Before You Start | Financing Your Purchase | The Home Loan Process
Components of a Mortgage | The Buying Process | Making the Offer | Escrow
Tips from the Torps for First Time Home Buyers | Download PDF
The Torp's / Compass
Los Angeles Area
Southern California is one of the most desirable real estate markets in the world, and we understand that navigating the property buying process can seem challenging.
For over 20 years, buyers have entrusted us to guide and advise them during every step of the home buying process. Our expertise and breadth of knowledge will help you find the perfect home that fits your needs, budget, and lifestyle.
Before you start
1. What is your price range?
2. What type of property are you looking for? (single-family home, or condo)
3. Do you have any preferred neighborhoods?
4. Do you have pets?
5. Do you have children?
6. Is proximity to public transportation an important factor?
7. What amenities are most important to you? (parking, yard, etc.)
buy a home
1 Initial Consultation
As your advisers and advocates, we will discuss with you your priorities and time-frame. From there we will gauge how to most efficiently and effectively guide your successful search.
2 Get Pre-Approved
Before beginning your search, your first step is to get pre-approved for a mortgage loan (unless you will be paying in cash for the full price of your home). We are happy to connect you to an experienced and trusted mortgage advisor.
Based on your income and credit history, the mortgage advisor will determine how much a bank will lend you, which will help you determine the price range for your search.
3 Visit Properties
Attend virtual and in-person viewings and open houses spanning a range of areas and property types. Now is the time to consider your ideal location and amenities. We'll be happy to keep you apprised of all the Compass Coming Soon and off-market opportunities.
4 Identify Property and Review Disclosure Package
Once you have selected a property, you are ready to write an offer. We are well versed in the local real estate contracts and terms, as well as the sellers disclosure obligations.
5 Negotiate and Write an Offer
Your offer is a non-binding agreement to pay a certain price for the home. If your offer is lower than the list price, the seller will likely return with a “counter offer,” which you can choose to accept, reject, or counter.
We will advise on buyer pricing strategies throughout the process.
6 Due Diligence
During the escrow process you will have an opportunity to:
inspect the property
review homeowner’s association documents
Select home insurance coverage and submit to escrow
7 Final Walk-Through with Your Agent
A final walk-through ensures that the property's condition hasn't changed since your last visit and that the terms of your contract will be met.
8 Closing of Escrow
Congratulations, you are now a home owner! 🎉
The Home Loan Process
Things NOT to do when Applying for a Home Loan
The Underwriter Reviews Your Loan Components of a Mortgage
How do Lenders Qualify Buyers?
Why Get Pre-approved?*
Pre-approval is different from pre-qualifying, as it is a full loan approval instead of an opinion letter. It is recommended to get pre-approval before looking at homes. Finding out what you qualify for will help you look in the right price range.
* (We work with many experienced lenders who have a wide array of Loan Programs for virtually any level of borrower in our market. Please CALL, TEXT or EMAIL US for recommendations.)
Determining the Right Price Range
The first step in buying a house is to determine the price range that is right for you. You will need to consider how much you are prepared to invest in your home and how much you will need to borrow.
A good lender will also advise you on how much property taxes and insurance will add to your monthly mortgage payment.
Determining Cash You Will Need
You will need enough cash to cover both your down payment and any closing costs associated with the purchase. Closing costs vary significantly based on the terms of your loan but are generally 1% to 2% of the purchase price.
Determining Additional Costs
In conjunction with your lender, we will help estimate your purchasing power and your carrying costs, but it is highly recommended that you discuss your cash needs and tax ramifications with an accountant and/or financial advisor.
Pre-Approval for a Loan
An offer is given greater consideration by a seller if it is accompanied by a pre-approval letter from a reputable lender or a local mortgage broker.
This assures the seller that you will be able to obtain the proposed financing and will not tie up the property needlessly. Lenders will inquire about the following six critical factors:
2. Savings / Capital / Investments
3. Credit History
4. Debt Level / Ratio
5. Employment History
6. The Value of the Property You Wish to Purchase
The home loan process
Income $200,000 / $16,667 per month
Total monthly payments on installment
+ revolving debt
Proposed Monthly Housing Expenses:
Purchase Price: $1,250,000
Loan Amount: $1,000,000
Down Payment: $250,000
30-yr fixed interest-only payment @3.875%: 4,702.37
Taxes per month $1,302.08
HOA Dues (or hazard insurance) $500.00
Total monthly payment (PITI) - $6,504.45
Monthly Debt Payments: $400.00
Total Debt Service: $6,904.45
Housing to income ratio 39%
*Many lenders will allow up to 43%-45% of your gross income and total monthly obligations.
**Lenders will use a formula of 1.25% of the sales price to calculate property taxes. The property taxes in many cities will be more or less.
Flow of a Real Estate Transaction
Your Property Search
Types of Ownership/Vesting
Making the Offer
Property Types 🏠
Single Family Home:
A single-family home (often abbreviated as SFH), house or dwelling is a free-standing residential building that is maintained as a single dwelling unit. Even if the dwelling unit shares one or more walls with another unit, it is considered a single family home if it has direct access to a street and does not share heating facilities/ equipment, water equipment, nor any other essential facility or service.
