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HOMEBUYERS GUIDE
OVERVIEW: WHAT IS A HOME: To most people a home is a place to live and is normally a long term investment that represents the foundation of most families in America today. Beside providing a stable living environment for people it provides emotional and financial security. So when it comes time to buy a home it is important to sit down and do some planning before going out to buy. Since buying a home is normally the biggest purchasing decision a person or couple make in their entire lives. It is not the same as going down to to your local store and buying a shirt off the rack.
An investment in a home is not to be taken lightly. When it comes time to make the decision to buy you don't have to do it alone. There are numerous options out there. You can search on the internet, use a new home builders site agent, hire your own real estate agent or try to buy from a "For sale By Owner".
However, nothing beats having someone represent your interests when it comes time to buy a home. So please take the time and carefully explore all options prior to deciding which way to proceed when you finally decide to buy a home.
Therefore, proper planning is the key to making the home buying process as glitch free as possible. Whether it is - your first home - or a second, third or fourth home. The following information presented in this "Home Buyer Guide" is provided to assist you in making the most informed decision possible while making your home buying experience one that will be remembered as a very pleasant memory.
WHAT IS A MORTGAGE: A mortgage is a loan that is secured by real estate. In return for the money to buy a home the lender gets your written promise to pay back the money over a specified period of time at a certain cost over and above he money borrowed. This additional cost is normally called interest on the borrowed money and is also backed by the value of the property purchased. During the repayment period if you stop paying (default) on your mortgage the lender reserves the right to take over ownership of the property. A mortgage is normally repaid over an extended period of time known as monthly payments.
WHAT IS INCLUDED IN MY MORTGAGE PAYMENT: A mortgage payment is normally broken down into four parts. The first part is principle which is the money that was borrowed to buy the property and is based upon the sale price of the home or property. The second part is the interest which is a fee charged on the money that was borrowed. One thing to remember is that during the early part of the mortgage the majority of the payment will be made up of this interest. The third part of your mortgage is made up of property taxes which are paid by the homeowner to the local government. These property taxes are normally assessed based on the value of the property. The fourth part of the mortgage is the homeowners hazard insurance. This insurance protects you against financial losses on your property as a result of fire, wind, natural disaters or other hazards. Almost all lenders will require you to carry insurance since it will protect their investment as well as yours. Last but not least most of us at one time or another will have to have Mortgage Insurance. This insurance is normally required by lenders who loan money to homebuyers who have less than 20% down on their home purchase. However, there are other loan progams that have different requirements on mortgage insurance. So it pays to shop around to find which loan is best for you.
This additional money over and above the principle and interest is held in an account known as escrow that is established by the lender. So when the bills come due, the lender pays them on your behalf. However, this can be an option and not a requirement for the homeowner.
BUYING A NEW HOME: When it comes to buying a new home you have a choice of many different home builders. Each builder has their own set of plans and subdivisions, preferred lenders as well as on-site agents that represent the builders interest. You the consumer are considered a customer and not a client of the builder or their on-site agent. So it is suggested that you have your own agent go with you when looking at new homes. That way you're interests can be protected.
REASONS TO BUY A NEW HOME: EVERY DAY: We hear more and more news about the housing market and how grim it is. Property Values are falling, mortgage foreclosures are rising and buyers are nowhere to be found. However, there is a silver lining which makes it a fantastic time to be in the market for a new home. The following reasons are just a few of the many reasons why it is a great time for well qualified homebuyers.
1. New and existing homes are becoming more or very affordable
2. New home builders are anxious for buyers and are giving great incentives
3. Loan providers are anxious to find qualified borrowers
4. Mortgage rates are still low
5. You can pick and choose what to put in your home versus having to accept what is in an existing home.
6. However, while there is no guarantee that these affordable conditions will last the present market looks as though they will last for the forseeable future.
PRIOR TO BUYING A HOME: CHECK YOUR CREDIT REPORT: Prior to starting your home buying search get a copy of your credit report. This should be done six months before you decide to purchase a home. That is the time to correct any errors and not during the home buying process since it will most likely result in a lost sale and you having to make other living arrangements until it is cleared up. Federal law allows you to get a free credit report yearly from each of the three major credit reporting agencies. Check these reports thoroughly. Errors or mistakes on your credit report can impact youou r ability to purchase a home. Any error or mistakes that are found.
