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      New Homebuyer's To Do List: Part 2

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      Now that you have located the home you want to buy and you have successfully negotiated a purchase price, what is next? Congratulations, you now have a Purchase and Sales agreement; this is a legal and binding contract between a buyer and a seller. In most contracts there are deadlines for each prescribed step when purchasing a home. It will go something like this:

      1. Earnest Money. This is a deposit you put down as a show of good faith to the seller that you promise to purchase their home. The earnest money is your money and will be applied to the purchase price of the home at closing. It is normally 1% of the sales price, but this can vary, check with your Realtor.
      1. Loan Application. Next according to your contract, you will have a certain number of days the sit down with your lender and make application for the money you want to borrow, usually 5 days. All borrowers to be included on the loan will need the following documents:
      • Signed Purchase and Sales contract including disclosures (Realtor)
      • Existing deed for house (Realtor)
      • 2yrs of W-2s (buyers)
      • Bank and investment documents for the last 30 days (buyers)
      • Other debits owed e.g. Child support, personal loan, etc. (buyers)
      • Signed 4506-T form (lender)

      Additional documents needed for special circumstances:

      • If a borrower receives a gift toward the down payment: provide a letter from the "giftor" that declares the gift isn't a loan. A copy of the giftor's bank account statement showing the funds, a canceled check and the borrower's own statement showing the deposited funds.
      • If you are self-employed or own rental properties you may have to provide these additional documents: Income tax returns for 2 yrs, Profit & Loss statement, Rental income statement (an appraisal of the properties may be needed at your expense)
      1. Inspections. Most P&S contracts will allow 10 days for inspections to be
      completed. Your Realtor can recommend a licensed home inspector to inspect the home. Buyers can opt to use a contractor, but they do not test water, air, septic, etc. Buyers may even want to hire a surveyor to perform a MLI (aka site survey). Buyers should make every effort to attend these inspections, because this is always very informative about the systems and the structure of the home. This is also an opportunity for you to ask questions about home maintenance in general. Inspectors usually get paid at time of service and charge $300 -$500 depending on inspections or tests performed at the home. It is highly recommended that buyers take advantage of this opportunity to inspect the home, because a costly repair could be uncovered and most of the time something can be negotiated with the sellers for the repair or mitigation to be made.

      1. Re-Negotiations, if needed. Sometimes a deficiency in the home is discovered during inspections, this is to be expected when buying an older home. If a repair or mitigation is needed a contractor can be asked to give a written estimate and this will be used to re-negotiate the contract. Your Realtor will write up a proposed addendum stating the deficiencies with the inspections and a possible solution. You will work with your Realtor to establish the solution. Sometimes it is as simple as asking for the repair or mitigation to be completed, and sometimes it is asking for a cash consideration so the buyer can pay to have the problem taken care of after closing. Or sometimes the cost of the repair is shared between buyer and seller.
      1. Negotiations are done, whats next? Buyers will contact an insurance agent to get an estimate on the home and provide this information to their lender. Buyers will continue to work with the lender and Realtor to complete the next phase of gathering information and documentation needed to close the loan. If there are repairs or mitigation to be completed and the buyer has some or all the responsibility in this, buyers will work with a contractor to see that these are completed before the lenders appraisal. Before closing you will receive a copy of the HUD statement take time to go over this with your lender &/or Realtor, sometimes errors are made and this is the time to rectify them.
      1. Closing is finally here! Your loan has been approved! You have a clear to close. Your Realtor will arrange a walk-through of the property, usually the day before closing, and you should find it broom clean. The home will be vacant and it gives one last time before the purchase to notice anything amiss. If a problem is noticed your Realtor will help you navigate the issue and get it taken care of. Day of closing items to bring with you to closing: drivers license, cashiers check for prorations of fuel, and the file you have on this purchase (just in case).
      1. Congratulations! You have purchased your first home and will leave the day of closing with the keys to your new home! Always remember your Realtor is working for you, so if any questions arise during the process or after closing ask for their advice.

      home buying pic 2

      Written by Deborah Johnson, Assoc. Broker, C21 Baribeau Agency


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              • Paul Davidson on

                Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out a Form 4506-T, I found a blank form here http://goo.gl/QRlu7E. This site PDFfiller also has some tutorials how to fill it out and a few related tax forms that you might find useful.
                • Paul Davidson on

                  Great article. Thanks for the info, you made it easy to understand. BTW, if anyone needs to fill out a Form 4506-T, I found a blank form here http://goo.gl/QRlu7E. This site PDFfiller also has some tutorials how to fill it out and a few related tax forms that you might find useful.

