BUYING YOUR FIRST HOME

BUYING YOUR FIRST HOME Finding the home of your dreams is the tough part, the mortgage process shouldn t be. That s why we ve created a guide to make your first-time home buying experience easier. This homebuyer guide will help you: Identify the perfect home Understand the costs associated with homeownership Select a REALTOR Weigh your financial options Prepare for closing FORUM NMLS #469848 1

BUYING VS. RENTING The first step is to consider whether buying a home or renting makes better sense for you. Reasons To Buy Equity: Each time you make a payment, you re one step closer to paying off your home. Tax Deductions: You can deduct mortgage interest and property taxes. Consult a tax advisor for your situation. Control: When you own a home, you select your own contractor for repairs. When it comes to creativity, you can paint the walls any color you would like, and even add a room. Value: Your home could increase in value, making it worth more than you paid for it. Financial Predictability: Fixed-rate mortgages allow you to predict your monthly principal and interest payment, unlike monthly rent payments, which can increase over time. Reasons To Rent Flexibility: Unsure of your career and income? Renting gives you time to figure things out, without being tied to a mortgage. No Maintenance: Pipe leaking? Don t worry about going to your local hardware store. Simply call the landlord to have it repaired. Bad Credit: If you have bad credit, having a history of making on-time rental payments can help you qualify for a mortgage down the road. Utilities Included: Sometimes utilities like water, sewer, and garbage are all paid by the landlord when you rent. See Appendix A for fees associated with buying a home. Still interested in owning a home? Let s look at building vs. buying a home. FORUM NMLS #469848 2

BUILDING VS. BUYING What are your house plans? Here are some things to consider when it comes to building vs. buying a home. Reasons To Build Customization: The primary advantage to building a new home is that it can be built to your specifications. New Materials: A new home will have new wiring, new plumbing, and will be up-to-spec with building codes. They are also more energy-efficient than older homes. Costs: Although purchasing a home may be less expensive upfront, once you include renovations, maintenance, and upgrades, it could be more expensive than building. Reasons To Buy Negotiation: Buyers often have more room for negotiating a price, something that is rare when building a home. Move-In Ready: In many cases, homes come with appliances, and even have other features such as fences and landscaping. Shorter Process: Buying can be less stressful than building, and often takes only 4-6 weeks. Building a home could range from four months to over a year, and many things can go wrong during the construction process. Still interested in buying a home? Let s talk about knowing what you can afford. FORUM NMLS #469848 3

THE PERFECT PAYMENT Your total monthly mortgage payment should be less than 30% of your gross monthly income. Depending on your income, credit scores, down payment, and any outstanding monthly debts that figure may go higher. It is important you feel comfortable paying this amount each month. A monthly mortgage payment consists of the following: Principal & Interest Property Taxes Homeowners Insurance PMI (Private Mortgage Insurance) if applicable Considering the Extras It s important to make sure you ll be able to afford other expenses associated with your home. Estimate the following costs (if applicable): Mortgage Insurance County Taxes Condo Fees Homeowners Association (HOA) Dues Utilities and Fees Exterior and Interior Home Repairs Maintenance (annual checks for water heater, heat pump, chimney, gutter, etc.) See Appendix B for a list of expenses associated with owning a home. Down Payment Options Depending on your credit scores, your down payment can be as low as 3% of the purchase price of the home (Ex. $150,000 Purchase Price = $4,500). Acceptable sources of down payment money can come from your bank account, investment accounts, 401K, or even a gift from a family member. See your mortgage consultant for details. FORUM NMLS #469848 4

Private Mortgage Insurance Your lender will require you to get mortgage insurance if your down payment is less than 20% of the appraised value or sale price of your home. A mortgage insurance policy protects your lender in case you default on the payments. As a borrower, you pay the premiums, and the lender is the beneficiary. See your mortgage consultant for details. Mortgage Pre-Approval Once you re sure you want a house, it s time to find out how much you can actually spend. The best way to do this is to get pre-approved for a mortgage. We offer fast and free pre-approvals that will help you and your REALTOR shop for the right home to fit your needs. See Appendix C for information you should know before applying for a mortgage. FORUM NMLS #469848 5

HIRE A REALTOR Once you know how much you can spend, it s time to select a partner for your home buying process a REALTOR. It doesn t cost anything compensation comes from the commission paid by the seller of the house. Your REALTOR will: Make your home search more efficient by narrowing your choices based on preferences and budget. Educate you on current market conditions. Handle preparation and submission of necessary forms when making an offer. Help you negotiate a price. Answer questions. REALTOR Research Tips: Ask people you trust for recommendations. Research! Many real estate websites have online reviews. Find a REALTOR who specializes in what you re trying to accomplish. Select a REALTOR who is familiar with your area and can answer questions about the community. Don t be afraid to conduct an interview. FORUM NMLS #469848 6