A condominium is usually attached housing, where the buyers/owners of each unit own their individual unit and a portion of the private land that the building sits on, as well as any amenities. All condominium buildings have associations (often referred to as Homeowner Associations) that govern/oversee the policies of the condominium building as a whole, allocate expenses for maintenance, and collect the homeowner association fees.
Townhouses are a style of multi-floor condos that share one to two walls with adjacent properties but have their own entrances.
The flow of a real estate transaction
Things you should NOT do when applying for a home loan... 🚫 (that can affect your credit score)
Below is a list of things to steer clear of when seeking to obtain financing for a home. The following items may be detrimental when trying to move forward with the loan process.
DON’T buy (unless your pay cash) or lease an auto before you apply for a home loan
Lenders look carefully at your debt-to-income ratio.
A large payment such as a car lease or purchase can greatly impact those ratios and prevent you from qualifying for a home loan.
DON’T move assets from one bank account to another
These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. The lender can verify each account as it currently exists. You can consolidate your accounts later if you need to.
DON’T change jobs
A new job may involve a probation period, which must be satisfied before income from the new job can be considered for qualifying purposes.
DON’T buy new furniture or major appliances for your new home... Unless you pay cash
If the new purchases increase the amount of debt you are responsible for, there is the possibility this may disqualify you from getting the loan, or cut down on the available funds you need to meet the closing costs.
DON’T run a credit report on yourself
This will show as an inquiry on your lender’s credit report. Inquiries must be explained in writing.
DON’T attempt to consolidate bills before speaking with your lender
The lender can advise you if this needs to be done.
DON’T pack or ship information needed for the loan application
Important paperwork such as W-2 forms, divorce decrees, and tax returns should not be sent with your household goods. Duplicate copies take weeks to obtain, and could stall the closing date on your transaction.
reviews your loan
It is important that credit has been established with a good payment history. Any derogatory credit must have a good explanation. Outstanding collection accounts, judgements, or liens must be paid through escrow.
The credit report will also list a credit score – a mathematical calculation of your overall credit rating.
2. Job Stability
A consistent job history with the same company is ideal; however if changes have been made for advancement, it is acceptable. Schooling completed in preparation for a specific vocation is considered to be a part of your job history.
3. Income and Ratios
Your gross monthly income (before taxes) is computed. Bonuses, overtime, part-time, or self-employment income is averaged over the last two years.
The principle, interest, taxes, and insurance (PITI) on the new loan (plus mortgage insurance, if applicable) is divided by the gross monthly income to get the “top” ratio. P.I.T.I. and all debts are divided by the income to get the “bottom” ratio.
Ratios are ideally 33 over 38 for an 80% loan and lower for a 90%, 95% or 97% loan. If other components are strong, higher ratios may be permitted.
(PITI / Gross Monthly income = Top Ratio) (Total Debt / Gross Monthly)
4. Down Payment, Closing Costs and Cash Reserves
To be considered, your funds must have been verified as having been yours for 3 months. A 5% minimum down payment MUST be from your own funds; however, the remainder of the down payment, closing costs, and the 2 to 3 months of reserves may be gifted by a relative who provides a letter and bank statement showing the ability to give.
The property is the security for the loan. The lender will require an appraisal by a certified fee appraiser to assure that there is sufficient collateral. The underwriter will review the appraisal to verify the marketability, condition, and value of your home. The lender will also review the title report and require title insurance on the property for your protection as well as theirs.
*If you don’t fall within these guidelines, don’t panic! We work with many experienced lenders who have a wide array of Loan Programs for virtually any level of borrower in our market. Please CALL or EMAIL US for recommendations)
of a mortgage
P.I.T.I. -- Principle, Interest, Taxes and Insurance
Insurance -- Homeowner’s Insurance, Mortgage Insurance, Homeowner’s Dues
Property Taxes -- A good rule of thumb for California homebuyers who are trying to estimate what their property taxes will be is to multiply their home's purchase price by 1.25%.
This incorporates the base rate of 1% and additional local taxes, which are usually about 0.25%.
Formula for Home Owners Insurance -- Loan Amount x 0.35% = Monthly Homeowners
How do lenders
In the Los Angeles area, it’s typical for the listing agent to provide a general disclosure package to all serious buyers. This is your opportunity to review general information about the property prior to writing an offer. It is required that the sellers and agent disclose everything they know about the property and that you are aware of anything that might affect your decision to purchase the property.
Real Estate Transfer Disclosure Statement (called the RETDS), Seller Property Questionnaire
These 2 disclosures are questionnaires about the condition of the property and neighborhood
Preliminary Title Report
Provided by the Title Company, this report gives you information about the sellers
Pest Inspection Report
Sometimes referred to as a “Termite Report”, it examines all types of insect and fungus damage (Section 1) as well as conditions that could lead to damage (Seciton 2).
