Home Buyers Guide. Table of Contents

Transcription

1 Home Buyers Guide Table of Contents 1. How To Improve My Credit 2. How To Get Pre-Approval 3. Down Payment Assistance 4. What Makes A Great Agent 5. Desirable Locations 6. Negotiating The Price 7. Negotiate Mortgage Financing 8. Home Inspection Pest Inspection Benefits 10. Picking A Home Inspector 11. How To Get A Mortgage 12. What Is Mortgage Insurance 13. Role Of The Title Company 14. What Is Buyers Closing

2 How To Improve My Credit Your credit score is an important factor when buying a new home. Whether you've just received your first credit card or have been building credit for years, there are a few things you should know to help you achieve a high credit score. Checking your credit is something everyone should do yearly. One of the best times to check your score is after you've filed your taxes. The three big credit bureaus Equifax, Experian, and TransUnion all provide top-tier reports that banks, landlords, and other loan officers will all regard as accurate. Many companies will provide a free credit report from each of the big three bureaus once per year. Aside from the big three, there are dozens of online credit reporting companies that will also provide you with a credit score. Your bank may also offer some variation of a credit score. It's important to note that your bank's score may be calculated using different methods and processes than those by the big three credit bureaus. While you may have a great score with your personal bank, you need to make sure that your score with the big three is similar. Short-Term: 3-6 Months After you know what your true credit score is from one of the big three bureaus, you can now work to improve it. Breaking down the credit process into short-term and long-term goals can help you maximize your time, so you can boost your score. There are several things you can do to help boost your score in the next few months. These short term goals are essential to get your score back on the rise while you work towards long term improvements. Dispute Derogatory Remarks Your credit score will list any liens, loans, or problems associated with your credit history. Sometimes there are derogatory remarks listed on your credit report because of mistakes or balances you do not owe. You have the power to dispute any derogatory remarks and the credit agency will remove the remarks until the reporting company provides proof of the debt. If the reporting company does not respond timely then the derogatory remark is permanently removed from your credit report. In addition to disputing remarks, you can check for any outstanding balances and contact the associated company to clear up the problem. Removing any outstanding remarks from your credit history is one of the best ways to improve your score, and it can be done quickly.

3 Written Agreements Before Paying Collections Often times when paying off old accounts, the collections company will accept payoff amounts as little as half of the original balance. Negotiate with the creditor to get the most favorable payment amount. Now that you've contacted the companies and are ready to pay off your outstanding loans, it's important to get a written agreement before transferring any money. Often times, people will simply send off overdue payments to collection companies and expect their score to improve. In reality, these collection companies may take the payment and neglect to remove any negative remarks. You should always get a written agreement stating that all derogatory or negative remarks will be removed from your credit history upon payment of any outstanding balances. Reduce Credit Utilization Another simple and effective way to boost your credit score is by lowering your credit utilization. Credit utilization is the ratio of how much credit you use when compared to how much credit you have available. For instance, if you have three credit cards each with a $1000 maximum limit, and you currently have a balance of $500 on each card, your total utilization is $1500 out of $3000 possible, or 50%. Lowering your credit utilization to 25% or less will help show creditors that you do not rely on credit and, in turn, will increase your score. This can be done by either maintaining a lower balance on your credit or by increasing the credit limit on your already open accounts. You should avoid opening new accounts to increase your credit limit, because opening new accounts reduce your history's "average age", which could lower your credit score. Paying down your open balance is really the strongest way to reduce your credit utilization. Long-Term: 2-5 Years Looking farther down the road, you'll want to make an overall lifestyle change to reach those high credit scores. These long-term goals are things you should start doing today, but it will take years of consistent behavior before they will impact your credit score. Pay All Bills On Time One of the best methods to increase your credit score is to pay all your bills in full and on time. In particular, all debt (i.e. credit cards, mortgages, and car loans) should be paid immediately each month. Paying your bills on time will usually take 2 years of consistency to have the best impact on your credit. However, showing creditors that you can reliably make payments is a great way to boost your score.

4 Take An Installment Loan Installment loans are a fixed amount of money that you pay back on a regular schedule each month. A good way to improve your credit is to simply have an installment loan that you have paid back reliably for several years. Most people already have an installment loan in their credit history, whether from a car loan or personal loan, but if you do not have an installment loan it can be helpful to get one. A smart way to take an installment loan is a debt consolidation loan, this allows you to consolidate all your existing debt into one monthly payment that you can pay off in installments. This approach doesn't harm your credit utilization, while boosting your credit score long term Whether you've been working on your credit for years or just started, you can control your score. Paying off loans on time, removing negative remarks, and monitoring your score will make a big impact.

