Home Buyers E-Book by Crown & Crown

Sharyn & Victoria Crown 619-440-7832 or 619-977-3174 www.GMAsandiego.com www.OnlineSanDiegoHomes.com Napolitano GMAC 939 Orange Ave. Coronado, CA 92118

USA

HOME BUYER’S GUIDE

Table of Contents The Advantages of Home Ownership

The Home Buyer’s Question & Answer Guide

The Escrow Process What Information Will I Have to Provide?

What Do I Need to Do Before My Appointment to Sign Loan Documents?

A Step-by-Step Guide to the Home Buying Process

Life of an Escrow

The Loan Process Loan Calculator/Why Rent? Build Equity.

The Loan Process

Loan Types

General Information Who Pays for What in the Real Estate Transaction?

California Transfer Tax

The Property Tax Guide Guide to Property Tax

Property Tax Timeline

Supplemental Tax Question & Answer Guide

Understanding Mello-Roos

The Title Process Understanding Title Insurance

Ways of Holding Title

Glossary for the Home Buyer

Tools You Can Use

Notes

HOME BUYER’S GUIDE

The Advantages of Home Ownership If you are planning to buy a home, you probably have good reasons in mind, ranging from the purely personal to the very practical. A place of your own ‘Your home is your castle,’ as the saying goes. A home is a place you can call your own. Perhaps you are ready to settle down in your community and want the feeling of permanence and involvement that comes with owning your own home. Perhaps you need more space in which to raise a family. Or, maybe you want more freedom than you have in a rental unit to adapt your living space to suit your individual taste and needs. Financial incentives For many people, the motivation for home ownership is primarily ﬁnancial. Owning your own home is a ﬁrst-rate investment for a number of reasons: Scheduled savings When you buy a house, your monthly mortgage payments serve as a type of scheduled savings plan. Over time, you gradually accumulate what lenders call “equity,” an ownership interest in the property that you can often borrow against or convert into cash by selling the house. In contrast, renters must continue paying rent to a landlord for

as long as they rent without the opportunity to build equity. Stable housing costs Another advantage of home ownership is that while rents typically increase year after year, the principal and interest portion of most mortgage payments remains unchanged throughout the entire repayment period (typically 30 years). In fact, because of the effect of inflation, over the years you pay the same amount but with ever “cheaper” dollars. Increased value Houses typically increase in value, or “appreciate,” over time. It’s not unusual to find a house that sold for $100,000 fifteen years ago to be valued at much more than that amount today. This increased value is as good as money in the bank to the homeowner. Tax benefits Homeowners also get significant tax breaks that are not available to renters. Most importantly, interest paid on a home mortgage is usually deductible. This factor alone can save you a substantial amount each year in federal income taxes.

HOME BUYER’S GUIDE

Once you’ve made up your mind to stop renting, you can start the home buying process. Here’s a step-by-step approach.

Purchase offer

Meet, then choose your realtor

Once you’ve decided on your new home, your realtor will draft a purchase agreement and continue to offer advice and counsel.

Professional realtors know the make-up of individual neighborhoods and communities and can assist you at every turn. So, call several ﬁrms and meet an expert! Your agent will listen to your needs and help you buy the home that will work for you.

At this time, you’ll need to provide an “earnest” deposit. (Your realtor will advise you as to the appropriate amount.) The money will be held until your offer is accepted by the seller or returned if the transaction is not consummated.

As you whittle down the many choices available, together you’ll ﬁnd the home and community that works for you.

Your realtor will present your offer to the seller’s realtor. The seller will then accept, counter or reject your offer.

Leverage and negotiation

Seller’s response

As with all big-ticket purchases, there’s always give and take. For example, why is the current owner selling? What price did other homes in the neighborhood sell for? What types of power do you have in buying?

After reviewing the seller’s response to your ‘buy’ offer, you and your realtor may ﬁnd various compromise solutions. Your realtor’s knowledge of the process and negotiating skills should help you reach a ﬁnal agreement.

Your realtor will help leverage your power in the process.

HOME BUYER’S GUIDE

The Home Buyer’s Question & Answer Guide What is an escrow? When opening an escrow, the buyer and seller of a piece of property establish terms and conditions for the transfer of ownership of that property. These terms and conditions are given to a third party known as the escrow holder. The escrow holder, in turn, has the responsibility of seeing that the terms of the escrow are carried out. The escrow is an independent neutral account and the vehicle by which the mutual instructions of all parties to the transactions are complied with. How does the escrow process work? The escrow is a depository for all monies, instructions and documents necessary for the purchase of your home, including your funds for down payment and your lender’s funds and documents for the new loan. Generally, the buyer deposits a down payment with the escrow holder and the seller deposits the deed and any other necessary papers with the escrow holder. Prior to the close of escrow, the buyer deposits the funds required and agreed upon by the parties to the sale with the escrow holder. The buyer instructs the escrow holder to deliver the monies to the seller when the escrow holder:

• records the deed, • delivers to the buyer a policy of title insurance, which shows title to the property, vested in the name of the buyer. The escrow holder is authorized to deliver the deed to the buyer when the buyer has deposited the agreed-upon purchase price and fulfilled any other conditions specified in the escrow instructions. The escrow holder handles the prorations and adjustments on any fire/hazard insurance, real estate taxes, rents, interest, etc., based on the escrow instructions of both parties. The escrow holder thus acts for both parties and protects the interests of each within the authority of the escrow instructions. Escrow cannot be completed until the instructions have been satisfied and all parties have signed escrow documents. The escrow holder takes instructions based on the terms of the purchase agreement and the lender’s requirements. How do I open an escrow? Your real estate agent will open the escrow for you. As soon as you execute your purchase agreement, your agent will place your initial deposit into an escrow account.

