How do I get started?
Before you start looking for a home you should ask yourself a few questions:
Where do you want to live? Do you want to be close to schools, shopping, or work? What kind of house would you like (need)? Are you looking for a particular style? How many bedrooms and bathrooms do you want? Do you want a yard?
How much house can you afford? Have you consulted a mortgage lender to determine the size of the mortgage you would qualify for? Do you have a licensed Broker and REALTOR® to help you with the negotiation and offer process?
Here are a few tips to help you get organized:
Pull a credit report on yourself and make sure the information is accurate. If you find any errors take steps to correct them immediately.
Familiarize yourself with the mortgage process. A mortgage consists of: principal, interest, taxes and insurance. Pre qualification is the initial step in securing a mortgage. A lender will analyze your current income, debt and basic credit history situation in order to qualify you for a maximum loan amount. This gives you a clear picture of your financial parameters and a maximum housing price (the mortgage amount plus your down payment). With preapproval, the lender verifies your income, debt and financial picture, approving the loan subject to a favorable appraisal of the property you select.
Browse through real estate advertisements in the newspaper and in the local Home Finder and Real Estate Book magazines at local supermarkets, convenience stores and real estate offices. This will give you a good feel for the types of homes that are on the market and what they cost.
Check for homes on Realtor.com, www.silvercity-realestate.com or any other local real estate company that offers homes for sale.
Visit open houses on the weekend. It doesn't cost anything to look, and looking at a few different homes might give you some ideas for things you'd like in a house but haven't considered.
Start saving money, you will need to have cash on hand for a down payment and closing costs.
Don't incur any additional debt. Pay down your credit cards and don't apply for any new ones. Don't make any major purchases on credit. Wait to buy the furniture or car later.
Give Enchantment Realty a call. One of our experienced Brokers can help you determine how much you can afford, and they will provide you with information on homes or properties that may interest you. Your Broker will also help you complete all of the necessary forms when it comes time to make an offer.
How much house should I buy? How much can I afford?
The answer to this has a lot to do with your income and the amount of your debt load. As a rough rule of thumb, most home buyers purchase houses that cost between 1 1/2 and 2 1/2 times their annual income. For example, a home buyer earning $40,000 per year would buy houses costing between $60,000 and $100,000. There is, however, a degree of variation due to the individual market prices of the area in which you are interested. In some areas, there may not be houses available within that range, so you may need to spend a bit more. In general, however, your monthly mortgage payment cannot exceed approximately 28%-29% of your gross monthly income. Your total debt payments (car payments, credit card payments, etc. plus the monthly mortgage amount) cannot exceed approximately 36%-40% of your gross monthly income. These ratios will depend on the type of mortgage for which you are applying.
Are there first time buyer discounts?
Numerous programs exist to help first time buyers purchase a home. A host of private lenders offer low-down payment loans. The U.S.Department of Housing and Urban Development offers a variety of programs through FHA that require approximately 4 to 5 percent cash down. Loan limits vary depending on the county where the property is located. Fannie Mae has a program allowing people to buy with just 3 percent down payments. For details, borrowers should contact lenders who offer government-insured loans.
What is the difference between prices?
A seller's advertised or list price should be treated as only a rough estimate of what he or she would like to receive. Some deliberately overprice, while others ask for close to what they hope to get, and a few actually underprice their houses with hopes that potential buyers will compete and overbid. The appraisal price is another estimate of value. The appraised price is how much money a professional appraiser estimates the home to be worth and usually is based sales of comparable homes in the same area. Purchase price and sales price are the same thing. Both terms mean the amount of money the successful buyer actually pays out to purchase the home.
Making An Offer
What is involved in making an offer?
Have you found the house that meets most of your needs and dreams, you will probably find yourself getting emotionally involved. You may imagine moving your furniture in, planting flowers, and envisioning your first big holiday party. But try not to get too attached prematurely. There are a number of steps you must take before you are holding the keys in your hand, and you need to think clearly and objectively at this point so that the offer you make is a realistic one.
What Should I Offer? That is the Question.
There are a number of factors that will affect the offer you make. Supply and demand, the condition of the home, how long the house has been on the market, and your personal circumstances with regard to how soon you need to close on a home all come into play when framing your offer. You might also weigh in the demand for the home and how much you really want it. If you “low ball,” some sellers will react with a counter offer; others might dismiss your offer outright. In an active market, you are likely to lose out by making a low bid. If multiple bids are anticipated, it is advisable to go with your “best offer.” Your Broker will advise you on ways to make your offer more attractive: for instance, a mortgage pre approval and flexibility on the closing\settlement date can help make your offer stand out and ultimately close the sale. Your Broker, will help you think through all of these issues so you can determine what is the best offer for you to make at the time.
