Establishing A Plan For Obtaining Your Dream House

Are you a HomeBuyer?

Of course, you are, if you want all the benefits that homeowners enjoy. First, you’ll begin to feel the security and peace of mind come with owning your own home. You and your new community will stabilize and draw strength from each other.

From the very beginning, you’ll start to build equity. Equity in a home is one of the most common ways to save for the future. As long as the value of your home increases, real estate is the best investment you can make.

Homeownership is an excellent way to establish better credit. Through homeownership, you can also lessen your tax burden in significant ways.

But make no mistake, homeownership come with plenty of responsibilities:

• High initial costs – for down payment, closing costs, and inspections.
• Long-term costs – for ongoing maintenance and property improvements.
• Varying costs – for real estate property taxes and insurance.
• Cost of repairs/replacement as necessary.
• Possible HOA fees or condominium fees.
• Fees for utilities.
• And finally, you’re making a commitment to live in a specific location and community. Is the location or community right for you now and in the future?

It’s going to take a lot of patience. Hang in there and you’ll achieve your goal.

Don’t lose that dream.

How much Home can You Afford?

Consider how much money you feel comfortable paying each month for you mortgage, and not just how much the lender says you can afford to pay.

Examine what you spend your money on that contributes to your quality of life – such as the kind of car you drive or the money you need for transportation, the distance you’re willing to commute to work, and other conveyances. Children’s needs are a major consideration. Are children in your life, and have you budgeted to educate and care for your children now and in the future? If you are satisfied with your answers to these questions, then you are ready to own a home. Now take the next step!

Determine your needs with this worksheet. (Attached)

Don’t overlook a single thing. And starting right now, do not make large purchases. Don’t buy a car, a boat or new furniture during this process. Anything like that will show up on your credit report.

Money is your main foundation to owning a home. And always remember the following important points in order to keep the home buying process simple:

• Budget 30% (save $3 or every $10) of your gross monthly income to buy a home. Use a mortgage calculator to figure this out with back-end and front-end ration formulas.
• There are three main mortgage programs: Conventional, FHA and VA. Special financing programs may also be available—check with your lending professional to discuss interest rates, how they may affect affordability, and the different types of loans available to you.
• The credit bureaus Equifax, Experian and TransUnion report past payment behavior, level of indebtedness (how much you owe), length of debt, credit history, pursuit of new credit, and types of credit available. You may order a copy of your credit report directly from each of these clearinghouses. It is a good idea to check what each is reporting regarding your credit and that the information is factual.
• This information determines your credit score, the means by which a lender evaluates mortgage loan applications.

If your credit score is poor, some lenders will use nontraditional means of determining creditworthiness, which may include utility bill payment history, rental payment history, or other factors.

What Type of Home do you want to Buy?

Now that you’ve determined how much home you think you can afford, the next step is to contact lending institutions, including credit unions. Ask people you know and trust about lenders with whom they’ve had a positive experience.

NOTE: It is important to be pre-qualified and/or pre-approved before shopping for your home.

Features to look for in your home:

• # bathrooms
• # of bedrooms
• # of closets and storage space
• Type of home
  • Single-family detached
  • Single-or multi-level home
  • Attached (townhouse, row-house, or duplex)
  • Apartment-style condominium
• Take into consideration your family’s specific personal needs

Determine your wants:

• Fireplace
• Large backyard
• Finished basement, etc.

Consider these Two Important Questions:

1. “Can I expand the space to have whatever I want…indefinitely?”If not, are you able to live with this house as your “starter home?”
2. “Do I absolutely have to have this feature?”Be realistic! What you want and what you can afford may not be the same thing. You need to decide which aspects of your future home you can live with and which you can live without.

Getting Pre-Qualified or Pre-Approved and Getting the Actual Mortgage Loan.

Many lending institutions provide borrowers with the opportunity to apply for their loans online via the Internet. The following information addresses the typical formalities of face-to-face lending practices.

So, make sure all parties who will be applying and signing for the loan are present when you meet with your lender. You will meet with a loan officer who will review some of the various lending programs and packages that your lender offers. Some of these programs or packages may sound familiar from your research.

