home buying

What Is Escrow?

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When it comes mortgages are concerned, “escrow” and “escrow accounts” refer to two slightly different concepts. Escrow is the process by which a neutral third party mediates a real estate deal, holding money and property “in escrow” until the two sides agree that all the conditions are met for a sale to close. By contrast, an escrow account is usually an account that helps to manage a mortgage borrower’s annual tax and insurance costs.

What Does Escrow Mean?

Escrow refers to a third-party service that’s usually mandatory in a home purchase. When a buyer and seller initially arrive at a purchase agreement, they select a neutral third party to act as the escrow agent. The escrow agent collects what is known as “earnest money” from the buyer: a deposit that is equal to a small percentage of the sale price. In exchange, the seller takes the property off the market. Until the final exchange is completed, both the buyer’s deposit and the seller’s property are said to be in escrow.

Escrow “accounts” have more to do with your monthly mortgage payment than the initial home purchase. When you borrow money from a bank or a direct mortgage lender, you’ll usually be given an escrow account. This account is where the lender will deposit the part of your monthly mortgage payment that covers taxes and insurance premiums. By collecting a fraction of those annual costs each month, the escrow account reduces the risk that you’ll fall behind on your obligations to the government or your insurance provider.

How Do Escrow Accounts Work?

When you obtain a mortgage loan from a bank or direct lender, you also receive an escrow account that helps you pay your property taxes and homeowner’s insurance premiums on time. Even though these costs are paid on an annual basis, your lender will require you to pay a monthly fraction towards each cost and accumulate the balance in your escrow account. This ensures that these expenses get paid on time every year.

Mortgage lenders require borrower escrow accounts in order to minimize the risk that you fall short of your financial obligations as a homeowner. In a foreclosure, unpaid taxes or insurance can result in liens that make it harder for the mortgage lender to recover the original loan. This creates a strong incentive for lenders to keep their borrowers on track with escrow accounts that smooth out the non-mortgage costs of owning a home.

Although escrow accounts conveniently allow lenders to pay the relevant taxes and insurance premiums on your behalf, they do have some drawbacks for the borrower. Lenders often require you to a keep a minimum balance in your escrow account to protect against any unexpected cost increases. The usual rule requires a minimum of two months’ expenses on your mortgage escrow account, though the limit can be higher on riskier mortgages. Lenders usually review your escrow account once a year to make sure that the calculated payments are keeping up with costs.

How Much Do Escrow Fees Cost?

Just like any other service provider involved in a real estate deal, the escrow agent will need to be paid a fee. Escrow services for a home purchase typically cost 1% to 2% of the final price. Based on national median home values, this translates to a fee of $2,000 to $4,000, which is added into your other closing costs. However, escrow fees are one of the many expenses that are negotiable between the buyer and seller. This means that you can try asking the other party to foot part or even all of the escrow fee, depending on local rules or the current market conditions.

If you’re buying, you’ll also need to deposit between 1% to 3% of the final sale price in a joint escrow account with the intended seller. This earnest money serves as proof that you’re serious about following through with the sale, and it obligates the seller to take the property off the market while the transaction gets finalized. When you complete the transaction, the earnest money you put into escrow will be applied towards your down payment on the house. Earnest money in escrow isn’t a fee, but you should be wary of the fact that it’s possible to forfeit that money if you can’t come to a final agreement with the seller.

When is Escrow Needed in a Mortgage?

Escrow plays a role in both your initial home purchase and the ongoing monthly mortgage payments that follow. In a purchase, the escrow process provides certain guarantees to both the buyer and the seller. Once the two parties agree on a sale, a neutral third party—a bank, title company or attorney—will receive the signed purchase agreement so that it act as the escrow agent. Escrow agents exist to monitor and help fulfill the conditions of the sale, such as the buyer’s “earnest money” deposit for a percentage of the sale price.

TYPICAL COMPONENTS OF ESCROW IN REAL ESTATE

Buyer Must Provide…

  • earnest money towards down payment
  • proof of mortgage loan approval

Seller Must Provide…

  • access to property for inspections
  • required repairs or renovations
  • inspection of title

Once a property is “in escrow”, neither the buyer nor the seller will receive anything from the escrow company until all the conditions of the purchase agreement are met. For example, you might agree to purchase an older home on the condition that the building pass a safety inspection. Other common escrow conditions include repairs and property tax audits. Meanwhile, the buyer’s earnest money proves to the seller that the buyer has both the intent and the ability to complete the purchase. Earnest money can be forfeited to the seller if the buyer backs out or fails to hold up the terms of the contract.

