Buyer Qualification Worksheet

Transcription

1 Buyer Qualification Worksheet Name: Address: Phone number(s): address: Currently Own Rent Must Sell to Purchase Ideal Price $ Ideal Payment $ Preapproval? Yes No If yes, with whom How much would you like to put down out of pocket? Areas interested in Min. # bedrooms Min. #baths Garage Lot Size Other requirements ( ie. Waterfront, fireplace, pool, etc) How long have you been looking for a home? How have you been doing that? Have any real estate agents shown you homes? What relationship did you have with them? What did you sign with them (if anything)? Did you see anything you liked? What kept you from buying it? Are there any items that are deal breakers? What would you consider compromising on? Other considerations/requirements

2 Buyer s Pledge of Performance Because I am committed to preparing you to be an educated buyer, I will: give you the most vital and up to date information on available homes keep you aware of changes in the real estate market provide neighborhood information on municipal services, churches, schools, etc check applicable zoning and building restrictions disclose all known facts about properties I show you collect pertinent data on values, taxes, utility costs, etc point out strengths and weaknesses of all properties you choose to view explain forms, contracts, escrow and settlement procedures discuss loan qualification and processing Because I am committed to helping you save time, I will: provide ready access to all MLS listed properties assist you as requested on all unlisted properties help you select for viewing only homes that fit your needs show you only homes in the price range most suited to your finances arrange for necessary property inspections Because I am committed to helping you find the best value, I will: prepare studies of property values in chosen areas perform a market analysis on chosen properties discuss financing alternatives see that you get a complete estimate of all costs involved advise on offers on properties write and negotiate your purchase agreement to the seller negotiate on your behalf Because I am committed to you my buyer- I will do all of this- plus: keep your personal information confidential stay in touch with you from the day you start your search until the day you move in coordinate all aspects of the sale and closing be reimbursed with a commission only when we have successfully closed a transaction Agent Signature date

3 Evaluating a Neighborhood Drive around Does it look like a place you d like to live? Is it near places you d like to go Is it too near places you d like to avoid What will it be like at commuting times? What is it like at night? Quality of schools What is average school performance Average test scores College bound percentages Spending per student State rankings Financial position Education/Income Profile What is the average household income? Education Level? Occupations? Family type? Crime rate Compare neighborhoods on a per-capita basis for homicide, rape, robbery, aggravated assault, burglary, etc Cultural Amenities Proximity to museums, galleries, universities, seasonal entertainment, theaters, etc. Even if you don t frequent them, they set the tone for the area. Property Values Steady or increasing values generally mean a sound investment. It is almost always best to buy the smallest, least expensive home in the best neighborhood you can afford. Future Growth If you are not planning on staying in your new home for a number of years, an abundance of new construction could affect resale. The existence of higher end properties could increase the value of yours.

4 Home Buying Guidelines If you have to resell soon, don t buy an unusual house. Even if the quality of the school district doesn t matter to you now, remember it might someday to another buyer. Brand new homes may be lower in maintenance costs but can be higher in out of pocket expenses There are no perfect homes. Be ready to make compromises or concessions. Know what s most important to you and give on things that aren t. Location, Location, Location. Some things don t change. Supply and demand is a critical issue. Be ready to move quickly when your find what you want. Pay attention to floor plans. Changing layouts of rooms can be costly. Get preapproved for a mortgage prior to making an offer. Be an educated buyer. Learn as much as you can about the market before you buy. Always make your offer to the seller contingent on a home inspection it s money well spent. Compare mortgages artificially low rates could have hidden costs. When interest rates are low, go for a fixed mortgage. Redoing kitchens and baths can be expensive, check these out carefully. Imagine the home vacant. Do not be swayed by decorating the furnishings will go with the seller. Vacant homes appear bigger than they are. It may be a good idea to measure to make sure your furnishings will fit. Buy the best home you can afford in the best neighborhood you can afford. You are almost always better off with the least expensive home in the area rather than the most expensive. Pay attention to the original listing date of the properties you look at: sellers tend to be more flexible the longer the home has been on the market. Be honest and open with your agent. He or she works for you and can best help you if they have a good understanding of your needs. You ll know the right home for you when you see it and it will have very little to do with logic- don t ask how that works- it just does

