The Latest Homebuying Guide
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WARNING If you are not serious about owning your own home, and feeling committed to taking the necessary steps to act on probably your largest financial decision, then please give this book to someone who does. But if you are serious,
No part of this book may be shared or copied without consent from the author. Disclaimer The information presented in this book is not intended as legal or financial advice and should not be solely relied on to make your decisions without consulting those professionals in mortgage, law, and real estate. The information in this guide is the latest we have up to the time of publication. The author and publisher reserve the right to update or change the information anytime.
Acknowledgement Thanks to expert mortgage broker Phillip Wallace, (americanmortgagegrp.com)who helped to ensure the accuracy of the information provided.
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The Latest Homebuying Guide
Introduction Congratulations on your decision to purchase your new home. If this is your first purchase, the experience will be a rewarding one. If you have done this before, then welcome to the road again. Buying a house is like a journey. To get to the end with the best experience, you need to plan, prepare, and act. Abraham Lincoln once said: “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” The meaning here of course, is that with a sharper axe, you will spend less time chopping, and ultimately use less energy to achieve your goal. But even before you start chopping, you will need to find the tree. That one tree which is the right size, right height, and in the right part of the forest. This book will be your guide to that “special tree.” It will provide you with some important tips and guidance for the journey; giving you the best practical information to help you plan, and execute the plan for your dream home. One of the fundamental objectives of the book is to help you get the best possible home while spending the least amount of money. Please read that one more time. Whether you have a little, none, or a lot of money, this is important. It is foolish to spend more on something when you don’t need to. Imagine what that extra cash could do for your wealth-building portfolio or some other dreams you have. It may also help you avoid scams, that have robbed thousands of home owners in the past. In the end, you will have fewer challenges, less stress, and the confidence that you made the best decision. It was written to take you from the mere thought of buying a home, to enjoying your life in it. Welcome to The Latest Homebuying Guide. 3
The Latest Homebuying Guide
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Course Goals ◙
◙ ◙
Provide you with the education to understand the homebuying process and confidently apply it to get the best value Provide you with the latest best practices and tools to buy your home Allow you to grasp the importance of preparation in the home-buying process
Expected outcomes At the end of the course you will be able to: 1. Write at least three reasons why you need to purchase a home 2. Decide if you should buy a “detached” or ‘attached” home 3. See the differences and similarities between condominiums and townhomes 4. Search neighborhoods for crime rates and livability data 5. Create your new home’s wish list 6. Create a budget worksheet to assess the state of your finances 7. See which of the four main mortgage programs you may qualify for 8. Calculate your housing and debt-to-income ratios (lenders use this for approval) 9. See the financial benefits of a down-payment and how you can get it 10. Understand your financial obligations in the mortgage process 11. Compare the benefits and costs of a 15/30 year mortgage 12. Create your home-buying goals and plan of action 13. Understand the four “C’s” that lenders use to approve your loan 14. Put your financial house in order, including your credit score and report 4
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15. Create your home-buying “success� team 16. Use a simple system to search, assess and choose your home 17. Understand and use a simple process to make an offer 18. Know what to look for in a home inspection report 19. Know the basic criteria in a home appraisal 20. Systematically conduct a thorough home walk-through and assessment 21. Understand and prepare for the closing process 22. Learn 145 ways to make moving more organized and less stressful 23. Learn the most important keywords and language of the home-buying process 24. Get access to exclusive and important forms to help you make home-buying fun and easy
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Section 1 HOW TO PREPARE FOR THE HOMEBUYING JOURNEY ◙ Are you ready? ◙ Why do you want to buy a home? ◙ The home types ◙ Where do you need your home? ◙ Creating your wish list ◙ What is the state of your finances? ◙ Qualifying for a mortgage ◙ The importance of a good downpayment ◙ Know your financial obligations ◙ How long should you take to pay for your home? ◙ Don’t forget the moving expenses
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Section 2 HOW TO TAKE THE JOURNEY ◙ Setting your goals and plan of action ◙ Putting your financial house in order ◙ Building your success team ◙ Getting pre-approved ◙ Searching for your home ◙ Choosing a home ◙ Making the offer ◙ Bringing in the Inspectors ◙ Getting the appraisal ◙ Doing the walk-through and assessment ◙ Closing the deal ◙ Moving in
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Section 3 IMPORTANT KEY WORDS TO KNOW ◙ Keywords & the language
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Section 4 ◙ Important Forms to use in homebuying 6
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Section 1 Preparing for the Journey
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Are You Ready for The Journey? Purchasing a home is one of the biggest financial decisions you will ever make. It involves a lot of time, money and other resources. As such, you want to make sure that you are ready to handle the experience. You will have a tremendous responsibility, and this will require discipline, and in some cases sacrifices. You will have to manage relationships with quite a few persons, some of which will last for a lifetime. Then there is the added responsibility of maintaining your home and ensuring that the value does not depreciate. Most importantly, you have to ensure that your home is not foreclosed on, because of non-payment. These are all important responsibilities. So, the big question you need to ask yourself before you decide to buy a house is: Am I really Ready for this Journey? Here are some questions to help you decide. ◙ Why do you want to buy a home? ◙ What type of home should you choose? ◙ What neighborhood will you feel comfortable in? ◙ How should your home look? ◙ What is the state of your finances? ◙ Will you qualify for a mortgage ◙ Will you have the downpayment ◙ How long should you choose, to pay off your mortgage? ◙ How will you deal with the move in?
