Title insurance is a contract of indemnity which guarantees that the title to the property is as reported. If it’s not as reported, you are reimbursed for actual loss or damage under the conditions specified in the policy. The title policy covers you for your loss up to the amount of the policy.
Title companies work to eliminate risks by performing a search of the public records. The search consists of public records, laws and court decisions pertaining to the property to determine the current recorded ownership, and any recorded liens or encumbrances or any other matters of record which could affect the title to the property. When a title search is complete, the title company issues a Preliminary Title Report.
The Preliminary Title Report contains vital information which can affect the close of escrow: ownership of the subject property, how the current owners hold title, matters of record that specifically affect the subject property, a legal description of the property and an informational plat map.
Not all risks can be determined by a title search, since certain things such as forgeries, identity of persons, incompetency, failure to comply with the law, or incapacity cannot be uncovered by an examination of the public records. The Preliminary Title Report is an offer to insure under certain situations; the title policy is a contract that gives coverage against such problems.
The California Land Title Association (CLTA) is the standard policy of title insurance in California.
Remember, each time you view a property, evaluate it against your list of needs and wants, and then rate it from 1 to 10 (10 being the perfect home). If you’re willing to do work, consider whether the home can be improved to achieve what you want—by painting, new flooring, remodeling or minor structural alterations.
Once homes and/or neighborhoods have been narrowed down and deemed worthy of further consideration, consider these additional factors:
Once you find a property you wish to consider buying:
The sale of real property involves transferring large sums of money and signing important documents by you, the Seller and your lender. Escrow is the process in which an impartial third party acts as a stakeholder and facilitator for both you and the Seller. Typically this entity is the Title Company. It carries out both parties’ instructions and handles the paperwork, distribution of funds, title insurance, and the transfer and recordation of the title deed.
Escrow is normally opened within one business day of acceptance of the purchase agreement and at this time your initial deposit as specified in the contract is deposited into the escrow account. The duration of the escrow period — from offer acceptance to recordation of the transfer of ownership — is usually 21 to 45 days.
Before going to the title company to sign escrow papers, make sure to do the following:
After both buyer and seller have completed their contractual obligations, and closing documents have been signed, your lender will wire the loan funds into the escrow account. Your title company will then record the title deed and loan deed of trust at the Recorder’s Office. You are now the proud owner of your new home and the keys will be personally delivered to you. Occasionally, Sellers may request the right to rent back the property after the close of escrow for a short period of time. If you agree to a Seller rent-back, the terms are negotiated as part of the purchase contract. It is typical for the Seller to pay prorated rent equal to the principal and interest costs of your loan plus property taxes and insurance (PITI).
What to Keep from Your Closing
The idea of financing a home can sometimes be a daunting one. When broken down, however, the process really can be less intimidating than one may think.
Step 1: Review Financing Options
Financing your new home purchase begins with a consultation with a qualified loan agent. If you wish, we can recommend one who has the requisite experience, competence and integrity.
There are a wide array of loan options, and choosing the one that works best for you will depend on a number of factors: your financial wherewithal and future plans, the monthly housing expense you are comfortable with, cash available for the down payment and closing costs, how long you plan to own your new home, etc. You may wish to consult your accountant regarding financial and tax implications.
Step 2: Loan Pre-Approval
Your home search should begin with obtaining formal loan pre-approval—so that you fully understand your financing options, what you can afford, and what your closing costs and ongoing housing expenses will be. Furthermore, a lender pre-approval letter significantly strengthens your position when it is time to make your purchase offer to the Seller. Your loan agent will guide you through the pre-approval process, which involves the submittal, to chosen lenders, of your loan application and accompanying documentation regarding employment, income, assets, debts and credit history.
Step 3: Your New Home is Found & your Offer Accepted
You have already been loan pre-approved; now the lender must approve the specific purchase terms and the property itself. This involves review and approval of the purchase contract, the property appraisal, the Preliminary Title Report, and any other supporting documentation required. Depending on the lender, the property and specific circumstances, this process typically takes from fourteen to thirty days.
Step 4: Loan Approval
The property has appraised satisfactorily and all supporting documentation approved by the lender. The lender issues a formal loan commitment letter, and the purchase contract’s loan contingency is removed.
Step 5: Loan Documents
After formal loan approval, the loan documents are drawn up and sent by the lender to the title company. After careful examination, you sign these and other closing documents; they are then notarized by the escrow agent and returned to the lender for final review and funding.
Step 6: Funding
The lender funds the loan, depositing the loan amount into the escrow account. You deposit any additional monies necessary to complete the purchase such as the remainder of your down payment and closing costs. These final monies are typically delivered by cashier’s check or bank wire.