5 GUIDE TO MLS CODES Knowing multiple listing service codes can save a lot of time chasing homes that you may not be interested in. Many people are hesitant to view or make offers on homes that are already under contract or have multiple offers because they do not want to be in a biddingwar. Being familiar with the codes can help narrow your list based on these factors. ACTV, NEW, RACT, PCHG, BOMK - active, new, reactivated, price change, and back on market codes indicate the home is available for sale and likely does not have an contract. Most buyers focus on homes in these categories. TEMP - temporarily off the market. Sometimes used when showings are temporarily stopped. Sometimes this code is a precursor to expiration or cancelation of the listing. CTG a home that is available but has a contract in force. A/I attorney inspection period is 5 days.deals can be sometimes be replaced with better ones in this time FIN seller is waiting for buyer to obtain financing, harder to replace with new offer HS48, HS72, HC48, etc. HS (house to sell) and HC (house to close) allow the seller to find a new buyer, but gives first buyer right to waive contingency Other- some other contingency needs to be satisfied prior to the home closing. PEND Pending sale. There are no contingencies for the sale of the home and the home is not available for showings. CLSD,EXP, CANC - closed, expired and canceled codes indicate the home is no longer for sale. Expired and cancelled listings will sometimes be relisted.

6 It s Time to Make an Offer Put yourself in the seller s shoes and imagine how they may react to everything you re about to put in your offer. Oral promises are not legally enforceable when it comes to sale of real estate. Please be sure you havecommunicated everything you want in the offer to your agent. Price Have your realtor do a comparative market analysis for you. It will show you the fair market value of the property. The following factors could affect price. Condition of home New home improvements Market conditions Seller s motivation Seller concessions do you want them to pay closing costs? Expect to pay a little more Earnest Money You will need to put up some money to show the seller you are sincere about purchasing the home. Your agent can give you guidelines on how much to offer. Financing Contingency You will probably need a mortgage. Even if you are preapproved the lender will still need time to get the appraisal done, order title, etc. Your agent can advise you on how much time to allow for. Home Inspection Don t skip this. It s money well spent in the long run. If the home has major issues, you ll want to know before buying it, not when you re stuck with it after closing. Disclosures Make sure you receive all proper seller disclosures. Federal law requires the seller to disclose all material defects that they are aware of. Multiple offers It doesn t have to be a hot market for a seller to have the luxury of choosing between multiple offers. If you find yourself in a multiple offer situation, don t panic and don t withdraw your offer you could be the highest bidder. Go through at least one round of negotiations before you decide to withdraw. Have a price in mind of where you want to go and stay in the game until the price is reached. Many buyers lose the property by pulling out too soon.

7 From Offer to Closing Once your offer has been presented to the seller the negotiating process begins. There are liable to be numerous counter-offers going back and forth between you and the seller. There are a few important things to remember: Your offer is just that an offer until it has been accepted and agreed to by both you and theseller. At any time during the negotiating process another offer could come in and cause you to be in a multiple offer or worse lose the house completely. A wise buyer will try to come toan agreement with the seller in a reasonably short period of time. Many contracts have stipulations on when the buyer must make his mortgage application. Please be sure to check your contract and abide by its requirements. If your contract calls for a home inspection and attorney review, please choose both of these as quickly as possible and let your agent know who they are. Your service providers have a limited amount of time to protect your interest. Be sure to comply with all requests of your lender after the mortgage application has been done. Not producing the documents or information they need can jeopardize your getting your mortgage on time. Generally, the buyer accompanies the home inspector at the inspection. Please allow at least 2 to 3 hours for an average inspection. More time may be necessary for a large home. Your agent will act as coordinator for all activities from this point and will keep everyone in the loop as far as what is going on. The lender, home inspector, both attorneys, the other REALTOR, the title company (or escrow agent) will all be performing necessary duties during this time. If necessary your agent and your attorney will work together to negotiate any repairs that were noted during the home inspection. Remember, routine maintenance items are not the type of thing that should be noted and negotiated. Your walk thru will be scheduled as per your sales contract. Your agent will schedule this with you, the seller and the listing agent. It should happen just prior to the closing. If all of this sounds a little overwhelming don t worry you re in good hands. Your agent has been through this many times and will be there for you during the entire process. Relax and enjoy the experience

