Raleigh Home Buyer's Guide

Table of Contents

• Introduction
• Buying Your New Home
• The Finance Process
• How Much Can You Afford?
• Documents Needed
• Getting Approved
• Repairing Credit Problems
• Deciding on a Mortgage
• Calculating Your Budget
• Estimated Buyer's Cost Worksheet
• The Fun Begins
• Home Search Needs Worksheet
• Multiple Listings
• Online Access
• Writing The Offer
• The Settlement Process
• Frequently Asked Questions
• Glossary of Terms
• Home Buyer Checklist `

Raleigh Real Estate Introduction

We are here to provide exceptional real estate service. Our clients deserve an honest, knowledgeable real estate agent that is dedicated to customer satisfaction. This Home Buyer Guide is just one of the many resources we provide buyers to help them navigate through the journey of finding, financing and buying a new home. You’ll find interesting facts, worksheets and charts that will prepare you for this exciting adventure. You can sit back and relax knowing you are working with an experienced, professional agent.

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Buying Your New Home

Congratulations!
You’ve decided to start fresh and purchase a new home. This is a very exciting time for you and we look forward to guiding you smoothly through this process, providing you with good information so that you are able to make good decisions and helping you to efficiently find the home of your dreams.

As you will see, there are several steps you need to take before you move into your new home. This Home Buyer Guide is designed to inform you of your rights as a home buyer and to introduce you to the world of real estate. When you hire us to represent your best interests, you will feel confident your search for a new home will be very successful.

Let’s get started!

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The Financing Process

Here’s an easy way to understand the financial steps you’ll need to take to guide you toward your new home purchase. When you consult with us, everything is explained in great detail so that you completely understand every step in the process.


 

• Calculate your budget
• Apply for a mortgage
• Lender begins processing application
• Lender provides booklet of estimated closing and related costs
• Lending institution requests an appraisal of home, a credit report and verification of employment and assets
• Estimate of your loan costs in form of initial Truth in Lending Disclosure Statement
• Lender evaluates the application and approves the loan
• Search begins — Marc Iafrate, MBA and Team show you every home from every real estate company that matches your exact criteria
• You find the house you want
• You make an offer
• Lender disburses funds to closing agent
• Sign closing documents and loan is funded
• Appropriate documents recorded at county recorder’s office
• The home is sold and it is yours

Now that you have a clear understanding of the entire process, let’s look closely at each step

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How Much Can You Afford?

Before you can begin to search for a new home, you need to determine your budget and estimate how much you can afford. One of the most important factors in figuring out your financial budget is getting pre-approved for a mortgage

What is a Mortgage?

The first step towards financing a new home is getting pre-approved for a mortgage. A mortgage is an advance of money from your lender that will cover the finances of your new property. Over an extended period of time, you (the mortgagee) must pay the bank back each month a percentage of the money they lent you plus interest, until the total sum is paid in full. This is how most homes are financed

Documents Needed

When you apply for a mortgage, you will need to furnish information regarding your income, expenses and obligations. To save time, have the following items available for each borrower:

• Two most recent pay stubs
• W-2s for the last two years
• Federal tax returns for the last two years
• Last two months bank statements
• Long-term debt information (credit cards, child support, auto loans, installment debt, etc)

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Getting Approved

Of course, a lender will only lend you money if they’re sure your credit is strong and they’re confident you have the ability to pay them back. A bank checks your credit by studying your financial history income, federal tax returns, pay stubs, and long-term debt information (such as credit cards, auto loans, child support, etc.) to determine if you are a good candidate for a loan. If your credit report is good, then you have an excellent chance of obtaining a mortgage. If not, then you must take the appropriate steps to improve your credit rating

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Repairing Credit Problems and Establishing Good Credit

At one time or another, most people have put blemishes on their credit reports. If your credit report is tarnished, here are a few suggestions you can do to repair the damage. Examine the credit report thoroughly and make sure it’s accurate. If there are mistakes on the report, contact the credit reporting agency and ask them to remove the mistakes immediately Here are some other helpful tips:

