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A Helpful Resource for Homebuyers
Three Deadly Mistakes
Every Homebuyer Should Avoid
Deadly Mistake #1
Thinking You Can’t Afford It.
Today, buying the home of your dreams is easier than ever before. Many people who thought that buying the home they wanted was simply out of their reach are now enjoying a new lifestyle in their very own new home.
Buying a home is the smartest financial decision you will ever make. In fact, most American and Canadian home owners would be financially broke at retirement if it weren’t for one saving-the equity in their home.
Furthermore, mortgage rates are more flexible today than ever and tax allowances favor home ownership.
Real estate values have always risen steadily. Of course there are peaks and valleys, but in the long term the trend is a consistent increase. This means that every month when you make a mortgage payment the amount that you owe on the home goes down and the value typically increases. This owe less worthmore situation is called equity build-up and is the reason you can’t afford not to buy.
Even if you have little money for a down payment or credit problems, chances are that you can still buy that new home. It just comes down to knowing the right strategies, and working with the right people. Seebelow.
Deadly Mistake#2
Not hiring a buyers agent to represent you.
Buying property is a complex and stressful task. In fact, it is often the biggest single investment you will make in your lifetime. At the same time, real estate transactions have become increasingly complicated.
New technology, laws, procedures and competition from other buyers require buyer agents to perform at an ever-increasing level of professionalism. For many homebuyers, the process turns into a terrible, stressful ordeal. In addition, making the wrong decisions can end up costing you thousands of dollars. It does not have to be this way!
Work with a buyers agent who has a keen understanding of the real estate business and who is on your side. Buyer’s agents have a fiduciary duty to you. That means they are loyal to only you and are obligated to look out for your best interests. Buyer’s agents can help you find the best home, the best lender and the best inspector. Best of all, in most cases, the buyer’s agent is paid out of the sellers commission, even though he/she works for you.
Trying to buy a home without an agent at all is, well…unthinkable.
Deadly Mistake #3:
Getting a cheap inspection.
Buying a home is probably the most expensive purchase you will ever make. This is no time to shop for a cheap inspection. The cost of a home inspection is very small relative to the home being inspected. The
additional cost of hiring a licensed, certified inspector is almost insignificant. As a homebuyer, you have recently been crunching the numbers, negotiating offers, adding up closing cost, shopping for mortgages and trying to get the best deals. Don’t stop now. Don’t let anyone talk you into skimping here.
NACHI(National Association of Certified Home Inspectors) has the highest membership requirements in the Industry. NACHI turns down more than ½ the inspectors who want to join because they can’t fulfill the membership requirements.
NACHI Certified Inspectors perform the most detailed and thorough inspections by far. NACHI Certified Inspectors earn their fees many times over. They do more, they deserve more, and yes they generally charge a little more. Do yourself a favor…and pay a little more for the quality inspection you deserve.
To find the best home inspector in your area visit: www.InspectorSeek.com
The inspectors listed are NACHI certified.
What Every Homebuyer Should Know
A home is a financial asset and more: it’s a plan for the future; it’s an investment in your community.
Knowledge is said to open doors. This is literally true when it comes to buying a home. To become a firsttime homebuyer, you need to know where and how to begin the home buying process.
The following questions and answers have been carefully selected to give you a foundation of basic knowledge. In addition to helping you begin, they will give you the tools necessary to navigate the entire process, from deciding whether you’re ready to buy, all the way to that final proud step, getting the keys to your new home.
Reading this paper was your first step. Now you can use this information to determine if you’re ready to buy a home. If you are ready, contact a real estate agent. They can help you decide your next step.
You can find out by asking yourself some questions:
Is my current income reliable?
Can I afford the insurance? etc.
If you can answer “yes” to these questions, you are probably ready to buy your own home.
Start by thinking about your situation. Are you ready to buy a home? How much can you afford in a monthly mortgage payment (see Question 4 for help)? How much space do you need? What areas of town do you like? After you answer these questions, make a “To Do” list and start doing casual research. Talk to friends and family, drive through neighborhoods, look in the “Home” section of the newspaper, and contact a local real estate agent.
.How Does The Lender Decide The MaximumLoan Amount I Can Afford?
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? 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 cost such as taxes, assessments, How Do I Begin The Process Of Buying A Home?
. How Does Purchasing A Home Compare With Renting?
The two don’t really compare at all. The one advantage of renting is being generally free of most
maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax
benefits, and protect yourself against rent increases. Also, you may not be free to decorate without
permission and may be at the mercy of the landlord for housing.
