In this episode, I begin a series about the 10 Steps To Buying A Home In Orange County. This first part will cover steps 1, 2 and 3.Now, these steps are actually applicable almost everywhere, but I speak to our local market here in Orange County. Part 2 of this series will be release next week, so check back for more.

Please see the show notes below for full transcript.

Ron Evans
Broker Associate
Amy Sims Real Estate Team
realestate101@ronevansrealty.com
949.929.2270
www.ronevansrealty.com

[00:00:00] : mm Hey everybody, this is Ron Evans and you are on my podcast or my Youtube channel real estate one on one with Ron Evans and today I am going to start a series about the home buying process, how to buy a house. All the steps that you need to go through to be successful. And I'm gonna list off what I've broken down into 10 steps And within those 10 steps there might be some sub steps or there might be a couple of things kind of grouped together. But 10 basic steps in areas. I'm gonna list them all off for you. And then I'm going to do this in a series and I'm going to take 123 or so at a time because there's some things that kind of go together now um Right now and this is December 2021 that I'm recording this. I don't care if you're listening to this five years from now, five months from now, five minutes from now, the process is most likely not going to change. So the underlying process, the steps that I go through, that's never really going to change. Some other things that I might touch on. Um as I'm going through this might be based on how current market conditions are, that is what can change going forward obviously. But for right now, just know that if you land on this video, three years from now and the market is completely upside down and different from today, these steps that I'm going to go over will still be applicable. Um, so don't lose sight of that. Don't lose faith in that you are going to be just fine. I'm gonna give you my contact information here up front just in case I lose you throughout this thing or you want to come back to it again. My name is Ron Evans. My texting phone number is 9499-9-270. My email address that I used for the podcast on Youtube is real estate one oh one at Ron Evans realty dot com. Now you're going to see all this in the show notes or in the description on Youtube but I always like to let everyone know up front if you haven't tuned in before. A little background about me. I have been a realtor now for This is my eighth year 2014 when I started um, I just recently obtained my broker's license here in California. I live and work primarily here in Orange county California. However, I have sold homes throughout all of southern California. I have sales in inland empire, riverside san Diego La. I really don't discriminate if a client needs help and I have an ability to help them. I will do so I don't care where you're at. My license allows me to work throughout California. And so I feel like I should take advantage of that when I can. All right, let's jump in another little side note as I work About 5050 with buyers and sellers. Now there are some agents, they get into the business and they only want to work with one or the other. Um I don't discriminate If you need to buy a home, buy a property by a commercial property, whatever I'm your guy. If you need to sell a home, sell a property, sell a commercial property, I am a guy, I have experience across the board and all of that, Let's dive in. So here are the 10 steps and why am I going over this foot? Why am I doing that? Well in today's market, it is so competitive right now that you cannot afford as a buyer to be unprepared. You need to be able to go into the entire home buying process with eyes wide open, No surprises, no secrets. Full transparency. That's how I work. That's how I hope the agent that you're working with, if it's not me chooses to work. But it is so competitive right now for buyers, multiple offers happen to overbid all kinds of crazy things. Getting really creative with financing and down payments and how you're going to do stuff that if you're off even a little bit in any of these steps, you're going to risk losing the home that you want to buy simple as that because There are 10 other buyers just like you trying to buy the same house That's in today's market December 2021 go back and listen to some of my previous videos. Follow me from my market updates. You'll see that there's no there's no foreseeable end in sight with how the market is going. So this is this is what I'm going to talk about is gonna be very applicable for for quite some time. So let's get it. Step one, check and know your credit score. Step two, determine how much you can afford. Step three, choose a lender and get pre approved for a mortgage. Step five, find a real estate agent. Step six. Start your home search process. I'm sorry that was stepped five. Start the home search process. Step six make an offer. Step seven, get a home inspection and home appraisal. Step eight, purchase homeowners insurance, Step nine, do a final walk through step 10. Close on your new home now you're probably thinking to yourself over and I bought a house before or I've heard other people talking about things and there's you might be leaving some stuff out in this main master list. Yes, there might be some stuff left out. But if you remember what I said at the very beginning, these are kind of the key things. There are going to be some subsets