Escrow agents are also responsible for distributing money to parties other than the buyer and seller. These can include commissions to the real estate agent, prepaid mortgage interest to the lender, recording fees to the county office of records and the escrow agent’s own fee. In this sense, escrow greatly simplifies the homebuying experience: without it, you’d be held responsible for sending timely and accurate payments to each and every party involved in the transaction.

Should You Rent Out Your House?

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Should you rent your house out? Every day, millions of landlords rent out houses to good tenants. With proper planning and preparation, you can minimize the hassles and turn your home into a profitable venture. If you think any of these points apply to you, you may want to consider renting out your home.

  • Your primary home, while a necessity in life, is not typically an asset or investment. An asset makes you money. A liability costs you money. By renting out your home, you transform a liability into an asset.
  • You can hold onto your property while rental income pays down your mortgage. Over time, rental property values (hopefully) will climb and build your wealth. If you can rent out your house for more than your monthly expenses, you will also experience additional monthly cash flow. That’s the goal for all potential landlords—and what we at BiggerPockets want to help you achieve.
  • Start your investment career with no additional costs. Renting your property could be the first step in a tried-and-true method for building wealth. Many real estate investors start this way—renting out their homes as they upgrade to bigger or better houses. This may also help fund your retirement, as you may end up owning multiple properties “free and clear” by the time you are ready to retire, providing monthly rental income or a lump sum if you sell.
  • Retain the possibility of returning to that home. This is especially helpful if you’ve been forced to move quickly because of a temporary job relocation.

If you need help finding a new home to buy while you rent out your current one, I’d be happy to help – give me a call today!

Potential Neighborhood With An HOA? Here’s What You Should Know

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Let’s say you have your heart set on buying a home in a community with a swimming pool, a clubhouse, and maybe even a playground or trails. Having access to these amenities often means living in a community with a homeowners association, or HOA.

Generally, an HOA is responsible for keeping the neighborhood looking beautiful — and as a result, keeping property values high. But since no two neighborhoods are the same, no two HOAs will be the same, either.

What You Should Know About the Homeowners Association

Doing your research on homes and communities means finding the answers to dozens of questions. As a savvy home buyer, you’ve probably already considered some of the most important topics early on in your home search, such as the local property taxes and whether the neighborhood is appreciating in value.

But if you’re considering a neighborhood with an HOA, there are a few additional things that you should know about the community and the association before you buy a home. Here are the essential questions you should ask.

1. What Does the Homeowners Association Do?

Each community varies, but in general, a homeowners association assists residents with property maintenance (by providing services like lawn care, trash removal, or Internet), regularly beautifies the neighborhood common areas, and upkeeps any shared amenities. In return for these services, residents pay an association fee, which we’ll talk about later.

Since the HOA is also concerned with keeping property values high, the homeowners association may also dictate what residents can and can’t do with their properties. These rules keep residents from worrying about a neighbor painting their house a funky color or letting their lawn go wild.

2. Are You Required to Join the HOA?

Before you decide to buy a home in an HOA neighborhood, first check to see whether the community has a voluntary or mandatory HOA. A voluntary HOA doesn’t require that you join the association or pay dues, but a mandatory HOA does.

3. How Much Are the HOA Fees?

As we mentioned before, HOA fees cover the services that the association provides. HOA fee costs (and the frequency with which they’re paid) can vary from community to community, so ask your real estate agent about how much the fees are before you buy a home in the neighborhood.

4. What Are the HOA’s Expectations for Residents?

Typically, a homeowners association will have a list of rules and regulations that residents are expected to follow when they live in the community. (These are known as Covenants, Conditions, and Restrictions, or CC&Rs.)

These regulations can dictate everything from what colors you can use to paint your home to how many vehicles you can park in the driveway. Again, each homeowners association varies, so it’s best to read the Bylaws of communities you’re considering to learn what’s expected of residents.

5. When (And How Often) Does the HOA Meet?

If you’re interested in joining your neighborhood’s HOA to get involved in your community, you might also want to consider when the association meets. The HOA may meet annually, bimonthly, or monthly, depending on the association’s size, so check to see if the regular meetings will fit within your schedule.

