• Amanda René Marchesello

Real Estate 101: what you should already know about buying a home.

Updated: Mar 30

#dumbquestions #realestae101 #howtobuyahome


It recently came to my attention that most people know nothing about buying a home.

Unless you’ve gone through the process, it’s just this big scary thing that happens and sucks all your money. And most people have no idea how much money which is the scariest part of all. I’ve often said step 1 is meeting with a lender ( I can recommend 3 I trust ) and consider it like stepping on a scale. It’ll most likely be awful but you can’t change what you don’t acknowledge ( Dr. Phil quote ) and you can’t get to where you’re going if you don’t know where you are.


BUT If you’re anything like me, you’re a learn as you go kind of person. Necessity is the mother of invention and pain makes people change. I just don’t have the time or patience to sit around learning about things that aren’t relevant to my life at this exact time. But I’m telling you this is different. This is financial planning. This is the biggest investment of your entire life. This is the way to get somewhere in life. This is worth learning now because it’s worth starting now. If you have a roof over your head right now, I’m talking to you. That costs something right now, this minute. Whether that cost is $100-$10,000, make it your life’s goal to make that amount of money work as hard as possible.

I’m talking to you college student! You can work on your credit.


I’m talking to you young married couple! You can create a savings goal.


I’m talking to you new moms! You need to think about which school district your child needs to get into and what it’s going to take to buy a house in that region.


No matter who you are, you need to know where you’re at now so you can get to where you want to be. THIS IS A NOW THING.


--> Steps off soap box <--


My sister is hands down the smart one in our family. She has a Master’s from NYU. She reads for fun. She’s the definition of ‘book smart’. She recently asked me what escrow is. Eye opening experience for me to say the least. This smart, financially capable person didn’t know the most basic thing about buying a home. Millennial problems? Maybe, maybe not. But it is a problem.


So here I am to teach. Because if you can’t explain something in simple terms, you don’t understand it well enough. I like to think I do, so here it is, what you should already know about buying a home. Feel free to pretend you’ve known this for years, we can keep this just between us.


The most important thing to know is how much house you can afford. That’s why you meet with a lender first. The lender is who gives you the money you need to buy a house. They are the end all be all in the money department. What you think you can afford may not be what the bank thinks you can afford. They have debt to income ratio rules and when you give them your tax returns, pay stubs or whatever works, they’ll tell you your max loan amount aka the most money they’ll lend to you. This will be written in a pre-qualification letter and you can’t make an offer on a home without it. That’s why this is step 1.

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The second step is getting a Realtor who can tell you what that amount will get you in different areas. I can refer someone in your area if you’re out of CA, as I work with Realtors all over the USA. The Realtor is the expert in the market aka which homes are for sale and what they cost. They help you search and schedule showings for you to get into homes you like. They are the expert on which areas have which reputations, which ones are up in price, which are down-just REAL ESTATE currently.

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With your Realtor and your lender, if you want to buy something different than what you’re currently able to, or seeing on the market-you work with both of them to come up with a plan. This plan can take anywhere from 1 week to 10 years. Tell them what you want and they’ll tell you how to get there.

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When you see a home you like, and your lender says you can afford, you go to see it which is called a viewing or showing. If you hate it, tell your Realtor all the reasons why so she can weed similar problems out next time. If you love it, proceed to the next paragraph.

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When you find the home you love, your Realtor will work with you to write up an offer to purchase that home. For this, she’ll need 3 things. The actual offer which says how much you’re willing to pay for it and how long you’ll need to complete the purchase ( usually 30 days ). Your pre-qualification letter from your lender saying that he believes you are qualified to purchase a home for up to the given amount. And lastly, the proof of funds. Proof of funds is showing the seller that you can afford to put down the amount required by the lender and the fees it’ll take to close. For example, if you’re lender approved you to put 5% down, you’ll need to show you have at least 5% of the price you offered to pay readily in a bank account. If that money down is coming from a gift, you’ll need the person giving you the gift money’s bank account showing that money. Get it? Show you’ve got what the pre-qual letter says it’ll take.

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Next the seller will either accept your offer as is-GREAT NEWS, the house is yours to lose!

OR ---------------------------------

The seller will counter offer you. This means they don’t like something in you offer and so they counter it. Maybe you offered $500,000 and they can’t let it go for less than $510,000 so they write you an offer saying you can have it for that price.

OR ---------------------------------

They reject your offer-BUMMER. This could be because they accepted another offer they liked better or maybe your offer was just too low. Maybe they needed to close in 14 days so only could sell to someone offering cash. Either way, it’s not the one for you. Do not pass go, do not collect this home.

