Buying Your First Home

By: -=LRK=-  
Web Site: www.subdiv.net
Date: Pre-2005


Disclaimer: 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

  1. 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.
  2. 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 in taxes.
  3. 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 get started.
  4. 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.
  5. 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.
  6. 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.").
  7. Wait around for two months while everyone around pushes papers from one desk to another.
  8. In the meantime, you can may need to pay the broker about $350 and an appraiser $325.
  9. 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.
  10. 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).
  11. 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.
  12. 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?
  13. Stand on your porch, in your underwear and cry out "Hey You Damn Kids, Get Off My Lawn!!"

Sample 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.

The Long Version

Thinking of Buying

15 Good Reasons to Buy a House
Financial reasons
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 to rise.
6. To get into a house now before prices rise even higher.
7. To set up for a secure retirement.

Emotional reasons
8. To have the freedom to decorate, paint, remodel, and fashion as you like.
9. To have pets without paying a deposit.
10. To have more privacy.
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 don’t 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 customer’s 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. Don’t take out a big automobile loan.
Waiting until after you are in your house to buy a vehicle is a wise choice.
8. Save money.
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.

The Process

Your Loan Process Checklist
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 keep it.)
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 cashier’s check for down payment/closing costs at this time.)
10. Wait for Deed of Trust to record with the county recorder’s office. (Takes one to two days.)
11. Get the keys from your real estate agent and move in to your new home.

Pre-Qualification and Pre-Approval

A Pre-Qualification 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 you’re 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 cashier’s 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.

Documentation Requirements

Income Information. Have ready your W-2’s 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 right away.

Mortgages

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 don’t 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 purchase price.
2. Closing 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 don’t 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.

Down Payments
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 won’t 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.

Cheapest Loan
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.

No Fees
Explain that you barely have enough money to squeak in, if they can waive some of their fees. Seriously, why not?

Comparing Loans
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.

Junk Fees
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 shouldn’t 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
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. Don’t 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 don’t 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.

Yield Spread Premium
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 guys.

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.

Looking For a Home

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.

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.

OUTSIDE

 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 rain.
LIVING ROOM
 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?
KITCHEN
 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.
 Ample cupboards.
 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 you park.
BATHROOMS
 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 fix.
BEDROOMS
 Bedrooms should be located in a private, quiet area.
 Windows should not face passing automobile headlights.
 Adequate closet space.
OTHER CONSIDERATIONS
 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 coats, etc.
 Laundry Room: Should be conveniently located.
 Office or Hobby Room: What are the important needs of your family? Does
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 of
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 today’s standards of living.
2. Insulation and heating problems. Rooms are cold and drafty. Heating bills are
exorbitant.
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, etc.
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, etc.
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.

LOCATION
1. Don’t 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.
EXAMINATION
7. Hire a professional home inspector.
8. Determine whether or not this particular home is the right fit for you.
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.
VALUE
17. The number one factor affecting a home’s 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.
PRICE
22. Get a good buyer’s agent to represent you.
23. Don’t 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 accepts it.
26. Your offer is not accepted until you have it in writing.
27. Don’t 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 costs
2) The closing date and the moving out date
3) Appliances, window coverings, rugs, furniture, plants, etc. that may be
included with the house
4) Agreement to remove all personal belongs and trash, and to clean the house
29. Write in a penalty clause on your Purchase and Sale Agreement.
FINANCING
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 credit.
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 can’t 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.
TIMING
42. Have your finances stabilized before you try to buy.
43. Don’t wait until your life is perfect before you buy.
44. Don’t think buying a house is too costly.
45. Don’t wait for the price of houses to come down.
46. Be prepared to make sacrifices in order to achieve your dreams.

Foreclosures
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.

Miscellaneous

Inspectors
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 and experienced.

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 the house.

Insurance
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
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.

Closing

What 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 point without
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 list a
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 property.
9. Flood Certification - Some states require certification determining whether or not the property is in a
flood zone.
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.

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.

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 review it)
6. Keys to your new home

 


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