p. 1

your ultimate buyer guide from the desk of praful thakkar common first-time home buyer mistakes 1 they don t ask enough questions of their lender and end up missing out on the best deal 2 they don t act quickly enough to make a decision and someone else buys the house 3 they don t find the right agent who s willing to help them through the homebuying process 4 they don t do enough to make their offer look appealing to a seller 5 they don t think about resale before they buy the average first-time buyer only stays in a home for four years source real estate checklists and systems www.realestatechecklists.com reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 2

your ultimate buyer guide from the desk of praful thakkar lender checklist what you need for a mortgage w-2 forms or business tax return forms if you re self-employed for the last two or three years for every person signing the loan copies of at least one pay stub for each person signing the loan account numbers of all your credit cards and the amounts for any outstanding balances copies of two to four months of bank or credit union statements for both checking and savings accounts lender loan number and amount owed on other installment loans such as student loans and car loans addresses where you ve lived for the last five to seven years with names of landlords if appropriate copies of brokerage account statements for two to four months as well as a list of any other major assets of value such as a boat rv or stocks or bonds not held in a brokerage account copies of your most recent 401k or other retirement account statement documentation to verify additional income such as child support or a pension copies of personal tax forms for the last two to three years reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 3

your ultimate buyer guide from the desk of praful thakkar specialty mortgages risks and rewards in high-priced housing markets it can be difficult to afford a home that s why a growing number of home buyers are forgoing traditional fixed-rate mortgages and standard adjustable-rate mortgages and instead opting for a specialty mortgage that lets them stretch their income so they can qualify for a larger loan but before you choose one of these mortgages make sure you understand the risks and how they work specialty mortgages often begin with a low introductory interest rate or payment plan a teaser but the monthly mortgage payments are likely to increase a lot in the future some are low documentation mortgages that come with easier standards for qualifying but also higher interest rates or higher fees some lenders will loan you 100 percent or more of the home s value but these mortgages can present a big financial risk if the value of the house drops specialty mortgages can pose a greater risk that you won t be able to afford the mortgage payment in the future compared to fixed rate mortgages and traditional adjustable rate mortgages have monthly payments that increase by as much as 50 percent or more when the introductory period ends cause your loan balance the amount you still owe to get larger each month instead of smaller common types of specialty mortgages interest-only mortgages your monthly mortgage payment only covers the interest you owe on the loan for the first 5 to 10 years of the loan and you pay nothing to reduce the total amount you borrowed this is called the principal after the interest-only period you start paying higher monthly payments that cover both the interest and principal that must be repaid over the remaining term of the loan negative amortization mortgages your monthly payment is less than the amount of interest you owe on the loan the unpaid interest gets added to the loan s principal amount causing the total amount you owe to increase each month instead of getting smaller option payment arm mortgages you have the option to make different types of monthly payments with this mortgage for example you may make a minimum payment that is less than the amount needed to cover the interest and increases the total amount of your loan an interest-only payment or payments calculated to pay off the loan over either 30 years or 15 years 40-year mortgages you pay off your loan over 40 years instead of the usual 30 years while this reduces your monthly payment and helps you qualify to buy a home you pay off the balance of your loan much more slowly and end up paying much more interest reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 4

your ultimate buyer guide from the desk of praful thakkar specialty mortgages risks and rewardscont questions to consider before choosing a specialty mortgage how much can my monthly payments increase and how soon can these increases happen do i expect my income to increase or do i expect to move before my payments go up will i be able to afford the mortgage when the payments increase am i paying down my loan balance each month or is it staying the same or even increasing will i have to pay a penalty if i refinance my mortgage or sell my house what is my goal in buying this property am i considering a riskier mortgage to buy a more expensive house than i can realistically afford be sure you work with a realtor® and lender who can discuss different options and address your questions and concerns learn about the national association of realtors® housing opportunity program at www.realtor.org/housingopportunity for more information on predatory mortgage lending practices visit the center for responsible lending at www.responsiblelending.org reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 5