• Begin to pay your bills on time and in full
• Only use two to four credit cards so that you can keep track of them and do not spend more than your budget
• Keep a separate checking and savings account and regularly set aside some money every month for savings
• Keep the same job for a few years, the longer you stay put, the better

Now that you’ve examined your credit report and are confident that you’re in good shape, you’re ready to choose between getting pre-approved for a mortgage or pre-qualified for a mortgage. Here’s the difference:

Pre-approval uses basic information as well as electronic credit reporting to determine whether a lender will loan you money If you are pre-approved for a mortgage, the lender has given you a commitment to support your new purchase.

Pre-qualification is not a mortgage approval but simply an estimate of what you can afford. When you pre-qualify for a mortgage, the lender also collects basic information regarding your income, monthly debts, credit history and assets, and then uses this information to calculate an estimated mortgage amount. The lender has not yet committed to supporting your financial needs and, therefore, you have not received an actual guarantee of funds.

People who are pre-approved for a mortgage are more attractive candidates to the seller and have a better chance of getting the property when they make an offer.

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Deciding On A Mortgage

Once you’ve been pre-approved for a mortgage, you need to decide which type of mortgage to get. This decision is usually based on the interest rate of the loan and how much time you’re given to pay the lender back. The interest rate is the percentage of the loan the lender earns for lending you money. You can get a Fixed Rate Mortgage or an Adjustable Rate Mortgage (ARM). Let’s look at the difference.

Fixed Rate Mortgage

This is the traditional method of financing a home. The interest rate stays the same for the entire term of the loan usually 15 to 30 years. This means that the interest and the principal portions of your monthly payment remain fixed.

With a Fixed Rate Mortgage, your payments are stable and predictable, but initial interest rates tend to be higher with a fixed rate than with an adjustable rate.

Adjustable Rate Mortgage

The interest on an Adjustable Rate Mortgage is linked to a financial index, such as a Treasury Security, so the interest rate fluctuates with changes in market conditions. With an adjustable rate, your payments will vary over the life of the loan. Most Adjustable Rate Mortgages have a lifetime cap on the interest rate increase to protect the borrower

The advantage of an Adjustable Rate Mortgage is that it offers lower initial payments and this makes it easier for buyers to qualify Some Adjustable Rate Mortgages may be converted to Fixed Rate Mortgages at specified times usually within the first five years.

It is important to know that you are not limited to a Fixed or Adjustable Rate Mortgage If you are interested in exploring further options contact your local mortgage professional. If you would like some professional recommendations, we would be happy to help, just ask us.

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Calculating Your Budget

To estimate your budget, add up your total financial worth and then subtract all the costs included in the purchase. Here are some of the expenses you will carry:

Down Payment

Most homeowners contribute a down payment on his or her new property The down payment is a percentage of the purchase price that the buyer pays in full before closing. The larger the down payment, the smaller your mortgage will be. How much can you put down?

Real Estate Costs

There are quite a few costs when you’re buying a new property. Make sure you understand how much each cost is and factor them into the final budget. Here are some examples of these costs:

• Monthly Costs: The calculation of your entire monthly costs including the mortgage, insurance, taxes, etc.
• Points: Borrowers have the opportunity to reduce the interest rate on their mortgage by paying points at the beginning of the loan. One point is one percent of the new loan.
• Additional Fees: Examples of possible fees are highlighted in the Estimated Buyer’s Cost Worksheet

Final Budget

Now you’re ready to calculate your final budget. Remember to include all of your available monies, monthly salary, additional income, and then subtract the down payment, month1y mortgage payment, closing costs, moving costs, and any additional expenditures you might accrue. When you have arrived at your estimated budget, you are ready to begin the search for your new house.

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 The Fun Begins

You have all of your financial papers in order, you’ve been pre-approved for a mortgage, and you’ve calculated your budget, now it’s time to have some fun finding your brand new home!