I can't emphasize enough how important your credit score (FICO) is. It can have a major impact when it comes time to purchasing a home. The following suggestions can assist you in getting and keeping the best rates possible.
Pay bills on time! Your payment history makes up 35% of your FICO score. Don't consolidate and then close out your old, revolving debt accounts. The age of your credit accounts is an important, positive factor for a good credit score. Don't load up a credit card's debt close to its limit. This weighs negatively on your credit score. Pay down high-balances; don't shuffle debts among several lenders. Keep no more than a balance of 30% of your credit limit. Settle collections/past-due accounts less than 2 years old.
Dispute and resolve any inaccurate items in your credit report. Time may be your only remedy for mitigating the damage from bankruptcies, foreclosures and other judgments. The last two years of your credit history are the most important.
EXTREMELY IMPORTANT NOTE: When you do your credit shopping do not have your credit pulled numerous times. This will affect your credit score and may lower it to where you may not get the most favorable rates. It is highly recommended that you pull it once and only have it pulled again once you decide on a home purchase and a lender.
APPLYING FOR A MORTGAGE: DECIDE HOW MUCH HOME YOU CAN AFFORD AND GET PRE-APPROVED: Stay within your budget even if you are approved for more than you planned to spend. Don't overreach. Forget the mansion on the hill or the beach if you know it's beyond your means. Sit down and draw up a budget that includes all your fixed monthly expenses. When factoring in your mortgage payment be sure to include property taxes, mortgage and homeowners insurance. Don’t rely on estimates. Get quotes from the insurance company and local tax office. Remember the main focus is to find something you can afford the monthly payments on along with a debt load you can handle and feel comfortable with. More importantly, pre-approval will let you know how much that home will really cost you - in monthly payments. A $150,000 or $300,000 home doesn't mean a lot to most buyers - but $1200 per month and $2500 per month are tangibles that everyone can understand.
Pre-approval is what gives you buying power and allows you to make an offer on your dream home when you've found it. Pre-approval is one of the most important steps in the home buying process. Nothing enhances a buyer’s power more than approved financing and gives you peace of mind.. Sellers will give the buyer much more favorable terms when they know financing is already in place.
Sometimes home buyers will confuse being "pre-qualified with being pre-approved." Pre-qualification is a pretty casual process where a lender what you may qualify for. Pre-approval on the other hand is where you sit down with a lender and apply for the loan. You normally have to submit tax returns, pay stubs and other information which is verified by the lender. After verification you should receive a written approval on how much you are approved for.
It still amazes us how many buyers want to skip this process and immediately begin looking at houses and how many Realtors are willing to work this way. While you may not find exactly what you want at this time just remember you can always sell and move up to another home when the time is right.
LOOK FOR SPECIAL HOME BUYER PROGRAMS: These are programs that are typically sponsored by the state, county, or city governments. They normally offer better terms, interest rates, closing costs, and conditions than private lenders. Some of the programs may even offer mortgages for people whose credit may have been damaged. Others may assist people who are on a limited budget or who need down payment assistance.
SHOP FOR THE BEST RATES AND TERMS: In today's mortgage market there are numerous progams to choose from for well qualified home buyers. Always shop around and compare rates and terms of different lenders. Compare private lenders with government programs to see which is best for you. Ask questions, get information and quotes and then shop that information to another lender to see if they will beat it. by not shopping for the best rates and terms you may end up paying thousands more than you should for a mortgage.
BORROW ONLY WHAT YOU FEEL COMFORTABLE WITH: Home byuers sometimes take out the biggest loan possible planning on future increases in income to help them make the payments. This goes back to the planning process when you first started thinking of buying a home. You should try to keep all of your debt including your mortgage payment within 33% or less but no more than 40% of your total monthly income.
WATCH OUT FOR JUNK FEES: Lenders boost their profits through fees. While some are a legitimate cost of business others may be inflated or pure profit. An example of this is your credit report. The lender may be charged $15 -$25 dollars for the report but then charge you $150.00 for the same report.