that you hear within these that will bring the whole package together for you. I promise. Stick with me now for this first video This is gonna be part one. I am going to cover the first three. I'm going to cover checking your credit score, determining how much you can afford, choosing a lender. Getting preapproved for a mortgage. Okay. That's the that's the stuff that if you can't cover those three things, you absolutely do not go forward. Simple as that, checking your credit score. Now before you begin your home buying process, you want to make sure you're actually in a position to take on all that buying a house entails. That's why the first step is to do your research, check your credit score and review your finances. Notice how this is all under, check your credit score. But it's actually three steps in one doing your research, check your credit score, review finances, This is all under step one. Research different areas. Before you can buy a house, you need to know where you want to buy a house. The oldest cliche or. Adage about real estate is location, location, location. You can't, you can't swap a location. No two locations are the same. You can find similar houses from place to place. But the location itself, you can't find duplicates, make a list of the areas you're considering moving to and research them. Maybe you're coming from out of state to Orange County. Maybe you already live in one part of Orange County but a job is taking you to another part of Orange county or kids school retirement, whatever. Maybe you're in a specific city. I'm here in Rancho santa margarita California. But maybe you live in one part of our sm and you want to move to another part of our sm for whatever reason. Change of schools closer to work. Okay. Make a list of the areas And in that if you know if you're already local and you want to stay local, the list of areas should be the list of neighborhoods and start researching them. It's important, especially in today's day and age and especially if you have a family to look into crime rates, public school ratings in the area, not only public schools, but a lot of private schools are also rated along with those public schools. Great resource for that. Great schools dot org. Go to www dot great schools dot org. Put in the, you can put in an address not just a zip code, not just a city, but a specific address. To find out what elementary, intermediate and high schools are zoned to your specific address. And if there are any swap schools. Because here in Orange County it's very popular to maybe swap from school to school as long as it's in the same district, but maybe one school has a better curriculum or a different curriculum that suits your child's focus better. Okay. Crime rates, public schools but also don't forget about the regular day to day things of life. Where's the closest grocery store. How long will your commute to work be? Keep all of that in mind as you consider different cities, different neighborhoods, different streets and neighborhoods keep all that in mind. Okay. Research different areas credit score to buy a house. Now here's the here's the nuts and bolts. Getting finance to buy a house Isn't always easy. This isn't 2005 where you just needed a pulse in an income or at least a stated income to buy one home multiple homes. What have you? Okay mortgage lenders today use your credit score first and your financial history to qualify you for a loan. So it's very important for you to be one step ahead of them that when you are sitting down and talking to your lender, you already have an idea going into that conversation to obtain a conventional loan. Now there's different types of financing out their conventional is the most Others chosen. It's the one where you might hear, I gotta have 20% to put it for a down payment. Not entirely true for conventional these days but that's typical. You need a median fico score of 620 or higher. Now you have three credit bureaus that they pull. Okay Experian Equifax Trans Union They take the median score, it's got to be at least a 6:20 or higher. Okay. Different lenders might have different programs in case you're not exactly out of 6:20 or you don't necessarily have 20% down. You have things also like F. H. A. Alone. Okay that's a federally backed loan? Lower down payment instead of 20% down Maybe 1510 or five on a conventional loan. An F. H. A. Loans 3.5% down minimum. Okay But also the credit score requirement goes from a 6 20 on a conventional to 5 80 on F. H. A. Then there's also V. A. Loans through veteran's benefits. Quite often the most overlooked benefit that those who have served in our military don't realize that they have or they've heard about it but they haven't been educated on it and don't know how to use it. And quite frankly I've got a video in my channel here. Um that talks about V. A. Loans quite frankly a lot of agents and sellers and buyers are afraid of it because they don't understand it and it's actually an awesome benefit. Here's one of the reasons but it's an awesome benefit. The via doesn't require a specific credit score. The lender. The V. A lender you go through has their own policies on credit scores. Okay. I haven't personally heard of one going below 580 but I'm not that's not to say that under certain circumstances or special circumstances they wouldn't like an F. H. A. Some bigger banks or nationally known recognized lenders for V. A. Like rocket mortgage. You've heard of rocket