This inspection is performed by a specially licensed contractor who must inspect properties according to criteria established by the State Board of Pest Inspection.
A home inspection will check the overall condition of the home from the foundation to the roof, including electrical, plumbing, and heating, the basic structure, as well as the quality of the finish work. Other recommended inspections may include structural engineering, soil conditions, fireplace and furnace.
The inspection period is useful for obtaining estimates for repairs and improvements you plan to make later.
Natural Hazard Zone Disclosure (Property ID or JCP Report)
This report gives you all information about how the property might by affected by a natural hazard. Earthquake, Wildfire, Tsunami, Flood, etc. based on its specific location.
Agent’s Visual Inspection Disclosure
Each agent will conduct a visual inspection of the property to identify red flags.
Additional Disclosures for Condos and Properties with Home Owner's Associations (HOA)
Conditions, Covenants and Restrictions commonly referred to as CC&Rs
Home Owners Association (HOA) Meeting Minutes for the last 12 months
HOA Budget and Budget Reserve Study (if it’s a larger building)
Condominium Certification Form
House Rules / Bylaws / Misc. Communication
Making the offer ✍️
Q: What is a good offer?
A: A good offer depends on multiple factors: the market, the neighborhood, the seller needs and the list price. We will provide you with the best information on these factors to help you make a decision.
Is the list price low or high compared to the market? Is your offer the only one on the table or are there several you are up against? Are properties in general selling above or below asking in the neighborhood?
Q: How do you win in a multiple bid situation?
A: Primarily by understanding the strategy and motivation of the sellers. It is important to know how many other offers are on the table, the state of the market, and the goals of the seller. An offer is more than a purchase price – a good offer is drafted carefully with overall terms that will appeal to the seller.
Q: Is it beneficial to provide a personal letter or enclose photos, etc. with the offer?
A: We always structure your offer and the presentation to be absolutely as strong as possible and recommend a personal touch. Sellers want to know who is buying their house. Whether you are buying from a developer or normal seller, a good solid offer package with a personalized cover letter shows that you are serious and passionate.
Q. How long will it take for me to hear if I / we got it?
A: We generally give 24 hours for the seller to respond. In some cases the seller requests more time, but usually no more than a couple days. In the case of a short sale or REO, it can take weeks or months to hear back from the bank.
Q: What is the counter offer? How does it work?
A: When you submit an offer, the seller has four choices:
1. They can ACCEPT it as written, and you are ratified—meaning you are “in contract” to buy it.
2. They can REJECT it.
3. They can offer you a “BACK-UP” position—in the case that they have accepted another offer, this will put you in first position to ratify if the first offer cancels or falls through.
4. They can COUNTER your offer. They can counter you on the purchase price, the length of escrow, contingency periods, or any other terms. Once you receive their counter you can then 1) Accept 2) Reject or 3) Counter their counter.
This can go back and forth many times until both sides come to an agreement. As soon as one party agrees to the other’s counter, you are ratified.
Q: What is a Multiple Counter Offer?
A: If a seller receives more than one offer, they can counter all of them or a select few. In this scenario, the offer is not ratified when you respond to their counter.
The seller has the final say, therefore you are not ratified until the seller accepts your counter.
Escrow: What is it?
Escrow is the period of time between your offer being accepted and your purchase being finalized. Escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event.
Why Do I Need an Escrow?
Whether you are the buyer, seller, lender or borrower, you want assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.
The escrow officer is a neutral third party and does not represent any one party. Your title company will provide you with a preliminary title report for the buyer to be made aware of any encumbrances on the property.
Your title company also provides title insurance to ensure delivery of clean title.
How Does Escrow Work?
The principals to the escrow—buyer, seller, lender, agents—cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents.
The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be “closed.”
The duties of an escrow holder include: following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions and provide an accounting for same: the Closing or Settlement Statement.
The escrow officer can ONLY take instructions from all parties in agreement. No one party in the transaction can solely give instructions.
The escrow officer does not represent any one party—they are a neutral 3rd party in the transaction.
How Long Does Escrow Last?
This is determined on a case by case basis and will be written into the offer.
Generally, 30 days is common. However, in some cases, you (or the seller) may need more time. In some cases, it is shorter, for example with an all cash deal.
Who Chooses the Escrow?
The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder.
However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand.
What Happens During Escrow?
The escrow period gives all parties involved the time needed to comply with the terms of the offer and prepare to transfer title from the seller to the buyer. During this period, you do several things, all of which your agent will help you with:
1. You put down a refundable deposit of 3% of the purchase price which is held by the Escrow company.
2. Your lender processes your loan and will ask you for various information needed to approve you.
3. You review and sign disclosures.
4. You have any property inspections you wrote into your offer completed. Based on these inspections, you can request that the seller make repairs or give a credit towards these repairs.
5. You do your due diligence on the property, and remove your contingencies by the deadlines you requested in your offer.
6. The lender orders an appraisal for the property.
7. You sign all loan and title documents when they are ready.
8. Closing happens a couple days after you sign documents.
Please don't hesitate to reach out.
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