How to Buy Real Estate in Palm Springs
So you think you want to buy a house (you think). Maybe a townhome, or a condo. Well, people have been buying and selling real estate in the U.S. for at least 240 years now, so obviously it can be done (what's more, it can be done without a smartphone).
While real estate law, procedures, and practices vary from state to state (and in some cases, from region to region, or by county), following is a 20-point outline of how the process goes in southern California, Riverside County, and the Desert Cities of the Coachella Valley (e.g., Palm Springs). Much of this information can be applied elsewhere.
NOTE: there is some overlap, particularly with respect to items #2-3, and loan preapproval. Obviously, if you are in the happy position of being able to offer cash, advice on obtaining a mortgage won't apply. But you will still be expected to provide clear, reliable, current demonstration of your ability to fulfill the proposed terms of your offer - what is commonly called "proof of funds". Most-recent account statement(s) will usually suffice.
But otherwise, for the financed majority, here goes:
1. Find out how much you can afford
You don’t want to find yourself in a situation wherein you’ve found the home of your dreams only to find out you can’t actually afford it. Determining just how much you can afford should be done as early in the process as possible. Once you have a budget and a price range, you can narrow down your options, which will save you a lot of time.
To determine your budget, you have to consider the following factors:
Your income (and whether or not it’s going to change soon)
Your credit rating
Your expenditures (how much you spend on a monthly basis)
Your down payment amount
Current interest rates
2. Research and compare mortgages
Once you’ve found out just how much you can afford, it’s time to research and compare available mortgages. There are different kinds of loan products out there. Researching and comparing loans allow you to choose the best plan for you.
When it comes to mortgages and loans, it’s important to ask questions. Don’t be intimidated to ask about fees, down payments, mortgage insurance, and other rates you may encounter. Once you have every ounce of information you want and need to know, it’s time to negotiate with your chosen lender and get pre-approved.
Why get pre-approved? Not only does this give you a concrete number, having a pre-approval in hand tells sellers that you’re a serious buyer.
3. Get Pre-approved
Order a free credit report online and fix mistakes, if any.
Ask your Agent for a referral to a Mortgage Broker, but also compare rates offered by your own bank and / or credit union.
Remember: different financial institutions draw funding for home purchase loans from different underwriting sources, often with varying criteria.
Ask the lender to give you a loan pre-approval letter, which means it will verify your income and pull a credit report.
A pre-approval letter is different from a pre-qualification letter: a pre-approval letter means that a Mortgage Broker has actually looked at your financial information personally and, based upon your particulars - and the current criteria of the underwriters funding home purchase loans - you actually qualify for a mortgage with specific set terms.
Determine your maximum loan amount, but choose only a mortgage type that you understand, and a payment level with which you feel comfortable - which may very well be less than the maximum for which you are approved.
4. Choose an Agent
Your representing agent will represent you in the transaction, and have an ethical, legal, and fiduciary responsibility to look out for your best interests.
In California, dual agency is allowed: a single Agent (and or Brokerage) may represent both Seller and Buyer. However, the Agent (and Brokerage) are still required to maintain an equal standard of ethical, legal, and fiduciary responsibility to serve the best interests of all parties they represent.
A Buyer's Agent may ask you to sign a Buyer's Broker Agreement, but it is the Seller who pays the commission (per the terms of the Seller’s contracted Listing Agreement with their representing Brokerage and Agent).
Choose an Agent you trust, and with whom you feel comfortable.
Once you have settled on an area, try to hire an Agent who is a local specialist.
Finding the right real estate Agent will help ensure the smooth running of the whole home-buying process. A good real estate Agent will keep your best interests at heart and guide you the whole way, from helping you find the right home and neighborhood, to negotiating on your behalf.
5. Set your criteria
Making a checklist of the features you want in your new home is a must. Knowing what you want and what you need allows you to stay within your budget or make adjustments. Does your new home have to have a home office? A three-car garage? A koi pond? As the old saying goes, location is critical. Is there a local dog park, liquor store, or tattoo parlor?
You should also include the kind of neighborhood that you want. Researching about different neighborhoods and their amenities helps you narrow down your choices. Keep in mind your short-term and long-term goals such as whether or not you’re planning on starting a family, or have a long history of difficult relationships with fellow association board members.
Knowing what you don’t want is also very important. Let your real estate Agent know about any possible deal breakers. The whole point of the exercise, in this phase of the process, is to narrow your focus - not widen and diffuse - so that you can productively hone in on the property you actually want to buy, can actually afford to purchase, and will therefore come to actually own.
6. Check out homes for sale
With your checklist and your Agent, it’s time to go and see houses that meet your specifications. Remember that there is no such thing as a “perfect” house; just the house that will work for you. Sometimes you just can’t get everything you want, and compromise is not a bad thing. Keep your budget and your checklist in mind, and you’re sure to find a house that’s right for you (and your finances).
Ask your Agent to look at homes for you before showing them to you.
Narrow your search to those homes that fit your exact parameters to find that perfect home.
Ask your Agent for information about comparable sales in your targeted neighborhood.
Consider all homes on the market, including fixer-uppers, REOs, foreclosures, short sales and those overpriced homes with longer DOM.
Observe open house etiquette. Be polite. Remember: if a particular home is not right for you, you are under no obligation to purchase it.
Tell your Agent which online home listings you are interested in previewing, and ask for additional input.
Once you’ve found the home you want, it’s time to make an offer. Ask your agent to come up with a market analysis on the neighborhood you’ve chosen to see if the asking price is fair. Knowing if it’s right or out of line allows you to make a good offer that the seller will seriously consider. A really good real estate Agent will negotiate for you so you can get a good deal.
