rent apartment or buy house

>> as part of the, "are you fiscally fit?" initiative,the benefits team is pleased to welcome to google stephanie savides, ahmad ghavi andsteven papapietro, did i pronounce that correctly? our guests today will be sharing the insightson the home buying and mortgages processes. and to give a bit of background informationon the three speakers today, stephanie savides has been a licensed real estate broker since1994, has lived on the mid-peninsula her entire life, and is a local expert and she recentlystarted savides real estate in february of this year. she sold over $65,000,000 worthof property representing both buyers and sellers in all price ranges. she specializes in theareas of menlo park, palo alto, atherton,

portola valley,â woodside, los altos and losaltos hills. ahmad ghavi is a mortgage loan officer from bank of america. he has 24 yearsof experience in the mortgage industry and has shared his expertise to personally assistthousands of families with responsible and affordable home financing. steven papapietrois also a mortgage loan officer from bank of america. he has 16 years experience inmortgage industry and an extensive background on assisting first time home buyers, highnet worth borrowers, self employed borrowers and investment borrowers. and additionally,he has a great deal of experience in conventional loans, investment property lending and non-conventionaljumbo lending, as is ahmad. and with that, i'll hand it off to stephanie.>> savides: hi. first, i want to thank mina

for organizing this and thank all of you forcoming. this is a great opportunity for us and we're very excited to be here. as minasaid, i'm a real estate broker, and i've actually worked with many google people here and havehelped them successfully buy houses, so it's really, you know--i think i have some understandingof the way you all think and operate around here. and i know that steve and ahmad havealso worked with several google people, but this is our first time coming to give anykind of talk or presentation here. and actually, i don't give these presentations very often,usually i'm just out meeting with clients and looking at houses, so this is kind offun for me to do. first, just to get some general idea about all of you--do any of youown a home? can you raise your hand if you

own a home? okay, so, actually that's--thoseare more people than i thought who would currently own a home. have any--do any of you not owna home but owned one in a different state? okay, all right. so, um, yeah, i know thatsomeone had come and i think given a talk a few months ago and talked about how it'shorrible, you know, to buy a house right now. in some cases, you know, for some people itprobably is, but i think that we also feel that in many cases, it's actually a reallygood thing to do. and so, we'll talk about the ways you can try to decide for yourselveswhether it's the right time to buy or not, and then if you decide you do want to buy,we'll talk about the process you go through in qualifying for a loan, and then actuallybuying a house. so the first step in the process

of deciding whether you want to buy anythingand then buying it is determining how much you can afford. so i'll turn it over to steveand ahmad to discuss that. >> papapietro: well, good morning, everyone.thank you for having us here. we're excited to be here. what i like to start off talkingabout today is basically, the mortgage business has changed drastically since august of 2007.today, the mortgage market is extremely specific and the way i like to explain it is every"i" is dotted and every "t" is crossed. so, it's really critical that guys get pre-approvedand what i like to highlight here this morning is the difference between mortgage pre-approvalversus mortgage pre-qualification. pre-qualification is basically you call a mortgage loan officerand you're just kind of curious. curious what

your general parameters would be; to try todetermine, you know, your price point, your maximum price point, your low price pointand see how you fit into the whole equation. so, we go--we talk about your credit, youknow, what your credit look like. is it good, excellent, what is it? your asset position,down payments and then your income and your employment; very, very high level and thenwe see how that fits into current lending guidelines for 2010. at the end of that discussion,typically i can give you an idea that you're qualified for an $800,000 purchase, putting20% down, go ahead and start generally looking in the market place. but what you want todo is the next step and that's actually getting pre-approved. the difference is pre-approval,we get all the financial supporting documentation

from you, and we review all of it. it alsoincludes running credit on you guys to determine what credit scores you have and once we getto look at all of that, we could see that it fits within all the current matrices oflending, all of our current product and pricing guidelines. once that's complete, typicallyit's pretty straightforward then we could issue what's called a pre-approval letterwhich we tailor specifically for the home in which you're going to put an offer; home,condo or town home, and then we go ahead and get that off to the realtor. so definitely,if you have never been pre-approved and you're just curious about, you know, what's out thereand what opportunity you have via buying capacity, i highly suggest you research and connectwith a mortgage loan officer that can assist

you with that. so, that's the first part.the second section today is just basically general mortgage information and guidelinesof importance. ahmad and i are going to share some of these bullet points, so i'll coverthe first three. basically, the mortgage types are actually fewer and far between than theywere prior to august of 2007. everything now is all full income documentation where weverify everything. prior to that, we had mortgage vehicles that if you had plenty of down payment,there was no income verified. those days are long gone. so, the mortgage mix today is basicallya fixed rate product line a 15, 20 or 30 year fixed. we do still have adjustable-rate mortgages,they call them hybrid loans because they're fixed for a period of times and that's typically3, 5, 7 or 10 years and then they become an

annual adjustable-rate mortgage after thatpoint in time. and many of those still do have an interest only provision. clients oftenlike having an interest only loan because it helps with the monthly cash flow and, aswe all know, living in the bay area here does indeed cost a lot of money. so that's basicallythe product type today. the loan limits for 2010, conforming loans still stop at 417 butthere's--we call super conforming which takes it up to $729,000 at this point in time inthe bay area. now different counties have different caps, so you'd always want to checkwhat county in which you're going to buy. some cap it at 625,500 but in the bay areahere, it's 729,750 and that's considered a conforming loan. the great thing about thatis you still get conforming rates, so there's

