Josh Lewis, BuyWise Mortgage and Dustin Steeve, CEO, Lighthouse Escrow discuss how to become a homebuyer on this third part of seven about the basics of what you need to understand to become a homeowner.
In this video learn the 4 most important details homebuyers need to know in California;
- Understand supplemental tax bills
- Why you need money in reserve
- How your offer is being presented to a seller
- How to shop intelligently for a mortgage
This video will cover the answers to the above topics and also help you understand what an impound account is and can you rely on it to help pay your tax bills.
– What are the three most important and overlooked details that home buyers need to know? I feel like we’ve kind of gone through a few but I’m curious to know how you would answer that question.
– The one that I always like in big red letters to tell our buyers about, and this is California specific, this does not apply to other states is supplemental tax bills.
So in California, we have Prop 13. Prop 13 says that your property taxes can only go up 2% a year.
So if you’re buying a home from someone that’s owned their home for 25 years and paid $300,000 for it, their tax rate, the 2% increase is maybe they were being assessed on $360,000.
You’re buying their house for $700,000. What happens is the assessor’s office does not reassess you at $700,000 immediately upon sale. It can happen three months, six months, nine months later.
So there’s a period of time when you’re paying taxes on the lower amount of the previous owner and eventually, once the assessor reassesses, they come back and they say: hey, we would like the difference on, in that example, if you were assessed at 360 and it should be 700, we got $340,000 of the assessed value we need to collect taxes on for three months, six months, nine months.
It can be a fairly large amount. Now if it’s a minimum down loan and you have an impound account, the impound account should’ve been set up on your new tax rate, so there should be money in there but we won’t go into the millions of ways that mortgage servicers, the people that you make your monthly payment to, can screw up impound accounts.
Most times the funds are in there to pay those supplemental taxes. A lot of times there is not. I have a client, we’re in the middle of a refinance for, and thankfully we were able to get it covered in the refinance but he got a $2,000 supplemental tax bill that he was panicking about.
He’s like, I barely have enough money to make my payment this month and then he’s getting furloughed at the end of the month, so it wasn’t a fun conversation to have.
– All right, so with a supplemental tax bill, are there two other ones that you would highlight?
– I would– one of the things that we talk about how much you have to have at closing, it blows my mind how many clients we have that every last nickel they can scrape together is used to close the transaction and there’s nothing left in reserves.
A new house, they’re just never perfect. They’re never perfect. Something’s gonna happen, something is going to go wrong. People will use this as a reason why you shouldn’t buy a home and just be a renter and let it be someone else’s headache but just be prepared.
I would love to see someone with three to six months in reserves. I mean, six months I think is a good number. 12 would be even better, but, and we say six months of your monthly payments, so you have a $2,500 payment, it would be nice if you had $15,000 post-closing.
That should be enough to get you over almost any major hurdle in the first year or two of the home.
– All right, and then I would say probably a third thing there would be what we were talking about earlier about when you’re interviewing somebody for the position of, you know, for the job of being your lender or the job of being your agent, do you ask about how they present your offer?
Do you agree that would be something that’s often overlooked?
– 1,000% and what I would also say is real estate commissions are primarily fixed, so it really becomes a price conversation for a buyer. On the mortgage side, everyone always wants to know, do I need to shop, do I need to check, by all means check as many places as you want.
Mortgages, in terms of their pricing, are largely commoditized. Everyone should be in a pretty narrow range. A narrow enough range that pricing should not be your decision. If you need LASIK eye surgery, I don’t know about you, but for me, I’m not going to find out who the cheapest person is to do LASIK eye surgery.
I’m going to find out who the best person is in the area and here in Orange County, you can get it done for $2,000, you can get it done for $5,000. I don’t know, my eyesight’s kind of important. I’d probably pay $5,000.
Now on a mortgage, it’s not that big of a discrepancy. It should come in really close but I’ve had people tell me: oh, I’m going to go with this online lender.
They said they’re going to be $500 cheaper. And I go, oh cool. You don’t know them, your agent doesn’t know them. There’s zero accountability and if you look online, lots of people have had bad problems with them but if 500 bucks is that important to you, go ahead and take the risk.
So by all means, never against shopping, I think the more people you talk to and the more numbers you see, the better I’m going to look. And if that’s not the case, then I didn’t do my job very well.
So it’s never a matter of saying don’t shop. Definitely don’t make it a price-only decision. Price is important, you want to get fair terms but don’t make it a price-only decision.