Step 7: Recordation of Transfer of Ownership & Close of Escrow
The legal documents transferring the property into your name and the deed of trust pertinent to the property’s new loan are legally recorded with the County Clerk. The funds in escrow are then disbursed, as appropriate, to the Seller, the Seller’s lender and other involved parties or service providers. Escrow is closed, and you are now the owner of your new home!
While this flowchart depicts a typical process, the fast-paced and competitive San Francisco real estate market results in variations of this flowchart. Paragon Agents are able to quickly respond to market shifts.
Who pays for the various closing costs is negotiable between the Buyer and Seller. The below, however, sets forth the customary division in San Francisco County. (These items might not apply in other counties as some counties split their title and escrow fees between Buyer and Seller in varying manners.)
Sellers Generally Pay…
The Tax Year
Property taxes are charged on a fiscal year beginning July 1st and ending June 30th; hence tax years are referred to as 2004/2005, 2005/2006. Taxes are billed in two equal installments: first installment covers July 1st through December 31st, second installment covers January 1st through June 30th.
Tax bills are sent to homeowners in the last week of October. Tax payments are due November 1st and February 1st; tax payments are delinquent on December 10th and April 10th.
How to Calculate Property Taxes
In most cases, the assessed valuation in your first year of ownership will be the same as the purchase price. It may be increased by up to 2% per year for each year you own the property. If you own and occupy a dwelling on March 1st as your principal place of residence, you are eligible to receive a reduction of up to $7,000 of the dwelling’s taxable value. To receive this exemption, you must file a claim with the Assessor. Once you receive the exemption, it is not necessary to file each year as long as you own and occupy the residence.
Mello-Roos Community Facility Districts
Mello-Roos districts are designated areas which have issued bonds for community facilities, for example, earthquake retrofitting of schools, and for which annual tax levies are collected as part of the property tax billing. There are two districts in San Francisco. One encompasses the entire City and the other is a small area South of Market. The cost for the Mello-Roos Community Facility Bonds in most parts of San Francisco is $32.10 for a single family residence.
Upon change of ownership, the Assessor’s Office will reappraise the property and will bill the new owners for any difference in taxes resulting from a higher assessed value. The Assessor will issue you a supplemental assessment bill which is prorated based on the number of months remaining in the fiscal year ending June 30th.
Can You Disagree with the Amount?
You may apply to the Assessor to see if that office will change the valuation. Additionally, Appeals Boards have been established for the purpose of resolving valuation problems. Appeals on regular assessments may be filed between July 2nd and September 15th. Appeals on corrected assessments, escaped assessments (those that did not take place when they should have), or supplemental assessments must be filed no later than 60 days from the mailing date of the revised tax bill. If you choose to appeal, pay your tax installments in full by the deadlines or you may incur penalties. If the appeal is granted, a refund will be issued to you.
Did You Recently Purchase A Property?
Escrow prorates taxes, but the actual taxes may not have been paid and you are responsible for any unpaid taxes at escrow closing. Read your escrow papers to determine if any portion of annual taxes were paid by the previous owner prior to closing.
The Tax Collector will not send a bill for the remainder of the year in which you acquired the property unless requested. If any taxes remain unpaid, call the Tax Collector and request a bill; have the Assessor’s Identification Number before calling.
The Purchase Agreement typically contains provisions allowing you to perform any inspections you desire. Inspections do not guarantee the condition of the home; instead their purpose is to educate you regarding the home’s current condition and how to maintain it in the future.
Inspections are completed within a contractually specified time period, typically 10-15 days. If you are satisfied with the condition of the property, you remove the inspection contingency and proceed with the sale. If you are not satisfied, you may cancel the contract or negotiate with the Seller. In a negotiation, the purchase price may be adjusted, a credit may be given in escrow, or the Seller may perform work prior to close of
Structural Pest Control Inspection
Sometimes referred to as a “Termite Report,” it examines all types of insect and fungus damage (Section 1) as well as conditions that could lead to damage (Section 2). This inspection is performed by a specially licensed contractor who must inspect properties according to criteria established by the State Board of Pest Inspection.
A general contractor’s inspection will check the overall condition of the home from the foundation to the roof, including electrical, plumbing and heating, the basic structure, as well as the quality of the finish work. Other recommended inspections may include structural engineering, soil conditions, fireplace and furnace. The inspection period is useful for obtaining estimates for repairs and improvements you plan to make later.
Who Pays for Inspections?
Typically, the Buyer pays for inspections. Pest Control Inspections generally range from $350 to $500 and Contractor’s Inspections range from $400 to $800 depending on the size of the home. It is important to use qualified professionals and we can recommend inspectors in every category.
