A Little Bit About Who We AreRedfin is a real estate brokerage that hashelped over 20,000 people buy or sell ahome; 97% would refer us to a friend.• Customers, not commissions• Informed decisions• The right home for the right priceNo obligationWe refund a portion of our commission
How Our Team Works AGENT COORDINATOR Responsible for your success Schedules tours Writes your offer Prepares paperwork Handles negotiations Works with escrow COORDINATOR FIELD AGENT Schedules tours Takes you to see homes Prepares paperwork See 50+ homes a week Works with escrowConsidering… Looking… Buying…
Traditional Commissi Agent on Seller’ Agent (3%) $15,000 Buyer’s Agent (3%) $15,000 Commissi Redfin Agents on Seller’s Agent • Commissions are determined by the seller (3%) $15,000 • Redfin refunds 50% of the buyer’s agent commission Redfin (50%to closing costs • Applied of commission) tax-free • Refund is $7,500 • Minimum Redfin fee: $6,000 Redfin BuyerConsidering…of (50% Looking… Buying… commission) $7,500
Summary of presentation• Review types of mortgages/loans• Review common terminology• Review the pre-approval and application process• Review interest rate trends• Tips on comparing lender’s offers• Renovation financing – how to buy a fixer• Word of advice
Main Types of Mortgages / Loans• Government – FHA & VA• Conventional – Freddie Mac & Fannie Mae• High Balance FHA and Conventional• Non – Conforming (aka. Jumbo)• Home Equity Lines (aka. HELOCS)• Construction• Renovation (FHA 203K & Conventional Reno)
Pros & Cons to FHA & VA• FHA – Min 3.5% down, lower credit scores, gift funds, work history, less reserves required. More expensive than conventional per month, 1% Upfront MIP and Monthly MIP ** UFMIP changing!• VA – 0% down, no mortgage insurance, less reserves. VA funding fee.
Terms you should know• PITI = Principle, Interest, Taxes & Insurance• DTI’s = Debt To Income Ratios – front end (PITI) and back end (PITI + debts on your credit report)• Mortgage Insurance Premiums (FHA) – Upfront and Monthly• Private Mortgage Insurance (Conventional)
Terms continued…• ARMs – Adjustable Rate Mortgages• GFE – Good Faith Estimates• APR – Annual Percentage Rate – takes certain fees and includes them in the overall financing estimate for the term of the loan.• Discount points – money spent to buy down the rate• Origination fee – generally covers processing and underwriting, sometimes brokers charge additional fees.• Amortization Schedules – 30, 20, 15, 10
Terms continued…last one• Full doc – review of income documentation such as pay stubs, W2s, tax returns• Stated income – does not include review of income documentation. Very rare in today’s market• Asset Dissipation – No job but use assets to qualify for income
LA & Ventura County loan limits** Conventional loan limits as well as FHA & Conventional High Balance loan limits are available with Renovation Financing. **Standard Conventional limits• 1 unit = $417,000• 2 units = $533,850• 3 units = $645,300• 4 units = $801,950FHA loan limits Conforming High Balance limits• 1 unit = $729,750 1 unit = $625,500• 2 units = $934,200 2 unit = $800,775• 3 units = $1,129,250 3 units = $967,950• 4 units = $1,403,400 4 units = $1,202,925
Getting Pre-Approved A pre-approval letter is a letter from a bank or a lender estimating how much theyll lend you based upon your income, assets and type of loan you are looking to have on your home. • Establishes what you can afford & makes offer process go faster • Good for 90 days, depending on lender • Ask for a few different amounts or customize when making offer • Redfin asks that you get pre-approved before your third tour • Similar, yet different from pre-qualificationConsidering… Looking… Buying…
Information that will be needed• 2010 & 2011 W2s• 30 days worth of pay stubs• 2 years1040s – personal tax returns – self employed, K1s, rental properties, commission employees• Drivers licenses, Social Security Cards• Assets – checking, savings, 401K, IRA, Stock• 2 years business tax returns for self employed
Organize Your Assets • Get ready for the down payment • Cash accounts (liquid funds, such as checking/savings accounts) • 401k, stocks, other investments • Gift funds – begin documentation process • Move funds around prior to applying and make an effort to not move money unless necessary.Considering… Looking… Buying…
Review Your Debt • Pull credit report, check for errors • Establish what you can afford per month • Pay down credit balances to 1/3rd • Don’t run your credit too frequently • Don’t open any new lines of credit or credit cards and try not to buy any big ticket items – cars/RVs/boatsConsidering… Looking… Buying…
Start Shopping for Lenders Compile a list of 3-4 lenders & brokers Great sources include: • Redfins partner lenders • Referrals from friends, family & co-workers • Banks or credit unions you have accounts at • A large, national bank with an advertised rate • Your real estate agent • Online review sites, such as YelpConsidering… Looking… Buying…
What impacts your rate?• Credit scores – higher the better• Loan To Value ratio (LTV) – lower the better• Type of loan (FHA, VA, Conv)• Term of loan (30, 20, 15, ARM)• DTI – Debt To Income ratio (DTI)• Exceptions – these are commonly for LTV or DTI ratios• Lender credits
Renovation loans• A Renovation loan allows a home buyer to purchase a property in its “As Is” condition and finance necessary repairs.• Funds for repairs / upgrades are held in an interest bearing escrow account on the buyers behalf.• Repairs are determined by the buyer, but sometimes the appraiser, especially on FHA• The appraiser values the property in it’s “After Completed” condition.• Work on the property begins after the close of escrow and the Realtors have been paid.
