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Preparing for Homeownership!
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Home buying can be a very emotional undertaking. Whether it is your first home or tenth, a retirement or investment property, purchasing a home is a big undertaking. Most people only choose a few homes in their lifetime. Doing some planning and research before you start your search will make the home buying process more manageable and less stressful.
 The first step in deciding on a new home is your lifestyle at present and how it will change over the next few years. Think about yourself and your family and decide what you enjoy doing and what type of lifestyle you would enjoy in your new home. Selecting the neighborhood you want to live is as important as deciding what type of dwelling you’d like to live in.
A home is not a stand alone item. Rather the value of a home is greatly affected by the surrounding homes and the neighborhood it is located in. Don’t let your emotions determine your purchase. Always think resale. The desirability and resale value of your property depends largely on location more than any other factor. Buyers want a desirable commodity that includes character, quality of schools, access to work, easy access to major highways, recreational facilities, shopping, medical facilities, etc.
Neighborhoods have characteristic personalities designed to best suit single people, growing families, two-career couples and retirees. Do your homework to determine if the neighborhood matches your lifestyle and personality.
Scouting Out the Neighborhood...
It is important that you scout the neighborhood in person. You live in more than your house.
Talk to people who live there. Drive through the entire area at different times of the day, during the week and weekends.
Look carefully at how well other homes in the area are being maintained; are they painted, are the yards well kept; are parked cars in good condition.
 Other Factors to Consider...
Look for things like access to major thoroughfares, highways, and shopping.
Smell the air for adjacent commerce and agriculture.
Listen for noise created by commerce, roads, railways, public areas, schools, etc.
Check with local civic, police, fire and school officials to find information about the area.
Research things like soil and water.
Look at traffic patterns around the area during different times of the day and drive from the area to work.
Is the neighborhood near parks, churches, recreation centers, shopping, theaters, restaurants, public transportation, schools, etc.
Does the neighborhood belong to a Homeowner’s Association?
Is it scenic and visually appealing?
Is the neighborhood clean?
Are there nice trees and foliage?
Do the lots have large or small yards?
Is it a safe neighborhood?
What are the market values of the homes in the area?
Are there many homes for sale?
How long ago was the community developed?
What is the average age of the people in the area?
Are there families with small children in the area?
What is the proximity to schools?
Are there community events or organizations?
 It is important for you to examine what ranks high on your own list of priorities before you begin the house hunting process. In that way, you will have a clear idea of what amenities and services are available in the community you want to join. Remember the neighborhood you choose to buy in will shape your lifestyle and be a big factor in your family’s happiness. Your choice in location and neighborhood is just as important from an investment point of view. Factors such a good schools, low crime rates, and convenience to transportation or amenities have everything to do with values in residential properties.
What’s next - How do I pay for my home.
Almost everyone needs to borrow money to buy a home, repair it or make major improvements to the property. Your buying power will ultimately depend on two things:
How much you have available for a down payment?
How much a financial institution will agree to lend you?
When you apply for a mortgage, the lender will primarily consider two factors in determining how large a loan to grant you.
Your earnings
Your existing debt
Down Payment Requirements:
Most loans today require a down payment of between 3.5% and 5% pending on the type and terms of the loan. If you are able to come up with a 20 to 25% down payment, you may be eligible to take advantage of special fast-track programs and eliminate mortgage insurance.
Closing Costs:
You will be requires to pay fees for loan processing and other closing costs. These fees must be paid in full at closing, unless you are able to include them in your financing. Typically, total closings costs will range between 3 to 5 percent of your mortgage loan.
Qualifying For the Mortgage:
Most lenders require that your monthly payment range between 25-28% of your gross monthly income. Your mortgage payment to the lender includes the following items:
The principal on the loan (P)
The interest on the loan (I)
Property taxes (T)
The homeowner’s insurance (I)
Your total monthly PITI and all debts (from installments to revolving charge accounts) should range between 33-38% of your gross monthly income. These key factors determine your ability to secure a home loan.
