One of the most important financial decisions you'll ever make is buying a home. Traditionally, most homes increase in value over the years, thus buying a home can be an excellent investment. Home ownership also provides tax benefits. (You can usually deduct mortgage interest and property taxes.) The choices you make along the way will shape your future and that of your family. This will outline the steps you will need to take and the people you will meet along your home ownership journey. Tailoring a plan to fit your needs and desires is the goal of your "home buying team." This team includes the lenders, Realtors, sellers, lawyers, and most importantly YOU!

Welcome to the Home Buying Experience:

These are basic steps we suggest you should take on your path to owning your own home.

	Choose a real estate agent.
	Choose a lender.
	Learn the terms used in buying a home, condominium, or co-op.
	Get pre-qualified, or even better, get pre-approved for a loan.
	Decide on the type of home you want.
	Decide on the features you want in your home.
	Start house hunting with your Realtor! Record your observations in this booklet.
	When you find a home you want and can afford, have your Realtor negotiate!
	Make an offer in writing.
	When your offer is accepted, find an inspector.
	Choose the best mortgage for yourself.
	Prepare for the closing.
	Go to the closing.
	Congratulations!

Getting Pre-Qualified and Pre-approved:

Pre-Qualification will help expedite your house hunting process. Using financial information you provide, a lender or Realtor will be able to estimate the maximum mortgage you will be able to obtain. Pre-qualifying does not guarantee that your mortgage application will be accepted, but it helps you to narrow your search of homes to those you will be able to afford.

When determining how much house you can afford, you need to consider your home’s carrying charges, savings, salary, other debts, and spending habits.

Most lenders will use formulas to determine how much of a mortgage to offer you. Each mortgage application is looked at separately and special circumstances are taken into consideration. Typically, your monthly house payment should be around 28 to 30 percent of your total monthly gross income (money before taxes). In addition to your mortgage, other debts such as credit card, car payment, and other loans should not be more than 36 to 40 percent of your gross income.

Down Payment:

The down payment is the part of the purchase you pay up front. The most typical down payment of a home is 20 percent of the price of the home. However, it also runs between 3 and 25 percent or more.

Money for the down payment may come from a variety of sources: savings, the sale or refinancing of another house, a gift or loan from family members, or a secured debt (such as a car loan, 401K and insurance). Ask your lender if you qualify for a loan under special financial situations.

Getting Pre-approved for a Mortgage:

Getting pre-approved is a more formal step than pre-qualification. When getting pre-approved, you will need to provide the same paperwork you would when making a formal loan application. This will include employment, credit history, and down payment funds. All information will be verified.

Being pre-approved will guarantee your loan, but is not a mortgage contract. You will not get the mortgage until the offer you make on your choice of property is accepted. The lender then will appraise the property and do a title search. When you formally apply for a mortgage, certain facts may have to be rechecked depending on how much time has passed since the pre-approval.

Advantages of getting pre-approved

	It may allow you to lock in an interest rate while you house hunt.
	You may be better able to bargain with a seller. When a seller receives an offer from a pre-approved buyer, they know that person can secure a loan.

Be prepared with these types of financial information when meeting with your lender for pre-approval.

	Income
	Funds available for down payment from cash and gifts
	Credit history
	Employment record
	Assets (savings, investments, retirement plans, etc.)
	Debts (loans, credit card balances, other mortgages, etc.)

What Type of Home do You Want?

Finding the home you desire is the important thing. Decide on the features you want in your new home. Writing them down will help your Realtor know your desires and needs. Filtering out what isn’t needed in your home is as vital as what is necessary!