5 How To Get Pre-Approval As part of the home buying process, many borrowers need to get pre-approved for a mortgage. A mortgage is a loan from the bank that allows the buyer to purchase the house they want. Applying for a mortgage in advance allows the customer to demonstrate their ability to afford the home they want. Pre-approval means that the potential buyer is already endorsed for a given sum and can expect to get the mortgage amount they want once they apply for it. The pre-approval process has many advantages. One of the most useful is that it helps buyers figure out how much home they can afford even before they search for the property. Your Credit Multiple factors will influence a buyer's ability to get pre-approved for a mortgage. Perhaps the most important of these components is your credit history. Your credit history is largely dependent on how well you pay your bills. If you make timely payments on a consistent basis, then you should have an excellent credit history. Struggles with fiscal problems in the past may reflect on your credit history. All people have what is known as a credit score. The score is a reflection of your credit worthiness. Credit scores fall within a range from 300 to 850. Those with higher ratings will typically receive better mortgage rates. Three companies issue credit ratings. An applicant may get a higher score from one company and a lower rating from another. Your Income During the pre-approval process, you will be given a realistic indication of exactly how much house you can afford to purchase. The lender starts with many factors such as your job history and any savings you might have. They then consider your credit score when coming up with a final determination of the amount you can borrow. You may use your pre-approval to figure out a basic home buying budget. This further assists you in being realistic about a price range. The pre-approval lets you have a full look at your finances even before you start looking for a home. Being realistic about your price range makes it easy for you to put in a bid and increase the chances of acceptance by the seller because you have confirmation in writing. Where to Get Pre-approval Many companies can offer you pre-approval for a mortgage. In general, you can expect to apply for a loan from either a bank or a home finance company. Either institution can endorse your request for funds, but it is important to remember that a bank is a direct lender whereas most home finance companies represent mortgage underwriters. In any case, the pre-approval process is roughly the same with either a bank or home finance company. You will typically need to submit various types of paperwork to the institution,

6 which will include pay stubs and an indication of any assets you might have such as equity in your current home and any securities you might own.

7 Down Payment Assistance You've done it; you found the home you've been dreaming about for years. It's everything you ever wanted, and then some. You've met with the real estate agent, the bank, and the seller, and have worked out everything. The only thing standing in the way of your dream house is the down payment. Depending on which type of loan or financing option you chose to purchase your new home, your down payment could range anywhere from 3% to 20% of the purchase price. This could be a decent amount of money to come up with on short notice. This article will go over various ways you can get the money you need for your down payment and get into your new home quicker. National Homebuyers Fund The National Homebuyers Fund (NHF) is a non-profit public assistance benefit program that was established in To date, they have helped over 35,000 people purchase a home by providing down payment assistance options. They offer support in the form of a grant, and this grant can cover down payments and closing costs up to five percent of the home's value. This grant is available to anyone, and you don't have to be a first-time homebuyer to qualify. First-Time Homebuyers There are programs aimed at first-time homebuyers that allow them to pay no or a very low down payment on their home loan. A few of these programs will be offered by an individual bank or lender, and there are several offered through the government. The HomePath Ready Buyer program by Fannie Mae will give first-time homebuyers up to three percent of the total purchase price to put toward the closing costs. FHA Loan An FHA loan is a loan through the Federal Housing Administration will require a smaller down payment and closing costs than traditional loans. The down payment is 3.5% of the purchase cost, and mortgage insurance is included in the monthly total. This loan will allow a gift from a family member, charity, or grant to cover 100 percent of the down payment. In addition, many states offer down payment assistance grants that can be used with your FHA loan. See the additional resources section for links to the FHA down payment assistance portal.

8 USDA Loan Another loan option with no down payment is a loan through the United States Department of Agriculture (USDA). The USDA will guarantee a mortgage that is issued through a local lender, and this will lower interest rates and make a zero down payment. However, if you choose to put no money down, you will have to pay a mortgage insurance premium. They offer direct loans for low and very low-income families with down payments as low as one percent of the purchase cost. The USDA program also provides grants and loans for home improvement projects and renovations. Veterans Affairs Loans A Veterans Affairs (VA) Loan is a loan that is provided to eligible surviving spouses, current service members, and Veterans. A portion of the loan is guaranteed by the Department of Veteran's Affairs, and it is designed to help you buy or build, fix up, keep your home, or adapt a home so that it will suit your needs. The loan is given through a bank or mortgage company, and they work with the Department of Veterans Affairs to give you better terms and rates for your home loan. Good Neighbor Next Door The deparment of Housing and Urban Development (HUD) sponsors a great home purchase assistance program called "Good Neighbor Next Door". This program focuses on providing housing opportunities for law enforcement, emergency medical technicians, firefighters, and teachers. You must commit to living in the home for at least 36 months, and you could receive up to half-off the listing price of the home. The homes that are for sale were backed by the FHA and foreclosed on. The houses are located in low-income areas with a high number of FHA-backed foreclosed homes. Mortgage Insurance (PMI) Mortgage Insurance is special insurance that will repay a mortgage if the borrower defaults. PMI is extremely attractive to a lender because it reduces their risks. For this reason, lenders may allow you to negotiate a much smaller down payment when you are willing to pay PMI. Although mortgage insurance is technically not "down payment assistance", the down payment reduction you can negotiate could be as low as 1% to 5%. PMI can often make the difference between a down payment that is out of reach and one that is right within your budget. Ask Your Lender or Realtor A final option is to schedule a meeting with your real estate agent or bank lender and see if they can point you in the right direction for any grants or down payment assistance programs. They usually have a network of these programs they can provide you with as well as help finding out which ones you will be approved for. If you have any

