HOW MUCH HOME CAN YOU BUY?
Step 1: Make a rough estimate of how much home you can afford based on your income and current debt.
Lenders and financial experts recommend that your monthly debts should be no more than 36% of your monthly income. An online mortgage calculator can help you determine your borrowing power at current mortgage rates based on your income and your current outstanding debt, and will likely be the best tool for you to make this initial estimate.
MORTGAGE CALCULTAOR
Calculate how much home you can afford with PMI & HOA fees, interest, property taxes, closing costs, and more!
Step 2: Take a close look at your credit report.
Your credit history is one of the principal measures used by a lender to determine your interest rate. The better your credit, the better lending terms your bank or lending institution will be able to offer you. A higher interest rate translates into a higher monthly mortgage payment, and so your credit score will directly affect how much money you can borrow and at which homes you should be looking.
How Does Your Score Rate?
| Low | Fair | Good | Great | Exceptional |
| Below 620 | 620-690 | 690-740 | 740-780 | Above 780 |
Step 3: Gather the documents / Take a look at your assets and monthly expenses.
A higher interest rate translates into a higher monthly mortgage payment, and so your credit score will directly affect how much money you can borrow and at which homes you should be looking. You should be aware of what information is on your credit report by obtaining and reviewing copies of your credit report from the three main credit report agencies.
Important Documents To Bring
| Credit Report | Student Loans | Stocks, Bonds, & investment accounts |
| Social Security Number | Auto Loans | IRA / Retirement plan |
| W2 Forms from the previous two years | Credit Cards | Life insurance policies |
| Pay Stubs (most recent months) | Child Support Payments | Automobiles owned |
| Employment History Summary | Federal Tax Returns (2 years) | Construction loan |
| Bank Statements ( 3 months) | Complete Record of Assets | Gift letters |
Step 4: Talk to a qualified lender
A professional advisor will not only be able to give you information on the best rates and terms available in the current market, but he or she can also explain to you what options you have given your unique financial situation. When we begin to look seriously at homes, you'll go back to the lender and shop around for the best loan available.
Know Your Rate - And Your Terms
When you start shopping for a loan, you'll start looking at interest rates. The interest rates, terms, and fees for a mortgage will be based on your qualifications as a borrower and on the current lending market. Keep in mind though that finding the right loan is not just about finding the lowest interest rate possible. Mortgage institutions offer loans of varying terms – typically 30, 20, or 15 years. Shorter term loans can save you thousands of dollars over the life of your loan if you can afford a higher monthly payment.
Know Your Fees
Most loans have fees in addition to the total amount you are borrowing to finance your home. You can sometimes borrow the money needed to cover these fees, but that will obviously increase the overall amount of debt you undertake. Some fees are paid up front, and others are not due until closing
Points
The lender or broker can charge you points on your mortgage. One point equals 1 percent of the loan amount. These are simply fees paid to the lender or broker that are often linked to the interest rate, and are usually paid in cash to the lender or broker at closing. A lender may offer you a lower interest rate, but charge more points, so it's important to compare offers.
Loan Origination Fees
The institution that actually loans you the money will generally charge on origination fee for processing the loan. They are often expressed as a percentage of the amount of the loan.
Underwriting Fees
Certain lenders will charge a fee to investigate your creditworthiness and determine if you are likely to repay your loan.
Broker Fees
Typically paid at closing, a mortgage broker may charge you a fee in addition to the origination fee. If you are working with a broker, be sure to check with them what their fee is.
Transaction / Settlement / Closing Costs
These fees lump together several charges for: application fees, title examination, abstract of title, title insurance, property survey fees, deed preparing fees, other mortgage fees and settlement documents, attorney fees, recording fees, notary fees, appraisal fees and credit report fees. The Real Estate Settlement Procedures Act requires that a lending institution provide a borrower with a good faith estimate of closing costs at the time of application. This estimate must list each expected cost as a range or as an exact amount where applicable.
Know Your Down Payment and Private Mortgage Insurance
The largest upfront cost in purchasing a home is the down payment. Most traditional lenders expect borrowers to put at least 20% of a loan's total amount down. Borrowers who are unable to do so are required to purchase Private Mortgage Insurance (PMI).
This insurance protects the lender in case of default by the borrower. Be sure to get a clear indication of the down payment percentage required by your lender. You will also want to know what kind of documentation your lender requires to verify that you have funds for the down payment.
Pre-Approval V.S. Pre-Qualification
Pre-Qualification
Pre-qualification is only a loan agent's opinion that you'll be able to obtain financing. No verifications are made, so formal approval is not issued
Pre-Approval
Pre-approval means your loan application has been taken through a rigorous procedure, including a review of your credit report. Preapproval saves you the time of looking at houses you can't afford.
WHICH HOME IS THE RIGHT HOME?
We've made a commitment to help you find a home that suits your wants and needs, and so now it's time for you to articulate exactly what those wants and needs are. By sitting down and considering the kinds of things you're really looking for, you can save a lot of time and frustration by avoiding houses that aren't for you. Take a few minutes to consider the following features and benefits of the home you're looking for.
LET THE SHOWINGS BEGIN!
Schedule Showings
It's time to get out and see some of the houses you've been looking at in person. We will compile a list of the properties you've found as well as options I've found of similar properties on the local Multiple Listing Service (MLS).
Here are some great tips to keep in mind when you're viewing
- We don't want to view too many properties in one day
- Don't be put off by interior decorations – they can and will be changed.
- Bring a notebook, pen and / or digital camera with you as you search.
