Knowing how to buy your first home or how to sell your home involves many details better left to real estate professionals. We’ve organized this page with some very useful information. As we guide you through your real estate transaction they will help you understand the steps, processes, expectations, and terminology associated with how to buy your first home or how to sell your home.
- Here is a glossary of Real Estate Terminology
- Main Home Buyer’s Page
- Common Home Seller Questions
Home Buyers
Getting Ready to Buy Your 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 costs?
If you can answer “yes” to these questions, you are probably ready to buy your own home
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 list of your priorities – things like location and size. Should the house be close to certain schools? Your job? To public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for?
Establish a set of minimum requirements and a “wish list.” Minimum requirements are things that a house must have for you to consider it while a “wish list” covers things that you’d like to have but that aren’t essential.
Communicate this list to your realtor who will then set up a comprehensive search — including a personal portal into the Multiple Listing Service (MLS) — to assist you in finding your dream home.
The U.S. Department of Housing and Urban Development – also known as HUD – was established in 1965 to develop national policies and programs to address housing needs in the U.S. One of HUD’s primary missions is to create a suitable living environment for all Americans by developing and improving the country’s communities and enforcing fair housing laws. HUD is working to strengthen the housing market, to bolster the economy, protect consumers, meet the need for quality affordable rental homes, utilize housing as a platform for improving quality of life, and build inclusive and sustainable communities free from discrimination.
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Getting Prequalified for a Home Loan
The original phrase “mortgage” translates as “death pledge”! But 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. The principal is the amount you are borrowing which is “secured” by the lender’s claim on the property. The interest, usually stated as the percentage rate is the additional amount paid for borrowing. Mortgage interest is “compounded” – interest on interest, over time.
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 your research, and ask family and friends.
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. A sales contract on the home you want to buy. 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 a fews to complete and another 4-6 weeks to close on the purchase of your new home.
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 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 * And do not provide false supporting documents.
The most common loans are
1.) Conventional – A conventional loan is a mortgage that is not guaranteed or insured by any government agency. It is called a “conforming” mortgage because it conforms to guidelines established by Fannie Mae and Freddie Mac. These two government-sponsored enterprises (GSEs) buy mortgages from lenders and sell them to investors. Their purpose is to make mortgages more widely available. All conforming mortgages are also conventional mortgages. They generally require at least 5% down payment and will require private mortgage insurance if your down payment is less than 20%.
2.) FHA – An FHA loan is a mortgage insured by the Federal Housing Administration. A 3.0 to 3.5% down payment is generally required. Borrowers with FHA loans pay for mortgage insurance which protects the lender from a loss if the borrower defaults on the loan. FHA loans can offer attractive interest rates while having less stringent qualifications and credit score requirements. They are referred to as non-conforming loans.
3.) VA – a VA Loan is a home mortgage option available to United States Veterans, Service Members, and not remarried spouses. VA Loans are issued by qualified lenders and guaranteed by the U.S. Department of Veterans Affairs (VA). They generally do not require a down payment or mortgage insurance.
#1 Fixed Rate Mortgages: Payments remain the same for the life of the loan generally 15 years or 30 years. Interest rates remain the same, so payments are predictable. The longer the term, the lower your monthly payment but the higher your overall interest costs. 30 year loans often permit additional principal payments. One additional monthly mortgage payment per year can reduce a 30 year loan to 22 years.
#2 Adjustable Rate Mortgage, or ARM. ARM Payments increase or decrease on a regular schedule with changes in interest rates increases are typically subject to limits. Variable rates may be best for buyers who plan to sell within 1-5 years.
#3 Balloon Mortgage: These 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.
#4 Two-Step Mortgage- Interest rates adjusts only once and remains the same for the life of the loan.
ALSO: Many other types are available, including government-insured mortgages and VA loans for veterans. Talk to lenders and real estate professionals to assess your situation. Buying down the interest rate down can be beneficial. Talk to your Arizona mortgage loan officer to determine if this is an option for you.
How much mortgage am I qualified for?
This is the #1 question asked of lenders. It doesn’t matter how much you qualify for if that payment makes you choke! A better question to ask is: “What size loan would I need if I want my mortgage payment to be no higher than between $1,200 – $1,500?” Remember banks and mortgage companies will give you enough rope to hang yourself every time! Be Smart!