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Multiple Listings, Open Houses, & Special Features

One of the many advantages of working with us is our access to multiple listings. That means you can see every house on the market if you’d like to. We can provide a detailed description on any property of interest, including special features. Plus, we screen all the listings before we show them, in order to save you time and eliminate the homes that don’t meet your criteria.

Open Houses

Open houses are a great way to get the feel of a specific property. You can be sure that we will search for all homes that match your home buying criteria and will inform you of upcoming open houses, and giving you the important information and details of the property.

Special Features

If you require special features such as a swimming pool, wheelchair access, screened porch, hardwood floors, or even a 4 car garage, we will be sure to show you only those properties that accommodate your needs. Of course, if we know of any properties that have the special features you are looking for and is coming to the market soon, you will be the first to know about it!

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Online Access & Cutting Edge Technology

Aside from our personal and professional knowledge, our website, www.SearchRaleighRealEstate.com is also an extraordinary resource for you. With access to every property listed for sale in the entire Research Triangle area, our website is at the cutting edge of technology and is home to a variety of timesaving and informative features. Features such as:

• Your personal online resource center that allows you to save your search criteria, listings, preferred offices, agents, and articles so that you will be organized and efficient during your search for a new home.
• MyAgentOnline will search for a home even when you don’t have time to by alerting you to new properties on the market that meet your needs.
• Our website provides helpful articles, tips and tools for buyers such as guidelines for inspections and home maintenance
• Links to the latest mortgage interest rates will keep you up to date
• Neighborhood and community Information where you’ll learn about the details of any neighborhood that interests you such as community school systems, golf courses, fitness facilities, playgrounds, walking trails, and swimming pools as well as recently sold homes.

With our helpful guidance and our informative and up to date website, we are confident you’ll find the perfect house and reach your closing in no time.

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Writing the Offer to Purchase

Once you’ve found the perfect home, we will write up the offer.

After the offer is accepted, there are many steps that need to take place before you can close. These include the loan application, qualification and commitment, all inspections completed and repairs made if necessary property is surveyed and appraised, the title is analyzed and the title insurance commitment is issued, and you have secured homeowner’s insurance.

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The Settlement Process

This is the meeting where the sale transaction is finalized. During the closing, settlement procedures take place. The Disclosure Statement is released, money is exchanged, all paperwork and agreements are signed, and the title of property is transferred. This is the last step before you can call the property your home.

Settlement Procedure

Once the seller has accepted the offer and both parties are in agreement, the settlement procedures can begin. These include calculating and paying for the costs of the various settlement needs, signing all the appropriate papers, the transaction of money, and the title change of the property.

Seller’s Disclosure Statement

Often in real estate transactions, the seller will present a Disclosure Statement. This statement includes the age and condition of the property and a list of any additional features (pool, garage, etc.). The Disclosure Statement protects the seller against liability from a buyer who charges that she was not made aware of a particular condition. A home inspection by a qualified and professional home inspector is highly recommended for all buyers so that they have an extensive review of the property and can make a fully-informed decision before they purchase the house.

We can guide you through all the closing procedures so that you can obtain your new home as efficiently and easily as possible.

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Frequently Asked Questions

What types of mortgage programs are offered?

There are many different mortgage products available, including a Government backed USDA Zero Down Home loan in "rural" areas:

• 15, 20, and 30-year Fixed Rate loans
• Zero Down Gov't Backed USDA Home Loans
• Adjustable Rate loans
• New Construction financing
• VA and FHA loans
• 5 and 7-year Balloon loans
• And many more

Speak to your local mortgage professional to see what’s right for you. We would be happy to recommend some people for you to speak with.

How long does it take to process a mortgage application?

It usually takes 45 to 60 days to process an application, although it can take as few as seven days and as long as 90 days for some transactions. The actual time depends on how quickly the lender can get an appraisal of the property, a credit report and verification of employment and bank accounts.