no pricing variation between a loan of 417,000or a loan at 729. and then we have our non-conforming product line which technically is jumbo, andthat's anything greater than 729,750. at bank of america, we lend up to $5 million and that'sall considered jumbo/super jumbo. down payment requirements, ideally, if you could put 20%down that's going to get you in the best driver seat because it'll be typically one loan.there'll be no what's called pmi, which stands for private mortgage insurance, and we lendup to 20% down up to a $2 million loan at bank of america. now, if you want to put lessdown, we can do as little as 3.5% down, and that would be an fha loan, so you can literallyget into a property with 3.5% down. the maximum loan was 729,750 and that does have what wecall built in private mortgage insurance to

the tune of what's about 2.25% of the loanamount, but the good part is you get to add that and build it into the loan amount, andthen there's monthly mortgage insurance on top of that. but fha is a great way to getinto a property, whether it's a condo, town home or a single family residence with minimaldown and those are basically the offers with, you know, down payment. always the more thebetter; i mean when you go above $2 million, you're going to need to put typically 25%down and then as the loan amounts go up, down payment does increase. so with that, i'd liketo turn over to my business partner, ahmad ghavi.>> ghavi: good morning. i'm going to be starting with the three cs of lending. number one beingcapacity, but the other word for that is debt

to income ratio. so the lender wants to makesure that whatever amount of loan you'll take is in line with the income that you earn.typically in this market, we're on pretty specific set of underwriting guidelines andthe 45% debt to income ratio is pretty much universal now. the other word, the lenderwants to take a 40--maximum 45% of your income. the other word, if you make $10,000 a month,4,500 of that income can go towards your principal, interest, tax, insurance and any other debtthat you have. so, it is important that if you're out there looking for the property--andyou don't go out and lease a car or you don't go buy a car. just to give you an example,if you lease a car with the $450 car payment, that would take $1,000 dollar of your incomejust out of the equation. remember 45% debt

to income ratio. so, to eliminate some ofthe debts--i mean things like student loans, other stuff, there's not much you can do aboutit, so we'll count those into your ratio, but you don't want to go out and purchasenew items just before you get into contract. the second c is credit and it is crucial.it's probably one of the most important things that you need to be careful. i will highlyrecommend you might want to go one of this free site and run your own credit to see whatyour credit rating is. it's not as specific as what the lenders look at because we gothrough three different companies to pull your credit, but the credit fico score, ifyou haven't heard that, it runs anywhere from high 400 to low 800. typically, anything under680 considers a weak credit score. anything

between 680 and 700 is okay, between 700 to720 it's good; over 720 is excellent, and typically on some product, we get a bit ofa discount on interest rate if your credit fico is over 740. so, i will highly recommendthat you run your credit at least once a year and if there're issues on your credit thatyou need to take care of, do it. the next one is collateral, that's the last c of theunderwriting. collateral is basically the appraisal value of the property. when youpurchase a home, the lender has just as much of an investment, if not more, into that transactionas you do, especially if you put a 20% down and the lender come in with 80% mortgage.they want to make sure that the house that you're buying is worth the value that you'repaying for it. they want to make sure that

there's no health and any kind of a healthhazard; exposed electrical wiring, things of that nature. the appraiser will look atthose and they come up with the value that is acceptable to the lender and based on that,they move forward with the process and out the mortgage. the piti is just a lingo thatyou all, i'm sure, heard of. it stands for principal, interest, tax and insurance. goingto mortgage deductibility, none of us are tax accountant or cpas but generally, up to$1 million on a first mortgage and up to $100,000 dollars on a line of credit that is used toimprove the property is fully tax deductible along with your property tax. so, that's asfar as the tax deductible go, it changes from person to person, obviously, based on yourincome. buy versus rent analysis; we sort

of put a scenario here to get it for you.again, i don't know whether or not it's a good investment for you to buy now or wait.the rule of thumb is if--i mean the house prior to 2007 when the property values weregoing up every year, no doubt investing in property was always a great idea as long asyou're not under a deadline to sell the property. let's say you say--you think of it, hey, intwo years, google going to transfer me to some other state. well, perhaps it may notbe a good idea for you to buy if you have a deadline within two years to sell it andmove out; you may not recuperate the cost of that purchase on sale. but if it's a longterm, it's your home; it would make sense perhaps to look into it more. but in thisexample, buy versus rent, if you purchase

a home for about $800,000 and put 20% down,you're looking at about $640,000 mortgage, roughly at 5.25% interest; your payment willbe a little north of $3,500 a month. after the tax deductibility--let's say you makea $120,000 a year and you're at 40% tax bracket, after the tax deductibility that $3,500 amonth is really equal to about $2,400 rent payment. when it comes to down payment, stevementioned about the amount of down payment. if you could come up with 20% down, you'dtypically get the best program and best rate. now, some of you may be a little short ofcoming up with the 20%, maybe you have only 15%. so, two ideas, for those of you who havefamily member and underscore is family member, it cannot be your neighbor, it cannot be othergoogleians, it has to be a family member;

grandparents, parents, brother, sister whoreally, really loves you and are willing to give you gift, then you can go ahead and comein with all 20%. if you put in 20% down payment, the whole 20% can be a gift. if you put inless than a 20% down, let's say you put in a 10% down total, then the 5% has to be yourown fund, the other 5% can be a gift fund. another idea, let's say you have 17% downpayment and you really want to push it to 20% to get the best program, and let's sayyou have $50,000 worth of 401-(k) here. in a lot of institution, you can borrow againstthe 401-(k). the beauty of it is because you pay back to your own fund, we don't debt serviceyou for that payment. so, if you have a $300 payment to pay back on that loan against your401-(k), we don't count that as a debt against

you, so it won't go against your debt to incomeratio. property tax--typically, these are the things that you need to consider whenyou're looking at the property on top of your payment. your property tax, depending on whichcounty or which state you buy, it runs anywhere from 1.125 to 1.25% of the sales price. soyou're buying an $800,000 property at 1.25%, that's about $10,000 a year. now you pay thatsemi-annually, 5,000 every six months, or you can have the lender collect that money,1/12 of it every month on top of your mortgage payment so you don't have to worry about it.escrow, this is--i'm sure some of you have heard. escrow company is a neutral third partythat gets the information from the buyer, from the seller, from the lender, from yourrealtor; organize all of that to make sure