Remember, too, that sometimes the property you want is, in fact, already a good deal. In negotiation, your Agent’s job is also to make sure that you offer isn’t dismissed out of hand, but gets a fair, objective, and timely response from the Seller – in writing – and a reasonable shot at actually getting you the house.
7. Open Escrow / Order Title
Your Agent and/or his Transaction Coordinator will open an active transaction file with Escrow and Title services, if the Listing Agent hasn't already done so.
Ask for the Escrow Officer's name, phone and Escrow File Number.
Give this information to your lender and your Insurance Agent.
8. Review the contract and perform inspections
The contract of sale is a legally binding document that sets forth the conditions of the home purchase; this is why it’s absolutely necessary for you to review it.
Sellers are obliged to disclose any issues (i.e. problems with the title or deed of the house, mold, termites, etcetera) regarding the home, but of course you can’t just rely on the disclosure documents. To be absolutely sure, hire a professional home inspector. Any problems found will allow you to renegotiate with the seller or cancel the purchase if you deem these issues unacceptable (this is one of those things that you’ll want to make sure is covered in the contract).
9. Order Appraisal
Your lender will place a work order for the Appraisal. Ordering the Appraisal will require an advance payment of the Appraisal Fee.
If you receive a low Appraisal, discuss options with your Agent.
Ask for a copy of the Appraisal.
10. Comply With Lender Requirements
Lenders may ask for additional information.
Do not alter your financial situation while in escrow. This means not opening new revolving charge accounts, changing employment, or making large expenditures, such as a vehicle purchase. Avoid signing any new bail bond obligations.
When the file is complete, the lender will submit it for final underwriter approval.
11. Acknowledge, Review, and Approve Seller Disclosures
Read and question items you do not understand on the TDS (Transfer Disclosure Statement), SPQ (Seller Property Questionnaire), NHD (Natural Hazard Disclosure) Report, and other documents such as CCRs (Codes, Covenants and Restrictions, in planned communities) and the Preliminary Title Report.
Read every document in its entirety; ask questions about all Seller Disclosures.
12. Conduct Home Inspection
Hire a reputable Home Inspector.
Bring a Home Inspection checklist with you.
If you choose to attend the home inspection, stay out of the inspector's way until (s)he has completed the work. Upon completion, they will give you a quick rundown of any issues, from their notes. This is the time to ask questions, if you have any. Remember, though, that you will receive the inspection report, in full - after all, you paid for it - which will contain sections of specific focus on all of the areas of a home, its infrastructure and systems, with numbered photographs, arrows, circles, and an overall bullet-point summary. You may wish to formulate your questions until after receiving the inspection report.
13. Order Homeowner's Insurance Policy
Order your Homeowner's Insurance early.
Sometimes previous claims by a home owner can make it difficult to get insurance.
Get replacement coverage.
This is not to be confused with a Home Warranty Policy. A home warranty policy is for the specific purpose addressing (and offsetting the cost) of maintenance and repair issues. The first year of coverage is often provided by the Seller (per agreement). A Home Warranty Policy, while recommended, is not mandatory.
14. Issue Request for Repair
If the home inspection turns up health and safety issues, issue a request for repair by asking the seller to address those issues, or to give a credit amount at closing, to remediate them.
Realize no home is perfect, and the inspector will find faults.
The Request for Repair is a California state-required form, but it is not a mandate (either for the Buyer, or the Seller). Buyers may request all, some, or no repairs; Sellers may likewise agree to some, all or none. Be reasonable.
Remember: in California, all real property is sold “as-is”. Buyer requests and Seller concessions are optional, pending agreement by all parties involved.
15. Remove Contingencies
By default, California C.A.R. contracts give you 17 days to remove your contingencies against the purchase. There are 21 days by default to removal all final (including appraisal and loan) contingencies, where financing is involved. (These periods can be shortened, or extended, again by mutual agreement.
Make sure your loan is firm and the Appraisal is acceptable before removing your loan contingency.
If you do not remove contingencies, the seller can issue a request to perform and then cancel the contract, on top of demanding your deposit.
16. Do Final Walk-Through
While it is optional, and at the Buyer discretion to waive, it is not recommended to pass up a final walk-through. This is to occur within 5 days of closing.
The final walk-through is NOT a condition of sale. You are there to inspect the property to make sure it's in the same condition as when you agreed to buy it. Period.
If you do find a serious issue, address it now before you close.
17. Sign Final Loan / Escrow Documents
In southern California, you will sign escrow documents shortly after opening escrow.
In northern California, you will sign escrow documents along with your loan documents near closing.
Bring a valid picture ID.
18. Close the deal
After the home has been inspected and the sellers have met the contingencies, you’re almost at the end of your journey. Before closing the contract, get a paid homeowner’s insurance policy as it is required to complete the settlement. A homeowner’s insurance policy will need to be in effect by the close of Escrow.
Once that’s done, it’s time for more paperwork. To close on your new home, final loan documents and closing papers will be signed. Your down payment along with closing costs will also be settled by Escrow, and you will receive a Revised Buyer’s Closing (Settlement) Statement.
19. Deposit Funds
Wire (or bring a certified check) the remainder of your purchase funds, payable to escrow.
Expect escrow to pad the amount, so you will receive a refund after closing (along with the final Buyer’s Closing Statement).
Consider asking your bank to wire the funds to Escrow, saving you the hassle of waiting in line at the bank.
20. Close Escrow
Your Property Deed, Seller's Reconveyance and Deed of Trust will record in the public records (in Riverside County, California, with the County Assessor's Office), as public information for the tax rolls.
Title will notify you and your agent when it records.
After confirmation of recording, unless your contract specifies otherwise, the property is yours. Change the locks.