your ultimate buyer guide from the desk of praful thakkar 5 factors that decide your credit score credit scores range between 200 and 800 with scores above 620 considered desirable for obtaining a mortgage the following factors affect your score 1 your payment history did you pay your credit card obligations on time if they were late then how late bankruptcy filing liens and collection activity also impact your history 2 how much you owe if you owe a great deal of money on numerous accounts it can indicate that you are overextended however it s a good thing if you have a good proportion of balances to total credit limits 3 the length of your credit history in general the longer you have had accounts opened the better the average consumer s oldest obligation is 14 years old indicating that he or she has been managing credit for some time according to fair isaac corp and only one in 20 consumers have credit histories shorter than 2 years 4 how much new credit you have new credit either installment payments or new credit cards are considered more risky even if you pay them promptly 5 the types of credit you use generally it s desirable to have more than one type of credit installment loans credit cards and a mortgage for example for more on evaluating and understanding your credit score visit www.myfico.com reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 6

your ultimate buyer guide from the desk of praful thakkar 5 property tax questions you need to ask 1 what is the assessed value of the property note that assessed value is generally less than market value ask to see a recent copy of the seller s tax bill to help you determine this information 2 how often are properties reassessed and when was the last reassessment done in general taxes jump most significantly when a property is reassessed 3 will the sale of the property trigger a tax increase the assessed value of the property may increase based on the amount you pay for the property and in some areas such as california taxes may be frozen until resale 4 is the amount of taxes paid comparable to other properties in the area if not it might be possible to appeal the tax assessment and lower the rate 5 does the current tax bill reflect any special exemptions that i might not qualify for for example many tax districts offer reductions to those 65 or over reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 7

your ultimate buyer guide from the desk of praful thakkar 6 creative ways to afford a home 1 investigate local state and national down payment assistance programs these programs give qualified applicants loans or grants to cover all or part of your required down payment national programs include the nehemiah program www.getdownpayment.com and the american dream down payment fund from the department of housing and urban development www.hud.gov 2 explore seller financing in some cases sellers may be willing to finance all or part of the purchase price of the home and let you repay them gradually just as you would do with a mortgage 3 consider a shared-appreciation or shared-equity arrangement under this arrangement your family friends or even a third-party may buy a portion of the home and share in any appreciation when the home is sold the owner/occupant usually pays the mortgage property taxes and maintenance costs but all the investors names are usually on the mortgage companies are available that can help you find such an investor if your family can t participate 4 ask your family for help perhaps a family member will loan you money for the down payment or act as a cosigner for the mortgage lenders often like to have a co-signer if you have little credit history 5 lease with the option to buy renting the home for a year or more will give you the chance to save more toward your down payment and in many cases owners will apply some of the rental amount toward the purchase price you usually have to pay a small nonrefundable option fee to the owner 6 consider a short-term second mortgage if you can qualify for a short-term second mortgage this would give you money to make a larger down payment this may be possible if you re in good financial standing with a strong income and little other debt reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 8

your ultimate buyer guide from the desk of praful thakkar 8 tips to guide for your home search 1 research before you look decide what features you most want to have in a home what neighborhoods you prefer and how much you d be willing to spend each month for housing 2 be realistic it s ok to be picky but don t be unrealistic with your expectations there s no such thing as a perfect home use your list of priorities as a guide to evaluate each property 3 get your finances in order review your credit report and be sure you have enough money to cover your down payment and closing costs then talk to a lender and get prequalified for a mortgage this will save you the heartache later of falling in love with a house you can t afford 4 don t ask too many people for opinions it will drive you crazy select one or two people to turn to if you feel you need a second opinion but be ready to make the final decision on your own 5 decide your moving timeline when is your lease up are you allowed to sublet how tight is the rental market in your area all of these factors will help you determine when you should move 6 think long term are you looking for a starter house with plans to move up in a few years or do you hope to stay in this home for a longer period this decision may dictate what type of home you ll buy as well as the type of mortgage terms that will best suit you 7 insist on a home inspection if possible get a warranty from the seller to cover defects for one year 8 get help from a realtor® hire a real estate professional who specializes in buyer representation unlike a listing agent whose first duty is to the seller a buyer s representative is working only for you buyer s reps are usually paid out of the seller s commission payment reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 9