The time to challenge these fees is not when you are signing the loan papers at your closing. That is why it is important to shop around. Use a mortgage broker or call different lenders and compare their costs. Once you have done this and selected a lender, you'll be given a good faith estimate which shaould include all fess being charged. Go over the good faith estimate very carefully and challenge those fees which seem excessive. If the lender refuses to budge on those fees, "take the estimate to another lender" and see if they can beat it.
While the "Good Faith estimate" is not set in concrete the "Hud one" is. The Hud one form is a form that you will sign at the closing table which sets out all costs associated with the sale. Most of the time you won't see this form until the day of closing. Insist that your lender provide you with this form at least two business days prior to closing. If the can't do that consider rescheduling the closing date. That way you will have time to look over the total costs of your loan and challenge any mistakes and get them corrected.
CLOSING COSTS: As part of the home buying process you will incur some additional costs known as closing costs. These are costs associated with the loan that a lender is providing to you. However, closing costs can be as little as 2% of the loan to as high as an eye opening 7%. Closing costs typically cover a wide range of fees and pre-paids that are required to buy a home. This is where your good faith estimate comes in. The good faith estimate will give you an idea of how much cash you may need to close the loan and finalize the sale.
COST SAVING TIPS: While closing costs are a cost of getting a loan there are several things you can do to try to reduce the cost to you.
1. Schedule your closing within 2-3 business days of the end of the month. Part of your total closing costs consists of interium interest. This is interest that is charged from the day of closing to the end of the month on your mortgage. This can possibly save hundreds of dollars.
NOTE: It is highly recommended that you avoid scheduling your closing on the last day of the month. If for some reason the closing does not take place you may have to pay a full months interium interest. This could add hundreds of dollars to your closing costs.
2. Get the seller to pay all or part of the closing costs. This can potentially save you thousands of dollars. NOTE: Some lenders limit the total that they will allow sellers to pay towards closing costs. Check with your lender about this when applying for a loan.
3. Look at new home construction. New home builders normally pay most of your closing costs with the exception of pre-paids such as property taxes, home owners insurance etc....
4. If you're putting down a significant down payment ask the lender to allow you to pay your insurance and property taxes as they are due. This will also save you some money on closing costs.
BUILD A RESERVE FUND: There are almost always some expenses when it comes time to move into your home. Some may even be unexpected. make sure to build a reserve fund to handle these costs. Some lenders are now requiring home buyers to provide proof that they have the reserve to handle these expenses. However, each lender is different when it comes to this requirement.
2. USE A REALTOR: Most people buy 3-5 homes in their lifetime. A good Realtor will have helped many people into their homes throughout their career - and will have been through the process many, many times. There are not many home buying situations that your Realtor won't have seen - and if you run into one, your Realtor can refer to his office, and a wealth of knowledge. Good Realtors don't sell, they simply listen to their buyers, and present the options that they feel most suit their needs.
3. MAKE A LIST OF YOUR MUST HAVES: Many buyers claim that they "will know" when they "walk into the one." If you begin looking at houses without "doing your homework" this will not be the case. Start your search by making a list of your "must haves," or qualities that are a "deal killer" if the home doesn't fit. These are typically price, neighborhood, size, 1 or 2 stories, etc ... Sometimes, you will have very strong opinions about seemingly minor details - but these aren't minor to you, if they're on your "must have" list.
4. MAKE A LIST OF YOUR "WANTS": After you've identified what you "must have" in your new home, it's time to make a list of what you want. Your "wants" are what you would like to have - but could possibly live without. These can include paint color, type of appliances, exterior facade, etc... While it would be nice to find a home with all of your "wants," you will be happy as long as the home has a good number of these attributes.
5. CHOOSE YOUR FAVORITE NEIGHBORHOODS: "Location, location, location" is the cardinal rule when shopping for your home. The reasoning is simple - you can always upgrade your home, but once you've closed, you have no control over location. Think about how close you would like to live to work, what school districts you think are favorable, and how near you want to be to recreational activities.
6. MAKE A LIST AND VIEW ALL HOMES THAT MATCH YOUR CRITERIA:
After you have identified your "must haves," "wants," and neighborhood(s), you have one fun step left in the process: Touring every home that matches your criteria! Choose which homes you would like to tour, tour them and take notes. Write down what you like & dislike about each home - it will help you with the decision making process.
