HOME BUYER'S BOOK
Tom Ledbetter
Re/Max Suburban
43599 Schoenherr
Sterling Heights, MI 48313
Office: 586-262-2000
E-mail: toml@remax.net
Lisa Whitman
43599 Schoenherr
Sterling Heights, MI 48313
Office: (586) 997-3533
Cell: 586-817-8339
E-mail: lwhitman@mortgageone.biz
TABLE OF CONTENTS
Our
Mission.............................................................................................3
Our
Services............................................................................................4
Why
Buy.................................................................................................5
BEFORE THE
PURCHASE........................................................................6
Do a budget; monitor spending habits
Organize your documents
Mortgage Banker vs. Bank
What is mortgage pre-approval?
How much do we really need to save?
Cash for closing
What about credit?
Programs
Which loan is right for me?
Rates and how they work
Mortgage insurance
Mortgage terminology
FINDING A
HOME................................................................................18
How to choose an agent
Wants vs. Needs
Negotiation of the purchase agreement and
multiple offers
New Construction vs. Existing Homes
Townhouse/Condo vs. Single-Family Home
Difference between home inspection and appraisal
Making improvements and recovering the costs
DURING THE
TRANSACTION................................................................23
After the purchase agreement
Homeowner's insurance
What not to do during the purchase of a home
What is needed for closing
Preparing to move
AFTER THE CLOSING & BUILDING
WEALTH........................................26
Annual Mortgage Review
Your escrow account and transfer of servicing
Meeting your new financial obligation
What will happen after we own a home?
Offers that come in the mail and by phone
Property taxes
Managing your mortgage
Insurance coverage
Helpful hints
3
Our
Mission is to be on the cutting edge and provide innovative mortgage loan
products with exceptional service beyond our customers' expectations. Our
customers are the life-blood of the company, and by providing exceptional
service with integrity, we will create
Customers for Life.
Mortgage 1 is a Michigan-based mortgage lender with
multiple offices in Warren, Sterling Heights, Royal Oak, and Brighton to serve
all of your mortgage needs. Mortgage 1 also has alliances with local real
estate firms. We specialize in helping our clients realize the American Dream
of home ownership.
Mortgage
1 has a
wide variety of mortgage products including standard conventional
loans, zero down loans, low down payment
loans, government loans (FHA and VA), jumbo loans, non-conforming loans, and
everything in between. All you have to do is ask! We take pride in providing
our clients with top quality service, while at the same time keeping costs and
interest rates low.
Over time, we have developed lasting relationships with real
estate agents and borrowers who understand our commitment to excellence and our
ability to get the job done. It is the referrals and the word of mouth
endorsements from those agents and borrowers that are responsible for Mortgage
1's rapid growth and continuous success in an extremely competitive industry.
OUR SERVICES
We are your OneStop Shop for
your entire mortgage, real estate and new constructions needs!
We offer all of the following at no cost to you. You can go to our website at
www.mortgageone.biz to access these services
Mortgage
Pre-approval –
Pre-approval 4–6 months before you buy a
home
is essential. This allows time to adjust any issues that may limit your
mortgage
program options. Some mortgage programs are credit score
driven.
The more options you have the better chance you have of buying
the
home you want. Our mortgage consultation meeting takes an hour and
costs
you nothing. This consultation will tell you what your options are,
exactly
what you currently qualify for, your monthly payment and cash
needed
for closing. We will also help you make a plan for what exactly
you
need to be doing between now and your desired purchase date.
Realtor Referral
Program –
We also have full-time professional and
experienced real estate agents on our team to
assist you with your home
search. We can arrange to have a Realtor,
specializing in your areas of
interest, at your pre-approval meeting with us
to save you some time. We
will work with any Realtor on your behalf,
should you choose not to utilize
this part of our services.
WHY BUY?
Many people share the same American dream, to
own a home where they can nurture and raise a family and entertain friends in
privacy, while gaining equity and building future wealth. The quality of life,
being able to pick your own décor, having a garage attached to your house,
owning your own washing machine, having a yard for kids and BBQ's are some of
the benefits to consider.