mortgage by now. I'm sure you've seen their commercials they require a 6 20 for a V. A. But you can depending on who you talk to you. You can go lower and then there's some other benefits with via as well your credit and financial history that's gonna dictate whether you can obtain alone and be what your interest rate is going to be. The higher your credit score you can typically secure a better and just rate and better loan terms. This is why it's making, it's important for you to understand what you're getting into ahead of time. Okay. Yes you can roll into an F. H. A. Loan With a 580 score and only 3.5% down. That's an awesome thing. It also has a higher debt to income ratio. Your lender can explain that to you more than on a conventional but you need to understand all the ramifications of that. It can get you into the home of your dreams for sure. But you might pay a little bit of a premium for them being a bit of more lax on the qualifications. So you need to know all this. Someone who has a credit score of (727) 67 80 Is going to get a preferred rate versus someone who has even a 626-40 or that 580 you know they're not going to pay a penalty for those things. All right let's move on. Next step determine how much you can afford. Now even before you speak to a lender hopefully you understand the budget and if you don't talk to a lender that you really, really trust, maybe you worked with before and have them help you break down a budget because a lot of them can and we'll do it for you. Especially if it's like your neighborhood lender, they're local to you. You can go in and meet with them Face to face. They're not just an 800 number that you're calling. Okay, so before you speak to your your lender, it's useful to know how to calculate how much house you can afford on your own, your lender. We'll tell you how much money you qualify for but you want to make sure you won't be overextending yourself some lenders now, there's always a difference between what you qualify for on paper and what you qualify for in your heart. In your conscience it's always going to be different. The lender is just looking at the numbers. It's just the math. He's gonna say, hey joe, good news. We can get you into an $800,000 purchase price of a home. You don't need to do 20% down, but we can do it at 10% down on a conventional loan With your mortgage, insurance and everything tackled everything. We've got an estimated here a payment of about $53,000 a month. Now, joe sits back and he's like, wow, I've been renting For about $4,000 a month. But my landlord, I was going to raise me to 4500 a month and that's why I'm looking at buying because I don't think in my heart, and in my conscience I can even afford $45,000 a month. But now I've got, does lender telling me I can pay $5,000 a month. That's the difference between what any letter is going to tell you that the math tells you you can afford versus what you have to understand that you can truly afford. Maybe you can afford that 5000. It's going to require a little more sacrifice on your end. May be paying off some other debt. Maybe cutting out some different extracurricular activities that are typically in your budget to get you there. But if those extracurricular activities and that extra debt you have, you can't, you can't afford to pay off well then you need to try to keep your, your budget down to what you can comfortably without eating too much anxiety know that you can accommodate. Now, a typical rule of thumb from experts as they recommend no more than 30% of your gross monthly income on housing costs. Let's be realistic, especially in today's market, especially in where I live in California, southern California Orange County, 30% of your gross for most people okay, is not going to give them much affordability of a home or it's not going to allow them to afford the home that they want to buy Most often you're going to be, they're going to be closer to the 40 45% range. Okay? Um Not just how it is and that could be with a single or dual income. That's just the reality. Okay. Of where we're at. There's other parts of the country that might be a little bit different than that. There's also other parts of the country that might be worse. Or you have a bigger spread with what they're they're gross. Is that they have to use? Okay. But now let's just talk really quickly about what all these costs are that make up this 30% that the experts talk about. Okay first is the principal. This is the actual money you borrowed to purchase your home. This is what I'm about to talk to you about now these sections, this is what your house payment is broken down into principal interest. This is the fee the lender charges you to borrow the funds, your interest rate. Right now you can get a house about 3.1%. A couple weeks, a couple months ago it was below three. Okay, Couple years ago it was over four. This varies from time to time. All of this interest rate is something that is the main thing that you're lender can can put into an affordability calculator for you to kind of show you if you like acting now versus waiting on the cost of your home and you cost your payment. Okay. So we cover principle. We covered interest. The third part of your of your your monthly payment is your taxes, property taxes, you are required to pay property taxes to the government based on the value and location of your home. Your home is given what's called an assessment tax man collects on that twice a year. However it's broken into your payment. Um And it's kept in what's called an impound account. Typically it's a little bit about how the thing works. All this stuff gets broken into an impound account and then it's just paid monthly altogether. Principal interest taxes. 