What documents will I have to provide?

Be prepared to provide verification of income (including a pay stub and recent tax returns), bank account numbers and details on your long-term debt (credit cards, auto loans, child support, etc.). If you’re self-employed, you may also be required to provide financial statements for your business.

In recent years, lenders have been required to obtain more specific information from borrowers in order to package and sell loans to investors. If you were lending someone such a large amount of money, you’d want detailed financial information.

Could anything delay approval of my loan?

If you provide the lender with complete, accurate information, everything should go smoothly. You may face a delay if the lender discovers credit problems — a history of late payments or nonpayment of debts, or a tax lien. You may then be required to submit additional explanations or clarifications.

You should also be sure to notify your lender if your personal or financial status changes between the time you submit an application and the time it’s funded. If you change jobs, get an increase (or decrease) in salary incur additional debt or change your marital status, let the lender know promptly. You may be delayed if the home you selected fails to appraise for the agreed purchase price.

What’s included in my house payment?

Principal and interest on your loan. Depending on the terms of your loan, the payment also may include hazard (homeowners) insurance, mortgage insurance and property taxes.

Can I pay those other things separately?

Not if it’s an FHA or VA-insured loan. With most other loans, you can pay your own taxes and insurance if you borrowed no more than 80 percent of the purchase price or appraised value of your home. Check with your lender to be sure.

What do the closing costs include?

Closing costs cover processing and administration of your loan. In addition to a loan fee, you’ll usually be asked to prepay interest charges to cover the partial month in which you close, and you may be required to deposit monies into an escrow account for property taxes, hazard insurance and mortgage insurance.

When do my mortgage payments start?

Usually about 30 days after closing. The actual date of your first payment will be included in your closing documents.

More questions?

Give us a call or fill out the form at the bottom of this page and we will get back to you right away.

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Glossary of Terms

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the index. ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages).

Adjustment Period: The length of time between interest rate changes on the ARM. For example, a loan with an adjustable period of one year is called a one year ARM, which means that the interest rate can change once a year.

Amortization: Repayment of a loan in installments of principal and interest, rather than interest-only payments.

Annual Percentage Rates (APR): The total finance charge (interest, loan fees, points) expressed as a percentage of the loan amount.

Appraisal: An estimate of the property’s value.

Assumption of Mortgage: A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.

Balloon Payment: A lump sum principal payment due at the end of some mortgages or other long-term loans.

Offer to Purchase or an earnest money receipt (sometimes known as a binder). This is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

Buydown: Permanent - prepaid interest that brings the note rate on the loan down to a lower, permanent rate. Temporarily - on the loan, allowing the buyer to more readily qualify and to increase payments as income grows.

Cap: The limit on how much an interest rate or monthly payment can change, either at each adjustable or over the life of the mortgage.

Cash Reserves: The amount of the buyer’s liquid cash remaining after making the down payment and paying all closing costs.

CC&Rs: Covenants, conditions and restrictions. A document that controls the use, requirements and restrictions of a property.

Certificate of Commitment: The lender’s approval of a VA loan, which is usually good for up to six months.

Certificate of Reasonable Value (CRY): A document that establishes the maximum value and loan amount for a VA guaranteed mortgage.

Chattel: Personal property.

Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

Commitment Period: The period during which a loan approval is valid.

Condominium: A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surface (walls, floors and ceilings) serves as boundaries.

Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Conversion Clause: A provision in some ARMs that enables home buyers to change an ARM to a fixed rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed rate mortgages. This conversation feature may cost extra.

Cooperative: A form of multiple ownership in which a corporation or business trust entity holds a title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

Debt Ratios: The comparison of a buyer’s housing costs to his or her gross or net effective income, and the comparison of a buyer’s total long-term debt to his or her gross or net effective income. The first ratio is housing ratio; the second ratio is total debt ratio.

Due-On-Sale Clause: A clause that requires a full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money: The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.

Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties’ instructions and assuming responsibility for handling all the paperwork and distribution funds.