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If you get your offer accepted, you go into ESCROW. Escrow is a safe third-party place where you’ll deposit a little of your money at a time. The escrow company is not the seller, nor the buyer, making is a neutral place that holds your funds until the sale is closed. When the sale is closed, escrow transfers your money to the seller and the deed of the home to you. It’s like a purgatory for real estate. It’s a safe holding place. They are the referee, making sure each side does their part before anyone gets anything. You and the seller usually spit their fee 50/50 but that’s negotiable when you write the offer.

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Escrow is usually a 30-day period but that’s determined on your offer and negotiated at that time. During your escrow period, there are a million things to do. All of these things are intended to check out the home in order to certify it up to state standards. The bank doesn’t want to loan you money to buy a dump. There are standards that must be met so your Realtor schedules all sorts of appointments to help you learn all about what you’re buying. If something isn’t to your liking, you may ask the seller to fix it, credit you the money to fix it later, or decide not to buy it.

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Assuming all things check out and/or are settled up, your loan will fund and you’ll sign the final paperwork where you agree to pay your mortgage amount or they’ll take the house back. Then you close escrow, and the transfer is made. You get the house and the seller gets your money ( which a combination of your money down and the rest comes from the bank you borrowed from ).

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Transaction closed. You’re a homeowner! Look at you!


Now it doesn’t always go smoothly, actually it never goes smoothly. Every home sale has some sort of issue that needs to be resolved. But rest assured, there are people and rules in place to deal with each and everything that can go wrong. You don’t need to know all of those potential problems now because you won’t have to deal with most of them. Just know something will come up, it’ll be super alarming and stressful but it will get fixed, or you walk away.

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Ever heard the phrase, “the only stupid questions are the ones that go unasked”? I don’t agree. So, here’s a cheat sheet to random dumb questions that other people will judge you for asking.


Question: How much does it cost to buy a home?

Answer: It costs the amount of money down, which is anywhere from 3%, 5-10% which is the nor., or 20% which is great because you avoid have to pay extra fees called PMI. Then you pay the closing costs which are based on your purchase price and all determined in the purchase contract where you hash out who is paying for what. There are county transfer fees, escrow fees, even notary fees, just a heck of a lot of fees. It’s going to be anywhere from $8,000-$25,000 in my experience. Oh and your first born’s child blood. I joke I joke.


Question: Who pays the realtor? Do I pay them?

Answer: The seller pays the realtor fees for both sides. If you are a buyer, you do not pay a realtor unless you have a written agreement with them stating otherwise.


Question: How long does it take to buy a home?

Answer: How fast can you move? Most people take 6 months. Some less, some more, it just all depends on how qualified you are and what’s on the market. Once you have the home and an accepted offer, it’s usually 30 days but you can ask for a bit longer if you’d like or a bit shorter if your lender can move faster. This time line is determined mostly by how fast the bank can check you out and verify you’re good for it.


Question: Can I walk away once in escrow?

Answer: Probably. The seller cannot back out really, they can just not agree to something you ask, therefore forcing you to walk away. But the buyer, it’s ALL about the buyer’s rights. The buyer can back out pretty much anytime before the loan is approved. If the loan is approved, which is usually 21 days, at that point it’s pretty hard.


Question: When is a good time to buy?

Answer: Anytime you can own something for the same price as you’re paying to put a roof over your head. If you’re living for free at your Aunt’s million-dollar house, it sounds like you have a good thing going. If you’re paying $1,200 in rent and know you can buy for less than that, it’s time to move my friend. Anytime you’re paying someone else’s mortgage, time to buy. Anytime you want to invest your money, time to buy. Anytime you want to get to the next step in life, it’s time to buy. Summer, winter, fall or spring, when you can afford any property that is suitable to live in and it’s on the market, buy it.


Question: What’s the best advice you can give a buyer?

Answer: Be psychotic. Read my blog on how to be a complete psycho. https://www.luxulane.com/blog/world-s-most-annoying-buyer-2018


Question: What’s the worst thing a buyer can do?

Answer: Not buy lol. No but really, hmmm. Rush through it and not take your time checking out the home and getting it properly insured. See post above.


Question: How do you know if a home will appreciate? What if you buy at the top of the market? I don’t want to lose money.

Answer: No one ever lost money on real estate unless they had to sell at a certain time. If you hold on to a home long enough, it’ll go back up. That’s statics. But it you buy at the top and then we have a crash and you really couldn’t afford it to begin with, then yeah, you’d have to sell at the worst time. Solution? Make sure you can rent it out for the total monthly mortgage payment. Then even if you can’t afford to live there, you can rent it to someone and keep it till it regains its value. Buy now, sell high-I always say!



I hope this has simplified the home buying process for you. Remember that you don’t have to know it all, that’s what we are here for. But you are responsible to be the expert on your own finances and your own goals. Your likes and dislikes and your buying criteria. Only you can know that and you need to be good at explaining it to us.




Until next class is in session, may all of your questions sound super smart-just like you!

Xo

Amanda



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