Published on March 7, 2014
Redfin Home Buying Class Brian Shields Redfin Agent, North End Team March 5th, 2014 Everett, WA @Redfin Facebook.com/Redfin
Brian Shields: Redfin Agent ● Agent for 11 years ● Closed A LOT of homes ● Specialize in: First Time Home Buyers, Condos, town houses, Single Family, REO’s, Short Sales. ● Services: N. King and Snohomish ● Lives in Everett
Agenda ● ● ● ● ● ● ● ● Buying process overview Getting ready to buy Searching for homes Mortgages Making an offer Acceptance to closing Short sales & REO Q&A
A Little Bit About Redfin Redfin is a real estate brokerage that has helped over 20,000 people buy or sell a home; 97% would refer us to a friend. ● Customers, not commissions ● Informed decisions ● Right home for the right price No obligation Commission credit
Buying Process Overview
Steps in Buying a Home Research Search Offer Closing Neighborhoods Define Preferences Comparables Earnest Money Real Estate Agents Saved Search Draft Offer Docs Inspection Mortgage Options Home Tours Negotiate Loan application Preapproval Open Houses Mutual Acceptance Title Review Consider your needs Appraisal Financing Approval Closing
Understanding the Market
Story of 2013: Low Inventory
Story of 2013: Rising Prices
Everett: Trends & Insights
Seattle Market Trends - October ● ● ● ● ● Prices up 12.5% YoY, down 2.3% MoM # homes sold up 7.8% YoY, up 0.9% MoM # homes for sale down 8.6% YoY, down 10.6% MoM 56.2% homes faced competition XX% of homes went pending in 2 weeks ● Winning Offers: ► 30.4% sold over asking ► 28.6% included a cover letter ► 21.4% waved financing ► 7.1% waved inspection
Find it on Redfin
Where Is the Market Headed? ● Supply of homes is at a five-year low and won’t increase much more this year. ● Foreclosures have been driving price declines, and years of inventory remain. Investment groups might have impact. ● Rents have been rising, making buying more attractive. ● Market stabilizing, though likely 2-3 years before significant appreciation. ● Rate increases — biggest potential issue for buyers
Choosing the Right Agent
Traditional vs. Redfin
Redfin Agent Reviews
Partners in the Process AGENT Responsible for your success Writes your offer Handles negotiations TRANSACTION COORDINATOR Prepares paperwork Works with escrow TOUR COORDINATOR Schedules tours Prepares paperwork ASSOCIATE AGENT Takes you to see homes Sees 50+ homes a week
Your Redfin Credit
Redfin Partner Program Partner agents are employed by other brokerages, but have teamed up with us to provide Redfin-certified service to a wider range of customers. We’ll refer you to a partner agent when: ► A home is outside of our direct service area ► If it’s in your financial advantage to work with a partner ► We’re experiencing an unusually high customer demand We survey all partner agent clients ► All surveys are published on their Redfin page ► 97% of customers would recommend Redfin partners
Finding Your Home
Benefits of a MLS-Powered Site ● ● ● ● ● See all the homes for sale: 20+% more than national portals See newly listed homes faster by 7-9 days Over 1/3 of the homes on a portal site are no longer for sale You see what the agent sees plus data from other sources Real-time market data: photos, details of just-sold homes
Redfin Highlights ● Search by zip code, neighborhood, school district ● Instant alerts – save your search to get a jump on new listings ● Tour Insights – get the scoop before you see a home ● Download results – crunch your own spreadsheets ● Price your home – look at sold listings and ask for help ● Forums – get advice from the Redfin community ● Resources – Home buying guide & home inspection guide Any questions about the site?
How Touring with Redfin Works ● ● ● ● Up to six homes per tour in two hour blocks See as many homes as you need One home tours are okay Led by a member of your team – Agent or Associate Agent ● No obligation Tip: Consider starting off with fewer homes per tour so you don’t feel rushed.
Making the Most of Your Tour The Redfin agent for your tour will help you evaluate homes – pointing out both positive and negative features. Considering bringing a camera, notebook and tape measure. Wear shoes that are easy to take off/put on.
