If you think your future may contain home ownership, please take the time to familiarize yourself with this material so home buying can be a milestone you look back on with certainty and pride.
IS BUYING A HOME RIGHT FOR YOU?
One of the largest advantages of home ownership is its impact on your taxes. A second advantage of home ownership is that you can build equity, which is an asset equal to the portion of your home that you actually own. Equity may build in two ways: primarily, equity accumulates because a portion of your monthly mortgage payment reduces the principal amount owed on your mortgage, but secondarily because your home's market value should appreciate, or increase.
However, along with the advantages of home ownership come disadvantages.
You sacrifice mobility. Before committing to buy, make sure you are fond of the area and that you plan to stay there for a while.
Home ownership is the necessary upkeep. Owning a home comes with the responsibility of maintaining it.
Your home's value could decrease, or depreciate.
Your monthly mortgage payment may far exceed what you used to pay for rent, sometimes called payment shock.
THE HOME BUYING PROCESS
HOME BUYING IN A NUTSHELL
Once you have established that you are both financially and mentally ready for home ownership, the next step is pre-qualification. Pre-approval, which guarantees financing from a lender up to a certain amount.
After your offer is accepted you will apply for a specific mortgage loan unless you are purchasing the home outright.
When your loan is approved the final step is closing the sale, including transferring the property to your name.
WHO WILL YOU WORK WITH?
One of the first and most important resources in home buying is your loan officer and Realtor. The loan officer will most likely play an essential role in your purchase from pre-qualification to closing.
A Realtor is a person licensed to sell and/or lease real property, acting as an agent for others, and who is a member of a local real estate board affiliated with the National Association of Realtors.
Additional professionals you may encounter include a title agent, an insurance agent and an attorney.
A title agent provides a legal description of the property, and reveals whether there are any liens, restrictions or unsettled claims against it.
An insurance agent furnishes the home owners' insurance that many lenders require you to obtain before closing the sale.
Home purchase does not require an attorney; however, employing one to examine your real estate documents may shift the responsibility away from you in the event that problems arise. For example, if another party claims title to your property, you can refer them to your attorney.
FINDING A LENDER
Your lender is perhaps the most important party you will deal with when buying a new home.
Consider the mix of products and services that lenders offer to find one with which you feel comfortable. You may be able to lower the interest rate on your loan by pre-paying interest, known as "paying points."
Another option for finding a lender is employing the services of a mortgage broker, which is a firm or individual who, for a commission or other means of payment, matches borrowers with lenders.,/
The pre-qualification process entails providing unverified information about your personal financial situation, which allows the lender to estimate the largest loan affordable to you. For pre-qualification, be prepared to provide information on your income, debts and assets. Once pre-qualified you can begin looking at what size and features you can realistically afford in your home.
Pre-approval involves a lender committing to finance your home purchase up to a certain amount. To determine the pre-approval amount, the lender examines your complete financial profile including your income, saving and checking accounts, stocks, bonds, life insurance and credit history. The front end ratio is calculated by dividing your monthly housing expense (including mortgage payments for principle, interest, taxes and insurance) by your monthly gross income. In general, this should not exceed 28%, meaning that 28% of your gross monthly income is the maximum amount lenders want you to allow for housing. The back end ratio is determined by dividing your total monthly debt by your monthly gross income.
Section of Form:
Social Security card/numbers
Department of Veterans Affairs (VA) Certificate or discharge papers (if applicable)
Present and former addresses
Current Rental Agreement
Employment and Income Data
Address of current and Past employers
Pay stubs (3 to 12 most current)
2-year employment history
Investment account statements or year end summaries
Proof of Social Security, disability or pension income
Tax Returns with attached schedules (2-years)
W-2's (Tax withholding sheets)
Lease for any investment properties Assets
Renter's insurance inventory list Debts
Monthly financial obligations (including car payments, credit card debt, insurance payments and household expenditures)
Details on any historical defaults or foreclosures
Property and real estate information
Real estate agent's business card
Offer to purchase (if completed)
FINDING YOUR HOME
Pre-qualification allows you to begin thinking about a house that will probably fit your budget. Once pre-approved and guaranteed a specific loan amount, you can search more seriously for your home.
After you have set some location guidelines, you should think about some of the physical characteristics you would like your home to have.
Finally the time has come to consider employing a real estate agency or simply getting out there to search for a home.
MAKING AN OFFER
Once you have found a home, the next step is making an offer to purchase, also known as a purchase agreement.
When ordering a home inspection be aware of any limitations the seller or real estate agent places on the time you may have to conduct an inspection, and make sure your home inspector is properly qualified. It may be wise to consult a lawyer to help draft the offer to purchase or to examine the agreement before you sign it.
YOU AND YOUR MORTGAGE
In order to make a knowledgeable decision on the purchase of a home you should be aware of the financing options that are available. In addition, the offer to purchase requires you to disclose the type of financing, if any, that you will use for the purchase. Your monthly mortgage payment can be broken down into four components: principal, interest, taxes and insurance. The following are the most common financing options and a brief description of each. For more information on whether these mortgage plans are best suited to you, consult a lender.
Government insured loans are guaranteed or insured, but not funded, by the state or federal government. With these types of loans, lenders still provide the funds, but the government guarantees the lender against loss in case the borrower defaults.
TIME TO APPLY
Now that you have your house picked out and have thought about what type of financing you would like to pursue, it is time to fill out the actual mortgage application with your lender. If you have been pre-approved, your application process will be shortened considerably. With pre-approval completed, you must simply finalize the purchase details of the mortgage. Providing your lender with your offer to purchase should be sufficient to accomplish this. If you did not opt for pre-approval, the application process may be longer. Refer to the table in this guide for information on how to prepare for the application process. The application's length and time required for a decision on it varies greatly from lender to lender. Consult your lender for a time frame specific to you.
The papers signed on the closing day will be recorded with the local government such as the register of deeds and the county title office. The security instrument will remain as a lien against the home until your loan has been paid off. At the closing you will receive many important documents that you will want to keep. These papers include the receipts for the payments you made, a copy of the land survey, if performed, and your closing statement or settlement sheets. The closing statement or settlement sheets, commonly referred to as the HUD-1, discloses all charges imposed in the transaction including the down payment, settlement costs and any amounts previously paid.
THE TOTAL COST OF HOME BUYING
Buying your home involves a cost greater than just the purchase price of your home. As we have discussed, the home buying process requires the performance of many various services, which of course cost you money. Recall the activities of your lender, real estate agents and agencies, title and insurance companies as well as credit and appraisal agencies. Listed below are descriptions of various fees that should be anticipated with these services.
Your lender may require you to hold hazard insurance, otherwise known as home owners' insurance, to minimize the financial loss to both you and your lender in the event of property loss or damage due to a fire, storm or other natural disaster
READY TO BUY!
After a little Home Buying 101 you are prepared to begin your journey through the world of lenders, realtors and lawyers to search out and buy your home. We hope that this guide has been informative and helps point you down a smooth home buying path. Remember not to rush or be pressured into any decisions, and don't be afraid to ask for directions along the way. Good luck!