Home Buyers Guide
Home Buyers Guide – a guide geared toward home ownership, which remains a goal for many because of its numerous benefits. Along with the enjoyment of owning a home comes an investment in your future, stability for you and your family, tax savings, personal satisfaction and a sense of community. Thanks to a variety of financing options and low down payment mortgages available today, more families are realizing their real estate dreams.
CENTURY 21® real estate agents understand that choosing to buy a home is probably one of the most important personal and financial decisions you will make. That’s why our professional associates work with you every step of the way.
We encourage you to take time to read this guide thoroughly and complete the worksheets provided. Make note of your questions along the way. Your CENTURY 21 Almar & Associates’ real estate agent will provide you personalized service and answer your every question or concern.
The Benefits of Owning a Home
Owning a home is a valued investment which can have financial advantages. Because homes generally increase in value over a period of time, each payment you make is an investment in your future. And even if your home doesn’t appreciate much, you will benefit from the monthly forced savings that result from paying down the remaining balance due on your mortgage.
With each monthly payment, you also build home equity – the difference between what your home is worth now and what you paid for it. When you sell, your equity is your profit. This gain can help you purchase your next home, perhaps move up to a larger one. Or you can tap into the equity for college tuition loans or retirement needs at a rate which is generally lower than available on personal loans. Also, making payments toward, and ultimately paying off a mortgage is an excellent way to establish a good credit rating.
FREEDOM AND STABILITY
Perhaps the most tangible yet greatest treasure of home ownership is the personal satisfaction in living in a home that you own. You are free to keep pets, plant a garden and remodel or redecorate to reflect your personal style. A home gives you and your family a feeling of stability and commitment.
A special sense of security and satisfaction comes as you begin to put down roots in a neighborhood.
The First Step
One of the single most important steps to take before you begin to purchase a home is to evaluate your assets and liabilities and monthly expenditures. Begin by examining your currently monthly average spending using the financial outline below. Include everything from housing expenses and transportation to debt repayments and entertainment. As you collect your spending data, think about how a house purchase – including mortgage payments, insurance, taxes, repairs and maintenance – will affect your budget and ability to save. Are there areas in which you need to cut back to make more room for a mortgage payment and other home ownership expenses?
Download Evaluate Assets, Liabilities, and Monthly Expenses
What can I afford to spend on a home?
The answer to this question is based on two factors: (1) How much you feel comfortable spending on a monthly basis after surveying your budget and spending habits and (2) How much your lender calculates you can afford based on your income and debt obligations.
It is important to understand how a home is financed. There are three crucial elements: (1) down payment, (2) closing costs and (3) the mortgage. When you know the amount of down payment, closing costs and monthly mortgage payments you can afford, you can better determine how much you can afford.
A down payment is the money you pay up front toward the house. The higher the down payment, the lower the monthly payment and interest fees.
Fortunately, home buyers today no longer have to climb a financial mountain – saving for the traditional 20% down payment – before purchasing a home. There are a number of alternative programs available.
Private Mortgage Insurance: Typically, conventional lenders are willing to accept a down payment of as little as three to five percent of the purchase price if private mortgage insurance (PMI) is secured. Although PMI benefits the lender by protecting them against default, it also benefits you by allowing you to purchase a home with less money down. PMI premiums depend on the size of the mortgage and down payment. Generally, though, expect to pay 0.5% of the loan amount for the first year, followed by lower payments thereafter.
FHA and VA Loans: Loans through the Federal Housing Administration (FHA) or Veterans Administration (VA) carry attractive down payment requirements of 5% or less. There is usually a maximum on the amount of money you can borrow, and VA loans are only available to veterans.
Seller Financing: In a buyer’s market, a seller may hold a second mortgage for 10% of the purchase price, while the buyer puts 10% down.
Family Gifts: Any gifts or loans from your family, or other, need to be documented if you’re using them for the down payment.
Closing is when ownership of your new home is officially legally transferred from the seller to you and documented locally. Sometimes sellers will pay closing costs. If not, be prepared to pay an additional two to five percent of the home purchase price. These costs can be generalized into three categories:
THE COSTS OF BORROWING MONEY: This includes “discount points,” a one-time charge to adjust the yield on the loan to what market conditions demand. Each point equals one percent of the mortgage amount; for example, two-and-one-half points on a $100,000 mortgage would cost $2,500.
THE COSTS OF ESTABLISHING A LOAN: These include the loan origination fee, appraisal fee and cost of credit reports. Premiums for hazard and mortgage insurance are usually paid at closing. Also, prepaid interest will be collected for the period between closing and the end of the purchase month.
THE COSTS OF DOCUMENT PREPARATION: Title insurance costs pay for the search of public records to determine if the property is free from any other ownership or liens. Recording and transfer fees cover the legal recording of the deed with governmental agencies as well as the transfer of taxes.