Owning a home has many benefits. When you make a mortgage payment, you are building equity. And
that’s an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your
new financial responsibilities; like insurance, real estate taxes, and up-keep, which can be substantial.
. How DO I Know If I Qualify?
The lender considers your debt-to-income ratio, which is a comparison of your gross (pretax) income to
housing and non-housing expenses. Non-housing expenses include such long-term debts as cars or student
loan payments, alimony, or child support. Monthly mortgage payments should be no more than 29% of
gross income, while the mortgage payment, combined with non-housing expenses should total no more
than 41% of income. The lender also considers cash available for down payment, closing costs, and credit
history, etc. when determining your maximum loan amount.
.Is there enough room for both the present and the future? Are there enough bedrooms and bathrooms? Is the home 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 Does anything need to be repaired or replaced? Will the seller repair or replace the items? Imagine the home in good weather and bad, and in each season. Will you be happy with it year-round?
. How Do I Select The Right Real Estate Agent?
Start by asking family and friends if they can recommend an agent. Compile a list of several agents and talk
to each before choosing one. Look for an agent who listens well and understands your needs, and whose
judgment you trust. The ideal agent knows the local area well and has resources and contacts to help you in
your search. Overall, you want to choose an agent that makes you feel comfortable and can provide all the
knowledge and services needed.
.How Can I Determine My Housing Needs Before I Begin The Search?
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 prioritized list, things like location and size. Should the home be close
to certain schools? Your jobs? To public transportation? How large should the home be? What type of lot
do you prefer? What kinds of amenities are you looking for? Establishing a set of minimum requirements
are things that a home must have for you to consider it, while a “wish list” covers things that you’d like to
have but aren’t essential.
. What Should I Look For When Deciding On A Community?
Select a community that will allow you to best live your daily life. Many people 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.
. How Can I Find Out About Local Schools?
You can get information about school systems by contacting the city or county school board or the local
schools. Your real estate agent may also be knowledgeable about schools in the area. Many school systems
offer web sites with a wealth of helpful information.
.How Can I Find Out About Community Resources?
Contact the local chamber of commerce for promotional literature or talk to your real estate agent about
welcome kits, maps, and other information. You may also want to visit the local library. It can be an
excellent source for information on local events and resources, and the librarians will probably be able to
answer many of the questions you have
How Can I Find Out How Much Homes Are Selling For In Certain Communities?
Your real estate agent can give an estimated figure by showing you comparable listings. If you are working
with a REALTOR, they may have access to comparable sales maintained on a data base.
. How Can I Find Information On The Property Tax Liabilities?
The total amount of the previous year’s property taxes is usually included in the listing information. If it’s
not, ask the seller for a tax receipt or contact the local assessor’s office. Tax rates can change from year to
year, so these figures may be approximate.
. What Other Tax Issues Should I Take Into Consideration?
Keep in mind that your mortgage interest and real estate taxes will be tax deductible. A qualified real estate
professional can give you more details on other tax benefits and liabilities.
. Is An Older Home A Better Value Than A New One?
There isn't a definitive answer to this question. You should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods, offer more ambiances,and have lower property tax rates. 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, areusually easier to maintain, and may be more energy-efficient. People who buy new homes often don’t wantto worry initially about upkeep and repairs.
. What Questions Should I Ask When Looking At New Homes?
Many of your questions should focus on potential problems and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance (e.g., paint, roof, HVAC, appliances, carpet)? Also ask about the home and neighborhood, focusing on quality of life issues. Be sure the seller agent answers are clear and complete. Ask questions until you understand all of the information they’ve given. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.
.How Can I Keep Track Of All The Homes I See?
If possible, take photographs of each home: 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 or third look.
If your home inspector discovers a serious problem, a more specific Inspection may be recommended. It’s a good idea to consider having your home inspected for the presence of a variety of health related risks like termites, mold, or possible problems with the water or waste disposal system.
. Do I Need A Lawyer To Buy A Home?
Laws vary by state. Some states require a lawyer to assist in several aspects of the home buying process
while other states do not, as long as a qualified real estate professional is involved. Even if your state
doesn’t require one, you may want to hire a lawyer to help with the complex paperwork and legal contracts.
A lawyer can review contracts, make you aware of special considerations, and assist you with the closing
process. Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what
services are provided for what fee, and whether the attorney is experienced at representing homebuyers.
. Do I Really Need Homeowners Insurance?
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. Plus, involving the insurance agent early in the home
buying process can 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.
.What Steps Should I Take To Lower My Insurance Cost?
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,
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.
. Is The Home Located In A Flood Plain?
