- Take the Stress out of Homebuying
- Lender Checklist: What You Need for a Mortgage
- Types of Loans
- 5 Factors That Decide Your Credit Score
- Making an Offer
- Home Inspections
- Choosing a Home Inspector
- 5 Things to Know About Homeowner's Insurance
- Tips on Lowering Homeowner's Insurance Costs
- What is Title Insurance?
- Common Closing Costs for Buyers
Take the Stress Out of Homebuying
Buying a home should be fun, not stressful. As you look for your dream home, keep in mind these tips for making the process as peaceful as possible.
- Find a real estate agent who you connect with. Home buying is not only a big financial commitment, but also an emotional one. It's critical that the REALTOR® you chose is both highly skilled and a good fit with your personality.
- Remember, there's no "right" time to buy, just as there's no perfect time to sell. If you find a home now, don't try to second-guess interest rates or the housing market by waiting longer - you risk losing out on the home of your dreams. The housing market usually doesn't change fast enough to make that much difference in price, and a good home won't stay on the market long.
- Don't ask for too many opinions. It's natural to want reassurance for such a big decision, but too many ideas from too many people will make it much harder to make a decision. Focus on the wants and needs of your immediate family - the people who will be living in the home.
- Accept that no house is ever perfect. If it's in the right location, the yard may be a bit smaller than you had hoped. The kitchen may be perfect, but the roof needs repair. Make a list of your top priorities and focus in on things that are most important to you. Let the minor ones go.
- Don't try to be a killer negotiator. Negotiation is definitely a part of the real estate process, but trying to "win" by getting an extra-low price or by refusing to budge on your offer may cost you the home you love. Negotiation is give and take.
- Remember your home doesn't exist in a vacuum. Don't get so caught up in the physical aspects of the house itself - room size, kitchen, etc. - that you forget about important issues as noise level, location to amenities, and other aspects that also have a big impact on your quality of life.
- Plan ahead. Don't wait until you've found a home and made an offer to get approved for a mortgage, investigate home insurance, and consider a schedule for moving. Presenting an offer contingent on a lot of unresolved issues will make your bid much less attractive to sellers.
- Factor in maintenance and repair costs in your post-home buying budget. Even if you buy a new home, there will be costs. Don't leave yourself short and let your home deteriorate.
- Accept that a little buyer's remorse is inevitable and will probably pass. Buying a home, especially for the first time, is a big financial commitment. But it also yields big benefits. Don't lose sight of why you wanted to buy a home and what made you fall in love with the property you purchased.
Lender Checklist: What You Need for a Mortgage
- W-2 forms - or business tax return forms if you're self-employed - for the last two or three years for every person signing the loan.
- Copies of at least one pay stub for each person signing the loan.
- Account numbers of all your credit cards and the amounts for any outstanding balances.
- Copies of two to four months of bank or credit union statements for both checking and savings accounts.
- Lender, loan number, and amount owed on other installment loans, such as student loans and car loans.
- Addresses where you've lived for the last five to seven years, with names of landlords if appropriate.
- Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, such as a boat, RV, or stocks or bonds not held in a brokerage account.
- Copies of your most recent 401(k) or other retirement account statement.
- Documentation to verify additional income, such as child support or a pension.
- Copies of personal tax forms for the last two to three years.
Types of Loans
Brush up on these mortgage basics to help you determine the loan that will best suit your needs.
- Mortgage terms. Mortgages are generally available at 15-, 20-, or 30-year terms. In general, the longer the term, the lower the monthly payment. However, you pay more interest overall if you borrow for a longer term.
- Fixed or adjustable interest rates. A fixed rate allows you to lock in a low rate as long as you hold the mortgage and, in general, is usually a good choice if interest rates are low. An adjustable-rate mortgage is designed so that your loan's interest rate will rise as market interest rates increase. ARMs usually offer a lower rate in the first years of the mortgage. ARMs also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised. These types of mortgages are a good choice when fixed interest rates are high or when you expect your income to grow significantly in the coming years.
