Step #1...Preparing for Homeownership    

Ask yourself why, and then ask again!

Owning your own home has long been the American dream. But with it comes a lot of responsibility. The decision to purchase a home should not be made lightly, and the very first step in the home buying process begins with a careful and realistic consideration of why you want a home. It takes a lot of time, energy and money, and you want to be sure you’re doing it for the right reasons, both personal and practical reasons. Many of the personal reasons will be defined in this first step, while the “practical” reasons will fall out of the next steps of figuring your financials.

Can You Afford it?

Once you are convinced that you want to buy a house, the next step is to determine how much you can afford. You can start by analyzing your current expenses. Expenses come in the form of “fixed” expenses and “discretionary” expenses. Fixed expenses are things like car payments, taxes, day care, where as discretionary expenses are those where you have flexibility in deciding how much, or little, to spend in these areas. Examples are clothing, entertainment, and travel. Forming a mock budget that takes into consideration your existing expenses, a mortgage payment, homeowners insurance, taxes, and property maintenance will give you an idea of what you can afford.

Generally, people in the mortgage industry say that you can afford a house that costs up to two and one half your annual gross salary. But that depends on how much debt you are carrying.

Analyzing Your Debts

Lenders look at your existing debt in determining how large a mortgage to grant you. Lenders are interested in your long term debt, which is defined as any debt that will take more than ten months to pay off. If your monthly debt payments are excessive for your income level, this will limit the amount you can borrow. If you are carrying excessive debt, you may want to pay off some of it before preparing to buy a house.

How’s Your Credit History?

As part of the loan qualification process, lenders will order a credit report on you and any co-borrowers. Lenders are looking for a track record of debts owed and repaid, such as credit cards, car loan payments, and student loans. Lenders also want to know how much debt you are carrying. If you don’t have some of these traditional credit lines, you can establish a credit history by documenting things like monthly rent payments to landlords, payments to utility companies for electricity, water or telephone services.

Making sure your credit report is in good standing is important. If your credit history is not as favorable as you would like, there are ways to repair it. Furthermore, sometimes credit reports are inaccurate or contain errors. You should request your credit report from one of the credit reporting agencies so there are no surprises once you get into the loan process.

What’s A Credit Score?

A credit score, or FICO, is a value assigned to several criteria used in making lending decisions. The criteria include your credit history, how much debt you are carrying and your payment history on those debts. Credit scorers take this information and plug it into a formula to produce the FICO score. These scores range from 300 to 850, with the higher score being the more favorable score. Your score will determine whether you qualify for a loan, or the type of loan you qualify for. Generally speaking, the lower your score, the more risk you present to lenders, and therefore your interest rate will be higher.

After you have considered all the ramifications of owning your own home, determined how much you can afford, looked into your credit history, and analyzed your debts, you can now start looking for that dream home.

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Once you have completed step # 1, it's time to define what the most important home features you want and begin shopping for your ideal home. It helps to make a wish list of key requirements. By defining these requirements you won’t waste time looking at houses that don’t meet your needs. The following are some things to consider:

•   New vs. Older Home
•   Location
•   Size
•   Special features
•   Type of houses – Traditional single family, condominium, cooperatives, etc

After you have defined what you are looking for and how much you can afford, the next step is to identify the houses that are on the market that are in your price range. There are several sources that can help you search for that ideal home, including newspaper ads, real estate guides, or even driving around looking for “For Sale” signs.

What about a Real Estate Agent?

While the sources identified above can get you stared, perhaps the most efficient way to shop for a home is through a professional real estate agent. Look for one who is located in the area you plan to shop for your home. You should also understand that a real estate agent generally represents the interests of the person selling the home as the seller pays them a commission. It is possible to hire a real estate sales professional who will act as your agent and represent your interests. Make sure you understand any fees that you’ll be charged if you go this route.

Either way, agents have access to a host of resources in helping you find that perfect home. They can also be a great source of information and can guide you through the entire process.

Narrowing your Choices

On average, a person in the market for a new home looks at 15 houses before settling on one. Because you might be looking at several homes, it is a good idea to keep accurate records of the homes you’ve viewed. Try to include as much detail and be as critical as possible. Things to look for are the neighborhood, physical details, construction details, major systems such as plumbing, heating and cooling, and of course the all important….how much does it cost? Once you find the ideal home that is in your price range, it might be time to make an offer.

Making an Offer

In determining how much to offer the seller, there are a number of factors you should consider.

Market Value of the House: Does the asking price compare with the market value of the house, based on recent sales of comparable houses in the area? Ask the listing agent if a comparative market analysis or CMA on the property is available. The CMA provides prices of comparable homes that are currently on the market, are under contract, and that have been sold in the past few months.

Condition of the home: You should be confident that you are aware of any major problems with the house before making an offer. By now you should have fully inspected the house, and are aware of any problems and the cost associated with any repairs you may need to make. In addition, a formal home inspection by a professional should be conducted and be one of the contingencies in your sales contract.

Circumstance of Current Owners: Before making an offer you should try to understand what is driving the seller. For example if the seller has already entered into a contract to buy another home and is depending on the sale of this house to finalize the other deal, you may be in a good position to negotiate in your favor. Also, find out how long the house has been on the market, and if the price was already reduced.

