I don't know anything about buying a house or mortgages. I do not work
in the field, and quite honestly, I have no clue what I am talking about.
I am just someone who wanted to buy a house. It should not have been
this complicated, but it was, Here is the abbreviated version of what
I learned. In no way does it cover every possibility. If it did, it
would be as complicated as everything else out there.
Introduction: If you are looking to buy your first house, congratulations,
you just found the needle in the haystack. The will be the best article
you will ever read on the topic. Why? Because like my other articles,
I have cut out the fluff and tell you only what you need to know. Everything
else you learn is just icing on the cake. As usual, I learned the hard
way, so you don't have to.
If you are not sure
if you can afford a house, quite honestly, you probably can't. No one
bothered to tell me just how much a house cost to own. I figured it
was the same as renting, plus water. Boy, was I wrong. These bills simply
do not stop coming in. It's insane how many people tried to screw me
when I bought the house, and now that I am here, everyone else is trying
to lick the bottom. Just to give you an idea, I have a water bill, sewage
bill (both due once every 3 months), Oil bill (on a budget it cost $160
a month), a second Oil bill because we owe on a new furnace, higher
mortgage than I thought, one extra in house taxes because they underestimated
(which will make the mortgage go up more), house insurance once a year,
propane twice a year (for the stove), three credit cards (because we
had to fix so much stuff, we had to use them). Throw on the top junk
like car taxes twice a year and maybe a doctor bill or two, and it is
way more than I can afford. In fact, It cost about $600 more per month
than I even make, which means a second job.
Now that you read
that.... are you SURE you want to buy a new house? It is costing me
about $1,000 more per month than renting did.
The Short Version
- Get your credit
score from all 3 bureaus. Your middle score should be 600 or higher.
The higher your score, the better your interest rate will be. If you
are buying with your spouce, even though you will have six scores
between you, the only number that will be used is the middle score
of the highest wage earner.
- Use Realtor.com
to search for general prices in the areas you wish to live. At this
point, you only want a price guide to decide what loan amount you
will need to try for. As a basic guide, a $150,000 will cost about
$1,200 per month at 7%... roughly. This includes about $3,000 a year
- Use Lending
Tree or another broker to Pre-Approve you for a loan. Get a letter
in writing that states you qualify for a loan. Lending Tree will run
your credit score once, and send it to four different companies. You
don't need to use them in the end, but you should do this just to
- Go house hunting
with an Agent. Only do this if you are sure you want to push though
to the end. Once you get on this roller coaster, it is hard to slow
down and get off.
- Once you found
a house you want to try for, you will need to give the Pre-Approval
letter to your agent, a price approximately 10% less than the asking
price, a closing date 2 months later, and write a check for, say,
$1000 deposit with the promise of, say, another $3000 when they accept
the offer. The more you are able to deposit, the more serious buyer
you will look to the seller. This money will be tied up for the next
two months until the closing, so only give what you can afford. This
money will later go towards the closing costs and miscellaneous, which
was $3,982.00 for me. Giving $10,000 deposit is not out of the question,
and shows how serious you are. It also shows you have money to back
up your offer. If you are buying a forclosure, the banks will drag
their feet when negotiating or accepting your offer. Expect 1 - 2
weeks for an answer. Then, you could also expect them to want a 30
day closing date. This is because they are more interested in getting
rid of the property than they are making money. Making a 30 day closing
is pinfully tight, and will most likely not even happen. Best bet
is to tell the seller 45 days, and the mortgage company 30. This will
give you two extra weeks to deal with the mortgage companies bullshit.
- While you are
negotiating with the seller, schedule an inspection for the following
week. Hopefully the negotiations will be complete by the time the
inspector comes out. He will want between $200 and $500 for 2-3 hours
of work. If negotiations fall through, you can always cancel preferably
with 48 hours notice. The inspector is a waste of money, in my opinion.
All he will do is point out the obvious ("There is a crack in
the sidewalk. You should fix that.").
