USRES Lending - Should I Rent Or Buy? - USRES Lending - Mortgage Loans for Southern California

Is it better to rent or buy?

This question largely comes down to personal preference and your long term goals, however there are some things all potential buyers should consider.

Most experts agree that if you are buying a house as an investment asset you will usually need to live in that house for at least five years before you see any potential gains. By definition investments are subject to market volatility, and have the potential to both lose and gain value over time. It is usually wise to view your property as a home first, and an investment second.

Time to put those high school math skills to use, and run the numbers. A month of rent does not equal a month’s mortgage payment. Be sure to weigh the additional costs of interest, property taxes, insurance, and maintenance that come along with owning a home. On the other side you also have tax benefits, and equity to take into consideration.

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What is the difference between Traditional, REO, and Short Sale properties?

A traditional sale takes place when the owner of the property lists the property through the local MLS service usually with the help of an agent. As the name suggests this process is the most common, and therefore has the fastest turnaround time and easiest document process.

REO (real estate owned) may be more accurately called bank owned. These properties have gone through the foreclosure process, and the title now belongs to the bank. In this scenario you will not be buying the property directly from the previous owner, but rather from its current owner, the bank. Since the bank’s asset manager did not previously live in the property they are not obligated to disclose as much information about the property as a traditional sale would. It is up to the buyer to have the property inspected. Because the asset manager is working with multiple properties at once, the acceptance phase also often takes more time when purchasing an REO property. On the plus side it is possible to find some great deals with an REO, and it can benefit you to buy from an institution who does not have years of memories and emotions involved in the sale.

Short Sale properties fall somewhere in between Traditional and REO sales. Before the current owner is foreclosed on they have the opportunity to list the property as a short sale. In this scenario you will be purchasing the property from the previous owner, who may be more inclined to take less than the asking price since their negotiation with the bank prohibits them from making a profit on the sale. The downside is that the transaction process usually takes longer than a traditional sale. Again, there are deals to be found with Short Sale properties. Hopefully you’ve chosen a great agent and they will be able to advise you on what is available in your area, and will work best for your needs.

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What are the first steps I should take when thinking about buying a house?

Buying a home is both a financial and emotional decision. Make sure you know why you are buying, what neighborhood you want to live in, and what you hope to achieve through your purchase. Is this going to be your home for life, or just a stepping stone?

Once you have decided that you want to become a homeowner you should start looking for a lender. A small difference in interest rates can save you thousands of dollars over the course of your loan, but that isn’t the only thing you need to take into consideration when choosing a lender. Don’t forget that you will be interacting with this person throughout the process. You will want to choose a lender that provides great customer service and gets back to you quickly. Be sure they are knowledgeable and able to answer all your questions without hesitation. Once you feel comfortable that you are talking to a professional ask them for a Good Faith Estimate. This is a detailed list of costs related to the home purchase. This may vary slightly from your actual costs, but it will give you a good idea of what to expect at closing.

Your credit score will have a significant impact on your loan, so you should start making any necessary lifestyle changes before you apply for a home loan. Typically borrowers with a credit score over 720 get the most favorable interest rates. The first thing you will want to do to increase your score is make sure you pay all of your bills on time, every time. You will also want to pay down your current credit card debt as much as possible. However, if you pay off a credit card completely don’t then close it out. A long credit history works to your advantage even if you no longer use that card. You will also want to avoid opening a new account or making any large purchases for a few months before you buy.

Aside from paying off your debt, you will also need to start saving for a down payment. FHA loans now only require a down payment of 3.5%, but it is important to keep in mind that the more you can put down, the lower your monthly payment will be. If you are able to put down 20% you will also have the added advantage of avoiding the additional PMI (Private Mortgage Insurance.) You will also want to have money set aside for closing costs, moving costs, agent fees, inspections, renovations, homeowners insurance, HOA dues, and property taxes.

Another critical step in the early phase is choosing a realtor. It is common to get recommendations from friends and relatives, but you should always interview several agents before choosing the one that is right for you. Be sure the agent is knowledgeable about the type of property you want to buy, and the neighborhood you are interested in. See our section on “What to look for in a real estate agent” for more details.