you close escrow successfully. steve?>> papapietro: thank you, ahmad. okay, i'd like to go over the mortgage process and indeed,notice the word process. in the olden days when we started, we literally could closeescrow sometimes in two weeks, sometimes a week. but those days have changed, so theprocess basically starts with you guys. we give you a very detailed list of items thatare needed, pay stubs, w-2s, tax returns, asset statements and then we set an appointmentup. it's always great to meet my recommendation with your mortgage loan officer face to face,because you can see how they work with you, how you interact, and i think just creatingthat bond is really, really powerful because you are actually buying, you know, prettybig ticket item. so now we get all your financial,

we run your credit, and it's our job, themortgage loan officer, to go ahead and see that all the documentation that you providedfits into our current lending mortgage guidelines. so, there're boxes and matrices and we makesure everything fits out, and then we have a dialogue of what you're comfortable withbuying. i always like to know whether--i always start upfront with you, what are your goalsand opportunities? what do you see yourself doing? is it a condo? is it a town home? isit a single family residence? what price point do you see yourself at? because that givesme some grounding as to where you are thinking and then i could take all the documentationin consideration and start kind of forming this path, if you will. so, once we get allthat and you leave and you know you could

buy $1 million home, you're happy, basically,i take that file and i create a beautiful working document. notice the word beautiful.it's all about you. and what i'm doing is representing your file to our processing team,mentor underwriting team. there's a very detailed cover letter that goes over the goals on whatyou're trying to accomplish. i explain anything on the file that maybe outside of guidelines,possibly showing it is a compensating factor of consideration, and then it goes into processing.so processing is actually a job function; they're called processors. and what they dois they take all of that data and they key it in to an origination system, and at bankof america, we call it i-originate. so that is the second set eyes that are looking atthe documentation of which you provided and

which i release to them. once that's enteredin, they do what's called all the variable verifications, they order the appraisals,they check whatever they need to check and there's a lot of things they check. the fourthphase is underwriting. now underwriting is a specific job function, they're called underwriters.the reason is they have to take all of this data now and ensure that it fits all of fanniemae and freddie mac's current lending guidelines. because when i call out and say, "congratulations,your loan is approved," that means they stamped off on that loan as an approval. and i willnot call out an approval until we have that, nor will ahmad, until that part is complete.so, underwriting definitely is an important part of the process. now you're all happy,you have final approval, the appraisal came

in. you're really excited, you're pickingout paint. now we go to documentation; that's the different department called our loan docdepartment. they run all the loan documentations in which you'll be signing at the title company.and once that's complete, we go to the sign off; it's called the sign off. the loan comesback to the lender it goes into a final review, final quality control check, and then theloan funds. your loan fund is one day prior to you owning the home, and then the nextday, you go on record at the county recorder's office and that's a really happy day. so,i'm happy to call you when the loan is funded and then a realtor will be elated to callyou when you go on record, and then you're entitled to the keys to the property. so,that is the process and we wanted to highlight

that because it's not as if you just meetwith one of us and kind of just walk over here and make it all happen and it's done.no. there's a different legs that has go through to achieve the end results. so, that's themortgage process. ahmad, back to closing cost. >> ghavi: so, the last part of our presentation,at least with as far as the lenders goes, is the closing fees. so you need to budgetfor besides the 20% down payment or minimum of 3.5%, you need to budget for closing costand what's called reserve. and i categorize those in three parts: number one is what wecalled lender fees. lender fees just consist of appraisal fee, credit fee, tax servicefee, processing fee. there's so many fees that they have different names for it, butcombining those, it's pretty set. for instance,

with bank of america, it's somewhere between$1,400 to $1,700 depending on the size of the property and the value of the property.so you need to budget for that. the second thing is the title and escrow fees. titleand escrow fee is vastly varies dependent on which county you're buying in, dependenton whether or not you're santa clara county or san mateo county, it could cost thousandsof dollars different. for instance, santa clara county, the seller pays 80% of the titleand escrow fee. san mateo county, the buyer pays all of those fee. southern california,there're two different escrow company and title company. northern california, they'reall the same. so you need to figure out what estate you're--what county you're buying andyour realtor can come up with those fees from

the title company or your lender can comeup with those fees for you. you also need to budget, if you're buying a single family,for things like fire insurance. if your property is in a flood zone, you need to be preparedto purchase flood insurance. the last part of the closing fees is if you know the differencebetween--well, first of all, how long are you going to keep that property? if you aregong to keep the property for a long time, it may make sense for you to pay some pointsupfront. i'm sure you've heard of points versus no point loan. simply give you an example,if we provide you with an interest rate of, for example, 5.25% for a 30-year fixed ona conforming loan, at zero point, you can reduce that interest rate from 5.25 to 5%,but it costs you one point. each point is

1% of the loan amount so at close of escrow,let's say you're buying a house for $800,000, you've taken a $640,000 mortgage and you chooseto pay one point, that's $6,400 additional funds you need to come into escrow it. andthe calculation that we do typically--you say, "well, i see myself living in this propertyfor the next 10 years." points are fully tax-deductible so when you take the after deduction of costof that point, if it takes you two years to recuperate that point and then for the nexteight years you will have a lower interest rate, obviously, that's worthwhile doing.but if your time period is shorter than that, you're thinking of just keeping the propertyfor three years, it may not be worthwhile for you to pay points. with that, i will passit on to savides.