- Wait around for
two months while everyone around pushes papers from one desk to another.
- In the meantime,
you can may need to pay the broker about $350 and an appraiser $325.
- You can start
packing until the closing date comes around. At that point, you will
need to cough up another 3-4% of the loan for closing fees (Part of
your initial deposit). Estimate $2000 - $3500 average, plus house
taxes and other stuff like that (about $4,000 total). You may either
use your original deposit to go twords these costs, or you can possibly
roll the closing cost into the mortgage of the house by using a Seller
Contribution. This will, of course, raise your monthly payment. When I did my second mortgage, the closing costs jumped up to $11,000 because I paid extra points for a lower monthly payment, it was for a larger loan, and I used a broker.
- So far, this
was using the NO MONEY DOWN option. If you still have extra laying
around, you can give that to the bank for another 3%, 5% or 20%, costing
no less than $3000. Hell, while you are at it, why not just pay some
Points at approximately $1000-$3000 each (each point cost 1% of the loan).
- After you sign
an awful lot of papers, they will give you two keys for the
front, and two keys for the back. In my case, I got one key and a
plenty of stress.
- Beg friends and
family to help move you. Either that, or you could pay another $500
- $1000 for movers. At this point, what's the difference?
- Stand on your
porch, in your underwear and cry out "Hey You Damn Kids, Get
Off My Lawn!!"
Cost to Buy a House
1. $1000 first deposit
2. $2000 second deposit on offer acceptance
3. $350 inspection
4. $350 loan/broker fees
5. $325 appraiser
6. $2500+ closing costs
7. $3000+ down payment
8. $8000+ reserves (just in case)
Before you freak out, this is the worst, of a best case scenario. It
is completely possible to deposit $500, middle fees of $1100, and no
closing cost. Hell, maybe you can even do better than that. You will
need to read the rest of this article, however. When I finished my first mortgage, they paid everything for me, and gave me an extra $5000 cash to make repairs.
Sample Monthly Mortgage
Let's assume you received a $100,000 loan at 5% for a 30 year mortgage.
1. $750 principal and interest
2. $200 taxes
3. $50 hazard insurance
4. $100 mortgage insurance (likely omitted now-a-days)
The total in this case is $1050 which sounds about right for a mortgage.
However, if you follow my advise and read the rest of this article,
you could shave it down to around $850 per month by using an 80/20 loan
using a 4% 5/1 ARM and a 6.5% HEL just as an example. I know, that statement
meant absolutely nothing to you, right? It will.
Good Reasons to Buy a House
1. To have your monthly payments go toward your own investment.
2. To one day own your home free-and-clear and to stop making payments.
3. To avoid future rent increases.
4. To acquire additional tax deductions.
5. To take advantage of increased equity as housing prices continue
6. To get into a house now before prices rise even higher.
7. To set up for a secure retirement.
8. To have the freedom to decorate, paint, remodel, and fashion as you
9. To have pets without paying a deposit.
10. To have
11. To have a yard of your own.
12. To have more space.
13. To have more incentive to clean and upkeep.
14. To enhance your self-respect and peace of mind.
15. To have the American Dream.
Know your credit rating.
This is important, so dont skip over it. Your credit report tells
a lot of personal information about you. By reading it, the lender will
know the following:
a) who you have had credit with
b) whether or not you have paid on time: paid as agreed
c) if late, when and how often
d) if late, were you 30-days, 60-days, 90-days, or 120-days late
e) what the high credit limit is for each of your accounts
f) what the current balances are
g) how much each monthly payment is
h) whether or not you have or have had collections, liens, and judgments
i) any past bankruptcy, with file and discharge dates
j) any other names you have used in obtaining credit
k) your credit score
l) reasons why your credit score is not higher than it is
The middle score of the three is used, and a minimum score of 620 is
required. If there are any errors on your credit report, you need to
correct them before applying for a loan.