Types of renovation loansFHA Streamline 203k – owner occupied only, 1-4 unitsThis is a limited repair program, allows up to $35,000 in non-structural repairs.FHA Standard 203k – owner occupied only, 1-4 unitsThis allows for structural repairs and repairs exceeding $35,000. A HUD consultant is required for this loanFannie Mae Homestyle – owner occupied, 2nd home, investment properties, 1-4 unitsA conventional Renovation loan allows for all types of repairs including luxury items, pools, spas.
Allowable repairs• Roofs, Gutters, Downspouts• HVAC Systems• Plumbing and Electrical work• Flooring, painting, drywall, tile work• Remodeling such as kitchens and baths• Interior and Exterior Painting/Siding• Windows, doors, insulation, weather stripping, etc.• Appliances• Handicapped Accessibility• Add a pool or spa – Fannie Mae only• Landscaping – Fannie Mae only** FHA 203k does not allow “luxury items” like a pool or spa **
When to use a renovation loan• Fixer / “cash only” listing – not in condition that a lender will finance• Homes that need upgrading and you don’t have the extra cash besides your down payment – especially when large $ amounts• Major remodels / adding square footage• Tear downs• You can even move a house!
Conv Reno out of pocket• $350k purchase price with $50k in estimate repairs/upgrades to the home Conventional with 20% down = $70k down of $350k+ $50k out of pocket money AFTER closing = $120k out of pocket for down payment plus the work Conventional Reno financing with 20% down of total =$350k + $50k = $400k X 20% down = $80k down! $40k difference out of pocket than the traditional approach of 20% down then spending cash for the work
203K out of pocket comparison• $350k purchase price with $50k in estimate repairs/upgrades to the home Traditional FHA financing = $12,250 down + $50k out of pocket money AFTER closing = $62,250 out of pocket for down payment + work FHA 203k Reno financing with 3.5% down of total = $350k + $50k = $400k X 3.5% = $14,000 down! $48,250 difference out of pocket than the traditional approach of 3.5% down then spending cash for the work
Did you know?• With 20% down payment, you pay down your loan just 9% on a 30 yr in the first 7 years.• 29,28,27 etc year terms are available• You can save money on fees on a purchase by doing a “no cost” purchase loan, same as a refinance.• FHA loans are assumable, could be useful in 5- 10 years.• 2011 - 33% of homes in CA were bought in cash.
Final words of advice… • The more organized you are, the easier it is for a lender to get your loan done. • Be honest, don’t try and “hide” information, there’s a lot more regulation and oversight to the loan process these days. • Be nice to loan officers / mortgage brokers…we want to help you!Considering… Looking… Buying…
Getting The House You WantYour agent:• Researches seller & listing agent • Reviews agent-only comments • Studies listing agent negotiating patterns • Studies sellers situation and motivations • Contacts listing agent• Prepares a comparative market analysis and discusses • Where do you want to start? • Where do you want to end up?• Writes up your offer • Inspection contingency • Financing contingency• Submits offer• Negotiates on your behalf
Overview of a Purchase •Search homes online & tour •Get pre-approved •Find a dream homeFinding •Consult with agent, write offerYour Home •Submit offer to listing agent •Negotiations •Success! •Earnest money (within 3 days) •Inspection contingency (17 days) Mutual •Title review (5 days) Acceptance •Financing contingency (20-25 days) •Waiting for loan approval (17 days) •Escrow signing appointment •Get keys and take possession! Closing! •Receive Redfin refund •Complete Redfin Survey
After Class… Please fill out the survey we’ll send this week along with these slides. We’d love to get your feedback so we can improve. To get even more info on the home buying process, check out our home buying guide: Redfin.com/home-buying-guideConsidering… Looking… Buying…