6. Does the HOA Host Any Activities?

Finally, when considering a neighborhood with an HOA, you should learn whether the HOA provides other ways for you to get involved and meet your neighbors. Ask your real estate agent about whether the neighborhood association hosts annual block parties, pool parties, holiday celebrations, Yard of the Month competitions, or any other neighborhood activities.

How To Make Your Offer Stand Out

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In today’s market,  it’s not uncommon to be in competition with several other buyers for your dream home.  When you find that perfect house, with the chic chandelier and the doggy door for Fido,  the last thing you want to do is lose it because your offer didn’t stand out to the seller, Taking the time to put forth a well-written offer can work wonders for a buyer. Each seller and agent may have different opinions on what makes the best offer, but here are some that we’ve found are the most consistent:

1. Include a pre-approval.

If you want to show the seller that you’re serious about buying a home,  get pre-approved before you ever sign an offer.   Not only does it show that you didn’t just waltz up, see the for sale sign and throw something out there, but it also alleviates some of the seller’s worries that you’ll back out when the bank finds out your credit isn’t actually as good as you thought it was.  Be sure to include that pre-approval letter from the bank with the signed offer.

2.  Make a decent earnest money deposit.

When you’re sure you can’t picture yourself without this house,  be ready to boost your earnest money deposit. Earnest money shows the seller that you’re putting your money where your mouth is, and you’re prepared to give up that chunk of cash if you back of the contract for any reason other than those allowed under the contract terms.  There is usually a typical amount offered for your area, so if you really want to look good, go above and beyond that amount.

3.  Remove all the contingencies you can.

Having two mortgages while trying to sell the home you’re in now isn’t really a dream that anyone has, but if you have the cash to do it, it’s definitely going to make your offer more desirable.  Anytime you can waive contingencies in the contract, like the sale of your current home,  it gives the seller more confidence that the deal will go through without a hitch.  Another option would be to shorten the typical time periods.  If it’s customary for your inspection period to be 15 days, shorten it to 10 to let the seller know you’re looking to make this happen quickly.

4.  Make it Your Best

When you’re up against multiple offers,  don’t waste a lot of time expecting to negotiate.  Base your offer on solid research of surrounding comparables and really offer what you’d be willing to pay.  If you don’t,  your offer may be tossed aside for others that did. This includes more than the price, too.  Maybe pay out of pocket for some of those extras, like a home warranty or closing costs, instead of asking the seller to contribute.

5. Get Personal

It’s time to let the seller know why you’re dying to buy their house, and be honest.  Is it because you want to raise your family in the neighborhood?  Do you see Fido rolling around in the big, fenced backyard?  Connecting with the seller and creating a sense of relatability can go a long way, but avoid sounding desperate.  The idea is to keep it short, simple, and honest, and don’t forget to have your buyer’s agent proofread it. Don’t hesitate to go out of the box to make your offer standout to the seller. It may end up getting you your dream home.

SD Market Update: January 2018

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Here is your January 2018 San Diego County Real Estate Market update!  Please note, that if you would like to see local statistics for your city or a city you are interested in, I can get this information to you usually within the same day.  Just shoot me a text or call and it would be my pleasure to provide you with any real estate information you seek.

The following stats* compare December of 2016 with Dec-2017:
  • The median sold price is up +9%.  In December of 2016 the median sold price was $495k, compared to December of 2017 at $539k.  That’s a difference of $44,000.
  • The median price of for sale properties is up 7% and the median price of sold properties is up 9%
  • The number of Sold properties is down 12%.
  • The average days on market is down 14%.
  • The number of Expired properties is down 12%.
  • The average months supply of inventory is down 24%
* Report provided by:Clarus MarketMetrics® @ Realty One Group

San Diego Market Update – October 2017

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market update

Good afternoon, fellow San Diegans!

Here is a short market update from you.  The following information is just a concise bullet list of market updates.  If you would like to see the full report (from Clarus MarketMetrics®), please let me know and I will email it to you!

Based on the last 12 months:

  • The median sold home price is up 10%. This means that if you list your house now, you’ll be able to get top dollar for it. We can’t know for sure what the market will do in the short or long term future–but we do believe at some point home prices will stabilize and take a dip.
  • The average days on market is down 11%. Translation? Properties are selling fast.
  • The average month’s supply of inventory is down 23%.