The Offer Process
You will work with your Broker to complete a purchase contract or formal offer. Your Broker meets with the selling Broker usually with the sellers present. Your Broker presents the offer. The sellers decide to accept the offer, counter the offer or reject the offer. Sometimes there are contingencies with the offer, the counter offer or both. A contingency is an offer with a set of specifications or requirements attached. Some of these contingencies include:
I will purchase your house if and when I sell my current house.
I will purchase your house if you fix the back stairs to the house.
I will purchase your house if my mortgage loan is approved.
Sellers can also add contingencies in their counter offers. Also, either party has a time limit set to respond to the offer/counter offer and can withdraw it prior to that time if there is no response. You will need to present a deposit along with your offer. An appropriate deposit will show your good faith to the seller. The seller's agent is bound by law to bring all offers to the seller's attention. After your offer is accepted and all the conditions are met, the offer becomes binding on both sides. If you walk away from the deal at that point, you may lose your deposit. You may also be sued for damages. Make sure you understand and agree with all of the terms of the offer before signing.
Acceptance Of Your Offer
Things to do when your offer becomes a contract:
Arrange for the professional home inspection. The inspection takes about 3 hours. If possible, you should try to be there for at least the last 30 minutes. The inspector will go over his findings with you.
During the option period you can negotiate any major repairs or repair allowances.
Start talking to your insurance company about coverage. The Title Company needs the name of your agent and a phone number, as soon as possible. Your coverage should start the day of closing regardless of the day you take possession.
Deliver a copy of your contract to your loan officer and you should immediately contact him/her to start the loan process.
Start contacting the local utility companies, phone company, etc. to arrange services.
About 7 to 10 days before closing, we will call the title company to make sure they have everything they need to precede with closing. A follow up call may be needed 2 to 3 days before closing.
A day or two before closing, the title company should contact and fax you a copy of the detailed closing costs (HUD-1) and let you know how much money to bring to closing.
A cashiers check made payable to the Title Company will be needed at closing. Bring your checkbook, their estimate may be off and at closing you may need to write a small check for the difference.
Closing will take about 1-2 hours. Bring your driver’s license, they will need to make a copy.
The home is actually yours when the loan is funded and recorded. At that time, you can take possession.
It is best not to close at the very end of the month or on a Friday, if possible, and best to close early in the morning to allow time for the loan to be funded and recorded. Also, it is wise to not have your movers delivering the day of closing in case closing or funding is delayed.
Who pays closing costs?
Closing costs vary from one transaction to another and often total in the thousands of dollars. There are plenty of fees that you will have to pay during the closing. Depending on prior negotiations, the buyer or the seller could be responsible for these costs, although typically the most of it is paid by the buyer.
All closing costs are spelled out in the lender’s Good Faith Estimate. If you want to make sure you are paying the least amount possible in closing cost fees, you should get at least three Good Faith Estimates from mortgage lenders. This is only an estimate and the actual charges may differ. RESPA allows the borrower to request to see the HUD-1 Settlement Statement that shows all actual charges imposed on borrower in connection with the settlement one day before the settlement. If you see a charge that doesn’t make sense, or that no other lender has, it is time to ask questions.
Here is an example of what you can expect to pay (some costs vary widely from state to state, so you should determine exactly what you will have to pay): Discount and Origination Points, Application Fee, Appraisal Fee, Survey Fee, Credit Report Fee, Title search and title insurance, Hazard Insurance, Recording and Transfer Charges, and Interim Interest.
The purpose of your personal inspection is only to eliminate those properties from consideration that have too many obvious deficiencies. It is not designed to take the place of a professional home inspection. If a house passes your initial "tests" (location, wants and needs, etc.) you will probably want to schedule a second showing where you can spend an hour or so doing an inspection of the house.
A professional home inspection is when a paid professional inspector -- often a contractor or an engineer -- inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and or paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed.