HOME BUYER’S GUIDE

Escrow instructions deﬁne all the conditions that must occur before the transaction can be ﬁnalized. Your escrow instructions represent your written statement to the escrow holder. They also provide title insurance protection for your home. Do I need down payment funds? You will need to pay your down payment via cashier’s check or wire transfer prior to the closing date of escrow. (Escrow will advise you of the necessary amount.) How will I know where my money has gone? Written evidence of your deposit is generally included in your copy of the purchase agreement (sometimes called an Agreement to Purchase and Receipt for Deposit). Your funds will then be deposited in a separate escrow or trust account and processed through a local bank. What is a contingency period? During an agreed-upon time determined by your purchase agreement, you’ll be able to get information and perform such duties as: • Property appraisals

• Obtaining loan approval • Having a physical inspection of the property • Inspecting for pests • Approving the seller’s transfer disclosure statement • Obtaining a preliminary report approval from your title company • Satisfying purchase contingencies How long is an escrow? The length of an escrow is determined by the terms of the purchase agreement and can range from a few days to several months. An escrow averages sixty to ninety days. How does the loan process work? Your real estate agent can provide you with current ﬁnancing information to help you in selecting a lender. The lender might be a bank, savings and loan, or a mortgage company. You will be required to complete a loan application, which will require personal and ﬁnancial information.

• Securing a lender

HOME BUYER’S GUIDE

What happens after I submit the loan application? The lender will begin the qualification process, including verification of information submitted on the application and appraisal of the value of the property. The lender will require that you obtain hazard/fire insurance if you are purchasing a detached home. However, if you are buying a condominium or townhouse, there may already be a master hazard policy. Check with your real estate agent. Also, check with your insurance agent for additional coverage for your personal property. The lender will also require that you obtain title insurance and may have other requirements that will need your attention prior to the close of escrow. Your real estate agent can help you take care of these requirements well in advance. When the loan is approved, what’s next? When your loan is approved and the loan documents are sent to the escrow holder handling your transaction, the escrow holder will prepare an estimated closing statement, which specifies in a debit and credit format, the disposition of your purchase funds.

After you have signed all the necessary instructions and documents, the escrow holder will return them to the lender for a final review. This review usually occurs within a few days. After the review is completed, the lender is ready to fund your loan and inform the escrow holder. Generally, your escrow instructions will be mailed to you. Your escrow officer or real estate agent will contact you to make an appointment for you to sign your final loan papers. At this time, the escrow holder will also tell you the amount of money you will need, in addition to your loan funds, to purchase your new home. Your loan funds will be sent directly to the title or escrow holder by the lender. What is ‘close of escrow?’ An escrow closing is the culmination of the transaction. It signifies legal transfer of title from the seller to the buyer. Usually, the grant deed and deed of trust are recorded within one working day of the escrow holder’s receipt of loan funds, completing the transaction and signifying the close of escrow. Once all the conditions of the escrow have been satisfied, the escrow officer informs you of the date escrow will close and takes care of the technical and financial details.

THE ESCROW PROCESS

What Information Will I Have to Provide? When will I receive the deed? The original deed to your home will be mailed directly to you at your new home by the County Recorder’s Ofﬁce. This service takes several weeks, sometimes longer, depending on the County Recorder’s volume.

your escrow holder with the insurance agent’s name and phone number so that he/ she can make sure the policy complies with your lender’s requirements. You must have your insurance in place before the lender will fund money to the title company. If you do not have an insurance agent, your real estate agent can help you.

Statement of information

Title to home

You may be asked to complete a statement of information as part of the necessary paperwork. Because many people have the same name, the statement of information is used to identify the speciﬁc person in the transaction through such information as the date of birth, social security number, etc. This information is kept conﬁdential.

Decide how you wish to hold title to your home. The escrow holder will need this information in order to prepare the grant deed. We suggest you consult an attorney, tax consultant, or other qualiﬁed professional before you decide. Your lender also needs this data to prepare loan documents.

Lender information Provide the escrow holder with the name, address and phone number of your lender as soon as possible after opening escrow. Hazard/ﬁre insurance

Lender’s requirements Make sure you are aware of your lender’s requirements and that you have satisﬁed those requirements before you come to the escrow company to sign your papers. Your loan ofﬁcer or real estate agent can assist you.

If you are purchasing a single family, detached home, or in some cases a townhouse, be sure to order your hazard/ﬁre insurance once your loan has been approved. You should immediately begin looking for an agent because not all companies write hazard/ﬁre insurance. Then, call

THE ESCROW PROCESS

What Do I Need To Do Before My Appointment To Sign Loan Documents? Identification Please bring your valid state identification card, driver’s license or passport with you to the escrow company. These items are needed to verify your identity by a notary public. It is a routine, but necessary, step for your protection. Cashier’s check Obtain a cashier’s check made payable to your escrow company in the amount indicated to you by your escrow officer. A personal check may delay the closing since escrow and title companies are required by law to have “good funds”– meaning that the check has cleared before disbursing funds from escrow. Wired funds are another method of expediting your closing.

What if we are purchasing from abroad? Then Sharyn and Victoria, along with escrow will help you coordinate the signing of your documents. Escrow will also help you organize the transfer of funds for your downpayment and closing cost

THE ESCROW PROCESS

A Step-by-Step Guide to the Home Buying Process Home Buying Meet and pick your Realtor

Pre-qualify for home loan

Find your dream home

Make an offer to purchase

Negotiate and agree to terms

Purchase agreement accepted

“Earnest” money deposited

Seller’s transfer disclosure statement

Title search preliminary report

Secure a lender

Start the loan process

Opening Escrow Choose a Title & Escrow Company

Appraise the property

Inspect the property

Buy homeowner’s insurance

Loan approved

Financial contingencies removed

Closing & loan papers signed

Fund your loan

Formally record documents

Escrow closed…

Closing Escrow Deposit remainder of down payment to escrow

Congratulations!

