First Time Home Buyers

<body topmargin=0 leftmargin=0 marginheight=0 marginwidth=0> <table cellpadding=0 cellspacing=0 border=0><tr> <td valign="top" colspan=2 height=110 BGCOLOR="#999933" TEXT="#080000" bgproperties="fixed" background="041006e0ddwnfv.png"> <div> <FONT SIZE="5" COLOR="#FFFFFF" FACE="Arial" ><B>Brian Klotz, Realtor</B></FONT><B>     |    </B><A HREF="index.htm" TARGET="_top" TITLE="Brian Klotz, Realtor"><U><B> H</B></U></A><A HREF="index.htm" TARGET="_top" TITLE="Brian Klotz, Realtor"><U><B>ome</B></U></A></div> <div> <A HREF="id31.htm" TARGET="_top" TITLE="Featured Listings"><U>Featured Listings</U></A>   |   <A HREF="id20.htm" TARGET="_top" TITLE="Home Search"><U>Home Search</U></A>   |   <A HREF="id30.htm" TARGET="_top" TITLE="Past Listings"><U>Past Listings</U></A>   |   <A HREF="id19.htm" TARGET="_top" TITLE="Contact Me"><U>Contact Me</U></A>   |   <B>First Time Home Buyers</B>   |   <A HREF="id22.htm" TARGET="_top" TITLE="About Arlington"><U>About Arlington</U></A>   |   <A HREF="id26.htm" TARGET="_top" TITLE="Home Health and Safety"><U>Home Health and Safety</U></A>   |   <A HREF="id29.htm" TARGET="_top" TITLE="Magic"><U>Magic</U></A></div> <div> </div> </td> </tr><tr> <td valign="top" width=190 BGCOLOR="#CCCC99" TEXT="#080000" background="042bec00esnpes.png"> <div> <A HREF="id28_m.htm#first_step" TARGET="TRLX_Middle" TITLE="First Time Home Buyers"><U><B>First Step</B></U></A></div> <div> <A HREF="id28_m.htm#second_step" TARGET="TRLX_Middle" TITLE="First Time Home Buyers"><U><B>Second Step</B></U></A></div> <div> <A HREF="id28_m.htm#third_step" TARGET="TRLX_Middle" TITLE="First Time Home Buyers"><U><B>Third Step</B></U></A></div> <div> <A HREF="id28_m.htm#estimated_costs" TARGET="TRLX_Middle" TITLE="First Time Home Buyers"><U><B>Estimated Costs</B></U></A></div> <div> <A HREF="id28_m.htm#payment_shock" TARGET="TRLX_Middle" TITLE="First Time Home Buyers"><U><B>Payment Shock</B></U></A></div> <div> <A HREF="id28_m.htm#a_few_definitions" TARGET="TRLX_Middle" TITLE="First Time Home Buyers"><U><B>A Few Definitions</B></U></A></div> </td> <td valign="top" height=370 BGCOLOR="#FFFFFF" TEXT="#080000"> <div> First Time Home Buyers</div> <div> <B>First Step</B><B> <A NAME="first_step"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B></div> <div> The first step in your home buying process is talking with a mortgage lender to determine how much house you can afford.  The mortgage lender will ask you questions about your personal finances:  income; debt; credit history; and assets.  They will eventually want to know your social security number and will want to run a credit report.  It is hard to tell a stranger about your personal finances, but unless you plan to pay cash, it must be done.  Ask friends for recommendations to find a mortgage lender that you will be comfortable with, and do some research on the Internet about current rates.  The mortgage lender will explain  the different types of financing available and will make recommendations on what is right for you.</div> <bR> <div> There are three steps in the mortgage application process pre-qualification, pre-approval, and final loan approval. </div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Pre-qualification</B> is the process where the lender will look at a copy of your credit report and use the information you supply to determine how much mortgage you can afford based on your income. No accounts or employment information is verified. </div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Pre-approval</B> occurs when all credit and employment is verified and the mortgage is approved, subject to the appraisal of the property you have chosen to buy. </div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Final loan approval</B> occurs when the property has been appraised, all documentation is in the hands of the lender and all contingencies have been met.</div> <bR> <div> Part of the mortgage application process will be the determination of how much house you can afford based on your income. Two ratios will be used by your mortgage lender in computing your maximum loan amount, the front ratio and the back ratio. </div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Front Ratio:</B> The total mortgage payment including principal, interest, taxes and insurance (PITI) as well as any condominium or homeowner association fees divided by your total GROSS income. Traditionally, this ratio must be below 30% Example: With a gross income of $5000 per month, a total mortgage payment (PITI) of $1350, the front ratio would be 27%. </div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Back Ratio:</B> The total mortgage payment PLUS any car payments, credit card and any other loan payments including student loans divided by your total GROSS income. Traditionally this must be below 40%. Example: With a gross income of $5000 per month, a total mortgage payment of $1350, a car payment of $325, 1 credit card payment of $60 and 1 student loan payment of $150 for a total of $1885 with a back ratio of 38%. </div> <bR> <div> Another part of the mortgage application process will be to run a copy of your credit report.  