What am I getting into and how does everything work?
You've just made one of the biggest decisions you will
ever make and in order to purchase the home of your dreams,
you need the money to do it! You've applied for a mortgage
with your lender of choice and they have approved you.
Your approval is subject however to certain inspections,
appraisals, and other data discovery. Are you confused?
You don't do this everyday, you should be.
Your loan approval is subject to several lender requirements.
Different types of companies are needed to perform different
kinds of services in order to meet these requirements.
Of course all of these services cost money and that cost
is charged to you! This process will explain each lender
requirement, the type of service needed, what type of company
performs this service and the average cost of such a service.
After reading this process you should feel confident that
these services and costs are indeed not frivolous. Therefore,
you've made the right choice and are able to enjoy your
new home to its fullest.
Here is a list of services and costs of loan requirements
Credit report: A history of how you pay your bills. The
lender needs to be sure you have established a pattern
of paying your debts on time. If they are going to loan
you a large amount of money, they need to feel confident
that you are responsible enough to pay them back in a timely
manner. The charge for a credit report can be anywhere
from $10.00 to $55.00 and the service is provided by the
Credit Report Agency in your region.
Tax Service Fee: A lender representative will verify with
the IRS that the tax information you provided to qualify
for the loan is not fraudulent. The cost for this fee is
$60.00 to $80.00.
Survey: A detailed review of the public records and your "legal
description" of the property. The survey will let
the lender know the structures on your property are not
overlapping on your neighbor's property and/or there aren't
any encroachments, such as your garage being located on
your neighbor's property. If there are encroachment problems,
the lender would be at risk if your neighbor decided they
wanted to take you to court and try to have the garage
moved. This service is performed by an approved Surveyor
of your choice and usually costs between $200.00 and $400.00.
Appraisal: An appraisal is a written report from a qualified
appraiser of the estimated fair market value of the home
you are purchasing or refinancing. An appraiser gathers
information on recent sales of homes located within a predetermined
mile radius of the subject property. He then uses this
information to arrive at the fair market value. The lender
needs to know how much the property is worth if they are
going to lend you money. The appraised market value must
be at least 20% over the amount of money you are borrowing
to purchase the home. An appraisal costs anywhere from
$250.00 to $500.00.
Underwriting Fee: This is the service provided by an Underwriter
at the lending institution that will evaluate all of your
data and all of the data provided by the required sources.
They will then determine if you qualify for the amount
of funds requested, and they are the final authority to
approve your loan. The fee for this service is $200.00
to $300.00.
Loan Origination Fee: This is the fee your broker/lender
will charge for gathering all your data needed to quality
for the loan. He/she will submit all of the data to various
lenders trying to find the best loan for you. He/she will
then explain to you all of the terms of your loan, such
as your interest rate and monthly payment.
Discount Points: This is a voluntary fee. If your lender
has approved you for an 8% interest rate, you can "buy
it down" to 7% by paying 1% to 2% of the loan amount
upfront. Your monthly payment would then be lower per month.
This is strictly up to you if you want to pay these points
to get a lower payment. Some lenders do not offer this
alternative.
Inspection Fee: Usually charged on new construction. An
inspector will visit the property to make sure the home
is completely finished and ready for occupancy. The charge
for this is around $100.00.
Settlement Fee: When all the requirements of the lender
have been met and your loan has final approval, an appointment
will be made for you to sign all the necessary paperwork,
such as Note, Mortgage, etc. A closing agent of your choice
will be appointed to explain all of these documents to
you as you sign them. A closing agent is an expert in the
field that can answer any questions you have about your
loan for your new home. The closing agent's fee is between
$200.00 and $400.00.
Homeowners Insurance: The lender will require you to buy
a homeowners insurance policy which will protect you from
flood damage, fire, etc. The premium on this policy is
determined by the value of your home and is paid in monthly
installments to the lender or insurance company.
Title Insurance: Title insurance is not the same as homeowner's
insurance. Title insurance is required by the lender and
is a policy of insurance issued by a Title Company. Title
companies provide two types of policies. One policy insures
the lender that they have the 1st lien on the subject property.
Therefore, if you default on your payments and the lender
is forced to sell the property, they will get the proceeds
from the sale to cover the balance on your mortgage note.
If there are other liens on the property that would prohibit
the lender from getting the proceeds from the sale, then
their insurance policy issued by the title company will
cover them. The title company would be responsible for
paying the balance you owe on the mortgage. This policy
does not protect you, only the lender. The other policy
issued by title companies is known as an "Owners Policy" and
protects you and your home from any title defects. When
you buy a house, you get more than a building. You get
title to a piece of Mother Earth - a piece that others
have owned before you, dating back to the 1700's. With
over 100 types of forgeries and mistakes that could have
been made by previous owners, you now want to make sure
you have clear title to that piece of mother earth you
bought.
Imagine your second week in your new home and unexpectedly
the previous owner, Mrs. Smith, shows up at your door.
She informs you that she is completely unaware that her
home has been sold by her ex-husband. It seems funny; this
Mrs. Smith does not look like the Mrs. Smith you met at
closing. An owner's policy will protect you from this type
of illegal sale. The title company would be responsible
for defending you (including all costs for legal fees)
against the claim filed by the real Mrs. Smith. It makes
sense to purchase both types of coverage when buying your
home. The cost for this insurance is usually never more
than $5.00 to $6.00 per thousand of coverage and is a one
time premium paid at the closing. The coverage is good
as long as you own your home.