>> savides: okay. actually, i'm just goingto--oh, okay. here. so it's still here. yeah. okay. so now, after you've met with steveand ahmad or with the loan officer, you should be coming away with knowing how much you canafford to pay out--pay for a house or a condo. so hopefully, you will have in your mind themaximum price that not only you're approved for--and you should have a loan pre-approvalletter--but also what you're comfortable spending. you know, they all have gone over what yourmonthly payments will be and all that and so in your mind, you know how much down paymentyou have. hopefully, you have a dollar amount that you're willing to spend on a house. okay.so that's your target amount that you feel like you can afford to spend. so now it'sthe fun part. now you're going to go look

around and see what you can actually get forthat price and that's the next step of really deciding if it's the right time to rent orto buy. so the first step would be to just start fiddling around online. there's a lotof sites; mlslistings.com, zillow, twila. you could just start plugging in, cut yourprice range. and i would suggest when you first start searching online to go up a littlebit in price. so maybe your, you know, cap you think is $800,000, maybe search up to$900,000 or even a million for a couple of reasons. one, sometimes houses will come onat that price and then ultimately sell for a lower price. and then also it kind of helpsto know what you could get for your target price and also what you could get for a littlebit more because it could be that when you

start searching, you say, "gosh, i just can'tfind anything i like for $800,000. i mean, i'd be better off renting. my rental is alot better than whatever i could afford for $800,000. but, you know, for $900,000 or amillion, those houses are looking pretty good. and about a year from now, i probably couldafford that." so, you know, that would be--in that case, maybe you would wait a year beforeyou want to buy something. or maybe you say, "well, you know, for $800,000 i can actuallyget a small house in a great neighborhood where i'd love to stay. and i know in abouttwo or three years, you know, some of my stock options will vest or whatever. i'll have someextra cash so that maybe i can have that great house or that small house in a great neighborhoodand then in a couple of years i can expand

it, remodel it and actually stay in that house."so, you know, it all kind of factors into your decision about whether it's the righttime now to buy or just to continue to rent. so searching online kind of gives you a generalsense for what's out there. but i'd be careful when you search online because first of all,if you--i wouldn't to pay too much attention to the value some of those zillows and someof those sites give you; their valuations are often not, you know, really accurate.but those sites are good as far as, you know, you can see what's available and also youcan go--oftentimes they have maps, google maps, you can, you know, check things outthere. but then i would suggest finding a realtor to talk to you to really then go throughwith you the ins and outs of the different

neighborhoods. you know, what the school districtsare like. you know, what kind of shopping is nearby. just, you know, really explainto you kind of the nuances of the neighborhood. so that's why it is important to find a realtorwho's familiar with your target areas. and as a buyer, it really does make sense to workwith a realtor because you don't pay the commissions. the seller is the one who pays the realtorcommissions. and sometimes, buyers think, "well, i could save money still if i justgo meet--i'll go to an open house, see a house i like and i'll just go straight to the realtorholding the open house and say, 'hey, why don't you just kind of write up the offerfor me and somehow i'll save money.'" you actually don't save money that way. what happensin that case is that the list agent, the seller's

realtor just keeps both sides of the commission.they keep 6% instead of giving 3% to a buyer's realtor and then you're not represented asa buyer. so it actually, i mean, honestly doesn't save you any money. so it really doesmake sense--i mean, you know, a realtor, especially a buyer's realtor who is in the business oflooking at houses, you know, researching the market, you know, understanding kind of thenuances of the neighborhoods. so the first step would be to talk to friends who maybelive in those areas and get referrals for a realtor. meet a few people; see if you havesome sort of rapport with the agent. you're going to be spending a lot of time with thatperson so, you know, like anything, you want someone who you kind of connect with. buti think a realtor more than--even more than

a loan officer or anyone else, you're reallygoing to be spending a lot of time with that person; driving around. it can awfully bea stressful period of time for people when they're buying a house. oftentimes peopleare, you know, under heavy stress and sometimes a realtor can be kind of soothing and sortof counseling you through the process. i've actually become very good friends--some ofmy closest friends are clients of mine because you just spend so much time with them duringa stressful time and then if they end up buying houses, you know, near me in my neighborhood,well then, we become friends. so that's kind of nice. and then once you do have a realtor,then, you know, it's good to work as productively with that person as possible like anyone.i mean, just give them feedback, be responsive

and the more you give back and the more youshow them that you're serious, the more they'll put out for you. and a lot of realtors canfind out about properties before they come on the market, they know good strategies ifthere's multiple offer situations and things like that. and then another thing, when youare looking at houses, it really is important to consider re-sale value. even though youthink you might be in a house forever, chances are you won't. and even if you have no kids,say, today, you might think, "well, i don't really care about school district; i don'thave any kids." but when the time comes to sell the house, what the school district ishas a huge impact on the property values. and then also, who knows, maybe you mightnot have kids today but you might have kids,

you know, five years from now or somethingand still be living in that property. and the same thing is if you buy a house in somesort of questionable-type location like on a busy street, near train tracks, near anindustrial area, near something else, those types of factors are always going to impactproperty values when you try to sell the house. and in a tougher market, the properties thatare in more marginal locations have more difficulty selling. so let's assume then that you'vedecided, "okay, i'm going to buy a house." and so the way it would work is you'd haveyour realtor, they're searching for houses with you, showing you houses. at the sametime, you should be doing your own research and looking at as many houses as possible;going to open houses, continuing to search

online. the more you know about the marketand what's out there, the more prepared you'll be to act when you finally find that righthouse. i've had several instances over the years where i've had clients and, you know--iknow what's out there and so i'll show them a house that i know is exactly what they'relooking for. and they see it and they love it, but unfortunately, it's the first housethey saw. and, you know, most people just feel like they can't just buy the first housethey see. they feel like, "well, gosh, i need to go look at all my options. if the firsthouse i saw is the best house, how do i know--you know, this is easy; how do i know i won'tfind 10 houses that are just as good or better?" and so--and they have a good point, they do.people need to feel like they've explored