The big three credit reporting agencies, Equifax, TransUnion and Experian have detailed records concerning your credit history and produces scores that mortgage lenders use to determine your credit worthiness.  A score of greater than 760 is considered excellent and a score less than 620 is "not so good".  It is good idea to obtain a copy of your credit report annually to determine if everything is correct.  Everyone has heard nightmare stories of people trying to qualify for a mortgage and finding that their credit report is full of incorrect payment delinquencies.  By law, if you find an error on your credit report and report it to the agency reporting it, they must respond within 30 days or remove it from their records.</div> <bR> <div> In addition to income, debt and credit scores the lender will want to know about your "reserves" or assets.  This would include your cash in the bank and investments or other property owned.</div> <bR> <bR> <div> <B>Second Step</B><B> <A NAME="second_step"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B></div> <div> Hire me to be your buyers agent.  A buyers agent is an agency agreement between a real estate agent and a buyer.  In a nutshell, it basically states that the real estate agent is representing your interests and not the interest of a seller.  Up until a few years ago, in the Commonwealth of Virginia, buyers agents were non-existent.  Everyone worked for the seller.  This, obviously, was not very fair to buyers and the buyers agency was born.</div> <bR> <div> There are also dual agency and designated representatives.</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Dual agency occurs when the buyer and seller are represented by the same broker (in my case, Re/Max Allegiance) and the same Sales Associate (me).</div> <div> <IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Designated representatives occurs when the buyer and seller in one transaction are represented by the same broker (Re/Max Allegiance) but have different Sales Associates.</div> <bR> <div> Both the buyer and seller must give their consent for either dual agency or designated representatives.</div> <bR> <div> How I earn my money?  In most situations I get paid a commission by the seller based on the sales price of the property.  That's the beauty of hiring a buyers agent, I work for you, but you don't have to pay me.  In rare cases, the buyer would be responsible for my commission, for example, a for sale by owner transaction in which the seller refuses to pay my fee.</div> <bR> <div> I will constantly search for a property that fits your needs.  At first, we will look at a wide variety of homes in different neighborhoods so you get a good sense of what type of homes and locations are available in your price range. Having narrowed the search, we will find the ideal home for you and move onto step three in the buying process.</div> <bR> <div> <FONT SIZE="3" COLOR="#000000" FACE="Book Antiqua" ><B>Third Step</B></FONT><B> <A NAME="third_step"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B></div> <div> Once we find the ideal home, you will want to put in an offer.  I will provide information and recent sales and activity with similar houses in the neighborhood.  You will have all the information you need to make an educated decision on what price you should offer. </div> <bR> <div> In addition to price we will need to decide how much of a good faith deposit to give and if the contract will be contingent upon anything.  </div> <bR> <div> A good faith deposit is an amount of money that is held by the broker.  The money is used to show the seller that the buyer is serious about purchasing the property.  The amount of the deposit depends upon the sales price and the competitive nature of the market.  At closing, the money is credited back to the buyer.  In the rare event that the buyer defaults, the money in most situations would go to the seller.  </div> <bR> <div> The most common contingency is the home inspection.  This allows you to arrange for a home inspector to determine if there is anything that is in need of fixing in the house.  A leaking roof,  faulty wiring, broken windows, etc.  Once that is determined, you can ask the seller to pay for repairs, accept the property as is, or simply walk away from the deal.  If you ask the seller for repairs the contract becomes open to negotiation again.  In a competitive market, the seller may not accept a home inspection contingency.  It is always a good idea to get one even if the contract is not contingent upon it.  Home inspections usually are around $500 but vary greatly in price depending on the size of house involved.  Other contingencies may include, radon testing, financing, and lead based paint.</div> <bR> <div> In Virginia, if the property has a condominium or homeowners association, the buyer has three days to review the documents once they are received.  If you disagree with something in the documents you can walk away from the deal.</div> <bR> <div> Once the contract is ratified (agreed to and signed by buyer and seller) and all the contingencies are removed the next part is closing.