7. REVIEW YOUR LIST AND CHOOSE: After identifying what you want in a home and where you would like to live, it's very normal to fall in love with a home when you walk into it. However, if this doesn't happen to you - don't worry! You've carefully identified your likes and dislikes, you've identified the most appealing locations, and you've taken good notes. Simply review your list, weigh the pro's & con's of each, and make a sound decision. Once you've done that you can feel confident in your choice whatever it may be.
As discussed in the "Prior To Buying A Home" link, getting pre-approved for a mortgage gives you a big advantage when it comes to buying a home. You already know what price range you need to stay in when it comes to buying your home. The other big advantage is that sellers will treat you as a very valuable prospect and are a lot more willing to give you favorable terms and concessions on an offer you may make
However, not all mortgages are the same and the following recommendations and suggestions are provided to assist you in getting the best mortgage possible while avoiding some of the most common mistatkes some home buyers make.
DO I NEED AN AGENT?: Well, you've finally laid the basic ground work on starting your search for a home or property. The next step is to decide if you need or want a real estate professional to assist you in your search. While some people decide to do it themselves others will hire a real estate professional. Those who hire a real estate professional almost always save time and money. However, with so much information readily available online people may wonder and rightfully so, if they should use a real estate agent at all. They may wonder why they just can't buy a home through the internet or through regular marketing and advertising channels without an agent or representation. Some do ok while others have varying degrees of difficulty. Whether you use an agent or not normally doesn't affect the price you pay for a home. However, the choice is ultimately up to you.
PICKING THE RIGHT AGENT: Besides qualifications, picking the right agent is extremely important. You have to be able to work as a team. You can have the most highly skilled an qualified agent in the world but if you don't work well together your home buying experience can be a long drawn out ordeal. It is suggested that you have a "Meet and Greet" with several agents and kick some ideas around on how the agents work and if your on the same page. Then set a second meeting with the agent you feel most comfortable with to finish the interview process.
5 THINGS YOU SHOULD EXPECT FROM YOUR LISTING OR BUYERS AGENT: You've gone through the interview process, found an agent that will work well with you and signed an agreement. As a minimum the agent you hire should provide the following services.
1. A Strategic Plan: If you are listing your home your agent should present a marketing plan that includes the number of open houses (if any) that they will hold. Buyers agents should listen to your requirements and present you with areas of interest for your review prior to beginning the physical seaech for a home. Your buyers agent should also assist you in pre-qualifying you for a loan if you haven't done it yet. This can be accomplished by your agent giving you a list of mortgage companies to choose from.
2. Market Activity Report: Whether you're buying or selling a home your agent should provide you with detailed information on your neighborhood or the area you are interested in. This information should show what comparable homes have sold for over the last six months. This information will enable you to set a fair value on a property you are buying or selling.
3. Knowledge Of The Local Market: Both Selling and Buyers agents should provide information inventory level and absorption rates of homes on the market. Your agent should also provide a trend analysis of what homes have sold for over the last several years. This will give you an idea of what kind of appreciation you can reasonably expect should you decide to sell your home sometime in the future. However, be aware that past appreciation does not guarantee your home will increase in value at the same rate in the future.
4. Electronic Expertise: The most recent data shows that 8 out of 10 home shoppers begin searching for a home on the internet. Your agent should have an internet presence with readily accessable up to date home information and e-mail links.
5. Support Until Closing: While it is the buyer or sellers responsibility for inspections, title searches, loan applications, appraisals etc.... after a contract is ratified. Your agent should assist you with this so the entire process is as glitch free as possible. Your agent should be willing to be there for the different inspections, make suggestions and assist with scheduling.
ONCE YOU HAVE FOUND YOUR AGENT: Do your homework. The most diligent and dedicated agent is not enough when it comes to buying a home. Due to the internet homebuyers can research potential homes and nighborhoods on their home computer. The internet today is packed ful of resources and information on homes, neghborhoods,school districts etc...
As good as the internet is in providing information nothing will ever take the place of physically visiting the neighborhood or area you are interested in. You should visit the area several times during different times of the day and weekends. One of the most important things I suggest to my clients and customers is to visit the area after a heavy rain to see if there are any drainage problems.
