Welcome to the Joys of Owning a Home
When it comes to buying your first home, a little knowledge can go a long way. Understanding real estate and how the process works are just some of the things that can help you make your homebuying experience a success.
Shopping for Your Loan
Selecting the right mortgage is a crucial part of the homebuying process. There are three things to keep in mind when selecting a loan:
- How long an interest rate is available
- Key loan terms
- How much this mortgage will cost you
The first step to this process is to use the Good Faith Estimate (GFE), a document that mortgage brokers and lenders are legally required to give you soon after you apply for a loan. The GFE is a three page form that lays out the loan terms and charges related to the loan. It is a good idea to compare three GFEs to choose the best mortgage loan for you and to protect yourself from surprises at the closing table.
Understanding the Good Faith Estimate
Page One of the GFE
- Line one reveals how long the interest rate is good through. Make sure to check each GFE to see if the interest rate is floating or locked. A floating rate means the terms in the GFE may be available for a short period of time. If the rate is locked, you must close the loan on or before a certain date for that interest rate to be effective.
- Line twoshowsthe date when the loan charges and closing costs are good through. If you want to move forward with this loan, you must let your mortgage broker or lender know before this date or some charges could change.
- In the Summary of Your Loan section, the first three lines tell you your loan amount, the number of years you have to repay your mortgage and the interest rate. Make sure to focus on the interest rate and the charges of closing costs associated with that rate.
- This section also indicates how much you will pay for principal, interest and mortgage insurance. This does not include property taxes or homeowners insurance.
- Next is a series of questions related to whether the loan has pre-payment penalties or balloon payments. If any of the boxes in this section are checked “yes,” make sure to ask your lender or broker for a complete explanation so that you know how these features could affect your loan and loan payment.
- The next section will show whether a lender will require an escrow account in order to pay property taxes and homeowners insurance. The payment amount indicated here only shows your mortgage payment for principal and interest and does not include escrow payments. Be aware that escrow payments can be a sizable part of your monthly mortgage expense and you’ll want to budget accordingly.
Page Two of the GFE
- Blockone, two and line A work together to show the total origination charges you will be expected to pay. Line A is important because it tells you the total amount of origination charges you’ll pay for your loan.
- Be aware that when looking at block one and two, you can pay lower origination costs expressed in line A in exchange for a higher interest rate. Likewise, you can pay higher origination costs on line A in exchange for a lower interest rate.
- Blocks three to elevenshow services you are required to pay for as a condition of the loan. These services include appraisal, title services and insurance. A lender may choose which company performs these services or may let you choose others.
- If the lender chooses the company, the combined cost for that service may not increase more than 10% above estimated charges on the GFE. If they let you choose the company, the lender must give you a list of at least one company for each of these services. If you choose a company off of this list, the amount cannot increase more than 10% than the charge amount on the GFE. If you choose a company not included on this list, the amount may change and the 10% limit will not apply.
Page Three of the GFE
- The last page has three sections: a Tolerance Chart, Trade-Off Table and Shopping Chart.
- The first chart tells you more on what expenses may not increase, which amounts in total may not increase 10%, and which charges can change.
- At closing, if the lender exceeds the tolerance limit, then they must reimburse you the difference within 30days.
- The Trade-Off Table shows trade-off between receiving a higher interest rate for lower closing costs and vice versa.
- The Shopping Chart lets you compare offers by filling in the loan terms and settlement charges from the GFEs you are comparing.
Shopping for Your Home
Knowing what to expect when shopping for a home will help you make informed decisions, making this process more enjoyable.
Your Financial Situation
There are two important questions to ask yourself when considering your financial situation:
- How much can you afford to spend on a home?
- How much of a mortgage can you afford each month?
It is important that you are realistic about your finances. Consider how steady your income is, how much savings you have for a down payment, other debts you already have and your credit.
- When thinking about a monthly mortgage payment you can afford, consider current monthly expenses, costs that may impact your mortgage and expenses that are related to the new home.
- You will have a down payment, money you will put down toward the purchase of your home. If the down payment is under 20% of the sales price, you will most likely want mortgage insurance.
- Take into account costs associated with buying a home, such as repairing the home, regular maintenance and additional condo fees for condominiums.
- Lenders will depend on your credit report and score to determine whether to give you a loan and on what terms. Make sure your credit report and score is accurate.
Working with a Real Estate Agent
- A real estate agent will help you search for houses matched to your needs, show you houses and explore neighborhoods. Learn more about our buyer’s agents here.
- When you find the home you want, your agent will assist you to prepare for a purchase contract.
When You Find the Home You want to Buy
- All terms in your purchase contract are negotiable.
- Major terms of the contract include sales price, contingencies, the move-in date and appliances sold with the home. Contingencies are conditions if not met may let you cancel the contract.
- You will most likely need to make an earnest money deposit to your agent. This deposit shows your seller that you are serious about buying the home.
- When the seller accepts your offer, it’s a good idea to have a home inspection. You may also want to have lead, pest and asbestos inspections.
Closing the Deal
Settlement, closing or escrow is when your property will be officially sold and transferred to your name from the seller. You are just a few steps away from becoming a homeowner!
- The settlement may be conducted by a title insurance company, escrow company, lender or attorney. Make sure you read and understand everything you sign on your settlement statement.
- Be sure to bring your Good Faith Estimate(GFE) to the closing table for comparison. You may need additional documents at the closing table including homeowner’s insurance, proof of pest inspection, driver’s license or legal identification, and a certified check or wire transfer.One of the most important documents you’ll need will be your HUD-1 Settlement Statement.
Understanding the HUD-1 Settlement Statement
HUD-1 is a three page form that lists all the charges and credits related to your home purchase.
- You have the right to review your HUD-1 before the settlement. You can request the statement from your lender or settlement agent. When your receive it, compare the charges listed with the charges on your GFE. Ask your lender about any changes in charges.
- Page one of the statement summarizes all the charges and credits to the buyer and seller. The first page also tells you the type of loan you’re getting, names and addresses of the borrower and seller, address of the property, name of the settlement agent, settlement date and settlement price.
- Page two breaks down the settlement charges into categories also called “series.” This page will help you better understand the details of your settlement contract.
- Page three has a Comparison Chart and Loan Terms Chart. The first chart will help you compare charges on your GFE and what you’ll actually pay at settlement. The second chart shows the loan amount, interest rate and monthly loan payment.
Once the settlement is completed, you will receive the key to your new home!
Buying a home can be the most exciting and important purchase of your life. Contact our team to learn more about buying your first home with us.