BUYER’S GUIDE OUTLINE

1) The Process

a. Getting preapproved b. Finding an agent c. List the features you like or want d. Search for homes e. Open houses - See homes f. The offer and the art of negotiation g. Inspections h. The closing

2) Down Payment a. How much do I need?

1. Government programs 2. 3% FHA 3. 10% conventional 4. 0% VA

b. Where can I get it? 1. Gifts from family/wedding 2. Tax refunds 3. Selling things of value 4. 2nd job 5. Increase your savings 6. 401K

3) Down Payment vs Closing Costs

a. What’s the difference? b. Do I pay both?

4) Your Credit Score a. What does it mean? b. How does it impact me?

5) Things to Consider a. Maintenance b. Utilities c. Insurance d. Taxes

6) Why Buy a Home a. Build equity b. Tax advantages c. Pride of accomplishment

Ifyou’veneverpurchasedahomebefore,youprobablyhavealotofquestionsabouttheprocess.ThisFirstTimeHomeBuyerGuideisforyou!It’sanoutlineofthebuyingprocessandincludesatonoftipsandideasonhowtosavemoney…aswellassomepitfallstoavoidwhenbuyingyourfirsthouse.

1) The Process of Buying a Home a. Getting Pre-Approved

Step one is you’ll need to speak to a lender about the price range you qualify for, based on your income and current expenses. They will factor in your credit score as well. You need to decide if the amount of payment they say you qualify for is the amount you feel comfortable in paying each month. In other words, you don’t want your home payment to be so high, you struggle to make the payment and have no money left over each month to spend doing the things you like to do. We call this being house poor, and it’s no fun!

b. Find an Agent You will need to find an agent, like myself, who is experienced enough to walk you through the home buying process and yet be patient enough to work with a first time homebuyer. Because, you will have lots of questions since it is your first time buying a home!

c. List the Features You Like or Want Here’s where you get to dream! Make a wish list of all the things you would like in a perfect home. How many bedrooms, bathrooms, size of the garage, location, price range, size of the lot. These are all things to think about before you start looking at homes. You will need to be realistic about what you can expect given the price amount you can afford.

d. Search for Homes This is where the real estate professional can help you. Not all homes for sale are listed on the MLS, in fact once they reach the MLS, many are already sold and are not available.

e. Open Houses — See Some Homes Once your Realtor has created a list of homes to see that match your criteria, set aside a few hours to go see them. You will want to be prepared to make an offer if you find the perfect home. If you wait, others might find the same home and make an offer before you and then you will lose the opportunity to make an offer. Once a home has an accepted offer, the seller is locked into selling the home to that person and can’t accept your offer.

f. The Offer and Negotiating Sometimes you will be able to make an offer for less that the asking price and other times you will need to make a full price offer or even make an offer above full price. There are many factors that will determine how much to offer, your Realtor will be able to guide you in this process based on your needs. The more experience your Realtor has, the better your odds of getting the house you want and at the price you want.

g. Inspections Once you have found that perfect home and negotiated the price, now you need to have a home inspection to make sure the home is safe and has no hidden damages. The last thing you want is to buy a home that becomes a money pit! A home inspector is a

trained professional who will inspect every inch of the home to make sure it is safe and will provide you with a list of repairs that need immediate attention and a list of repairs that can wait until you have the money to fix them.

h. The Closing Yeah!! This is where you meet with the seller, sign a mountain of paperwork and then receive the keys to your new home. Don’t forget to thank your Realtor!

2) The Down Payment

a. How much do I need?

This is probably the question I get asked the most. My first answer is that it depends! Here’s why I say that and an example of a typical home purchase for our Greater Lansing Area.

There are several different financing options available for first time homebuyers and each option has different down payment requirements. The most popular option is the FHA option. FHA is a government program that helps first time home buyers purchase a home with as little as 3.5% down payment.

There are a couple of other options, depending on the location of the home you want to purchase. You will need to ask a lender about those options. Some of the Cities have financing incentives from time to time to promote home ownership in their City. No matter what option you decide is best for you, it can be overwhelming to think about needing so much money. If you have family or friends who are willing and able to help support you financially, you could hold onto more of your own savings and use gift funds as part or all of the down payment. There is a process you need to follow to be able to do this, so don’t just put the money into your savings account without talking to a lender first.

b. Where Can I Get It?

