Home Buying 101
As you begin the process of buying your home, we encourage you to take advantage of this online
Buyer's Guide to help you through the process.
We have included some frequently asked questions about buying a home.
What is escrow?
How much do I need for my downpayment?
What is earnest money?
How much money will I need to buy a home?
Escrow fees and costs?
What should I consider when writing an offer on a home?
What should we offer?
Check with PorchLight Realty SD to see recent sales of homes in your neighborhood that are similar, or comparable, to what you're looking to get for your house.
Note that "recent sales" usually means within the last six months. A sales price from a year ago may bear little or no relation to what is going on in your area right now. In fact, some lenders will not accept comps older than three months.
What is escrow?
A neutral third party that handles the exchange of money and documents once mutual acceptance is reached on an offer. Escrow handles the transfer of the buyer's loan documents and property taxes and works with a buyer's lender and real estate agent to make sure that the title of the home is clear of liens before the transfer of ownership.
What is earnest money?
To show that an offer is serious and made in good faith, it's traditional for the prospective home buyer to accompany it with a check for a modest amount -- often a small percentage of the purchase price -- known as an "earnest money deposit." The amount of the earnest money deposit varies by state, but is typically in the range of 1-2% of the purchase price.
The seller can't rush out and cash this check right away -- in fact, the check should be made out to the escrow company, not the seller. But the seller may get to keep the money if you pull out of the deal for a reason that wasn't allowed under the purchase contract -- for example, if you simply change your mind, or perhaps get lazy about taking steps to finalize your loan, as opposed to legitimately refusing to remove the inspection contingency after inspections revealed dry rot.
Having a deposit on hold acts as a disincentive against buyers who file frivolous offers, and ultimately compensates a seller who has to put a house back on the market. As a practical matter (and under the terms of the standard real estate contract), however, the escrow company can't turn the money over to the seller without both the buyer and seller agreeing to allow that. Take a look at your contract before you sign it to make sure you're satisfied with how it disposes of the earnest money in the event of a dispute.
If the deal goes ahead as planned, the earnest money is normally applied toward your down payment.
Costs You Pay at Close of Escrow
Home appraisals can cost $300–$500 depending on your location and home price. If you pay for the home appraisal at the time of service, it will not be included as part of your closing costs.
Home inspections are typically paid in-person and are not included as part of your closing costs. Inspections typically cost between $300–$500, which varies based on the property and your local rates.
In most areas, you will pay an earnest money deposit when you reach mutual acceptance on your home purchase. Earnest money is typically 1%–3% of the home’s price. The amount you pay in earnest money will be subtracted from your closing costs — reducing the total amount you owe at closing.
Loan Origination Fee
Your lender may charge you a fee for creating your loan. Not every lender will charge you an origination fee. Be wary of lenders who charge high fees. Ask your lender what the fee covers and if it’s negotiable.
Loan Processing Fee
Lenders may charge a fee for processing your loan. This fee covers any additional costs incurred for underwriting or services performed to finalize your loan. Similar to the origination fee, ask your lender what the fees cover and if it can be waived.
Loan Discount Points
If you purchased points to lower your interest rate, you will pay a one-time fee for them at closing. A discount point can lower your interest rate by 0.25%–0.5% — and, just like interest rates, the price of points changes daily. While it may seem attractive to pay for a lower interest rate, it may not be worth it in the long run if you don’t plan to own your home for very long or plan to refinance in the future.
Private Mortgage Insurance (PMI)
Private mortgage insurance is required if your down payment is less than 20%. FHA and VA loans may also require you to pay an upfront fee for private mortgage insurance at closing in exchange for allowing you to have a lower down payment. Private mortgage insurance is typically included as part of your monthly loan payment. However, some loans will allow you to pay your private mortgage insurance upfront as a one-time fee at closing. It’s up to you to decide if you want to pay more at closing or a higher mortgage payment each month.
Homeowners Association Dues
If the home you are purchasing has a homeowners association, you will pay one month’s dues upfront at closing. Homeowners association dues vary by property and cover maintenance fees and operations costs.
Your homeowner’s insurance premium for the year may be included in your closing costs.
You will pay a portion of your property taxes upfront at closing.
Title insurance is a one-time fee paid as part of your closing costs. As the homebuyer, it’s common for you to pay for the lender and your own title insurance policies.