TAX ADVANTAGES
IT'S
A FACT! Most Americans feel hopelessly over taxed. One sure way to beat Uncle Sam is to
buy a home. The way you benefit is by taking the amount you pay in interest and
property taxes for the year as a deduction, reducing your taxable income. For
example, if you buy a $170,000.00 home at 6% interest with average property
taxes of $ 2,400.00 a year, you will have an approximate $12,600.00 non-taxable
deduction. For the average homeowner in a 28% tax bracket, that means a savings
of almost $300.00 per month or $3,600.00 per year in your pocket just for
owning a home. This savings can be realized on a monthly basis by changing the
allowances you claim at work (please be sure to consult with an accountant for
an analysis of your personal financial conditions before changing anything), or
you'll have a smaller tax bill or bigger refund at the end of the year. (This
formula is a generalization only, personal conditions will vary.) If you do not
have an accountant we would be happy to recommend a reliable professional.
APPRECIATION & BUILDING WEALTH
Appreciation
is an amazing thing. We have encountered many people who believe they need to
save a 20% down payment before even considering a home purchase. Fact is,
depending on your ability to save, it's almost certain the price for a home in
the range you are comfortable with will no longer be comfortable! We have seen
people who bought a home 5 years ago double their money, and it looks like the
only way to go is up. With the shortage of affordable housing, the demand
appears to continue increasing. Sometimes, people think it won't matter if they
wait a year, or two, to buy a home. Appreciation (increase in property value)
through real estate is the number one way people build wealth.
BEFORE THE PURCHASE
Before
writing a purchase agreement, it's important to look at how you spend your
money and determine what, if anything, you are willing to give up to own a
home. You should also consider the advantages of having a home and how much
more additional time you would spend in your own home cutting down on
entertainment expenses.
Going
through the exercise of constructing a budget is very useful when considering
home ownership as well as keeping spending in line in the future. Making sure
you buy a home that has a comfortable payment for your lifestyle is of utmost
importance, regardless of what you can qualify for on paper. A budgeting
worksheet is included in this booklet for your convenience.
People
earn income every month and have very different ways of handling that income.
Some people spend it all and then some. Others have had the ability to save
quite a bit and feel they can add that monthly savings to a house payment. The
average American saves only 5% of their income. To detail exactly what you have
spent over a 3 month period on everything from coffee to candy bars can be a
real eye opener. With a little planning and budgeting, it's amazing how much
money flows through your household that you don't even notice. Once realized,
saving that money isn't really that hard!
ORGANIZE
YOUR DOCUMENTS
There
are several things you may need along the way for documentation. It's important
to locate these things ahead of time, because not being able to provide the
right documentation can delay your pre-approval or closing. The most common things
are listed below:
1.
Most recent pay stubs, covering 30 days,
along with the past 2 years W2's for each borrower.
2.
If you are self-employed (have greater
than 25% ownership) or receive commission income, the past 2 years' individual
federal income tax returns, all pages, and 2 years' corporate returns, all
pages, if applicable.
3.
2 months' most recent asset statements,
all pages, for checking, savings, investments, IRA, 401K, etc.
4.
For VA loans, a certificate of
eligibility or DD214.
5.
Complete bankruptcy documents if there
has been a bankruptcy in the past 7 years.
6.
Divorce decree if alimony or child
support are paid or received.
7.
Legible copy of your drivers' license.
8.
If
you are not a U.S. citizen, provide a copy of your green card, front and back.,
If you are NOT a permanent resident, provide us with your H-1 or L-1 visa.
HELPFUL BUDGETING HINTS
plan.
NOTES
MORTGAGE
BANKER VS. BANK
The main difference between a mortgage banker
and a bank is, as being a banker; we have the ability to look at pricing and
programs from many different lenders, offering you many more options.
There are no extra finders
fees involved in working with us, being a broker. We find that this
seems to be one of the biggest misconceptions amongst the public. As a broker,
we qualify many people for a variety of mortgage programs based on their
financial needs, and all of the programs are not offered with just one lender.
