Complete Guide to Buying a Home

You're buying a new home! Have a question?

To help you find answers and get on your way, we've compiled a list of our most frequently asked questions and their answers. Just find your question and click!

When I start visiting homes, what should I be looking for the first time through?

The house you ultimately choose to call home will play a major role in your familys life. A home can be an excellent investment, of course, but more importantly, it should fit the way you really live, with spaces and features that appeal to everyone in the family.

At each home, pay close attention to these important considerations.

  • Is there enough room for you now, and in the near future?
  • Is the homes floor plan right for your family?
  • Is there enough storage space?
  • Will you have to replace the appliances, carpet, or mechanicals?
  • Is the yard the size that you want?
  • Are there enough bathrooms?
  • Will your present furniture work in this home?

Is an older home as good a value as a new home?

Its a matter of personal preference. Both new and older homes offer distinct advantages, depending upon your unique taste and lifestyle. New homes generally have more space in the rooms where todays families do their living, like a family room or activity area. Theyre usually easier to maintain, too. However, many homes built years ago offer more total space for the money, as well as larger yards. Taxes on some older homes may also be lower. Some people are charmed by the elegance of an older home but shy away because theyre concerned about potential maintenance costs. Consider a home warranty to get the peace of mind you deserve. A good Home Warranty plan protects you against unexpected repairs on many home systems and appliances for a full year or more after you move in.

Do I need to bring anything along when Im looking at homes?

Bring your own notebook and pen for note-taking and a flashlight for seeing enclosed areas. Be prepared to snoop around a little. After all, you want to know as much as possible about the home you buy. Sellers understand that because their home is on the market, it will be looked over pretty thoroughly. If you need to go back to a home for another look, we will be happy to schedule another viewing appointment. Be sure to ask any questions you have about the home, even if you feel youre being nosy. You have a right to know. Its important to know that the seller will supply the buyer with a Residential Property Disclosure, which is supposed to disclose any defects known by the seller. A copy of this form is found toward the back of this book.

What should I ask an Exclusive Buyer Agent about each home that I look at?

As a rule of thumb, ask any questions you have about specific rooms, features or functions. Pay particular attention to areas that you feel could become problem areas-additions, defects, areas that have been repaired. And above all, if you dont feel your question has been answered, ask until you do understand and are satisfied. In most cases, we will be able to provide you with detailed information.

What should I tell you about the homes I look at?

Tell us what you liked and didnt like about each home you saw. It is important for us to really get a feel for what youre looking for in a home in order to find your dream home. Dont be shy about talking about a homes shortcomings. Was the home perfect except for the carpeting? Let us know that, too!

How many homes should I look at before I buy?

There is no set number of homes you should look at before you decide to make an offer on one. Thats why providing us with as many details as possible up front is so helpful. The perfect home may be waiting for you on your first visit. Even if it isnt, the house-hunting process will help you get a feeling for the homes in the community and narrow your choices to a few homes that are worth a second look. Youll be one house closer to your home!

If youre looking in more than one community, try to make the most of each house-hunting trip. Stop by the local Chamber of Commerce to pick up promotional literature about the community. Or ask us for welcome kits, maps, and information about schools, churches, and recreational facilities. Also, be sure to take along a camera and snap some pictures of all the homes you like. Thatll make it easier to remember.

What should I think about when Im deciding which community I want to live in?

Good city services, nice parks and playground facilities, convenient shopping and transportation, a track record of sound development and good planning-these are just a few considerations that are important to many people when they choose a community in which to live.

As for individual neighborhoods within a village or city, there is no better source of information than Exclusive Buyer Agents. We know the people and the communities we serve, and chances are we can help you find a neighborhood that really fits your familys needs.

Where can I get information about local schools?

Again, we are one of your best resources. We know where the local schools are, and can provide you with valuable information about school districts, including test scores, extracurricular activities, bus service and more. If youre relocating, we may even be able to put you in touch with teachers and principals when you visit the area.

How can I find out what homes are selling for in a given neighborhood?