The recording fee pays the city or county to record your deed in public records.
What should we offer?
There are two key things to consider when comparing pricing on a home to purchase:
How does it compare to similar homes that have sold recently? Is the price fair?
What is different about this house compared to the other homes?
Day 0- Offer Accepted and Escrow Opens
Day 3- Earnest Money must be wired to escrow.
Day 7- Seller delivers disclosures
Day 17- Inspection Contingency Removal
Day 21- Financial contingency Removal
Day 30- Close of Escrow
After close of escrow the County records the sale. Once recorded we will get the keys.
How Do I Find A Deal?
When buying a home you want to make sure it's a great investment. While what most people may think is the best way to find a deal in real estate, there is no formula you follow.
Details of Writing the Offer
Three items needed to write an offer:
1. PreApproval letter from a lender
2. Proof of Funds: screen shot or PDF of your bank account, IRA, stock account or any combination thereof showing proof that you have the funds for your down payment and closing costs.
3. Residential Purchase Agreement (the contract) Click here for Sample Contract
Escrow Timing: Typical is 30 days.
Initial Deposit: 1%-3% of the purchase price. This deposit is due within three days of the seller accepting your offer. The deposit is fully refundable if you chose to not purchase the home before you remove contingencies.
Down Payment: Depending on the type of loan you use to purchase your home, you will have
Inspection Contingency: In the contract it is 17 days standard. I like to shorten that period to 10 days to make our offer more appealing. This means we will have all inspections done within 10 days of acceptance and we will remove inspection contingencies. If we back out after we release contingencies, you will lose your initial deposit.
Seller Accepted My Offer, Now What? NEXT STEPS
1. Listing Agent opens escrow
2. Escrow officer sends wire instructions
3. Your initial deposit is due to escrow within three days
Order Home Insurance
Preliminary Title Report Issued. Fill out the Statement of Information.
4. Schedule home inspection
Review inspection and negotiate for repairs
Sign loan documents (have to be live signatures. No Docusign)
Title Company requests recording with San Diego County
San Diego County Records
You get the keys!
You receive the grant deed in the mail
Having a basic understanding of important real estate concepts before you start the home buying process will give you peace of mind now and could save you a fortune in the future. Here are real estate terms you should know before you start looking for a home. If you still have questions or are ready to start touring homes give me a call at 619-777-9092.
An appraisal is the estimation of a home's market value by a licensed appraiser based on comparable recent sales of homes in the neighborhood. Appraisals are ordered on behalf of a home buyer's lender to protect the interests of the lender. The lender's underwriter will compare the appraisal price to the final sale price of the home to ensure the value of the home is equal to or greater than the loan amount. If the home appraises lower than the final sale price, the home buyer may be able to renegotiate a lower price with the seller. If the seller won't lower the price, the buyer's lender may ask that the buyer put more money toward their down payment in order to make up the difference.
Buyer’s Agent vs. Listing Agent
There are usually two agents involved when you buy a home; the “buyer’s agent,” who represents you, and the “listing agent,” who represents the home seller. Dual agency is when there is only one agent representing both sides of the transaction, and it is something you want to avoid at all costs!
Money saving tip: When buying a home, you don’t pay your real estate agent - they’ll get a commission from the home seller.
Comparative Market Analysis (CMA)
A comparative market analysis (CMA) is an evaluation of similar, recently sold homes (called comparables) that are near a home intended to be bought or sold. Comparative market analyses establish the current market value of the home and are prepared by real estate agents. A comparative market analysis is not the same as an appraisal, which is performed by a licensed appraiser.
Condominium Insurance (HO-6)
HO-6 condominium insurance covers the interior walls, fixtures, and personal property inside a condominium. It is distinct from the master policy held by a condo homeowners association, which covers common areas — such as the roof, hallways, and elevator — that are jointly owned by condo owners.
Covenants, Conditions & Restrictions (CC&Rs)
Limits and rules placed on a group of homes by a builder, developer, neighborhood association or Homeowners Association; when living in a building, a buyer gives up certain freedoms to be part of a shared community. For example, most condo building associations have smoking restrictions, certain guidelines for parking and noise-level rules; as well as aesthetic guidelines for paint color, height restrictions, and minimum and maximum square footage requirements. Buyers get a complete list of a building's guidelines before 7 days of offer acceptance.