Size_________ Style___________ Fee Simple or Leasehold

*Type of Home Ownership___________________________________

Location_________________________________________________

School District____________________________________________

Number of Bedrooms__________ Baths___________

Family Room___________ Office___________

Formal Dining Room__________ Eat-in Kitchen___________

Landscaping______________________________________________

Garage___________ Fireplace__________

Air Conditioning__________

Other (Pool/Patio/Porch/etc.)________________________________

Things you absolutely do not want____________________________

___________________________________________________________________

Types of Home Ownership
	Single family is the most popular type of home ownership. As the owner of a single-family home, you are responsible to pay the mortgage, property taxes, and any other carrying expenses, including all maintenance costs.
	Multi-family has separate living quarters for two or more families to rent. The owner may use rent from other tenants to cover housing costs. Multi-family homes are often restricted to certain areas due to zoning laws.
	Condominiums are a group of separate living quarters that share common space, such as gardens, parking areas, and community facilities (pool, golf course, recreation hall, and tennis court). A monthly maintenance fee will be assessed as a common expense. The owners’ association, which each owner belongs to, makes decisions about how the condo is run.*
	Co-operative involves buying a share or a number of shares in the corporation that owns and manages the building your apartment is in and the land it is on. A monthly maintenance fee is also charged as part of the co-op expenses, repairs, and taxes. Before purchasing a share or shares to the corporation, you need approval by the co-op board.*
*Condominiums and co-ops may be less expensive than single family purchases. Also, being part of an association may be safer and provide extra features and a variety of services that single family homeowners often can’t afford.

Association fees can add up and raise the cost to live in a condo or co-op. In addition, condos and co-ops do not increase its real estate value as quickly as single family homes do, in most cases.

Working with a Real Estate Professional:

What to look for in a Realtor?

	Experience; what is the Realtor’s track record?
	Patience; will the Realtor help to find the perfect home for you?
	Ability to understand your wants, needs, and desires.
	Honesty and trustworthiness
	Knowledge about the community you want to live in.
	Is the Realtor accessible if needed?
	Full access to the area’s multiple listing service (MLS)
MLS will give a listing of all sellers, not just those represented by a particular company
	Willingness to keep you informed of changes in the market, without trying to push you into buying before you are ready.
	Member of the Board of Realtors

A Realtor can save you time and assist you by:

	Pre-selecting homes that are within your price range that includes your wants, needs, and desires
	Scheduling appointments for you to see homes, even when the owners are not available
	Giving you current selling prices for houses similar to ones you are considering
	Getting up-to-date information about taxes, school districts, and conditions in the communities that interest you
	Handling negotiations over the price and terms of your offer
	Arranging for a home inspection (necessary when buying a home)
	Many Realtors offer guidance in arranging financing

How to Figure Your Carrying Costs:

Your basic monthly payment is known as PITI, or Principal, Interest, real estate Taxes, and hazard or homeowner’s Insurance. Your lender can help determine your basic monthly payment so you can see if it matches the monthly carrying cost you are pre-qualified for. Although you have a fixed rate loan, real estate taxes and homeowner’s insurance will change from year to year. However, your monthly principal and interest rate will remain the same in a fixed-rate loan. When figuring your PITI, add routine maintenance, cost of utilities, and special district taxes for school, sewer, water, and others.

Determine the PITI for each home you are interested in. Remember to divide yearly costs by 12, and add them to your monthly costs to come up with a realistic picture of your monthly goal.

PITI_______________________________________________________

Estimated Gas/Electric/Water___________________________________

Estimated Maintenance________________________________________

___________________________________________________________

Homeowner’s Association/Co-Op Fees____________________________

___________________________________________________________

Special District Taxes__________________________________________

Other_______________________________________________________

____________________________________________________________

Total Carrying Costs___________________________________________

Making an Offer:

Once you decide on a house, you want to work with your Realtor to negotiate what to include in the offer or purchase commitment.

Before Making an Offer

Ask your Realtor to:

	Get recent selling prices of similar homes in the area to justify your offering price
	Do a background check on the property. How long has the property been on the market? Why is it being sold? Good points? Bad points?
	Speak to neighbors and people in the community. Find out what type of people live in the area and their feelings about the community.
	Try not to let your feelings be involved. If the offer is denied, there are (usually) other homes to your liking.
	Consider the home’s resale value.

When your offer is formally accepted, you will sign a Deposit Receipt Offer and Acceptance Agreement (DROA). The DROA is a legal contract that covers purchase price, total down payment, and closing date. (The closing date is when you sign the closing or settlement agreement that makes the home officially yours. If the paperwork is not completed, this date may change.) The offer will also state whether the buyer or seller will pay for settlement costs, the type of loan you are applying for, and the interest rate.

To protect yourself, be sure that the purchase agreement is conditional. This means that you can cancel it if you do not secure a loan or if the house has major problems that can not be corrected before closing. (Problems could be found during the upcoming inspection.)

These are some things that are usually part of an offer:

	Offering price
	Earnest money
This is part of your down payment to secure an initial agreement with the seller. It shows the seller that you are "serious" about buying. It protects your offer for a certain period of time while financing is being secured.
	Contingencies
These may be any special circumstances, such as date that repairs must be completed by or the date by which the sale must be completed. Such as financing, document review if purchasing a condo, etc...
	Items included in sale
Refrigerator, washer/dryer, window treatments, rugs, furnishings…

Appraisal and Inspection Time

After your offer is accepted, the loan application will be reviewed and the loan process will begin.