Before You Begin Shopping
1. Establish stable employment.
A lender wants to see a minimum of two years at the same company, or
at least in the same line of work.
2. Have medical insurance and an emergency reserve fund.
3. Pay everything on time.
4. Create a perfect rental history with on-time payments.
5. Get rid of excessive debt.
If you have more than three credit cards, pay them off, then call and
ask to have the accounts closed by customers request.
However, do not close out your long-standing credit as you get points
for longevity; better to leave them open with zero balances.
6. Pay down your high balances.
Having balances up to or near the credit limit will lower your credit
score. Another trick that will work; Call your creditors and ask to
have your credit limits raised; that way you will have a low balance-to-limit
ratio, which will give you a higher credit score.
7. Dont take out a big automobile loan.
Waiting until after you are in your house to buy a vehicle is a wise
8. Save money.
for a down payment, closing costs, and reserves.
9. Debt-to-Income Ratio
Depending on the loan program, the total debt-to-income ratio allowed
is 38% - 45%. This means that when you add up all of the payments (excluding
utilities), it cannot be more than 45% of your gross monthly income
(income before taxes and other deductions). According to the FHA,monthly
mortgage payments should be no more than 29% of gross income.
Your Loan Process
1. Get pre-qualified for price range.
2. Get pre-approved for guaranteed financing. (Get your approval/commitment
letter and a Good Faith Estimate and keep them.)
3. Make an offer on a house.
4. Finalize offer and sign a Purchase and Sale Agreement.
5. Work with your mortgage broker to provide all documentation that
is needed to close the loan. (At some point after #4 above, you will
lock in your interest rate. Get a rate lock confirmation letter and
6. Get a home inspection. (Your real estate agent will help with this.)
7. Order the appraisal. (Your mortgage broker will order the appraisal
and usually you must pay for this in advance; however, do not spend
money for an appraisal until after you have received a Good Faith Estimate
and approved of the loan plan, and until after the home inspection has
been completed and approved by you.)
8. Wait for the Final Review and Final Loan Approval. (At this point,
more documentation may be required; if so, provide it quickly.)
9. Sign Loan Note, Deed of Trust and other loan papers. (Bring in a
cashiers check for down payment/closing costs at this time.)
10. Wait for Deed of Trust to record with the county recorders
office. (Takes one to two days.)
11. Get the keys from your real estate agent and move in to your new
is an estimate of what price home you can afford, based on income and
debt information. By asking you a few questions, a loan officer can
give you a pre-qualification in a matter of minutes. If youre
just curious about what price home you could buy, get pre-qualified.
A Pre-Approval is a guaranteed commitment from a lender for financing
for a specific loan amount.
According to federal regulations, when a mortgage company takes an application
and orders a credit report, they are required to sent you a Good
Faith Estimate within 3 business days. The Good Faith Estimate is
extremely important as it lists all the costs of the loan, the loan
amount, the interest rate, the monthly payment, and how much money will
be needed for closing.
Once your Offer is accepted, or counter-offered and agreed upon,
you will have a signed Purchase and Sale Agreement. Your real
estate agent will fax a copy of this to your mortgage broker. Your mortgage
broker will then proceed to meet all the requirements or conditions
of the Lender, such as ordering the Title and Appraisal and collecting
other necessary documentation. Work with your mortgage broker
to get all the necessary paperwork as quickly as possible.
You will work with your real estate agent to get a Home Inspection,
which will tell you about any repairs that need to be done on the house;
this is for your protection. The home buyer always attends the inspection
so the inspector can point out to you and explain the details of what
is being written up.
If there are major problems, such as a bad roof, dry rot, or electrical
and plumbing problems, the lender will require that these things be
fixed. Then you would work with your real estate agent to negotiate
payment. (Be sure to write in a contingency on the home passing inspection
and financing going through.)
