A Guide to Buying Your First Home - Website

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<ul><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 1/21</p><p>A Guide to Buying</p><p>Your First Home</p><p>From the Offices of:</p><p>Jason Holter</p><p>(281) 993-3727jason@houstonmtg.com</p><p>Heather Helton</p><p>(832) 276-1679heather@houstonmtg.com</p><p>http://www.houstonmtg.com</p></li><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 2/21</p><p>2</p><p>Table of Contents</p><p>Beginning the Process ................................................................................ 3</p><p>Is Buying a Home Right for YOU? ............................................................ 3</p><p>Im Dealing WithWHO?!........................................................................ 5</p><p>Organization is Key! ................................................................................. 5</p><p>Finding a Home ........................................................................................ 10</p><p>Youve Got it in Your HeadNow Where to Find it? .............................. 11</p><p>Lets Close it Down! .................................................................................. 12</p><p>Im Paying WhoWHAT?!........................................................................ 13</p><p>What Are the Different Charges I Can Expect? ...................................... 13</p><p>One-Time Closing Costs vs. Prepaid Closing Costs............................... 14</p><p>Your Protection ...................................................................................... 15</p><p>Frequently Asked Questions ..................................................................... 16</p><p>What is the difference between pre-qualified and pre-approved? ........... 16</p><p>What is earnest money? ........................................................................ 16</p><p>What is a point? ..................................................................................... 16</p><p>What is title insurance? .......................................................................... 16</p><p>Glossary ................................................................................................... 17</p><p>Addendum ................................................................................................ 20</p><p>Buyers Scorecard.................................................................................. 20</p><p>Time for a Recap! .................................................................................. 21</p></li><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 3/21</p><p>3</p><p>Beginning the Process</p><p>Is Buying a Home Right for YOU?</p><p>In a Nutshell:</p><p>Advantages Disadvantages</p><p>Impact on Taxes Sacrifice MobilityBuilding Equity Necessary UpkeepImprove Credit Rating Possibility of Depreciating Value</p><p>Heirloom Payment ShockPride &amp; Experience Big Investment</p><p>The Long Version:Advantages:</p><p> One of the largest advantages of home ownership is its impact on your taxesmortgage interest and local property taxes on your primary residence may be</p><p>deductible from your federal income taxes. Consult your tax advisor to determine</p><p>which benefits and tax advantages apply to you.</p><p> Equity is an asset that is equal to the portion of your home that you actually own.Equity is determined by calculating the difference between the market value of</p><p>your home and the balance owed on your loan.o Equity builds in two ways:</p><p> Primarily, equity accumulates because a portion of your monthlymortgage payment reduces the principal amount owed on your</p><p>mortgage. Secondarily, equity accumulates as your homes market value</p><p>increases or appreciates.o Homeowners can use equity to take out a second mortgage loan, also</p><p>called a home equity loan. You can secure a home equity loan that has a</p><p>comparatively low interest rate that also includes additional attractive tax</p><p>advantages.</p><p> Owning a home is considered to be one of the best investments and looks goodon your creditjust make sure you are making your payments on time!</p></li><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 4/21</p><p>4</p><p> The ability to pass on a home to children or grandchildren can have an enormousamount of sentimental significance. Your grandchildren may want to raise their</p><p>kids in a house full of happy memories from their childhood.</p><p> Financial advantages aside, owning your own home can instill you with the pride</p><p>and the experience of owning something that is yours. You have the freedom todo with your home anything your creativity can imagine, and the experience of</p><p>ownership can teach you lessons youll always remember.</p><p>Disadvantages:</p><p> The primary disadvantage of owning your own home is the fact that you will</p><p>restrict your mobility. You will not have the freedom of moving around due to</p><p>personal circumstances (new job, illness, divorce, etc.) or even if youre just not</p><p>adapting into the community that you chose as well as you thought you would.</p><p>Before committing to buy, at the very least take careful consideration as to the</p><p>area youll be living and make sure its a place you wouldnt mind staying for a</p><p>while.