Appraisal

Termite Inspection

Home Inspection

Choosing the right inspector is important because he or she is a member of your home buying team. Thus, you want someone who is experienced and trustworthy. You can ask for referrals from recent home-buyers, your Realtor or lender. You can also ask for inspection samples of possible inspectors, to check their thoroughness.

Be sure that you choose an inspector that allows you to walk through the home during the inspection. This will give you a hands-on feel of what is right and wrong with the property. An inspector should check the entire house, inside and out, from top to bottom.

These are standard spots a good inspector will check:

	Electrical systems
	Heating and cooling systems
	Pest control
	Outside structure for possible water damage, garage doors, roof, and chimney
	Inside structure for good insulation, foundation, windows, and doors
	Risk of earthquakes
	Risk of landslides
	General condition of the property

Title Time

A title company does a title search once your offer is accepted. This search is necessary to uncover any possible problems with legal ownership to the property. If problems are found, you may choose not to close on the property. Problems could arise if there is a dispute by outside parties about the ownership of the property, its size, or the ways it can be used. If no problems are found in the search, the title company will issue you title insurance. Title insurance is for your protection to guarantee that the property you buy is as stated in recorded deeds, surveys, and other documents. You may pay a one time title insurance premium when buying the house. Otherwise, another premium may be charged unless you refinance your mortgage.

Homeowner’s Warranty

It may be a good idea to protect yourself with a homeowner’s warranty, in addition to a home inspector’s report and title insurance. This warranty covers repairs for major appliances, plumbing and the electrical of the house for a 1 year period from date of closing. A homeowner’s warranty is especailly suggested when buying an older home or one that has been vacant for some time. The seller may offer the homeowner’s warranty with the sale of the home. If not, ask your Realtor or lender to advise you on how to purchase a homeowner’s warranty on your own.

Getting the Best Mortgage

All lenders offer a variety of home financing options. They will work with you to find which option is most appropriate for you.

Most loan rates will not differ widely from the current rates of interest. However, you can save on costs when buying a home depending how a loan is structured. Loans may differ in such items as: prepayment options or penalties, no-credit fees, processing fees, etc.

Most mortgages are offered for terms of 15 and 30 years. Under some circumstances, other terms are available. Depending on the length of your mortgage, your monthly payment may change. If your term is shorter, your monthly payments will be higher, and you will pay less on your home overall. Your lender will be able to help you decide which loan arrangement is the best option for you.

Types of Mortgages

There are many home loans and financing options available for you to choose from. Some choices are yours to make, while others are based on your specific circumstances.

Conventional

Conventional loans will usually require a larger down payment than any other loan. This mortgage is a contract between the lender and borrower, at the lender’s risk. The borrower’s property is used as collateral, which means the lender can take your home if mortgage payment is not made. The conventional loan is not insured by the Federal Housing Administration or guaranteed by the VA or Farmer’s Home administration. However, it may be insured with a private mortgage insurance company.

Federal Housing Administration (FHA)

Federal Housing Administration is a division of the department of Housing and Urban Development. They will issue insurance to mortgage lenders to minimize loss in the event of default. FHA is not a lender. However, FHA loans are available with as little as 3 percent down payment, and mortgage insurance is required to be carried through FHA. Almost any competent adult is eligible for this program. Citizenship is not required; however, the buyer must be a United States resident.

Veterans’ Administration (VA)

Veteran’s Administration is an independent government agency entrusted with administering a variety of benefit programs designed to facilitate the adjustment for returning veterans to civilian life. This federal agency will guarantee mortgages offered to active military personnel, qualified armed forces, veterans or their widows by private lenders. The VA home loan program is designed to encourage lenders to offer long-term, low-down payment mortgages. In some cases, a qualified veteran can buy a home using a VA loan with no down payment.

Jumbo

The lender sometimes considers special terms for very high valued properties that fall outside of typical lending standard.

Adjustable Rate Mortgage (ARM)

The interest rate of an adjustable rate mortgage is not fixed and adjusts at pre-determined intervals using a pre-selected index, thus varying up and down. A "teaser" is usually offered at the beginning with a low interest rate, however will go up after a certain time. ARM is a good option if interest rates are low and its capital is not more than a few points higher than the current fixed rate. This may be an attractive option to a buyer who does not plan to own the home for many years or who knows their income will increase in the future.