4th thing is insurance, homeowners insurance, this protects your home against any damages. If you have alone on your property, they are going to require your lender or your bank is going to require you to have homeowner's insurance protects against the fire, protects against accidents, damn leak damage. Lots of different things for homeowners insurance protects your investment. Okay. The last thing is variable because not all homes fall into an H. O. A. But if it does, you're going to have principle interest taxes, Insurance and number five H. O. A. Dues. Your association dues. These are fees you must pay if you're home belongs to homeowners Association. If your home is not part of a homeowners association, you won't have to pay this feat. This when it comes to researching neighborhoods researching cities. As one thing you need to think about when you're thinking about crime rates? schools, grocery stores et cetera is the home I'm looking to buy. Does it have an H. O. A. And if so how much is that? H. O. A. Because if you're a choco fuh away is 50 60 bucks 70 bucks. Probably not a big deal. If you're H. O. A. is $300. $400. $500. That impacts a lot of people's affordability. an old rule of thumb we used to go by when the interest rates were in the 4% area was For every $10,000 That you finance or pay or put as a down payment that equals about $50-$55 of a house payment. So if you took that rule of thumb and you had a $400 a month house payments. I'm sorry $400 a month h. o. a. This Knowing that approximately 50 to $55 Is $10,000 And purchasing power $80,000 potentially 70 to $80,000 of a home. If you have that higher than nature way very important to pay attention to that. That's and that's the one thing I'll be honest with you. H. O. A. Dues are the number one thing that everyone forgets about until they go to make an offer on a house and the lender tells him here's what you're payments going to look like. And you're like Oof wasn't quite expecting that. It's the H. O. A. Dues. Some places if you're buying a condom, you might have to H. O. A. Dues. Not just one. We can talk about the viability of Ecowas in another discussion. Probably make a whole video on that alone. That's neither here nor there with what I'm talking about tonight. So you have principal interest taxes, insurance association use that's what makes up your house payment to calculate how much home you can't afford. Consider using some sort of a mortgage calculator. Okay. I can send you one, I can send you a link to when I have one on my website. As a matter of fact Ron Evans realty dot com. Let's consider using some sort of a calculator, mortgage calculator. It will break all this stuff down into. You can kind of look online and kind of see the price of a house that you might like plug that in, plug in. How much you were thinking about putting a down payment and it will do the rest for you. Now, another part of determining how much you can afford is your down payment and closing costs. You need to understand this, understanding what you are responsible to pay and when is crucial to the home buying process. So this is when you start speaking to your lender to your real estate agent about which costs you have to pay up front. Okay, The # one thing you're going to have the down payment. Like I told you before, You used to always hear 20 was the recommended or was sometimes even the minimum down payment. But that's a big number, especially in a market like mine. So it's no longer the standard. You can get A minimum down payment of about 3% on a conventional loan. Now it's going to have a pretty high PMI private mortgage insurance attached to it. You're Leonard can go into all that. So I've personally never had a buyer Try to do a 3% down conventional loan. They are available to some lenders. I have had buyers do F. H. A. At 3.5% down but there were other factors than just down payment that went into that some of them have really good credit but they didn't have a huge down payment but they still want to have a j it's just easier. It was easier for them to qualify for some of the lower down payment conventional loans are still harder to qualify for because of the credit standards, the income standards and the debt to income ratio that we talked about before. So not all low down payment loans are the same. So keep in mind that the larger the down payment, the more equity you'll have when you close and the lower your monthly mortgage payment will be. So if you have that option, take advantage of that option to put more money down but weigh all your options and choose the right down payment for you. Use the affordability calculators, the mortgage calculators and talk to your lender, Talk to your agent. A larger down payment may be great. But not if it means emptying your savings because you still you don't want to deplete all your reserves just to put more of the down payment. It may not make that unless it makes just such a huge difference in your monthly payment. Lot of times it doesn't. The other large expense you need an hour. That is the closing costs. These are the fees that are associated with processing and securing your loan that the lender charges. Some of them are