9 friends or family who recently bought homes, ask how they did it and if they can recommend any programs. Buying your dream home shouldn't be a stressful endevour. It is a milestone in many people's lives and should be celebrated as such. Take your time and research. Shop around and find the best option to suit your needs, and talk to your lenders. They are usually an excellent but underutilized resource to assist you in the search for a grant or program that will be ideal for you.

10 What Makes A Great Agent When it comes to finding the home of your dreams, there are many different steps involved in purchasing the right property. One of the most important parts of shopping for a new house or listing your property is to have the help of a professional real estate agent. When it comes to selecting an agent who will assist you with the process? There are a few aspects to look for. Knows Local Real Estate It's important to find an agent who is familiar with the local area of where you want to relocate. The professional should know how many schools are in proximity to the home and be up to date on the most recent properties that are listed. By finding someone who knows the local real estate market, you'll have an easier time with your search and finding a house that fits your budget. If you're selling your home, the agent can help you to determine a competitive price in the area that attracts buyers. Good Communication Skills Hiring a real estate professional who has strong communication skills will allow you to benefit and enjoy a smoother process. It's important to evaluate how well your agent communicates by meeting face to face. The agent should take the time to answer your questions and to explain the details of his or her services. It's also important that the agent responds quickly to your phone calls or s throughout the week. You should hear back from him or her within 24 hours when you have a question or inquiry. Hiring an agent who does not make communication a priority can cause you to miss out on the right home. The agent's communication skills can also help you to have a smoother transaction with the seller or buyer once you begin to negotiate the selling price of the home. The agent should be capable of maintaining peace and harmony and will know how to communicate with other parties to avoid offending them and turning them off. Has Your Best Interest in Mind Look for an agent who is aware that you're the boss and that he or she is working for you. Finding an agent who cares about your needs will allow you to have a better chance at finding a home that you can enjoy for many years to come. With an agent who is looking out for you, you can avoid purchasing a home that has issues or flaws that you may not be aware of as a buyer. You can also have peace of mind knowing that your agent is working hard to find you a house that has the features and amenities you're looking for in a particular area.

11 Skills to Protect You One of the main purposes of using an agent is to have protection. Finding the right agent will allow you to obtain a fair deal that is competitive after you make an offer on a home. You can have peace of mind knowing that you won't fall for a scam or make mistakes with the purchase due to the real estate agent's experience in the industry. Knowing what to look for in a real estate agent will allow you to find someone who makes the home buying or selling process easier. You can enjoy working with a professional who cares about your needs and does what it takes to find a buyer or the right home in a short amount of time. Reliable and Trustworthy The real estate agent who you work with should be credible and trustworthy to ensure that you don't need to question what he or she says. Consider reading reviews online or asking for referrals to get an idea of the experience that former clients had with the professional. He or she should seem professional and transparent while taking the time to explain the details of the home-buying process. Finding someone who is trustworthy and honest will allow you to avoid scams and have a smooth process that doesn't have complications. Honesty is key with real estate agents to ensure that they are willing to tell you the truth, whether they have good or bad news. Their honesty will allow you to stay in the loop and avoid misunderstandings to ensure that you can make the right decisions and protect yourself. Hiring an honest real estate agent will also allow you to trust what he or she says. You should be able to feel confident that the person isn't hiding any facts or hidden fees when you hire him or her, which will allow you to enjoy the experience. Your agent also shouldn't be afraid to tell you the less then favorable news that you need to hear to make the best decisions. Such as telling you the truth about updates that are needed to your home before you list it. A smart real estate agent will always be honest just to insure your future business.