Walk the neighborhood, talk to the neighbors, ask questions. One of the most important questions that should be asked is if you had to do it over again would you have bought your home in this neighborhood. You will find that normally will bring forth the information you are looking for. Human nature being what it is most people will be more than happy to tell you their likes and dislikes in the neighborhood. last but not least if there is a Homeowners Association ask about it. Like everything else there are good and bad Homeowner Associations.
You've qualified for your mortgage and found a broker or agent to help you find a home. Your next step should be to have your broker or agent set up appointments to look at homes you are interested in. In order to make your search easier it is recommended that you use the attached "Home Buyers Checklist". This checklist can help you evaluate and identify what factors are most important to you and your family in a home. In addition to price you want to be sure the neighborhood and home meet the needs of your family. .
| Home Buying Checklist |
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| Property Address |
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| Asking Price |
$___________ |
$___________ |
$___________ |
| Real Estate Taxes |
$___________ |
$___________ |
$___________ |
| The Neighborhood |
| Near Work |
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| Near Schools |
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| Near Shopping |
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| Near Expressways |
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| Near Public Transportation |
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| Near Doctors/Dentists |
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| Near Churches |
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| Garbage Collection |
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| Street Lights |
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| Sidewalks |
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| Streets/Alleys Well Maintained |
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| Traffic Volume |
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| Parks |
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| Neighbor's Property Well Maintained |
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| All Utilities Installed |
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| Neighborhood Covenants/Restrictions |
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| Near Trains/Airport |
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| Area Zoned Residential |
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| Near Industry |
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| Proposed Special Assessments |
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| Environment Concerns/Influences |
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| The Home |
| Age of Home |
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| No. of Stories |
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| Wood Frame |
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| Brick Frame |
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| Wood & Brick Frame |
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| Aluminum Siding |
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| Roof Condition |
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| Foundation Condition |
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| Overall Exterior Condition |
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| Garage Size |
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| No. of Bathrooms |
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| No. of Closets |
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| No. of Bedrooms |
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| Oil Heat |
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| Gas Heat |
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| Electric Heat |
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| Hot Water Heat |
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| Insulation |
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| Central Air Conditioning |
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| Energy-Conservation Features |
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| Age of Heating System |
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| Age of Water Heater |
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| Capacity of Water Heater |
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| Age of Electrical Wiring |
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| Plumbing condition |
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| Estimated Water Bill |
$___________ |
$___________ |
$___________ |
| Estimated Heating Bill |
$___________ |
$___________ |
$___________ |
| Estimated Electric Bill |
$___________ |
$___________ |
$___________ |
| Living Room |
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| Fireplace |
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| Separate Dining Room |
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| Family Room |
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| Drapes - No. of Rooms |
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| Carpeting - No. of Rooms |
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| Kitchen Eating Area |
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| Refrigerator |
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| Stove/Oven (Gas/Electric) |
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| Garbage Disposal |
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| Dishwasher |
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| Broken Windows |
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| Storm Windows/Screens |
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| Washer/Dryer Outlets |
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| Laundry Space |
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| Finished Basement |
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| Attic |
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| Sump Pump/Drainage |
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| Connected to Sewer System |
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| Patio |
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| Backyard Fence |
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| Landscaping |
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| Property Boundaries |
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| Security (dead bolts, detectors) |
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| Building Code Compliance |
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| Ability to Expand/Enlarge House |
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You've been looking at homes with your agent and finally found a home that suits your needs. However, before making an offer and putting down some of your hard earned money you should do a little more research. The following tips will assist you in making the most informed decision possible.
Do A Comparative Market Analysis: Have your agent complete a comparative market analysis on the property. See what other like or similar properties in the subdivision have sold for during the past six months. Look for trends such as appreciating prices or declining prices on sold properties. Check to see how long the property has been on the market compared to the sold properties. By doing this you should get a trend on which way values are headed for the neighborhood and make your offer based on this trend.
Research The Property: Have your agent find out as much as possible about the condition of the home. Ask for any existing Home Inspection, Termite, Roof reports and if the homeowners have any existing repairs that need to be completed prior to the sale.