THE ESCROW PROCESS

Life of an Escrow Prepare escrow instructions & pertinent documents Obtain signatures Process ﬁnancing Order title search

Request beneﬁciary statement

Receive & review preliminary report

Request beneﬁciary statement & enter into ﬁle...review terms of transfer & current payment status (is prior approval necessary to record?)

Receive demands (if any), request clariﬁcation of other liens (if any) and review taxes on report Receive demands & enter into ﬁle

Request or prepare new loan application Obtain loan approval determine that terms are correct Request loan documents

Review file that all conditions have been met & that all documents are correct & available for signature; check that termite inspection, contingencies released, fire insurance ordered, additional documents, Second Deed of Trust, Bill of Sale, etc... have been prepared Figure file & request signatures on all remaining documents Obtain funds from buyer Request loan funds Forward documents to title company

Funds Order recording Close ﬁle: Prepare statements & disburse funds Complete closing, forward ﬁnal documents to all interested parties—buyer, seller, lender

Return loan documents

THE LOAN PROCESS

Loan Calculator Payments are based on a 30 year, ﬁxed rate loan, rounded to the nearest dollar. Just ﬁnd where the row containing your loan amount intersects with the column containing your interest rate. LOAN

4.5%

5.5%

6.5%

7.5%

8.5%

9.5%

10%

$100,000

$ 478

$ 507

$ 537

$ 568

$ 600

$ 632

$ 665

$ 699

$ 734

$ 770

$ 807

$ 845

$ 883

120,000

573

608

644

682

719

758

798

839

881

924

968

1,013

1,059

140,000

669

710

752

795

839

885

931

979

1,027

1,076

1,126

1,177

1,229

150,000

717

760

805

852

899

948

998

1,049

1,154

1,208

1,263

1,319

1,376

160,000

765

811

859

909

959

1,011

1,054

1,119

1,174

1,230

1,287

1,345

1,404

180,000

860

913

967

1,022

1,079

1,138

1,198

1,259

1,321

1,384

1,448

1,514

1,580

200,000

956

1,014

1,074

1,136

1,199

1,264

1,331

1,398

1,468

1,538

1,609

1,682

1,755

220,000

1,052

1,115

1,181

1,250

1,319

1,391

1,464

1,538

1,614

1,692

1,770

1,850

1,931

240,000

1,147

1,217

1,288

1,363

1,439

1,517

1,597

1,678

1,761

1,845

1,931

2,018

2,106

250,000

1,195

1,268

1,343

1,420

1,499

1,580

1,663

1,748

1,834

1,922

2,012

2,102

2,194

260,000

1,243

1,318

1,396

1,477

1,559

1,643

1,730

1,818

1,908

1,999

2,092

2,186

2,282

280,000

1,338

1,420

1,504

1,590

1,679

1,770

1,863

1,958

2,055

2,153

2,253

2,354

2,457

300,000

1,434

1,521

1,611

1,704

1,799

1,896

1,996

2,098

2,201

2,307

2,414

2,523

2,633

320,000

1,530

1,622

1,718

1,818

1,919

2,023

2,129

2,237

2,348

2,461

2,575

2,691

2,808

340,000

1,625

1,724

1,826

1,931

2,038

2,149

2,262

2,377

2,495

2,614

2,736

2,859

2,984

350,000

1,673

1,775

1,880

1,988

2,098

2,212

2,329

2,447

2,568

2,691

2,816

2,943

3,072

360,000

1,721

1,825

1,933

2,045

2,158

2,275

2,395

2,517

2,642

2,768

2,897

3,027

3,159

380,000

1,816

1,927

2,041

2,158

2,278

2,402

2,528

2,657

2,788

2,922

3,058

3,195

3,335

400,000

1,912

2,028

2,148

2,272

2,398

2,528

2,661

2,797

2,935

3,076

3,218

3,363

3,510

Why Rent? Build Equity. Using this chart, ﬁnd your per month rental payment and you can determine how much money you are “giving away” in rent and interest over 10, 15, 20, or 30 years... money which could be used to build equity in your own real estate. Per Month

10 Years

15 Years

20 Years

25 Years

30 Years

$ 700

$ 143,391

$ 290,129

$ 531,558

$ 928,783

$1,582,341

750

153,634

310,853

569,527

995,125

1,695,366

800

163,876

331,576

607,495

1,061,467

1,808,390

850

174,118

352,280

645,464

1,127,808

1,921,415

900

184,360

373,023

683,432

1,194,150

2,034,439

1,000

194,603

393,369

759,369

1,326,833

2,260,488

1,100

225,329

455,917

835,306

1,459,517

2,486,537

1,200

245,814

497,364

911,242

1,592,200

2,712,585

1,300

266,298

538,811

987,179

1,724,883

2,938,634

1,400

286,783

580,259

1,063,116

1,857,567

3,164,683

1,500

307,267

621,705

1,139,053

1,990,250

3,390,731

1,600

327,752

663,152

1,214,990

2,122,933

3,616,780

1,700

348,236

704,599

1,290,927

2,255,616

3,842.828

THE LOAN PROCESS

The Loan Process Explaining the concept of FICO When it comes to buying a home, how you’ll pay for it is perhaps the key indicator. Since this is the biggest investment and expense you’ll have month in and month out, a formula has been created to estimate your credit worthiness in the future based on your payments in the past. This credit rating score is called FICO and was developed by the Fair Isaac Company. Most lenders base approval on them. You have three FICO scores, one for each of the three national credit bureaus. FICO looks at your past credit patterns and assesses a score from 300 to 850 points. Your individual interest rate on the owed balance will be directly tied to your past habits and whether the lender thinks they’ll be paid on time. For example, if you have a bankruptcy; derogatories or delinquencies; loan defaults; repossession; or multiple late payments, you are a high risk. As a result, you must pay more to borrow. Or, if you have high indebtedness; longterm, high-dollar credit use; revolving, rather than installment credit use; derogatories; or, you’re using many credit lines that create a high percentage of debt against your total assets, you may be considered a credit risk.