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Why do you want to buy a home? Like everything else that you do in life, you need a big WHY? A reason that is compelling and motivating enough, to keep you wanting it? One that blinds you to the distractions and keeps you focused. It must be strong enough to keep you going when the going gets tough, and inspiring enough to stop you from giving up. Your reason could be unique to you or It could be any or a combination of the following: 1. Having your first child or another one 2. Marriage 3. Divorce, separation or death 4. Current home has gotten too expensive to live in 5. Retirement 6. Building wealth 7. Tax benefits due to mortgage interest and other deductions 8. Job – Quicker, more convenient access to work 9. Health – Access to better health and living care 10. Upgrade – Lifestyle change 11. Transportation and access to better amenities 12. More yard space - gardening, play area, social needs 13. Need to own something
14.Better than renting
{Whatever your reason is for purchasing a house, it has to make sense. There has to be a deep-rooted need that will bring you more benefits than your current situation.} 9
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Creating your wish list You have heard the saying before: If you fail to plan then you are planning to fail. Since failure is not an option you want in this home buying process, it is highly recommended that you plan with as much detail as possible. Put on paper, your goals, dreams, and desires for the house you want. Why? Because according to Dr. Gail Matthews, a psychology professor, you are 42% more likely to achieve them. Luckily for you, our Home-Buyers Wish List will help you with that.
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What is the state of your finances? Buying a home is a huge financial responsibility. It requires your commitment for anywhere between 15 and 30 years. To avoid any pitfalls along the way, it is important that your financial house is in order. Take a snapshot of your financial picture by using the following worksheet. It will show you how much funds you have left to cover any increased debt, major purchases or other living expenses after the purchase of your new house.
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Qualifying for a mortgage The best person to answer a question regarding a mortgage is your mortgage loan officer, who will give you an answer after assessing your current situation. The qualification process involves an analysis of your credit, income, and employment. It looks at your ability to take care of down-payment, closing and related expenses, as well as the value of the home you are interested in buying. Your income will be the primary factor in determining the price of the home you qualify for. It is also used to calculate financial ratios that are vital for mortgage qualification. {There are four main mortgage programs available to home buyers. This means that you have ample opportunities to qualify and get the required financing for your home. } Conventional Loans These are loans offered by the private sector that are not insured CONVENTIONAL LOANS Features
Requirements
Down payment
Minimum 3%
Credit Score
Minimum 620
Insurance
Private mortgage Insurance (PMI) required if down payment is below 20%. Stops with 20% equity
Debt-to-income ratio
Up to 50%
Income
Eligible properties
Proof of steady income for 2 years (unless you are a college graduate) Pay stubs for 30 days 2 years tax returns Single-family homes Planned Unit Developments (PUDs) Condominiums 2, 3, and 4-unit properties 18
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The importance of a good down-payment There may be lenders out there who want to lend you 100% of the price of your home. While this looks good on the face of it, you will be doing more harm to your future and your financial health if you choose this option. Remember that the more you borrow, the larger your debt will be, and the more you will have to pay back. This leaves less in savings to enjoy life, and take care of other important activities. Minimum downpayment ranges from 3% for Conventional loans to 3.5% for FHA loans. Here is how down-payment will affect you on a $250,000.00 home: Down Down Interest payment payment Principal rate % $
Term
Monthly Interest Payment
Total payment
0
0
250,000
4%
30
1,194
179,674
429,674
3.5
8,750
241,250
4%
30
1,152
173,385
414,635
20
50,000
200,000
4%
30
955
143,739
343,739
3.5% down
$429,674-$414,635 = savings of $15,039
20% down
$429,674-$343,739 = savings of $85,935
{The more you pay down means the less you will borrow, and the more money will stay in your pocket from interest savings.} 25
The Latest Homebuying Guide
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Step 1 – Set your goals & plan of action Purchasing your home is undoubtedly one of the biggest financial decisions you will ever make. Failure is not an option on this journey. While The Latest Home-buying Guide provides you with all the information you need to succeed, your commitment and declaration of intent are very important tools for success. This chapter will walk you through the creation of your objectives and plan of action to achieve them. You will use your Home-buying Action Plan form to help you document your goals, and the steps to achieve them.