CHECKPOINT Before shopping for your first home, you should: Be sure that buying a home is the right choice for you. Know how much you can afford. This includes the down payment and all extra costs associated with owning a home. Be pre-approved for your mortgage. Be working with a real estate agent you trust. Home Shopping Communication is important when it comes to shopping for your first home. Be sure to tell your REALTOR what you re looking for in a house. Important factors to consider: Single-Family Home Condo Safety Traffic Schools Privacy See Appendix D for a list of what you should consider when buying a house. You found the perfect home. Now what? Make sure the asking price of the house is fair/at market value. Not sure how to tell? Ask the following questions: Has the house been on the market for a long time? Has the listing price dropped? Are prices of similar homes lower? If you answer Yes, the asking price may be too high. At this time, revisit what you want in a home to make sure it s the best fit, and/or adjust your offer price. Consult your REALTOR for advice. FORUM NMLS #469848 7

MAKING AN OFFER Your REALTOR will help you prepare your offer to the seller. You can strengthen your offer by attaching your pre-approval. Determine your offer on: What you can comfortably afford based on pre-approval Prices of similar homes in the same neighborhood Condition of home Don t be surprised if you receive a counteroffer. Your REALTOR will help you decide whether you can accept that offer, or if you want to make a new one. Your offer is accepted. Now what? If you haven t provided verification of your income and assets in the pre-approval process, you will need to provide those documents to your lender. Also, be prepared for paperwork and questions. See Appendix E for a full list of documents you will need to make the process smoother. Time to Lock Your Rate If you decide to lock your interest rate, it means the rate won t change even if rates go up or down while you re waiting for your loan to be approved. If you think interest rates will go down, consider waiting to see if you can lock a lower rate. Once you ve made the decision, your lender will submit your application and financial information to a Loan Processor. FORUM NMLS #469848 8

THE APPLICATION PROCESS While Your Application is Reviewed Here s a checklist of what should be done by all parties while your application is being reviewed by your lender: You need to: Shop for homeowners insurance. Proof of insurance coverage is needed before your loan can close. Your lender will: Schedule a home appraisal. Order title insurance. Your REALTOR will: Schedule a home inspection to reveal defects and/or major repairs. Schedule a pest inspection. Your loan is approved. What s next? That s great now it s time for closing which is the transfer of the title of the house from the seller to you. Who will be there? The following people may be present at closing: your REALTOR, the seller, the seller s REALTOR, the closing officer, and possibly the mortgage broker. FORUM NMLS #469848 9

THE FINAL NUMBERS During the mortgage process you will receive a GFE (Good Faith Estimate) within 3 days of your initial loan application for your home. On the day of closing you will be required to wire any funds due (down payment, closing costs and pre-paid items) to the title company if they are greater than $10,000. If less than $10,000 you can bring a certified bank issued check in lieu of sending a wire. Enjoy your new home! Once you ve completed closing, you ll have all your mortgage documents and officially have ownership of the property. You ll receive your keys and be able to begin the moving process. For even more information on the mortgage process and owning a home, visit our Resource Center at www.forumcu.com/resource-center. FORUM NMLS #469848 10

APPENDIX A FEES ASSOCIATED WITH BUYING A HOME Complete the chart below for an estimate of fees associated with buying a home. One-Time Fees Usual Range Your Estimated Cost Home Inspection (optional): Inspection on the condition of the house, revealing problems that may affect the property s value. $300 $500 $ Down Payment 3% 20% of cost of house $ Home Appraisal: A professional and unbiased analysis of the value of your home. $350 $500 $ Pest Inspection: An evaluation of pest damage. (ie: termites) $100 $ Origination Fees: Fees associated with taking out a loan. 0% 2% of loan amount $ Closing Costs: Fees paid at the closing of a real estate transaction. 1% 3% of cost of house $ Moving Costs (optional): The cost of moving your belongings. Consult moving company. $ Total: $ FORUM NMLS #469848 11