Equity: The difference between what is owed and what the property could be sold for.

FHA Loan: A loan insured by the Federal Housing Administration (of the Department of Housing and Urban Development).

Federal Home Loan Mortgage Corporation (FHLMC): Called “Freddie Mac”; a part of the secondary market, particularly used to purchase loans from lenders within the Federal Home Loan Bank Board.

Federal National Mortgage Association (FNMA): Popularly known as “Fannie Mae”; a privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages.

Fee Simple: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

Finance Charge: The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

Fixed Rate Mortgage: A conventional loan with a single interest rate for the life of the loan.

Fully Indexed Rate: The maximum interest rate on an ARM that can be reached at the first adjustment.

Gift Letter: A letter from a relative stating that an amount will be gifted to the buyer, and that said amount is not to be repaid.

Government National Mortgage Association (GNMA): Called “Ginnie Mae”; a governmental part of the secondary market that deals primarily in recycling VA and FHA mortgages, particularly those that are highly leveraged.

Graduated Payment Mortgage: A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

Home Inspection Report: A qualified inspector’s report on a property’s overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Home Warranty Plan: Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.

Index: A measure of interest rate changes used to determine changes in an ARM’S interest rate over the term of the loan. Initial Interest Rate: The introductory interest rate on a loan; signals that there may be rate adjustments later in the loan.

Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent’s interest in the property.

Jumbo Loans: Mortgage loans that exceed the loan amounts acceptable for sale in the secondary market; these jumbos must be packaged and sold differently to investors and, therefore, have separate underwriting guidelines.

Lien: A legal hold or claim on property as security for a debt or charge.

Loan Commitment: A written promise to make a loan for a specified amount on specified terms.

Loan-To-Value Ratio: The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.

Lock-in: The fixing of an interest rate or points at a certain level, usually during the loan application process. It is usually done for a certain period of time, such as 60 days, and may require a fee or premium in the form of a higher interest rate.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Mortgage Insurance Premium (MIP): The mortgage insurance required on FHA loans for the life of said loans; MIP can either be paid in cash at closing or financed in its entirety in the loan. The premium varies depending on the method of payment.

Mortgage Life Insurance: A type of term life insurance often bought by home buyers The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the mortgage debt is automatically covered by insurance proceeds.

Negative Amortization: Occurs when monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid principal balance, which means that even after several payments the borrowers could owe more than they did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren’t high enough to cover the interest.

Origination Fee: A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. The fee is limited to one percent for FHA and VA loans.

Payment Cap: The maximum amount the payment can adjust in any given time frame.

PITI: Principal, Interest, Taxes and Insurance.

Planned Unit Development (PUD): A zoning designation for property development at the same or slightly greater overall density than a conventional development, sometimes with improvements clustered between open common areas. Use may be residential, commercial or industrial.

Point: An amount equal to one percent of the principal amount of the investment or note. Lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments.

Prepayment Penalty: A fee charged to a borrower who pays a loan before it is due. Not allowed for FHA or VA loans.

Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract, or agreement for sale.

Rate Gap: The difference between where the rate is now and where it could adjust to on an ARM. Also used to compare the difference between a current conventional rate and that of an ARM.

Realtor: A real estate broker or associate active in a local real estate board affiliated with the National Association of Realtors.

Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

Tenancy in Common: A type of joint ownership of property by two or more persons with no right of survivorship.

Title Insurance Policy: A policy that protects the purchaser, mortgagee or other party against losses.

VA Loans: A loan, made by a private lender, which is partially guaranteed by the Veterans Administration.

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Home Buyer's Checklist

• Familiarize yourself with the mortgage process
• Get pre-approved and pre-qualified
• Get finances in order and prepare your budget
• Identify your needs and wants
• Find the home that meets your criteria
• Negotiate a price and make an offer
• Arrange for home inspection
• Confirm closing date
• Conduct walk-through of home
• Close and settle deal

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