Real Estate Inspector Chicago Suburbs

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Home Buyers Success Kit
     Presented by
    Bobbie Warren
 Realtor® Century21®
        What you need to know as a buyer and
        how the buying process benefits you.
               WHO IS INVOLVED!

• Lenders and mortgage products
• Role of the realtor
• Home insurance
• Real estate attorney
• Appraisals
• And more!

            Home Ownership

• You
• Lender
• Realtor
• Insurance Agent
• Real Estate Attorney
• Appraiser
            It’s a team approach!

              Who is Involved in Buying and Selling
                          Real Estate?

• Realtor
• Attorney
• Home Inspector
• Insurance agent
• Appraiser
• Survey company
• Title Company
• Moving Company
• Pest Inspector
• Structure Specialist
• Occupancy permits
• Mortgage Consultant
                 Benefits of Home Ownership

• Appreciation
• Asset
• Collateral
• Tax Deductions/Advantages
• Security
• End to RENT Payments

                           Renting versus Buying
RENTING                                OWNING
• No tax benefits                      • Tax savings
• No equity is built up                • Builds equity
• No control over rent increases       • No landlord
• Possibility of eviction              • Sense of community,
• Decorating limited                     stability, and security
• Paying landlord‘s mortgage           • Free to change decor and
• Limited entertainment                  landscaping
• Does not affect credit score         • Builds credit score
                                       • Freedom to do as you please
                                         within the limits of the law
                                       • Pride of ownership
                                       • Capital Gains
                Home Ownership
              Provides Tax Benefits

Deductibility of:
• Interest;
• Personal Property & Real Estate Taxes; plus
• Other Deductions Now Become Deductible.

        Core Benefit of our US Tax Code

               Budgeting for the Home Purchase

• Cash Flow
     —Income and expenses impact mortgage payment
•   Down Payment
     —0–20%—Determines Loan to Value
     —Affects loan amount and Reduces PMI costs
     —Earnest money is applied to the down payment
•   Closing Costs
     —Generally 3–6% of total cost and includes
       origination fee, points, property taxes, charges for
       title insurance and escrow costs, appraisal fees, etc
•   Costs for Insurance and Home Inspection
•   Post-Purchase Reserve Funds
     — Emergency repairs, furniture, appliances, etc.

                     What Lenders Want to See

• Net Worth/Debt-to-Income Ratio/Liquid Reserves
• Steady Employment History
• Monthly Income/Expenses/Debts
• Down Payment
• Credit Report
   —Get all three reports 60-90 days prior to
    applying for loan
      —Lenders want 620 or above for best loan
      —Reduce or avoid debt prior to application to maximize
       buying power
      —Correct any inaccurate information
                                       Credit Scores:

FICO scores range from 300–850 and the score is based on
several factors:
                        Types of Credit Used
                                                      Payment History
                New Credit          10%



            Length           15%
            of Credit

                                        Amount Owed

       Pre-Approval versus Pre-Qualification

Pre-Qualification      Pre-Approval
• General Projection   • Firm Numbers
• Based on partial     • Full Criteria
  criteria             • Guaranteed financing
• No guarantee of        for 60–90 days
  financing            • Small fee
• No fee

                     Mortgage Payments

• Principal
• Interest
• Taxes
• Insurance
• Private Mortgage Insurance
• Association Fees

               Mortgage Products
• Fixed Rate Mortgage
• Adjustable Rate Mortgage
     —What is the prime rate? How does that affect
        ARMS? When is it adjusted?
•   Special Mortgage Programs
     —VHA/FHA/ First Time Home Buyers/Regional
        programs/Stated Income/No ratios/etc.
•   Second Mortgages (Home Equity Loans)
•   Home Equity Line of Credit (HELOC)
•   Jumbo Loans
•   Interest Only Loans
•   Stated Income/No Ratio Mortgages for self-
•   Reverse Mortgages—for retirement income

   What to Expect from
Your CENTURY21®Realtor
Bobbie Warren (708)724-9501
                       Why Use a Century21®Realtor?

•   Market expertise—City & Suburbs
•   Transaction Coordination
•   Trained—certified—licensed
•   Your interest is my top priority
•   I Provide objectivity
•   I do the work for you so you can continue with your
    daily activities
•   Insured
•   Peace of mind
Once I find your dream home what's next ?

