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A Beginner's Guide to Buying a Home

Whether you’re ready to buy a home is a personal question that should be answered based on your finances (and other things, like commitment to the area and life choices).

I’m a big proponent of the Dave Ramsey line of thinking when it comes to home ownership – buying a house costs you money in the short term but is an asset in the long term. What does this mean? It means that you need to have money to buy a house. Comparing rent to a mortgage payment is not how you decide whether you should buy a home. In fact, most pros suggest that you have an emergency fund of at least 3-6 months in place and put between 10-20% down when you buy a home.

If you are ready to buy a home, then there are certain things that you need to know. Even if you don’t care to know about this stuff — guess what? You still need to learn about it if you’re buying a home (the same applies if your spouse knows the ins and outs — you still personally need to learn it).



Seller wants to sell his house and Buyer wants to buy Seller’s house. Buyer isn’t a millionaire, so Buyer needs to get help from the Lender (bank) to finance this big purchase. Lender agrees to give Buyer a loan under certain conditions (these terms are always advantageous to the Lender so the Buyer must read carefully). Seller and Buyer go through negotiations until they reach the most important substantive terms of their agreement (usually this is the price and a few other things). After Seller and Buyer have an agreement in writing, the closing process begins. The Seller and Buyer need to do their own due diligence to make sure that this deal is a good idea for each of them. Additionally, the Lender has to make sure the property is valued as it should be and that the Buyer will most likely keep its promise to pay the mortgage. After all parties involved – the Seller, Buyer, and the Lender – do their due diligence, they can begin to sign papers and transfer the property. However, if there are any hiccups with any of the parties, the deal may be called off. Otherwise, at closing, title to the property is transferred and the deal is complete.


Now to the good stuff. Here is a list of 22 terms you need to know before you buy a house (when I originally started writing this post, I thought I could do it in 10 items – turns out there is a ton of stuff you need to need to know).


1. Real Estate Agent

A real estate agent is a licensed professional who helps the buyer or seller in the house-purchasing process. Most agents work for a real estate broker or realtor. As a buyer, you want to hire a good real estate agent when you are buying a house.

2. Prequalified and Preapproval

Getting prequalified is the first step in the mortgage process (it’s usually pretty simple). You give your lender your overall financial picture, the lender evaluates your information, and then the lender gives you an idea of the mortgage amount that you will qualify for. Note, that prequalification is not a done deal – you may not in fact qualify for the loan for which you are preapproved (it’s a general idea).

Preapproval is the second step in the mortgage process. You complete a mortgage application and provide detailed information to the lender (although you will not yet have a house picked out most likely, so the property information can be left blank). The lender will approve you for a specific amount and you will get a better idea of your interest rate. This puts you at an advantage with a seller because the seller will know you’re one step closer to getting a mortgage.

If you get prequalified and preapproved before you pick out a home, then you can move quicker on purchasing a house (you won’t have to make your offer contingent on obtaining financing, which is especially valuable in a competitive market).

3. Proof on Employment and Income

You will have to provide proof of employment and proof of income to qualify for your mortgage. This shows the lender that you are creditworthy. It’s usually not great to quit your job during the home-buying process for this reason. Some lenders may ask for employment verification later in the home-buying process, so your approval could actually change if you take a lesser paying job during the home-buying process.

4. 3 Types of Loans: Conventional, FHA, and VA

 A conventional loan is a loan that is not backed by the government (meaning that the government doesn’t make any guarantee that you will pay the mortgage), and therefore, carries private mortgage insurance if you put less than 20% down. Conventional loans adhere to guidelines set by Fannie Mae and Freddie Mac and are available to everyone, but are more difficult to qualify for than VA or FHA loans (you need better credit and a steady income, for example).

An FHA loan is a loan insured by the Federal Housing Administration (this means that if you default, the FHA will repay the note to the bank). Because the loan is insured, the lender typically offers a low down payment required (3.5%, for example) and low closing costs. Anyone can apply for an FHA loan and an FHA loan is easier to qualify for than a conventional loan. Instead of PMI on your FHA loan, you will have MIP (mortgage insurance premium), which stays with the life of the loan. That means that unlike a conventional loan where you can remove the PMI, on an FHA loan, you cannot remove the insurance without refinancing the entire loan (which you have to qualify for in order to do).

A VA loan is guaranteed by the Veterans Administration and is available only to certain borrowers through VA-approved lenders. Usually, you need to be in the military or a veteran to qualify. VA loans do not carry PMI and there is no money down required.

5. Adjustable rate vs. Fixed rate

An adjustable rate mortgage (ARM) offers homebuyers with a low interest rate on their loan for an initial period, after which time, the interest rate increases or fluctuates for the remainder of the loan. This loan transfers the risk of rising interest rates to the buyer.

A fixed rate mortgage means that the interest rate on the mortgage is fixed at a specific rate for the entire life of the loan. For example, if you have a 15 year fixed mortgage at 4%, this means that your loan is for 15 years and your interest rate will be 4% for the full 15 years, regardless of the market.