8 10 Benefits of Using a Real Estate Agent to Buy a Home In tough times, most people are looking to cut costs any way they can. And in a home purchase, who wouldn t want to save that extra 3 percent -- an extra $3,000 per $100,000 of the sale price? That s typically what buyer s agents make on real estate transactions, and most experts think it s money well spent. It s true that anyone can shop for a house, and even get a peek inside, without formally signing on with a real estate agent. But unless you have time to make home shopping a part-time job, an agent might be able to match you with the perfect property much faster. Say you want a swimming pool. Or don t want a swimming pool. Or maybe you want a fenced-in yard for the dog or a basement playroom for the kids. If you re looking for something specific, a real estate agent is the person whose job it is to know if there s a house out there to fit your needs, and he or she will hold your hand through the deal to boot. Let s look at some of the top benefits of using an agent to buy a home. 10. Ethical Consideration. Though not all real estate agents are members of the National Association of Realtors (NAR), those who do join the group agree to abide by a code of ethics. That code essentially stipulates that Realtors deal with all parties of a transaction honestly. Under the code, the Realtor is obligated to put the clients interests ahead of his own. He or she is also required to make full disclosure about the problems with a property and be truthful in advertising. The code of ethics has some teeth; local boards governed by the NAR enforce the provisions. Penalties can include a $5,000 fine, a one-year suspension from the association or a three-year expulsion. How frequently this happens is unclear. Because local boards handle enforcement actions, no national statistics on penalties against Realtors are available [source: National Association of Realtors]. 9. Pricing Expertise Most real estate agents can set a price on a home the minute they walk through the door. If they have a lot of experience in a market, they know how well a neighborhood holds its value, too. While anyone can spend a few minutes online and pull information on sales of comparable houses, real estate agents have the experience to know whether a specific house is overpriced or underpriced. In the bestcase scenario, an agent will have such a good idea of what you re looking for that she won t even waste your time touring houses that won t work. Not only can agents provide all the data on local home sales that you want to see, but they can also bring assets to the deal that come from years of watching waves of transactions in the neighborhood. 8. Requesting Repairs Often, the touchiest part of a real estate purchase involves the delicate dance of requesting repairs. A real estate agent will be able to identify trouble that you may not see, as well as recommend a good independent home inspector who will provide a detailed report on problems with the house. These reports can be dozens of pages long. Within all those pages, some problems are important and others aren t. If the house is in reasonably good condition, requests for repairs can make or break a deal. The agent will have a good sense of what s reasonable to request and what s excessive. In many cases, it depends on you as the buyer, too. An agent can read the situation and suggest what would work for you. Each buyer has a different tolerance for what they need to do, says Elizabeth Mendenhall, the 2011 vice president of committees for the National Association of Realtors. Some need [a house] to be in a better condition.. 7. Finding Available Homes Though most homes for sale are widely available for buyers to assess on Web sites, in some cases, sellers don t want the fact that they re selling to be widely publicized. In those cases, only the real estate agents know the houses are for sale. Sometimes people don t want it advertised actively, Mendenhall says. Maybe it s a more for personal reason, that they don t want their neighbors or friends to know that their house is for sale. Sometimes health problems, financial problems or divorce factor into the need for privacy. Or sometimes, people don t want the sale advertised during the holidays. Either way, working with a real estate agent gives you access to homes you might otherwise miss seeing. 6. Tackling the Paperwork If you ve ever bought a house, you ve probably dedicated a full shelf somewhere to the documents that were involved in the transaction. These probably include the written offer, the written and signed counteroffer, the little details (like specific repairs) and what exactly was and was not included in the sale. The paperwork can be tiresome. This is when a good real estate agent can save the day. Often, these offers and counteroffers are limited by a time

