A Helpful Resource for Homebuyers
Three Deadly Mistakes Every Homebuyer Should Avoid
Deadly Mistake #1 Thinking You Can’t Afford It.
Today, buying the home of your dreams is easier than ever before. Many people who thought that buying the home they wanted was simply out of their reach are now enjoying a new lifestyle in their very own new home.
Buying a home is the smartest financial decision you will ever make. In fact, most American and Canadian home owners would be financially broke at retirement if it weren’t for one saving-the equity in their home. Furthermore, mortgage rates are more flexible today than ever and tax allowances favor home ownership.
Real estate values have always risen steadily. Of course there are peaks and valleys, but in the long term the trend is a consistent increase. This means that every month when you make a mortgage payment the amount that you owe on the home goes down and the value typically increases. This owe less-worth more situation is called equity build-up and is the reason you can’t afford not to buy.
Even if you have little money for a down payment or credit problems, chances are that you can still buy that new home. It just comes down to knowing the right strategies, and working with the right people. See below.
Deadly Mistake#2 Not hiring a buyer’s agent to represent you.
Buying property is a complex and stressful task. In fact, it is often the biggest single investment you will make in your lifetime. At the same time, real estate transactions have become increasingly complicated. New technology, laws, procedures and competition from other buyers require buyer agents to perform at an ever-increasing level of professionalism. For many homebuyers, the process turns into a terrible, stressful ordeal. In addition, making the wrong decisions can end up costing you thousands of dollars. It does not have to be this way!
Work with a buyer’s agent who has a keen understanding of the real estate business and who is on your side. Buyer’s agents have a fiduciary duty to you. That means they are loyal to only you and are obligated to look out for your best interests. Buyer’s agents can help you find the best home, the best lender and the best inspector. Best of all, in most cases, the buyer’s agent is paid out of the seller’s commission, even though he/she works for you.
Trying to buy a home without an agent at all is, well…unthinkable.
Deadly Mistake #3: Getting a cheap inspection.
Buying a home is probably the most expensive purchase you will ever make. This is no time to shop for a cheap inspection. The cost of a home inspection is very small relative to the home being inspected. The additional cost of hiring a licensed, certified inspector is almost insignificant. As a homebuyer, you have recently been crunching the numbers, negotiating offers, adding up closing cost, shopping for mortgages and trying to get the best deals. Don’t stop now. Don’t let anyone talk you into skimping here.
NACHI (National Association of Certified Home Inspectors) has the highest membership requirements in the Industry. NACHI turns down more than ½ the inspectors who want to join because they can’t fulfill the membership requirements.
NACHI Certified Inspectors perform the most detailed and thorough inspections by far. NACHI Certified Inspectors earn their fees many times over. They do more, they deserve more, and yes they generally charge a little more. Do yourself a favor…and pay a little more for the quality inspection you deserve.
To find the best home inspector in your area visit www.InspectorSEEK.com
The inspectors listed are NACHI certified.
What Every Homebuyer Should Know
A home is a financial asset and more: it’s a plan for the future; it’s an investment in your community.
Knowledge is said to open doors. This is literally true when it comes to buying a home. To become a first-time homebuyer, you need to know where and how to begin the home buying process.
The following questions and answers have been carefully selected to give you a foundation of basic knowledge. In addition to helping you begin, they will give you the tools necessary to navigate the entire process, from deciding whether you’re ready to buy, all the way to that final proud step, getting the keys to your new home.
Reading this paper was your first step. Now you can use this information to determine if you’re ready to buy a home. If you are ready, contact a real estate agent. They can help you decide your next step.
1. How Do I Know If I’m Ready To Buy a Home?
You can find out by asking yourself some questions:
– Do I have a steady source of income (usually a job)?
– Have I been employed on a regular basis for the last 2-3 years?
– Is my current income reliable?
– Do I have a good record of paying my bills?
– Do I have few outstanding long-term debts, like car payments?
– Do I have money saved for a down payment?
– Do I have the ability to pay a mortgage every month, plus additional cost such as taxes, assessments, insurance, etc.
If you can answer “yes” to these questions, you are probably ready to buy your own home.
2. How Do I Begin The Process Of Buying A Home?
Start by thinking about your situation. Are you ready to buy a home? How much can you afford in a monthly mortgage payment (see Question 4 for help)? How much space do you need? What areas of town do you like? After you answer these questions, make a “To Do” list and start doing casual research. Talk to friends and family, drive through neighborhoods, look in the “Home” section of the newspaper, and contact a local real estate agent.