Balloon Mortgage

A balloon mortgage is a good option for buyers who plan on paying their mortgage within 5-7 years. Payments are based on what a buyer would pay for a 30-year loan. Low monthly payments are billed at the beginning to make it easier to get started in a new home. However, a lump sum of the mortgage is due at a specified date in the future. In most cases, at the end of the term, an offer is made to extend the remainder of the mortgage for a 30-year period. Payments are based on rates at that time.

Loan Application Checklist:

Your lender should let you know what information will be required to make the mortgage loan process go as quickly as possible. Be sure that all information is accurate. If not, the loan may be delayed or denied. Because a lot of information is needed when applying for a home loan, it is a good idea to begin gathering information and paperwork ahead of time. Here are some suggestions of items you should be ready to provide when meeting with your lender. Make an X in the box as you gather the items.

For the Last Two Years:

• Landlord’s name, address and phone number
• Other Income sources and amounts
• Copy of W2 forms and/or 1099 forms

• Federal Tax Return (1040) with all schedules
• Names and addresses of each employer for the past two years

Liabilities – Payments and Balances:

• Account numbers, payment amounts, and loan balances
• Credit cards – minimum payments and balances
• Alimony and child support amounts
• Copy of divorce decree
• Child care costs

Assets – Balances:

• Last three months bank statements – all pages
• Stock and bond statements
• IRA, 401K, VIP, Pension Plan information

If Self Employed:

• Tax record for past two years
• Year –to- date profit and loss statement
• Corporate/partnership returns for last two years

Other information:

• Picture ID
• Proof of Social Security Number(s)
• For each checking and savings account: name of financial institution, address, account #, and balance; last two months’ statements
• One complete month’s paycheck stub

Formal Loan Application:

When you make a formal loan application, your lender will give you:

• A "good faith estimate" of closing costs

• Interest adjustment
• Title insurance
• Recording fees
• Survey fees
• Variable fees
• Application fee
• Points
• Appraisal fee
• Credit report fee
• Closing and settlement fees

• A truth in lending disclosure

• Housing and Urban Development booklet

The Final Steps to Closing:

The closing becomes official when papers are signed, notarized and filed with the Bureau of Conveyances and the home is yours. Down payment and the rest of your closing costs must be paid at closing. Payment must be by a certified or cashier’s check. Before closing, make sure you:

• Review all loan documents
• Review your purchase agreement
• Do a final "walk through" of the home. Make sure that no items in your agreement have been changed or removed from the house
• Inspect all repairs that should have been made

Mortgage Terms to Know:

Closing Costs

At the time of purchase, the buyer of a home will need to pay for closing costs. This usually includes appraisal fee, title search, and lawyer fees. Homeowner’s insurance, private mortgage insurance and "points" may be additional costs. Closing costs are in addition to your down payment, and depend on the lender that is chosen to use.

Escrow

A neutral third party that handles documents and funds during the purchasing process. An escrow agent has a fiduciary responsibility to buyer, seller, and lender to see that terms of the purchase contract are carried out and appropriate parties are paid.

Homeowner’s Insurance

Homeowner’s insurance protects you against fire and floods. Most policies also protect homeowners against theft and liability, should someone be injured on the property. Most lenders require homebuyers to purchase homeowner’s insurance.

Points

Points are finance charges paid to the lender as part of the closing costs. A point equals one percent of the total mortgage loan. Points are a one-time charge assessed at closing by the lender to increase the yield on mortgages to a competitive position with other types of investments. Points can be negotiable. If planning to take a long-term loan, paying more points may lower interest rates.

Prepayment

By making early or extra payments toward the principal, or amount borrowed, you can shorten the length of your mortgage thus lowering your total interest. Be sure to ask about prepayment conditions in your mortgage. Lenders may charge a penalty if the mortgage is paid off very quickly.

Private Mortgage Insurance (PMI)

Private Mortgage Insurance is carried by a buyer to guarantee payment to the lender, if the buyer defaults, or fails to pay the mortgage. Private Mortgage Insurance is usually required for all mortgages with less than a 20% percent down payment. The cost depends on the amount of the loan and size of the down payment. Private Mortgage Insurance is different from Homeowner’s Insurance.