all their options. but unfortunately, sometimesby the time they explore the options then that first house which was the perfect oneis gone and you can't really avoid that. but i think what you can do is once you get seriousabout looking for a house, really try to get out there and see as many things as you canso that hopefully, when the right house does come along, you will be ready to act. becausein today's market, the hot properties right now are actually getting multiple offers andare selling. so, in palo alto, say, anything under 1.3 million is a very popular pricerange. and so a lot of those--any good house that comes on in that price range is probablyselling within a week after coming on the market, often with multiple offers. so toreally have a chance, you have to be able

to see a house and then be ready to act onit. so to be ready to act, be prepared to act--to be ready to act, you need to havedone your research, looked at a lot of houses, know the market, know "this is the house iwant to go for." you also have to be pre-approved for a loan. you have to have a loan pre-approvalletter from a reputable lender. no seller is going to take you seriously and want toconsider your offer unless you have a strong pre-approval letter; i mean, from like thebank of america or some really strong lender that's the best. so then once you find thehouse, in california or in this area, it's a little different from some other areas.so in this area, the seller actually gets property inspections upfront before they evenlist the house. so once you find a house that

you're interested in, you ask for what's called--it'scalled a disclosure package. and there'll be a whole package where the seller will havefilled out a bunch of disclosures disclosing everything they know about the property that,you know, that would be relevant to you. and then they'll have a whole property inspectionthat talks about a 30-page report talking about the condition of the property and alsoa termite report, sometimes a roof report, you know, some other reports. so you'll havethe opportunity to review all this and really know about the condition of the property beforeyou make your offer. so you'll have to then sign all that, sign the contract, have yourpre-approval letter, and then if there are multiple offers, that's where their strategyinvolved that you'll talk with your realtor

about, you know, how to make your offer lookbetter than the others besides just price. and actually, that's where a realtor, especiallyone who has been successful in multiple offer situations, can have huge value. because actually--imean, at that point, honestly who your realtor is could be critical because all the otherrealtors in the area know each other and they kind of know who they can trust and who hasa good reputation. okay. so then you make the offer. it could be some counter offersback and forth. let's assume the seller then finally accepts your offer. so then at thatpoint, you're in contract and that's where you're also in escrow. you would then haveto write a check for 3% of the purchase price that you deposit in escrow. and escrow isreally here in northern california. escrow

is really the same as the title company. theescrow company and the title company are the same thing. so basically, it's one neutralthird party who takes in all the money and just organizes and handles the whole transferof the property. so you put your 3% deposit into the title company and then at that point,the escrow period starts. it's usually, on average, 30 days. during that time, the lenderis getting all their loan documents together, you organize your home owners, your fire casualtyinsurance, you get your utilities transferred, you know, contact your current landlord, givenotice. you basically have 30 days to get ready to move. and then in northern california,again, how it's a little different--you'll go sign off to the title company about fouror five days before close of escrow and you

sign off on all the loan documents and theother escrow documents and then you'll arrange to wire in the rest of your down payment money.and then after you've done that, three or four days before close of escrow, that's it.you don't have to do anything else. nothing happens on the day of closing. in some states,on the day of closing, everyone sits down and signs. in california, or at least in northerncalifornia, none of that happens. a few days before sign off, then day of closing, simplythe title company sends someone--one of their people down to the county recorder's officeand records the grant deed, which is the deed granting title from the seller to the buyer.and once that's recorded with the county recorders office, then escrow has closed and you ownthe property. and you get the keys and move

in and you're happy. so, anyway, that's basicallythe process of deciding whether to buy and buying a house. so now, we'll just open itup to questions. does anyone have a question? yes?>> you mentioned that a realtor might help your offer look more attractive to a sellerin ways other than just raising the offer price. so what are some of the ways in whichyou're--that could happen? what are some of the things you could put in your offer tomake yourself more attractive? >> savides: in the contract, there are contingencies.so some offers will have contingencies where you say, "i make an offer, but i want a weekto do my--even though sellers already provided inspections, i want another week to do myown inspection; seven-day property condition

contingency." or, "i want a contingency forfinancing. i want 14 days to make sure i'm really pre-approved for a loan." so thoseare contingencies. so, of course, the fewer contingencies or the shorter their contingencyperiod the more attractive the offer. some properties you might take as is. that meansyou still could have a contingency period to do inspections. but then once you've--letme back up. the contingencies--if you have a contingency period, is a period of time,say, for property inspection or financing during which if you discovered something duringthat time that you did not like, you could pull out of the contract and you would notlose your 3% deposit. so, sellers don't really like contingencies because basically untilthe contingencies are removed, you could still

pull out of the contract and get your fulldeposit back. but once you remove contingencies then if you were to pull out of the contract,you would lose your 3% deposit. but anyway, so contingency is just one way. you shortenthe contingency period or no contingencies in a highly competitive situation. also, asis versus not as is. as is means you're willing to take the property in whatever conditionit is in at the time you enter into the contract and the seller doesn't have to fix anythingor, you know, do anything else. but--versus not as is would mean the seller has to fixa lot of things before close of escrow so obviously sellers don't like that as much.the shorter the period of close of escrow is important and that's where it depends.you'd have to talk with your lender to see,

you know, how quickly you can get a loan.of course, if you can pay all cash, especially in this type of market, i mean, all cash isthe best. i mean, sellers of course love all cash because that means there's no uncertaintyregarding the loan at all and also you tend to be able to close escrow faster. you know,sellers want to get their money as quickly as possible. those are kind of the main things.and then there's kind of the intangibles and these intangibles actually are more importantthan you think. again, just the other realtors kind of knowing each other, knowing what realtorsthey can kind of trust, who they believe have--you know, certain realtors have reputation toprobably have more trustworthy clients who--and the realtors are just known that they'll getthe job done versus others who are known to

