A simple guide to home ownership
There are a few things to consider before you even start your home search. Many people start looking online at homes with out even realizing what they can afford. This will probably be the largest single investment that you ever make, so being prepared should not be taken lightly.
How you budget your money is the first step in preparing to purchase your home. Saving money for a down payment, closing costs and expenses associated with moving should be considered when preparing your budget.
Determine you income
List your expenses
Establish financial goals
Take your time now to compare your expenses and adjust anything that you can. You do this by tracking your expenses. Now you should be able to track the reality of your expenses to adjust your budget. You may notice that you will have to adjust your spending habits to fit into your financial goal.
Reviewing your credit is a vital step in home ownership. In order for a lender to consider your loan they will pull reports from the three credit bureaus, from the reports a credit score is established. Credit scores were created to quickly calculate the willingness of a customer to pay back a loan, for example, generally the higher the score, the less risk to the lender. These reports should be reviewed periodically to make sure the information reported is accurate.
Next consider your mortgage options. There are many mortgage options available, and you want to choose the best option for your long range goals.
Fixed rate mortgages are the most common and best suited loan product for most first-time home buyers. A fixed rate loan has monthly principal and interest payments that will not change over the term of the loan. Loan terms are generally 10-30 years. Keep in mind that although your principle and interest payments will not change, your taxes and insurance may increase. Mortgage payments are based on "PITI" principle, interest, taxes and insurance.
Adjustable rate mortgages (ARM) are the second most common loan type, sometime called a variable rate loan. With an ARM the principle and interest payments change, usually either annually, every three years or 60 months. The interest rate changes are based on an industry index. If you choose and ARM, it is extremely important to understand which index will be used and how often the rate may change. Generally ARM's are for people looking for short-term financing, if you plan on staying in your home for a long time an ARM may not be your best choice.
There are a few other options in financing, common terms you may have heard are Interest only, Balloon, Piggyback, 40 year, and Sub-prime. Although some of these mortgages may put you into a more expensive home to start, it is a good idea to discuss with your lender all of the pros/cons of these loans to find the best choice for you.
Getting a pre-approval from your lender gives you as the buyer stronger buying power. First you will know how much you can afford, and second when making an offer you may submit your pre-approval with a purchase and sales to give the seller confidence in your offer.
Qualifying for a mortgage, the lender will review your application for what is called the four C's of credit, Capital, Capacity, Character, and Collateral. Capital is your reserve cash such as checking, savings and 401K (or other investments). Lenders want to ensure that you have enough money for a down payment plus adequate money set aside to pay for unexpected costs. Capacity is checking to see if you have satisfactory income and stability to make the mortgage payments. Character, the lender will want to ensure that you are worthy of character and will make good on your promise to pay. Credit reports and references are their source for this. Finally collateral, the lender will order an appraisal for the property to assess the value of the collateral. The collateral is what insures the bank of re-payment in the event you default on the loan.
After review of your application and establishing your qualification for the mortgage, the lender should give you a commitment letter and discuss the terms and conditions of your loan.
If you are putting less than 20% down on the purchase of your property, you will be required to pay for mortgage insurance in addition to your mortgage payment. The common term for this is PMI, private mortgage insurance. The PMI can raise your monthly payment, so this is something to discuss with your lender before signing for the loan.
Choosing a real estate agent, this is where I come in... www.loriharrington.com When you are ready to look for a home, choosing a real estate agent is a very important step. To make a good decision you must have realistic expectations about the size of the home, location and type of home you want, and be aware of the different roles a real estate professional can play in your home search.
Choose a real estate professional, visit either www.loriharrington.com or www.beangroup.com and find a REALTOR. Once you begin working with a real estate professional they will give you a number of disclosures that they are legally obligated to provide. If you do not understand the disclosures, ask the agent to explain them. Ignorance is no excuse once a legally binding contract is signed. One of the first things the real estate professional must disclose to you is the Disclosure of Agency Relationship in Real Estate Brokerage. This tells you who the real estate agent is working for. There are a number of agency relationships such as, but not limited to, the following:
SELLER AGENCY: When the real estate agent is a Seller's Agent, they represent the Seller's interest. They are working to get the seller the best possible price for the sale of the property. Information, like your financial position, may be conveyed to the seller and negatively influence your position in negotiating the purchase price.
BUYER AGENCY: A real estate professional acting as a Buyer's Agent represents you in the real estate transaction. You hire the real estate agent for a certain time period for a fee which you negotiated in the Exclusive Buyer Agency Agreement. They will assist you in locating a property and in negotiating the purchase of that property. Their loyalty is with you, the buyer. They cannot discuss anything with the seller that may adversely affect your negotiation of the purchase of the property. If you break the Exclusive Buyer Agency Agreement prior to the expiration date on the contract you may still be responsible for paying the real estate agent's fee.
SUB-AGENCY: In a Sub-Agency relationship the real estate professional acts as an agent for another real estate person or agency. The real estate agent for another real estate professional acts as an agent for another real estate person or agency. The real estate agent working in a Sub-Agency relationship must represent the client's best interest whether that client is the seller or you, the buyer.
DISCLOSED DUAL AGENCY: This happens when an agency is representing both sides of the real estate transaction, the seller's and the buyer's interest. If this happens, the real estate agent must immediately notify both parties and disclose Dual Agency. If the seller and the buyer agree to proceed with the negotiations, the real estate agent may continue with the transaction. However, the real estate agent must remain a neutral party throughout the transaction. Undisclosed Dual Agency is illegal.
Once you find an agent, get through the disclosure of agency and find a home, it is time to make an offer.....
Buying a home may be the largest single purchase you will ever make. Such a major step requires exceptional care and planning. As the prospective buyer, you and the seller will be entering into a series of legally binding contracts, such as a Purchase and Sales Agreement. The potential pitfalls that you may encounter when purchasing the home of your dreams can be staggering. Misunderstandings over contractual liabilities and ownership issues can quickly turn your home buying experience into a financial disaster and legal nightmare. When purchasing a home, the safest and most cost effective course you can take to protect your investment is to seek well-qualified professionals to guide you through the contractual process.
As a home buyer you will need to understand your contractual liabilities and obligations when making an offer on a home. You should pay particular attention to the terms and conditions written in the purchase and sales agreement. By signing a purchase and sales agreement you are entering into a legally binding contract. If you do not live up to your part of the agreement, you may forfeit part or all of your deposit and could be subject to additional financial costs. No verbal agreements or unwritten offers to purchase or sell real estate are binding in the state of NH; only a written contract can be enforced.
A purchase and sales agreement (P&S) is a written offer explaining your terms and conditions for purchasing a property. The P&S spells out a basic description of the property, the terms and conditions of the sale, and a projected date or time frame for the closing.
Typically, the real estate agent will offer a standard P&S for to which any special conditions may be added (specific appliances you want included in the purchase price). It is highly recommended that a contingency for a satisfactory home inspection be included. Neither party should enter into a P&S without being absolutely certain they understand and agree to its contents. Remember that no "understanding" or agreement is enforceable unless it is written into the P&S. The safest course is to have a lawyer review the agreement before it is signed.
The financing condition listed in the P&S usually specifies the buyer's acceptable mortgage interest range and type of mortgage. A specific date or time frame for closing should be included. Failure to meet this date or time is considered a serious enough violation to breach the contract, especially if the P&S specifically spells out the "time is of the essence." As the buyer, be aware that any breach of contract could lead to your forfeiture of the deposit.
Ordering your home inspection, preparing your financing and then closing your loan are the final steps that your real estate agent will walk you through and make sure that your deadlines are met.