9 frame. The agents are armed with fax machines that, in good economies, never stop churning out paper. The odds of missing something, not initialing a margin or not checking a box, can drop substantially when you re working with someone who knows the paperwork inside and out. 5. The Purple Room Phenomenon Aside from the technical aspects of a sale and the mistakes people can make in the paperwork, real estate agents know neighborhoods and houses inside and out. Mendenhall calls it the purple room phenomenon. If a buyer wants a house with a purple room, she says, the experienced real estate agent will know the house that s for sale that has that room. In a more general way, an agent will be aware of features that don t show as well on the Internet. If a buyer is looking for a house with a space that could be used as an office, an attached mother-in-law unit or a room that s perfect for showing off a prized grandfather clock, a human agent is more likely to find a match than a real estate Web site. 4. Unemotional Negotiation. As levelheaded as you think you are, when you re fighting with a seller over adding a hose to the dishwasher because the water drains on the floor, it s easy to lose your cool. Having an agent to write the requests objectively and forward them to the seller saves you the trouble of getting overly emotional about the deal. Say the seller won t budge on the dishwasher hose and you want to adjust your offer. The agent can handle that part calmly, too. Experts advise that you let the agent take the heat in difficult negotiations. The best way to make a deal is to look for the positive part of every offer and counteroffer, and never let the other party see you make a sour face. Often, the most effective way to do that is to present the face that s doing business -- not your own. 3. Code Expertise If you want to buy a charming little house near a business district and turn the front parlor into a candle store, you need to know if the city will allow it. Typically, an experienced real estate agent is familiar enough with local zoning ordinances to make sure you don t buy the wrong house. By the same token, if you want to build a fence in the backyard or add a bedroom, an agent should be able to make sure you re buying a property where the city allows it. Also, some cities may require expensive upgrades on older properties when they sell. For example, if a house isn t connected to the city s sewer system, and a buyer will be required to spend tens of thousands of dollars to connect the property, the real estate agent will make sure that requirement is disclosed before the deal goes very far. 2. Thorough Record Keeping Although real estate agents aren t lawyers, they can serve as good resources years after a deal is closed. In some states, licensed agents are required to keep full files of all documents in all transactions for several years. While you may (and should) keep files yourself, you can count on your agent to keep that information organized and safeguarded should trouble crop up with the property in years to come. You ll also be able to contact your agent at any time in the coming years should you have questions about the property yourself. 1. Avoid Closing Problems When a sale nears closing, all kind of pitfalls can kill the deal in the final hours. A real estate agent knows to watch for trouble before it s too late. For example, the title of the house may not be clear -- some long-lost relative might be listed on the title who hasn t signed off on the sale. Or maybe the lender is causing a problem by not meeting the timeline on financing. When you re getting close to the closing, you want to make sure there aren t any unexpected title issues, that the financing has come through and that all of the professionals involved are staying on task and on timeline, Mendenhall says. Real estate agents are used to dealing with these types of issues and can work through almost any challenge that arises.

