The information below is geared towards those of you who are buying your first home in Los Angeles, but hopefully it will help those who may not have been in the market for some time. These are the steps:
Talk to a Lender: unless you are paying cash you will need to talk to a lender. There are two main reasons for this:
- Getting a loan is no easy process and you will need to determine that (a) you actually do qualify for a loan and (b) how much you qualify for. Also you may have an idea of how much you are willing to pay a month. You will need to factor in the Principal, Interest, Taxes and Insurance (PITI), and if you are buying a condominium, estimate the homeowners dues. They will also help you estimate your closing costs which should be around 1.5 to 2% of the purchase price. The lender will work with you to find the right numbers.
- You cannot make an offer without a letter from the lender accompanying it.
In a competitive market like we have in Los Angeles today, it is recommended that you put down at least 20% of the list price. Also, if you put down less you will be subject to Private Mortgage Insurance (PMI).
Find an Agent: working with an agent from the start is going to make your life oh so much easier. Armed with the information provided by your lender your agent is going to be able to tailor the search for the right home:
- They will narrow the search to areas that fit the criteria.
- They will narrow the search to homes within the appropriate price range. Agents know the market and can filter out homes above your range where there is unlikely to be flexibility and steer you towards homes that have been on the market a while and might have some wiggle room.
- You need someone in your corner negotiating exclusively for you. The seller pays the commission, so having the listing agent represent both sides may not be the best course of action.
Start the Search:
Your agent has access to all listings on the Multiple Listing Service (MLS) so almost everything you see on the internet is going to come from that source. There is no harm in looking at all the listing sites out there but know your agent is seeing the same listings. Of course they may have discounted a home you actually would consider, so it could be worthwhile. You can always be set up for your own MLS search. That way you will see everything immediately it comes on the market. Ask your agent about getting a Home Search Central Account.
You will need to make yourself available to see the homes you are interested in. The good ones don’t stay on the market long. However sometimes the seller will not look at offers until a certain date so you will have time. Your agent will know these details and advise you accordingly.
Communication is also extremely important throughout the home buying process so that things do not fall through the cracks. Time is of the essence.
Once you have found a home you are interested in you and your agent will work out the right offer. Your agent will know the comps (recent sales of comparable properties), and you will start the process. If there are going to be multiple offers then anything less than the asking price will probably not fly. You may have to go over asking. This is why setting the top price range for your search is important. You need to have some flexibility. You should hopefully not be at the top of your price range, so that if a counter offer comes back you can you can raise the price a little. This is one of the more stressful parts of the process. But your agent will hand hold you through. Writing a clean offer and possibly a warm letter to the seller can sometimes make a difference. This is also the time you are going to need the pre-qualification letter from the lender. Your agent can help with this.
Your offer has been accepted. Yay! Now what?
- Escrow will be opened. Escrow is a neutral party that interprets all the terms and conditions of the signed contract and ensures that they are all met.
- Within three days you will have to put 3% of the purchase price into escrow. You can wire it or take it in. This is termed the Good Faith Deposit (GFD) and goes towards the purchase price. It is also the maximum that the seller can keep should you somehow default on the contract. Don’t worry, the contract heavily favors the buyer and your agent will be carefully monitoring everything.
- You will receive a substantial amount of paperwork from the escrow company which should be signed upon receipt and returned. Your agent will also be sending you brokerage papers to sign electronically.
- You will need to decide how you will be Taking Title, to the property. This you should discuss with a real estate attorney or accountant.
- There are two major contingency periods that must be met: inspection, which is usually around 10 days, and the loan and appraisal contingencies which are 21 and 17 days respectively.
- You will conduct an inspection, within the time period specified in the contract. Your agent will arrange this. Here is information about the inspection in a multiple offer situation. If you are buying a single family home it is recommended you also get a sewer and foundation inspection at the same time unless the seller can provide the results of recent ones. (Note: you can never rely on a third party’s inspection). You will also look at the inspection report and with your agent decide if you want additional ones.
- You will decide with your agent what if any repairs or credits you would like. This is going to depend on the price you offered and whether or not there are backup offers in the wings. How much you want the home is also going to play a big role.
- During this period, part of the loan process is the appraisal. The lender will send out an appraiser to determine the value of the home. (Understand that appraised value and market value are two different things). Depending on the findings you will be able to remove this contingency. If not, read here.
- The seller has to provide disclosures that you must approve. They have to disclose everything that they know about the place whether they feel it is material or not. For a condo purchase they are also going to have to provide the Covenants Conditions and Restrictions (CC&Rs) together with the minutes and budget. The last two will tell you how much cash is in the reserves (how healthy are they) and whether there are any upcoming assessments amongst other things.
- Once you have finished the repair negotiations and approved all the disclosures you will need to remove those contingencies. You will still need to meet the loan and appraisal deadlines. Your agent will work closely with the lender to make sure that these are met.
- In the unlikely event that the home does not appraise you will have the option to have the seller lower the price, you may pay the difference, or you make cancel the offer without penalty.
- The last step is to remove all contingencies.
Funding the Loan:
As soon as your loan has been approved it could effectively be funded. This will depend upon the agreed upon escrow period. This is most often between 30-45 days. If your lender is local you can go into the office to sign. They can however have them delivered to you. A notary will be sent out to facilitate the signing.
Once the loan docs are received by escrow they will forward them to the lender who will review the documents and when satisfied, send the funds to the title company. The next day the title company rep will go down to the County Recorder’s Office and record the property in your name. Your agent will receive notification immediately after recording. The funds will then be transferred to escrow who will disburse them accordingly.
If you are buying your first home in Los Angeles hopefully the above information will help you become the proud owner of of your own home.
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