When you are ready to make the offer, it should include the following:

•   A complete legal description of the property;
•   The amount of earnest money accompanying the offer (a kind of deposit to hold the home)
•   The price you are offering
•   The amount of your down payment and how the remainder will be financed
•   Any items of personal property that the current owner has said will stay with the house
•   A proposed closing date and occupancy date
•   The length of time the offer is valid
•   The satisfaction of any contingencies

After submitting your offer, the seller will respond in one of three ways: accept it, reject it, or make a counter offer. If rejected, you’ll need to decide if you want to make another offer. If the seller accepts the offer, you’ll enter into a sales contract and be required to put some kind of down payment on the property and will now begin to secure a mortgage.

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Step # 3…Obtaining a Mortgage   

Shopping for a Loan

When shopping for a mortgage, it is important to look for a loan that meets your particular needs. You want to look for the loan and terms that are most favorable to your situation. For example, if you plan to live in the house for only three or four years, the closing costs and conditions such as a prepayment penalty (a charge for paying the loan off early) may be important to you, where as if you plan to stay in the house for many years, the interest rate might be your main concern. The bottom line is: loans come in all flavors, and you owe it to yourself to get the best loan and terms possible. McCue Mortgage offers a full range of loans, and works closely to match our products with borrowers’ unique needs.

Also, at this point you should have obtained your credit report and resolved any problems that may have appeared on it. You may have done some preliminary research into interest rates as well as gone through the process of pre-qualifying for a loan. If you’ve done all this you are ready to shop for a mortgage.

Loan Interview

The next step is the loan interview where you will have the opportunity to meet with a loan representative. McCue Mortgage is very flexible about where and when the interview takes place. The bottom line is whatever is most convenient for the borrower. You want to have all the necessary documentation with you when you meet with the loan representative. This would include:

•   The sales contract for the house
•   Your bank’s address, statements and account numbers
•   Pay stubs, W-2 forms for the past two years, or other proof of employment and salary
•   If self employed, balance sheets, tax returns, and a year-to-date profit and loss statement
•   Information about debts, including loan and credit card numbers, and names and addresses of your creditors
•   Evidence of rental or mortgage payments including cancel checks or money order receipts

The first thing the loan officer might do is make sure you qualify for the loan you are applying for.

Loan Processing

Either at the loan interview or shortly after you will fill out your loan application. The application provides the lender with all the information needed to evaluate the risk involved in lending you money. An important step at this point is to ask the lender if you can “lock in the rate.” This is important especially if you feel interest rates may rise by the time your loan if closed.

In processing your loan application, the lender will be interested in two things:

•   The property you plan to buy (as it is the collateral for the loan)
•   Your financial situation and credit history.

The lender will order an appraisal of the property, request a credit report and verify the information in your application. If mortgage insurance is required, the loan will also have to meet the underwriting requirements of the mortgage insurer.

The Commitment Letter

When your loan is approved, you will receive a commitment letter from McCue Mortgage. This is the formal loan offer. It states the amount you are borrowing, the term of the loan, the loan origination fee, the points, the APR (the actual financing charge incorporating the interest rate and origination fees) and the monthly charges.

It also includes a time frame for which the offer is good. Make sure you understand the loan offer thoroughly before signing it. It may also include some “conditions” that need to be met for the loan to close.

If for some reason your loan is rejected, you will need to determine why, and fix any problems before applying again.

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Step # 4…The Closing   

Closing on a new home can be an exciting experience. But it can also be a surprise if you don’t know what to expect and aren’t prepared. Understanding the closing and associated costs will help you be prepared. Upon receiving your commitment letter from McCue Mortgage, you want to set a closing date. There are also some things you will need to have completed before the closing.

Title Search

In addition, a title search will be conducted on the property to be certain that the borrower will receive clean title to the property. In other words, it is verification that the seller has complete title to the property. The title search is intended to uncover any encumbrances on the title, such as a lien on the property. The cost of the title search is usually paid by the buyer.

Title Insurance

As additional insurance that the seller is providing the buyer with a clean, marketable title, the lender will require title insurance to be placed on the property. Title insurance includes a lender’s policy and a buyer’s policy to protect both parties.

Homeowners Insurance

Mortgage lenders require that you place homeowners or “hazard” insurance on the property. This protects both you and the lender in the event the property is damaged by fire, storm or some other event.

Closing Costs

Closing costs are perhaps the least understood aspect of the home buying process. However, at McCue Mortgage we take the time to answer questions and explain the process. This includes explaining the fees that you will be expected to pay at closing. Closing costs are generally considered any costs associated with the purchase of a new home and are paid by the buyer, and some the seller. While these costs vary by lender, most fall into three categories: Out-of-pocket expenses, prepaid expenses, and Mortgage Points.

Out-of-Pocket expenses

These include fees for appraisals, deed recording, attorneys, credit reports, a title search, tax services and charges for services that are usually performed by a third party and “passed-through” to the borrower.

Prepaid Expenses

These fees include things like homeowners insurance, mortgage insurance or the cost to set up an escrow account fall into this category.

Mortgage Points

These are the “points” charges by the lender to adjust the yield on the loan to market conditions. A point equals 1 percent of the mortgage amount.

The Big Day!

The Closing is a formal meeting including representatives from the buyer, the seller, the listing and selling agent, representatives of the lender, and the title company. At the Closing you will sign numerous documents and affidavits. Some of these include:

•   A Truth-In-Lending Statement
•   HUD-1 Settlement Statement
•   The Note
•   The Mortgage
•   Certain Affidavits
•   The Deed

After all the documents have been signed and the fees have been paid, the mortgage (or deed of trust) and the deed need to be officially recorded. This usually occurs at the town clerk’s office. In most cases the closing agent will not release the checks to the seller or agent until the transaction has been recorded, making the buyer the official owner of record. This legal transfer usually takes one or two days after settlement.

Congratulations, you are now the proud owner of a new home.

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