Finally, if during the loan process you make a large purchase; change jobs; switch banks; move your money around; or pay off existing accounts without your lenders request, you can negatively impact your loan approval. Luckily, you can solve your credit risks by facing them head-on. Pay down your balances. Consolidate your debts. Pay your bills on time every time. Use installment, rather than revolving credit lines. Use an allcash offense to chop your charge card debts down to size. But, here’s the good news: Even if you’ve got a low FICO credit score, you can buy a home! With the emergence of alternative lenders, there are still loan programs you can qualify for. Here are just a few: Adjustable Rate Loan. Adjustable or variable rates refer to the ﬂuctuating interest rate you’ll pay over the life of the loan. This rate is periodically adjusted to coincide with changes in the index on which the rate is based. The minimum and maximum amounts of adjustment as well as the frequency of adjustment are speciﬁed in the loan terms. An adjustable rate mortgage may allow you to qualify for a higher loan amount. However, maximums, caps and time frames should be considered before deciding on this type of loan.

THE LOAN PROCESS

Loan Types payments. This type of loan works well when you have cash to spare. Conventional Loan. This loan refers to a non-government insured–such as a nonFederal Housing Administration (FHA) or non-Veteran’s Administration (VA)–program that is secured by investors. For example, ﬁxed rate, adjustable and balloon are conventional loans.

Assumable Loan. This loan enables a buyer to pay the seller for the equity in the home and take over the payments without meeting any requirements. You will need income, credit and fund veriﬁcations by the lender before the loan can be transferred to the buyer. Balloon Payment Loan. A loan that has level monthly payments of principal and interest that do not fully amortize the loan. This loan can also be extendable or rolled into a different type. Such a move could be employed when reﬁnancing before the loan is due to if you plan to sell before that time. Buy-down Loan. You can make an initial lump sum payment to reduce your monthly

FHA Loan. Beneﬁcial for buyers who don’t have large down payments, this loan is insured by the Federal Housing Administration (FHA) under Housing and Urban Development (HUD). Also known as a government mortgage. An FHA loan offers easier qualifying with less upfront cash needed. However, the condition of the property is strictly regulated. The seller pays a portion of the closing costs that would typically be paid by the buyer in a conventional loan program. VA Loan. If you’ve served in the United States Armed Forces, you can apply for a VA loan which guarantees up to 100% of the purchase price and requires little or no down payment. The seller pays much of the closing costs; however, those fees are added to the sales price of the home.

THE LOAN PROCESS

Fees and points Points are fees paid up front that are used to lower the interest rate. One percent of a new loan amount equals one point. This is the fee you pay a bank or institution for lending you money. So, if your loan amount is $100,000, each point equals $1,000. Who pays points Generally, there’s three scenarios. The buyer usually pays points or fees in FHA or VA loans. The buyer or seller can pay discount fees in FHA loans while the seller pays the discount fee in a VA loan. In conventional loans, points can be paid by either the buyer or the seller or split between the two parties. Points change Points or fees are set by individual lenders. They vary and help determine the amount of your mortgage. Points are not necessarily locked in In a FHA or conventional loan, points are not usually changed from commitment to settlement.

In a VA loan, points are not locked and changed based on federal government settings. Points are tax deductible Points paid on your home loan are deductible in the year it is paid if the points meet specific conditions. Those conditions include: occupancy requirements; settlement statements on HUD1; and using the home loan to either build or purchase. A tax specialist is a good friend to have when discussing this topic, and should be consulted. Private mortgage insurance To protect lenders against severe financial losses in case a loan is not repaid for any reason, a specific type of insurance has been created. Known as private mortgage insurance or PMI, you can qualify for a mortgage even if you have a down payment of only three percent. PMI lets lenders accept lower down payments than normal because you pay a monthly or yearly fee that cuts their risk.

THE LOAN PROCESS

If you make a down payment under twenty percent of the total price, you’ll need PMI. Lenders will be protected from potential loss if you default on your loan. Length of PMI

When you’ve achieved twenty percent equity in your home, you can usually cancel PMI. You’ll achieve 20% equity when you’ve either paid the principal down or the property appreciates or a combination of the two. Consult your lender for requirements to stop paying PMI. Cost of PMI Premiums are based on the amount and terms of the mortgage and will vary according to loan-to-value ratio, type of loan and the amount of coverage required by the lender.

Property appraisal How much is your house worth? To determine its value, an appraisal is needed. Appraisers are an important component in determining what a house should sell for or what its current value is for equity purposes. Generally, appraisers are both researchers and inspectors. They break down all the numbers in terms of size, rooms, baths, electrical, plumbing, roof, floors, ventilation, foundation, fireplaces and the like. Then, they investigate comparable properties in the neighborhood. How much did other, similar homes sell for? What, then, is a conservative valuation of your property? Finally, appraisers visit the property and detail all the particulars. They take pictures, go inside and out and determine what’s good, and what’s bad. They’ll draw a floor plan and estimate its value.

G E N E R A L I N F O R M AT I O N

Who Pays for What in the Real Estate Transaction? THE SELLER Generally Pays for...

THE BUYER Generally Pays for...