Making an Offer
Crafting Your Offer ● Evaluate – Your agent will provide you with information about market conditions and recent sales in the area ● Consider the situation – The seller’s preferences, days on the market, and other interest will influence the process. ● Decide on price & strategy with your agent ● Common contingencies & terms: ► Earnest Money ► Inspection ► Financing ► Appraisal ► Title Review
Multiple Offer Situations Tips for Winning in a Bidding War: 1. Just Win, Baby! Simply have the best offer. • Cash is King. • Escalate your price? • Tighten your timelines. • Remove some contingencies? 2. Get pre-approved with a local lender. 3. What’s important to the seller? 4. Write a letter & appeal to the seller.
Acceptance to Closing
Steps After Mutual Acceptance ● ● ● ● ● ● ● ● ● ● ● Earnest money deposit – usually 1-3%+ Inspection – approximately $500 Other inspections – sewer scope, septic, etc. Loan application – 5 days or less Title review Appraisal Loan approval Document signing Walk through Closing Receive your keys!
What is Escrow? Escrow is a third party intermediary that represents neither the buyer nor the seller. What do they do? • Hold the earnest money • Arrange for payoff of any liens (seller’s mortgage, utilities, etc.) • Coordinate the signing appointments for all parties • Receive and disburse funds for closing • Arrange to notify county offices to change ownership
Signing and Closing A few days before closing you will sign your closing documents and have a walk through. On closing day, you’ll probably get your keys at about 5pm.
Short Sales and Bank-Owned
What is a Short Sale? The owner owes more on the mortgage than the home is worth ● Usually pre-foreclosure, but not always ● Listed for less than what’s owed to the bank ● Requires 1 - 2 banks’ approval (usually 2) ● May have other liens (taxes, utilities, HOA) We Can Help With a Short Sale! ● See short sales with a Redfin agent ● If you want to buy, work with a Redfin agent or a short sale partner agent ● Redfin partner agents work for other brokerages but share Redfin’s commitment to customer service ● Get a 15% commission refund
What is a Bank-Owned Property? ● A foreclosed home owned by a bank or lender ● Standard sale but: ► Verbal negotiations ► Long response times ► Repairs unlikely ► Legal addenda may require an attorney ► Limited or no disclosures ► Banks demand use of their own contracts ► Bank can back out any time until they’ve signed ► Contract often requires early release of earnest money
So… Where’s the Best Deal? ● ● ● ● Sellers who own their home outright Sellers who are relocating Estate Sales REO & Short Sales if ―Best Deal‖ means lowest price
Local Recommended Lenders DJ Caple Bay Equity LLC email@example.com Phone: (425) 319-7734 *In no way does Redfin benefit financially from recommending lenders – we just think they’re great lenders!
What Do I Need To Do? First Steps… ~SELECT YOUR LENDER ~CHECK YOUR CREDIT ~DETERMINE YOUR BUDGET & GET PRE-APPROVED
What Do I Need To Do? First Steps… ~SELECT YOUR LENDER ~Interview Potential Lenders What causes rates to move? How will I know when to lock my rate in? Are you a mortgage broker or banker? Does your company sell directly to Fannie, Freddie & Ginnie Mae? Are you available if I have questions in the evening or on weekends?
What Do I Need To Do? First Steps… Types of Lenders: ~ Mortgage Broker ~ Mortgage Banker (Loan Originator) ~ Mortgage Broker/Banker ~ Loan Officer Good sources include: ~ Redfin's partner lenders ~ Referrals from friends, family & co-workers ~ Banks or credit unions you have accounts with ~ A large, national bank with an advertised rate ~ Your real estate agent ~ Online review sites, such as Yelp ~ BEWARE OF OUT OF STATE LENDERS!
Interest Rates What makes them move?
Interest Rates How are they priced? Let’s compare taking a rate of 4.375 with a cost of 1.848% to a rate of 4.750 with a credit of .345%. Which one will save you more money? Which one would you take?
