THE PROCESS OF BUYING …
is similar for all home buyers. From determining just how much home you can afford to closing the contract agreement, the following provides you with an overview of the specific steps that you will encounter during the business of purchasing a new home.
FINANCING THE PURCHASE
How Much Can You Afford?
Lenders use established formulas for helping determine what price home you can afford to purchase. Depending upon the lender and the type of loan, you will be required to come up with 5 to 20 percent of the purchase price as a down payment on your new home. Lenders then apply slightly different formulas for determining your “total monthly housing costs” in order to establish your qualifications for securing a home loan. Some lenders figure in basic amounts for maintenance and utilities in addition to your Principal, Interest, Taxes and Insurance (P.I.T.I.) plus association dues, and any other fixed costs.
Generally, lenders allow no more than 25 to 35 percent of your gross monthly income for P.I.T.I., and as much as 45 percent for both your P.I.T.I. and monthly debt payments combined. (P.I.T.I. represents the principle, interest, taxes and insurance that you will pay on your mortgage loan). Two formulas used by a variety of lenders are:
P.I.T.I. ÷ Gross Monthly Income = 25-35% or Less
(P.I.T.I. + All Monthly Debts) ÷ Gross Monthly Income = 45% or Less
What Type Of Home Do You Want?
You may know exactly what you want in terms of the structure of your new home. Perhaps you’ve already chosen a single story ranch style over a two story condominium. Or, you may be open to several options and you’ll “know it when you see it”. Single family homes come in a variety of styles including but not limited to: Cape Cod • Contemporary • Colonial • Modern • Ranch • Raised Ranch • Split Level
Multiple family dwellings generally fall into one of the following categories: Condominium • Own-Your-Own • Planned Unit Development •
Selecting a neighborhood that is compatible with your comfort and lifestyle is the next consideration. A variety of concerns will play into your decision about which neighborhood is right for you and your family.
You may consider:
- Overall appearance
- People who live in the neighborhood
- Proximity to schools, churches, shopping, employment and freeways
- Availability of services
- Recreational and exercise areas and equipment
- Property taxes
- Zoning and building regulations.
When you’ve made the decision to purchase a particular property, Anna will assist you in presenting an offer to the seller. Your offer to buy involves submitting a signed real estate contract that specifically states the terms and conditions upon which you would like to purchase the property. Your offer will generally be accompanied with a good faith deposit check for the seller.
Depending upon the area in which you are located, this offer may be known as an offer to purchase, a contract of purchase, a contract of sale, an earnest money agreement, a deposit receipt, or perhaps another variation. The seller may accept your offer as presented, or employ the option to “counter” your offer with slightly different terms, price, financing, or other conditions.
Once both you and the seller have agreed to the terms of purchase, you have both signed the document, and you have been notified of the seller’s acceptance (usually when you receive an actual copy of the contract) the document becomes a valid sale contract.
NOTE: It may happen that you and the seller cannot reach a mutual agreement. In that case, the seller will refuse to sign your offer and no contract will be entered.
Comparing Available Loans
Competition among lenders is vigorous. Your search for the best loan may include discussion with representatives for mutual savings banks, savings and loans, private lenders, mortgage bankers, finance companies, credit unions and mortgage loan brokers. It is important to take accurate notes when speaking with each lender’s representative in order to effectively compare loan availability, interest rates, terms, loan origination fees, discount fees or points charged, appraisal fees, down payment requirements, income requirements, and other specific items that lenders may request.
Applying For The Loan
Most lenders require the same basic information from you. Your complete loan application may include details about:
- Total monthly income including alimony, child support, bank retirement, interest, dividend or trust income, etc.
- Assets such as cash in banks, stocks, bonds, other property owned, vested interest in retirement plans, life insurance, automobiles, etc.
- Anticipated housing costs
- Credit references
- Employment history
- The lender will carefully review the information provided by you in order to determine the risk in lending you money to purchase a home.
Some Home Loan Types
At the closing or settlement, you and the seller will each have completed the conditions and met the terms pursuant to your contractual agreement and title to the property will be conveyed to you. Anna, escrow company, attorney or other settlement assistant will have helped you through the myriad steps of closing, including handling of the many details such as:
- Loan approval
- Inspection of the property
- Possible repairs
- Securing free and clear title and title insurance
- Payment of all current taxes
- Pay-off of existing seller’s loan
- Payment of insurance
- Document preparation and recording
- Ultimate transfer of funds, title, keys and paperwork
Following the closing, you will receive a final settlement statement for your records that clearly illustrates all the fees paid by you to close the contract.