Financing & Mortgages

Purchasing a new home can be exciting, adventurous and challenging all at the same time. With so many financing options available, it's important to educate yourself on the process to ensure you're making the best, most cost-effective long-term decisions.

Assembling the Right Team

A qualified real estate professional can help you create the best team for the entire home-buying process. To purchase a home, you typically will need an agent, a mortgage company, title company, various inspectors, an insurance company and in some instances, a real estate attorney.

Creating a Housing Budget

A real estate agent can help you establish a housing budget. The budget should be based on numerous factors including income level, amount available from the lending institution, your debt and budget, the amount of money available for the down payment and the interest rate. A real estate agent will help you determine the maximum price you can afford to pay for a home. The agent will also factor in taxes, insurance and any renovations (if needed) to give you a firm budget with which to plan. Your agent can also help you budget for incidentals, such as window coverings, new furniture and any alterations planned for the home.

Finding the Right Financing

A lender will evaluate your financial situation and provide you with a figure outlining the maximum amount you qualify for in the form of a mortgage. Before looking at homes, consider obtaining a pre-approval letter from your lender. This lets potential sellers know that financing is in place and that you're serious about the transaction.

Documentation

To start the loan qualifying process, lenders will request a list of documents that provide a snapshot of your current economic condition. Lenders are taking great care these days to ensure all paperwork is in order and that proof of income is verified. Be realistic in setting your budget before you start house hunting and be prepared to provide detailed financial, tax and employment paperwork during the process.

Credit Check

Before applying for a home loan, it's a good idea to secure a copy of your credit report. This will eliminate any surprises when talking to a loan officer. It also will allow you to verify the information on the report and clean up any errors that might exist before applying for a loan. A credit score or "risk score" is a number that the lender uses to help them decide how likely you are to repay the loan in a timely manner. A high score demonstrates a solid repayment history, while a low score sends up red flags.

What is your score? Get copies of you most current credit report with one of three major credit reporting agencies:

Equifax
800.685.1111
equifax.com

Experian
888.397.3742
experian.com

TransUnion
800.888.4213
transunion.com

Interest Rate

In addition to the dollar amount of the loan, pay special attention to the interest rate you're being offered. Lower rates enable buyers to afford a more expensive home without becoming "house poor," a condition in which the homeowner can afford the house but little else.

Points

If possible, steer clear of origination points, which lenders use to cover the expense of making a loan. According to bankrate.com, one point equals one percent of a mortgage loan. To help lower the interest rate of your loan, you may want to "buy down" points by paying upfront for a lower interest rate. Points paid are eligible for deduction from federal income tax for the year in which they are paid; however, if the seller pays any of the points - a popular negotiation tactic - both the buyer and seller need to agree on the deduction before it's taken.

Different Types of Loans

Escrow

Typically, if your down payment is less than 20 percent, you'll need an escrow account. With an escrow account, the lender automatically places a portion of your monthly note into an account specifically designated to pay for insurance and taxes. The mortgage company is responsible for paying the annual bills from that account.

Title Insurance

Title companies provide a valuable service during the home-buying process. A title company is responsible for researching abstracts or actual deed records, lawsuits, tax records, liens and other documents to make sure no one else has an ownership claim against a property. Once the title company determines a clear title, it will issue an insurance policy to the mortgage company and the buyer to guard against any title defects that might show up later.

In addition to researching the title to a property, a title company also serves as the host on closing day. Often the real estate agent, buyer, seller and title representative will meet at the title company to sign closing papers. After all papers are signed, the title company will file the necessary documents with the county to validate the sale.

Title insurance protects against:

  • Fraud
  • Forged deeds, releases or wills
  • Undisclosed or missing heirs
  • Liens for unpaid estate, inheritance, income or gift taxes
  • Instruments executed under invalid or expired power of attorney
  • False impersonation of the true owner of the property
  • Mistakes in recording legal documents
  • Deeds by minors or by persons supposedly single but, in fact, married
  • Misinterpretations of wills

Negotiating the Transaction

According to the National Association of Realtors, the negotiating table is where consumers believe the real estate agent "earns his or her commission." As a buyer, you want your agent to be a tough, yet gracious negotiator who will obtain the best purchase price possible.
Most real estate agents will research the sale price of other, similar homes in the area that recently sold to give them bargaining power.

In addition to the comparative market analysis, an agent will account for and explain to the buyer the various nuances of the different streets in the neighborhood. While two houses in the same neighborhood may look identical from the outside, there are many factors that impact the asking price.

Once you find a home you like, your real estate agent will be responsible for presenting your official offer to the seller's agent (the real estate agent representing the home seller). Your offer can contain something called "contingency clauses," or provisions associated with the offer. For example, you may offer "X dollars" based on the contingency that the owner leave the refrigerator or washer and dryer, include a home warranty, take care of major or minor repairs or even pay part of the points at closing. If the seller accepts the offer, you'll need to place "earnest money" into an escrow account to demonstrate serious interest in purchasing the home. The typical escrow amount is typically a percentage of the purchase price.

Inspectors

An inspector will conduct a thorough evaluation of the property. Home inspections are advised not only for resale homes, but for new homes as well.

The prospective homebuyer typically chooses the inspector (ask your real estate agent for referrals) and pays for inspection, which is based on the size of the house and its systems (such as pool, spa, irrigation, etc.) Inspectors spend approximately one hour for every 1,000 square feet of home examining the roof, main electrical panel, foundation, windows, doors, faucets, air conditioner, electrical receptacles and major kitchen appliances.

Upon completion, the inspector will walk you and your real estate agent through the home to explain any necessary renovations or flaws in the home. Most agents will have good knowledge of the area and should explain any home flaws common to the neighborhood.

An inspector may recommend further in-depth examination of critical areas such as plumbing, electrical, termite control, foundation or air conditioning. Specialized inspectors can provide specific information on the condition of the problem area and provide a home repair estimate. The cost of repairs can give your real estate agent leverage to either negotiate a lower price for the home or have the current homeowner pay for necessary repairs.

Nevada Property Taxes

In Nevada, all property is subject to taxation. In Clark County, the county's tax assessor values all property to be taxed. The assessor is required by Nevada law to discover, list and value all property within the 88 tax districts in Clark County. The tax rates for these districts are based on the amount of monies budgeted to them for the necessary maintenance and improvements of their facilities and services. The tax monies collected for the districts pay for schools, roads, police and fire protection, along with the other government and public services.

The Nevada Taxpayers Association defines real property as land, buildings and improvements which are not normally removable and mobile/manufactured homes that have been converted to real property. Personal property is described as all property not permanently affixed to land, such as aircraft, business equipment, agricultural equipment, billboards, etc., and mobile/manufactured homes not converted to real property.

Nevada tax law (NRS 361) entitles qualified individuals to an exemption of a specified amount of assessed value, according to the Clark County Tax Assessor's Office. Blind persons, surviving spouses, disabled veterans and veterans of certain wars may be eligible. For more information on property taxes in Clark County, visit the county at co.clark.nv.us/assessor/assessor.htm.