• Gifts from Family: If you have family or friends who are willing and able to help support you financially, you could hang on to more of your own savings and use gift funds as part or all of the down payment. There is a process you need to follow to be able to do

Here is an example of how that program works: For a purchase price of $150,000, you’d need $5,250 for a down payment. Remember though, the down payment just gets applied to your mortgage, you don’t lose this money. So in this example you would be financing $144,750 for the purchase of this home. If you are a veteran, you can use VA financing! This option allows you to purchase a home with no money down! If you have 20% saved for a down payment, you can use Conventional financing. Conventional financing requires more for a down payment but in return you usually get a lower financing rate, which ultimately saves you money over the long haul and provides lower monthly payments. So, in our $150,000 example you would need $30,000 for the down payment. That’s a lot more money for the down payment but your monthly payments would be based on a mortgage of only $120,000 not the $144,750 in the example above.

this, so don’t just put the money into your savings account without talking to a lender first.

• Just Married? How about using your wedding gifts as payment for a new house instead

of going on that exotic honeymoon?

• Tax Refunds, Bonuses or Birthday Gifts! This is money you probably weren’t using to pay bills in your budget so instead of spending the money, how about saving it until you have enough for a down payment. I know it’s not fun doing it this way but once you step into your own home for the first time, you will be glad you did it!

• Sell Things of Value. Do you own any collectibles? I once had a guy sell his Nike

Jordan shoe collection for down a payment! Baseball cards? Comic Books? Stamps?

• Second Job. Nobody wants a 2nd job but if you can find something to do on the side and make some cash, then this might work for you.

• Savings or 401K. Have you been on the job long enough to have a 401K you use for

a down payment?

• Cut Back. Of course, there are other things you can do to save money. For example: limit the amount of times you eat out, go for coffee or other habits that you might do every day that only cost a few bucks but will add up if you stop paying for them over the course of a year or two.

3) Down payment vs closing costs 1. Down payment is the amount of money you apply towards your loan at the time of

closing.

2. Closing costs are costs associated with the loan. These are charges by the lender and also include money you will need for an escrow account. An escrow account is like a savings account the lender sets up for you so that they can pay your taxes and homeowners insurance for you on time. Each month you pay a little money into this account and then when the bills come due, the lender pays them from this account.

4) Credit Scores Some of the lenders have lending options with buyers that have credit scores as low as 550. The lower the score, the higher the interest rate due to the higher risk for the lender that you might default on your payment. Typically, if you have a score above 720, you are considered a very low risk and lenders will line up to work with you!

If you don’t know for sure your credit score, don’t worry, your lender can find it for you. You can also check you credit score yourself by going to an online to any number of websites. Here is a popular one, www.annualcreditreport.com. Another is www.myfico.com.

5) Home Ownership – Things to Consider a. Maintenance. Are you going to be mowing the lawn and removing the snow yourself or

are you going to hire someone to do it? Don’t forget the cost of a lawn mower and take into consideration the size of the lawn if you are planning on mowing it yourself.

b. Utilities. There are a few costs you need to keep in mind when buying a house. Generally utility costs are higher for larger home and older homes than they are for smaller or new homes. New homes are much more energy efficient than older homes. It takes more energy to heat or cool a larger house than a smaller one.

c. Insurance. This cost will be included into your house payment but you will need to think about the cost of house insurance. Generally, the larger the house, the more the insurance costs.

d. Taxes. This will be included in your monthly payment too but you will need to pay close attention to this amount. The taxes associated with a house can sometimes make that affordable house, become unaffordable. Factors like school district, age and size of the house play a role in determining how much taxes will be. Your Realtor can look the tax amount up for you so there will be no surprises!

6) Why buy a home a. Build equity. It is highly recognized that the number 1 way to gain wealth is in real

estate ownership. Normally a home will go up in value every year if you maintain it. There are no guarantees home values will always increase but historically they have over the long haul. Keep in mind some areas have larger increases than others. In areas with higher demand, home values increase’s. School districts have a lot to do with this.

b. Tax advantages. Always take to a financial adviser or accountant about this but as a home owner, you will have certain costs you can use as deductions on your tax forms.

c. Pride of accomplishment. You should be able to take pride in the fact you managed your finances with success to the point of qualifying for a home loan! What a great accomplishment. Many people are renters even though they make a lot of money, because they aren’t disciplined enough to manage their money and do not qualify for a home mortgage.