be a little flakier and you're just alwaysnot certain what's going to happen with that transaction. because when a seller goes intocontract, they main thing they want, they just want to make sure that thing closes.they want to make sure the transaction goes through like it's supposed to and you closeescrow. the worst thing for a seller is to go into contract and then have the buyer backout because then it just taints the whole property. it just is a mess, so. anyway, thoseare some of the things, so. >> so i hear a lot about the re-sale valueand how you should consider re-sale value when you're going in, but you--isn't thatpriced into the price of the house? like i hear that condos have a very low re-sale valuebut that means you're paying less for it too,

right? so why is re-sale value different thanthe value you're paying for the house? >> savides: well, now, that's a good point.and actually, that was something i originally was even going to touch on. i mean, it isa good point. if you're buying right now and--you are, you're paying less anyway. so if youtruly are buying a property at a discount, so for instance if you're in a bad schooldistrict or you have some negative--you're on a busy street next to the train tracksor something like that. if you are paying right now that discounted lower price forthat property, then--and knowing that when you sell it you're also going to, you know,be selling for a discount, then you're okay. so actually in today's market, probably youwould be okay where you would get into trouble,

more trouble would be--in some markets, whenthe market is really booming, so, say, in 2008 when everything was selling it just didn'tmatter where you were, those types of markets you might end up buying one of these condosor these houses in a bad school district and you might not be buying it for a discount.and then, when the market goes down and it's a bad market, it's those types of marginallocations that really go down even further than the others. and so that's where thenyou'll just have to wait longer until the market picks back up before you can sell ifyou want to try to recoup your price, so. >> question in san francisco?>> savides: what? hello? >> hi. are there any good ways or online toolsto rate neighborhoods or to find good school

districts? or basically just what are theneighborhood valuation tools that consumers should be using?>> savides: you can definitely look for the school district. so you can--online, you shouldbe able to figure out what school district it's in. and then there's sites, gradeschools.com,i mean, there are couple of sites where you can look up schools and get all their testscores. but even then, it's helpful to talk to a realtor because sometimes the test scoresalone don't really tell the full story. i mean, in the elementary schools and middleschools probably, it's called the api score. you know, if you want something, ideally inthe 900s or the high 800s and those are usually considered strong school districts. but there'salso, you know, a lot of other factors. the

high schools, it gets a little more marginal.for instance, i live in menlo park and our public high school is called menlo-atherton.and if you look at the average sort of test scores, api median test scores, they're notsuper high and that's because we bus a lot of kids in from east palo alto, east menlopark, you know, where they would have lower scores. but the people who are in the knowknow that actually that school has very strong ap classes. i mean many kids go on to thetop colleges. it's just that you know, a lot of the kids we have about--so we have verystrong ap classes but also many kids who pull down the scores and so even though you mightlook up online and see the average scores are not high, in reality, you know, that couldbe still a very good high school for a good

student. but yes, so i think it's mostly thatonline would be, you look at the schools. as far as the neighborhood, i don't know,i think you--i'm not sure. i think you really would probably just have to talk to peoplewho really know the neighborhoods to really understand that. i don't know of an onlinesite for that. >> so the length of escrow is determined bywhat? there are some, you know, 30 day close of escrow, there are some 45 days. like, whodetermines that and what can a buyer do to produce it if they want to? that's one question.the other question i have for ahmad and steve is regarding mortgage like hunting or, youknow, looking for the best mortgage. when is the time to do that? because i hear conflictingthings that, you know, when you made an offer

and you're in contract, you don't have timeto really start looking at that time, you should've done it before. but how do you doit before when there is no property that you will be, you know, given a consistent rateon, right? the pre-approval doesn't come with the rate so.>> savides: you know, first i'll answer the length of close of escrow and then i'll letthese guys answer your other question. that's just something that's--the length of timefor close of escrow is just something that's negotiated in the contract, it's put in thecontract. a lot depends on how fast the lender can get the loan pre-approved and it really--soactually that's almost the main is thing is it's really--so actually maybe should talkabout that. it's really probably more up to

how fast you can get the loan. if you're payingall cash, you know, some people close within a few days, although even all cash there stillare logistical things you need to get together. you'll probably still put a week or two. butso 30 days to 45 days, you know, people will accept. sellers tend to not want to go muchlonger than that if possible just because too many things can happen. if you have along close of escrow 60 days, i mean there are just too many variables. suddenly thewhole market could tank and i mean just, you know, and then the sell--the buyer could justpanic. i mean just people get uncomfortable letting the period go more than really about45 days. but i'll let these guys... >> ghavi: to answer that question regardingwhen is a good buy really. if you look at

last 40 decades--four decades, i'm sorry;70s, 80s, 90s. typically when you get the market that is down, the other word, the pricesare down, it's typically because the interest rate is very high. this is such a unique marketthat not only property values are down but also the interest is down. we don't know howlong the interest rate is going to stay down. but that creates an opportunity for thoseof you who are perhaps been waiting not to wait any longer if you're going to keep thehouse for a long time. as far as the 45 versus 30 days--30 days when you lock into your interestrate once you're in the property, once you're in contract, thirty day interest rate--30day interest lock is cheaper than 45 days, 45 days is cheaper than 60 days. it is crucialfor you to do your homework and that goes

