A preview for a future entry: I want to rant about how people always ask questions like, "How's the job hunt?" "How is the house search going?" as innocent ways to make conversation when the answer is clearly, "It's going fucking terrible unless I'm bringing it up to celebrate with you!" Anyways, that's a rant for another time and a much more negative entry than the mood I'd like to set for this one. Back to good vibes and big smiles... Woot! I'm a condo owner!
I've heard that buying a place is one of those most stressful things you'll go through in your life. I have to agree. I always try and take things in stride and minimize stress... but when you want something bad enough you can't help but start to set expectations of how things are supposed to go. I had plenty of twists and turns along the way and this entry will go into the process I went into in a generic sense (think a HowTo) sprinkled with specific-to-my-experience lessons learned. Hopefully this will be useful for friends who are looking to buy and don't know what to expect. Without further ado, the process of buying a condo in San Diego:
Step 1) Figure out what you want and what you can afford.
Use a mortgage calculator to figure out how much house can you afford. There's a rule-of-thumb that it should be 3x your yearly salary. This has wiggle room depending on your other monthly expenses and existing debt.
Now that you have a reasonable idea of what you can afford comes the fun part. Checking out places and figuring out the stuff you like! "What area do I like? How much do granite counter-tops, updated appliances, carpeting/flooring, crown molding, etc. matter to me?" Additional questions for those buying condos, "How much do I have to pay for Home Owners Association? What does the HOA cover? What amenities does it cover? Is there a litigation on the complex? How much do they have in the reserves? Is it an apartment conversion?" Do your research. Figure out what's "good" and what's typical for condos in the San Diego area. Apartment conversions may not abide by the same codes as buildings intended for condos. Are the walls thinner? What about a past litigation? Are the issues fixed? Is there proof that it's fixed so my lender can give me a loan?
After a first few visits I started looking at listings online (using Redfin and SDLookup). Once I knew the stuff that mattered to me (location/garage) it narrowed down my choices a lot. This is a good opportunity to pause and tell you a bit more about Realtors and what they do because I didn't really understand it completely. Realtors, simply put, are your liaisons to the seller. Your Realtor is generally hired by you, works for you, and the payment they receive is rolled into something called Closing Costs which I'll talk about later. Realtors also have access to all the listings available (MLS) and have neat tools that will allow you to search based on location, price, date built, days on market, etc.
Step 2a) Put in an offer. Negotiate price. Seller accepts the offer. Open Escrow.
Your Realtor does all this negotiation for you. This process is exactly how you would imagine it. I put in an offer 20K under asking price. Seller comes back with 10K under asking price. I come back with 15K plus cover closing costs. Seller agrees.
Time to open up Escrow. Escrow basically involves these steps: Putting down some Earnest Money. Proof of funds. Get an inspection. Response to the inspection. Termite inspection (condos might have this built into the HOA). Get Home Owners Insurance. Get your loan commitment. Remove all contingencies. Do a final walk through. Close Escrow. That's the high level of what Escrow entails, but the actual step by step will be below.
Step 2b) Get a loan.
You don't have to wait until your offer is accepted before you get a loan. If anything, going through a pre-approval process will get all your documentation together. Do you have all your W2's from 3 years back? How about signed letters from people if you've been staying with them rent-free? What about work history, pay-stubs, credit reports, etc?
For the actual loan itself... figure out what your options are: Are you a first time home buyer with not that much to put for a down payment? Maybe an FHA loan is good for you. Are you a veteran? Look into VA loans. Can you put 20% down to avoid paying PMI (mortgage insurance)? Can you afford to pay off your loan in 15 years as opposed to 30?
Don't look with just 1 lender - Shop around. Be diligent. Don't worry about multiple lenders running your credit, if it's all within a similar time period it won't negatively effect your credit. Do. Your. Homework. I can't stress enough how important it is to shop around for a loan. People spend tons of time at the store shopping so they can save $30 on a pair of sunglasses or $2 on a box of cereal. When you're shopping for a loan, the savings can be tens of thousands of dollars. I don't want to get too heavy into the math but over the course of 30 years .125 of a percent can mean a lot of money. Interest is powerful, don't let lenders try and tell you "It's a difference of $30 a month, don't worry about it." "Well Mr Lender, if I'm looking at the life of my loan which is 360 months that's $10,800 you're asking me to not worry about."
Additionally, doing your homework and getting pre-approved can do a couple things for you:
1) It will make your offer more appealing to the seller. If I'm a seller and I have two equivalent offers from buyers but Person A is pre-approved and can close within 30 days I'll be more inclined to go with them than Person B.
2) It can save you from disappointment down the line if you put in an offer, get it accepted, and it turns out you don't qualify for the loan.
While you hire an inspector your loan company is hiring an appraiser. These two people are doing more or less the same thing, however the distinction is that the inspector works for you (and is hired by you). Because this is one of the largest purchases you'll ever make, you want to know if what you're buying is worth the price tag. This person is literally hired to find problems in your house, so don't be shocked when they do.
Between the appraiser and the inspector you will now have a list of things that need to be negotiated with the seller. You can negotiate for the seller to fix these issues themselves or have the seller give you a credit towards fixing them. My preference is to get a credit as there is a conflict of interest if the seller fixes the issue (they're going to do it as cheaply as possible). This negotiation is handled again by your Realtor and as with everything negotiation related (asking price, seller credits) your leverage is based solely on whether you're willing to walk away and if it's a buyers or sellers market.
Step 4) Complete Escrow.
For me, Escrow is the most stressful time. At any point so many things can go wrong. Maybe the seller ends up not getting their job transfer and backs out of the deal. Maybe the buyer goes through illness or doesn't complete all the paperwork. Maybe the title or escrow company fails to notify agents in a timely matter about liens or problems with the property. Maybe the appraiser is not local and misunderstands the market and the loan is not approved. Any contingencies found in Step 3 need to be removed before you can complete.
Lastly comes the final signing where you should take your time and really figure out what you're buying. Call the title company and HOA as many times as you need to answer your questions. All of your costs should be handled by escrow and rolled into Closing Costs.
Step 5) Yay you're done!
Do the final walk through. Get your keys. Let it finally sink in. It didn't really hit me until I had the keys in my hand and a new garage door opener. A whole new adventure awaits me as a home owner but I can say the "buying" part is finally complete.