Buying a home is one of the biggest decisions a person will make in their life.  It can seem like a daunting task.  The unscrupulous lending practices of the last decade and "buyer beware" warnings in the media make it hard to know where to start.  If you follow the steps below, do your research, and trust your instincts, the process can be fun and rewarding!

Step 1: Evaluate What You Can Afford

Evaluate your income and monthly expenses.  Not only will you need to consider what you currently pay in monthly bills, but also account for utility bills and upkeep on a new or larger home.  Be certain that, in addition to your mortgage payment, you have enough money left to put into savings, investments, and entertainment.  The amount that you decide that you can comfortably afford per month should cover your mortgage, taxes, homeowners insurance, and mortgage insurance (which can be rolled into your payment). Often, people make the mistake of purchasing the largest or most expensive home they can afford.  Do not make this mistake! You don't want to find yourself in a nice home, but without the funds to adequately furnish and decorate your home or the financial ability to take part in the fun activities that you once enjoyed.

You will also need to make sure that you have saved enough money for a down payment on your new home.  According to the current FHA guidelines, the minimum down payment is $3.5% of the sales price of the home.  Closing costs will have to be paid in addition to the down payment and range from approximately $3,500-$7,500 for most transactions.  It is not uncommon to negotiate for a seller to pay a portion of a buyer's closing costs.  Some loan programs allow "gifting" of funds from approved sources to help with a down payment.  This is something that you will need to discuss with your mortgage lender.

Step 2: Financing

Your next step is to find a mortgage lender.  We always recommend using a local lender.  Online and out of town lenders often fail to come through on promises of low interest rates, reduced closing costs and closing dates. Local lenders can compete with any interest rate that you find online and can get you to the closing table in a timely fashion.  They are a part of our community and answer to their customers and to local Realtors both during the transaction and when they see us for years to come throughout the Brazos Valley!

When you meet with a Mortgage Lender, you will need to provide:

• Driver's License and Social Security Card
• The previous 2 years W-2 Forms (If self-employed, you will need to supply your two most recent full tax returns, all schedules)
• Most recent one month of pay stubs
• Most recent two months of bank statements (all pages, all accounts)
• Most recent two months or most recent quarterly statement of all other assets (401K, IRA, Stocks, Bonds, Mutual Funds, etc.)

They will evaluate your FICO scores (scores used to evaluate your credit worthiness), debt to income ratio, and a number of other factors to determine your interest rate and ideal price range.

Important questions to ask your mortgage lender:

1. Is this a fixed or adjustable rate mortgage?
   -Interest Rates in a fixed rate mortgage remain the same throughout the life of the loan.
   -Adjustable rate mortgages will "reset" a few years into the mortgage.  The interest rate (and your monthly payment) may increase or decrease.
   -With interest rates at historically low rates, I would advise you to avoid the riskier adjustable rate mortgage and go with a fixed rate mortgage.
   
   
2. What is the difference in payments on a 15 year vs. a 30 year mortgage OR what can I afford if I do a 15 year note vs. a 30 year note?
   In a 15 year note, not only do you have the opportunity to pay off your loan more quickly, but the portion of your payment that goes to your principal balance is much larger from the beginning.  Contrary to popular belief, the monthly payment with a 15 year note is not double the payment of a 30 year note.  Example: At a 6% interest rate, the monthly payment on a $150,000 loan (including taxes, homeowners insurance, and mortgage insurance) would be approximately $1,345 for a 30 year note, while the approximate payment on a 15 year note would be $1,712, a difference of $367.  At the end of 5 years, the principal balance on the 30 year note will be approximately $139,581, while the principal balance on a 15 year note would be $114,013.
   
   
3. Am I eligible for an FHA, Conventional, or VA loan?  Which is best for me and why?
   
   
4. Is there a pre-payment penalty on this loan?
   Some loans require the homeowner pay a penalty if they sell their home or pay off their loan within a few years of purchasing the property.  You do not want a loan with a pre-payment penalty.  Even if you plan to live in a home for 30 years, you never know what might happen in the future and a pre-payment penalty can be a real financial hardship.
   
   
5. May I have a Good Faith Estimate (GFE)?
   You will want this to compare the interest rate and closing costs of the lenders that you interview.

Step 3: Find a Qualified Realtor

The great thing about working with a Realtor when you are a buyer is that you do not typically pay for their services! A buyer's agent is paid by the home's seller.

Finding the right Realtor can make the difference between a seamless transaction and a total nightmare.  You need to interview your Realtor prior to making the decision to work with him or her.  If you are a first time home buyer, you will probably want someone who will take the time to walk you through the whole process.  You will want to be certain that their communication style and availability matches your wants and needs.  There are many part-time Realtors that are only available at certain times during the week.  You may want to work with someone who can work around your schedule, instead of you having to work around theirs.

A good Realtor will ask you a lot of questions before you set out to look at homes.  They should do a thorough analysis of your wants and needs and take the time to answer any of your questions.  Be certain that you are 100% comfortable with your Realtor before you move forward.

Step 4: Make Your Wish List

Your Realtor should be able to help you with this step.  He or she may think of things that you have not considered.  I recommend that you make 3 lists: a list of items or features that your new home MUST HAVE (these items are non-negotiable), a list of features that you WOULD LIKE TO HAVE and things that the home MUST NOT HAVE.

Step 5: Start House Shopping!

Your realtor will either sit down with you in person to review your choices or, if it's better for you, they may email you photos and information on some properties.  You will narrow down the list and schedule a time to go view the homes.  If you do not find "the" home on the first time out, your Realtor will probably have a good idea of what you are looking for and may preview some other properties for you prior to taking you back out to look at more homes.  If you can find a Realtor that will provide you this service, it can save you a lot of time and frustration!

Step 6: Make an Offer

Once you find the perfect home...it's time to make an offer.  Your Realtor should review sales of comparable homes from the previous 6 months to help you determine a fair sales price for the home.

Price is not the only element of an offer.  There are many terms to be negotiated, as well.  You will need to determine:

• How much earnest money to put down (usually about 1% of the sales price of the property - this shows the seller that you are serious about buying the property)
• Who will pay for the survey if there is not an acceptable existing survey
• The closing date (usually 30-45 days)
• Whether you will ask for a seller contribution (which goes toward your closing costs)
• The option period (The buyer will write a check of "option fee" to the seller to "buy" a period of time - usually 7-10 days - to be certain that they want to purchase the property). During this time, the buyer has an "unrestricted right to terminate" the contract.  If the buyer decides to terminate during this time, they lose the option fee, but keep their earnest money, less the cost of inspections.
  

Your Realtor will probably recommend that you have the property inspected prior to the end of your option period.  A General Inspection will evaluate the structural and mechanical aspects of your new home.  A Wood Destroying Insect Inspection checks for termites, carpenter ants, and other wood destroying insects.  An HVAC Inspection will determine whether the heating and A/C systems are functioning as intended.  There are many other inspections that you may want to consider from pool inspections to mold inspections.  Your Realtor can advise you on any other relevant inspections.  Any items that you feel need to be repaired prior to closing should be negotiated with the seller prior to the end of the option period.

Final Steps:

You are in the home stretch! A few final things to remember before you close:

1. Make arrangements for homeowners insurance.
2. Schedule to have your utilities turned on and mailing address changed.
3. Schedule your movers.
4. When you go to the Title Company to close on your new home, remember to take a valid Driver's License.
   

Good luck!

Zweiacker & Associates is available to businesses and organizations to teach First Time Home Buyer courses at no cost.