Only after you have reviewed the Good Faith Estimate and after the house
has passed the inspection, is the Appraisal ordered. Your mortgage
broker will order the appraisal, and usually it must be paid for in
advance. Never pay for an appraisal until after you have received an
approval/commitment letter and received a Good Faith Estimate. Also,
instruct your mortgage broker not to order the appraisal until after
the home inspection.
At some point, you will choose to have your mortgage broker lock in
your interest rate. Again, insist on getting this in writing.
When all of the Conditions are met, your entire file goes to
the underwriters for Final Review and Approval.
Then the loan documents are drawn and sent to the escrow company or
real estate attorney. When the escrow company or attorney receives your
loan documents, they will call you and set an appointment for your Signing.
They will also tell you the exact amount of money to bring in for your
purchase in the form of a cashiers check. After signing, the loan
documents are sent to the lender for a final check; someone makes sure
all paperwork has been properly signed and notarized. Then the Deed
of Trust is sent to the county to be Recorded.
When the escrow company or attorney receives the recording number and
the okay from the lender, they disperse funds and let you know that
you are officially a home owner. This process, after the signing of
loan documents takes an additional 1-2 days. You may then Move In
to your very own home.
Income Information. Have ready your W-2s from the previous
two years and current paystubs, to cover one month of pay.
Asset Information. Have statements to verify your assets, such
as checking account, savings, investments, 401K, etc.
Have an idea of your Credit Rating. Be up front with your loan
officer about any credit challenges so he/she can deal with the issues
What is Included?
The monthly mortgage payment mainly pays off principal
and interest. But most lenders also include local real estate taxes,
homeowner's insurance, and mortgage insurance (if applicable).
What Should I Tell the Loan Office or Broker?
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 your 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.
What is Needed
for Securing the Loan?
1. Pay stubs for the past 2-3 months
2. W-2 forms for the past 2 years
3. Information on long-term debts
4. Recent bank statements tax returns for the past 2 years
5. Proof of any other income
6. Address and description of the property you wish to buy
7. Sales contract
1. Fixed Rate
Interest rate is fixed, meaning it does not change.
2. Adjustable Rate Mortgage (ARM) Interest rate will adjust,
either every 12 months or every 6 months.
3. Balloon Loan (or 30 due in 15, or 30 due in 7) Interest rate
is fixed. The loan is amortized over 30 years, meaning your payment
is calculated as if it were a 30-year fixed rate loan. However, in 15
years or 7 years, the entire remaining balance is due, called a balloon
payment. At this point, you must pay off the balance or refinance.
Guidelines for Selecting Your Best Loan
1. If you dont plan to stay in the house long, take an ARM.
2. When taking an ARM, pay as few points and as little fees as possible.
3. If you plan on staying in the house for five to seven years, look
at the 7-year balloon loan.
4. If rates are high, take an ARM or balloon.
5. If rates are low, go ahead and lock in to a 30-year fixed rate.
What are the Loan Costs?
1. Down Payment - Money paid toward the purchase price. Other
than zero down loans, the minimum down payment allowed is 3% of the
Costs - The costs of closing or completing the loan. The total for
these is usually 3%-4% of the loan amount, not counting discount points.
3. Escrow Reserves - These would be the property taxes and hazard
insurance you pay ahead to be held in a trust fund (escrow account)
to pay for those bills when they come due twice a year.
4. Private Mortgage Insurance (PMI) - Mortgage insurance protects
the lender in case you default on your payments. It is required whenever
the down payment is less than 20% of the purchase price.
Why Pay PMI?
If you dont want to pay the monthly mortgage insurance fee, take
a first mortgage for 80% of the price. Then take a second mortgage for
15%. Make a down payment of 5%. No mortgage insurance required. The
options available are 80/15/5 and 80/10/10 and 80/20. (80% first mortgage,
15% second mortgage, 5% down payment or 80% first mortgage and 20% second
mortgage for zero down payment.)
The argument against taking an 80/20 loan to avoid PMI is that PMI can
be dropped once your loan-to-value ratio is 78%-80%. In areas where
real estate is rapidly rising in value, it can take as little as two
to three years to have the equity needed to cancel your PMI payment.