In most states, home sales are a matter of public record. The Auditors Office, a local residential appraiser, the planning department for the locality or the local Multiple Listing Service are all resources the buyer can call on. All can be searched for recent sale histories, sale prices (or average sales prices), time on the market and other listing information for sales in any given area.

However, a better and easier way for you to get this information is to ask us! If youre interested in a particular home, we may be able to provide you with a list of comparables - sale prices of homes in your area that are roughly the same size and age as the home youre considering. Although there will certainly be some differences between the homes - the house next door may have an extra bedroom or the one down the block may be older than the one youre looking at - its a good way to evaluate the sellers asking price.

Id like to have a professional look at the home before I buy it. What does a home inspector do?

For your own safety, and to make sure youre getting your moneys worth in the home you choose, using a professional home inspector is highly recommended. A home inspector will check a homes plumbing, heating and cooling, electrical systems, and look for structural problems, like a damp or leaky basement.

Usually, you call an inspector immediately after you are In Contract on a home. However, before you sign any written purchase offer, make sure that it includes an inspection clause or another language which says that your purchase obligation is contingent on the findings of a professional home inspector. Exclusive Buyer Agent purchases offers automatically contain this important verbiage.

Your home cannot pass or fail an inspection, and your inspector will not tell you whether he or she thinks the home is worth the money you are offering. They are not there to address value. The inspectors job is to make you aware of repairs that are recommended or necessary.

A seller may be willing to renegotiate a price reduction to accommodate needed repairs, or you may decide that the home will take too much work and money. A professional inspection will help you make a clear-headed decision. In addition to the overall inspection, you may wish to have separate tests conducted to check for termites, or the presence of radon gas or mold. Talk to us for information about these tests and companies in the area that perform them.

In choosing a home inspector, consider one that has been certified as a qualified and experienced member by a trade association such as the National Association of Home Inspectors or the American Society of Home Inspectors. We will refer you to at least three qualified inspectors.

Should I be present during the inspection?

Yes. Its not required, but it is very much to your advantage. Youll be able to clearly understand the inspection report, and know exactly which areas need attention. Plus, you can get answers to many questions, tips for maintenance, and a lot of general information that will help you when you move into your new home. Most important, youll see the home through the eyes of an objective third party.

Remember, the purpose of a home inspection is to help you learn things about the home that are not easily discoverable during your home-buying tour. The home inspection is NOT INTENDED to be a Laundry List of cosmetic issues or very minor repairs for Sellers to repair or replace. It is not intended to be a weasel clause to get out!

Do I need to talk to my insurance agent?

Yes, and the sooner, the better. Most insurance professionals have a lot of experience in working with homeowners and can offer useful tips about home ownership, particularly regarding home safety and keeping your premiums low.

Once youve found a home, work together to develop a homeowners policy that meets your individual insurance needs. Youll need to supply your pre-paid policy to your mortgage lender prior to closing.

Whats earnest money, and how much do I need?

When you sign an offer to purchase, the seller will expect the offer to include earnest money - that is, money that shows you are serious about wanting to buy. Usually, you will be asked to write a check for an amount, established by you. If your offer is accepted, your earnest money will be held in your agents folder. Once all contractual contingences are released, the money will be deposited in a special non-interest bearing trust account. At closing it can be included as part of your down payment or returned to you. If your offer is not accepted, well simply hold the check if you like, uncashed. But keep in mind that if you back out after all contingencies have been removed; you will forfeit the full amount.

Is there any way I can protect myself against emergency repair bills in my new home?

Yes. Home warranties offer you protection against many potentially costly problems not covered by your homeowners insurance. Theyve become increasingly popular in recent years, and for good reason: the coverage can save you thousands in the event of a major mechanical breakdown, at a time when your cash reserves may have been depleted by your down payment and moving expenses. Ask us whether a Home Warranty is offered when looking at homes. But remember, if it is not offered, feel free to ask for it when writing the offer to purchase. The Home Warranty will give you the peace of mind necessary to feel comfortable in your new home. In most cases, the warranty plan will cover appliances, hot water heater, air conditioning units, electrical systems, garage door openers, plumbing systems, heating systems, faucets, ceiling fans and water softeners. Check with us regarding the specifics of the Home Warranty plan!