Real estate commission

Title insurance premium for lender’s policy

Escrow fee (50%)

Document preparation fee

Document preparation (if applicable)

Documentary transfer tax ($1.10 per $1,000 of sale)

Recording charges for all documents in

Any city transfer conveyance tax (according to contract) Any loan fees required by buyer’s lender (government loans) Payoff of all loans in seller’s name

All new loan charges, except those paid by seller (government loans) Interest on new loan from date of funding to 30 days prior to ﬁrst payment date

Interest accrued to lender being paid off

Termite inspection (according to contract)

Assumption/change of records fee for take-

Home warranty (according to contract)

over of existing loan

Any judgments, tax liens etal against the seller

Inspection fees (house, roof, geological etc.)

Tax proration

Fire insurance premium (ﬁrst year)

Any unpaid homeowner’s dues

Next month’s HOA fee(s)

Recording charges to clear all documents of record against seller Any bonds or assessments (per contract) Any & all delinquent taxes Homeowner’s association transfer—doc fees Homeowner’s title insurance policy premium Zone disclosure report

buyer’s name

G E N E R A L I N F O R M AT I O N

California Transfer Tax All taxes are per thousand or part thereof. Rates may change without notice. County Alameda

County Tax* $1.10

Monument Fee Yes-$10

Contra Costa

$1.10

Yes-$10

Fresno Los Angeles

$1.10 $1.10

None Yes-$10

Orange Placer Riverside Sacramento San Bernardino San Diego San Francisco

$1.10 $1.10 $1.10 $1.10 $1.10 $1.10 $1.10

Yes-$20 None Yes-$10 None Yes-$10 Yes-$10 None

San Joaquin San Mateo Santa Clara

$1.10 $1.10 $1.10

None None Yes-$10

Solano Sonoma

$1.10 $1.10

Yes-$10 Yes-$10

Stanislaus Ventura Yolo

$1.10 $1.10 $1.10

Yes-$10 Yes-$10 None

City Transfer Tax* Alameda......................................$ 5.40 Albany.........................................$ 6.40 Berkeley ......................................$ 15.00 Hayward......................................$ 4.50 Piedmont*...................................$ 13.00 Oakland ......................................$ 15.00 San Leandro ................................$ 6.00 El Cerrito .....................................$ 7.00 Pinole* ........................................$ 5.50 Richmond ....................................$ 7.00 San Pablo ....................................$ 7.00 None Culver City ..................................$ 4.50 Los Angeles .................................$ 4.50 Pomona.......................................$ 2.20 Redondo Beach ...........................$ 2.20 Santa Monica ..............................$ 3.00 None None Riverside ......................................$ 2.20 Sacramento .................................$ 2.75 None None San Francisco*............<250K $ 5.00 >250 $ 3.40 Stockton......................................$ 3.00 San Mateo*................. .5% of total price Mountain View............................$ 3.30 Palo Alto .....................................$ 3.30 San Jose ......................................$ 3.30 Vallejo .........................................$ 3.30 Cotati ..........................................$ 1.90 Cloverdale ...................................$ 1.10 Petaluma .....................................$ 2.00 Rohnert Park ...............................$ 1.10 Santa Rosa ..................................$ 2.00 Sebastopol ..................................$ 2.00 None None Davis ...........................................$ 1.10 West Sacramento ........................$ 1.00 Winters .......................................$ 2.20 Woodland ...................................$ 2.20

* Indicates a change

P R O P E R T Y TA X G U I D E

Property Tax Guide What is property tax? Property taxes are fees based on predetermined percentages of assessed values on individual properties. Paid semi-annually or annually, property taxes are administered by local government and tax rates vary by county. How and when do I pay property taxes on my newly purchased home? There’s several ways to pay your ﬁrst year’s property taxes, depending on when you close escrow. For example, if you purchased your home between January and October, you must pay your ﬁrst property tax installment by November 1. Be vigilant! Your property tax bill may be forwarded to the seller’s new address instead of you. If you don’t receive your property tax bill by mid-October, contact the County Tax Collector and get a duplicate bill. If you’re delinquent, you’ll be assessed a ten percent penalty and add-on fees. If you close escrow near December 10, the seller will need to pay the Tax Collector and forward that check to the escrow holder. The escrow holder will ensure that the title

company forwards the monies to the County. Finally, if your property is in escrow and the sellers have just paid property taxes, have your agent request proof of purchase. Such proof of payment will allow a successful closing of escrow without a potential tax hold. What is an impound account? An impound account makes it easy for borrowers to make sure that their property taxes and insurance payments are always paid on time. Basically, your lender sets up an account allowing them to collect tax and insurance payments each month. This impound payment is collected with your monthly mortgage principal and interest payment and is amortized over the year with a mandatory two-month payment pad. The lender then directly pays the County Tax Collector in November and February and the insurance company annually when payments are due. Many homeowners like the idea of paying monthly increments since it ﬂattens payments over the year.

P R O P E R T Y TA X G U I D E

Property Tax Timeline

January

February

March

January 1 Happy New Year! Tax assessment date is today

February 1 2nd installment due February 10 File your homeowner’s, veteran’s & senior citizens 100% exemption today

March 1 Assessment date Taxes on unsecured roll due today

April

May

April 10 2nd Tax Installment Delinquent If you’re late, pay +10% penalty plus $10 add-on fee; penalty & fee valid today thru June 30

June June 8 Publication date for delinquent list June 30 Properties with delinquent taxes sold to state

July

August

September

July 1 First day of new ﬁscal year! One or both tax installments delinquent—add 10% penalty plus $10 add-on fee plus $15 redemption charge plus 1.5% per month; new property values info to home owners ﬁrst Monday-assessment appeals July 30 Last day to advise owners of new property values