LOAN AMOUNT INTEREST RATE APR TERMS (MOS) PAYMENT CASH TO CLOSE 4.375% $299,995 4.375% 4.582% 360 $1,497.83 $11,548.91 MONTHLY SAVINGS $67.09 $0 SAVINGS (5 YEARS) ($1,011) $0 5 YEAR SAVINGS $1,011 4.750% 4.375 % 4.750% 4.750% $,299.995 4.750% 4.778% 360 $1,564.92 $4,970.02 diff of $6,578.89 $204,853 4.375 % 20 YEAR SAVINGS $20,000 4.375% $224,840 4.750% Loan Amount $299,995, 4.375% - cost $6,500 more; save $67.09/month. In 5 years, you save $1,011 with 4.750%. But in 20 years, you will have saved almost $20,000 by taking the lower rate. Important Factors: How long you are going to stay in the house What is most important - How much cash you have at closing or lowest monthly payment possible?
$300,000 $294,500 $300,000 $287,139 $285,000 $279,775 $285,000 $272,782 4.750%/4.781% 4.750%/4.782% 4.375%/4.405% 4.750%/4.784% $20,017 $19,760 $20,017 $19,416 $1,487 $1,459 $1,423 $1,423 $5,500 $12,861 Which is better? To ask the seller to lower the sales price by $5,500 or to offer full price and ask for a seller credit of $5,500 to buy down the rate down from 4.750% to 4.375%?
What Do I Need To Do? First Steps… ~CHECK YOUR CREDIT Before starting the application process, you should pay off all collection accounts that appear on your credit report T / F FALSE: Paying off old collection debts will bring the ―date of last activity‖ to the current date, causing a negative effect on your credit score.
What Do I Need To Do? First Steps… ~ If you want to look at your credit first: o www.annualcreditreport.com Experian, Transunion, Equifax • Pull report from each bureau - one per quarter o Review accounts, derogatory accounts (late payments, collections); public records (judgments, tax liens) o Do NOT try and repair your credit on your own o Work with a mortgage advisor who can help you They work with borrower’s credit issues every day and know what steps to take ―What If‖ simulator
Credit Score… What You Need To Know To improve score: o Pay down credit balances to 30% of available limit o Don’t pay off old collection accounts o Don’t open or close any credit accounts Unless opening new accounts to establish credit o Don’t buy any big ticket items (no new cars or furniture shopping!)
Credit Score… What You Need To Know PAYMENT HISTORY - 35% o Paying debt on time and in full has the greatest positive impact on your credit score. o Late payments, judgments and charge-offs all have a negative impact. o Delinquencies that have occurred in the last two years carry more weight than older items.
Credit Score… What You Need To Know AMOUNTS OWED - 30% o This factor marks the ratio between the outstanding balance and available credit. o Ideally, the consumer should make an effort to keep balances as close to zero as possible, and definitely below 30% of the available credit limit at least 2-3 months prior to trying to purchase a home.
Credit Score… What You Need To Know LENGTH OF CREDIT HISTORY - 15% o This portion of the credit score indicates the length of time since a particular credit line was established. The longer the credit history, the better. Don’t close accounts you’ve had for a long time!
Credit Score… What You Need To Know NEW CREDIT - 10% Hard Inquiry vs. Soft Inquiry – o Hard Inquiries: 2 -25 points (maximum # of inquiries that will reduce the score is 10 within 6-12mo) o Same type of inquiry within 30 days will count as one inquiry o Soft Inquiries – Yourself, Existing Creditors - No effect on score
Credit Score… What You Need To Know TYPE OF CREDIT USED - 10% o The ideal combination of credit is 2-3 revolving accounts, 1-2 installment accounts and 1 mortgage. o You should have a minimum of 3 open and active tradelines.
What Do I Need To Do? First Steps… ~DETERMINE YOUR BUDGET & GET PRE-APPROVED Once you’ve selected a lender to work with, have them pull your credit and advise you on the steps needed to take in order to be able to purchase a home. After they’ve reviewed your income, employment, asset and credit information, they’ll be able to pre-qualify or pre-approve you.