Overall closing costs vary from state to state. Your CENTURY 21 Almar & Associates’ agent will be able to provide you with an estimate of your closing costs.
The Mortgage – Financing Your Home
Unless you’re wealthy enough to pay cash for your home, you’ll need to take out a mortgage – a loan that you obtain to close the gap between the cash you have for a down payment and the purchase price of the home. The amount of this loan will be decided by the price of the home and your down payment. Getting pre-approved for a certain mortgage will allow you to know what price range your lender will approve and give you more buying strength.
Lenders factor in sales price and down payment, but place more importance on how much you can handle on a monthly basis. The term of the loan, the interest rate and the principal amount of the mortgage will determine the amount of your monthly payments. The higher the interest rate, the higher the monthly payments. The length of most real estate loans is 15 or 30 years.
Use our Mortgage Tools to help you determine the loan amount you can afford, what your monthly payment would be, and more.
Your Mortgage Options
Like many other products and services, numerous mortgage options are available. They fall into two basic categories:
(1) FIXED-RATE MORTAGES; and
(2) ADJUSTABLE-RATE MORTGAGES.
With fixed-rate mortgage loans, the interest rate stays the same and your monthly mortgage payment amount does not change, which makes budgeting easier. The interest rates on these loans are usually a little higher than adjustable loans since the lender is establishing a set interest rate for many years.
Adjustable-rate mortgage (ARM) loans have an interest rate that fluctuates up and down throughout of the life of the loan, depending on market conditions. The rate could change as often as every month, so it can be difficult to budget. An ARM is an attractive option because it usually starts out at a lower interest rate, which may enable you to qualify to borrow more.
When it comes to ARM loans, an important point to look for is the presence or absence of interest-rate “caps.” Life-of-the-loan caps place a ceiling on how high the rate can go over the term of the loan, often five to six points above the original rate. They are a guarantee from the lender that you will not be required to pay more than the agreed-upon maximum interest rate. Annual caps protect you from extreme jumps in the interest rate in any given year and are usually in the one to two percent range.
Shop around for that loan, and ask lots of questions. Since you will be living with it for many years, make sure to get one best suited to your financial circumstance.
Where and What to Buy
After you’ve determined how much house you can afford and which mortgage option is best for you, prioritize your needs and wants for your new home. The two main factors are location and style of your home.
It’s true. Location is the most important factor in buying a new home. It will partially determine the price of the home and will be a powerful influence on your lifestyle. Check out the amenities of the neighborhoods you’re considering, and talk to the people who live in those areas. Ask co-workers and acquaintances for their recommendations. And ask your CENTURY 21 agent for current information on the community’s economic health, schools, crime rates stability.
Next you’ll need to decide what you want in a home. The first basic choice is between a newly-constructed home and an existing one. If you’re looking to own a home that nobody else has laid claim to and brings with it the latest in style and efficiency, a new home is what you’re after. The downside is that new homes are usually more expensive than homes offered for resale. To many, an existing home that has been well cared for and is located in an established neighborhood is much more desirable than a new home.
You’ll also need to choose between a single family home or a condominium/co-op. A single family home gives you the most privacy and is generally more spacious. Plus, it comes with a yard. Condos and co-ops free you from the burden of general upkeep and may provide common areas with pools and other recreational facilities. They are also usually more affordable, but monthly maintenance charges exist with these options.
Buyer’s Wish List
Narrowing your search to homes with specific features will save you time during the house-hunt process and help your sales associate find homes just right for you. Use the list provided, or create your own, to define your future home. Of course, your final selection will likely require compromise.
Working with a CENTURY 21 real estate agent
Finding your new home can be a rewarding experience, especially when you have a CENTURY 21 Almar & Associates real estate agent at your side, helping you every step of the way. Some people choose to find a home on their own, but a real estate agent will have many up-to-the-minute listings available that may not appear in the newspaper or on the Internet, and can save you lots of time by screening for properties that best suit you.
Selecting the right real estate office is an important decision. As the world’s largest real estate sales organization with approximately 8,000 independently owned and operated franchised broker offices in more than 45 countries and territories worldwide, the CENTURY 21 System has continuous access to all the latest properties available through its expanded network, advanced technology and participation in the Multiple Listing Service*. Plus, CENTURY 21 real estate agents have the skills and knowledge to supply you information on home values, taxes, utility costs, neighborhoods and financing.
We know that you’re looking for more than just a roof over your head. You’re looking for a place to express your lifestyle and values, a place to spend time with family and friends, a place to retreat at the end of the day. That’s why we learn what is important to you and search until you are completely satisfied.
*Not available in all areas