</p><p> Owning a home comes with the responsibility of maintaining it. If something</p><p>breaks, you can no longer call your landlord or report it as someone elses</p><p>problemYOU must fix it! Make sure that youre able to financially absorb some</p><p>of the problems that may arise after you purchase your home. Keep in mind</p><p>also that older homes usually require more maintenance than newer homes.</p><p> There is a possibility that your home, instead of appreciating to build equity, will</p><p>depreciate over time due to a change in the immediate community or wear and</p><p>tear on the property. This causes your homes value to decrease and has anegative impact on accruing equity.</p><p> Payment shock occurs when an individual who is accustomed to renting</p><p>purchases a house that has a monthly mortgage payment that far exceeds what</p><p>you used to pay for rent. This can happen if originally you were paying rent that</p><p>was considered low in proportion to your income and then applied for the</p><p>maximum mortgage amount available to you.</p><p>o Payment shock may also include the increase in expenses for utilities,</p><p>insurance and maintenance which may have largely been covered by your</p><p>original rental payments.</p></li><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 5/21</p><p>5</p><p>Im Dealing WithWHO?!</p><p>Mortgage Lender</p><p>One of the first and most important resources in home buying is your loan officer. Yourloan officer will play an essential role in your purchase beginning with your</p><p>prequalification and will follow you all the way through closing. Choosing a loan officer</p><p>is important and you need to feel comfortable with him/her. Be sure that he/she</p><p>answers your questions confidently and informatively and does not intimidate you</p><p>youll be working closely with this person so the ability to have a good working</p><p>relationship with him/her is key.</p><p>Real Estate Agent/Realtor</p><p>A Realtor is a person licensed to sell and/or lease real property, acting as an agent for</p><p>others, and who is a member of a local real estate board associated with the National</p><p>Association of Realtors. Your agent should also make you feel comfortable about</p><p>expressing any concerns that you may have. Your agent is responsible for pursuing</p><p>your best interest while negotiating with sellers agents.</p><p>Title Agent</p><p>A title agent provides a legal description of the property and reveals whether there are</p><p>any liens, restrictions or unsettled claims against it.</p><p>Insurance Agent</p><p>Your insurance agent will furnish your homeowners insurance, also known as hazard</p><p>insurance, that many lenders require you to obtain before the final closing.</p><p>Organization is Key!Finances</p><p>Youre going to have an extensive and comprehensive overview taken o f your personal</p><p>finances for at least the last two tax years. Be sure and be ready to get all of that</p><p>information together. The hardest part about getting a mortgage loan is getting thepaperwork done and, by being prepared beforehand, you can expedite the process</p><p>without having to filter through old paperwork late in the game. So what can you do?</p><p> Review Your Credit History: Its a good idea to know and understand what your</p><p>credit score is, as well as review your credit history, as early in the process as</p></li><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 6/21</p><p>6</p><p>possible. Dont let a mediocre credit score deter youyou may still qualify for a</p><p>home loan.</p><p> Gather Your Financial Records:This is where it may get a little tricky. Theres</p><p>a lot of information youre going to need and youre going to need to have it a ll in</p><p>one secure and accessible place.</p><p>Information Required</p><p>Section of Form: Useful Documents:</p><p>Personal Information Social Security Card(s) Drivers License(s) Department of Veterans Affairs (VA)</p><p>Certificate or discharge papers (ifapplicable)</p><p> Present and Former AddressesBorrower Information Current Rental Agreement</p><p>Employment &amp; Income Data Address of Current &amp; PastEmployers</p><p> 1 Month Recent Pay Stubs W-2s &amp; Tax Returns for Past 2</p><p>Years Proof of Social Security, Disability</p><p>or Pension Income (if applicable) Lease for Any Investment</p><p>PropertiesAssets 2 Months Recent Bank Statements</p><p>for All Checking &amp; Savings</p><p>Accounts Investment Account Statements</p><p>Debts Monthly Financial Obligations- This includes car payments,</p><p>credit card debt, insurancepayments and other monthlyhousehold expenditures</p><p>Legal Declarations Details on Any Historical Defaults orForeclosures</p><p> Divorce Decrees, MarriageLicenses, etc.</p><p>Property &amp; Real Estate Information Purchase Offer (if completed)</p><p> Consider Your Loan Options: You may also want to know the types of loans</p><p>available, in order to determine which one will suit you best. This is a question</p><p>for your loan officer, but heres a brief description of each:</p></li><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 7/21</p><p>7</p><p>o Conventional Loans this is a type of mortgage in which the underlying</p><p>terms and conditions meet the funding criteria of Fannie Mae and Freddie</p><p>Mac. About 35-50% of mortgages, depending on market conditions and</p><p>consumer trends, are conventional mortgages. There are also established</p><p>guidelines for borrower credit scores, income requirements and minimum</p><p>down payments. For example, most conventional loans require</p><p>somewhere between 5% and 20% down. Loans above the lending limits</p><p>set by Fannie Mae and Freddie Mac are called nonconforming or jumbo</p><p>loans. Most conventional mortgages have either fixed or adjustable</p><p>interest rates. Typical fixed interest rate loans have a term of 15 or 30</p><p>years. A shorter-term loan usually results in a lower interest rate.