More and more licensed Brokers and lenders are strongly encouraging clients to get a professional home inspection. The Department of Housing and Urban Development Form HUD-92564-CN “For Your Protection: Get a Home Inspection” states:
Why a Buyer Needs a Home Inspection
A home inspection gives the buyer more detailed information about the overall condition of the home prior to purchase. In a home inspection, a qualified inspector takes an in-depth, unbiased look at your potential new home to:
· evaluate the physical condition: structure, construction, and mechanical systems;
· identify items that need to be repaired or replaced; and
· estimate the remaining useful life of the major systems, equipment, structure, and finishes.
Appraisals are Different from Home Inspections
An appraisal is different from a home inspection. Appraisals are for lenders; home inspections are for buyers. An appraisal is required to:
· estimate the market value of a house;
· make sure that the house meets FHA minimum property standards/requirements; and make sure that the house is marketable.
Be an Informed Buyer!!!
It is your responsibility to be an informed buyer. Be sure that what you buy is satisfactory in every respect. You have the right to carefully examine your potential new home with a qualified home inspector. You may arrange to do so before signing your contract, or may do so after signing the contract as long as your contract states that the sale of the home depends on the inspection.
What to look for in a Professional Home Inspector
Questions that should be asked of a prospective home inspector:
What is the inspectors experience? How many years have they been in the business and how many inspections do they do a year?
Exclusively inspections? Beware of contractors who do house inspections "on the side"--they may be looking for work!
What type of report? Will it be written or oral or both? Will the report contain suggestions for remedying deficiencies?
How long will it take? A good house inspection should take between 2 and 4 hours, depending on the size of the house.
What will be included in the inspection? See "What to look for in a professional home inspection" below.
What certifications do they have? Are they ASHI (American Society of Home Inspectors) certified?
Does the inspector have Errors and Omissions Insurance? This gives you some level of protection should there be an "error or omission" in the inspection--meaning the inspector missed something.
What to look for in a Professional Home Inspection
A competent and professional inspection will include a minimum of the following:
Foundation: How is the structural integrity of the foundation? Is there any evidence of cracks, shifting, or moisture problems?
General Construction: How is the quality of the general construction?
Exterior: Is the house in need of exterior repairs or maintenance?
Plumbing: How is the condition of the overall plumbing system? Any evidence of leaks or water pressure problems?
Electrical: Do any dangerous electrical situations exist? Are there apparent code violations in the electrical system?
Heating and Cooling Systems: What are the ages of the systems? Are the systems adequate for the size of the house? Have they been maintained properly?
Interior: Do doors and windows open and close properly? Are floors firm and level?
Kitchen: Are appliances functioning properly? Is the plumbing, including the dishwasher connection, in good repair?
Baths: Is the floor solid? Are there any evidence of previous or current water leaks? Is the plumbing in good repair?
Attached structures: What is the condition of any attached structure (sheds, decks, garages, etc.)
Roof: What is the approximate age of the roof? What is the estimated remaining life of the roof? What is the condition of the roofing structure as well as the shingles?
One can usually find an inspector by looking in the phone book or by inquiring at a real estate office
Mortgage lenders require their customers to get title insurance. A title is the legal document of ownership for property. The companies also require you pay for a title search, which is an extensive search through legal documents to prove the person selling you property has legal claim to do it. So why have title insurance when you have had a title search done? The search may have made an error, or it may have come across forged documents which would pass the title search. Around six percent of all policies have a claim, so it is not as uncommon as some may think to have a claim.
You will have to have title insurance even if you refinance your mortgage. The mortgage lender is insuring against a lien on the property. A lien is a legal claim against a property usually because of debt. If you don’t pay your taxes or borrow against your home, you will have a lien on your property.
The title insurance will pay the mortgage company the balance of the principle owed them over the life of a mortgage. If you purchase a home valued at $100,000 and put down ten percent, then your title insurance will protect the amount owed the bank of $90,000. As you pay off the equity, the bank is insured against only the remaining amount you owe. This means the insurance covers a depreciating amount over time.
Many policies also protect the home owner’s equity investment. Of that $100,000 home you put down $10,000 in equity as down payment, you are covered for that amount which increases year after year until the principal is paid off to the bank. You must check individual policies to see if they cover both the bank and yourself! Many times covering yourself is optional, but costs only a few dollars more.
To help save money, check to see if you qualify for a discount. Each state has different laws covering title insurance, and discounts are frequently offered for various reasons. If you are going to own a home only for a few years see if you can get a binder policy for a small premium, say 15%, and use the same title insurer with your new house. You will often get back the money you paid prior, minus the premium.