12 Desirable Locations Location, location, location We've all heard this phrase proclaimed on television shows and movies by those involved in real estate or maybe even friends and family who are real estate agents. Location, location, location, isn't a new phrase, and it can be traced all the way back to Despite the popular catchphrase, most people do enjoy living in homes with a direct view of rivers, oceans, or lakes. Virtually everyone desires neighborhoods with a low crime rate. Those living in metropolitan areas may desire easy access to subways, freeways, or city buses. Parents with children usually look for quality school systems near their area of residence. These are just a few of the concerns that people have regarding the location of places they're considering moving to, and it demonstrates the unarguable importance of location in real estate. Here are several characteristics of the location of homes that you should always consider when seeking to buy a home, or purchase land. Crime Statistics Even though its importance is obviously recognizable, too many people fail to research official crime statistics prior to buying a home. Crime statistics are usually available online for public use, but you might have to contact police agencies directly for such information. Locations that are highly desirable or moderately acceptable to live in have low crime rates. Areas with high crime rates will almost always be undesirable places for living or selling real estate. Neighborhoods with Pawn Shops, Payday Loan Agency and Liquor Stores can say a lot about a neighborhood. Believe it or not, some but not all areas with nearby Pawn Shops, Payday Loan Agency's and liquor stores often feature higher crime rates than those without. When visiting locations to evaluate their potential, thoroughly search for these types of business nearby the neighborhood you are reviewing. It could very well be a red flag or an indication of what the neighborhood has become or is becoming. City and County Taxes You can find tax rates by searching online for municipalities' resources online. If not listed online, you could always contact government agencies in locations of interest. Places that have well-established infrastructure, including smooth roads without potholes and effective water filtration systems, usually charge higher taxes than areas without. Conversely, areas that aren't as desirable to live in generally have lower city and county tax rates.

13 While tax rates are often solid indicators of a location characteristics, this isn't always the case. Utilize tax rate analysis along with the entire repertoire listed herein, and feel free to combine them with your own insights, for best results. Bordering Neighborhoods Neighborhoods directly adjacent to high-dollar, upscale neighborhoods are more likely to appreciate in value compared to those without favorable neighborhoods in close proximity. Find statistics regarding the average income for areas. If you're looking for homes to buy, living spaces near high-income areas will likely go up in value compared to areas not close to neighborhoods with lofty annual incomes. Areas that are close to run-down, poverty-stricken neighborhoods could be a red flag for a bad investments. The exception to this is when an older neighborhood is being revitalized and older homes are being renovated. This may be a very favorable indication of future favorable property values. If you're looking for an affordable place to settle down, search for locales without highdollar neighborhoods nearby. However, if your household brings home lots of disposable income, living in or around nice suburbs may very well bring satisfaction and security for your family. Proximity to Major Roadways Homes in close proximity to roads and highways are generally less favorable to live in as few people enjoy constantly hearing thick throngs of traffic. Look at nearby maps to gauge homes' location in relativity to roadways. Further, actually visit these areas and gauge how busy nearby roads are as avenues that appear small on maps might actually be full of traffic. If you're looking for a place to live and can stand hearing, seeing, and driving through traffic, homes that are within earshot or eyesight of major roadways are likely to be significantly cheaper than other areas.

14 Negotiating The Price After a long search, you finally settle for a great home. You are anxious to buy it, but the thought of negotiating gives you hives. If you have a sales agent, your work will be a lot easier because these professionals have the expertise and understand the terminologies that may sound like jargon to you. However it always helps to know some basic negotiation principles to make sure you're getting the best price. Negotiating for your new home will depend on a lot of factors. You need to know the kind of market you are operating in. Your sales agent should advise you on what you need to do if you find yourself in a buyers market, a sellers market, or a balanced market. In a buyers market You have higher bargaining power here. There are several houses to purchase and sellers want to make a sale as quickly as possible. Be sure to have all the information you need to know about the house and assign a dollar value to the information at your disposal. Negotiate a lower price if you feel that the house you intend to buy will cost you more to improve or if you will still have to do repairs. The kind of neighborhood should also help you determine your price offer. Since you have an advantage, set a lower price depending on your concerns but don t set a price that is too low. The seller is likely to consider your offer in this market and agree to your terms. In a seller's market In this market, the seller has the upper hand. You need the guidance of your sales agent. The seller is at liberty to set a higher price and will not bother negotiating if your offer is much lower than other buyers. Your sales agent should advise you on the best price as long as the home is not overpriced and this should be after the necessary inspections. As a buyer, you don t have much leverage here, and you have to act fast. If an offer seems favorable, move quick and seal the deal before some else swoopes in and takes the house. In a balanced market Both the buyer and the seller have leverage in this market. There are enough of both. There are enough homes and enough buyers. When you find yourself in such a market, be patient. Go ahead and give a lower offer than the asking price. Quote issues that you believe need improvement. Walk away if you feel the seller is not willing to negotiate. This will show a level of confidence, and the seller might come back with a counter offer or even accept your offer.