3. How Does Purchasing A Home Compare With Renting?
The two don’t really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing.
Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that’s an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities; like insurance, real estate taxes, and up-keep, which can be substantial.
4. How Does The Lender Decide The Maximum Loan Amount I Can Afford?
The lender considers your debt-to-income ratio, which is a comparison of your gross (pretax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as cars or student loan payments, alimony, or child support. Monthly mortgage payments should be no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses should total no more than 41% of income. The lender also considers cash available for down payment, closing costs, and credit history, etc. when determining your maximum loan amount.
5. How Do I Select The Right Real Estate Agent?
Start by asking family and friends if they can recommend an agent. Compile a list of several agents and talk to each before choosing one. Look for an agent who listens well and understands your needs, and whose judgment you trust. The ideal agent knows the local area well and has resources and contacts to help you in your search. Overall, you want to choose an agent that makes you feel comfortable and can provide all the knowledge and services needed.
6. How Can I Determine My Housing Needs Before I Begin The Search?
Your home should fit the way you live, with spaces and features that appeal to the whole family. Before you begin looking at homes, make a prioritized list, things like location and size. Should the home be close to certain schools? Your jobs? To public transportation? How large should the home be? What type of lot do you prefer? What kinds of amenities are you looking for? Establishing a set of minimum requirements are things that a home must have for you to consider it, while a “wish list” covers things that you’d like to have but aren’t essential.
7. What Should I Look For When Deciding On A Community?
Select a community that will allow you to best live your daily life. Many people choose communities based on schools. Do you want access to shopping and public transportation? Is access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a rural community? When you find places that you like, talk to people that live there. They know the most about the area and will be your future neighbors. More than anything, you want a neighborhood where you feel comfortable.
8. How Can I Find Out About Local Schools?
You can get information about school systems by contacting the city or county school board or the local schools. Your real estate agent may also be knowledgeable about schools in the area. Many school systems offer web sites with a wealth of helpful information.
9. How Can I find Out About Community Resources?
Contact the local chamber of commerce for promotional literature or talk to your real estate agent about welcome kits, maps, and other information. You may also want to visit the local library. It can be an excellent source for information on local events and resources, and the librarians will probably be able to answer many of the questions you have.
10. How Can I Find Out How Much Homes Are Selling For In Certain Communities And Neighborhoods?
Your real estate agent can give an estimated figure by showing you comparable listings. If you are working with a REALTOR, they may have access to comparable sales maintained on a database.
11. How Can I Find Information On The Property Tax Liability?
The total amount of the previous year’s property taxes is usually included in the listing information. If it’s not, ask the seller for a tax receipt or contact the local assessor’s office. Tax rates can change from year to year, so these figures may be approximate.
12. What Other Tax Issues Should I Take Into Consideration?
Keep in mind that your mortgage interest and real estate taxes will be tax deductible. A qualified real estate professional can give you more details on other tax benefits and liabilities.
13. Is An Older Home A Better Value Than A New One?
There isn’t a definitive answer to this question. You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, offer more ambiances, and have lower property tax rates. People who buy older homes, however, shouldn’t mind maintaining their home and making some repairs. Newer homes tend to use more modern architecture and systems, are usually easier to maintain, and may be more energy-efficient. People who buy new homes often don’t want to worry initially about upkeep and repairs.
14. What Should I look For When Walking Through A Home?
In addition to comparing the home to your minimum requirement and wish lists, consider the following:
– Is there enough room for both the present and the future? . Are there enough bedrooms and bathrooms?
– Is the home structurally sound?
– Do the mechanical systems and appliances work?
– Is the yard big enough?
– Do you like the floor plan?
– Will your furniture fit in the space?
– Is there enough storage space? (Bring a tape measure to better answer these questions.)
– Does anything need to be repaired or replaced? Will the seller repair or replace the items? Imagine the home in good weather and bad, and in each season.
– Will you be happy with it year-round?
Take your time and think carefully about each home you see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.
15. What Questions Should I Ask When Looking At New Homes?
Many of your questions should focus on potential problems and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance (e.g., paint, roof, HVAC, appliances, carpet)? Also ask about the home and neighborhood, focusing on quality of life issues. Be sure the seller’s or real estate agent’s answers are clear and complete. Ask questions until you understand all of the information they’ve given. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.
16. How Can I Keep Track Of All The Homes I See?
If possible, take photographs of each home: the outside, the major rooms, the yard, and extra features that you like, or ones you see as potential problems. And don’t hesitate to return for a second or third look.
