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Mortgage Education

The Home Buying Process

Step 1 Assess your financial health

Any way you look at it, the decision to buy a house is yours and yours alone. First make sure that it’s financially feasible. Can you pay the up-front costs of purchasing a house, as well as the ongoing monthly mortgage and other living expenses? What about home repairs like plumbing and replacing the roof?

Step 2 Find your loan

Before you begin shopping for your home, you need to determine how much home you can afford. You can begin by organizing some basic documents. Collect all the information listed below in one spot, and you’ll be ready to move on to the next step.

Documents needed:

  • Name, current address, social security number
  • Name(s), and work number(s) of employer(s) for the past two years
  • Monthly income for you and your co-borrower (most recent pay stub(s) with year-to-date income) includes bonuses, commissions and overtime income for the past two years (this information is on your tax return)
  • If you are self-employed, you will need the last two years’ tax returns for the type of business you own: Sole Proprietorship (Schedule C), Partnership (Form 1065), or Corporation (Form 1120 or 1120s). In addition, the last two years’ personal tax returns (including K-1s)
  • As part of the underwriting pre-approval process, we will need to verify all funds that you wish to have considered for the down payment, closing costs and remaining reserves

Down payment:

In addition to loan closing costs, getting your nest egg together for a down payment is probably the biggest hurdle for many first-time home buyers. You may already be worth more than you realize.

When calculating your assets, be sure to consider ALL of the following sources:

  • All checking and savings accounts
  • Stocks, bonds, brokerage, and retirement accounts
  • 401K loan (if offered by your current employer)
  • Gifts from family

Your bottom line just might be better than you think. Know your assets. It’s the first step in coming up with the amount of money you need to secure your interest in the home and the loan you want.

What if it doesn’t add up to the right amount? Don’t give up hope. There are ways to make it work:

  • Look for a loan that requires less money down
  • Think about getting Private Mortgage Insurance (PMI)
    • Allows for a lower down payment
    • Lenders (like us!) like it because it protects us in case you default on the loan
    • You can pay for it on a monthly basis
    • You can drop it once you reach 20% equity
  • Talk to one of our Mortgage Consultants for other loan options

Step 3 Get pre-approved

There is a difference between getting pre-qualified and getting pre-approved. Getting pre-qualified is like getting an estimate from a lender detailing how much of a loan you can most likely afford. It serves more as a guide for what a lender might require rather than an official approval.

Getting pre-approved means that you’ll fill out a loan application and provide all your salary, asset and credit information documents. The lender then reviews and verifies these documents in order to issue you a home loan pre-approval.

When you find your dream home, you can present the seller with your pre-approved loan document, showing them that not only are you serious about buying their house, but you’ve already been pre-approved for financing.

Getting pre-approved could make the difference between getting the house you want or watching another bidder step in with a pre-approval letter and receive an accepted offer. Pre-approval is good for 120 days and depends on the appropriateness of the property you want to purchase. There may be some fees, such as for credit reports.

Step 4 Find your home

Where you live influences every aspect of your daily life. Take your time and think about schools, shopping, traffic, proximity to work, parks, coffee shops, restaurants, etc.

Here are some ideas as you begin your search:

  • Focus on areas where houses are in your price range. Finding them is easy
    • Work with a qualified real estate agent
    • Check the real estate section of the newspaper
    • Search online at various real estate sites
  • Choose where you would like to live. Demographic, employment and community information is also online, often on the same sites where you’ll search for a home.
  • Drive through the neighborhoods you’ve selected. Starting with your top two, drive to your place of work, both in the morning and the evening. How long is the commute? Is the time commitment reasonable? Are there alternative forms of transportation (bus, ferry, train) that you could use?
  • Visit the neighborhood you’ve chosen. Drive through the neighborhood where you plan to live at different times of the day and night (especially late night if you’re a light sleeper) to check traffic and noise levels. Is there an airport, train station or freeway nearby? Are there nearby businesses with an active nightlife?
  • Think about this: what are your chances of staying in the job you have now, for the length of time you’ll be living in the house? If changing work locations is a possibility, you won’t want to pick a house just because it’s near your current job.

Evaluate nearby schools:

Even if you don’t expect to have children, a neighborhood with great schools is generally more desirable and worth considering. If you already have or are planning to have children, then the quality of their education will determine the quality of their future. Call and visit the local school district. Conduct online research. Most school districts have websites, and they’re a great place to begin.

Here are some suggested questions to think about:

  • How do students score on statewide and national tests?
  • How many students go on to college?
  • What are some of the problems facing the schools in this area?
  • What about drug use and the incidences of violence?
  • What about their ‘weapons in school policy’ (zero tolerance is best)
  • What is the student/teacher ratio?
  • What about art, music, drama and sports programs?
  • What are the ages of their facilities? Old, new?
  • What is the student/computer ratio?
  • At what grade level do they start teaching computer skills?
  • What is their language program like?