A second mortgage will go on a lot longer than that.
If you want a creative way of coming up with down payment money check
all your personal resources. Do you have a life insurance policy with
a cash value you can draw from? Do you have stocks, bonds, IRA, 401K,
SEP? You may be able to tap these accounts without penalty. If you decide
to borrow money from your account, then the monthly repayment will be
factored in to your debt ratio when qualifying. Some people are good
at selling things on ebay. One thing that is not allowed is taking a
cash advance on a credit card.
If you have 3% saved, use it for your down payment rather than for closing
costs. You can always get the seller to pay for your closing costs by
offering them full price, or, if necessary, a little more.
If you are buying a house you plan to resell soon
Maybe you are buying a starter home to get out of paying rent, but you
cannot afford the house you really want. Therefore, you buy what you
can afford, make some cosmetic improvements, sell it for a profit, and
move up to a better home in a year or two. Since you wont be keeping
the loan for long, you want to take the cheapest loan you can get. Tell
your mortgage broker you want to compare a no point, no fee loan. The
interest rate will be a little higher, but you will have more money
left in your pocket to use for fixing up the house. Compare the slightly
higher interest rate and monthly payment with the loan having standard
closing costs, because you may come out ahead by paying no money up
front and paying a little higher monthly payment. Also, look at taking
an adjustable rate. You may come out ahead there too.
This one is for A+ credit customers only. Tell your broker
you know you are an A+ customer and that other lenders are soliciting
your business. Tell him/her that you will compare costs with three companies,
and who you go with all depends on who gives you the best rate, plus
no extra fees such as a processing fee, administration fee, or documents
fee. Then do your comparison, and you will get an awesome loan.
Explain that you barely have enough money to squeak in, if they can
waive some of their fees. Seriously, why not?
Call five or six companies and say something like this, I will
be buying a house this month. Will you fax me a Good Faith Estimate
for a 30-year fixed rate with 1 point (or zero points) for a loan amount
of $150,000 (or whatever is close to your price range)? The advantage
to this method is that (1) You will have a full cost comparison, (2)
You will have a written soft commitment, and (3) You will
be comparing all companies on the same day, since there is a daily rate
fluctuation. If they give you the run around or talk you out of it,
find someone else. I was given three out of seven, so guess which four
did not get my business.
A nonrefundable application fee is a junk fee, and I recommend you do
not pay it. First, an application fee is unnecessary, and rarely charged
by anyone. You have to wonder what it is for. If your loan is denied,
you shouldnt have to be out that money. Avoiding the risk is easy;
if a company insists on charging this fee, simply take your business
elsewhere. Possible negotiable fees which can be considered unnecessary
or junk fees could be administration fees, documentation
preparation fees, processing fees, or ancillary fees--especially if
they are high, say over $350.
Bait and Switch
Baiting a customer with a certain price and then switching to a higher
price at closing without just cause and prior explanation is illegal.
Review your Good Faith Estimate and keep it. Compare it with the fees
on your HUD-1 Final Settlement Statement at closing. Also, get a Lock
Confirmation Letter and keep it. That way, there will be no misunderstandings
about what your interest rate is supposed to be.
Prepayment penalties are for a specific time duration, which could be
from one to five years. When a loan has a prepayment penalty, the lender
is willing to give you a lower interest rate if you agree to keep the
loan for a certain amount of time. Since this can cost you a small fortune,
say, Show me where it says there is no prepayment penalty,
or, Show me the terms of the prepayment penalty.
Good Faith Estimate
Do not accept a handwritten Loan Summary Sheet or similar
thing in place of a Good Faith Estimate, as they are incomplete and
will not detail all of your costs. Dont work with someone who
tells you to disregard the Good Faith Estimate, which, by the way, is
required by Federal Regulations.