How do I determine the amount of my initial offer?

There is really no rule to use in calculating a realistic offer. Naturally, the buyer wants the best price and value and the seller wants the highest price, but negotiations can be influenced by many factors, such as a seller who may be changing jobs and wants to sell quickly, or a buyer who really wants a specific home.

Together we will look at the homes features, ask questions, check comparables, take into account your lending profile, and develop a sound strategy that will enable us to determine the best offer price. With this approach, you are not simply relying upon the information furnished by the Sellers agent, which likely supports a higher than market value price. You are making an informed decision.

Most buyers and sellers negotiate on price until both agree. When the price is agreed upon, the paperwork will be signed and initialed as needed by both parties. At that point, you typically will begin the process of arranging for home and wood destroying insect inspections.

If Im moving a considerable distance, is there any way I can gather information before I start

Yes. NAEBA is proud to be associated with some of the best relocation companies in the nation. Whether youre moving across town, across the nation, or around the world, we can help. Our Buyer Relocation Networks are skilled in handling the special needs of families involved in the relocation process. We understand your needs, concerns, fears, anxieties and joys, but most of all, we know how to get you and your family from here to there with minimal stress and inconvenience. And, our Buyer Relocation Network is made up of the top 4% of the industry. They know how to get you results in the shortest amount of time, with the fewest hassles and the best price and terms for you. In addition, todays Multiple Listing Service - which includes up to 90% or more of the homes listed in any given community - have made it relatively easy for buyers to access detailed information online on homes for sale practically anywhere in the country.

Should I move or use a moving company?

In almost every case, you can save yourself time and energy by using a reputable moving company to help you move. Ask us, consumer groups, the Better Business Bureau, friends, and co-workers for recommendations, then get estimates from several companies. Dont choose a mover based on price aloneconsider the reputation and professionalism of the company, too. Work closely with the moving company to coordinate your efforts and your move will be achieved with maximum efficiency.

What is a mortgage, and what are the benefits of different kinds of mortgages?

Simply put, a mortgage is a loan that a home buyer obtains directly from a lender to purchase real estate. The mortgage is a lien on the property that secures a promissory note (promise to repay the debt) that states the terms of the loan, including the interest rate, and the number of payments.

The most popular mortgages available to home buyers today can be divided into two general categories: those which offer fixed interest rates and monthly payments, and those where one or both of those factors are adjustable.

Fixed rate/fixed payment loans are more traditional and remain the most popular home financing method, currently accounting for about two-thirds of all residential mortgages. Their advantages are well-known: You always know what your monthly principal and interest payment will be, so your basic housing cost will remain unaffected by interest rate changes until the mortgage is paid off.

Mortgages that entail flexible rates and/or payments have grown in popularity during periods of high interest rates and/or rapidly rising home prices. Many, including the popular ARMs (Adjustable Rate Mortgages), offer lower-than-market initial interest rates that allow buyers a measure of affordability unavailable in fixed-rate loans. The tradeoff may be higher interest rates and higher monthly payments later on. As yourself the question: Is my income expected to go up in the future, or not?

What are the different types of lenders, and how do I choose the right one for me?

Before someone lends you the money to purchase your home, theyll want to know a lot about you. And youre entitled to know as much as you can about them, too.

Its important because getting a mortgage is not just a one-time signing of documents, a handshake and a check. You will be depending on your lender to fund the loan as promised, on time, and over the life of the loan, to keep good payment records, pay your taxes and insurance (if included in your monthly payment) and many other continuing services.

Look for a lender that has the authority to approve and process your loan locally. Its easier to obtain information on the status of your loan and discuss conditions directly with the person who will approve your loan, rather than some far away loan committee. Its important that your lender know home values and conditions in your local area. And while biggest doesnt always mean best, financial stability, reputation, qualifying procedures and unique programs benefit are what they offer home buyers.