APPENDIX B EXPENSES ASSOCIATED WITH OWNING A HOME Complete the chart below for an estimate of monthly expenses associated with owning your home. Monthly Expenses Usual Range Your Estimated Cost Principal, interest, taxes, and insurance. Your comfortable monthly payment. $ Private Mortgage Insurance (PMI): Required if your down payment is less than 20% of the home s value. Usually about 0.5% 1% of loan, divided by 12 months. $ Homeowners Association Fees (HOA): These cover neighborhood maintenance costs. Ask your real estate agent to provide estimate. $ Utilities: Water, Electricity, Garbage, etc. $100 $500/month $ Maintenance and Home Repairs $100 $500/month $ If Applicable Condo Maintenance Fees: Fees that cover the cost of insurance, taxes, lawn care, etc. $250 $350/month $ Other: $ $ Total: $ FORUM NMLS #469848 12

APPENDIX C What should I know before applying for a mortgage? We have all heard that getting a mortgage loan can be challenging and the amount of paperwork can be daunting. You will have a few important decisions to consider right at the beginning of the application. Fortunately, a little pre-planning on your part can greatly help reduce the stress and make the process go smoothly. What are a few ways I can prepare myself before I obtain a mortgage? There are three steps that can really start the process smoothly. First, review your credit report and clear up any derogatory items or incorrect data. Second, be able to provide verification of all income you plan to use in your application for at least the last 12 months and finally, be able to verify your down payment funds. These are all minimal requirements for an approval on a mortgage application. What is the first decision to consider for a mortgage loan? First is the type of mortgage you want. Do you want an adjustable rate mortgage (ARM) or do you want a fixed rate loan? The difference is that an ARM s rate can change over time after an initial fixed period. A fixed rate loan is fixed for whatever term you decide for the entire term of the loan. ARM rates are usually lower than fixed loan rates leading to a lower monthly payment for ARM loans. Choosing the option best for your situation requires the consideration of several factors including how long you plan to stay in the home. Are there other options to consider for mortgage loans? Another option is paying points or fees to lower your rate. For upfront fees, lenders will lower the rate which can lower your monthly payment amount. One also has to consider how long your rate can be locked once you are approved. The rate might be higher or there might be a fee for a longer rate lock term. A final option is the amount of down payment you will need, which can be as low as 3% for some loan types. If you have 20% or more for a down payment, you can possibly avoid paying private mortgage insurance (PMI). We have all heard about mortgage loans that were stopped at or within a week of closing. How can this be avoided? Don t take out new loans after being pre-approved for the mortgage loan because it can lower your credit score. Most lenders require a recent credit report and the new score could disqualify you for the mortgage. This is one of the bigger reasons mortgages are stopped at or near closing. A good rule of thumb to follow is don t make any drastic changes to your financial situation while attempting to buy a new home and be approved for a mortgage. FORUM NMLS #469848 13

APPENDIX D What do I want in a house? It s important to think about what you want in your first home before you shop. This will allow your real estate agent to only show you homes that fit your needs. Here s a checklist to help: What you can comfortably spend: $ Type of Home: Single-Family Home A single-family home is a home occupied by one household or family. It is the most private type of home you can own. Condominium A building or complex of buildings with individually owned apartments or houses inside. You pay Homeowners Association (HOA) fees to cover costs of maintenance and upkeep. These fees are not tax deductible. Planned Unit Development (PUD) A building development designed for grouping of land uses (such as housing), where buyers own individual houses and lots, but common areas are reserved and managed by HOA. Usually accompanied with HOA fees. CO-OP Typically an apartment-style building owned by a corporation. You buy stock in the corporation and then have the right to live in a unit. You must first be approved by the building s board of directors before you can own. FEATURES: Number of Bedrooms Number of Bathrooms Garage (Number of Cars) Fence (Check if applicable) Pool (Check if applicable) Yard (Check if applicable) Other: THINGS TO CONSIDER: Schools: If you have kids or plan to in the future, check the public school ratings near your home. Safety: Check the crime rate by talking to your real estate agent and local police. Traffic: Think about your commute to work and how busy the streets are. Is it easy to run errands? Privacy: Do you prefer neighbors to be close or far? Talk to neighbors to see what the neighborhood is like. FORUM NMLS #469848 14

APPENDIX E What documents will I need to make the process smoother? Below are the most common documents an Underwriter will request for review. If a borrower s work history is less than 2 years (recent college graduate), or if the borrower is self-employed, there may be additional documents requested during the process. Valid Picture ID 2 Recent Paystubs Showing YTD Earnings W-2 (from two years prior) Federal Tax Returns including all schedules (from two years prior) W-2 (from last year) Federal Tax Returns including all schedules (from last year) 2 Recent Months Bank Statements all page numbers 2 Recent IRA / 401K Statements if applicable FORUM NMLS #469848 15