Title Search and Examination: This service is also provided by the Title Company and
relates specifically to the insurance
policy, just like a medical insurance company would not
insure a preexisting condition, a title insurance company
would not insure a piece of property with known title defects.
Therefore, a search of the public records at the courthouse
is made regarding the subject property. The courthouse
holds all records relating to land. Any defects found on
your subject property will then be corrected by the title
company and an insurance policy would then be issued. The
cost for the Title Search and Examination is $150.00 to
$400.00.
There may be a few other fees not listed here,
such as filing fees and courier fees. Please review your
individual
loan fees.
Summary of the Process
- Here you find an outline of the entire process, and
how it flows, once you have decided to buy a home.
- 1st you get
pre-qualified.
- You hire the services of a
real estate agent to find the perfect home for you
and your family.
- You find the perfect
home and make an offer to the seller.
- The seller accepts your offer and you now apply for
financing through a broker/lender of your choice.
- Fill out
a loan application
- Supply Documentation
- You have been pre-approved for
financing, subject to data not yet received but needed
(as explained above)
- The lender will now order a credit
report, appraisal, survey, title insurance, flood
certification, inspection
and a tax check.
- The lender's underwriter will evaluate
the information provided by you and outside sources
as required above
and will give your loan the final approval.
- You will
now be required to purchase the Homeowners Insurance
through an agent of your choice.
- The Settlement Agent
will now set up an appointment with the sellers and
yourself to sign all the necessary papers
to finalize your purchase, including all of the lender's
documents.
- The title company will now issue the Lender's
Policy to the Lender and the Owner's Policy to you!
Again, buying
or refinancing a home is something that most people just
don't do everyday. We hope we've explained
the stressful process to you so that you feel confident
you have made the right choices. We really want you to
know how important the whole process is and why you truly
need Title Insurance. We wish you all the best in your
new home!
What Any Homebuyer Should Know - Valuable Home buying Tips - Know your creditworthiness. Your approval will be
based on three factors; if you pay your bills on time,
your debt to income ratio and your employment/income
history. To increase your chances for approval over
time,
you can
pay your bills on time, do not apply for credit,
reduce your credit card balances or obtain additional
credit,
if you have limited credit. Also, establishing a
good working pattern with the same employer or being
self employed
for
a sufficient period of time will increase your chances
for approval.
- Be Pre-qualified or Pre-Approved before you
begin the process. Realtors and Sellers alike are
more likely
to accept/deliver a pre-qualified or pre-approved
offer.
- Get all the Seller's promises and verbal agreements
in writing in the form of a Purchase Contract. Do not
exclude
any details you have agreed to verbally. A written
purchase agreement will take precedence over a verbal
agreement.
- Request that the home be inspected for any
damage and/or termites. You’re likely to incur the cost
for these inspections, but it is worth the price. Any
repairs that need to be completed by the Seller should
be in writing
and included in the Purchase Contract. You may need
to amend your original agreement to include these repairs,
once the inspections have been made.
- The minute your offer
is accepted, get homeowner's insurance. This could
delay the closing by as much as a
week if you don't have it.
- Avoid PMI. Lenders charge PMI
to help protect them against loss in a foreclosure
action. Private Mortgage
Insurance is required when you buy a house with less
than 20% down and can be canceled after one or two
years. A
monthly insurance premium is added to your payment
to cover this cost. Not all lenders require PMI, so shopping
around
for different lenders may help you avoid PMI. Guardian
National Mortgage does have programs available without
PMI. Ask us about them today!
Rent vs. Buy
The Home Buying Advantage
The National Association of Realtors
has reported record breaking numbers in the home buying
industry in the last
5 years. We can contribute most of this recent boom in
home buying do to lower interest rates and more lenient
lenders than ever before. What we mean by lenient, are
lenders that are approving loans for buyers who are younger,
with minimal credit history, no employment history, self
employed or even scarred credit. In fact, sometimes it's
just as easy for these types of buyers to get financing
as someone with a decent credit history. Today, home buyers
are also buying houses with no money down. All of this
is called creative financing and it works! The statistics
prove it. Helping you purchase your new home is our specialty.
ADVANTAGES of BUYING
Obviously, you can build home equity. Helping you purchase
your new home is our specialty. You actually own the
home and its value should continue to rise at about 3%
per year and your payments go towards paying off YOUR
home, not paying off your landlord's home.
ADVANTAGES
- YOUR OWN PARKING
- PEACE AND QUIET
- PRIVACY
- MORE LIVING SPACE/ MORE LUXURIOUS BATHS
- BETTER/FASTER MAINTENANCE
AND REPAIR
- MORE CLOSET STORAGE
SPACE
- YOU CAN DESIGN YOUR HOME/LANDSCAPING
- TAX ADVANTAGES
- MORE FAMILY ORIENTED
- PAYMENT IS THE SAME AS RENTING
RENT VS. BUY CALCULATOR
Estimated costs of renting |
$19,200 |
Estimated gross costs of buying, including closing
costs |
$21,500 |
Estimated increase equity |
$4,900 |
Tax Saving |
$5,000 |
|
Net costs of buying |
$11,600 |
Estimated total savings |
$7,600 |
|
Hopefully all of this information
will help you decide if buying a home is right for you,
rather than renting.
Before you begin your search, there's a lot of other
information you should be aware of. Some of this information
includes facts about your credit, and what a pre-qualification
means vs. a pre-approval. You should be educated on the
entire process before you begin. Learning as you go is
not recommended when buying a home for the first time. |