Working with us, you have a variety of programs available from many different
lenders at your fingertips. You do not have to go through the hassle of
pre-qualifying with many different lenders just to find out what programs are
available. We work with all types of loans: FHA, VA, and a variety of Conventional
financing, including zero-down and first-time homebuyer programs.
Real Estate and Mortgage Lending are both very
complex businesses. It is wise to have experience working for you vs. someone
that just started in the business 6 months ago and does not have the experience
or the training under his/her belt (which you probably wouldn't
find out about until it's too late). Our Broker house, has over 100 years of
combined experience in the mortgage lending industry in this metro area. We
manage a team of professionals to research and secure the best possible
mortgage program to suit your long and short-term goals.
WHAT IS MORTGAGE PRE-APPROVAL?
Getting pre-approved is a process that includes
verification of your credit, income, assets and liabilities. It is highly
recommended that you get pre-approved before you start looking for a house.
This will help you by:
Finding out the maximum house you can buy and also insure ensuring you are
comfortable with the monthly payment.
Discussing program options and differences in payment, down payment and closing
costs.
Putting you in a stronger position when you are negotiating with the seller,
because the seller knows you can buy.
Helping you close quicker.
Call us to schedule your mortgage pre-approval
meeting. It costs you nothing and only takes an hour. We have day and evening
appointments available for your convenience.
HOW
MUCH DO WE NEED TO SAVE?
Many people are under the impression you have to
save 5% 20% to get a home, which is simply not true. There are such a variety
of programs these days, some of which require no out-of-pocket cash. As a
matter of fact, even if 20% down is a possibility, that's not always the best
use of your money; restructuring or paying off debt may make much more sense.
The only way to know for sure what is possible
is to come in for a consultation and make a plan. Everyone's situation and
goals are very personal, and looking at where you want to be in 15 years vs.
just playing it year by year with no plan, will make your dreams a reality.
It's best to come in early in the process, 6 12 months before you plan to buy.
CASH
FOR CLOSING
Waiting to buy until you save up significant
funds can wind up costing you thousands of dollars in the long run as property
prices continue to rise. The trend of higher housing prices in the Metropolitan
Area is not expected to reverse any time soon. There are many mortgage programs
available these days designed to minimize or eliminate cash.
For example, here are several zero down programs
that allow the sellers to pay all of your closing costs so you do not have to
have any money to close. If you opt for a program that requires some cash to
close, some sources of cash include, (but are not limited to): gift money,
loans against your 401k, and a GRANT PROGRAM that's been working well for
several of our clients. All programs are subject to qualifying of course.
The problem is, if you wait until you save up
$5,000.00 (for example) to buy a house, in another year that same house could
cost another $15,000.00, or more, in one year with the way the prices keep
going up!
Look at all your options early. Most people who prepare
early find they can buy much sooner than they ever thought they could!
LOOK
AT ZERO DOWN FINANCING. There are programs that allow you to finance your closing
costs as well. Obviously, this creates more of a risk for the lender to finance
a house over the appraised value; therefore, expect a higher rate and the
requirement of very strong credit.
GET
A GIFT. FHA loan guidelines state the down payment can be from a gift. The gift donor
is usually a blood relative, but there can be exceptions. The gift letter
simply states there is no obligation to repay, not that you can't. With FHA
loans, you only need 3% down, and the seller can pay the rest. None of the 3%
needs to be your own funds; it can all be a gift!
ASK
FOR SELLER CONCESSIONS. Although all programs vary with on how much is allowed for
seller concessions, it is very common to incorporate help from the seller. The
seller is probably going to want a higher sales price to compensate for the
additional costs. The importance of a professional realtor, who knows how to
negotiate, can make a big difference in what actually happens in your favor.
We'd be happy to recommend a reputable realtor for you.
GRANTS
ARE SOMETIMES AVAILABLE. It is possible with FHA financing to get the entire
investment from a program that has recently become available; however, it takes
a special situation because the seller actually contributes to a non-profit
organization that distributes the money to you. Again, the seller will most
likely want a higher sales price for the house.