Your real estate agent or lender can help you answer this question. If you live in a flood plain, the lender
will 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. Work with an
insurance agent to construct a policy that fits your needs.
Always check to see if the home 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.
Your real estate agent should be able to help you with questions.
Complete legal description of the property Amount of earnest money Down payment and financing details Proposed move-in date Price you are offering Length of time the offer is valid Detail of the offer Remember that a sale commitment depends on negotiating a satisfactory contract 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 you 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.
. How Do I Make An Offer?
Your real estate agent will assist you in making an offer, which will include the following information;
with the seller, not just making an offer.
.How Many Homes Should I Consider Before Choosing One?
There aren’t a set number of homes you should see before you decide.nbsp;nbsp; Visit as many as it takes to find the one you want.nbsp;nbsp; On average, homebuyers see 15 homes before choosing one. Just be sure to communicate often with your real estate agent about everything you’re looking for. It will help avoid wasting your time.
What Does A Home Inspector Do, And How Does An Inspection Figure Into The Purchase?
An inspector checks the safety of your potential new home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the home 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: the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, the HVAC system, water source and quality, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is qualified and experienced. Contact the National Association of Certified Home Inspectors at www.nachi.org to find a certified inspector in your area.
Typically, you may include an inspection clause in the offer when negotiating for a home.nbsp;nbsp; An inspection clause gives you an “out” on buying the home 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 home.
.Do I Need To Be There For The Inspection?
It’s not required, but it’s a good idea. Following the inspection, the home 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.
Unless you have a buyer’s agent, remembering the listing agent works for the seller. Make a point of asking
him or her to keep your discussions and information confidential. Listen to your real estate agent’s advice,
but follow your own instincts on deciding a fair price. Calculating your offer should involve several factors:
what amount homes sell for in the area, the home’s condition, how long it’s been on the market, financing
terms, and the seller’s situation. By the time you’re ready to make an offer, you should have a good idea of
what the home is worth and what you can afford. And, be prepared for give-and-take negotiation, which is
very common when buying a home. The buyer and seller may often go back and forth until they can agree
on a price.
.What Is Earnest Money?
Earnest money is money put down to demonstrate your seriousness about buying a home. It must be
substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the
amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes
part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you
back out of a deal, you may forfeit the entire amout.
. What Is A Mortgage?
Generally speaking, 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.
. What Is LTVR?
The loan to value ratio is the amount of money you borrow compared with the price or appraised value of
the home you are purchasing. Each loan has a specific LTV limit. For example: with a 95% LTV loan on a
home priced at $50,000 you could borrow up to $47,500 (95% of $50,000), and would have to pay $2,500
as a down payment.
The LTV ratio reflects the amount of equity borrowers have in their homes. The higher the LTV the less
cash homebuyers are required to pay out of the own funds. So, to protect lenders against potential loss in
case of default, higher LTV loans (80% or more) usually require mortgage insurance policy update.
.What makes Up The Final Closing Cost?
Attorney’s or escrow fees (Yours and your lender’s if applicable) Property taxes (to cover tax period to date) Interest (paid from date of closing to 30 days before first monthly payment) Loan Origination fee (covers lender administrative cost) Recording fees Survey fee First premium of mortgage Insurance (if applicable) Loan discount points First payment to escrow account for future real estate taxes and insurance Paid receipt for homeowner’s insurance policy (and fire and flood insurance if applicable) Any documentation preparation fees
. Who Can I Trust To Help Me?
The home inspector is the only impartial party to a real estate transaction. Unlike the seller, the real estate
agent and the lender, the inspector’s fee is not dependent on whether you buy or not. To find the inspectors
in your area who abide by the highest code of ethics visit: www.NACHI.org
.What Should I Look For During The Final Walk Through?
This will likely be the first opportunity to examine the house without furniture, giving you a clean view of everything. Check the walls and ceilings carefully, as
well as any work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should be brought up for
negotiation prior to closing. It is the seller’s responsibility to fix them.
. What Can I Expect to 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 Is Mortgage Insurance?
Mortgage insurance is a policy that protects lenders against some or most of the losses that result from
defaults on home mortgages. It’s required primarily for borrowers making a down payment of less than
20%.
. How Does Mortgage Insurance Work? Is It Like Home Or Auto Insurance?
Like home or auto insurance, mortgage insurance requires payment of a premium, 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.
. What Is PMI?
PMI stands for Private Mortgage Insurance or Insurer. These are privately owned companies that provide
mortgage insurance. They offer both standard and special affordable programs for borrowers. These
companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these
guidelines to determine borrower eligibility.
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