MORTGAGE BASICS

8 Steps to Home Ownership

1. SET A BUDGET & START A HOME FUND

Determine how much you can realistically afford to pay toward a mortgage each month. Other than what you spend on rent, write down everything you spend money on each month. These are your non-housing expenses. Next, subtract your non-housing expenses from your net take-home pay. Your goal would be to stay well under this number. The further your mortgage payment falls below this number, the safer you’ll be.

2. CHECK YOUR CREDIT REPORTS & SCORES

Your credit score can make or break your chances of getting a mortgage loan. Make sure there aren’t any errors or inaccuracies. If there are, dispute them ASAP. When looking at your FICO score, you’ll probably need a score of at least 640 to qualify for a mortgage loan.

3. SELECT THE BEST TYPE OF MORTGAGE LOAN FOR YOU

FHA. Conventional. ARM. Fixed-rate…there are many choices with different rates, fees and time periods. Determine how long you might be living in the home and select a term that would best fit that need. A longer stay might warrant a fixed rate vs. an adjustable rate might suit a shorter stay better.

Do you want to make a larger down payment of 10% on a conventional loan, and pay a smaller amount of mortgage insurance each month? Or … do you want to make a smaller down payment of 3.5% for an FHA loan, and pay more in mortgage insurance every month? Ultimately a mortgage expert can help you decide what will be best for your situation.

4. GET PRE-APPROVED & START SHOPPING

A lender will determine whether or not you’re qualified for a loan, and how much the lender is willing to give you. Once this is determined you will receive a letter informing you what you have been pre-approved for and this will help you decide what price range of homes you should be looking at.

5. MAKE AN OFFER

When you’ve found a house that meets all your wants and needs, you’re ready to make an offer! Your offer should be based on comparable sales of similar homes that have sold in the same area recently. Negotiations will begin and an agreement will be reached.

6. INSPECTIONS

After an offer is accepted, you will hire a home inspector. An inspection is a non-invasive examination of the house, including the visible portions of the roof, foundation, plumbing, electrical system, & heating /cooling system. This is done entirely for your benefit and gives you a better picture of a home’s true condition.

7. APPRAISAL

A mortgage lender has a lot at stake in this investment, therefore they want to make sure the home is worth the amount that you agreed to pay. The lender will have the home appraised to determine its current market value. If the lender determines the home is worth less than the agreed price, the lender might withhold financing.

8. CLOSING

When the property is transferred from the seller to the buyer, you are said to have “closed escrow.” Closing involves a lot of paperwork & the distribution of funds. The seller gets paid, if applicable, agents receive their commissions, and the lender fees will be paid. Make sure you have saved up enough money to cover your closing costs. Your lender will give you a written estimate of these costs in advance, always save over that estimated amount. Lastly you will walk away with the keys to your new house.

Selling a Home

EXPENSE #1

Updates to Prepare for Sale

Most homes need to do a fresh coat of paint and update some things to get their home in tip top shape for sale

EXPENSE #2

Closing Costs

Closing costs for sellers can reach 8% to 10% of the sale price of the home.

EXPENSE #3

Realtor Commissions

Typically, the seller pays the real estate agent commissions which usually total between 4 and 6%.

EXPENSE #4

Title Fees

These are the taxes you’ll pay when the title for the home changes from you to your buyer at closing.

EXPENSE #5

Owner’s Title Insurance

protects the new owner from issues with your home’s title. This provides peace of mind to the future owner from the financial burden should there be a dispute over the property or because of outstanding liens from contractors, creditors, or the government.

EXPENSE #6

Closing Fees

Closing fees cover managing the closing. This includes recording, signing and holding all funds. Escrow providers charge either a flat fee typically $500-$2000 depending on where you live, or 1% of the home sale price.

EXPENSE #7

Prorated Property Taxes

When selling a home, you are responsible for prorated property taxes due up to the date of the sale, at which point the buyer will take over.

EXPENSE #8

HOA fees

If you live in a neighborhood with HOA costs, you will need to make sure you’ve paid up to the close date.

The Do’s and Don’ts When Buying a Home

DO

Do Get Pre-approved

Pre-approval helps to make sure you are shopping for homes in the right price range and helps to speed along the process when you find the home of your dreams and you want to place an offer.

Do

DO Check Your Credit Report

You may be surprised to find unknown credit inquiries. Which can negatively impact your credit score. It’s best to get this cleaned up before applying for a home loan.

DON’T

DON’T change jobs.

Most investors require 30 full days of paystubs or payment history, so changing jobs no matter how much better the salary may be will delay closing until the 30-day paperwork is obtained.

DO

DO Continue Paying Credit Cards and Any Other Debt

Paying or not paying your credit card bills regularly and staying current while paying down debt affects your FICO score. Your FICO score is key to getting the best interest rate and securing the best loan for your home.

DON’T

DON’T Make Any Major Purchases

You do not want to make any major purchases with any credit cards or loan until after you have closed on the home purchase. These purchases can absolutely delay closing. If you have any questions contact your mortgage lender prior to making a purchase.