What Not to Do
The biggest mistake would be to say something like, I am new at
this and dont know much about it, or I have never
applied for a home loan before so I will need you to explain everything
to me. By making a statement such as this, you are giving all
your power over to the loan officer, who now knows that they have the
green light to charge a higher interest rate than necessary or add an
additional fee purely for profit.
Let's say the price quote from the lender to the broker was 7% with
no points. The broker offered the same loan to you at 7% and 1.5 points.
The 1.5 points ($1,500 on a $100,000 loan) is pure profit for the broker.
If his only extra charge was 1.5 point, this is how he would be paid.
The real problem would be like this: What if by the time you find a
house and the interest rate drops, but he does not modify your interest
rate? He would then be paid a bonus by the bank for securing a higher
interest rate. Nice huh? It gets better. What if the going rate is 7%
but right at the start he quotes you at 8%? Just like buying a car,
this gives him room to negotiate. This is why shopping around is essential.
You can get 5 rates between 6-8% and then one guy charges you 5.5% and
beats the pants off the rest of the competition. Sure looks like the
best rate doesn't it? Maybe, but if he charges you points (that he failed
to mention) then he will quickly catch up with the high interest rate
So what can you do to get the straight story on these guys? How can
you tell who is bullshitting you, and who really has the best rate?
Ask for two things: a Good Faith Estimate and a copy of the interest
sheet he used to get your percentage rate. If you know your credit score
is 665, you can use this chart to see what the bank is charging. Let's
say you ask, and he talks around in circles and you find that you hung
up without getting either of these sent to you. Call back and ask again.
If you get the same crap again, more than likely he doesn't want you
to see this information. For my own mortgage, I started with seven banks
and brokers and by the end of three weeks, I had narrowed the list down
to only two people who weren't lying through their teeth. Stangely enough,
neither one was found using Lending Tree, both were local guys. The
big difference between the two was that one guy would offer me 106%
with no points, meanwhile the other guy could only do 103% and charged
me a point. The answer seems obvious, however only one of them gave
me a Good Will Statement and his price list, and this went a long way
towards gaining my business.
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
Keeping Track of the Homes
If possible, take photographs of each house: 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 look.
Has a pleasing appearance.
A well-lit entrance.
Main windows face a good direction for your climate.
A protective overhang should be over the front door to shield from
The living room should be located in a dead end position. A common
complaint is, The living room is like Grand Central Station.
Living rooms should be designed for furniture arrangement. If it is
too cut up by doorways, where will your furniture go?
The heart of the kitchen should be out of sight from the living room,
so that your guests will not view an unlovely stack of dirty dishes.
The refrigerator, stove, and sink should be positioned in a triangle
for ease of work.
Plenty of counter space, particularly next to the stove top.
Refrigerator door opens the right way.
Enough electric outlets for small appliances and handy gadgets.
Ventilation for cooking. It is not lovely to have the whole house
smell like fish.
The kitchen should be easy to get to from the front door or where
This heading is plural, because nowadays everyone wants at least two.
A house with
only one bathroom will be hard to resell. So, at least two bathrooms.
A bathroom should be easy to get to from every bedroom
A private master bathroom is a big plus.
The bathroom should not be positioned in full view of the living room.
Adequate bathroom counter space. Visualize getting ready for the day.
Outdated bathrooms are a common complaint, and an expensive one to
Bedrooms should be located in a private, quiet area.
Windows should not face passing automobile headlights.
Adequate closet space.
Entrance: There should be an entry area so that people do not open
the door and
step immediately into the living room. There should be a closet for
Laundry Room: Should be conveniently located.
Office or Hobby Room: What are the important needs of your family?
someone need to have a sewing machine set up all the time? Does someone
need a private space to do business?
Windows: Are there enough? Do they all open and shut?
Stairs: Serious consideration needed.
Storage: Is there enough? Inadequate storage can be a big frustration.
Comfort and warmth: A lovely home feels good. Being too cold because
inadequate heating is a common complaint, so be sure to check this out.