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Step 2 – Put your financial house in order Lenders are mandated by law to ensure that you satisfy the “Four C’s of underwriting.” These are: 1. Credit history. This shows your demonstrated responsibility to manage debt 2. Capacity to repay. Regular income and employment 3. Cash assets. Needed to cover down-payment and closing cost 4. Collateral. Value of the home you wish to buy. The first three C’s are totally within your control and that is where you should start.
Credit History Credit is your ability to get goods and services now and pay for them later. Credit is a powerful financial instrument, and if managed properly, it can give you a really good financial standing in life. It can also save you a lot of money in interest, especially on a mortgage. Used carelessly however, credit can be a nightmare. It can suck the breath out of your financial standing and cost you thousands of dollars with higher interest rates. Ranking your credit Score 800 – 850 740 – 799 670 – 739 580 – 669 579 – below
Rank Exceptional Very good Good Fair Poor 40
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You Thej our ney t oyour cr edi tscor e
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Step 7 - Make the offer Now that you have made a choice, it is now time to make an offer to the seller. The process ● You make an offer in writing ● The seller accepts, rejects or counter with a different offer ● You can accept or make another counter offer. ● This negotiation continues until there is acceptance or someone decides to end the negotiation and walk away. ● If there is acceptance, an agreement is signed outlining the terms and conditions, including the closing date. Remember to rely on your team members’ expertise to help you in this section. Your realtor has been through this process countless times. They should know what to say and what to do. Let them earn every penny of their commission. The most important factors to consider when making an offer are: 1. Price - Buy a house that you can afford. Paying more than your income can support is a recipe for disaster down the road. Stick to your wish list price, if that is what you can afford. The last thing you want is a foreclosed notice in your mail. Make sure you consider everything. Look at the Buyers walkthrough assessment form for areas that can buy you leverage. Look at things that need fixing and estimate (from your contractor/handyman) how much you will need to layout to make them good again. Consider the seller’s situation. Is he desperate to sell, forced to sell or not in a hurry? 2. Comparable market value - This is an average of what others pay for houses similar to yours in the area. You certainly don’t want to pay more than others for a similar home. 70
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Step 11 - Close the deal Up to this point, you have spent time, which could be from a few months to a few years, doing everything to get your dream home, first home or another home. You got your financial house in order, built your success team, and got approval for a loan. You searched and found a home that fits your budget, and that you have fallen in love with. Your offer was accepted, the house passed the inspection and the final walk-through met your expectations. Congratulations, you have arrived at one of the most critical points on your journey. You are about to hand a hefty check to the seller and take the keys to your new home. This is when you become the legal owner, based on the mortgage terms! This is the final step! As stated previously, use the expertise, knowledge, and experience of your team to ensure that everything is done right. The closing is not only important for you, it is also very important for them. They have a huge motivation to make sure everything ends well. How to have a smooth closing Many things can go wrong before and during the closing moments. The last thing you want is to fall in love with a house and lose it because of foolish behaviors. So be prepared! Make sure all contingencies are taken care of. These include inspections, financing, appraisals, and repairs. {Preserve your credit and financial status, especially before closing. Do not take out any new loans or extended credit facilities.} What happens at the closing? 1. You sign a bunch of documents 2. You hand over a check for the home and closing costs
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Keywords To Know Adjustment Date This is the date your mortgage begins to grow interest, usually the first day of the month after your funds were disbursed from the lender. Adjustable Rate Mortgage Mortgage where the interest rate changes over the life of the loan. Your monthly payment will start low and then increases later. Amortization The process of combining principal and interest in one payment over the life of a loan. Appraisal Done by the lender to make sure the house is worth the amount you want to borrow. This cost will be included in your closing disclosure. Also done by the seller to see what the property is worth. Appraisal Contingency A clause in a contract that must allow an appraisal to be done before closing on a house. Assessed Value How much your home is worth, according to your city, county or state government. This is used to determine property taxes. Balloon Payment A large payment that is required usually at the end of the loan.
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