The amount of money a buyer pays at closing to fund a home purchase, usually expressed as a percentage of the total home price. With FHA loans, buyers are required to pay at least a 3.5% down payment. With conventional loans, they should pay at least 20% of the home's price. Mortgage insurance is required for borrowers with a down payment of less than 20%. Down payments are paid via cashier's check or wire transfer and must be paid at closing.
Fixed Rate vs. Adjustable Rate Mortgages
Conventional loans include “fixed rate” and “adjustable rate” mortgages. A fixed rate mortgage has a predetermined interest rate throughout the life of the loan; the most common are for 30 years. An adjustable rate mortgage has a variable interest rate; the most common are for 5, 7, or 10 years.
Money saving tip: Adjustable rate mortgages can make financial sense if you’re planning to sell or refinance your home before the introductory period ends; but if you’re planning to own your home longer than five years, it’s less risky to choose a fixed rate loan. Make sure to shop around so you can get the best mortgage possible, which will save you a lot of money in the long run.
Real estate agents frequently refer to homes for sale as “listings.” A “listing” on a website shows information about the home, like the price and number of bedrooms. You can browse listings on here in San Diego.
Money saving tip: For the most up-to-date listings, use sites from real estate brokers, rather than real estate portals like Zillow or Redfin. Brokers have access to the multiple listing service, which real estate agents are required to update, so the information is more accurate than sites who aren’t affiliated with a brokerage. In a competitive real estate market, you can miss out on a good deal if you use sites that don’t show all the homes for sale.
Before you apply for a mortgage or even start looking for a home, you should get a pre-approval letter from a lender, which is an estimate of how much they’ll lend you. This letter will help you determine what you can afford, and ensures home sellers that you will be able to get a loan when needed.
Money saving tip: When you go in for a pre-approval letter you should be clear on what the bank is offering. Ask them about closing costs, what fees are involved, what you’re getting for that fee, and if they’ll lock in your loan at a specific interest rate. Note that if you end up competing for a home against other offers, it can help to have a local lender. Local lenders want continued referrals and really care about their reputation; listing agents prefer to deal with them for this reason.
After you’ve made an offer on a home, you’ll need to schedule an inspection, which costs around $300 – $500, depending on the size of the home. The inspector will go through every nook and cranny, and review things like the plumbing, electrical, foundation, walls, heating, and appliances.
Money saving tip: Get advice from your realtor on a good inspector. If they find something wrong, you can negotiate for a reduced price. If they miss something, you could be stuck with expensive repairs after you’ve purchased the home.
When you put in an offer on a home, you can specify certain conditions that must be met before the deal will go through – these are called contingencies. You have to make sure you can actually get the loan (a financing contingency), that the inspection doesn’t show anything too crazy (inspection contingency), and that the appraised value is close to what you’re offering to pay (appraisal contingency). Those are just a few common examples; there are several other types of contingencies, which you should discuss with your agent.
Money saving tip: If you’re in a bidding war on a home, sometimes it can help to shorten contingency periods or waive them altogether. You may not necessarily have to pay more money, just be more flexible.
Offers and Contracts
Once you find the right home, you’ll make an offer on the property with the help of an agent or attorney. If the seller counters your original offer, it’s usually because they want more money or a faster timeline for closing the deal, at which point you’ll have to negotiate. When submitting an offer, it’s a good idea to add a personal touch by including a cover letter that explains why you want to buy the home.
Be prepared to pay a lot of fees when you purchase a home. Typically, closing costs will amount to 2-5% of the purchase price of the home, and that doesn’t include the down payment. Common fees include excise tax, loan-processing costs and title insurance. For more information on how much money closing costs will take out of your wallet, click here.
Money saving tip: Ask your lender about every fee involved in the Good Faith Estimate, and see if you can shop around for a better price for those services or negotiate down. Examples include homeowner’s insurance, wire transfers, underwriting and settlement fees.
After all the negotiations are done and the seller has accepted your offer, you should receive a home title report within a week. Most mortgage lenders require you to pay title insurance as part of the closing costs; title insurers search the public records to make sure the home seller actually had rights to the title and that there are no liens on the home (like an unpaid contractor or unpaid taxes).
Money saving tip: Ask your agent for recommendations, and shop around to find the best title insurance rates. You may also be able to negotiate some fees the insurance provider charges.
Call or e-mail Mark Pattison, your San Diego REALTOR®