to pre-approval. if you seriously consideringpurchasing a home within the next 6 months, talk to a lender, get pre-approved and ifanyone, for instance bank of america, if you talk to us, we'll put you on our site so ona weekly basis, on a daily basis, you can monitor the interest rate on your specifickind of a loan and see the direction of the interest rate. you can't lock it until you'rein contract but you can sort of follow the trend of the interest rate and then you cando your comparison. call two, three different banks and find out, "hey, today on this particularrate, where are you?" that's the base of comparison before you get into the contract. i hope ianswer your question. excellent. you can go ahead.>> papapietro: i also think, one second please

to answer the--little more of that. it's reallyimportant that you hook up with someone that you can work with because we find that there'smany lenders out there that promise you the moon and they cannot deliver. so i cautionyou with that. make sure you talk to a reputable lender; bank of america--we're doing bankof america loans. but i've been a broker before, but that broker model right now has changeddrastically because when you broker a loan to a different entity, you're subject to alltheir underwriting guidelines and you may not know it as well as you know your own.so we're typically going to be with in eighth of anything you find out there and our pricing,just fyi at all you right now, is extremely, extremely attractive. so just be--get involvedwith someone that you know you can work with

and that you trust.>> so i have a very basic question maybe we mentioned on and recovered the debt to incomeratios. in that context at least as far as bank of america is concerned, what exactlyconstitutes income? because i guess a lot of people in the room will be in a situationwhere they have a certain base salary and it might just be a third of their income orsomething. and so far from different lenders, i've heard well, conflicting or, i guess,conflicting information. it might depend on the lender. some go with 36% but they're willingto take into account your bonus. some take 45% but they're only looking at your basesalary. maybe you could explain that and elaborate a little bit as to what exactly constitutesincome for bank of america.

>> savides: yes.>> ghavi: excellent, that is a fantastic question because we run into that all the time. sowhen it comes to income, first of all, if there's--different if you're self employedversus if you're employed. if you are self employed, we'll take your adjusted gross.if you're employed, like you guys are, we take your gross income. now, within your grossincome, your base salary is set. we'll take the full base salary as if you got the raisesor whatever as of last month, we'll take that salary. what varies vastly is your bonus andother income; your liquid stock every six months or whatever. anything else that varies,we need to have two years history of that and we will average that. do i answer yourquestion on that?

>> excellent.>> hi. i have two really basic questions. so the first one is are property taxes ininterest, is that deductible for state tax calculation purposes? and the second questionis generally, is there a pre-payment penalty associated if we want to make like more thanthe monthly payment at any given point in time for loans?>> ghavi: as far as a pre-payment penalty from lender to lender, some lenders do havepre-payment penalty. generally these days, you find--you really need to look to finda lender that has a pre-payment penalty. but that's excellent question. if you want toavoid that, you should take a loan that does not have a pre-payment penalty. bank of americadoes--none of our loans have pre-payment penalty.

you can take the loan, you can pay it off,or pay down the next day, six months down the road. your second question--i'm sorry--waswhat? oh, taxes and insurance. again, i'm not a cpa but in at least the state of california,your property taxes are fully tax deductible. >> even for state tax purposes or just federaltax? >> ghavi: i would...>> which unreleased...okay? >> ghavi: just give you in a nutshell. i won'tget to the detail, i'm sorry. >> thank you.>> ghavi: sure. >> hi. if we were to borrow some money fromthe 401-(k), do we need to pay interest? >> ghavi: do you pay interest?>> yes.

>> ghavi: you do pay interest but you payit back to yourself. >> then do i need to return those amount ofmoney to my account? >> ghavi: you're an expert on that.>> papapietro: i'm the expert on that? that's great. typically, what happens is you borrowagainst your for 401-(k), and the general guideline is this, you cannot borrow morethan $50,000. so let's say you had a $200,000 401-(k), the guidelines typically will allowyou to borrow up to $50,000. of which time they'll start out of your monthly pay check,paying that loan back at a very attractive rate by the way. so you end up paying it backthrough time as long as you're employed. if you were to leave that particular employer,then depending on what you do with that 401-(k)

plan, whether you roll it to another 401-(k),you'll either have to bring in money to pay that off or they'll just take it out of thevaluation at that time of that 401-(k). but it's great because it does come out to yourpayroll. >> i heard its 50%, is that 50% or $50,000?>> papapietro: fifty--you know what? every company is different. typically, it's up to50%, not to exceed 50,000. it's one of those double guidelines.>> okay. and i also heard that it's not a good idea to borrow money from your 401-(k)to buy a house. what's the reason for that? >> papapietro: we've had lot of clients doit. it's a very inexpensive source of funds. so if you're short and you really want toget into a property, i mean i think it's a

great idea because they charge you, typically,3% to 4%, sometimes 5%. it comes out of your pay automatically every month, so and it getspaid off pretty fast. so we see a lot of clients doing that. i've actually done it way backwhen in the home that my wife and i purchased one of our first homes. and it worked outreally well for us. >> thank you.>> papapietro: you're welcome. >> hi can you talk about any differences thatexist between borrowing from your 401-(k) versus ira?>> papapietro: the ira--again we're not tax pros on this, but i do know, and the ira typicallydoes not have a borrowing provision against it. there are some guidelines that allow afirst time buyers to take funds out. but i'm

not exactly sure whether there's a--what kindof tax consequence would be associated with that. my recommendation to you would be tocall the ira administrator, plan administrator. and just say, "hey, listen. i'm thinking ofbuying a home. what's the pros and cons of borrowing against that? a law in conjunctionwith your 401-(k) plan. >> okay in addition to the down payment, howmuch money should i have to set aside? >> papapietro: so that's a good question.so down payment is one component and then there's something we call reserves. so, reservestypically represents if the loan is up to $729,000, we need a 2 months reserve whichis post closing funds put aside and that includes principal interest, tax and insurance on thesubject property, the home you just bought.