10 Top 10 mistakes of First-Time Buyers Buying a home may seem a daunting task, but a little preparation will ease the way. The declining home values that are plaguing homeowners are just one of the factors creating an opportunity for prospective homebuyers. Standard & Poor s latest Case-Shiller index, which tracks home prices across 20 major U.S. cities, reported that values dropped 19% in January from a year earlier. Those depressed values, combined with near-record-low mortgage rates and government incentives (an $8,000 first-time homebuyers tax credit included in the stimulus bill), are luring more first-time home buyers into the market. Indeed, a recent Century 21 Real Estate survey found that more than three-quarters (78%) of potential first-time homebuyers say now is a good time to buy. If you agree, be aware that buying a home comes with plenty of potential missteps. Here are 10 all-too-common mistakes first-timers make. 1. Not knowing how much you can afford. Many novice homebuyers spend a lot of time researching homes comparing kitchen layouts and backyard square footage but very little time researching their financing options. One of the first things buyers should do is talk to a qualified lender and get preapproved for a mortgage, says Claire Clark, senior vice president of business development at Prudential California Realty. Without first figuring out how much house you can afford, you risk falling in love with one you can t. 2. Assuming foreclosures are great deals. Just because the previous owner owed $450,000 on a house before the bank took it over doesn t mean it s worth that much now. Values have slipped significantly, says Jay Michael, partner at Estate Property Group, a Chicago real-estate brokerage, so you may not be getting the bargain you think with a foreclosure. Also, most homes owned by lenders or banks have been sitting vacant for months and may have been vandalized. That could require extensive renovation or repair. Weigh the costs of fixing up the property against the savings you ll likely reap by buying a lower-priced foreclosed home. 3. Letting your true feelings show. No matter how much you ve fallen in love with a house, don t let the seller s agent in on it. Otherwise, he will gain the upper hand in negotiations. 4. Failing to find a good buyer s agent. Landing a mortgage is tough these days. So buyers should rely heavily on knowledgeable agents to help them get their finances in order, says Michael. After all, buyer s agents have a fiduciary responsibility to the buyer exclusively and should be looking out for his best interests. Start your search at the National Association of Exclusive Buyer Agents, a nonprofit representing buyers. Or consider using an agent recommended by a relative or friend. Interview the candidates about their experience; ask if they ve worked with first-time buyers before and what kind of service you ll get from them. 5. Underestimating costs of owning a home. Whether it s a rusty pipe or a leaky roof, things go wrong and need to be fixed. Many homebuyers don t anticipate the additional costs for repair and maintenance, or for an increase in utility costs, says Erin Baehr, a certified financial planner and president of Baehr Family Financial. Consider the age of your new home and how well it s been treated by the previous owners in your budget. Be prepared to set aside a small percentage (1% at most) of the home s purchase price annually for repairs and upkeep. 6. Failing to budget for property taxes. Property taxes and the likelihood that they ll climb over the course of your time in the house should be factored into any homebuying budget, says Baehr. To get an idea of how much you ll be paying, call the local assessor s office or talk to people in the neighborhood. 7. Assuming your first offer will get accepted. As home prices get even more affordable, competition is bound to heat up. You can t assume you ll walk in there, make the offer and get it, says Clark. Try not to get discouraged if you lose out on the first or second house you make an offer on. 8. Skipping the inspection. Before signing anything, hire a professional inspector, says Justin Lopatin, a mortgage planner with American Street Mortgage Co. The seller isn t likely to tell you there s mold in the basement or the walls are poorly insulated. Lopatin advises buyers to find and hire their own inspector independently of the real-estate agent to ensure there s no conflict of interest. (You can find inspection companies in the phone book, or by doing a simple Web search with your ZIP code.) 9. Doing too much too fast. Some buyers want to make the house their own right away, says Baehr. They overextend themselves on credit to do so, and assume the improvement will pay for itself by increasing the home s value. But that s not always the case especially in today s market. Instead, buyers need to exhibit patience and make changes over time. 10. Failing to include a contingency clause in the contract. A mortgage financing contingency clause protects you if, say, you lose your job and the loan falls through or the appraisal price comes in over the purchase price. Should one of these events occur, the buyer gets back the money he used to secure the property. Without the clause, he can lose that money and still be obligated to buy the house, says Lopatin. By Lisa Scherzer, SmartMoney