15 The key to negotiating involves having the right information. Know what you has value to you. Sometimes, you could pay a higher price for things that are not valuable for you. For example, you can pay a premium to be on a golf course, but if you do not plan to play golf then the course has no value to you. Try to only pay for features that have value to you. Ensure that you have a sales agent who understands the sales jargon and the legal aspects of the process. Buying a home involves a huge capital outlay. Do it right the first time to avoid regretting first time home buyer common mistakes.

16 Negotiate Mortgage Financing A mortgage is the biggest financial commitment most people are ever going to make. And even though mortgages are among the lowest-interest loans, because they have such long payback periods, you ultimately pay a tremendous amount of money in finance charges. That's why it's important to negotiate your mortgage terms and costs to get the best deal possible. Down Payment Amount There are 2 ways of looking at a mortgage down payment. Short-term, the less you pay upfront the more money you keep today. This may benefit younger, cash-strained buyers. However long-term, the more you pay upfront the less you pay in finance charges. Before negotiating with a lender, you should firmly know whether you want to negotiate for a low down payment, and keep more of your money today; or whether you want to make a large down payment and lower your long-term finance costs. Lenders like home buyers to make large 20% down payments because it shows the home buyer is committed to the property and they are more likely to repay the loan. However, some lenders will allow home buyers to negotiate down payments as low as 3% - 5%. The mortgage brokerage industry is very competative and lenders would rather let you make a lower down payment rather than seeing you walk to another lender. In addition, some federally-backed programs such as FHA (for first-time home buyers) and VA (for military), can substantially reduce or eliminate your down payment. Most conventional loans require you to have mortgage insurance if you don't have a down payment of at least 20% of the purchase price. This insurance helps protect the lender in case you cannot repay the loan. When negotiating a lower down payment you can use this mortgage insurance as a barganing chip to help you negotiate the lowest down payment amount. Interest Rate Reduction The interest rate charged for your mortgage is tied to several factors. The three biggest factors are: 1. Your credit worthiness. 2. How many years you choose to repay the loan amount. 3. The interest rate charged by the U.S. Federal Reserve. (You can't affect the federal reserve so try to finance your mortgage when interest rates are low). If you have a good credit score, you should be able to get the absolute best interest rate on a loan, which will save you tens of thousands of dollars over the life of the loan. Lenders often have different underwriting standards, so it pays to shop around for a

17 mortgage. For example, one lender may require a credit score of 740 to get the best rate available while another may only require 720. Checking with two or more lenders can help ensure that you get the best rate. How long you choose to repay your loan depends again on whether you're thinking long-term or short term. By choosing a short 15-year repayment term, you can negotiate a very low interest rate, and lower overall finance costs, but your monthly payment will be higher. By choosing a 30 year repayment term your interest rate will be higher, and your overall finance costs will be higher, but your monthly payment will be lower. If you're buying a house for the long term then having lower overall finance costs is best. However if you are only buying a house for a few years then having lower monthly payments may be best. In addition to the repayment term, many lenders allow you to buy down your interest rate by paying mortgage "discount points" upfront. Typically, one point costs 1 percent of your loan amount and it will reduce your interest rate by a quarter point. This means the long-term cost of your loan will be less. However, it usually takes up to 7 years to break even on the upfront costs of buying points. You should only consider using points if you plan to stay in your house long enough to reap the financial benefits. Fees and Closing Costs Mortgage fees and closing costs can add up to as much as 2 percent of your loan amount, which can be several thousand dollars. Though some of these costs are fixed, such as prepaid taxes, some may be negotiable. For example, you may be able to shop around for things like title insurance rather than just using whoever the lender usually uses. You also can ask your lender to waive fees such as the application fee. You won't know what can be negotiated until you ask, so don't be afraid to.

