Purchasing Your Home

The purchase of your home may be the largest investment that will be made in your lifetime. The information provided is designed to help guide you through the process and provide useful tools and resources. Much of this information and additional tools can be found on the Freddie Mac website (click here).

The home-buying process can be divided into six steps:

1.      Pre-Plan or Research

2.      Establishment of Real Estate Team

3.      The Home Search

4.      Offer and Negotiation

5.      Apply for Mortgage

6.      The  Closing Process

It’s important to start this process even before looking at properties. A pre-qualification or pre-approval letter is often required to be presented with an offer to purchase. A second benefit is that you, the buyer will know beforehand the type of mortgage you will qualify for, clear up any discrepancies that could affect amount or ability to obtain mortgage, and the price range of homes you can afford. Although both a pre-qualification and pre-approval both provide the stated benefits, according to Freddie Mac, the pre-approval has certain advantages over the pre-qualification.

Pre-approval can help you

• Know how much you can borrow
• Confirm your ability to qualify for a mortgage based on your credit, financial, and employment information
• Strengthen your position to make an offer on a house. Sellers are usually more willing to accept offers from pre-approved buyers

To get pre-approved, you’d need to work with a mortgage lender. The lender will review your credit, financial, and employment information after you fill out an application and provide documentation. A fee might be charged to cover application costs

If you qualify, you’ll get a letter that says you are approved to borrow a certain amount of money and for a certain amount of time. Being pre-approved does not mean you have to use that lender or that the loan has been finalized.

A pre-qualification is a free test run of the loan application process that usually takes a few hours. The mortgage lender uses your credit, financial, and employment information to come up with an estimate of the mortgage you can afford. While it is a good first step to give you an idea where you stand, and can help with planning for homeownership, a pre-qualification is only a rough estimate. When you are ready to purchase, take the time to get pre-approved. While it is a lengthier process, it is worth it.

Down Payments

A down payment for a home is usually between 3% and 20% of the total cost of the home. The amount of the required down payment depends on your credit history, income, the cost of the home, and the type of mortgage you choose. Many first-time homebuyers put down 3 to 5% of the cost of the home, although there are options available requiring less than 3% so ask your lender if this is something you are interested in.

If your down payment is less than 20%, you will likely need private mortgage insurance (PMI). This is insurance you pay to protect the bank if you don't repay your loan in full. PMI can be added to your closing or monthly mortgage costs. When you apply for a home loan, you should also have at least two month's worth of mortgage payments saved, called reserves

Closing, or settlement, costs are fees you pay when you actually get your loan from your financial institution. These include points, taxes, title insurance, financing costs, items that must be prepaid or escrowed, and other settlement costs. You should negotiate for lower fees the same way that you should negotiate for the best rate. Some fees, such as taxes, may be fixed but your lender may be willing to negotiate others.

Closing costs generally range between 2 to 7% of the property value. You'll receive an estimate from your lender after you apply for a mortgage. You must pay these costs before you move into your new home.

Generally, if your down payment is less than 20% of the price of the home, you will be required to purchase Private Mortgage Insurance (called PMI or sometimes MI). This protects the lender if you should be unable to pay off the loan.

Federal law requires PMI to be cancelled under certain circumstances; for example, when you have paid off a certain percentage of your mortgage or your home's property value has increased to a certain percentage above the value of the mortgage.

Contact your lender for specific information about the status of your private mortgage insurance

The mortgage calculator, interest rate and real estate info links would be helpful in getting a head start on establishing price range and affordability.

Pre-Pl an Your Home Search

What type or style of home would you like (colonial, cape, split-level, mother/daughter)?

• What features do you want in home?
• What features do you need in home?
  1. number of bedrooms
  2. number of bathrooms
  3. finished basement
  4. garage
  5. size of home

• Are you interested in purchasing a foreclosure, reo, or short sale property?

• Familiarize yourself with the communities and neighborhoods where you want to live and asking price range of homes
• What is proximity to schools, work, public transportation, shopping centers/malls and recreational activities?
• Are support services such as senior citizen services and daycare available if needed?
• What community organizations and amenities are available for kids, families, and seniors?
• Obtain information on what properties similar to that desired actually sold for and how long properties were on the market
• Are home values declining, stabile, or increasing

Home Driven Realty stands ready to aid you in the pre-planning, answering any questions you may have. The following tools are also available on the home page:

• Property search-access listings of properties in areas of interest with price and property feature information
• Foreclosure Center-provides foreclosure and reo listings, purchase procedures and valuable financing information
• Community Information-valuable income, age, employment, household, housing and population information

It is also important to visit the areas of interest before the actual search. It helps to get a familiarity with the various communities, their personality, their amenities and their proximity to work and school.