Buyer Library 1) 10 Steps To Prepare For Home Ownership 2) Working With A REALTOR® 3) Loan Pre-Qualification 4) Why Work With A REALTOR® ? 5) Buyer Services- What we do for you! 6) Twenty Questions 10 Steps To Prepare For Home Ownership 1. Decide how much home you can afford. This figure is generally a home equal in value to between two and three times your gross income. 2. Develop a "wish list" of features you'd like in your new home. Then, prioritize the features on your list. 3. Select a few neighborhoods that interest you. Consider items such as schools, proximity to your work location, recreational facilities, area expansion plans and safety. 4. Determine if you've saved enough to cover your down payment and closing costs. Closing costs including taxes and fees usually average between 2 percent and 7 percent of the selling price of the home. 5. Get your credit in order. Obtain copies of your credit reports. 6. Determine how large a mortgage you can qualify for. Explore different loan options and decide what's best for you. 7. Organize all the documentation a lender will need to pre-approve you for a loan. 8. Do research to determine if you qualify for any special mortgage or downpayment assistance programs. 9. Calculate the costs of home ownership, including property taxes, insurance, maintenance and homeowner association fees, if applicable. 10. Find an experienced REALTOR® who can help you through the process. Return to top of page Working With A REALTOR® REALTOR® Defined Every state has it's own laws governing real estate licensing. There is no national license. In Indiana, agents are required to complete 54 hours of instruction at an accredited school and pass a licensing exam. Every two years thereafter, they must complete 16 hours of continuing education to maintain their license and every four years are required to take an "ethics" class. Additionally, any agent who identifies themselves as a Realtor® has affiliated with the National Association of REALTORS® and pledged to adhere to it's code of ethics and professional standards. After two years of selling experience, agents may return to school, take another class and exam and become a licensed real estate broker. As a broker, they may start their own firm if they so choose. Real estate agents must affiliate with a broker before they can conduct real estate transactions. They operate on behalf of the broker and are legally responsible for their own conduct. Any listings an agent has legally belongs to the broker. Who Does The REALTOR® Represent? Agents working with a buyer represent the interests of the buyer and those working with a seller represent the interests of the seller. Therefore, whether you are a buyer or a seller, your agent is required to… Exercise reasonable skill and care in performing their duties. Deal with you as a client honestly and fairly. Disclose all facts which are know to them (or may be reasonably discovered) that affect the value or desirability of any property you are considering. The only exception to this law is when a buyer wants to buy a home listed by his/her own agent or by another agent affiliated with the same broker (since the listings legally belong to the broker). In this situation, the agent becomes a "limited agent", representing the interests of both parties. This limited agency must be disclosed and both buyer and seller must give their consent in writing before the transaction can move forward. How Is A REALTOR® Paid? Real estate agents are paid a commission, generally a percentage of the selling price of the property. The commission for a particular transaction is established in the listing agreement between the seller and his/her agent. The commission is paid at closing. The selling agent's broker receives a portion of the commission and the buying agent's broker receives the remaining portion. Each agent's broker then pays the agent his/her portion of the commission. Why You Should Work With A REALTOR® When You Buy There are many important reasons to use a real estate agent when you buy a home. The agent has access to the Multiple Listing Service which allows them to search for available homes that meet your criteria. They will handle the administrative details of scheduling showings for the homes you would like to see. Return to top of page Loan Pre-Qualification Before progressing too far into the home-buying process, it's recommended that you talk with a lender about pre-qualifying for a loan. Prequalification will inform you as to how much money you will be able to borrow and consequently, you will know the price range for your home search. Having a letter of pre-qualification also assures sellers that you have serious intentions of purchasing a home. Every F.C. Tucker Company office has an on-site Loan Officer who will help you understand your options. Pre-qualifying with a lender does not obligate you to finance your mortgage through that company. How Much Can You Pre-Qualify For? The amount you can afford will depend on your income and your debt. Generally, lenders don't want borrowers to spend more than 28 percent of their gross monthly income on a mortgage payment (your "housing expense ratio") or more than 36 percent on all debt payments combined )your "debt-to-income ratio"). Lenders define your total mortgage payment as the sum of the principal, interest, taxes and insurance (PITI) and define your long-term debt as any monthly payments which will take ten months or more to pay off. Low housing expense and debt-to-income ratios do not guarantee that you will qualify for a loan; and high ratios do not always mean a denial. In addition to your gross income and your current debt, potential lenders will consider other factors to determine the amount you can borrow. These factors include: The amount of cash you have available for the down payment. Your credit history. The type of mortgage you are considering. Current interest rates. It is true, however, that the more you increase your other debt, the less borrowing power you have for a mortgage. What Lenders Need To See Your gross income. The amount of cash you have available for the down payment. Your current debts. Your credit history*. The type of mortgage you're considering. Current interest rates. Recent pay stubs to verify your income. Two years of W-2 statements. Two years of federal tax returns. Two most recent bank statements for your checking and savings accounts. *It's recommended that you get a report