- Balloon mortgages. These mortgages offer very low interest rates for a short period of time - often three to seven years. Payments usually cover only the interest so the principal owed is not reduced. However, this type of loan may be a good choice if you think you will sell your home in a few years.
- Government-backed loans. These loans are sponsored by agencies such as the Federal Housing Administration (www.fha.gov) or the Department of Veterans Affairs (www.va.gov) and offer special terms, including lower down payments or reduced interest rates to qualified buyers.
Slight variations in interest rates, loan amounts, and terms can significantly affect your monthly payment.Top
5 Factors That Decide Your Credit ScoreCredit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:
- Your payment history. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.
- How much you owe. If you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it's a good thing if you have a good proportion of balances to total credit limits.
- The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer's oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.
- How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.
- The types of credit you use. Generally, it's desirable to have more than one type of credit - installment loans, credit cards, and a mortgage, for example.
For more on evaluating and understanding your credit score, visit www.myfico.com
Making an Offer
When buying a home, it's important to think carefully about your offering price AND the terms of your offer. Most offers define both. In some cases, terms and conditions can represent thousands of dollars in additional value for Buyers or Sellers. Terms may include home inspections (including pest and termite, lead paint, radon, etc.); requests for specific property repairs, or timing considerations, such as a conditional purchase clause (if, for example, you must first find a buyer for your current home).
Buyers often mistakenly believe there is a predetermined formula for offers - that offering prices should be X percent lower than the seller's asking price or the amount they are really willing to pay.
In reality, your offer price actually depends more upon the basic laws of supply and demand. If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak and there is a large supply of homes for sale, an offer below the asking price may be in order.
The process of making an offer varies by state. In most cases, you complete an offer that your REALTOR® presents on your behalf. The Seller will then have the option of accepting, rejecting, or countering your offer.
Because counter-offers are common (any change in terms can be considered a "counter-offer"), it's important that you remain in close contact with your REALTOR® during the negotiation process so that any proposed changes can be quickly reviewed.
For a more detailed overview of the offer process, please click this link for helpful information from the National Association of Realtors : www.realtor.com/home-finance/buyers-basics/the-basics-of-making-an-offer.aspx?gate=realtorTop
The purchase of a home is probably the largest single investment a buyer will ever make. He/she should learn as much as possible about the condition of the property and the need for any major repairs before buying, in order to minimize surprises and difficulties later. A licensed, professional, well-trained home inspector can provide buyers with the information needed to make an informed purchase.
A home inspector is typically hired by a potential homebuyer right after the offer to purchase is signed, and prior to executing the purchase and sale agreement. (The buyer should make sure there is an inspection clause in his/her offer to purchase that makes the purchase obligation contingent upon the findings of a professional home inspection.)
A home inspection is an objective visual examination of the physical structure and systems of a home, from the roof to the foundation. The standard home inspector will review the condition of the home's heating and cooling system, interior plumbing and electrical systems; the roof, attic and visible insulation; walls, ceilings, floors, windows and doors, the foundation, basement, and visible structure. Home inspections are not intended to point out every small problem or any invisible or latent defect in a home. Most minor or cosmetic flaws, for example, should be apparent to the buyer already.
While not necessary, it is recommended that the buyer be present for the inspection. This allows him/her to observe the inspector, ask questions directly, and obtain a better understanding of the condition of the home, how its systems work, and how to maintain it. The written report may be easier to understand if the buyer was present during the inspection.
Good referral sources for home inspection services are friends, neighbors, or business acquaintances who have been satisfied with a home inspector in the area one is buying (it's suggested to use a local home inspector who knows the specific weather patterns, home conditions and problems typical to the area.) A real estate agent may recommend a specific home inspector if he/she is representing the buyer as a buyer's agent.Top
Choosing a Home Inspector
When choosing a home inspector, here are some questions to ask:
- Are you a licensed home inspector? All home inspectors must be licensed. A person wishing to become a home inspector must first take a course and pass an exam. They are then considered an associate inspector. They must work for one full year under a licensed inspector and complete one hundred inspections. They must then take another exam before becoming a licensed inspector.