17. How Many Homes Should I Consider Before Choosing One?
There aren’t a set number of homes you should see before you decide. Visit as many as it takes to find the one you want. On average, homebuyers see 15 homes before choosing one. Just be sure to communicate often with your real estate agent about everything you’re looking for. It will help avoid wasting your time.
18. What Does A Home Inspector Do, And How Does An Inspection Figure Into the Purchase Of A Home?
An inspector checks the safety of your potential new home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the home and will make you aware of repairs that are needed.
The Inspector does not evaluate whether or not you’re getting good value for your money. Generally, an inspector checks: the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, the HVAC system, water source and quality, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is qualified and experienced. Contact the National Association of Certified Home Inspectors at www.nachi.org to find a certified inspector in your area.
Typically, you may include an inspection clause in the offer when negotiating for a home. An inspection clause gives you an “out” on buying the home if serious problems are found, or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause can also specify that the seller must fix the problem(s) before you purchase the home.
19. Do I Need To Be There For The Inspection?
It’s not required, but it’s a good idea. Following the inspection, the home inspector will be able to answer questions about the report and any problem areas. This is also an opportunity to hear an objective opinion on the home you’d like to purchase and it is a good time to ask general, maintenance questions.
20. Are Other Types Of Inspections Required?
If your home inspector discovers a serious problem, a more specific Inspection may be recommended. It’s a good idea to consider having your home inspected for the presence of a variety of health related risks like termites, mold, or possible problems with the water or waste disposal system. To find such qualified inspectors visit www.InspectorLocator.com
21. Are Power Lines A Health Hazard?
There are no definitive research findings that indicate exposure to power lines results in greater instances of disease or illness.
22. Do I Need A Lawyer To Buy A Home?
Laws vary by state. Some states require a lawyer to assist in several aspects of the home buying process while other states do not, as long as a qualified real estate professional is involved. Even if your state doesn’t require one, you may want to hire a lawyer to help with the complex paperwork and legal contracts. A lawyer can review contracts, make you aware of special considerations, and assist you with the closing process. Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what services are provided for what fee, and whether the attorney is experienced at representing homebuyers.
23. Do I Really Need Homeowners Insurance?
Yes. A paid homeowner’s insurance policy (or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. Plus, involving the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information on home safety and they can give tips on how to keep insurance premiums low.
24. What Steps could I Take To Lower My Homeowners Insurance Cost?
Be sure to shop around among several insurance companies. Also, consider the cost of insurance when you look at homes. Newer homes and homes constructed with materials like brick tend to have lower premiums. Think about avoiding areas prone to natural disasters, like flooding. Choose a home with a fire hydrant or a fire department nearby. Other ways to lower insurance costs include insuring your home and car(s) with the same company, increasing home security, and seeking group coverage through alumni or business associations. Insurance costs are always lowered by raising your deductibles, but this exposes you to a higher out-of-pocket cost if you have to file a claim.
25. Is The Home Located In A Flood Plain?
Your real estate agent or lender can help you answer this question. If you live in a flood plain, the lender will require that you have flood insurance before lending any money to you. But if you live near a flood plain, you may choose whether or not to get flood insurance coverage for your home. Work with an insurance agent to construct a policy that fits your needs.
26. What Other Issues Should I Consider Before I Buy My Home?
Always check to see if the home is in a low-lying area, in a high risk area for natural disasters (like earthquakes, hurricanes, tornadoes, etc), or in a hazardous materials area. Be sure the house meets building codes. Also consider local zoning laws, which could affect remodeling or making an addition in the future. Your real estate agent should be able to help you with questions.
27. How Do I Make An Offer?
Your real estate agent will assist you in making an offer, which will include the following information:
– Complete legal description of the property
– Amount of earnest money
– Down payment and financing details
– Proposed move-in date
– Price you are offering
– Length of time the offer is valid
– Detail of the offer
– Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer.
28. How Do I Determine The Initial Offer?
Unless you have a buyer’s agent, remembering the listing agent works for the seller. Make a point of asking him or her to keep your discussions and information confidential. Listen to your real estate agent’s advice, but follow your own instincts on deciding a fair price. Calculating your offer should involve several factors: what amount homes sell for in the area, the home’s condition, how long it’s been on the market, financing terms, and the seller’s situation. By the time you’re ready to make an offer, you should have a good idea of what the home is worth and what you can afford. And, be prepared for give-and-take negotiation, which is very common when buying a home. The buyer and seller may often go back and forth until they can agree on a price.
29. What Is Earnest Money? How Much Should I Set Aside?
Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.