from all three credit reporting agencies as these reports may vary. These agencies are: TransUnion www.transunion.com 1-800-888-4213 Equifax www.equifax.com 1-800-997-2493 Experian www.experian.com 1-888-397-3742 Correcting Credit Problems Your first credit problem may be a lack of credit history. You can correct this situation in a couple of ways. First, you can begin to build your credit by obtaining a credit card and charging small amounts on it. By paying it off each month, you will be establishing a positive credit history without incurring finance charges. Second, you can ask your lender to establish a nontraditional credit history which uses payment information from monthly obligations such as utility bills, rent payments and telephone bills. If you have a credit history, the credit report will list all of the consumer credit that has been extended to you in the last seven years. For each account it will show: A comment about the account such as "current" or "delinquent". Status of the account: positive, non-evaluated or negative. Date the account was opened. Scheduled monthly payment amounts. Date the last payment was made. Type and terms of the account. Payment history for the last 12 months. Original loan amount, credit limit or original amount charged to loss. Balance owing and amount past due, if any. Problems may appear on a credit report because there has been an error or misunderstanding. If this occurs, contact the billing department for that account and have them correct it. Keep copies of your correspondence and notes on phone conversations including the names of people with whom you have spoken, the dates of the calls and the outcome of each call. Write a letter explaining the error to the lender and attach it to the credit report. Submit copies of your written correspondence and notes from conversations with the creditor as further documentation. If poor credit rating is the result of past problems, you need to be aware that there is no quick fix for a poor credit history. Be patient and improve your credit rating by: Contacting each creditor and explaining your situation. Send a good faith letter demonstrating your willingness to pay off the account and include at least a partial payment, if possible. If credit problems are associated with a specific incident such as a car accident, sudden illness or loss of employment, write a letter explaining the circumstances. If you have outstanding collections or judgments against you, take steps to pay them off. Contact the creditors and begin making regular payments, however small. Always include your name, address, telephone number and account names and numbers on any correspondence with creditors, credit bureaus and lenders. Let them know when and where you can be reached. As a last resort, get professional assistance from a nonprofit credit counseling service, but be aware that they are primarily representing the interests of your creditors. They will make arrangements with your creditors to pay off a percentage of your debt, spread over a longer period of time so that your monthly payments are lower. Then they will arrange with you to pay a higher percentage of the debt and they pocket the difference. They do not resolve the bad credit history that brought you to them in the first place. There is hope even if your credit rating is not what it needs to be. Negative credit information is reported in your file for seven years after which it is removed and essentially, you have a clean slate. Bankruptcy is the exception to this as it can be reported for 10 years. documentation. Lenders are far more concerned with how you've handled your credit recently than with what happened several years ago. If you had problems in the past, but have paid your bills on time since, you may qualify for a loan after as little as two or three years. Some lenders offer risk-based pricing. This means they may lend you money even if you have slightly damaged credit. You'll just pay more for it. Return to top of page Why Work With A REALTOR® ? There are many reasons to use a real estate agent when you buy a home. They have access to the Multiple Listing Service (MLS) which allows them to search for available homes that meet your criteria. They will handle the administrative details of scheduling showings for the homes you would like to see. They save you time by providing you with information about neighborhoods, schools, etc. When you find a home you are interested in, they can use their resources to find out the list prices of other homes for sale in the area as well as the selling prices of home that have recently sold. This can help you determine the fair market value of the home you are interested in before you make an offer. They will guide you through the maze of offers, counteroffers, amendments, and inspections while always looking out for your best interests. Their insight and advice in these areas can help you avoid potential pitfalls and may save you from costly errors. For example, you agent will know which items in the house need to be included in the Purchase Agreement; some items can be assumed to remain with the house while other items must be specifically stipulated. If the inspection uncovers problems, your agent will help you negotiate changes with the seller. Most real estate agents will not tell you what to do, but their training, previous experiences and professional contacts can help you make better, more informed decisions. They can help you find a reputable mortgage company. They will explain the closing process and all of the paperwork involved. Return to top of page Buyer Services- What we do for you! Before We Start Looking At Homes, Janet Browning Team Will… Discuss and explain the Multiple Listing Service system. Answer any questions you may have concerning the process of buying a home. Explain the details of the Purchase Agreement and other forms used in the purchase of a home give you a copy for your review. Estimate in writing the expenses you'll incur, so there will be no surprises at closing. Arrange an appointment with a mortgage representative to pre-qualify and determine the amount of mortgage you can obtain. Discuss architectural style, location, schools and special features of the home you desire. After The Sale And Prior To Closing Janet Browning Team Will… Work with the lender to obtain an appraisal and present any market data required. Help arrange for property inspections to evaluate the