Are there any mortgages especially designed for first-time home buyers?

Today, first-time home buyers enjoy a number of mortgage options that make purchasing a home more affordable by minimizing down payments and keeping monthly payments as low as possible during the early years of the loan.
Most ARMs feature an interest rate that is often below market for the first year, and may only rise gradually after that.

VA and FHA-insured loans call for extremely low down payment (0-5% of the purchase price), and often offer a below-market interest rate. Similarly, favorable terms can also be arranged with the help of conventional loan PMI (Private Mortgage Insurance) or FHA loan MIP (Mortgage Insurance Premium).

Finally, first-timers who can find a cooperative seller or third-party investor can look into such non-traditional financing methods as a lease/buy arrangement.

Can I get an FHA or VA mortgage?

Just about anyone can apply for an FHA-insured mortgage through banks and other lending institutions. They are particularly well-suited for buyers of low to moderate income, and have low down payment requirements (as low as 3.5% of the purchase price).

Similarly, VA-guaranteed loans often require no down payment. These loans are reserved for either active military personnel or veterans, or spouses of veterans who died of service-related injuries.

If there is a downside to these loans, its the qualifying process. Though you apply for government-insured financing through a lending institution, the Federal Housing Administration or the Department of Veterans Affairs must ensure or guarantee the loan and may require specific documentation or procedures not necessarily required for conventional financing. That may take more time than is generally required for conventional mortgage approval. Additionally, FHA-required insurance (MIP) must be added to your payment. Make sure the lender you select has approved authority by each of these agencies to ensure a quicker loan process.

How much of a down payment will I need to buy a home?

A down payment of 20 percent has been the benchmark for conventional financing, but today, many options are available, some requiring as little as 3.5 percent down. For buyers who qualify for conventional financing but cant handle the high down payment requirements, lenders offer this financing with PMI, or Private Mortgage Insurance. Designed to protect the lender against default by the borrower, PMI allows you to obtain traditional financing with a down payment significantly lower than the standard 20 percent. By using PMI, you may be able to get a fixed rate or adjustable rate mortgage by putting as little as 5 percent down.

As with an FHA-insured loan, you must pay premiums for PMI coverage, the amount of which are determined by the lender. Moreover, PMI premiums are often lower than FHA insurance and may be paid as part of your monthly mortgage payment, in annual installments, or in a lump sum at the time you obtain the loan. Your mortgage expert can help you determine which down payment option is right for you and your budget.

How does a lender determine the maximum mortgage I can afford?

The three primary areas lenders examine in determining the size of mortgage you can handle include your monthly income, non-housing expenses, and cash available for down payment, moving expenses, and closing costs. There are a number of different ways lenders interpret these variables to estimate your mortgage capacity. The most popular method is detailed here. Most lenders feel a family should spend no more than 28% to 29% of its gross monthly income on housing costs, including the mortgage, insurance, and real estate taxes. Also, these housing costs plus your long-term debts (car loans, student loans, etc.) shouldnt exceed 36% to 41% of your income. If your down payment is 5% or lower, lenders may tighten these restrictions even further. If you are buying a condominium, most lenders will also include the monthly condo dues in their calculations.

What are the steps involved in the loan process?

The information your lender needs is not much different than what is needed when you apply for a major credit card: names and addresses of your employer and bank account numbers and balances. The lender will also need other financial information such as installment payments, auto loans, charge cards, and department store accounts. The location and description of the property also are required. Your lender will verify this information with your present and past employers, order a routine mortgage credit report on your current and past accounts, and order a professional appraisal of the property youre wanting to purchase.

Allow yourself one to two weeks to complete the application process. Then once all the verifications have been completed, your lender will underwrite and approve the loan. Overall, the time from the date of application to the date of move-in is generally three to five weeks for conventional loans, four to seven weeks from the date of application for FHA loans, and five to seven weeks for VA loans.

Whats the point in paying Points?