your ultimate buyer guide from the desk of praful thakkar 10 questions to ask your lender 1 what are the most popular mortgages you offer why are they so popular 2 which type of mortgage plan do you think would be best for me why 3 are your rates terms fees and closing costs negotiable 4 will i have to buy private mortgage insurance if so how much will it cost and how long will it be required note private mortgage insurance is usually required if your down payment is less than 20 percent however most lenders will let you discontinue pmi when you ve acquired a certain amount of equity by paying down the loan 5 who will service the loan your bank or another company 6 what escrow requirements do you have 7 how long will this loan be in a lock-in period in other words the time that the quoted interest rate will be honored will i be able to obtain a lower rate if it drops during this period 8 how long will the loan approval process take 9 how long will it take to close the loan 10 are there any charges or penalties for prepaying the loan used with permission from real estate checklists systems www.realestatechecklists.com reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 10

your ultimate buyer guide from the desk of praful thakkar budget basics worksheet the first step in getting yourself in financial shape to buy a home is to know exactly how much money comes in and how much goes out use this worksheet to list your income and expenses below income take home pay all family members child support/alimony pension/social security disability/other insurance interest/dividends other total income expenses rent/mortgage include taxes principal and insurance life insurance health/disability insurance vehicle insurance homeowner s or other insurance car payments other loan payments savings/pension contribution utilities gas water electric phone credit card payments car upkeep gas maintenance etc clothing personal care products shampoo cologne etc groceries food outside the home restaurant meals and carryout medical/dental/prescriptions household goods hardware lawn and garden recreation/entertainment child care education continuing education classes etc charitable donations miscellaneous total expenses remaining income after expenses subtract total income from total expenses reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 11

your ultimate buyer guide from the desk of praful thakkar how big of a mortgage can i afford not only does owning a home give you a haven for yourself and your family it also makes great financial sense because of the tax benefits which you can t take advantage of when paying rent the following calculation assumes a 28 percent income tax bracket if your bracket is higher your savings will be too based on your current rent use this calculation to figure out how much mortgage you can afford rent multiplier x 1.32 mortgage payment because of tax deductions you can make a mortgage payment including taxes and insurance that is approximately one-third larger than your current rent payment and end up with the same amount of income for more help use fannie mae s online mortgage calculators reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 12

your ultimate buyer guide from the desk of praful thakkar loan types to consider brush up on these mortgage basics to help you determine the loan that will best suit your needs mortgage terms mortgages are generally available at 15 20 or 30-year terms in general the longer the term the lower the monthly payment however you pay more interest overall if you borrow for a longer term fixed or adjustable interest rates a fixed rate allows you to lock in a low rate as long as you hold the mortgage and in general is usually a good choice if interest rates are low an adjustable-rate mortgage is designed so that your loan s interest rate will rise as market interest rates increase arms usually offer a lower rate in the first years of the mortgage arms also usually have a limit as to how much the interest rate can be increased and how frequently they can be raised these types of mortgages are a good choice when fixed interest rates are high or when you expect your income to grow significantly in the coming years balloon mortgages these mortgages offer very low interest rates for a short period of time often three to seven years payments usually cover only the interest so the principal owed is not reduced however this type of loan may be a good choice if you think you will sell your home in a few years government-backed loans these loans are sponsored by agencies such as the federal housing administration www.fha.gov or the department of veterans affairs www.va.gov and offer special terms including lower down payments or reduced interest rates to qualified buyers slight variations in interest rates loan amounts and terms can significantly affect your monthly payment for help in determining how much your monthly payment will be for various loan amounts use fannie mae s online mortgage calculators reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 13