major elements of the home and review the report with you. Help arrange for estimates and/or repairs to be performed. Arrange for payment of expenses from closing proceeds. Assist in obtaining a homeowner's title insurance policy. Assist you to obtain a Power of Attorney, if needed. Coordinate possession details and transfer of utilities. At The Closing Janet Browning Team Will… Discuss proceeds and closing statements with you. Attend the closing and answer all questions. Coordinate possession of the property. Maintain a file of closing documents. Return to top of page Twenty Questions These questions are based on information contained on F.C. Tucker Company's "First Time Homebuyer" website. Answers follow at bottom of page. 1. Why is it a good idea to pre-qualify for a mortgage loan? A. It will help you narrow your home search B. It assures sellers that you are a serious potential buyer C. "A" and "B" D. None of the above 2. The term PITI stands for: A. Points, Income, Title, Interest B. Principal, Interest, Taxes, Insurance C. Pre-qualification, Income, Taxes, Interest D. None of the above 3. Lenders prefer that your mortgage payment comprises less than _____ percent of your gross monthly income. A. 28 B. 36 C. They don't care; they're more concerned about your credit rating. D. None of the above 4. Lenders prefer your debt-to-income ratio to be _____ percent or less. A. 18 B. 28 C. 36 D. 52 5. What options do you have if there are problems on your credit report? A. None at this time. Begin paying your bills in a timely manner and wait seven years to apply again. B. If the problem was caused by a misunderstanding or error, you can contact the billing department for that account and have them correct it. Keep good notes. C. If the problems are associated with a specific incident such as an accident or illness, you can write the credit bureau to explain circumstances. D. "B" and "C" 6. How long is negative credit history kept in your file? A. 2 years B. 5 years C. 7 years D. 10 years 7. How do you determine what to offer on a home? A. Ask your Realtor® to search the MLS to find out what other comparable homes have sold for. B. If you need to make a move quickly and don't have any other viable options, offer the list price. C. If the house has just come on the market and similar homes have sold quickly, you might consider offering the list price. D. All of the above 8. What is the purpose of earnest money? A. It indicates to the seller that you are serious in your intent to purchase the home. B. It compensates the seller for taking the property off the market C. It covers any expenses the seller might incur if the buyer defaults. D. All of the above 9. Your earnest money will be returned to you if… A. You find another home you like better B. An inspection reveals a major defect in the home and the seller is unwilling or unable to correct the issue C. Your financing falls through D. "B" and "C" 10. The offer to purchase… A. Becomes a valid contract as soon as the seller acknowledges acceptance of the offer by signing it. B. Must be notarized C. Must be delivered within 24 hours or it is void. D. All of the above 11. When you borrow money to buy real estate, what do you offer the lender as collateral (security) for the loan? A. The property you are purchasing. B. Additional funds to be held in an escrow account and returned to you at the end of the loan's term. C. Nothing; real-estate loans are unsecured. "A" and "B" 12. What monies might your lender hold in an escrow account for the term of your loan? A. Payments toward the principal. B. Your earnest money. C. Property taxes and homeowners insurance premiums. D. None. Lenders don't keep escrow accounts, brokers do. 13. What is the purpose of Private Mortgage Insurance (PMI)? A. To provide additional security on a loan. B. To allow borrowers to invest less up front. C. "A" and "B" D. None of the above. 14. Which of the following statements is true? A. PMI payments are made for the life of the loan. B. PMI payments stop when the borrowers' equity equals 22 percent of the original loan amount. C. PMI payments will be reimbursed at the end of the loan. D. None of the above. 15. One discount point equals… A. One percent of the amount of the purchase price B. One percent of the amount being borrowed C. $1,000 D. None of the above. 16. Why is it important to have the home you are buying inspected? A. By uncovering defects before you move in, the inspection may protect your family and you a lot of money in the long run. B. The inspector may be able to quickly repair a minor defect, saving you money and trouble later. C. "A" and "B" D. None of the above. 17. If you have an inspection contingency in your sales contract and the inspection reveals that the home needs a new roof, what options do you have? A. Ask the seller to make the repairs on the home before you close. B. Ask the seller to compensate you for the cost of replacing the roof. C. Void your contract. D. All of the above. 18. Why is it important to verify the chain of title before you buy a piece of real estate? A. Someone other than the seller might really own the land. B. There could be a condition on the deed that makes it illegal for you to have a home there. C. A previous owner may have defaulted on his/her property taxes, meaning the government really owns the land. D. All of the above. 19. Suppose that property taxes in your area are paid in advance in January and July. You close on March 15th. What options do you have for handling the taxes at your closing? A. Prorate the taxes so that you reimburse the seller for taxes paid in January, February and the first 15 days of March B. Stipulate in your purchase agreement that you will not reimburse him/her for taxes at closing; the seller paid taxes in January and you will pay them in July. C. There are no options; the seller makes the January payment since he/she was living in the home at the time, and you make the July payment since you will be living in the home when it is due. D. "A" and "B" 20. Why is the HUD statement such an important part of your closing? A. It is an itemized list of all the costs associated with the closing. B. It lists all of the documents you will be signing at the closing C. It is a summary of your legal rights regarding your mortgage. D. None of the above. Answer Key 1) C 2) B 3) A 4) C 5) D 6) C 7) D 8) D 9) D 10) A 11) A 12) C 13) C 14) B 15) B 16) A 17) D 18) D 19) D 20) A Return to top of page