Private Mortgage Insurance
Mortgage insurance is typically required by a bank for you to get loan approval if you are putting down less than 20% of the purchase price down for a home. If you are purchasing a home through a HUD program you are almost certain to have to get it. The insurance typically can be dropped after a certain amount of principle has been paid on a loan or if you refinance a loan. The insurance is really a benefit for the bank. If for some reason you could not pay your mortgage and the bank had to foreclose it will guarantee an amount back to the bank. Many people don’t understand why you need mortgage insurance when the home itself is collateral. Banks don’t like having to sell properties they foreclose. Selling property is not their business. Typically banks will have a company buy the home as soon as possible and take a loss. The mortgage insurance helps defy this potential loss.
Home warranties are very useful items whether you are purchasing a home or selling. A home warranty policy will pay for the cost of fixing and, if necessary, replacing heating, cooling systems and built in appliances. Policy coverage varies but usually central heating/cooling systems, electrical systems, interior plumbing, water heaters, ovens, refrigerators, etc. are covered against normal damage for a set period of time, usually one year. In some areas ceiling fans, outdoor in-ground pools and even roofs can be warrantied.
Typically a home warranty will cost between $350 to $600 depending on terms, conditions and contract period. When you make a claim, there is a small deductible. Home warranties don’t cover already damaged items (pre-existing conditions) and don’t cover cosmetic repairs (rust, paint, etc.). Usually home warranties don’t cover structural items such as window frames, doors, etc.
Even if a seller does not pay for a home warranty, a buyer may want to purchase one. A repair on a major appliance on a house can easily exceed the cost of a home warranty. Home warranties also give piece of mind in the period after a purchase. Typically a household’s cash reserves are depleted after purchasing a home and any major repair can be a tremendous financial burden to the family. A typical repair to a furnace will cost $1,250 to $3,500, well above the cost of a home warranty. Typically an agent or real estate agency can provide you with a home warranty. As with any contract, read the terms and conditions closely. In most states, real estate agencies get a monetary incentive for selling a home warranty. Try shopping around for warranties to make sure the real estate company is trying to get you the best deal. Home warranties are very common. It is estimated that nearly one million policies were sold last year.
10 Questions to ask Your Lender
Be sure you find a loan that fits your needs with these comprehensive questions.
What are the most popular mortgage loans you make? Why?
Which type of mortgage plan do you think would best for us? Why?
Are your rates, terms, fees, and closing costs negotiable?
Will I have to buy private mortgage insurance? If so how much will it cost and how long will it be required? NOTE: Private mortgage insurance is usually required if you make less than a 20-percent downpayment, but most lenders will let you discontinue the policy when you have acquired a certain amount of equity by paying down the loan.
Who will service the loan? Your bank or another company?
What escrow requirements do you have?
How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if they drop during this period?
How long will the loan approval process take?
How long will it take to close the loan?
Are there any charges or penalties for prepaying the loan?
10 Things a Lender Needs From You
W-2 forms or business tax return forms if you're self-employed for the last two or three years for every person signing the loan.
Copies of at least one pay stub for every person signing the loan.
Copies of two to four months of bank or credit union statements for both checking and savings accounts.
Copies of personal tax forms for the last two to three years.
Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
Copies of your most recent 401(k) or other retirement account statement.
Documentation to verify additional income, such as child support or a pension.
Account numbers of all your credit cards and the amounts of any outstanding balances.
Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.
Addresses where you have lived for the last five to seven years, with names of landlords if appropriate.
Choices That Will Affect Your Loan
Mortgage term. Mortgages are generally available at 15, 20, or 30 year terms. The longer the term, the lower the monthly payment if the same amount is borrowed. However, you pay more interest overall if you borrow for a longer term.
Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate for as long as you hold the mortgage and is usually a good choice if interest rates are low. An adjustable-rate mortgage is designed so that interest rates will rise as interest rates increase; however they usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. ARMs are a good choice when interest rates are high or when you expect your income to grow significantly in the coming years.
Balloon mortgages offer very low interest rates for a short period of timeoften three to seven years. Payments usually cover only the interest, so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.
Government-backed loans, sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the Department of Veterans Affairs (www.va.gov), offer special terms, including lower downpayments or reduced interest ratesto qualified buyers.
Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment.
For help in determining how much your monthly payment will be for various loan amounts, use Fannie Mae’s online mortgage calculators.
Source of Loan Information: www.realtor.com/realtormag
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