18 Home Inspection 101 For most people, buying a home will be one of the most expensive purchases they ever make and they will often devote a significant portion of their lives to paying it off - if they ever do. That's why its important to make sure you are making the best investment possible. Whereas most states have "lemon laws" that protect consumers against purchasing faulty vehicles, there are far fewer laws protecting home buyers against buying faulty homes. This is why a home inspection is possibly the most important thing you can do in the home buying process. What is a Home Inspection A home inspection is conducted by a professional inspector who will inspect your home from the foundation to the rooftop. Unlike most home buyers, who will not climb a ladder and get up on a roof, climb up into a dusty attic or crawl through a hot, dirty crawlspace, a professional inspector will. A professional inspector is also trained to look for minute telltale evidence of things going amiss that the average home buyer would miss, such as termite damage or hairline cracks pointing to foundation issues. Like a good mechanic, they can not only tell you what is wrong, they can also tell you what is likely to go wrong and how soon it's likely to happen. Perhaps most importantly, they can tell you if the wiring is up to code, the plumbing is solid and the foundation secure. Many times, homes have previous homeowners that considered themselves handy enough to forego calling in professionals to fix certain issues. As a result, their work may be a giant bill waiting to happen. If you know about these issues before closing, the repair costs can be negotiated with the seller. If you don't find out about them until signing on the dotted line, however, they are all on you. Home Inspections Requirements If you are getting a home loan through a lender, home inspections are almost always required. In a cash sale, inspections are not required, but they are still a good idea. You may think the huge discount you are getting is a good deal because the house you want to purchase just has some cosmetic issues that need fixing. Once it's yours, however, you may discover it actually has major foundation issues, needs an entirely new roof or a brand new septic system installed. Getting a home inspection will generally run you a few hundred dollars. Not getting one could cost you tens of thousands.

19 Pest Inspection Benefits Silent Destroyer When you are buying a new home, it is imperative to have it inspected by a professional exterminator who understands the signs of carpenter ants, termites or other wood destroying pests. A pest infestation is the silent destroyer of buildings because the insects lurk in hidden locations such as wood frames, drywall and other materials that contain cellulose. Unless you are an expert, you won t know what to look for to understand if there are pests hiding in the damp and dark areas of the home that you are planning on buying. WDO Inspection A wood destroying organism (WDO) will attract other types of contamination, leading to a home that is in bad condition. A building s wooden or cellulose materials might have mold growth that creates moisture that attracts termites or carpenter ants. A WDO inspection is a specialized process designed for finding insects and other types of contamination. In order to perform a wood destroying organism inspection, the inspector must have certification in professional pest control methods along with a license from the state. You can make sure that the pest control technician is qualified by checking the state s licensing board. It is also possible to call the licensing board to confirm that the inspector is licensed. In many cases, a lender such as a bank or credit union has a list of qualified WDO inspectors available who will provide expert service. WDO Inspections Required? Several states require wood destroying organism inspections before a home is financed by the government or private lenders. The reason for this type of inspection is making sure that the home is a good financial investment for a lender and a new homebuyer. A building with carpenter ants or termites is under attack by pests that are tunneling through the cellulose materials or eating the wood. Without fast remediation, the home will undergo serious damage to it supporting structures, making it dangerous to live in. If you buy a home with wood eating pests, then you will need to spend thousands of dollars in only a few years on repairs to the wooden beams, paneling or flooring. Inspection Benefits Benefit 1: You Won t Waste Money On a Pest Infested Home With a pest inspection before you buy a home, you can avoid wasting money on a building that has significant damage to its supporting structures. In most cases, a lender

20 won t offer you a mortgage until the pests are eliminated from a home, and you can also negotiate for a reduced price on the home because it required fumigation to get rid of the insects. Benefit 2: You Won t Need To Cope With an Extermination Process If you need to move into a home right away, then you can look for a different property to buy because the fumigation and repair process can require a lot of time. You won t have the inconvenience of buying a home that you can t live in while it undergoes tenting to eliminate the termites and carpenter ants. Benefit 3: Protecting You From an Injury A home with wood eating pests can become dangerous because the flooring may collapse or the ceiling might fall. While walking on the stairs in a building with termites or carpenter ants, you can fall through a stairstep, or it may collapse, causing you to fall down an entire flight of stairs.

21 Picking A Home Inspector Picking a home Inspector is an essential part of a successful home purchase. Most people do not have the in-depth knowledge about a home's structural integrity, roofing, electrical, mechanical and plumbing systems in order to know if they are buying a great place or a money pit. With these tips on picking-a-home-inspector, you can have the knowledge necessary to make an informed decision when buying a home. Confirm State Certifications Some inspectors may claim to have certain certifications. It is important that you check on these claims by confirming them with your state board of inspections, code enforcement or insurance. The state certifying board can explain whether or not an inspector has been cited, fined or had any complaints filed for poor services. This helps you to avoid any unscrupulous inspectors who just want to collect your payment. Look for Professional Memberships Professional memberships, such as the Association of Certified Home Inspectors, provides some legitimacy to the inspector. These memberships require participation in training and educational programs. An inspector with this type of a membership has a professional reputation to uphold. Looking into professional memberships held by an inspector gives you some insight on that person's qualifications, education and experience. Talk to your Real Estate Agent Real estate agents deal with dozens or even hundreds of home sales every year. These professionals have likely seen it all when it comes to home inspections. A real estate agent has a vested interest in representing your interests as a home buyer, because word-of-mouth spreads quickly. Ask your real estate agent about inspectors and which ones he or she recommends. Consider whether different types of inspectors are recommended in different situations. For example, if you are buying a home built in the early 1900s, your real estate agent may recommend a structural engineer because of the home's age. Check With Friends and Family Asking friends and family members who have recently purchased a home about their inspector is a good way to start choosing one for your own transaction. A friend or family member can explain who they hired, why they hired that individual or company and how the process worked. That person can also explain the work provided by the inspector, how accurate the information was and whether or not he or she would work

22 with that inspector again. A friend or family member will be honest about their experience.