Potential Problems in An Old House
1. Kitchen and bathrooms are outdated. Separate cold and hot water faucets.
Lack of counter space by sink. Old fixtures. Or the rooms may simply
be too small for todays standards of living.
2. Insulation and heating problems. Rooms are cold and drafty. Heating
3. Septic tank problems.
4. Wiring and electric service inadequate for our appliances and technology,
e.g. washer and dryer, microwave ovens, toasters, televisions, computers,
5. Poor plumbing material used in houses built before World War II.
Nowadays nonferrous copper and bronze pipes are used rather than iron
and steel which rust and corrode. You can use a magnet to see if iron
or steel were used. Also, it is a good idea to turn on a faucet and
flush the toilet at the same time to check the flow
of water. If faucets trickle water, there is a problem.
6. Termites and wood rot.
7. Bad roof. Have a licensed roofer check flashing, vents, gutters,
8. Wet basement resulting in wood rot, mildew, and water stains. Look
for telltale signs.
9. Lack of storage space. No entry closet for coats and hats. No broom
closet for the vacuum cleaner and other supplies. Lack of storage space
for towels and linens. Tiny closets in the bedrooms is a common problem.
1. Dont pay for a view that will soon disappear.
2. Drive the surrounding streets.
3. Check for nearby noise.
4. Find out about the neighbors.
5. Check out the commute during traffic hours.
6. Verify school district information.
7. Hire a professional home inspector.
8. Determine whether or not this particular home is the right fit for
9. Audit the utility bills.
10. Figure the cost of yard maintenance.
11. Look over the fence.
12. Peek under the area rugs.
13. Check the condition of the appliances.
14. Ask to see receipts for recent home improvements.
16. When buying a condominium, read the condo rules.
17. The number one factor affecting a homes value is location.
18. Put in writing items you expect to stay with the house.
19. A house in need of repairs may be either a good or a poor value.
20. Figure out how long you expect to stay.
21. When buying a condominium, double the importance of location.
22. Get a good buyers agent to represent you.
23. Dont close your eyes and throw a dart at the phone book.
24. Keep your excitement hidden.
25. You have the right to withdraw your offer any time before the seller
26. Your offer is not accepted until you have it in writing.
27. Dont reveal all your thoughts to your agent.
28. There is more to negotiate than price.
1) The possibility of the seller paying some or all of your closing
2) The closing date and the moving out date
3) Appliances, window coverings, rugs, furniture, plants, etc. that
included with the house
4) Agreement to remove all personal belongs and trash, and to clean
29. Write in a penalty clause on your Purchase and Sale Agreement.
30. Get pre-approved, not pre-qualified.
31. Do not be ignorant about financing.
32. Get your credit history in order and know your credit rating.
33. Get your finances in order.
34. Be aware of financial options:
1) Zero down loans are available for people with excellent credit.
2) FHA loans are available for people with past credit problems and
a good, clean record for one year.
3) Gift money from family can be used for a down payment.
4) The seller can pay your closing costs.
5) The seller can carry back a second mortgage if you have
some but not enough down payment money.
6) Creative financing programs are available for people with flawed
7) Special loan programs for self-employed people are available.
35. Do not overemphasize interest rate.
36. Consider an ARM or a balloon.
37. You cant always compare with the neighbors
38. A truly professional mortgage broker can be your best friend.
39. Use care in selecting a mortgage broker.
40. Be nice to your mortgage broker.
41. Do not make any financial changes while your loan is in progress.
42. Have your finances stabilized before you try to buy.
43. Dont wait until your life is perfect before you buy.
44. Dont think buying a house is too costly.
45. Dont wait for the price of houses to come down.
46. Be prepared to make sacrifices in order to achieve your dreams.
We purchased a forclosure for a song and a dance. If you ask around,
you will find others lucky enough to have found a good forclosure for
little money. The biggest catch is in most cases, they are in junky
areas. If you look long and hard enough, you can find one in a good
area, but find that they trashed the place before leaving (taking the
rugs, lights, stove, etc). We were lucky enough to find one that was
run down, but not destroyed that happened to be in a very nice area.