                    Role of Home Inspector
                   To protect your investment

• Home inspectors are trained and
  licensed professionals in the home
  buying transaction.
• Home inspector responsibilities
• What he or she CAN NOT do
• Why have one

       Homeowner’s Insurance
    Replacement Cost versus Market Value
Your licensed insurance agent can tell you more.
        Key questions to ask him or her.
           Types of Coverage you need

•   Dwelling Itself
•   Private Structures (Garage/Shed)
•   Contents
•   Liability Insurance
•   Medical Payments to Others
•   Additional Living Expenses
•   Deductible (the part you pay up-front)
•   Insurance versus Maintenance

What’s Not Covered….
• Flood
• Earthquake
• War/Civil Disturbance
Limited Coverage….
• Examples: Roofs
• Jewelry & other valuables
Additional Concerns….
• Family Pets
• Trampolines
• Swimming Pools
           You Must:

• Get your agent involved sooner than later
• Insist on a replacement cost calculation
• Consider Replacement Cost Guarantee
• Consider Replacement Cost on Contents
• Make sure your agent/broker is aware of any
    improvements you make
•   Consider an Umbrella Policy
•   Video Tape Your Home (proof of loss)
•   Understand Credit Scoring
•   Schedule Valuables
  The Role of the
Real Estate Attorney
             The Role of the Real Estate Attorney

• Whether you are buying or selling a home, your team
   of ―expert advisors‖ should include a real estate attorney
• Your real estate attorney:
     —Can review any offer you make or receive
     —Makes sure that your rights are protected
     —Outlines YOUR duties
• If you are ready to make or accept an offer on a property, make the
  offer ―contingent‖ on a lawyer‘s review and approval before you
  sign a binder
• Be wary of non-legal services that claim they can do all the legal
  work you need
• Some title insurance companies and mortgage lenders require you
  to use an attorney
        If You Are Buying a Home, Your Real
        Estate Attorney Should:
• Help you understand the purchase contract, including
  how you will take title on the property
• Check that there are no covenants, easements, liens,
  etc. registered against the property that will impede
  your use of it
• Prepare and register all the legal documents
• Clarify the terms of the mortgage and work with your
  bank or credit union, if necessary, to modify them
• Scrutinize the adjustments, including taxes owing and
  utilities costs paid, prior to the transaction closing
        If You Are Buying a Home, Your Real
        Estate Attorney Should:

• Attend the closing and review all the papers you
  will be required to sign
• Arrange title insurance protection to protect you
  from losses due to title defects
• Ensure you receive a valid registered ownership
  subject only to the liabilities you have accepted

What You Should Know
                The Appraisal—What You Need
                           to Know

What is an appraisal?
• An estimate or opinion of value based on a reasonable
  interpretation of relevant market data.
Why is an appraisal done?
• To estimate the market value.
   —Market value is the most probable price in a
    competitive and open market. It must be an arms
    length transaction with both the buyer and seller
    acting in their own best interest.

          The Appraisal—What You Need
          to Know

• The lender/client wants to know if the property is
  worth the selling price. They want to be sure that
  the collateral being used to secure the mortgage
  loan is sufficient.
   —Whomever orders the appraisal is the client. It
      should be noted for lending purposes the
      appraisal must be ordered by the lender only.

            Part Art, Part Science

How is a Value Estimate Derived?
• The appraiser views subject property and measures the house
  from the exterior only counting above grade areas in the square
  footage calculation. Any below grade area i.e. the lower level
  on a split level, raised ranch, or basement are addressed
• The appraiser finds at least three sales, in the immediate area,
  that are most similar to the subject property. The best
  comparables typically have the least amount of adjustments and
  are the most recent sales.
• The dissimilarities of these sales are adjusted. A positive
  adjustment is made to the comparable for any inferior item and
  a negative adjustment is applied to reflect a superior item that
  the sale has versus subject.
           Part Art, Part Science

The most common adjustments are:
• Location                • Misc. amenities such as
• GLA (gross living area)
                            fireplace, deck, central air,
                            porch, etc.)
• Garage
                          • Cost on item may not
• Lot size
                            equal the market value
• Bedroom/Baths             (i.e., in ground pool).
• Modernization
• Condition
• Basement/Finish
• The sales comparison analysis is the most looked at part of the
  appraisal and determines the market value. In residential properties
  the cost and income approaches are not typically reliable.

• The appraiser is NOT a home inspector.
   —The appraiser‘s role is to walk through the home looking at
    amenities, room count, condition, and modernization. If
    you are buying a home it is highly recommended to get a
    home inspection from a licensed professional.
• The ‗Zillows‘ of the world (on line value estimates).
   —These websites typically give a range of value and in many
    cases just an average for the neighborhood or an area. They
    have not compared the properties to similar style homes,
    visited the property and many times they have incorrect
    data regarding the properties. These sites should not be
    taken too seriously as they could be too high or too low.

         WOW! YOU MADE IT!

         FIRST HOME.
For more information call me anytime at
    Bobbie Warren (708) 724-9501
  Century21® Universal Real Estate
         7300 N. Western Ave
          Chicago, IL 60645

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