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first time home buyer


  Buying a home is an exciting time, and a great investment. With the proper guidance, this can be a easy experience. The key is to obtain as much knowledge as possible. To help you, we have summarized many of the procedures involved in the outline that follows.


  One of the first steps is to get prequalified by a mortgage company that can match your individual financial needs to the best mortgage product available.  There is a contact at left to help you do this.  Once you find out the maximum mortgage you qualify for, the next step is to determine the mortgage payment  you feel comfortable with. Your loan officer will help you determine what purchase price range you will be comfortable with.

  Some mortgage expenses that are variable are loan origination fees  and points.  The loan origination fee is a fee charged by the mortgage company to process your mortgage. However, you can choose to not pay an origination fee and take a higher interest rate on your mortgage. The same thing applies to paying points. The more points you pay, the lower interest rate you can get on your mortgage. Both the loan origination fee and one point amounts to 1% of your total mortgage each.

  The way you decide if you should pay points or a mortgage origination fee is your personal finances. The second method of determining which loan to use is to look at each expense and determine what the mortgage payment difference is. Take this figure and divide it into the cost of the rate change ( i.e. 1% for loan origination ) to see how many months you have to pay on the mortgage to break even on the cost of buying the interest rate down. If the number of months is over 40 months then it probably isn't a good idea to incur this additional expense. Your loan officer will guide you through this process.


  One of the most important factors is the amount of money you have available for the down payment. Other factors to consider are mortgage insurance premium (MIP) and efficient use of funds. If you have 20% down payment then there is no mortgage insurance charged on conventional in your monthly payment. Mortgage insurance is a fee paid on a monthly basis to insure that if you default on  your mortgage and the mortgage company has to foreclosure on your home, the mortgage company will get paid. This is a required insurance. The less of a down payment, the higher the mortgage insurance payment. If you have a large down payment, you may not want to put all of it into the home. There are several reasons for this. For every $10,000.00 down payment you make with a 6 % mortgage rate for a 30 year mortgage. your mortgage payment will go down $60.00 per month. Mortgage interest payments are one of the few tax deductions still available for the average person. 


  Outside of mortgage costs discussed above there is an attorneys fee to close the sale. The attorney searches the title records to make sure your are getting a clear title with no leans or judgments on the title. The attorney also prepares the closing settlement statement and disburses the funds to the appropriate entities. Another of the closing costs that the attorney pays is recording costs and state and local taxes related to the recording of the deed and the deed of trust.
  Lenders title insurance is another required closing cost which insures that if there is an unresearchable title defect, the buyer is protected. An example of this would be where somewhere in the last 200 years the property was sold in an estate and one of the heirs was not discovered. 50 years later he may come forward and still has rights to the property.   Lenders title insurance pays that claim on the mortgage balance.  Another type of title insurance which is not required but highly recommended is owners title insurance which protects your equity from the same thing. Title insurance is a one time fee which is paid at closing and protects you for as long as you own the home and beyond.


  Prepaids are the final category of closing costs. The reason they are called prepaids is because they are paid in advance. At closing you pay interest from the day of closing to the end of the month. That means that your first mortgage payment isn't due until the first of the month at least one full month after closing.  For example, if you close June 15, you would pay interest from June 15 till June 30 and then your first mortgage payment would be August 1st and would be the principle and interest for the month of July. Depending upon which city you purchase in, you will pay taxes every quarter or semi-annually. When you close, you will need to escrow enough money to pay your real estate taxes when the bill becomes due. This could be from anywhere between 2 to 6 month. In your mortgage payment you will be paying 1/12th of next tax billings payment. Your tax bill is sent directly to your mortgage company and they pay the bill out of your escrow funds. The next prepaid is hazard insurance which insures your home against fire, theft, storm damage, etc.  

  At closing you will pay one years worth of hazard insurance and escrow 2 month to start your escrow account so when next years hazard insurance payment becomes due, there will be enough money to pay it. This bill is also sent directly to your mortgage company and they pay it out of your escrow funds. You pay 1/12th of next years hazard insurance payment in your monthly mortgage payment. The final item of prepaids is ( if you have it ) is mortgage insurance. This is similar to the other prepaids in that 1/12 of your premium is in your monthly mortgage payment and you will usually escrow two months payment into your escrow account.


  In todays real estate world, the only representation you want is a buyer broker.   This is a real estate agent or broker that only represents you. This is important because the real estate agent can help you with every aspect of the real estate transaction with your best interests in mind. If the real estate agent was working as a sellers agent, the agent may not look after your bests interests.  


  When you start your home search with a list of wants, you will find a variety of prices for the same home search. The reason for this is that location is one of the most important factors in establishing price. We want you to look at enough homes so that you can determine  what is the best home to fit your needs.  If possible, it is best not to settle on one home but several homes. The reason is that ultimately, the seller decides what you are going to pay for the home. You can offer whatever you want but the seller decides what they can live with in there present circumstances in order to sell the house. If you have several choices, you can find out which one is the most flexible, thus giving you the best purchase price.


  Another expense of buying a home which is not required but is necessary is a home inspection.
  A home inspector looks at all the physical and mechanical aspects of the home to make sure they are in good condition. The home inspector also has a wealth of knowledge about routine and long term maintenance required for a home.  He provides a concise report detailing any defects found in the home. Some of these repairs can be very costly. The purchase contract is written in such a manor that if you find items in the inspection report that are not acceptable to you and the seller is not willing to make the repairs, you contract may be void.


  Once you have resolved all inspection issues, you do a final walk through to make sure that all the terms of the contract have been meet and the home is in the same condition as when you wrote the contract. You are also checking to make sure that the heating, plumbing, electrical and appliances are in working order.  We wish to make sure that nothing has happened since the home inspection.


  This occurs at the attorney's office and is where the deed transfers from the seller to the buyer. A detailed expense sheet that is called a HUD is covered and transfer of property is complete.  Congratulations ! You now own a home.


  We have listed many of the steps involved in buying a home but not all of them.   It takes years of experience to learn everything involved and each purchase is different because everyone has individual needs. If you have any other questions or concerns please e-mail us or call us by using the contact to the left. Remember, no question is to small or unimportant to us.   We are looking forward to working with you on the purchase of your home.







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