GET A LOAN. The guidelines on this
are pretty specific for most programs. You can borrow against your 401K. What's
convenient about that is, most of the time, the loan carries a very small
monthly payment, and it doesn't count against you in qualifying for the
mortgage. The downside of borrowing is your money isn't in the stock market;
but, then again, that hasn't been fun for a long time! You can also borrow
against an asset that has equity in it such as a car, a cabin, an investment
account or insurance policy. The value of the asset will need to be proven and
the monthly payment documented for qualifying purposes. It is not unusual to
take cash against a vehicle and extend the term out one year longer, thus; not
causing any increase in the monthly payment..
WHAT ABOUT MY CREDIT?
Most people know that credit scores are
important, but they are not exactly sure what their score means or how it
affects their mortgage options. We are finding many credit reports have some
kind of error (s) on them that borrowers are unaware of and without taking
action to fix it; they may not have as many options for financing. Some
programs are completely credit score driven; which means, if you have an error
dragging down your score, you simply are not eligible for certain mortgage
programs.
As part of our no-cost pre-approval process, we
can pull an in-file credit report for you and offer some suggestions on how to
fix errors and improve your score. It can take a significant amount of time for
changes to filter through the system, so, it is never too early to get started
on examining your credit scores. Make sure to take the time to have the most
financing options available to you, so that, when the time comes to make an
offer on the home you really want, you are totally prepared.
What exactly is a credit score? The best-known
system is called the FICO score (Fair Issacs & Company). FICO scores range
from 300 to 900. The number is determined by a person's past credit history and
is used by lenders to predict the borrower's ability to payback the mortgage in
the future. The lower the number, the higher the chance of a default. Paying on
time does not necessarily guarantee high scores; there are many factors that
enter into the picture. For instance, someone who has an insufficient amount of
credit to calculate a score is 14 times more likely to default within one year
than someone who has a 700 score.
Someone who has recently applied for a
significant amount of credit (inquiries on the credit report) may pose a higher
risk due to the possibility of increased debt. In all, there are 33 variables
that are used to calculate the score, and they are grouped into 5 categories:
35%
Previous credit performance
30%
Current level of indebtedness
15%
Length of time the credit has been in use and current balance vs. credit limit.
15%
Opening date and types of credit
5%
Inquiries, pursuit of new credit
A Score can be changed over time since they are
just a snapshot of current conditions. Any changes in credit can affect the
score. Credit scores are generated using data from the three largest
repositories where credit is stored. Creditors regularly report consumer credit
information to these repositories. This information includes: inquiries,
balances, defaults and account usage, all of which can impact the scores. This
information is then used to generate the scores. The scores can vary from
different repositories since some creditors will report to one and not the
other two. When applying for a mortgage, scores are pulled from all three
bureaus and most loan programs use the middle score to qualify a borrower. If
you do not have enough credit established to generate a credit score, you may
still qualify for a mortgage; however, you will have more options if your
scores are improved before purchasing.
There are pre-emptive steps to take that can
improve your score before you buy. One of the most important steps is to get
any mistakes corrected as soon as possible! Errors are calculated into the
score. Closing unused accounts and limiting the application for new credit can
also help. The best way to know for sure is to come in for a consultation and
review your credit. If you would like to get the ball rolling, call us for a
pre-application meeting or apply online through our website at
www.mortgageone.biz. Call us to schedule your consultation.
CREDIT SCORE FACTORS
Credit score factors range from 300-850, and are
used as a measure of credit worthiness or risk. Generally a score below 620 is
considered poor, but workable. A score of 680-720 is good, and 720 or higher is
considered very good. A score above 720 means most programs will be available
to you.
Score
Under
580 Requires substantial down payment and/or higher interest rate.
580-620
Reviewed heavily. Will need compensating factors to be approved.
620-680
Falls under standard rules. Less flexibility in choosing mortgage programs.
680-720
Scores in this range will have relative ease and more options available to
them.
720 & up Extended
extra credit, best rates, lines of credit. Requires less paperwork.
PROGRAMS
There are so many programs available today that quali