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What should I look for when looking for a house?

Focus on structural stuff like the roof, wiring, plumbing, and foundation over minor details like paint color
New windows, proper insulation, and efficient heating and cooling systems will save you money on utilities in the long run
Does it pass the sniff test? Don’t rely just on your eyes, use the power of your nose as well. If you smell pet odors, cigarettes, mildew or sewage you should take that into consideration before you buy.
Never skip the home inspection. Repeat. Never skip the home inspection.
Make a list of needs and wants and then prioritize. You can’t always get what you want. But if you try sometimes you just might find, you get what you need.

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What should I look for in a Real Estate Agent?

References: Ask previous clients what their asking price was and what the sales price ended up being. Did they enjoy working with the realtor and feel like their best interest were represented?
Credentials: Contact state regulatory boards to determine licensing and research any disciplinary action or complaints. Check for additional specialty designations:
- CRS (Certified Residential Specialist): Completed additional training in handling residential real estate.
- ABR (Accredited Buyer’s Representative): Completed additional education in representing buyers in a transaction.
- SRES (Seniors Real Estate Specialist): Completed training aimed at helping buyers and sellers in the 50-plus age range.
Awards: NAR “Realtor of the Year” is a great achievement, but anything that shows you that the realtor has expertise in your area will be beneficial for you.
Experience: 5 years or more in the area you are looking is preferred. Remember, you are interviewing them. You don’t have to hire anyone who doesn’t meet your requirements.
Communication Style: Do you like to use text, email, phone, telegraph, or carrier pigeon? Whatever your preference, your realtor should adopt your style.

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What are the steps involved in a Real Estate Transaction?

Meet with your agents to write up a purchase offer and contract. Don’t worry, most contracts will include contingencies that allow you to back out if the appraisal reveals problems, your loan doesn’t get approved, etc… Make sure you know all the points at which you can back out if you need to.
Review the seller’s disclosure documents. This will include everything from broad information like a geographical survey and development plans to specifics like leaky windows. Review this carefully and don’t be afraid to get out if the property isn’t up to your standards.
The appraisal provides an independent review of the property, and the surrounding area. Be sure to review it thoroughly and look at the comparables to make sure you’re not overpaying.
An inspection provides buyers with a thorough, top to bottom property analysis. An independent inspector will look over everything from the foundation to the roof. They will also let you know if they have any concerns and think a specialist such as an electrician or plumber may be needed. You should walk through the property alongside the appraiser to get more knowledge about your future home. Again if anything unexpected comes up you have the ability to renegotiate with the seller or walk away completely.

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Finally the lender will conduct their final review and research any potential liens on the property. This can take up to a month to complete, but at the end you will receive your official loan approval. Congratulations, you have been deemed worthy.
A day or so before the final closing you will do a final walk through to ensure that the property is in the agreed upon condition and that any requested repairs have been completed.
The closing is the final step in a real estate transaction. Be sure you receive the closing statement from your agent in advance so you know what amount of money you need to bring when you go to sign the paperwork. You might want to do some finger exercises as well. There are usually dozens of documents to be signed during this final step.
Pop the champagne cork, dance around like a fool, and go buy some paint. The house is yours, make it your own and start creating memories.

What is the difference between pre-qualification and pre-approval?

Pre-qualification is the quick and dirty version of a full on pre-approval. For a pre-qualification you supply some basic, estimated info just to see approximately how much of a loan you would qualify for.

To get a pre-approval letter from your bank or mortgage lender you will need to complete a loan application, supply income and employment documents, and have your credit run. This lets sellers know exactly where you stand, and that you are really interested in purchasing a house. Your pre-approval letter is typically valid for 60-90 days. Get serious, get approved.

USRES Lending is your premier source for everything you need to know about buying a home in Southern California. Our parent company has been in the industry for over two decades, and has a wealth of experts who specialize in the Southern California market. Feel free to contact us directly at info@usreslending.com if you have any additional questions. We’re always here to help.

If you’re ready to start the Southern California home buying process you can also request a quote or apply for a loan directly through our website or email us at info@usreslending.com.