23 How To Get A Mortgage When buying a new home, chances are that you need a mortgage to complete the purchase. A mortgage is a special type of loan that is used to pay for a new home. Getting a mortgage from a lender can seem overwhelming and exhausting. Therefore, you need to be familiar with the process to make it as easy as possible. The Preapproval Process It's smart to get pre-approved for a mortgage before you start searching for the home. This process examines your credit and finances to see if you will qualify for a loan. If buyers see that your financing is already in place, they might be more willing to negotiate. Furthermore, you will also have a good idea about how much money you can borrow. With this process, the lender will evaluate your credit and verifies your employment and income information. The lender will approve you for a certain loan amount, so you will know how much you can spend on the home. As a general rule of thumb, you will usually qualify for a mortgage that is 4 to 5 times the amount of your annual income. The actual amount of mortgage you qualify for will vary depending on your specific circumstances, and the rules and policies of the mortgage underwriter. Mortgage Application Process You will need to be familiar with the process of applying for a mortgage. The steps of the process are as follows: 1. Get pre-approved for the mortgage as explained above. (Day 1) 2. Finish the application after you find your new home. (Day 3-21) 3. Review the loan estimate and tell the lender you wish to proceed. (Day 10) 4. The lender orders a credit report, an appraisal, and a title report. (Day 10) 5. Make sure documents are submitted. (Day 10) 6. Get an appraisal of the home. (Day 23) 7. Loan is sent to underwriting. (Day 29) 8. Receive the closing disclosure. (Day 31) 9. Close on the loan. (Day 32-34) 10. Own your new home. (Day 35) Down Payment and Documentation Required The down payment will depend on the type of mortgage. If you choose a VA loan, which are for military personnel and veterans, you will not need a down payment. FHA loans allow down payments as little as 3.5% and are available to most first time home buyers.

24 Typical down payment requirements range from 5% to 20%. Many banks and mortgage brokers will allow you to negotiate the down payment amount and/or offer special programs that can reduce or even eliminate the down payment for specific situations. For example some banks will allow 0 down payment mortgages for doctors who recently graduated medical school. Always talk about the down payment before allowing a loan officer to access your credit report. This could be a major deciding factor in who you allow to originate your mortgage. The documentation required for a mortgage usually include: Tax returns (and w2 forms if available) for the last one or two years Pay stub for the last month Bank statements for the last two months Driver s license Proof of military service if getting a VA loan Alimony or child support documents Credit Requirements for a Mortgage To obtain a mortgage loan from a traditional bank or online lender, you will need to have a decent credit score. For an FHA loan, you will need at least a 580. For other loans the credit requirement might be higher. Most lenders like at least a 43% debt to income ratio. Mortgage Brokers and Traditional Banks The business of making mortgage loans is very profitable and has attracted many market participants. Your mortgage origination will usually be handled by either a traditional bank or a mortgage broker. There are pros and cons to using either. A traditional bank or credit union is usually a name you know and trust. Most people know a traditional bank because it's where they already have their checking or savings account. Traditional banks will usually provide mortgage loans using the money they have on deposit from all their customers. Traditional banks are usually more stringent in their mortgage approval process because of the risks associated with loaning money on deposit, as well as their burden of financial regulations. Some of the advantages of using a traditional bank or credit union include:

25 Already have an existing relationship with the bank and may have a relationship with the banker who will be handling your mortgage The bank may seem more stable and trustworthy You might obtain lower interest rates Could make automatic payments from existing accounts Some of the disadvantages of using a traditional bank or credit union include: Longer process and usually more stringent approval process Commission does not need to be included so they could overcharge Not as familiar with the mortgage process because many banks specialize in small business lending and/or other types of specialty loans A mortgage broker is a person, or company, who originates your mortgage loan on behalf of one or more mortgage underwriters. The mortgage underwriter is a large company in the background that provides the actual cash to buy your new home. The mortgage broker is their representative that works with you directly to finish the mortgage transaction. Some of the pros of choosing a mortgage broker include: More lenient credit score requirements They do most of the work for you They will compare rates for you Familiar with the process because they only work on mortgage loans More loan options because they often work with several mortgage underwriters Some of the disadvantages of using a mortgage broker include: Could charge higher fees Might not have access to certain software Less regulated than traditional banks and more susceptible to predatory lending