now, typically it needs to be liquid but theywill also take non liquid funds i.e., your 401-(k) or retirement, but then they onlytake 60% of the value of that account to establish those reserves. when you go up to between$1 and $2 million loan amount, that bumps up to 12 months reserves. now, part of yourquestion, i think, maybe as far as closing cost, above and beyond the down payment whatyou need? >> no, just the...>> papapietro: no, just the recent, yes. >> ...the lender wants to see i have.>> papapietro: yes. so 2 months typically is a requirement up to 729, up to a millioni think it goes to six, and then a million to 2, it goes to 12 and then 2 million to3 million its 24. and if we're into 3 million

to 5 million, they want you to establish somefunds with bank of america. >> all right. one more question.>> papapietro: sure. >> how long is a good--pre-approval good for?>> papapietro: so, the pre--good question. typically it's 60 days. what i tell my clientsis this, if you're in the hunt and nothing significantly changes in your financial profile,you didn't go buy that ferrari, you didn't go buy a boat, you know, basically everything'sstill constant and nothing's really changed radically, that pre-approval will go on. whati do encourage you to do though is call your lender and get an update on rates becauserates are indicative of your purchasing power. as rates go up, you lose more buying power.as rates go down, you gain buying power. so

i would always check in with them, you know,if you think you found this home and you're going to put an offer on it, definitely itshould be one of your first calls. what are rates look like? everything's the same, mydown payment's gone up, am i good to go? >> i do have one more question.>> papapietro: sure. >> so, how long does the loan process? let'ssay, i didn't do pre-approval, one day i just show up, and say, "i want to loan." how longdoes it take to... >> papapietro: okay, so you just show up onmy door and you know you're qualified, you're in contract on a home. i will close your purchasedeal in 30 days. if you said, "steve can i close it in 15 right now?" the answer wouldbe, no. that's kind of what running is 30

now.>> all right. >> okay.>> so my question is how does somebody qualify for the fha loan and that end to the arm andthe fixed rate mortgage, in what condition, which one is more beneficial?>> papapietro: you want--answer the question? so the fha, you qualify as you do you qualifyfor any other loan. we look at all the same information that we went through today. youhave to have the capacity to make the payments, we look at income. the debt to income ratiois slightly lower on an fha loan; it's 43% versus 45. but the guidelines are typicallythe same as far as what underwriting looks at. the benefit is you basically get downwith lower down payments and the rates are

actually really attractive because--just becauseyou're borrowing 97% of the property, doesn't mean the rates going to be bad. it's goingto be right in line with 80% loan. so now regarding different loan types, it kind ofdepends, like ahmad was saying, how long do you think you're going to be in the property?thirty-year fixed rate loans right now are to 42-year low, bar none. rates are extremelyattractive. we thought they low last year, they have stayed this low this year. so mostclients say, "i want to get out of that arm right now and go to 30 year fixed." but thereis that buyer, first time buyer that's going to go into property and say, "you know whatsteve? this is a good 3 to 5 year property for me." and if the rate differential, whichit is about 3 quarters of a point, between

a 5 year arm and a 30 year fixed, and youknow that's not you're last property, there's a lot of money to be saved there. so we dosee clients kind of tip-toeing back into the arm market a bit. and it just--what it comesdown to is just you're comfort level of payments. you need to be comfortable with what you'redoing because that bill shows up every 30 days whether you like it or not. did i answeryour questions? okay, great. >> hopefully, this isn't something i missedat the beginning. is there any negative associated with getting multiple pre-approvals like frommultiple banks just so you if you compare this assignment go through quickly of things?>> ghavi: well, yeah, the negative part of that is you do not want to run your creditover and over, because every time you run

your credit it affects your fico score, itgoes lower. so you can talk to the lenders 2, 3 lenders, i mean not a whole have--manyof us left after 2007. you can talk to a couple of lenders and you choose who you feel mostcomfortable but have just one lender run your credit, one lender do the pre-approval foryou. for those of you who perhaps come up with questions afterward, we have some cardsand some flyers on the back and you're more than welcome to call us, email us, anythingwe can help you that's what we're here for. anything we can help you with, any questionwe can answer, email us and we'll respond back to you right away. any other question?>> a quick follow up to the previous question. so, what really to mind still great differencebetween let's say as far going bank of america?

>> steve?>> papapietro: what's the diff--the difference? >> yes, so if we--if i had--you both run mycredit scores and you see the same financials, how do you just, i mean, who would i go withreally, is it--is it going to be different? >> papapietro: well, so our secondary marketprices, all of our loans and it depends what kind of profitability they have in a loanjust the rates show up on our desk everyday or actually in our computer everyday. so typically,wells fargo is a well priced lender as is bank of america. and there's normally nota huge variance between that. now, we as mortgage loan officers have the capacity to help borrowersout with pricing if need be and we will do that based on certain pricing promotions theyhave on a given month. sometimes they have

sent a certain product over another productand that typically drives that. but most lenders, most of the big lenders are priced prettymuch in parity right now. i mean they may, you may find an eight lower; you may findan eight higher. some of the boutique lenders, these private banks, if you bring large depositsto their bank, sometimes they'll just tailor along then possibly we can't compete with.but other than that, i mean it's typically all driven by our secondary markets with thebond yields doing junction with the stock market and we're, you know, typically rightthere. you want to add any of that? >> ghavi: yes, i mean depending on lenderto lender, bank of america at least right now, we are extremely competitive on a purchasemarket. so i really don't lose a loan to a

competitor if you're in a contract purchasingthe property and you say i'm want a 30-year fixed rate mortgage, i doubt very much thatwe lose that to a price because we have some flexibility there. anything else?>> savides: okay, well. thank you all and we've left business cards in the back in caseyou ever want to contact us later or have any questions.>> papapietro: thank you very much. >> savides: thank you.>> papapietro: have a great day.