11 FAQ for First Time Home Buyers Why should I buy, instead of rent? Answer: A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you ll enjoy having something that s all yours a home where your own personal style will tell the world who you are. What are HUD homes, and are they a good deal? Answer: HUD homes can be a very good deal. When someone with a HUD insured mortgage can t meet the payments, the lender forecloses on the home; HUD pays the lender what is owed; and HUD takes ownership of the home. Then we sell it at market value as quickly as possible. Read all about buying a HUD home. Check our listings of HUD homes and homes being sold by other federal agencies. Can I become a homebuyer even if I have I ve had bad credit, and don t have much for a down-payment? Answer: You may be a good candidate for one of the federal mortgage programs. Start by contacting one of the HUD-funded housing counseling agencies that can help you sort through your options. Also, contact your local government to see if there are any local homebuying programs that might work for you. Look in the blue pages of your phone directory for your local office of housing and community development or, if you can t find it, contact your mayor s office or your county executive s office. Are there special homeownership grants or programs for single parents? Answer: There is help available. Start by becoming familiar with the homebuying process and pick a good real estate broker. Although as a single parent, you won t have the benefit of two incomes on which to qualify for a loan, consider getting pre-qualified, so that when you find a house you like in your price range you won t have the delay of trying to get qualified. Contact one of the HUD-funded housing counseling agencies in your area to talk through other options for help that might be available to you. Research buying a HUD home, as they can be very good deals. Also, contact your local government to see if there are any local homebuying programs that could help you. Look in the blue pages of your phone directory for your local office of housing and community development or, if you can t find it, contact your mayor s office or your county executive s office. Should I use a real estate broker? How do I find one? Answer: Using a real estate broker is a very good idea. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier. A real estate broker will be well-acquainted with all the important things you ll want to know about a neighborhood you may be considering the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more. He or she will help you figure the price range you can afford and search the classified ads and multiple listing services for homes you ll want to see. With immediate access to homes as soon as they re put on the market, the broker can save you hours of wasted driving-around time. When it s time to make an offer on a home, the broker can point out ways to structure your deal to save you money. He or she will explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing. And you don t have to pay the broker anything! The payment comes from the home seller not from the buyer. By the way, if you want to buy a HUD home, you will be required to use a real estate broker to submit your bid. To find a broker who sells HUD homes, check your local yellow pages or the classified section of your local newspaper. How much money will I have to come up with to buy a home? Answer: Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: earnest money the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house. When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies. If you buy a HUD home, for example, your deposit generally will range from $500 $2,000. The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20% of the purchase price. That s why many first-time homebuyers turn to HUD s FHA for help. FHA loans

12 require only 3% down and sometimes less. Closing costs which you will pay at settlement average 3-4% of the price of your home. These costs cover various fees your lender charges and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you won t be caught by surprise. If you buy a HUD home, HUD may pay many of your closing costs. How do I know if I can get a loan? Answer: Use our simple mortgage calculators to see how much mortgage you could pay that s a good start. If the amount you can afford is significantly less than the cost of homes that interest you, then you might want to wait awhile longer. But before you give up, why don t you contact a real estate broker or a HUD-funded housing counseling agency? They will help you evaluate your loan potential. A broker will know what kinds of mortgages the lenders are offering and can help you choose a lender with a program that might be right for you. Another good idea is to get pre-qualified for a loan. That means you go to a lender and apply for a mortgage before you actually start looking for a home. Then you ll know exactly how much you can afford to spend, and it will speed the process once you do find the home of your dreams. How do I find a lender? Answer: You can finance a home with a loan from a bank, a savings and loan, a credit union, a private mortgage company, or various state government lenders. Shopping for a loan is like shopping for any other large purchase: you can save money if you take some time to look around for the best prices. Different lenders can offer quite different interest rates and loan fees; and as you know, a lower interest rate can make a big difference in how much home you can afford. Talk with several lenders before you decide. Most lenders need 3-6 weeks for the whole loan approval process. Your real estate broker will be familiar with lenders in the area and what they re offering. Or you can look in your local newspaper s real estate section most papers list interest rates being offered by local lenders. You can find FHA-approved lenders in the Yellow Pages of your phone book. HUD does not make loans directly you must use a HUD-approved lender if you re interested in an FHA loan. In addition to the mortgage payment, what other costs do I need to consider? Answer: Well, of course you ll have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. Your real estate broker will be able to help you get information from the seller on how much utilities normally cost. In addition, you might have homeowner association or condo association dues. You ll definitely have property taxes, and you also may have city or county taxes. Taxes normally are rolled into your mortgage payment. Again, your broker will be able to help you anticipate these costs. So what will my mortgage cover? Answer: Most loans have 4 parts: principal: the repayment of the amount you actually borrowed; interest: payment to the lender for the money you ve borrowed; homeowners insurance: a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards required by most lenders; and property taxes: the annual city/county taxes assessed on your property, divided by the number of mortgage payments you make in a year. Most loans are for 30 years, although 15 year loans are available, too. During the life of the loan, you ll pay far more in interest than you will in principal sometimes two or three times more! Because of the way loans are structured, in the first years you ll be paying mostly interest in your monthly payments. In the final years, you ll be paying mostly principal. What do I need to take with me when I apply for a mortgage? Answer: Good question! If you have everything with you when you visit your lender, you ll save a good deal of time. You should have: 1) social security numbers for both your and your spouse, if both of you are applying for the loan; 2) copies of your checking and savings account statements for the past 6 months; 3) evidence of any other assets like bonds or stocks; 4) a recent paycheck stub detailing your earnings; 5) a list of all credit card accounts and the approximate monthly amounts owed on each; 6) a list of account numbers and balances due on outstanding loans, such as car loans; 7) copies of your last 2 years income tax statements; and 8) the name and address of someone who can verify your employment. Depending on your lender, you may be asked for other information. I know there are lots of types of mortgages how do I know which one is best for me? Answer: You re right there are many types of mortgages, and the more you know about them before you start, the better. Most people use a fixed-rate mortgage. In a fixed rate mortgage, your interest rate stays the same for the term of the mortgage, which normally is 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it. Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With this kind of mortgage, your interest rate and monthly payments usually start lower than a fixed rate mortgage. But your rate and payment can change either up or down, as often as once or twice a year. The adjustment is tied to a financial index, such as the U.S. Treasury Securities index. The advantage of an ARM is that you may be able to afford a more expensive home because your initial interest rate will be lower. There are several government mortgage programs,including the Veteran s Administration s programs and the Department of Agriculture s programs. Most people

