Buying a home is the biggest investment most people make.
First time home buyers will have a lot of decisions to make, new concepts to learn, and papers to sign. Fortunately, much of the home buying process is fun, such as exploring neighborhoods, wandering through open houses, imagining how you would remodel the space. But if you’re not a “money person” navigating the financial aspects can be a bit daunting. Never fear, thousands of people do it every day. A good realtor can help, but if you learn a few concepts ahead of time it will go even smoother. Here are a few home buying “money basics” to ease you into it. Step one…
- With pre-qualification, you can determine which loan program best fits your needs and which programs you qualify for.
- You will know exactly how much you are qualified for. It’s no fun to find your ‘ideal home’ and then find out you can’t afford it.
- Your approximate monthly payment will be given to you. This will allow you to budget your money before making this large investment.
- It shows you approximately what the down payment and closing costs will be.
- If you feel you would like and can afford a higher mortgage payment, but are not able to meet qualifications, co-mortgagor financing may be made available to you.
Description of an Appraisal
The appraisal process consists of several steps. The following are the major steps in the sequence normally followed by appraisers:
- Research the subject property as to size, bedrooms, baths, year built, lot size and square footage.
- Gather data of recent sales in the subject’s neighborhood. The appraiser needs to locate at least 3, preferably more, similar-sized homes that have sold and closed escrow in the neighborhood. The homes should be within one mile of the subject property and sold within the past 6 months. These homes are considered the “Comparable Properties,” or “Comps” for short.
- Field inspection consists of two parts: First, the inspection of the subject property; and second, the exterior inspection of the comparable properties that have been selected to estimate the value of the subject property.
The subject inspection consists of taking photos of the street scene, front and rear of the home that may include portions of the yard. The appraiser will make an interior inspection for condition noting any items that would detract from or add to the value of the home. He will also draw a floor plan of the home while doing the inspection. The inspection of the comparable properties is limited to an exterior inspection.
For features that cannot be seen from the street, the appraiser has reports from Multiple Listing Services (MLS), California Market Data Cooperative (CMDC), county public records and appraisal files along with other sources to help determine the condition and amenities of the comparable.
After the field inspection has been completed, the appraiser must determine which comparable properties most resemble the subject, making slight adjustments in value for any differences between them. After making the required adjustments, the appraiser will go through the reconciliation process with three comparable properties to determine a final estimated value. This method of estimating value is called the “District Sales Comparison Approach to Value” and accounts for nearly all of the considerations in determining value of single-family homes.
An appraiser will call in advance to set up an appointment. At that time, offer to supply any information about the home’s size, number of bedrooms, bathrooms, pool, enclosed patio, etc. The more that is known about the property prior to the inspection, the better the appraiser can focus on researching the most similar comparable. “Doing your homework,” will maximize your chances of having a good appraisal.
While your home is being inspected, do not follow the appraiser from room-to-room causing distraction. Instead, allow the inspection to go smoothly. IN the event the appraiser has any questions, be close by to answer them. The time to mention the things you think are important is either before or following the inspection.
Information about your Supplemental Tax Bill
Reason for the bill:
This one-time assessment is the result of a change of ownership or completion of new construction. The exact activity is indicated on the bill under “Billing Explanation.” The amount of the supplemental assessment is the difference between: 1) the new appraised value of your property, and 2) the prior appraised value.
- Paying this bill:
This supplemental bill is in addition to your regular annual tax bill. The amount of the bill has been entered on the County’s tax roll and is payable by the due dates shown on the bill. If your property taxes are paid by a lender or tax-paying agent, contact them about paying this bill. No notice of this bill will be sent to them.
Activities between March 1 and May 31:
If the dated of the activity occurs between March 1st and May 31st, you will receive two supplemental bills (each bill is mailed separately):
- One bill is for the period from the date of the activity through the end of the tax year, June 30th.
- The other bill is for the entire next tax year, from July 1 of the same year through June 30thof the next year.
Activities in June:
If the activity occurs in the month of June, you will receive one bill for the entire next tax year, from July 1 of the same year through June 30th of the next year.
Prorated bill between two owners:
In some cases, a parcel changes ownership before a supplemental bill is issued for a prior change of ownership or completion of new construction. In these cases, the bill for the prior activity is prorated between the prior owner and the current owner based on the number of days each owner owned the property in the period between the first activity and the end of the tax year, June 30th. If you are the prior owner, your bill is on the unsecured tax roll; if you are the current owner, your bill is on the secured tax roll.
The computation of the bill amount is shown on the bill, directly above “Billing Explanation.” The bill amount is the product of three possible factors:
- The tax amount factor is the tax amount for a full tax year (the supplemental assessment amount times the tax rate).
- The monthly proration factor is the number of full calendar months after the date of the activity through the end of the tax year represented as a fraction of a whole year.
- The days owned factor (applies only to prorated bills between two owners, as explained above) is the number of days you owned the property during the tax year represented as a fraction of the total number of days from the date of the activity to the end of the tax year, June 30th.
An escrow closing is…
A legal transfer of title on the property from the seller to the buyer is the culmination of the transaction. Once all the conditions of the escrow have been satisfied, the escrow officer advises you of the date that escrow will close and takes care of the technical and financial details. Usually the Grant Deed and Deed of Trust are recorded within one working day of the escrow’s receipt of loan funds. This completes the transaction and signifies the “close of escrow.”