</div> <bR> <div> The morning or evening before closing we will conduct a walk thru inspection of the property to be sure everything is as agreed upon in the contract.  The actual closing is done at a settlement company.  The settlement company will be sure that there is clear title to the property being  transferred and will handle the exchange of money and recording of the transaction.  This is where you will sign your name on what will seem to be a  thousand papers ranging from loan documents to the transfer of property documents.  Any items from the walk thru inspection will be addressed at this time.  A settlement attorney will be on hand to answer any questions.  Your loan officer may or may not be there so you should arrange to be able to contact him/her via telephone if any questions should arise.  Typically, the parties at the closing table include the buyer and buyers agent, the seller and sellers agent and the settlement attorney.</div> <bR> <div> After closing, you will be handed keys to your new home.  Directions to your nearest Home Depot will be given and you are now officially a home owner.  Congratulations!</div> <bR> <div> <B>Estimated Costs</B><B> <A NAME="estimated_costs"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B></div> <div> A quick approach to estimating closing costs is to use 3.0% (3.5% in the District) of the purchase price plus the amount of your down payment. This should provide you with a rough estimate of the total amount of funds you will need to close.</div> <bR> <bR> <div> <B>Payment Shock</B><B> <A NAME="payment_shock"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B></div> <div> Don't get payment shock!   Keep in mind, that in most cases, you will be able to reduce your taxable income due to the amount of the interest and real estate tax portion of your monthly payment.  Both interest payments and real estate taxes are tax deductible.</div> <bR> <div> For example, you currently are paying $1,800 a month in rent.  A mortgage loan officer told you that you qualify for a total payment (principal, interest, tax, insurance and condo fee) of $2,650.  Your thinking, I can't afford that!  Now, let's assume that of the new annual payment of $31,800 (2,650*12), 3,000 is for real estate taxes, and $22,000 is for interest.  If your tax bracket is 25%, because of home ownership tax deductions, your taxable income is reduced by $6,250 (3,000+22,000 * 25%).  So in reality, the monthly payment of $2,650 is $2,129 (2,650-(6,250/12))after tax savings.  An increase of $329 (2,129-1,800) per month in your housing costs, but you'll start building equity in your home and have the pride of home ownership.</div> <bR> <div> For most people, buying a home allows them to itemize deductions on their tax return instead of taking the standard deduction.  Examples of itemized deductions are, mortgage interest (not student loan or credit card debt interest), real estate taxes, personal property tax paid on vehicles in Virginia, state income taxes and charitable contributions.</div> <bR> <div> <B>A Few Definitions</B><B> <A NAME="a_few_definitions"><IMG BORDER="0" SRC="1x1.gif" HEIGHT="1" ALIGN="bottom" WIDTH="1" HSPACE="0" VSPACE="0" ></A></B></div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Adjustable rate mortgages (ARMS)</B>-the interest rate remains at a lower rate for a certain period of time then adjusts according to a index such as the consumers price index.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Conventional Financing</B>-mortgage loans not insured by an agency of the federal state or local government.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Conforming loans- </B>mortgage<B> </B>loans in the amount less than $322,701.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Escrows</B>-money that is collected and held to later pay for items such as homeowners insurance or real estate taxes.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Fixed rate mortgage</B>-the interest rate remains the same during the term of the note.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Jumbo loans</B>-non conforming loans.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Non conforming loans-</B> loans amounts in excess of $322,700.   Also called jumbo loans.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Points</B>- 1 point = 1% of the loan amount.  Points are used to buy down the interest rate.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">PMI-Private mortgage insurance</B>  PMI protects the lender in case the mortgagor stops making monthly payments.  This is an additional monthly costs for those putting down less than 20%.  This cost can be avoided by structuring your loan into two notes.  Your lender will be able to advise you on this.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Title Insurance</B>-insurance policy that protects you or the lender against future claims against the property.  Required by lenders. Optional, but recommended for you.</div> <div> <B><IMG BORDER="0" SRC="Symb075c00b700f099660000.png" HEIGHT="16" WIDTH="24" ALIGN="bottom" HSPACE="0" VSPACE="0">Underwriting</B>-the final approval process for loans.</div> <bR> <bR> <bR> <bR> <bR> <bR> </td> </tr></table></body>