective home buyer?

In reality, it should not mean much.

Buying a home is a huge financial obligation, one which has the potential to, if done right,
establish a solid financial foundation for the rest of one’s life.

But with that potential reward comes risk, which many homeowners are discovering only too late. $8,000 is not an insignificant amount of money, but we often counsel our clients: “If you are buying a home to get an $8,000 check, maybe you aren’t buying for the right reasons.”

Consider that if you buy a $400,000 home, a mere 2% decrease in the value of your home wipes out the $8,000 credit you just received. In markets that have declined, 20, 30 or 40% already, another 2% barely even registers.

An important caveat to both buyers looking to capitalize on the current tax credit and those waiting-and-seeing: the HOME Act of 2009 has not been signed into law, and is still early in the House Committee process. The breadth of this proposed tax credit expansion could drastically change before it is signed into law, or even be abandoned altogether.

Those who followed the passage of the present tax credit know that the Senate initially sought to create a $15,000 credit, and several proponents wanted it extended beyond first time buyers.

In other words: Nothing is set in stone, yet. Whether you intend to take advantage of the current tax credit or wait and see what will be available next year, Cirios is here to aid and educate prospective buyers dipping their feet into what should still be considered a “confusing” market.

This post first appeared in the September edition of Cirios Trends: Getting to the Bottom of the Housing Market

One question almost every first time homebuyer asks us is: “Who should I talk to about getting a mortgage?”

The easy answer is: “Whoever gives you the best rate and terms.” While this answer does have some viability, if you are buying a home in the Bay Area for less than $700,000, most lenders now offer similar rates and terms. This is because the government basically controls the mortgage market, and banks are hawking the same, government-stamped loans to the public.

But that doesn’t mean the choice of where to get your loan is any simpler. Interest rate and terms aside, your decision should come down to which lender you feel confident can close your loan and which provides you the best service.

Below are the three main resources available to first time homebuyers in today’s mortgage market and how they stack up in terms of confidence to close and service:

1) Banks and Credit Unions

Closing Confidence: If a major bank or credit union provides you with a pre-approval for a mortgage, you should feel comfortable that your loan will close with the same terms provided on the pre-approval … assuming your appraisal comes in OK, of course, which given the new appraisal rules, is anything but a slam dunk.

Service: Big banks have notoriously lousy customer service, so find out early how easy (or hard) it is to get your loan rep on the phone. If a problem arises during escrow, you want your advocate on the other line, immediately.

2) Private Mortgage Companies

Closing Confidence: Despite a much-needed house cleaning in the world of private mortgage companies, some still exist. Most are reputable firms that sell government-backed loans to big banks, but do your homework to make sure yours isn’t a fly-by-night operator.

Service: These lenders get paid when your loan closes. As a result, most are efficient firms that offer service that is frequently better than banks or credit unions. Few private mortgage companies offer “Jumbo” loans, so if you’re looking for that million dollar estate or penthouse condo, chances are they can’t help.

3) Mortgage Brokers

Closing Confidence: Mortgage brokers do not provide the money for your loan. They are basically sales people for financial institutions. The question then becomes, who is the mortgage broker selling your loan to? Many big banks have stopped buying loans from brokers, which has severely limited these brokers’ ability to conduct business.

Service: Like private mortgage companies, mortgage brokers don’t get paid until your loan closes. This means they will do their best to get your loan funded as quickly as possible. That being said, a broker is not the final decision-maker on your loan, so you may be strung along in a painful game of telephone if there are problems.

In the end, we advise our clients to reach out to each type of lender and get a feel for their level of service and loan choices. Your real estate agent should be a knowledgeable sounding board for everything you hear from your potential lender — if they are not, it’s time to find a new agent!