13 have heard of FHA mortgages. FHA doesn t actually make loans. Instead, it insures loans so that if buyers default for some reason, the lenders will get their money. This encourages lenders to give mortgages to people who might not otherwise qualify for a loan. Talk to your real estate broker about the various kinds of loans, before you begin shopping for a mortgage. When I find the home I want, how much should I offer? Answer: Again, your real estate broker can help you here. But there are several things you should consider: 1) is the asking price in line with prices of similar homes in the area? 2) Is the home in good condition or will you have to spend a substantial amount of money making it the way you want it? You probably want to get a professional home inspection before you make your offer. Your real estate broker can help you arrange one. 3) How long has the home been on the market? If it s been for sale for awhile, the seller may be more eager to accept a lower offer. 4) How much mortgage will be required? Make sure you really can afford whatever offer you make. 5) How much do you really want the home? The closer you are to the asking price, the more likely your offer will be accepted. In some cases, you may even want to offer more than the asking price, if you know you are competing with others for the house. What if my offer is rejected? Answer: They often are! But don t let that stop you. Now you begin negotiating. Your broker will help you. You may have to offer more money, but you may ask the seller to cover some or all of your closing costs or to make repairs that wouldn t normally be expected. Often, negotiations on a price go back and forth several times before a deal is made. Just remember don t get so caught up in negotiations that you lose sight of what you really want and can afford! So what will happen at closing? Answer: Basically, you ll sit at a table with your broker, the broker for the seller, probably the seller, and a closing agent. The closing agent will have a stack of papers for you and the seller to sign. While he or she will give you a basic explanation of each paper, you may want to take the time to read each one and/or consult with your agent to make sure you know exactly what you re signing. After all, this is a large amount of money you re committing to pay for a lot of years! Before you go to closing, your lender is required to give you a booklet explaining the closing costs, a good faith estimate of how much cash you ll have to supply at closing, and a list of documents you ll need at closing. If you don t get those items, be sure to call your lender BEFORE you go to closing. Be sure to read our booklet on settlement costs. It will help you understand your rights in the process. Don t hesitate to ask questions.

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