in pounds or prepaid. Um The exact amount you need will vary depending on the type alone the tax requirements. So basically they pro rate the taxes But generally it could be anywhere from 3-6% of the purchase price. Okay this includes like funding fees, the origination be excuse me, taxes, impounded insurance impounded. Okay you pre pay a lot of that stuff up front when you close because the bank requires it to stay in this impound account. So basically how you know keeps the process going smooth and make sure that everyone has skin in the game. So 3-6%. So if you're buying an $800,000 home your closing costs might be 24,030,000. Keep that in mind that's separate from your down payment, separate from your down payment. It does not go towards the equity of your home. Now sometimes lenders uh can pay some of those closing costs um or give you a credit toward them. Certain things you can never get a credit for. And those would be the impound things like taxes and insurance and stuff like that. Those are things that are required to be paid for by the buyer. You can't get a credit for from your agent from your lender, nothing like that. But sometimes on some of the other ones you can, so it's always important to ask if your work, if you happen to be working with a letter that will pay for some of your closing costs. All our all our part also depending on what the real estate market is doing, you might be able to get some of your closing costs paid for by the seller in today's market. Not going to happen. Not going to happen at all unless you got creative with your offer. We can talk about that off offline. But in today's market you're not going to get a seller to pay your closing costs. Okay? Um, when it becomes a buyer's market, so in a few years, when the market kind of maybe flips a little bit, that's when you can you negotiate closing costs into alone or into a purchase but you're not going to do it from the seller today. Keep it in the back of your mind depending on when it is you are coming across this video. Okay so we've covered step one checking your credit score and all that entailed. We've just now finished step to determining how much you can't afford. Now let's talk about step three choosing a lender and getting pre approved Scuse me for your mortgage many. So like I just said finding a mortgage lender and getting pre approved for a loan is your next step many first time home buyers don't realize they can and should shop around for lenders before choosing one, do your research and make an informed decision. Now I know when I listed the big list they're choosing a real estate agent came next. But if you're already working with a real estate agent which happens more often than not get advice from them too, you are never required to use a lender that someone else tells you you have to use unless the seller has it like in their listing agreement. But just because just because your agent tells you or the listing agent of the home, you put an offer in on it says oh hey we need you to talk to our lender. You can talk to him all you want but you don't have to use it. You can still use whoever you want to go through. So personally when I meet a new client, I asked them if they're already pre approved 99% of the time they're not. So they haven't gone through these steps in this order. My next question is what do you already have a lender that you're working with or that have you ever bought a home before? And you know of a lender or a bank that you want to work with? 75% of the time? The answer is still no. So then I typically get to know the person through a conversation maybe interacting with them once or twice, get a feel for their personality and then I go through my list of lenders that I like to work with. I usually have four or five um maybe two that are primary and the rest that I know like what they can do for me. Okay if I have like special situations but then I just recommend and say hey look I think you might works you might fit well with X or Z. And I will give them the contact information for the lenders that I'm telling them they should talk to and I recommend they talked to both. Not just talk to want to pick them but talk to both. I also contact the lenders with the buyer's permission and give their information to both of them as well. And I typically I'm always pretty upfront with my letters letting them know hey look you're one of two or you're one of three that they've asked to talk to. So my lenders know up front. Um So they can talk to all my people and choose one. They can talk to all my people and not choose one and still go find one on their own. I don't care as long as I have the ability to contact whoever they do end up choosing if it's not my someone that I've worked with in the past to vet them on my own so that I know like what I'm getting into with their lender communication is the key. Okay so get different loan estimates. There are often variations in interest rates and closing costs between lenders. Put direct lenders, mortgage brokers, different things. They all have different programs and they all have different rates, they have different requirements. So it's essential you do your homework with them. When you compare lenders, ask each one to provide you with a loan estimate. It's easy for them to do. This will spell out the loan terms, the projected payments based on whatever home uh purchase price you give them and closing costs for your potential mortgage. This