A lot of people believe in the myth that during the holidays, nothing sells.  However, if you’re waiting for Spring to list your house–don’t.  The notion that real estate sales stop cold during the holidays is a total myth.

The truth is that real estate is ALWAYS being bought and sold, year around, worldwide.  Owning real estate is one of the highest dreams one can hope to realize, and it doesn’t matter what time of year it is.  In fact, sometimes the fall and winter months are the best times to buy or sell real estate. This is because sales can move more quickly because serious buyers and sellers go into the market during these months.

From “I Do” to Sold

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Newlyweds are saying “I do” to each other, and equate to over half of first time home buyers that are also saying “I do” to their dream homes. It makes sense! When you put two hearts together, the time comes to find a home to nourish that love. A home that brings two of your places together, and makes it one. If you and your spouse are ready to fall in love with the perfect house together, here are five tips to make sure the process goes smoothly, and you come prepared.

1. YOUR WEDDING BUDGET: Your wedding is a one-time event that shouldn’t be less than what you’d imagine. It’s a beautiful time to put all of your dream pieces together. However, it’s best to sit down and find out ways you can shift the budget to help with your down payment for a home, if you plan to purchase. The average couple spends a little over $20,000 on their wedding. Even a savings of $5000 from your wedding budget can help with owning the perfect home. 

2. WEDDING GIFTS: Wedding bliss comes with wedding gifts. Let’s admit, one of our favorite times during the wedding season is all of the gifts that come pouring in! Have any friends or family pitching in cash? Save that to put towards your down payment. And depending on the generosity of your gifts, you can even open an account dedicated to your down payment, that friends and family can gift to. 

3. GET PRE-APPROVED: One of the least brought up conversations in relationships is the credit and financial history of your soon-to-be spouse. Get together with a lender to go over both of your histories to know what needs to be done to put you guys in a position to own together. In some cases, only one person can get approved, while the other can’t. If you want to put both of your incomes toward the cost of the house you want, talking to a lender early on can ensure you are prepared to make the right moves.

4. THE RIGHT AGENT: That’s where I come in! For starters, I can connect you with a lender to ensure you guys are being watched over from the best recommendations. And it’s an absolute joy to take the stress out of buying a home for my newly wed couples. We all know how stressful, although joyous, a wedding can be. To then jump into buying a house shortly after, well, it’s certainly a lot to get through. But I can guide you through all of the steps to make sure you end up with a house you love. Just think of me as a wedding planner, but for homes.

5. NOW THERE’S TWO: Although some spouses are a match made in heaven, loving and adoring the same exact things, often times that’s not the case with most couples. You still are your own persons, and have your own tastes. This is where the first step to comprise really begins. Spending a good bit of money on a place you both will love and call home. A happy marriage starts with a happy home, so be sure you both are considerate of each other’s wants and needs in style and location, so you both are happy with the home you end up getting. 

3 Questions To Ask Before Buying Your 1st Home

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The real estate market is constantly changing, so of course DO YOUR RESEARCH! DO NOT jump the gun on this one! Unbiased advice from family and peers may be kind, but you are the only one who knows what your needs are when it comes to buying a home.

WHAT MADE YOU CONSIDER OWNING A HOME?

Forget finances for a minute and focus on what made you consider even buying a home in the first place!

· Is your family expanding?

· Does your family feel safe?

· Is there a STELLAR school system in the area so your children can get the education they deserve?

· How about that unbearable landlord?

WHICH WAY IS THE REAL ESTATE MARKET GOING?

DON’T SLEEP ON YOUR DECISION TOO LONG! Home prices are on the rise! Not only are they on their way back up, but these increases are happening monthly.

Don’t believe us? According to Existing Homes Sales Report from the National Association of Realtors (NAR), the average price of homes in May 2017 went up 5.8% from last year.

If you wait until next year to buy, you might be scrapping for change in the cushions to say the least! Not only will it cost you more to buy, but you will also need to increase your down payment to account for the higher price of the home. 

WHAT IS THE MORTGAGE FORECAST?

The initial process of purchasing your home may seem easy and quick, but THERE IS MORE TOO IT! The ‘long term cost’ of buying a home WILL haunt you if you buy at the wrong time! Mortgage Bankers Association (MBA), and NAR have projected that mortgage interest rates will DEFINITLEY increase over the next twelve months. The smallest increase in mortgage rates can have a huge impact on a home owner.