Late sales numbers assigned for delinquent taxes

Mid tax rates set

October

November

December

Last week tax bills mailed

November 1 First installment due

December 10 First installment delinquent-add 10% penalty plus $10 add-on fee

P R O P E R T Y TA X G U I D E

Supplemental Tax Question & Answer Guide Often times, supplemental property taxes come as a surprise to new homeowners. These tips should help you understand what they are for and how they aﬀect a new homeowner. How do supplemental taxes affect you? Supplemental property taxes only affect individuals who are buying new property or initiating new construction. After the purchase or new construction is complete, the new owner will receive a bill for supplemental property taxes which will become a lien against the property as of the date of ownership change or the date of completion of new construction. When and how are the bills generated? It’s not easy to predict when the new property owner will be billed. It may be as soon as three weeks after escrow closes or the new construction is complete. It also might take six months or more, depending on what county the property is located in and the workloads of the County Assessor, County Controller/Auditor and the County Tax Collector. The assessor will appraise the property and advise the owner of the new supplemental assessment amount. The property owner will

then have the opportunity to discuss the valuation, apply for a Homeowner’s Exemption and be informed of their right to file an Assessment Appeal. The assessor then calculates the amount of the supplemental tax and the tax collector mails a supplemental tax bill to the property owner. The bill will identify the amount of the supplemental tax and the date the taxes will become delinquent. How will the amount of the bill be determined? A formula is used to determine the tax bill. The total supplemental assessment will be prorated based on the number of months remaining until June 30, the end of the tax year. The proration factor works like this: The supplemental tax becomes effective on the first day of the month following the month in which the change of ownership or completion of new construction actually occurred. If the effective date is July 1, then there will be no supplemental assessment on the current tax roll and the entire supplemental assessment will be made to the tax roll being prepared which will then reflect the full cash value. If the effective date is not on July 1,

P R O P E R T Y TA X G U I D E

the factors represented in the table below are used to compute the supplemental assessment on the current tax roll.

August 1

.92

September 1

.83

(1) If the bill is mailed within the months of July through October, the ﬁrst installment will become delinquent on December 10 of the same year. The If effective Proration second installment date is: factor is: will become delinquent on April 10 of February 1 .42 the next year. March 1 .33

October 1

.75

April 1

November 1

.67

May 1

December 1

.58

June 1

January 1

.50

If effective date is:

Proration factor is:

Example: The County Auditor ﬁnds that the supplemental property taxes on the new home would be $1,000 for a full year. The change of ownership took place on September 15 with the effective date being October 10. The supplemental property taxes would be subject to a proration factor of .75 and the supplemental tax would be $750. Can the supplemental tax bill be paid in installments? All supplemental taxes are payable in two equal installments. The taxes are due on the date the bill is mailed and are delinquent on speciﬁed dates depending on the month the bill is mailed as follows:

.25

(2) If the bill is mailed within the months of .08 November through June, the ﬁrst installment will become delinquent on the last day of the month following the month in which the bill is mailed. The second installment shall become delinquent on the last day of the fourth calendar month following the date the ﬁrst installment is delinquent. .17

Will supplemental property taxes be prorated in escrow? No. Unlike ordinary annual taxes, the supplemental tax is a one-time tax due for the period from the date of new ownership or completion of new construction, until the end of the tax year on June 30. The obligation for this tax is entirely that of the property owner.

P R O P E R T Y TA X G U I D E

Understanding Mello-Roos The Mello-Roos Community Facilities Act of 1982 provides a versatile method of financing public facilities, infrastructure and services associated with new development. It is more flexible than either assessment district or general obligation bond financing and can finance a wide range of facilities and services at interest rates that are typically several percent below conventional financing rates. In the first years after passage of the MelloRoos Act, many developers viewed it suspiciously as another vehicle by which public agencies could impose additional burdens on their projects. Today, however, developers view it as an important tool in the development process that can often mean the difference between a project’s success and failure.

What is a Mello-Roos District? A Mello-Roos District, or “Community Facilities District,” is a financing district formed under this Community Facilities District Act of 1982. (Code section 5311, et seq.). It provides designated local agencies, including cities, counties, school districts and all other municipal corporations and districts with authority to form Mello-Roos Districts to finance a broad array of public facilities and services through imposition of special taxes approved by a two-thirds vote of the qualified electorate of the District. This vote is conducted by either registered voters, or, if there are fewer than twelve registered voters within the proposed District, by landowners. The facilities or services may be funded either through bonded indebtedness secured by the special taxes or directly from the special tax proceeds on a ‘pay-as-you-go’ basis. Ask your realtor if the property is in a MelloRoos district. Your realtor will be happy to provide that information.

THE TITLE PROCESS

Understanding Title Insurance The title industry in brief Prior to the development of the title industry in the late 1800’s, a homebuyer received a grantor’s warranty, attorney’s title opinion, or abstractor’s certificate as assurance of home ownership. The buyer relied on the financial integrity of the grantor, attorney, or abstractor for protection. Today, title insurance companies are regulated by state statute. They are required to post financial guarantees to ensure that any claims will be paid in a timely fashion. They also must maintain their own “title plants” which house duplicates of recorded deeds, mortgages, plats, and other pertinent county property records. What Is title insurance? Title insurance provides coverage for certain losses due to defects in the title that occurred prior to your ownership. The seller can give only those rights that previously have been received with “good title.” Title insurance protects against defects such as prior fraud or forgery that might go undetected until after closing and possibly jeopardize your ownership and investment.

THE TITLE PROCESS

Why title insurance is needed Title insurance assures the new buyers that they are acquiring marketable title from the seller. It is designed to eliminate risk or loss caused by defects in title from the past. Title insurance protects the interest of the mortgage lender as well as the equity of the buyer for as long as they or their heirs have any interest in the property.