- Keep a folder with flyers or printouts on properties that you've viewed.
- When you find a property you like we can plan on visiting it at different times of the day.
- Don't hesitate to ask questions.
MAKING AN OFFER
When you've found a home that you're interested in, it's time to make an offer. As your buyer agent, I will draw up a contract with your offering price and necessary contingencies into a formal contract. You will want to review this document carefully and make sure it states your terms exactly. If the offer is accepted by a seller, this contract will become a legally binding agreement.
In addition to an offer contract, you will need to provide earnest money as well as a letter from your lender indicating your qualification to purchase. Earnest Money typically equals roughly 1% 3% of the property purchase price. You will not be at risk of losing your earnest money as long as you do not default on your contract. The amount will be credited towards the purchase price of the house at closing.
After you've made your offer, the seller will be able to:
1. Accept your offer
2. Reject your offer
3. Execute a counter offer
In most cases, a seller will not accept your initial offer outright. Typical counter offers include modifications to:
• Purchase price
• Closing date
• Possession date
• Inclusions
When you make an offer on a house, you should be prepared for the negotiations to go back and forth several times before both parties agree to the terms. You might also have to compete with other interested buyers in certain market conditions.
When an agreement is reached on all issues, and both the seller and you as the buyer have signed the offer, you are both under a legally binding contract.
As a buyer, you will be in a better negotiating position if:
• You have been preapproved for a mortgage
• You are not selling a house at the same time
• You have not loaded your offer with other contingencies
GETTING TO THE FINISH LINE
Your offer is accepted. Now it's time to get to work. Before we can close on the purchase of your new home, we need to take a few more steps to make sure the purchase is a sound decision.
Step 1: Home Inspection / Property Survey
As the buyer, you have the opportunity to hire a professional inspector to evaluate the condition of the home. An inspection clause is included in the written contract given to the seller.
The goal of a home inspection is to give you an objective, independent and comprehensive analysis of the physical condition of your potential new home and check for any safety issues that might otherwise be unknowable.
A professional inspector will check on the structure, construction and mechanical systems of the house. This usually includes checking these areas:
| Electrical System | Water source and quality | Ceilings |
| Plumbing and waste disposal | Lead Paint | Walls |
| Water Heater | Pests | Floors |
| Insulation | Foundation | Roof |
| Ventilation | Doors | Radon gas |
| HVAC System | Windows | Asbestos |
You will receive a written report of the inspection and an estimate of the cost of any and all repairs. If you choose to be present during the inspection, you can ask your inspector about unique features of the property and get his or her opinion on the necessary maintenance for different areas of the property. Depending on the results of the inspection, you will have the opportunity to:
• Get out of the written offer if major problems are discovered
• Renegotiate the purchases price to account for necessary repairs
• Negotiate that repairs are made by the seller before final purchase of the property
Your lender may also require that a legal land survey be completed of any property on which they issue a mortgage so that they can obtain a clear lender's title insurance policy.
A surveyor will determine:
• Whether the house is within the property borders
• Whether there are any encroachments on the properties by neighbors
• The extent to which any easements on the property may affect legal title
Step 2: Clearing the Home Title
Simply explained, "title" is the right to own, possess, use, control and dispose of property. When you buy a home, you are actually buying the seller's title to the home. A deed is the written legal evidence that the seller has conveyed his or her ownership rights to you.
Before the closing meeting when the actual transfer of ownership occurs, an attorney or title specialist generally conducts a title examination. The purpose of the title examination is to discover any problems that might prevent you from getting clear title to the home. Generally, title problems can be cleared up before settlement. But in some cases, severe title problems can delay settlement, or even cause you to consider voiding your contract with the seller.
Some "clouds on title" can be corrected relatively easily while others can become quite complicated to remove. You should insist on being kept informed of every step in the title examination process. If title problems are uncovered, it is important for you to understand your legal rights.
What is Title Insurance?
Title insurance is the best way to protect yourself against title defects that have occurred in the past, which may not appear until after you've taken ownership of the property. Before a title insurance policy is issued, a title report is prepared based on a search of the public records.
This report gives a description of the property, along with any title defects, liens, or encumbrances discovered in the course of the title search. It is different than casualty insurance in that you pay a one-time fee and it protects against past (as opposed to future) events.
Title insurance will protect you against title defects that were not discovered in the course of the title search. If such a defect were discovered later, your title insurance would cover you. If title problems are severe enough and not covered by insurance, you could actually lose your house. A title insurance policy protects you and your heirs against title defects for as long as you own your home.
Step 3: Getting an Appraisal
Once you have determined that there are no defects on title and all inspection concerns have been resolved, it is time to order an appraisal. An appraisal is an estimate of the value of a property made by a qualified professional. The appraisal of your prospective home is as important as your credit history in obtaining a mortgage. After all, the the property you are purchasing serves as the collateral for the loan.
Although the primary goal the appraisal is to justify the lender's investment, it also protects you from overpaying. Your lender will generally hire the appraiser and will charge you as the buyer a fee for the service. If the appraisal falls short of the amount you wish to borrow you may be refused a mortgage or offered a smaller amount on the mortgage. Your offer contract will be contingent on whether the appraisal comes in at or above the purchase price you and the seller have agreed upon.
Step 4: Closing
Once all of the purchasing steps and contingencies are cleared, it's time for closing! Closing is the legal transfer of ownership of the home from seller to buyer. It is a formal meeting that most parties involved in the transaction will attend. Closing procedures are usually held at the title company or lawyer's office. Your closing officer will coordinate the signing of documents and the collection of and disbursement of funds.