                  New Home Buyer's To Do List:

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                  Buying a home is accomplished with a few well thought out steps. Most new home buyers start thinking about purchasing a home of their own when they realize they plan to be settled into a particular town or area, because of jobs, schools, or family. Approximately 95% of new homebuyers start the search for their new home online. This allows them to zero in on a few neighborhoods and a style of home that interests them. New home buyers frequently make the mistake of looking for a home before they get their financing in order!

                  You wouldnt go shopping for a car without knowing your budget same goes for a home!

                  new homebuyer photo

                  Follow these few steps:
                  1. Putting down roots. Decide whether or not you are going to live in one area and one house for at least 7 years. On average it takes at least 7 years to reach a break-even point in buying and selling a home that was purchased at fair market value. If you think you may move sooner than 7 years it may be wiser to rent.
                  2. Money, money, money. How much money can we afford to spend on a home? Many first homebuyers put the cart before the horse and start looking at houses beforetheypre pre-qualified for a loan. Check with your local lender. This process costs nothing * and will allow you to get a real picture of the budget you have to spend on a home.

                  Caution: do not rely on just an online mortgage calculator, these do not provide an accurate picture of your finances. An experienced loan officer can give you a snap shot of your buying power and you will know how much house you can afford.

                  *Note: Banks all have different lending institutions that they use, some even loan their own money, so shop around for the best terms on your loan. Also mortgage bankers are an option; they have many more lenders to choose from and often can offer the most competitive terms. Neither of these institutions are paid until you close, so there are no up-front costs to you.

                  1. Realtor or no realtor; that is the question? Realtors are trained professionals who are educated in the art of buying and selling real estate. They also study and know the market in the areas that you are interested in buying in. They too do not get paid until they close your sale. Competent, experienced Realtors are able to guide you through the process of buying your first home. They help locate a home to buy, using the criteria youve established. Based on factual data of the local market, they work with you to negotiate a selling price. Relators sign an oath to work for you; most will have you sign a Buyers Representation agreement, which establishes their duties to you as their buyer client.
                  1. Eureka! Weve found it! Finding your new home can be exhilarating and fun, but also exhausting! Each time you view a home let your Realtor know what you do and do not like about the home, this will help your Realtor narrow the search. On average, new homebuyers view 12 homes before they purchase. Once you have found the home that suits your needs, let your Realtor guide you through the negotiating process. In the end this should be a win-win, for both you the buyer and the seller.

                  Written by Deborah Johnson, Assoc. broker C21 Baribeau Agency


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                                                Renting vs. Buying: Which is best for you?

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                                                Currently renting? Have stable employment? Plan on settling in a desired location for at least 7 years? If you've answered "yes" to any of these questions, maybe now is the time to buy!

                                                According to Trulias chief economistJed Kolko,"Although the gap between renting and buying is narrowing across the U.S., homeownership is still 38% cheaper than renting.

                                                Homeownership remains cheaper than renting nationally. Rising mortgage rates and home prices have narrowed the gap, but with prices slowing and rates stabilized, at a 30-year fixed rate of 4.5%, buying is 38% cheaper than renting nationally, versus being 44% cheaper one year ago. Rates would have to rise to 10.6% for renting to be cheaper than buying and rates havent been that high since 1989.

                                                This model assumes buyers will qualify for a 4.5% mortgage rate on a 30-year FRM with 20% down payment. Further, it assumes buyers itemize their federal tax deductions and are in the 25% tax bracket; and will stay in their home for at least seven years.

                                                With these assumptions, buying is 38% cheaper than renting nationwide, taking into account all of the expenditures and proceeds from buying or renting over the entire seven-year period.

                                                apartmentrentvbuy signhome pic rentvbuy

                                                The buy versus rent calculation.

                                                You can use this simple calculation to determine if renting or buying is right for you.

                                                Use the price of the home you are considering buying, divide it by your current annual rent (or the annual rent of comparable homes). This is your "housing ratio". The higher the ratio, the more it makes sense to rent. The lower the ratio, the more it makes sense to own. A ratio above 20 means you should consider renting. When the ratio is well below 20, buying becomes a more attractive option.

                                                How much can you spend on a home?

                                                As a general rule, you can spend 20 to 25 percent of your total income on housing and utilities. Many homeowners allocate as much as 35 percent of their incomes to housing. There is no cost to getting pre-qualified with a lender/mortgage banker. They can help you identify any issues with your credit and tell you exactly what your costs will be for home ownership.

                                                So in conclusion this is a great time to buy your first home! Come in to Century 21 Baribeau Agency today, let us help you get started!

                                                Article written by Deborah Johnson, Assoc. Broker Century 21 Baribeau Agency


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