When is the premium due? It is a one-time premium which is paid at the close of escrow. It is customary for the seller to pay for the owner’s policy. If there is a new loan, the buyer pays for the lender’s policy. The policy has a perpetual term and provides coverage for as long as you are in a position to suffer a loss.

Do all title companies offer the same protection? Any standard American Land Title Association (ALTA) policy covers the same basic items. However, First American Title’s EAGLE Policy (our ALTA Homeowner’s Policy of Title Insurance) combines the easy-tounderstand Plain Language Policy with additional coverages, including coverage for events happening after the policy date.

THE TITLE PROCESS

Ways of Holding Title As a general guide, here is a breakdown of ways to hold title. Since how you hold title has tax implications, please consult with your real estate professional, attorney or tax advisor before making any speciﬁc title decisions. Tenancy in Common

Joint Tenancy

Community Property

Community Property With Right of Survivorship (effective July 1, 2001)

Parties

Any number of persons

(can be husband & wife).

Division

Ownership can be divided into any number of interests equal or unequal.

Ownership interests must be equal.

Title

Each co-owner has a separate legal to his undivided interest.

There is only one title to the whole property.

Title is in the ‘community.’ Each interest is separate but management is uniﬁed.

Possession

Equal right of possession.

Both co-owners have equal management & control.

Conveyance

Each co-owner’s interest may be conveyed separately by its owner.

Conveyance by one co-owner without the other breaks the joint tenancy.

Death

Successors Status

Only husband & wife.

Ownership & managerial Ownership & managerial interests equal except interests equal except control of business control of business is solely with managing is solely with spouse. managing spouse.

Personal properties Conveyance by one (except ‘necessaries’) co-owner without the may be conveyed for other breaks the valuable consideration community interest with without consent of right of survivorship. other spouse. Real property requires written consent of other spouse & separate interest cannot be conveyed except upon death.

On co-owner’s death, his On co-owner’s death, his On co-owner’s death, On co-owner’s death, his interest passes by will to interest ends & cannot half belongs to survivor interest ends & cannot his devisees or his heirs. be disposed of by will. in severalty. Half goes by be disposed of by will. No survivorship rights. Survivor owns the will to decedents Survivor owns the property by survivorship. devisees or by property by survivorship. succession to survivor.

Devisees or heirs become tenants in common.

Last survivor owns property in severalty.

If passing by will, tenancy in common between devisee property in & survivor results.

Last survivor owns property in severalty.

HOME BUYER’S GUIDE

Glossary for the Home Buyer

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the index.

Broker: A person who brings parties together and assists in negotiating contracts between them for a commission or fee.

Adjustment Periods: The length of time between interest rate changes on an ARM. For example: A loan with an adjustment period of one year is called a one year ARM, which means that the interest rate can change once a year.

Buy-down Mortgage: A mortgage in which an initial lump sum payment is made to reduce a borrower’s monthly payments during the early years in a loan.

Amendment: A change that alters, adds or corrects a part of an agreement without changing the key idea or content. Amortization: Gradual repayment of a loan in equal installments of principal and interest, rather than interest only payments. Annual Percentage Rate (APR): The total finance charge (interest, loan fees, points expressed as percentage of the loan amount) stated as a yearly rate. Appraisal: A written analysis of the estimated value of a property prepared by a qualified appraiser. Assumption Of Mortgage: A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or Deed of Trust. The lender must approve the buyer in order to assume the loan. Balloon Mortgage: A mortgage that has level monthly payments of principal and interest that do not fully amortize the loan. The balance is due in a lump sum payment at a specified date, usually at the end of the term. Bankruptcy: A proceeding in a federal court in which a debtor who has greater debts than assets can get debt relief by transferring those assets to a trustee or agreeing to reorganization of assets and liabilities. Beneficiary: The recipient of benefits, usually a lender, and often from a deed of trust.

Cap: The limit of how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage. Cash-out Refinance: A refinance transaction in which the borrower receives additional cash for any purpose. CC&R’s: Covenants, Conditions, and Restrictions: A document controlling the use, requirements and restrictions of a property. Certificate Of Reasonable Value (CRV): A document that establishes the maximum value and loan amount for a VA guaranteed loan. Close Of Escrow: The date the documents are recorded and title passes from seller to buyer. On this date, the buyer becomes the legal owner and title insurance becomes effective. Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing including deposits for taxes, hazard insurance, and mortgage insurance. Cloud On Title: A claim, encumbrance or condition that impairs the title to real property until disproved or eliminated through such means as a quitclaim deed or a quiet title legal action. Comparable Sales: Sales with similar characteristics as the subject property, used for appraisal analysis. Commonly known as “comps.” Contingency Clause: The condition or dependence upon a stated event which must occur before a contract is binding. For example: The sale of a house, contingent upon the buyer obtaining financing.

HOME BUYER’S GUIDE

Conversion Provision: A provision in some ARM’s to convert the loan to a fixed rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgage. This conversion feature may be an extra cost. Conveyance: Commonly a deed or trust deed that is used to transfer (convey) title to property from one person to another. Credit Bureau: An organization that gathers, records and keeps financial and public records data about the payment records of persons being considered for credit. Creditor: A person to whom money is owed. Deed: The legal document transferring or conveying