There were two other bidders before us, we actually got it because the
first two overbid then did the inspection only to find out it needed
a major repair up front. They both tried to renegotiate, but the bank
wouldn't hear of it. We knew about it ahead of time, bid accordingly,
and won the house because I agreed to their 30 day closing date. Banks
are more concerned with time, than with money, remember that when looking
for a foreclosure, and be ready to close within 45 days.
An inspector checks the safety of your potential new home. Home Inspectors
focus especially on the structure, construction, and mechanical systems
of the house 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 (and gives prices for repairs on): the
electrical system, plumbing and waste disposal, the water heater, insulation
and Ventilation, the HVAC system, water source and quality, the potential
presence of pests, the foundation, doors, windows, ceilings, walls,
floors, and roof. Be sure to hire a home inspector that is qualified
It's a good idea
to have an inspection before you sign a written offer since, once the
deal is closed, you've bought the house as is." Or, you may want
to include an inspection clause in the offer when negotiating for a
home. An inspection clause gives you an 'out" on buying the house
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
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 and increasing home security.
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.
are the Closing Costs?
There are several basic types of fees you will be charged as part of
the closing costs. In some cases, they may try to sneak in extra fees
for no particular reason other than to raise their own profits. If you
are being charged for something, and it doesn't seem quite right, refuse
to pay it. There are plenty of other banks that would love your business.
1. Origination Fee or Broker Fee (also called Points) - Which
of these your loan will include depends upon whether you are working
with a direct lender or a broker. You can choose not to pay this fee
by taking a higher
interest rate instead. A point equals 1% of the loan amount. FHA and
VA loans require a 1% origination fee. The typical fee charged for people
with good credit is 1%, unless the loan amount is small (then a higher
percentage is charged, sometimes a flat rate).
2. Discount Points - Interest that is paid up front in order
to get a lower interest rate percentage on the
loan. This is optional. Unscrupulous lenders may try to charge a discount
giving you a discount on the interest rate.
3. Appraisal - A detailed report on the estimated value of the
property. This is made by a
licensed appraiser. You have the right to receive a copy of the appraisal
report at closing.
4. Credit Report - A report documenting your credit history and
current standing. Most loan officers
will give you a copy at closing if you request it.
5. Underwriting - The process of evaluating a loan application
to determine approval.
6. Processing and Document Preparation - Support staff, along
with your loan officer, orders, collects, and assembles all necessary
documentation required for final approval of the loan. Some companies
separate fee to prepare and print the loan documents as well. Since
this fee is technically a "cost of doing business" add-on,
you can try to negotiate with a bank to have this fee lowered or removed.
7a. Escrow (In the West) - A neutral third party who carries
out the instructions for closing the loan
transaction. Escrow handles the transfer of money from buyer to seller.
7b. Attorney Fees (In the East) - In some states, an attorney
is required for closing rather than an escrow company.
8. Title Insurance - The title is a document that proves ownership
of property. Title insurance protects from such things as fraud, forged
deeds, unknown heirs, false affidavits, false liens and judgments, impersonations,
and mistakes. It is a one-time fee and lasts as long as you own the
9. Flood Certification - Some states require certification determining
whether or not the property is in a
10. Recording - The Deed of Trust is recorded with the local
authority, making it part of public
records. The fee is based on the number of pages.
What Will 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.
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
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.
What Do I Get At Closing?
1. Settlement Statement, HUD-1 Form (itemizes services provided and
the fees charged; it is filled out by the closing agent and must be
given to you at or before closing)
2. Truth-in-Lending Statement
3. Mortgage Note
4. Mortgage or Deed of Trust
5. Binding Sales Contract (prepared by the seller; your lawyer should
6. Keys to your new home