Check The Insurance History On The Home Or Property: Homes or property with a history of insurance claims tend to be harder to insure and may not be insurable at all. If that is the case the only insurance available may be a high risk pool that may be two to four times the cost of a regular policy assigned to other homes.
Check The Market History Of The Home: If the home has been sold and resold numerous times do some digging to see if there are any underlying problems with the home or neighborhood. One way to do this is to speak with other people in the neighborhood. One of the best questions to ask is "If they had to do it over again would they buy another home in this neighborhood?" This one question normally brings forth the most information on the good and bad points as well as litigation issues that may be pending or in progress. Also if the home has been on the market for a long period of time the sellers may be open to a lower offer than what you might have had originally in mind.
Visit The Neighborhood At Different Times Of The Day: That way you can find ot what the traffic flow is like, if children hang out in front of the home or if there might be a bus stop near the property. Check the ease of entering and leaving the neighborhood especially during rush hour. NOTE: The best time to visit the neighborhood is during or right after a heavy rain to see if there is any flooding or standing water.
Check Local Zoning Laws: Especially if the home backs up to an undeveloped area or woods. The last thing most homeowners want is a commercial property or apartment complex backing up to their property line. Also find out if the home is in a flood zone. This will affect the cost of putting insurance on the home since you will have to buy an additional flood insurance policy.
Ask The Sellers Why They Are Selling: Are the sellers transferring, divorcing, downsizing, settling an estate etc..... Have the sellers bought another home or do they need to sell in order to buy? They may be willing to lower the price even further if the buyer is willing to close quickly.
Have There Been Other Offers On The Home: Are the buyers who made the offer still interested or did they find and purchase another home? If the buyers are still interested this may affect the selling price of the home.
Your Offer: You've been looking at homes and you finally found one that meets your criteria and your ready to take the next step of making an offer. This is where your broker or agent really comes in handy if you are using one. The following tips should help you in making this process go as smoothly as possible.
1. Your offer should be based on local market conditions, how well the home is priced, how fast homes are selling and if they are selling close to or at the list price. In active markets homes sell for close or at the asking price. They may even seel for a premium over the asking price if more than one party wants the home. In slow or slower markets homes may sell for 3-5 percent less and possibly more.
2. Have your broker or agent provide you with the most up to date market analysis possible. Make sure that you are also provided with a long term trend on what homes have sold for over the last 12 months. This will give you an idea if the prices in the neighborhood are stable, appreciating or maybe even declining and haven't bottomed out yet. That way you will ensure that you are not overpaying for the home or property. If you miss this step you may buy a home that was overpriced to begin with.
3. Don't be afraid to haggle! In todays market sellers will entertain offers they wouldn't have given the time of day to two years ago. However, be realistic in your offer if it is on a home you really want. Don't be afraid to ask for additional ammenties such as the refrigerator, a paint or carpet allowance or even a professional cleaning before you move in. Most sellers in today's market don't want to lose the sale to a qualified buyer. Also ask if there are any other offers on the property when making your offer. There might be another buyer who is better informed and looking at the same home who makes a more reasonable offer and yu could possibly lose the home to them.
4. Know how much you can afford. By now you should have neen pre-qualified for a mortgage and you should know how much home you can afford. If you are not qualified, talk with a loan officer or mortgage broker and get qualified so you can complete the purchase.
5. Make the offer contingent. Be sure you include all contingencies in your offer and they are in writing. As a minimum they should cover, Insurability of the home, Final approval of financing, Home inspection, Appraisal, Termite inspection etc...... That way you have the option to cancel the sale should anything come up during this part of sals process and not be forced into buying the home or property.
6. Ask for a home warranty if one isn't offered by the seller. Also ask that you have the option of picking the warranty company. Most sellers do offer a home warranty and normally use a company that their agent recommends. However, not all warranty companies are the same and some provide superior service while others may be hard to deal with. If a warranty is offered by the seller also ask for a copy of the brochure to see what is covered and what is not. Once you get a copy go over it with your agent to make sure it covers items that normally breakdown as the home gets older.
7. Set a time limit on your offer with you broker or agent. A time limit lets the seller know that you are serious abou | 