30. What Are “Home Warranties” And Should I Consider Them?
Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems which are not covered by homeowner’s insurance. Warranties are becoming more popular because they offer protection during the time immediately following the purchase of a home, a time when many people find themselves cash-strapped.
31. What Is A Mortgage?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The “mortgage” itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.
32. What Is A Loan To Value Ratio (LTVR)? How Does It Determine The Size Of My Loan?
The loan to value ratio is the amount of money you borrow compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example: with a 95% LTV loan on a home priced at $50,000 you could borrow up to $47,500 (95% of $50,000), and would have to pay $2,500 as a down payment.
The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less cash homebuyers are required to pay out of the own funds. So, to protect lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.
33. What Types Of Loans Are Available And What Are The Advantages Of Each?
Fixed Rates Mortgages: Payments remain the same for the life of the loan
– Housing costs remains unaffected by interest rate changes and inflation.
Adjustable Rate Mortgages (ARMS): Payments increase or decreases on a regular schedule with changes in interest rates; increases subject to limits
– Balloon Mortgage-offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically)
– Two-Step Mortgage-Interest rate adjusts only once and remains the same for the life of the loan
– ARMS linked to a specific index or margin
– Generally offer lower initial interest rates
– Monthly payment can be lower
– May allow borrower to qualify for a larger loan amount.
34. When do “ARMS” Make Sense?
An ARM may make sense IF you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren’t concerned about potential increases in interest rates.
35. What Are The Advantages Of 15-30 Year Loan Terms?
– In the first 23 years of the loan, more interest is paid off than principal, meaning
larger tax deductions.
– As inflation and costs of living increase, mortgage payments become a smaller part
of overall expenses.
– Loan is usually made at a lower interest rate.
– Equity is built faster because early payments pay more principal.
36. Can I Pay Off My Loan Ahead Of Schedule?
Yes. By sending in extra money each month or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.
37. Are There Special Mortgages For First Time Homebuyers?
Yes, Lenders now offer several affordable mortgage options which can help first-time home-buyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don’t have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have substantial amounts of long-term debt, or have experienced income irregularities.
38. How Large Of A Down Payment Do I Need?
There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you’ll have. Mortgages with less than a 20% down payment generally require an insurance policy to secure the loan. When considering the size of your down payment, consider that you’ll also need money for closing costs, moving expenses, and possibly for repairs and decorating.
39. What Is Included In A Monthly Mortgage Payment?
The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner’s insurance (if applicable).
40. What Factors Affect Mortgage Payments?
The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term, and payment schedule will all affect the size of your mortgage payment.
41. How Does the Interest Rate Factor In Securing A Mortgage Loan?
A lower interest rate allows you to borrow more money than a high rate with the same monthly payment. Interest rates can fluctuate as you shop for a loan, so ask lenders if they offer a rate “lock-in” which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.
42. What Happens If Interest Rates Decrease And I have A Fixed Rate Loan?
If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your home for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees.
43. What Are Discount Points?
Discount points allow you to lower your interest rate. They are essentially prepaid interest, with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.
44. What Is An Escrow Account? Do I Need One?
Established by your lender, an escrow account is a place to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner’s insurance, mortgage insurance (if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for these payments. If you use an escrow account to pay property tax or homeowner’s insurance, make sure you are not penalized for late payments since it is the lender’s responsibility to make those payments. You may also consider confirming, with the appropriate municipality, that the tax payments are current.
45. What Steps Need To Be Taken to Secure A Loan?
The first step in securing a loan is to complete a loan application. To do so, you’ll need the following information:
– Pay stubs for the past 2-3 months . W-2 forms for the past 2 years
– Information on long-term debts
– Recent bank statements
– Tax returns for the past 2 years
– Proof of any other income
– Address and description of the property you wish to buy
– Sales contract During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase. The application process typically takes between 1-6 weeks.
46. How Do I Choose the Right Lender For Me?
Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier for you to monitor the status of your application and ask questions. Plus it’s beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations.
47. How Are Pre-Qualifying And Pre-Approval Different?
Pre-qualification is an informal way to see how much you may be able to borrow. You can be ‘prequalified’ over the phone with no paperwork by telling a lender your income, your long term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at an estimated figure of the amount you may have available to spend on a home.
Pre-approval is a lender’s actual commitment to lend to you. It involves assembling the financial records mentioned in Question 45 (Without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.
48. How Can I Find Out Information About My Credit History?
There are three major credit reporting companies: Equifax, Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report, it’s important to verify its accuracy. Double check the “high credit limit” “total loan”, and “past due” columns. It’s a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire the information free. Contact the reporting companies at the numbers listed for more information. Experian 1-888-524-3666 – Equifax 1-800-685-1111 – Trans Union 1-800-916-8800
49. What If I Find A Mistake In My Credit History?
Simple mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.