Use the following chart to determine your monthly principal and interest payments at various interest rates for either a 15 or 30 year term. |
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Interest Rate Factors Per $1,000
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Interest
Rates
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Term
15 Years
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Term
30 Years
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Interest
Rate
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Term
15 Years
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Term
30 Years
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4
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7.40
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4.77
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8
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9.56
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7.34
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4 ¼
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7.52
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4.92
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8 ¼
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9.70
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7.51
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4 ½
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7.65
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5.07
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8 ½
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9.85
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7.69
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4 ¾
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7.78
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5.22
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8 ¾
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9.99
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7.87
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5
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7.91
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5.37
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9
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10.14
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8.05
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5 ¼
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8.04
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5.52
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9 ¼
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10.29
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8.23
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5 ½
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8.17
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5.68
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9 ½
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10.44
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8.41
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5 ¾
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8.30
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5.84
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9 ¾
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10.59
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8.59
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6
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8.44
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6.00
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10
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10.75
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8.77
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6 ¼
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8.57
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6.16
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10 ¼
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10.90
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8.96
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6 ½
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8.71
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6.32
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10 ½
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11.05
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9.15
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6 ¾
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8.85
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6.48
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10 ¾
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11.21
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9.33
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7
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8.99
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6.65
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11
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11.36
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9.52
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7 ¼
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9.13
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6.82
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11 ¼
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11.52
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9.71
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7 ½
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9.27
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6.99
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11 ½
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11.68
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9.90
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7 ¾
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9.41
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7.16
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11 ¾
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11.84
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10.09
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Find the appropriate interest rate from the chart above.
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Look across the column to the appropriate term to determine your interest rate factor.
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Multiply the interest rate factor by your loan amount in $1,000s.
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An Example
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Interest Rate = 6 ½
Desired term = 15 years
Interest rate factor per $1,000 = 8.71
Mortgage = $200,000
Monthly Principal & Interest = $1,742 (8.71 x 200)
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 Add your monthly insurance premium and your property tax to your principal and interest to determine your total monthly payment. Any lender you appy to for a mortgage will verify your credit history, so it's smart to check your own credit rating in the beginning of your home search, even if you are sure you have an excellent credit record. There may be blemishes in your credit history that you don't know about. Resolving any credit problems to improve your credit rating will prvide benefits, such as preferred rates from lenders and home insurers. Acquiring a copy of your credit report is simple.
The Fair Credit Reporting Act allows consumers to obtain one free credit report form each of the three major reporting bureaus every 12 months. To obtain a report visit: www.annualcreditreport.com the only authorized source for consumers to access their credit report online for free. Or you may call 877-322-8228.
Shopping for a Loan
Rate lock-in
Your challenge is to select loan terms that are most favorable to your situation. For example, if you anticipate that you will be living for many years in the house you are buying now, the interest rate may be your primary consideration. If you anticipate keeping the house for only two or three years, the closing costs and whether or not there is prepayment penalty (a charge for repaying the loan early) may be more important to you.
 When a lender quotes you an interest rate, that is the rate in effect for that day, but it may not be the rate available to you when you actually close the loan. Because a higher interest rate may reduce the size of the mortgage for which you qualify, it is important for you to know whether the lender will agree to hold the quoted rate for you. This is called a "lock-in." An early lock-in may save you thouslands of dollars in interest over the life of the loan if interest rates are rising.
Good Faith
Within three days after you have submitted your application for a home loan, the lender is required by law to provide you with an itemized estimate of the costs to settle (or close) the loan. This report is referred to as a "good faith estimate."
Speeding up the approval process
Be sure to respond promptly to your lender's requests for additional information while your loan is being processed. Not getting back to your lender in a timely fashion with requested documents can slow down the approval process.
Commitment Letter
When your loan is approved, the lender will send you a commitment letter. This is a formal loan offer. It will state the loan amount (the purchase price less the down payment), the terms of the loan (number of years you have to repay the loan), the loan origination fees, the mortgage insurance fees, and the monthly charge (principal and interest, taxes and insurance or PITI).
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