On Your Final Walk-through, Be Sure That:
Home Warranty Plans
Several Home Warranty Plans are available that provide insurance for the major systems and basic appliances of the home. The cost is approximately $350 to $500 per year depending on the extent of coverage. These plans can easily
pay for themselves should a covered item need repair or replacement.
If you’re planning to buy a house right now, the next few months may be the best time to buy. Waiting for both housing prices and interest rates to fall may not be a good strategy for potential homebuyers since analysts don’t expect any significant declines in these two most important home-buying factors. Here’s nine real estate trends that suggest you should get into the housing market sooner than later. (To learn more, check out 5 Tips For Recession House Hunters)
TUTORIAL: Buying a Home
1. Lowest Housing Prices in Years
Nobody knows when the housing market will hit bottom, but prices are at their lowest in several years and may soon start inching back up again. So buying now or in the near future may be the right time. An abundance of bargain-priced housing is now available because of foreclosures and falling prices.
2. Interest Rates at a 50-Year Low
Interest rates are near a 50-year low, according to housing analysts. By the second week of May, 2011, 30-year fixed mortgage rates had fallen to their lowest rates of the year at 4.63%. Although mortgage rates vary from day to day, the 30-year rate at this level is an attractive inducement to first-time buyers, or buyers who want to either move up to larger residences, or others, including many empty-nesters wanting to sell and move to smaller houses or condos.
3. Interest Rates Expected to Go Up
As the economic recovery gains momentum, interest rates are expected to increase, making mortgages more expensive. Even a half-percent increase in mortgage interest can add a hundred dollars or more to your monthly payments, depending on the amount of your loan. (To learn more about interest rates, read Forces Behind Interest Rates.)
4. Adjustable Rate Mortgages at Record Lows
Adjustable Rate Mortgages (ARMs) are also lower now, although there are risks that interest rates may increase over the life of the mortgage and the balloon payment due at the end of the mortgage life, usually three or five years, could be substantial. Nevertheless, for new buyers who are sure they’ll have enough income to meet payment obligations, an ARM may be the best way to buy a house. Keep in mind that payments may increase on a monthly basis. For a full explanation of advantages and risks in an ARM, visit the federalreserve.gov.
5. Low Down Payment Mortgages Available
Low-down-payment financing through Federal Housing Administration-insured mortgages is available as an additional inducement to buy a house now. Down payment minimum requirements also fluctuate and may increase as the market heats up, so potential buyers with less cash to consummate a deal may be well-advised to buy now.
6. Easy to Qualify, Easy to Borrow
Lending standards have become less rigid recently, so qualifying for a mortgage may be easier. Experts advise that a potential buyer become pre-approved for a loan by a lending institution – meaning that a lender guarantees to make the loan contingent on an appraisal of the property. But the good news in seeking pre-approval is that lenders are now willing to let a potential buyer take on more debt than the previous formula allowed – a percentage of monthly income. (For more on getting a cost effective mortgage, see Score A Cheap Mortgage.)
7. Lenders Offer No-Fee Mortgages
Many banks and other lending institutions are waiving mortgage loan generation and other fees and points (each point represents 1% of the loan amount), thereby reducing the cost of buying.
8. Home Builders Eager to Sell, Offer Incentives
Home builders, competing with the resale market, are offering incentives to potential buyers to reduce their inventory of unsold new homes. Incentives may include cash for furniture or free refrigerators, washers and dryers. In Seattle, for example, builders have offered opportunities to win iPads or Smart phones, and $3,000 buyer bonuses. Specific demographic groups, including military personnel, police, firefighters and health-care workers, have been targeted by builders for special offers. But virtually anyone who can qualify for a mortgage is likely to get a good deal from a homebuilder who is eager to sell.
9. Motivated Home Owners Desperate to Sell
Desperate sellers of existing homes have also been offering attractive inducements to potential home buyers, including warranties on appliances, air conditioners and furnaces. Some sellers are even offering cash or have included furnishings, refrigerators, washers and dryers as a bonus to potential buyers. With so many existing homes in foreclosure or underwater – bargain prices are abound in this depressed market. (For help on buying a house, read Top Tips For First-Time Home Buyers.)
The Bottom Line
With a convergence of the factors above, all of which are favorable to the prospective home buyer, there may not be a better time to buy than right now. It’s a buyer’s market, but like everything else in life, the bargain deals won’t last. (To help determine if it is the right time to buy, read Are You Ready To Buy A House?)
SOURCE: Reasons To Buy A House Now — Marc Davis, provided by INVESTOPEDIA
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