26 FHA Loans FHA loans are probably the most popular loans. They are an excellent choice for firsttime home buyers. This loan is backed by the Federal Government. You might only need a down payment of 3.5%. The credit requirements are more lenient than other types of loans. Mortgage Insurance Some lenders require mortgage insurance. If you get a conventional loan with a low down-payment amount or an FHA loan, you will probably need mortgage insurance. However some loans that are backed by the Federal Government, such as VA loans, do not require mortgage insurance. Buying a new home is so exciting. The mortgage process is not as complicated as it seems. With the increased technology of today s world, it is simple. You can then enjoy the advantages of being a home owner.

27 What Is Mortgage Insurance Applying for home loans to pay for a property can be daunting. This is especially true for first-time homebuyers or prospective buyers without much credit built up, in which case qualifying for loans often ends up being difficult. One way to ease the process along is to pay some extra cash for mortgage insurance, which can help qualify homebuyers for loans they might not otherwise receive. For your convenience, here's an overview explaining what mortgage insurance is, and the details of how it works. Mortgage Insurance Put simply, mortgage insurance is insurance that protects the lender's investment. Unlike the more commonly understood homeowner's insurance, which protects the homeowner from a variety of damages, mortgage insurance protects the lender's investment in case the borrower defaults on the mortgage loan. You may also see mortgage insurance referred to as mortgage guarantee, home-loan insurance, or mortgage indemnity guarantee. How It Works Unlike other types of insurance, with mortgage insurance the person paying for the policy, in this case the homeowner, is not the beneficiary. Although you the home-buyer are responsible for making mortgage insurance payments, the policy protects the lender. In most cases, the cost of mortgage insurance will be added on to the monthly payment you make to the lender or to your costs at closing, or both. There are several different types of mortgage insurance depending on who you borrow money from, and they each have slightly different rules and details. Here are some of the most common types of loans where mortgage insurance is involved: Conventional (Private) Loan: If you get a conventional home loan, your lender will generally arrange a mortgage insurance plan with a private company. Private mortgage insurance rates can vary greatly depending on your credit score and the down payment made on the property, but in general, if you have good credit you'll generally get cheaper rates than FHA loans. Usually, private mortgage insurance payments are monthly. FHA Loan: If you get a loan from the FHA (Federal Housing Administration,) then your mortgage insurance payments are made directly to the FHA. Unlike with other types of loans, mortgage insurance is required for all FHA loans, but mortgage insurance with the FHA also costs the same regardless of your credit score, which can be extremely beneficial

28 for new homeowners or those with low credit scores. However, the price does increase if your down payment is less than 5 percent, and there is an upfront cost for the insurance as well as the monthly cost. For more information, go online to the FHA website. USDA Loan: U.S. Department of Agriculture loans have a mortgage insurance program that is very similar to FHA loans, but usually a bit cheaper. Like with FHA loans, there is a cost at closing along with the monthly cost. With both USDA and FHA loans, if you cannot afford the initial upfront cost for mortgage insurance, you can add the cost into your mortgage. However, by doing this, you will increase both the amount of your loan as well as your overall costs for mortgage insurance. VA Loans: If you're a veteran and receive a loan from the Department of Veterans' Affairs, they provide a VA guarantee that replaces mortgage insurance and functions in essentially the same manner. The primary cost you will pay in this case is an up-front "funding fee" which varies depending on your type of military service, down payment status, disability status, and other factors. Home Buyer Benefits Typically, the reason that you'll decide to pay for mortgage insurance is to qualify for loans that you couldn't otherwise receive. For example using mortgage insurance, you could qualify for a conventional loan with a down payment well under 20%. Because mortgage insurance protects the lender's investment, they are usually much more likely to award a loan if mortgage insurance is provided. While this will increase costs to you, it can be well worth the extra money if you can't afford the property without a loan. In addition, if you receive an FHA or USDA loan, it is required that you pay for mortgage insurance. The good news is that in most cases, once you (the homebuyer) reach a certain equity level, which will generally be pre-determined by your lender, you may be able to cancel the mortgage insurance. There is also the Federal Homeowners Protection Act, which requires mortgage insurance coverage (for a primary residence) to be cancelled as soon as your balance drops to 78 percent of the original property value. Finally, if your loan balance reaches 80 percent of the original value, you can request cancellation of mortgage insurance payments. The rules for borrower-requested cancellation vary by state and other factors, so if you're wondering whether or not you are eligible for cancellation, contact the company you make mortgage payments to.