How Much Can I Afford? o Establish comfort level for monthly mortgage payment o Trial period – Try on budget Put difference between current rent payment and projected mortgage payment in savings each month for 6 months o Budget for future expenses or unexpected emergency Starting goal: 3 months mortgage payment in savings Long term goal: 6 months mortgage payment for each property owned in savings
How Much Can I Afford? DTI – DEBT TO INCOME RATIO (Back-End Ratio) Total Expense-to-Income Ratio Varies by Loan Program, (max 45% w/MI or self-employed) Mortgage payment + Monthly minimum debt payments divided by Gross monthly income Example: Monthly mortgage payment ($1,050) + monthly debt payments ($300) = $1,350 divided by your monthly income ($3,000) = .45 (45%) $1,350/$3,000 = 45%
How Much Money Will I Need? ~ Down payment – where is it coming from? ~ Closing costs – o How much are they o Who is paying for them? (Seller / Buyer) o Is there a lender credit? ~ Upfront Costso Inspection (approx $500) o Appraisal (approx $500 - $550) o Credit Report ($20-$45)
Organize Your Assets o Review bank statements (liquid funds) No NSF charges Large deposits will need to be sourced o 401(k), Stocks, IRAs, CDs etc… 60% of balance will be used for qualifying Will need terms of withdrawal & paper trail of funds o Gift funds Family member (will need gift letter)
Pre-Qualification vs. Pre-Approval ● Pre-qualification – Loan Originator will: o Either accept verbal verification or collect income/asset documentation W-2, two pay-stubs, 2 years tax returns, bank statements, investment account statement o Review income, employment history, available cash for down payment and reserves (#mo of mortgage payment), credit report and determines eligibility o Run ―AUS‖ (Fannie Mae Automated Underwriting) to get approval o Issue ―Pre-Qualification Letter‖ stating what sales price you are pre- qualified for
Pre-Qualification vs. Pre-Approval ● Pre-Approval – Loan Originator will: o Collect income/asset documentation 2 years W-2s, most recent 30 days of pay-stubs, 2 years tax returns (if self-employed), 2 months bank statements, investment account statement o Run ―AUS‖ (Fannie Mae or Freddie Mac Automated Underwriting) to get approval, and submits file to underwriting o Underwriter will review income, employment history, available cash for down payment and reserves (# mo of mortgage payment in bank), credit report and determine eligibility o Underwriter will issue ―Pre-Approval Certificate‖ stating what sales price you are pre-approved for
Pre-Qualification / Pre-Approval o Redfin asks that you get pre-approved before your third tour o Pre-approval is required by sellers to consider offers o Pre-quals and Pre-approvals are typically good for 90 days o If you get multiple credit checks from multiple lenders within a 30 day period, this will only count as one credit check against your credit score o The application does not bind you to a lender, loan or rate o It’s important to do at the beginning of the process, so you can work on any items needed o Important to know your different financing options
Types of Loans o Conventional: As low as 3% down o FHA: 3.5% down payment Upfront MIP and monthly MI o VA Loan: Veterans, active duty personnel, reservists/national guard, surviving spouses No down payment required Upfront Funding fee o USDA Loan: No down payment required Must be income & property eligible Upfront Funding Fee o WA Bond Program: Down Payment Assistance available – must income qualify
Things NOT to do! o o o o o Buy large ticket items Close any credit accounts Open any credit accounts (Don’t co-sign for anyone!) Do any credit repair on your own Plan vacation during process or when you expect to be closing o Change jobs 2 year history needed – don’t make any major changes
The Process… o o o o o o o o o o Select Lender and Agent Get Pre-approved Find house and make offer (submit a P&S) Once offer is accepted, order and pay for inspection Negotiate any inspection issues, as needed Sign loan application & disclosures, order and pay for appraisal Loan gets underwritten and approved with conditions Supply lender with any additional items needed Underwriter gives final approval Lender draws up closing documents and sends to escrow company o Escrow company contacts buyers and sellers for signing appointments – collects any funds needed to close o Lender funds loan, usually next day o Agent gives you the keys to your new home! o
Is Now A Good Time To Buy?
Is Now A Good Time To Buy? United States House Prices $325,000 $300,000 $275,000 $250,000 $225,000 $175,000 $150,000 $125,000 $100,000 $75,000 $50,000 $25,000 Year 2012 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 1972 $0 1970 Price $200,000
So What Now? ● ● ● ● ● ● ● Make sure it’s the right time for you Start browsing online Check out our Home Buying Guide and Events page Find the right agent Look for a lender and get pre-approved Start seeing homes Make an offer & close the deal
Thanks for Coming! Questions? Get in touch: Brian Shields firstname.lastname@example.org Check out our upcoming classes: www.redfin.com/events
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