What is your Interest Rate
A mortgage lender won’t tell you this but they are thinking: “Do you mean my rate right now, yesterday, tomorrow, or when you actually apply for a loan. Does that mean the interest rate you would get if you had perfect credit and 20% down, or if you bought the interest rate down with one point, or the interest rate I would give my mother, or the interest rate you want to hear because it is a little lower than what you can find on the internet, and so on …”
The problem is the answer to your question means very little. In other words, the resulting answer is only to make you feel good because then you can say you compared it a rate you received from another loan officer or from a 30 second internet search.
To be smart, ask a question that might really tell you if you are dealing with a professional like: “What have been the mortgage rate movements in the last week and why?” Or: “What economic indicators came out in the last day (or will be coming out soon) that you feel will move the markets and why?” If you get a good answer from the mortgage loan officer you are talking to than you probably found a quality professional. If you get a long pause you should continue your search for a mortgage lender.
Remember, calling 10 lenders to find who has the lowest rate might be a great experiment to find the biggest storyteller.
How much are your fees?
Again, this question is designed to tell you something you think you can compare. The problem is that it can be answered honestly in several ways without being dishonest. But, you don’t know in which way it was answered.
It would be like asking a doctor “how much will it cost to be treated” before he has seen you and run any tests. The doctor could say “$20″because that is the amount of your co-pay and that is an honest answer. However, the answer could change if it turns out you have a rare disease. You may have to satisfy certain deductible requirements. The $20 will not include the cost of medication. Perhaps the $20 will be the cost for that doctor but not for the cost of the specialist you need to see. The doctor can not add in hospital fees because he doesn’t know if you will need to be hospitalized.
A better question is: “Can you give me an estimate of not only your fees, but all the fees involved from every company involved in the transaction?”
Your personal situation will determine the best kind of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and discover which loan suits you best. Do you expect your finances to changeover 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? Lenders can help you use your answers to decide which loan best fits your needs.
The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes and homeowner’s insurance. Mortgage insurance is also included, if applicable. If you are refinancing, compare what is and isn’t included in your financing options.
Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. Like home or auto insurance, mortgage insurance requires payment of a premium, is 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. You generally need mortgage insurance only if you plan to make a down payment of less than 20% of the purchase price of the home. The FHA offers several loan programs that may meet your needs.
A lower interest rate allows you to borrow more money than a high rate with the same monthly payment. Interest rates can fluctuate, so as you shop for a loan 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 mortgage interest rate because it also includes the cost of points, mortgage insurance and other fees included in the loan.
With the exception of a few additional forms the FHA loan application process is similar to that of a conventional loan. With new automation measures FHA loans may be originated more quickly than before. And, if you don’t prefer a face-to-face meeting, you can apply for an FHA loan via mail, telephone the Internet, or video conference.
What About My Credit Score
A credit bureau score, or “credit 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 favorable loan. Know your score and ensure that lenders have current information about it.
A poor credit score may disqualify you from obtaining a loan. It is important to do everything in your power to maintain a good score or repair a poor score. There are credit repair agencies that specialize in credit repair. Your lender can also provide suggestions. Sometimes your lender may even recommend a specialty loan if your credit is marginal. Such loans may carry a higher cost.
The FHA is generally more flexible than conventional lenders in its qualifying guidelines. The FHA allows you to re-establish credit if: two years have passed since a bankruptcy has been discharged, all judgments have been paid, any outstanding tax liens have been satisfied (or appropriate arrangements have been made to establish a repayment plan with the IRS or state Department of Revenue), three years have passed since a foreclosure or a deed-in-lieu has been resolved. If you prefer to pay debts in cash or are too young to have established credit, there are other ways to prove your eligibility. Talk to your lender for details. NOTE: (NOTE: some factors mentioned here may change. Verify with your chosen lender)
There are three major credit reporting companies: Equifax – www.equifax.com 1-800-685-1111 Experian – www.experian.com 1-888-397-3742 Trans Union – www.transunion.com 1-800-916-8800. Obtaining your credit history 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 a free one. Contact the reporting companies for more information.
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. Keeping your credit score accurate is in your best interest and it can help lower home buying costs.
Selecting Your 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 house 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 and write down your measurements.
Does anything need to repaired or replaced? Will the seller repair or replace the items? Imagine the house 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 house you see. Keep the scorecard and notes for each one.