In real estate, the term point refers to 1% of the total mortgage loan amount. Buyers often pay lenders this supplemental fee, calculated in points, to get a better interest rate on a particular mortgage.

For instance, a lender may offer you a choice of two 30-year mortgages: the first at 5% with no points, and the second at 4.5% with an additional three points. If the loan is for $100,000, those three points will cost you an extra $3,000 up front - but youll get a payback of significantly lower monthly payments ($840.85 vs. $877.57) for the lifetime of the loan.

Depending on the market, lenders may advise you to pay the points for the better rate if you can afford it, especially if you plan on keeping the home for more the long term. Like interest, the money you pay for points may be tax-deductible, and the investment may pay for itself through savings generated by lower monthly payments. We suggest you check with your tax professional.

What is APR, and how is it calculated?

The Annual Percentage Rate is a calculated rate of interest for a loan over its projected life. This rate includes the interest, all points (which are considered prepaid interest), mortgage insurance, and other charges associated with making the loan that the lender collects from the borrower. The APR is calculated by a standard formula that all lenders use. This enables the borrower to comparison shop between lenders and/or loan products.

What is a good faith estimate?

Your lender or loan agent must provide you with a good-faith estimate within three days of your application. This is the information you need to make a fair and accurate judgment when shopping for a loan. Your estimate is a written document that shows all the costs that can be estimated in advance by the lender. You need this information so there are no surprises on the day you close your sale on the property to be purchased. You will be expected to pay closing costs, or negotiate for the seller to pay them for you!

You should review all costs, know which are non-refundable in the event your loan is not approved, and be prepared to pay any outstanding fees at closing. You may also want to compare these costs to those charged by other lenders when shopping for your home loan.

What does my monthly mortgage payment include? And what does PI and PITI stand for?

The bulk of your monthly mortgage payment goes toward paying off the principal and interest of your loan. You may hear lenders refer to this as PI, for Principal & Interest. In addition, most lenders require that you pay a sufficient amount to cover your local real estate taxes, plus your homeowners or hazard insurance. You may hear this total payment referred to as PITI, or Principal, Interest, Taxes & Insurance. This amount is placed in an escrow account, from which your lender then pays your taxes and insurance bills as they come due. When shopping for a loan, it is important to ask the lender if the monthly payment you are being quoted is PI or PITI.

What are the respective advantages of 15-year and 30-year terms?

The 30-year fixed rate mortgage remains the standard mortgage, with an array of valuable benefits designed especially for buyers who expect to stay in their homes for a long time. Because the borrower pays more interest than principal for the first 23 years, the tax deduction is substantial. And as inflation causes income and living expenses to increase, your unchanging monthly mortgage payments account for a relatively smaller portion of income as the years go by.

As youd expect, a 15-year monthly mortgage means higher monthly payments than an equivalent 30-year loan but not as much higher as you may think. At the same rate of interest, payments on the 15-year mortgage are roughly 20-25 % higher than a loan that takes twice as long to pay off. And one of the benefits of choosing a 15-year mortgage is that you can generally get a lower interest rate for an otherwise similar loan. Another advantage is faster equity build-up because a larger portion of your early payments are going to pay off principal. This makes the 15-year mortgage an ideal alternative for couples approaching retirement or anyone else interested in owning their home free and clear as quickly as possible.

Do adjustable rate mortgages offer any protection against rising rates?

Yes. ARMs and other variable rate or payment plans offer lower-than-market interest rates initially, but because they are tied to the interest rates of U.S. Treasury Bills or other indexes, interest rates later in the loan term may rise. However, many such loans offer built-in limits or safeguards designed to minimize the effect of any rapid escalation in interest rates.

One such safeguard is the rate cap. Many ARMs include provisions for the maximum amount your rate can rise, both annually and over the life of the loan. For example, if your initial rate is 8%, the FHA adjustable loan may include 1% annual and 5% lifetime caps which means even if rates rise dramatically, youll pay no more than 9% next year, 10% the following year, and so on until a maximum rate of 13% is reached.