</p><p>Adjustable-rate mortgages, or ARMs, fluctuate in relation to the rate of a</p><p>standard financial index. Monthly payments can go up or down</p><p>accordingly.</p><p> Cost: Origination fees, down payments, mortgage insurance,points and appraisal fees can mean the borrower has to show up at</p><p>closing with a sizable sum of money out-of-pocket, or be prepared</p><p>to roll over some of these costs into their mortgage amount, which</p><p>may result in a higher loan rate.</p><p> Pros: Conventional mortgages generally pose fewer bureaucratic</p><p>hurdles than FHA or VA mortgages, which may take longer to</p><p>process because of the red tape. Because these mortgages</p><p>generally require higher down payments than the others, home</p><p>equity can build up faster.</p><p> Cons: You'll need excellent credit to qualify for the best interestrates. You will be required to put a minimum of 5% down for your</p><p>down payment with approved credit.</p><p> Who they're good for: Conventional loans are ideal for borrowers</p><p>with excellent credit who have the cash-on-hand to afford a down</p><p>payment of 5% or more.</p><p>o FHA Loans the Federal Housing Administration (FHA), which is part of</p><p>the U.S. Department of Housing and Urban Development (HUD),</p><p>administers various mortgage loan programs. FHA Loans have lower</p><p>down payment requirements and are easier to qualify for than</p><p>conventional loans. FHA loans cannot exceed the statutory limit,</p><p>however, so speak to your loan officer to determine if you will qualify.</p><p> Pros: FHA mortgages require a low 3.5% down payment as</p><p>opposed to conventional loans, which can require as much as 20%</p><p>down. The minimum credit score for an FHA loan is 640.</p></li><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 8/21</p><p>8</p><p> Cons: Upfront mortgage insurance premium, or MIP, and ongoing</p><p>annual premiums add to the overall costs to your loan.</p><p> Who they're good for: The FHA loan program has historically</p><p>been the "go to" product for borrowers with blemished or less-than-</p><p>perfect credit, borrowers with moderate debt-to-income ratios and</p><p>for those who don't have a lot of money for a down payment.</p><p>o VA Loans these loans are guaranteed by the U.S. Department of</p><p>Veterans Affairs allowing veterans and service persons to obtain home</p><p>loans with favorable loan terms, usually without a down payment. In</p><p>addition, it is easier to qualify for a VA loan than a conventional loan.</p><p>Lenders generally limit the maximum VA loan to $417,000. It is important</p><p>to recognize that the U.S. Department of Veterans Affairs does not make</p><p>the loans, it only guarantees loans made by lenders. The VA determines</p><p>your eligibility and, if youre qualified, the VA will issue you a Certificate of</p><p>Eligibility to be used in applying for a VA loan. Cost: Private mortgage insurance is not required, but the VA</p><p>charges an upfront VA funding fee, which can be rolled into the</p><p>loan or paid by the seller. The funding fee helps pay for the cost of</p><p>a VA loan, reducing the cost to taxpayers. The fee can be as low as</p><p>0.5% for Interest Rate Reduction Refinancing Loans, which enable</p><p>veterans to refinance an existing VA loan to one with a lower rate.</p><p>And the funding fee can be as high as 3.3% for subsequent users</p><p>of the VA home loan program. For first time borrowers, the funding</p><p>fee ranges from 2.15% for regular military to 2.4% for Reservists</p><p>and National Guard borrowers. A down payment can result in aneven lower fee. For example, the funding fee for a member of the</p><p>regular military who puts between 5% and 10% down will be</p><p>reduced from 2.15% to 1.5%. For down payments greater than</p><p>10%, the fee goes down to 1.2%. For members of the Reserves or</p><p>National Guard, the fee falls to 1.75% and 1.5%, respectively, in</p><p>these cases.</p><p> Pros: With VA loans, borrowers can qualify for 100% financing of</p><p>the sales price. Veterans do not have to be first-time buyers and</p><p>may reuse their benefit. Private mortgage insurance is not required.</p><p>The loans are assumable by another veteran provided he or she is</p><p>qualified. The seller has the option to assume closing costs and the</p><p>VA funding fee as long as these expenses don't exceed 4% of the</p><p>total loan amount.</p></li><li><p>7/31/2019 A Guide to Buying Your First Home - Website</p><p> 9/21</p><p>9</p><p> Cons: The veteran must produce a Certificate of Eligibility, or COE.</p><p>Borrowers may have to pay the VA funding fee, which can mean</p><p>borrowers may end up with a 102% to 103% loan on the property.</p><p>Borrowers must be creditworthythe average credit score for</p><p>borrowers using the VA loan program is 620. Also, a surviving</p><p>spouse must continue to make loan payments if the veteran dies</p><p>before the loan is paid off. Veterans must have received an</p><p>honorable discharge from the U.S. military. Medical and general</p><p>discharges are handled on a case-by-case basis, but are generally</p><p>appro...</p></li></ul>