- Do you belong to a professional home inspector association? There are many state and national associations for home inspectors, including the two groups mentioned in No. 1. Unfortunately, some groups confer questionable credentials or certifications in return for nothing more than a fee. Insist on members of reputable, nonprofit trade organizations; request to see a membership ID.
- Do you have construction experience, or do you hold any additional licenses in the construction trade? Someone with construction experience may have a more in-depth knowledge of homes.
- Do you hold any additional professional credentials?
- How many home inspections have you perfomed? In order to be licensed, a person must have performed 100 home inspections.
- What is the amount of professional liability insurance that you carry?
5 Things to Know About Homeowner's Insurance
- Know about exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These types of coverage must be bought separately.
- Know about dollar limitations on claims. Even if you are covered for a risk, there may be a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
- Know the replacement cost. If your home is destroyed you'll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you'll only receive $150,000.
- Know the actual cash value. If you chose not to replace your home when it's destroyed, you'll receive replacement cost, less depreciation. This is called actual cash value.
- Know the liability. Generally your homeowner's insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it's sufficient if you have significant assets.
Tips for Lowering Homeowner's Insurance Costs
- Review the Comprehensive Loss Underwriting Exchange (CLUE) report on the property you're interested in buying. CLUE reports detail the property's claims history for the most recent five years, which insurers may use to deny coverage. Make the sale contingent on a home inspection to ensure that problems identified in the CLUE report have been repaired.
- Seek insurance coverage as soon as your offer is approved. You must obtain insurance to buy. And you don't want to be told at closing that the insurer has denied your coverage.
- Maintain good credit. Insurers often use credit-based insurance scores to determine premiums.
- Buy your home owners and auto policies from the same company and you'll usually qualify for savings. But make sure the discount really yields the lowest price.
- Raise your deductible. If you can afford to pay more toward a loss that occurs, your premiums will be lower. Avoid making claims under $1,000.
- Ask about other discounts. For example, retirees who tend to be home more than full-time workers may qualify for a discount on theft insurance. You also may be able to obtain discounts for having smoke detectors, a burglar alarm, or dead-bolt locks.
- Seek group discounts. If you belong to any groups, such as associations or alumni organizations, they may have deals on insurance coverage.
- Review your policy limits and the value of your home and possessions annually. Some items depreciate and may not need as much coverage.
- Investigate a government-backed insurance plan. In some high-risk areas, federal or state government may back plans to lower rates. Ask your agent.
- Be sure you insure your house for the correct amount. Remember, you're covering replacement cost, not market value.
What is Title Insurance?
Title insurance protects the holder from any losses sustained from defects in the title. It's required by most mortgage lenders. Here are five other things you should know about title insurance.
- It protects your ownership right to your home, both from fraudulent claims against your ownership and from mistakes made in earlier sales, such as mistake in the spelling of a person's name or an inaccurate description of the property.
- It's a one-time cost usually based on the price of the property.
- There are both lender title policies, which protect the lender, and owner title policies, which protect you. The lender will probably require a lender policy.
- Discounts on premiums are sometimes available if the home has been bought within only a few years since not as much work is required to check the title. Ask the title company if this discount is available.
Common Closing Costs for Buyers
You'll likely be responsible for a variety of fees and expenses that you and the seller will have to pay at the time of closing. Your lender must provide a good-faith estimate of all settlement costs. The title company or other entity conducting the closing will tell you the required amount for:
- Down payment
- Loan origination
- Points, or loan discount fees, which you pay to receive a lower interest rate
- Home inspection
- Credit report
- Private mortgage insurance premium
- Insurance escrow for homeowner's insurance, if being paid as part of the mortgage
- Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.
- Deed recording
- Title insurance policy premiums
- Land survey
- Notary fees
- Prorations for your share of costs, such as utility bills and property taxes
A Note About Prorations: Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. Proration is a way for the sellers to pay you back or for you to pay them for bills they may have paid in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would owe for the first five days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the days of his or her ownership.Top