Real Estate Update in Palo Alto & Los Altos

Money you’ll need up front

• 3 to 20% of the purchase price for a down payment. The actual amount depends on what kind of loan you get and how good your credit is. Your bank might offer a zero-down loan, but if you can afford to make a down payment, you should do so, because you’ll get a lower interest rate and because your monthly payments will be lower.
• 1 to 8% of the purchase price for closing costs. You might not have to pay this up front. The bank might be willing to add it to your mortgage. (Add them to the mortgage if you need the cash, but pay the closing costs up front if you don’t.) The actual amount of closing costs depends on how good a deal your lender is willing to give you, and the price of the house. The more expensive the home, the less the closing costs are as a percentage of the total price.
• $250 to $800 in Miscellaneous Costs. These are things like the application fee for the loan, the fee for the bank to run your credit report, professional inspection of the home, and an appraisal (if you can’t get the appraisal added to the closing costs).
• Putting these three things together, on a $150,000 house you’ll need
  • $4500 to $30,000 for the down payment (unless you get a 0% down loan) 
  • $0 to $12,000 for the closing costs
  • $250 to $800 for miscellaneous costs
    Total: $4750 to $42,800. Yes, that’s quite a difference. You’ll learn more about estimating the costs for your own situation as you go through this guide.

How to find and buy a home

Read the rest of this guide, especially the parts about estimating how much home you can afford. The rest of this guide covers everything below.

• Get a copy of your credit report and clean up your credit record as much as possible.
• Go to your bank, ask to talk to a loan officer, tell them you want to buy a house, fill out an application, and get what’s called a Pre-Qual Letter. You may have to pay an application fee of $40 or so.
• Find a realtor (get referrals from friends). The seller pays the commission to your realtor, so it costs you nothing to have a realtor. Your realtor serves you by letting you know what houses are available that meet your needs (they have access to a special database) and by answering your questions about the process. In theory a realtor should also help you get the best price but don’t count on it because the more you pay for the house, the more the realtor makes in commission.
• Tell the realtor what part(s) of town you want to live in, what kind of house you want, and how much the bank said they’d loan you. Your realtor will give you a list of houses that match your criteria. Go look at them.
• When you find a house you want get the Disclosure from the seller. This is a list of problems with the house that the seller knows about, and which they’re required to give you by law.
• If the Disclosure doesn’t sour you on the house, ask the realtor how much you should offer. It’s rare that you accept the price given by the seller, usually you’ll offer slightly less than they’re asking. Get a list of Comparables (similar homes that have sold in the same area recently) from your realtor so you can get an idea of how much the house is worth.
• You’ll make the offer by signing a contract. If the seller accepts your offer then they’ll sign too. At this point you’re generally obligated to buy the house and the seller is generally obligated to sell, though depending on the wording of the contract either of you could have the right to walk away from the deal under certain circumstances.
• Have the house professionally inspected. You generally have to pay this yourself, at the time, and it will cost $300 or so. If the inspection turns up problems not listed on the disclosure which will cost a lot to fix, try to get the seller to lower the price or fix the problems before the sale — or walk away from the deal if your contract allows that and that’s what you want.
• The bank will have the house appraised to make sure it’s worth what you’re paying for it. (They don’t want to loan you $200,000 to buy a house that’s worth only $150,000.) You might have to pay this up front, otherwise it will be added to your closing costs. Besides paying for it up front if that’s required, you’re not involved in this step of the process.
• Find an insurance agent (ask friends for referrals) and get a quote. You can certainly price-shop 2-3 different companies if you like. Pick one and tell them you want the insurance. The cost will be added to your closing costs, you don’t have to pay this at the time.
• Closing. You go to the office that’s handling the closing (a title company or an attorney, usually selected by the lender or the seller), and bring with you a bank check to cover the down payment and the closing costs (unless the closing costs are being rolled into the mortgage). This can be two checks or one. You don’t need to get a check for the mortgage loan, the bank will wire that directly to the office handling the closing.