Escrow: An impartial third-party stakeholder for both buyer and seller who is responsible for completing paperwork and distributing funds. Equity: The difference between the value of a property and the amount still owed on its mortgage. Fair Market Value: The price at which a property will sell from a willing buyer to a willing seller. Federal National Mortgage Association (FNMA): Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by the FHA or guaranteed by VA, as well as conventional home mortgages. Fee Simple: An estate in which the owner has unrestricted power to dispose of the property as he/she wishes including leaving by will or inheritance. It is the greatest interest a person can have in real estate. Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z. Fixed Rate Mortgage: A mortgage in which the payments and interest rate do not change during the term of the loan. Foreclosure: A legal action allowing a lender to sell a borrower’s property in order to satisfy the debt. Government Mortgage: A mortgage insured by the Federal Housing Administration (FHA) or guaranteed by the Veteran’s Administration (VA) or the Rural Housing Service (RHS). Graduated Payment Mortgage: A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

title to a property from one party to another. Deed Of Trust: An instrument used in many states in place of a mortgage. Deed Restrictions: Limitations in a deed to a property that dictates certain uses that may or may not be made of the property. Delinquency: Failure to make payments when payments are due. Down Payment: The part of the purchase price that a buyer pays in cash and does not ﬁnance with a mortgage. Due On Sale Clause: An acceleration clause that requires full payment of a mortgage or Deed of Trust when the secured property changes ownership. Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the buyer with a written offer as evidence of good faith. Easement: A right, privilege or interest limited to a speciﬁc purpose that one party has in the land of another.

Grant Deed: A deed used to transfer real property, containing warranties against prior conveyances or encumbrances. Hazard Insurance: Insurance that compensates for fire, wind, vandalism or hazardous physical damage to a property. Buyer may add liability insurance and extended coverage for personal property. Home Inspection Report: A qualified inspector’s report on a property’s overall condition, usually including an evaluation of the structure and internal mechanical systems. Home Owner’s Association (HOA): A nonprofit, formal group of condominium owners who desire to manage, maintain and improve the development’s common areas. Home Warranty Plan: Type of insurance that covers against failure of mechanical systems on a property, such as plumbing, electrical, heating systems and installed appliances.

HOME BUYER’S GUIDE

Impounds: A trust type of account established by lenders for the accumulation of borrower’s funds to meet periodic payments of taxes, mortgage insurance premiums and/or future insurance policy premiums required to protect their security. Index: A published rate plus a margin that determines interest rates on an adjustable-rate mortgage. Insurance: An agreement covering home owners for specific losses in exchange for a periodic payment. Joint Tenancy: An equal undivided ownership of property by two or more persons, including the right of survivorship. Legal Description: A highly specific description recognized by law, based on government surveys, that thoroughly identifies the exact boundaries of an entire piece of land. Lien: A legal hold or claim on property as security for a debt or charge that must be repaid when that property is sold. Loan: An amount of borrowed money (principal) that is usually repaid with interest. Loan Commitment: A written promise to make a loan for a specified amount on specific terms.

Prepayment Penalty: A fee charged to a mortgagor who pays a loan before it is due. Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage. Purchase Agreement: Written document stating terms and conditions between a property buyer and seller.

Loan To Value (LTV) Ratio: The relationship between the amount of the appraised value of the property and the amount of the loan, expressed as a percentage.

Quitclaim Deed: A deed operating as a release, intending to pass any title, interest or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title by the grantor.

Margin: The number of percentage points the lender adds to the index rate to calculate the adjustable rate mortgage (ARM) interest rate at each adjustment date.

Realtor: A real estate broker or associate active in a local real estate board afﬁliate with the National Association of Realtors.

Mortgage: A legal document that pledges a property to a lender as security for debt payment.

Recording: Filing documents affecting real property with the County Recorder as a matter of public record.

Negative Amortization: Increase in mortgage debt that occurs when monthly payments are too low to cover the full amount of interest due. When this shortfall is added to the remaining balance, it creates “negative” amortization.

Tenancy In Common: A type of joint ownership in a property with no right of survivorship.

Origination Fee: A fee or charge paid for establishing a loan.

Title Insurance Policy: A policy that protects the purchaser, mortgagee, or other party against losses.

PITI: A payment combining principal, interest, taxes & insurance.

VA Loan: A loan that is guaranteed by the Veterans Administration and made by a private lender.

Point: A fee collected by a lender that is equal to 1% of the principal amount of an investment or note.

Warranty Deed: A real estate oriented document used to convey fee title to real property from the grantor to the grantee (usually the seller to the buyer).

Power Of Attorney: A written instrument whereby a principal gives authority to an agent, who may also be called an “Attorney-in-Fact.”

Preliminary Title Report: A report showing the condition of title before a sale or loan transaction.

Title: A legal document that conﬁrms a person’s right to own or ownership of a property.

HOME BUYER’S GUIDE

Tools You Can Use Ask your real estate professional to provide you with more in-depth information on these important topics: Brochures Life of a Title Life of an Escrow Loan Payment Calculator Rent vs. Buy Comparison Chart Understanding Mello-Roos Ways of Holding Title Why Title Insurance? (Claim Stories) Who Pays for What in a Real Estate Transaction? Golf Directory Home Owner’s Records Folder Maps—Streets and Subdivision maps available for certain areas School Information

HOME BUYERâ&#x20AC;&#x2122;S GUIDE

Notes

In California, we have "Agency Representation" That means that we can show you every property that is available for sale and we can represent you instead of the seller. The best part about this is that the seller pays us at the close of escrow and we represent you. The Best of All Worlds!

HOME BUYER’S GUIDE

Imperial County El Centro Oﬃce 1425 Main Street El Centro, CA 92243 (760) 337-6590 Los Angeles County 520 North Central Avenue Glendale, CA 91203 (800) 668-4853 Orange County 2 First American Way Santa Ana, CA 92707 (800) 854-3643 Riverside County 3625 14th Street Riverside, CA 92501 (800) 499-0945 San Bernardino County 323 Court Street San Bernardino, CA 92401 (800) 962-2369 San Diego County Main Oﬃce 411 Ivy Street San Diego, C A 92101 (800) 451-0454 Ventura County 1889 Rice Avenue Oxnard, CA 93030 (800) 983-1500