Consider local conveniences:

  • Look at the local Chamber of Commerce website to get a feeling for the type of community you’ll be joining.
  • Take a drive around the adjoining shopping areas and take notes on what you find. You’ll want easy access to:
    • Grocery stores
    • Dry cleaners
    • Doctors
    • Hospital
    • Fire station
    • Police station
    • Dentists
    • Places of worship
    • Restaurants

Learn the rules:

  • Tax rates for your area are usually available online and from your real estate agent
  • Many neighborhoods may have requirements that you must follow. Here are some examples: Your real estate agent can provide this information to you.
    • How many outbuildings you can have and/or build
    • House paint color guidelines
    • Maximum number of pets allowed
  • Crime rates. You want your family and your possessions to be safe, so be sure to check out the rate of personal and property crime in your area. Call the local police department and talk to the Public Information Officer.
  • Zoning. How is your new neighborhood zoned? Could you wake up one morning with an office building going up across the street? Ask your real estate agent or check with the local library for help in identifying any zoning issues.
  • Natural Hazards. Research natural hazards that may or may not be obvious. Is your neighborhood of choice:
    • On a flood plain
    • In a weather conversion zone
    • Over an earthquake fault
    • In a wetland area
    • In a potential wildfire zone

To check out these hazards and more, you may want to pay for a report.

Think carefully about needs vs. wants:

Make a list of all the things you want in a home. Be as specific as possible. It will save you time in your search for a new home.

Consider some of the following things:

  • Think about what you want on the outside of your home.
    • Will it have a yard? If so, what size?
    • Do you want an established garden or a chance to create your own?
    • Do you want a garage? Attached? Detached? One, two or three cars?
  • Think about what you want on the inside of your home.
    • How many bedrooms do you need?
    • How many bathrooms? (not just for the immediate future, but for those teenage years, as well)
    • What about a den or office? A guest room for grandparents and out-of-town guests?
    • Do you want a basement or an attic?

Your real estate agent can help you find the perfect home once you determine what is important to you.

Step 5 Make your offer

You’ve found a house that you love. It has the perfect kitchen, or that backyard you’ve always wanted for the kids. But it’s not yours yet. First you have to make an offer, in writing, and submit it to the sellers. This is usually done through your real estate agent and is accompanied by your earnest money deposit, which is a pre-determined amount of money to show that your offer is sincere.

Follow the advice of your real estate agent or lawyer when deciding how to make your offer. Here are examples of some things your offer should include:

  • The price you’re willing to pay
  • When you want to move in
  • What kind of inspections you’d like to have (structural, electrical, plumbing)
  • If your ability to buy the house depends on your ability to get financing (which is taken care of if you’re pre-approved by us)
  • The amount of time both you and the seller have to make all these things happen (usually 30 to 60 days)

The seller usually has 24 to 48 hours to consider your offer or make a counter offer, which means that they want to sell you their house, but they want a change to the original terms of your offer.

Include inspections:

It is always wise to review any inspection reports before making your offer. Most sellers provide these reports up front in order to assure any potential buyers until the home has been carefully examined by a qualified home inspector, who is trained to take a critical look at various aspects of the home, including:

  • Foundation
  • Plumbing
  • Heating and cooling system
  • Electrical system
  • Roof
  • Windows and doors
  • Siding
  • Exterior grading (to make sure water drains away from the house)

These items can be very expensive to repair, and although you may still decide to make an offer, you might be able to negotiate a better price (or at least be prepared for the upcoming expense).

Step 6 Close the deal

Once your offer is accepted, you will move into escrow to close the deal on your house. You will meet with a representative of the escrow company who is handling all of the final paperwork, and once the title is recorded, ownership will transfer to you.

Below are some of the typical fees that you (and the seller) will be responsible for paying at closing. Please note that buyer and seller fees vary by County, so you will want to consult with your Realtor.

Buyer’s fees:

  • Credit Report – for each borrower to determine your creditworthiness
  • Appraisal – a professional assessment of the home’s value conducted by a licensed independent appraiser
  • Title – to disclose whether there are any liens and encumbrances against the property, preventing it from being sold and any other related title/escrow fees
  • Title Insurance (based on the purchase price) – to protect the lender (lender’s policy) or the buyer (buyer’s policy) against loss arising from disputes over property ownership
  • Recording Fees – to record the transfer of property with the appropriate government agencies
  • Courier Fees – to cover the cost of transporting documents between the escrow service and other entities
  • Loan Origination Fee – sometimes referred to as “points”, this fee results in a lower interest rate for the borrower by allowing him to pay more money to reduce his interest rate (or pay less for a higher rate)

Seller’s fees:

  • Escrow services (the seller’s portion)
  • Recording fee
  • Real estate commissions to agent(s) representing both the buyer and seller

Escrow accounts:

Escrow accounts were originally established during the Great Depression of the 1930s, when Americans were unable to pay their property taxes because they were unemployed. It was hard enough at that time to come up with the money to pay for food and clothing, let alone a large property tax payment.

Lenders and the government worked together to help keep people in their homes by attaching an extra payment every month to their mortgage payment, so homeowners could save for the property taxes a little bit every month. Escrow accounts were set up to hold that money in reserve, until it was time to pay the taxes. Collections for property insurance were also added, so that all houses would be covered in the event of fire or other hazards.

Escrow accounts still exist today, and may be required by your lender, or you may choose to have one for your convenience.

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