The more you know ahead of time, the better prepared you’ll be. Be prepared to:

• Ask lots of questions
• Take notes
• Know that there will be lots of documentation required for completing forms
• Read and understand everything before you sign it

Necessary Information for Pre-Qualification or Pre-Approval:

BRING:

• Personal identification – drivers license and/or social security card.
• Banking information with 2-3 months of statements with account numbers for each account, branch address and contact information.
• The lender will check your credit, usually for a fee. Ask how much it will cost and what form of payment is acceptable. *Based on your credit report and your bank statements you may become “Pre-Qualified” for a specific loan amount.
• Proof of your income – this includes:
  • Pay stubs and/or other proof of employment and salary for the most recent 30-day period.
  • Names and addresses of all employers for the past two years
  • Copies of your W2 Forms for the past two years with your tax returns.
  • If you are self-employed or you receive commission or bonus, interest/dividends, or rental income – provide a copy of your full tax returns for the last two years. If you applied for an extension on your tax return, include a copy of the extension.
  • K-1 schedule for all partnerships and S-corporations for the last two years attached to your 1040 form.
  • If you are self-employed, balance sheets with profit and loss for year-to-year earnings for the past two years will be required.
  • If you will use alimony or child support to qualify – provide divorce decree/court order stating amount, as well as proof of receipt of funds for the last year.
  • If you receive Social Security income or Disability or VA benefits, provide an award letter from that agency. If you are using a VA loan you will need to provide a certificate of eligibility.

Pre-Approval and Mortgage Loan Application

You’ve received sound advice from a lending professional about the type of loan that best fits your needs. Now it’s time to prepare for your mortgage application with your lender. This may or may not be the same financial institution from which your received your pre-qualification or pre-approval. The mortgage application is a document of two to four pages of detailed personal data, your liabilities and your assets. The application must be signed by the borrower and co-borrower.

Debt or Liabilities

• Prepare a list of all names, addresses, account numbers, balances and monthly payments for all current debts and provide copies of the last three months’ statements. This list pertains to any loans and/or credit cards you may have.
• You will also be asked questions about your living arrangements for up to the past seven years. Prepare a list of:
  • Addresses of previous residences
  • Names of landlords and contact information
  • Evidence of rental payments – canceled checks or money orders
  • If you own(ed) real estate of your own, independently or jointly – provide lender contact information: names, addresses, account numbers, balances and monthly payments for the last two years
• If you are paying alimony or child support, provide a copy of the court order stating the terms and obligation amount.
• Provide a check to cover the application fee.
• Just remember – this is all about getting the necessary money for your loan to buy your home.

When you actually apply for you mortgage you will need all of the above items as well as the following:

Mortgage application checklist:

Your Property

• Signed sales contract including all addenda.
• Names, addresses and telephone numbers of all real estate agents, builders, insurance agents and attorneys involved.
• Listing sheet and legal description when available (if the property is a condominium, provide condominium declaration, by-laws and most recent budget).

Sources of Funds and Down Payment

• Provide copies of bank statements for the last three months of your savings, checking or money market funds accounts.
• Provide copies of your statements or copies of certificates for your stocks and bonds.
• If you are selling your existing home – provide a copy of the signed sales contract on your current home and statement or listing agreement if unsold.
• Gifts – if part of your cash to close or down payment is a gift, provide an affidavit and proof of receipt of funds. *Other gift funds from non-profits organizations and other entities: You should discuss the necessary documents and application process with your lender.
• Based on the information on your application or credit report, you may be required to provide additional documentation.

The lender is required to provide you with a good faith estimate of the costs you are liable to pay at closing. Although these costs may change at closing, lender are required to provide the buyer with this estimate so that the buyer will be prepared to have a certain amount of funds available for closing. This is all part of the Real Estate Settlement Procedures Act (RESPA).

Lenders are also required to provide a copy of the “Buying Your Home: Settlement Cost and Helpful Information” booklet to you. The booklet and good faith estimate must be mailed to you within three days of receiving a loan application. For more information visit www.hud.gov.

Other information the lender is required to provide you:

• Affiliated business arrangement disclosure
• HUD-1 settlement statement
• Escrow account operation and disclosure
• Servicing and disclosure statement

Truth in lending statement – required by federal law to provide full written disclosure of terms and conditions of a mortgage. The following details are included in this statement:

• Annual percentage rat (APR)
• Finance charge
• Schedule of payments
• Late payment charges
• Prepayment penalties
• Fees associated with loan applications

Important:  Locking in rates

Check the timeframe for locked-in rates.

Remember, this process will take a great deal of patience on your part. This is the most extensive and time-consuming part of the process of achieving your goal of homeownership.

Hang in there…Your dream will soon become reality!

Shopping for Your Home

If you plan to use a real estate professional (most people do), use referrals from friends, family members or someone else you trust. Make sure you use a buyer’s agent – a real estate agent that is representing you.

Some agents are dual agents, working for both the seller and you, the buyer. Agents are required to tell you who they represent – you or the seller. You are the buyer. So…

• Always get a copy of anything you sign.
• Read and understand all contracts before signing them.
• If you don’t understand – ask.

Get an agent who works for you. It’s their job to help you in the process of buying your home.

Search the Internet, read real estate ads in newspapers and magazines. Also, drive through neighborhoods. If you see an appealing property, remember to come back and drive through the neighborhood at different times of the day. This will provide a complete picture of the community. Check the immediate and neighboring school districts. Talk to the neighbors and learn as much as you can about your home and the neighborhood of interest.

Go To Quiz One