your ultimate buyer guide from the desk of praful thakkar get your finances in order to-do list 1 develop a household budget instead of creating a budget of what you d like to spend use receipts to create a budget that reflects your actual spending habits over the last several months this approach will factor in unexpected expenses such as car repairs as well as predictable costs such as rent utility bills and groceries 2 reduce your debt lenders generally look for a total debt load of no more than 36 percent of income this figure includes your mortgage which typically ranges between 25 and 28 percent of your net household income so you need to get monthly payments on the rest of your installment debt car loans student loans and revolving balances on credit cards down to between 8 and 10 percent of your net monthly income 3 look for ways to save you probably know how much you spend on rent and utilities but little expenses add up too try writing down everything you spend for one month you ll probably spot some great ways to save whether it s cutting out that morning trip to starbucks or eating dinner at home more often 4 increase your income now s the time to ask for a raise if that s not an option you may want to consider taking on a second job to get your income at a level high enough to qualify for the home you want 5 save for a down payment designate a certain amount of money each month to put away in your savings account although it s possible to get a mortgage with only 5 percent down or even less you can usually get a better rate if you put down a larger percentage of the total purchase aim for a 20 percent down payment 6 keep your job while you don t need to be in the same job forever to qualify for a home loan having a job for less than two years may mean you have to pay a higher interest rate 7 establish a good credit history get a credit card and make payments by the due date do the same for all your other bills too pay off the entire balance promptly reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 14

your ultimate buyer guide from the desk of praful thakkar tax benefits of homeownership the tax deductions you re eligible to take for mortgage interest and property taxes greatly increase the financial benefits of homeownership here s how it works assume $9,877 mortgage interest paid a loan of $150,000 for 30 years at 7 percent using year-five interest $2,700 property taxes at 1.5 percent on $180,000 assessed value $12,577 total deduction then multiply your total deduction by your tax rate for example at a 28 percent tax rate 12,577 x 0.28 $3,521.56 $3,521.56 amount you have lowered your federal income tax at 28 percent tax rate note mortgage interest may not be deductible on loans over $1.1 million in addition deductions are decreased when total income reaches a certain level reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]

p. 15

your ultimate buyer guide from the desk of praful thakkar tips for lowering homeowner s insurance costs 1 review the comprehensive loss underwriting exchange clue report on the property you re interested in buying clue reports detail the property s claims history for the most recent five years which insurers may use to deny coverage make the sale contingent on a home inspection to ensure that problems identified in the clue report have been repaired 2 seek insurance coverage as soon as your offer is approved you must obtain insurance to buy and you don t want to be told at closing that the insurer has denied your coverage 3 maintain good credit insurers often use credit-based insurance scores to determine premiums 4 buy your home owners and auto policies from the same company and you ll usually qualify for savings but make sure the discount really yields the lowest price 5 raise your deductible if you can afford to pay more toward a loss that occurs your premiums will be lower avoid making claims under $1,000 6 ask about other discounts for example retirees who tend to be home more than full-time workers may qualify for a discount on theft insurance you also may be able to obtain discounts for having smoke detectors a burglar alarm or dead-bolt locks 7 seek group discounts if you belong to any groups such as associations or alumni organizations they may have deals on insurance coverage 8 review your policy limits and the value of your home and possessions annually some items depreciate and may not need as much coverage 9 investigate a government-backed insurance plan in some high-risk areas federal or state government may back plans to lower rates ask your agent 10 be sure you insure your house for the correct amount remember you re covering replacement cost not market value reprinted from realtor® magazine realtor.org/realtormag with permission of the national association of realtors® copyright 2008 all rights reserved.

[close]