STEPS TO HOME OWNERSHIP
Prequalification
Presumably you did some preliminary research as to current interest rates and went through the process of “prequalification” for a loan before you started house hunting. You should also request a credit report and resolve any problems in your credit history. You need to select loan terms that are most favorable to your situation. For example, if you anticipate that you will be living for many years in the house you are buying now, the interest rate may be your primary consideration. If you anticipate that you will only be living in the house for two or three years, the closing costs and whether or not there is a prepayment penalty (a charge for repaying the loan early) may be more important to you.
By the time you have a signed sales contract, you should have a clear idea of what kind of financing you need or want. Now with your buyer agent’s help you need to shop around for the lender that offers the most advantageous terms for that type of loan. You do not have to stick with the lender that pre-qualified you if you find a better term somewhere else.
Mortgages are available from savings and loan associations, commercial banks, mortgage companies, credit unions and finance companies. You might be wise to start your search with a financial institution where you already have an established checking or savings account.
Once you have contacted several lenders, you may see that one lender is quoting the lowest rates but another lender charges less in upfront closing costs. That’s why you need to establish what features are most important to you. Lenders use many qualifying guidelines to determine what size mortgage you are eligible for. Be aware that “qualifying” for a loan is only the first step in being “approved”. The qualification process determines how large a mortgage you qualify for provided your loan application is approved.
You may not want to wait until you have found the house of your dreams to find out how large a mortgage you can afford. It is strongly suggested that you get yourself pre-qualified before you even start house hunting.
Loan Interview
Be prepared for your loan interview. Try to anticipate everything that you will need and have all of the necessary information readily available. Everyone who will be signing the mortgage will need to go to the interview.
Please bring the following documents with you to the loan interview:
1. The purchase contract for the house if applicable.
2. Your bank account numbers, the address of your bank, and your last bank statement.
3. Pay stubs, W-2 forms, or other proof of employment and salary (if you are self-employed, balance sheets, tax returns for the past three years, and year-to-date profit and loss statement).
4. Information about debts, including loan and credit card numbers, names and addresses of your creditors.
5. Evidence of your mortgage or rental payments, such as canceled checks or money order receipts.
If you are concerned that the interest rate may change during the time the loan is being processed, the lender may agree to lock in the current rate for a specific period of time.
Within three days after you have submitted your application for a home loan the lender should be able to provide you with an itemized estimate of costs to settle the loan. Please respond promptly to any requests for information while your loan is being processed. It is also a good idea to call or have your buyer agent call the lender occasionally to check on the status of the loan.
The lender will arrange to have the property appraised, a service for which you may be charged. A professional appraiser will determine the market value of the house. This information is required because the lender will loan you not more than a given percentage of the value of the property (loan-to-value ratio). If the appraised value is less than the purchase price you have agreed upon, the amount of the mortgage may be smaller than you anticipated and you will have to come up with a larger down payment. You may also be able to renegotiate the purchase price in the event of an unexpectedly low appraisal.
What Do You Want In a Home?
You probably have some idea of the type and size of house you want and what type of location suits you. Making a “wish list” can help you and your real estate agent assess your house-hunting requirements.
Making an Offer and Negotiating a Price
Once you have decided to make an offer on a house, remind yourself again that the real estate agent that listed the property, no matter how friendly and helpful, represents the sellers of the property. You should not discuss your negotiating strategy with the seller’s agent. No matter how anxious you are to buy the house, you need to keep your enthusiasm between yourself and your buyer agent. Let them do the negotiating for you.
Several factors can be taken into consideration when deciding what to offer on a property:
1. Market value of house. -Your buyer agent can do a market analysis for you. This is a written report that reviews prices of comparable property that are currently on the market, currently under contract, or recently sold.
2. Condition of the house. -Before you make an offer be fairly confident that you are aware of any major problem areas in the house. You or your buyer agent should question the sales agent about the structural soundness and condition of the basic systems. You will have the opportunity to have the house inspected by a professional before the contract is finalized.
3. Circumstances surrounding the sale. – Together with your agent you should try to determine how anxious the owners are to sell. For example, if the sellers already have a contract on another house that is dependent on the sale of this one, you may be in a good position for negotiation. It will be to your advantage to know how long the house has been on the market and whether the price have already been reduced. Your buyer’s agent should be able to give you this information.
Once a lending institution establishes what you can afford on a monthly basis, think about what price range you want to spend for this new home. Remember, you can establish what your fixed costs will be (taxes, mortgage, interest, insurance), but you also have to be aware of other ongoing costs such as utilities and discretionary expenses and decide how much or how little to spend in these areas. Other costs will also include the cost of moving, cost of buying any major appliance that was not included in the sale of the house and settling in your new home.
Down Payment
Your down payment can range anywhere from 0 to 20 percent depending on the type of loan you and the property qualify for. When your down payment falls below 20 percent your lending institution will most likely require you to pay PMI (Private Mortgage Insurance) until such time as your equity reaches 20% of the value of the property.
Closing Costs
The expenses called “closing costs” typically amount to 3 to 6 percent of the amount of the mortgage. They can consist of prorated real estate taxes, attorney fees, preparation of the deed, points, prepaid mortgage interest, tax transfer stamps, title insurance for the lender, optional title insurance for the buyer (highly recommended), application fee, appraisal fee, flood hazard insurance and some prorated expenses. Such as Condo fees, water and sewer bills.
Other Expenses
These expenses that are not included as part of the Settlement Statement (HUD) and are separated from your regular closing costs are items such as firewood left on property, or any heating fuels left in the tank. It is customary at the time of closing for the buyer to pay the seller for these expenses directly.
Closing and Buyers Remorse
The final days before a closing are the most stressful. For example, you may have second thoughts about taking on such a large commitment, or you may worry that something will happen to prevent the sale.
The signed sales contract and the signed loan commitment letter do, however obligate both you and the seller to complete the transaction. In fact, if you fail to do so, not only will you forfeit your deposit, but you may find yourself embroiled in litigation.
The closing date is set at the time the purchase and sales agreement is written. If all goes well the time and place will be coordinated by the real estate agents. If circumstances require, a written extension prepared by the buyer’s agent may be requested by the lending institution, which will have to be signed by both the buyer(s) and the seller(s).
The lending institution will assigned a closing agent, most likely an outside title company to perform the closing. At least 24 hours prior to the closing your agent should receive a copy of the Settlement Statement (HUD) to review with you, this will give you the amount you are financing, a breakdown of closing costs, and any additional monies needed by you at closing. Any additional monies should be in the form of a certified bank check.
After all the papers have been signed and the fees have been paid, the mortgage note and the deed must be officially recorded at the registry of deeds. The recorded original documents will be returned to you from the Registry of Deeds of the County where the property is located.
Congratulations, you are now the official owner of the property. The final item you need to remember- get the house keys from the seller!!
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