form is provided in universal format. So it makes it simple for you to compare from lender to lender. They all should have the exact same information on them. It's a requirement be sure to consider factors beyond the bottom line. However, this is why I when I recommend the lender to somebody, I've gotten to know my client as best I can in a short amount of time. So I kind of have an idea of, okay this person's customer service style and skill is going to suit this client better. Um You know you have to figure out how to match personalities together and know what's important to your client. Sometimes I just asked my client, are you just like are you a bottom line shopper? Are you a numbers person or do you care about the customer service? You're going to get into communication you're gonna get but sometimes they don't go hand in hand. So be sure to consider factors beyond the bottom line. A lender might be offering a great deal but if it comes with lower quality customer service it may or may not be worth it. This is what I'm just talking about buying a house is a long enough and complicated journey. Just because you get approved for your loan today. Get your pre approval today. Doesn't mean you're getting into escrow tomorrow. We're just getting started. Might be a few months. Okay so it's really important for you to know how that lender works. You need to find a lender that you can trust to make the process as simple inconvenient as possible. Not all lenders are the same at all. Now you're going to get pre approved after you've chosen your lender. It used to be, you would get prequalified. You'd have a 10 minute conversation with a lender over the phone and they would send out a letter going. We qualify for you for this loan. Being qualified being is not a guaranteed that you'll actually be able to obtain alone when you get prequalified lenders only estimate your finances based on the information you provide. They haven't been given your W. Two S or your taxes that they're going to need to know all the other documentation they're going to need to senator underwriter to actually get you an approval. Okay. So prequalified does not guarantee that you can get that loan. It's just a conversation. It's based solely on the information you have basically verbally given. Getting preapproved requires a more thorough investigation of your finances. That includes verification of your income verification of your assets if you have any and credit rating. When you get preapproved for a loan, you are guaranteed you'll be able to obtain the loan, assuming your finances don't change between the time you got pre approved in a time that the home is supposed to close escrow. So it's basically telling you MR buyer all things equal all things remaining the same today. Three months from now. You're still gonna be qualified for this loan. As long as you have lost your job, bought a car. Um, got a divorce. I don't know lots of different things that can impact your credit rating or impact your income. As long as none of those things happening, everything has stayed the same. You're they're telling you you're golden. A preapproval is helpful because it tells you exactly how much the lender is willing to let you borrow and it specifies the costs to obtain the loan being preapproved also tells the seller that you're serious about buying. Which in any market I don't care if it's a buyer's market or seller's market is key. It helps you in a bidding war. Now we can even go, most lenders that I work with can even go one step further than just a pre approval. They actually run you through underwriting. So a pre qualification 10 minute conversation. A typical pre approval you can get like same day maybe 24 hours. But then you can also go through what's called a D. U. Desktop under it And it's online profile. They send you through and they or an underwritten pre approval that might take like 2-3 days depending on how fast you are getting them all the documentation they need to review. But once they have that that's an even more sure thing than just a standard pre approval. When you work with me. We'll go over all those options in detail with my lenders. Just keep that in mind that there are still different types of preapprovals. Not just a standard pre approval. So that's it that's it for this first video. I hope this helps you at least get the the wheels going. We've talked about checking your credit score determining how much you can afford to choosing a lender and getting preapproved for a mortgage next week. I'll drop the second video in this series and we will talk about finding a real estate agent, starting the search process and making an offer that's like the most fun part of this whole thing is getting to there. This first part we talked about tonight, it's tedious, it's boring. Um sometimes it can be exciting when you get the news you want to hear. Maybe news you're better than you wanted to hear. And sometimes it can be heartbreaking when you're maybe you're told you can't afford to buy a house right now but it's still very very important to do it first. Okay, so that's it for tonight again. You can contact me at (949) 9-9-270 Or real estate 101 at Ron Evans Realty.com will be happy to answer all your questions. Set up an appointment with you. If you have anything further or deeper dive you'd like to take and there you go. I hope you enjoyed this. I hope it was informative session. Thank you. See you next time. Hey. Uh huh.