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. Write things down as you go. And don’t hesitate to return for a second look. Ask your Realtor for a scorecard or use the HUD Home Scorecard (www.hud.gov/buying/checklist.pdf) to organize your photos and notes for each house.
Select a community that will allow you to best live your daily life. Many people with children 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.
Contact the local chamber of commerce for promotional literature or talk to your real estate agent about welcome kits, maps, and other information. You can get information about school systems by contacting the city or county school board or the local schools. You may also want to check the internet. It’s a great source of information. There are sites that rate the quality of schools.
The total amount of the previous year’s property taxes is usually included in the listing information. If it’s not, ask your Realtor for a tax record or contact the local assessor’s office. Tax rates can change from year to year so these figures may be approximate. Keep in mind that your mortgage interest and real estate taxes will be deductible. A qualified accountant or real estate professional can give you more details on other tax benefits and liabilities.
If the house you’re considering was built before 1978, and you have children under the age of seven, you will want to have an inspection for lead-based paint. It’s important to know that lead flakes from paint can be present in both the home and in the soil surrounding the house. The problem can be fixed temporarily by repairing damaged paint surfaces or planting grass over affected soil. A lead abatement contractor can be hired to remove paint chips and seal damaged areas to fix the problem permanently.
While everyone uses electricity, concerns about possible effects from high-tension power lines nearby are a common question. According to the US Department of Housing & Urban Development as of 2013, there are no definitive research findings that indicate exposure to power lines results in greater instances of disease or illness.
A flood plain is an area of land adjacent to a stream or river that experiences flooding during periods of high discharge. If you live in a flood plain lenders 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. Check the National Flood Insurance Program site ( https://www.fema.gov/national-flood-insurance-program ) for more information. And work with an insurance agent to construct a policy that fits your needs.
Always check to see if the house 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.
Once You Have a Home Under Contract
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 only 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 heating and AC 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.
An inspection allows you to determine what items you will ask the seller to repair. It should be done within the first 10 days after contract acceptance, and this period is called the 10-day inspection period. If the 10-days expires and you do not request repairs then you are essentially taking the house “as-is.” The home inspection also allows you to determine if you will cancel your contract if you feel the house has too many issues.
It’s not required, but it’s a good idea. Let the inspector do their job while you take notes and pictures. Following the inspection the home inspector will give you a summary report and walk you through any notable issues. The 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.
Home warranties offer you protection for a specific period of time, such as 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.
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. Involving the insurance agent early in the home buying process may 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.
Be sure to get quotes from 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. Ways to lower insurance costs include insuring your home and cars 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.
Closing on Your Home Purchase
RESPA stands for the Federal Real Estate Settlement Procedures Act. RESPA requires lenders to disclose information to potential customers throughout the mortgage process. By doing so, it protects borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices and business relationships between closing service providers and other parties to the transaction. For more information on RESPA, visit HUD.GOV or call 1-800-569-4287 for a local counseling referral.
You’ll be required to pay several lender fees. Check with your lender to see if there are any upfront and non-refundable fees. Most fees are paid at close of escrow. Examples of such fees paid at closing are: an origination fee, a loan application fee, a fee for underwriting the loan, a fee for the home appraisal, a fee for your credit report, and any other fees required by your lender.
This will likely be the first opportunity to examine the house without furniture giving you a clear view of everything. Check the walls and ceilings carefully to make sure there is no “move out” damage. Also, assure completion of any work the seller agreed to do in response to the inspection report and your request for repairs. It is the seller’s responsibility to fix them. Any problems discovered should be brought up prior to the home closing escrow.
Come to the closing with your driver’s license to validate your identity. You will also need a certified bank check for your required closing funds. The closing agent will then review all charges and credits on the final settle statement with you. The closing agent will present all your final loan documents for your review and signature. You’ll sign a mortgage note promising to repay the loan. One document will state 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.
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.
Additional Mortgage Information
Usually — yes. Most lenders allow loan prepayment, but some loans may have prepayment penalties. Ask your lender for details.
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 and keep records. Remember that payment applied to loan principal is not tax-deductible.
If interest rates drop significantly you may want to investigate refinancing. According to the US Dept of Housing & Urban Development most experts agree that if you plan to be in your house for at least 18 months — and you can get a rate 1-2% less than your current one — refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing plus loan origination and application fees.
Selling Your Home
Check here for Common Home Seller Questions.