ARMs may also allow your rate to decrease when the index it is tied to goes down. As you might expect, decreases are usually capped as well.

A second protective device included in some ARMs is the payment cap. Under this provision, your monthly payments may rise by only a set dollar amount. The potential disadvantage of this type of cap is that it can slow or even reverse your equity build-up. If rates rise dramatically, you could actually wind up owing more principal at the end of the year than you did at the beginning.

Of course, ARM holders can also consider refinancing to a fixed rate loan after a few years. Some ARMs even include a provision for converting to a fixed rate after a set period of time for a set fee.

How can I find out what my property tax bill will be?

Usually, the total amount of the previous years property taxes is included on the listing information sheet for the home youre interested in. Remember, tax rates change from year to year, so the previous years bill should be considered simply as a ballpark figure of what you would pay. For a more precise projection, call the local auditors office for assistance, or simply ask us.

Can I pay my mortgage off early?

Save extra every month.

With the interest you earn on your savings accounts you may be able to make an extra payment at the end of the year.

Pay an extra twelfth of your P & I payment monthly.

Or just send in whatever extra you can every month.

Whichever method you choose, be sure to clearly indicate that the excess payment is to be applied to principal. Better yet, write two checks to create an even better paper trail.

What can I do if I have a fixed rate loan, and interest rates go down?

When interest rates drop significantly, the homeowner should investigate the financial advantages of refinancing. Essentially, this means taking out a new loan to pay off your existing loan. The usual rule of thumb is if the rate drops by at least 1% then it may be worthwhile to run the numbers.

Refinancing may require paying many of the same fees paid at the original closing, plus origination fees. Most mortgage experts agree that if you can get a rate 2% less than your existing loan and you plan on staying in your home for at least 18 months, refinancing is a good investment.

What is the difference between pre-qualifying and pre-approval?

Pre-qualifying for a mortgage up to a certain amount is a verbal exchange in which the lender tells you in advance approximately how much money the buyer is able to borrow, based upon the information you provide the lender on your debt and income.

Pre-approval goes a step further than pre-qualifying. It is an actual commitment to lend, provided that, when the borrower is ready to buy, he or she still meets all the qualifying conditions that were met at the time of conditional approval. We strongly recommend it to give you the best negotiating position!

Can I pay off my loan early?

If you can afford it, and are interested in the considerable advantages of having more equity and/or owning your home free and clear at the earliest possible date, the answer in most cases is yes. The FHA, VA and even some states do not allow lenders to charge penalties for paying mortgages early or refinancing. In fact, many lenders now include space on monthly statements for borrowers to itemize any additional principal payment they wish to include with their regular payment. If youre unsure about the rules governing pre-payment, review your mortgage agreement.

How does the $8,000 first time home buyer tax credit work?

The tax credit offered by the U.S. Government for home buyers ended on April 30th, 2010 - under the guidelines, that means that a buyer must have had a binding purchase contract in place on or before April 30th, 2010, and complete the transaction and take possession of the property on or before June 30, 2010.

As originally conceived, first time home buyers or those who have not owned a home in the three years immediately preceding their home purchase were eligible for up to an $8,000 tax credit. The purchaser was required to be a U.S. taxpayer, the home must be the taxpayers principal residence, the home must be located in the U.S., and the purchase date must have been between January 1, 2009, and December 1, 2009. Some income and other restrictions also applied.

In November 2009 the tax credit was extended for home purchases through April 30, 2010, and also added in was a provision for a $6,500 tax credit for repeat home buyers. That credit too expired on the same April 30, 2010 deadline.

Unlike the tax credit of $7,500 in 2008, these tax credits did not have to be repaid unless the home ceased to become the principal residence of the taxpayer within 36 months of the purchase date.

Buyers who qualified should complete IRS Form 5405 when filing their 2009 or 2010 annual federal taxes.

These were tax credits rather than tax deductions, meaning they reduced dollar for dollar the taxes owed or increase dollar for dollar the refund received.

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