FAQ - Financing & Costs

  1. How does a mortgage rate buy-down work?

    There are two different categories of mortgage rate buy-downs. The first one is when a buyer pays a fee at the close of escrow that permanently lowers the interest rate of the loan. A formula that is easy to use is 1% of the amount being borrowed is paid at the closing which reduces the mortgage interest rate by 0.25%. A second form of an interest rate buy down is sometimes provided by new home builders. They would create a fund that subsidizes your mortgage payments for the first three years. For example, your mortgage payment would be 2% lower the first year, 1% lower the second year, and go back to your original mortgage payment rate in three years. This allows the home buyer to transition into a higher monthly payment over time. Each situation needs to be evaluated to determine if the upfront cost is worth the monthly savings before you resell your home or refinance it.

  2. How much are closing costs for home buyers in California?

    A rule of thumb to follow when determining the closing cost fees for East Bay home buyers is factoring in from 2% to 5% of the purchase price of the home you are buying. The closing costs for a home purchase are broken down into four categories; 1) Mortgage Fees: These are probably the majority of the closing costs for a home buyer. It is important for you to review your mortgage loan documents and determine what the costs are for application and processing fees, and the up front cost of the loan referred to as “points”; 2) Title and Escrow Fees: There are various fees paid by the buyer to the title company, the highest cost is the title insurance policy that guarantees there is no debt left on the property when title is transferred; 3) Pro-Rated Fees; property taxes, interest and homeowner’s insurance policies. 4) Home Inspection Fees: The home buyer may elect to order further inspections of the home. This cost could be as high as $1,000.

  3. What is the mortgage rate and how is it determined?

    his is not a simple question to answer. Mortgage interest rates fluctuate up and down each day based on national economic factors and your personal ability to borrow money. The national market factors are highly influenced by the 10-year Treasury note and the demand for mortgage backed securities. For example, when inflation rises, mortgage rates usually increase. When the economy is slow, mortgage rates often go down. Your mortgage rate is also determined by your credit score. The higher your credit score the lower the risk to the lender, which can mean a lower mortgage rate for you.

  4. What are seller closing costs in California?

    The home seller’s closing costs in California can range from 5% to 10% of the purchase price. There are eight typical categories of home seller closing costs; 1) County and city transfer taxes. Most counties have a transfer tax. There are only about 30 cities in California that also have a city transfer tax. 2) Escrow fees. This is typically a title company that is managing the transaction, and often there are fees that are split between the home seller and the home buyer. 3) The professional fee paid to the real estate brokerage representing the home is actually the highest closing cost to a home seller. That fee can range from 5% to 6.5% of the purchase price of the home, with the agent representing the seller and the agent representing the buyer splitting those fees in an agreed upon manner. 4) Sometimes the home seller may pay a portion of the title insurance that ensures there is no debt traveling with the property to the new owners. That amount may be $1,000 to $2,000. 5) Property taxes that are prorated at the date the home is transferred to the new owner. 6) If your home is in an HOA (Homeowner’s Association) there will be fees for the document preparation to transfer the HOA obligations to the new owners; 7) Sometimes there is a mortgage loan reconveyance fee that removes the home seller’s mortgage from the property; 8) The seller pays for a Natural Hazard’s Disclosure report for the buyer’s information regarding the risks of flood, earthquakes, fire hazards, or other environmental issues near the home.

     

     

  5. What is the property tax rate in California?

    The property tax rate in California is typically $1.00 per thousand of dollar value of the home. It can be higher depending on what local bonds a community has passed. In the East Bay the property tax rate is generally $1.25 per thousand of the dollar value of the home. For example, if you purchased a home for $1.5 million in the East Bay, your property tax would be $18,750. There are additional exceptions to this typical property tax rate. There are communities that have been built where the developer has borrowed using a bond for the community’s infrastructure that allows for a higher property tax rate until that developer’s bond is paid off.

  6. What is Proposition 13 and why should I know about it?

    Proposition 13 was a dramatic shift in how local governments in California were funded. Before Prop 13, the property tax value for properties were reassessed annually. As property values went up, so would the property tax. This created situations where someone who owned a property for a very long time often could not pay their property taxes because they were so high. June 6, 1978, the rules changed with a constitutional amendment – Prop 13. It capped property taxes at 1% of the property’s assessed value, and it limited any annual increases to a maximum of 2%. The reassessment of a property only changed when a property is sold, or if construction improvements happened.

  7. How much money should I have saved before buying a home?

    It depends on the zip code of the community where you are purchasing a home. For example, in Danville, California the average price for a home may be $1.9 million. Depending on your financial situation you will need to save somewhere between $200,000 to $400,000. This represents a downpayment of between 10% and 20%, along with a bit extra for the closing costs paid to your lender and possible fees to the title and escrow company.

  8. What is PMI and can I avoid it?

    PMI stands for Private Mortgage Insurance. It is a monthly fee on conventional loans when the downpayment on a home is less than 20%. PMI is in place to protect the lender if the homeowner defaults. The cost is generally 0.5 - 2.25% of the total loan amount annually. To avoid a PMI, the standard method is to put down at least 20%. To learn more about PMI, reach out to us and we will connect you with a lender to discuss your options and other ways to avoid this payment. 

  9. What expenses should I budget for after buying?

    It is important that as a homeowner you have a home maintenance budget set up. It is common for unexpected surprises and costs to emerge as a homeowner. Not only is it important to have a budget set aside for surprises, like repairs, but also for maintenance items like yearly inspections. Having a maintenance budget set up after buying your house may save you time and hassle later. 

  10. What is the difference between pre-qualification and per-approval?

    Prequalification for a mortgage is a quick, general estimate of what you might be able to afford for your home purchase, based on self-reported info, while preapproval is a lender's conditional commitment to lend you a specific amount funds for your home purchase after verifying your finances (income, assets, credit) with documentation and a credit check, making you a much stronger, serious home buyer in a competitive market. Prequalification is a simple first step for budgeting, but preapproval shows sellers you're truly ready to buy, making your purchase offer more attractive.

    Because of decades in our industry, we have reputable and trustworthy contacts in all of the major banks for mortgages, along with independent loan brokers. Let us know if you need a referral.