50. What Is a Credit Bureau Score and How Do Lenders Use Them?
A credit bureau score is a number, based upon your credit history that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.
51. How Can I Improve My Credit Score?
There are no easy ways to improve your credit score, but you can work to keep it acceptable by maintaining a good credit history. This means paying your bills on time and not overextending yourself by buying more than you can afford.
52. How Do I Choose The Best Loan-Program For Me?
Your personal situation will determine the best kind of loan for you. By asking yourself a few questions, you can help many options available and discover which loan suits you best.
– Do you expect your finances to change over the next few years?
– Are you planning to live in this home for a long period of time?
– Are you comfortable with the idea of a changing mortgage payment amount?
– Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?
Your lender can help you use your answers to questions such as these to decide which loan best fits your needs.
53. What Is The Best Way To Compare Loan Terms Between Lenders?
First, devise a checklist for the information from each lending institution. You should include the company’s name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed. Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a data base of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.
54. Is There Any Cost Or Fees Associated With The Loan Origination Process?
Yes, when you turn in your applications, you’ll be required to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal, a copy of your credit report, and any additional charges that may be necessary. The application fee is generally non-refundable.
55. What Is A Good Faith Estimate, And How Does IT Help Me?
It’s an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.
56. What Responsibilities Do I Have During The Lending Process?
To ensure you won’t fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:
– Be sure to read and understand everything before you sign.
– Refuse to sign any blank documents.
– Do not buy property for someone else. . Do not overstate you income.
– Do not overstate how long you have been employed. . Do not overstate your assets.
– Accurately report your debts.
– Do not change your income tax returns for any reason. Tell the whole truth about gifts.
– Do not list fake co-borrowers on your loan application.
– Be truthful about your credit problems, past and present.
– Be honest about your intention to occupy the house.
– Do not provide false supporting documents.
57. What Happens After I’ve Applied For My Loan?
It usually takes a lender between 1-6 weeks to complete the evaluation of your application. It’s not unusual for the lender to ask for more information once the application has been submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information has been verified the lender will call you to let you know the outcome of your application. If the loan is approved, a closing date is set up and the lender will review the closing with you. And after closing, you’ll be able to move into your new home.
58. What Should I Look For During The Final Walk Through?
This will likely be the first opportunity to examine the house without furniture, giving you a clean view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller’s responsibility to fix them
59. What Makes Up Closing Costs?
– Attorney’s or escrow fees (Yours and your lender’s if applicable)
– Property taxes (to cover tax period to date)
– Interest (paid from date of closing to 30 days before first monthly payment)
– Loan Origination fee (covers lender administrative cost)
– Recording fees
– Survey fee
– First premium of mortgage Insurance (if applicable)
– Loan discount points
– First payment to escrow account for future real estate taxes and insurance
– Paid receipt for homeowner’s insurance policy (and fire and flood insurance if applicable)
– Any documentation preparation fees
60. What Can I Expect to Happen On Closing Day?
You’ll present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc.
Once you’re sure you understand all the documentation you’ll sign the mortgage, agreeing that if you don’t make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You’ll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed.
You’ll pay the lender’s agent all closing costs and, in turn, he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the state Registry of Deeds, and you will be a homeowner.
61. What Is Mortgage Insurance?
Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than 20%.
62. How Does Mortgage Insurance Work? Is It Like Home Or Auto Insurance?
Like home or auto insurance, mortgage insurance requires payment of a premium, for protection against loss, and is used in the event of an emergency. If a borrower can’t repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.
63. What Is PMI?
PMI stands for Private Mortgage Insurance or Insurer. These are privately owned companies that provide mortgage insurance. They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility.
64. Who Can I Trust To Help Me?
The home inspector is the only impartial party to a real estate transaction. Unlike the seller, the real estate agent and the lender, the inspector’s fee is not dependent on whether you buy or not. To find the inspectors in your area who abide by the highest code of ethics visit: www.InspectorSEEK.com
Opinions expressed in this publication are not necessarily those of The Home Analysis Group, Inc. or any of its employees.
This information is being presented compliments of:
Russ Myers, CMI (Certified Master Inspector) Home Analysis Group, Inc. 2800 North Pine Grove, Ste #7G Chicago, Illinois 60657
State of Illinois: Licensed Home Inspector Entity #451.0000216
State of Illinois: Licensed Home Inspector #450.0000823