FINAL THOUGHTS

If you and your family feel it is the right time to buy a home then GO FOR IT! Consider these points when making the final decision.

Don’t forget, this move is FOR YOU!

Fall Leaves Bring Sold Signs

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Summer has come to an end and you probably are thinking you’ve lost the opportunity to sell, and need to wait till next summer. But that’s far from the truth! Although it’s not as hectic and crazy with the swarm of buyers on the market, the fall season brings out the most serious of lookers. They are the pool of buyers that waited out the summer frenzy to find their perfect home in the fall, and you don’t want to miss these buyers! They are ready to make a move, today! And selling in a slower period does not equate to less money. That’s a misconception that home owners have based on untrue data that floats around. With the right agent, and your home being priced correctly, you can get a great deal selling your home during the fall season. And might actually prefer it. Here are the top 3 benefits to listing during the fall season.

1. Serious Buyers – Let’s be honest, if buyers are out during the busy season, looking for homes, they are serious and ready to buy. Although the summer brings in a large crowd, that crowd contains a lot of people that are excited by the season, and fall into the “trend” of house hunting. These people end up not really being serious about the process, and tend to hold off for another time. If people are investing time to look during the fall season, they are more likely to be interested in actually buying your home, instead of touring it.

2. Less Competition – Selling in the fall isn’t something many families can accomplish due to personal schedules. That’s why a significant amount of homes get listed during the summer season. Which means that summer time brings in a lot of competition. Selling in the fall means the potential house next door that has slightly more perks that may have been listed during the summer, doesn’t make your home sit stagnant, since everyone wanted your neighbor’s house. It also doesn’t devalue your home because of the house that could go up next door that could be under-priced in your neighborhood, and draw all of the attention. With a slower season, you get dedicated attention to your property, which increases the chance of a sale. 

3. Easier to Find Your Dream Home – Not only do you get to benefit from a slower season during the selling process, but you can also benefit on the buying side. With less competition on your dream house, you can get a better deal. The summer brings a lot of missed opportunities for buyers on their dream homes, because they go off the market instantly. This will give you the opportunity to get your home on the market and take your time to find the right one to resize into. A much calmer pace to the transaction will make it less stressful, and everyone all around happier. Don’t feel rushed into buying a home overnight during the summer, it could turn into a headache. If you want a far more peaceful transaction, that has calmer pace, then selling during the fall is perfect for you.

The Incredible Joy of Owning Your Home

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If you haven’t bought a home yet, you’re missing out on a wonderful feeling! That moment when you walk through your doors, throw your purse or keys on the floor, plop down on your couch and breathe a sigh of relief while thinking, “Finally, it’s ours (or mine)!” And the joy of looking at all of your boxes, getting to roll your eyes about why you buy so much stuff, then giving yourself a moment to take a nap because you worked hard to get here and earned it! Yes that’s a real feeling!

We often hear, and read, about the cost effectiveness of home ownership. The equity build-up, the freedom it can give us from finances in our retirement years, and a plethora of other ways owning a home can be a positive impact on your bottom dollar. But we don’t often hear about the emotional impact owning a home can have. Yes there will be days the fridge is acting silly and you need to call your home warranty, or days you have to get outside to mow your own yard, but nothing beats the pride and joy of owning a home.

There is a sense of security, and a sense of “this is mine and I worked my way up to this moment,” that provides moments of bliss. The ability to do with your home as you please, not pay a pretty penny for every member of your fur family, and the privacy it provides can’t be beat.

Home ownership also gives you the ability to put down some roots. And we mean that figuratively and literally. You get to build memories through the holidays and go through many milestones with your family, that leave a significant impact into the later years. You also get to build bonds with your neighbors, and grow in a community oriented neighborhood. With rentals, people come and go annually, but there are deeper roots planted with building relationships with those living next to you. Potlucks, 4th of July and New Year’s Eve spent lighting fireworks, and just the excitement of getting to know each other and build new relationships.

Buying a home isn’t about the dollars and cents for everyone, sometimes it’s just about the joy of owning your own place, and getting to build amazing memories in it. If you’ve been longing for this, get in touch with a real estate agent, and make it happen. You owe it to yourself to make your dreams come true!