6. PMI (and MIP)

PMI stands for private mortgage insurance. As part of qualifying for a conventional loan, you will have to get PMI if you put down less than 20%. Once your equity in your home reaches 20%, you can get the PMI removed (lowering your monthly mortgage payment). However, with an FHA loan, the insurance stays on the loan for the life of the loan, regardless of the equity in the loan. The private insurance on an FHA loan is called mortgage insurance premium (MIP). There is no way to avoid MIP on an FHA loan.

7. 15 year and 30 year

Lenders issue mortgages on 30 year or 15 year terms. You will be hard pressed to find a lender issuing a mortgage for a term other than 15 years or 30 years. The advantage of a 15 year mortgage is that you pay significantly less money in interest over the life of the loan than you would under a 15 year mortgage.

8. Cosigner

Like any other loan, a cosigner on a mortgage means that the person is binding himself to be legally obligated to make the debt payments should you default. So, if you have your mom cosign on your mortgage and you default, she’s on the hook legally and will have to make payments. Similarly, if she wants to get off your mortgage, she can’t do so without you refinancing. If a cosigner is required, the lender is effectively saying that your financial history isn’t good enough and they want someone else to be on the hook, too.

9. Amortization Schedule

An amortization schedule is a complete table showing your payments, principal, and interest over the course of the loan.

10. Prepayment penalty

A prepayment penalty is a clause that will be in your loan documents (if it exists at all). A prepayment clause says that you will pay a penalty for repaying your debt early.

11. Offers and Counter Offers

When you buy a house, you will make an “offer”, which is an offer to buy the house. The seller may accept your offer or reply with a counter offer, which will state different conditions than what you offered.

12. Inspection

A home inspection is an examination of a home done by a home inspector to determine the condition of the home at the time of inspection. You will need to pay for a home inspection if you’re buying a house.

13. Appraisal

A home appraisal is an examination of the value of the property done by a real estate appraiser. An appraiser determines the monetary value of the property. You will need to pay for a home appraisal in order to provide your lender with the value of the property for which you are trying to purchase in order to get financing.

14. Transfer Documents

 “Transfer documents” refers to the documents relating to the transfer of ownership from the seller to the buyer. Most documents will be signed by the seller and delivered to the buyer for your review. Documents include: 1) deed, 2) bill of sale, 3) affidavit of title (or seller’s affidavit), 4) transfer tax declaration, 5) transfer tax declaration, and 6) buyer / seller settlement statement. It’s important that you do your due diligence and read through the transfer documents to make sure everything says what it should say.

15. Home Loan Documents

“Home loan documents” refers to the documents relating to the mortgage issued by the lender to you, the buyer. These documents include: 1) note, 2) mortgage, 3) loan application, and 3) Truth-In-Lending Disclosure (TILA). There may be other documents included. It’s always a good idea to read the documents yourself and consider having an attorney read them for you, too.

16. Real Estate Title Documents

The title company and escrow company will also send you documents to review. The title company will send you the title insurance commitment showing that the party who has title is in fact the seller, in addition to any liens on the title. You should review this document and so should your attorney if you have one. The escrow company will also review it to make sure it says what it should say.

17. Title Insurance

Title insurance protects you and the lender from the possibility that the seller didn’t have free and clear title when the seller sold you the property. Getting title insurance is a standard step in the home-buying process. Your escrow or closing agent will typically help you get title insurance after the purchase agreement is signed.

18. Home Warranty

A home warranty includes basic coverage over certain things that may go wrong, such as plumbing, electrical, heating, and major appliances. The warranty is for a certain amount of time (like one year) and you have to pay for it up front if you want it.

19. Closing costs

Closing costs are fees paid at the closing of the transaction. Closing costs can be paid by the buyer or seller and they can be part of the negotiation process. Closing costs can be thousands of dollars, so don’t forget about them!

20. Escrow (and Monthly Payment)

When you get a mortgage, your lender may require you to set up an escrow account. A monthly escrow amount is added to your mortgage payment. The escrow payments goes toward real property taxes and insurance that you would otherwise have to pay once or twice a year. Instead, you generally will pay a monthly payment and the money sits in escrow to be paid by your lender when it’s due. This escrow payment is above the principal and interest portion of the mortgage payment and is required. 

21. Homeowners Insurance

Most lenders require you to have homeowners insurance in place in order to obtain a mortgage; however, it is not required by law. 

22. Property Tax

Property tax is the amount of money that you are required to pay based on the property’s assessed value. Property tax can be very costly, depending on where you live. This is something you’ll want to consider when calculating how much you plan on spending on your overall homeownership expenses. Property tax payments are usually due annually, but more often than not, they are divided into and included in your monthly escrow payment.

Call us to help walk you through the home buying process today!



This article is a snippet of http://nataliebacon.com/buying-a-house-for-the-first-time/.

8 Things NOT to Do During Your Home Search

Got pre-approved to buy a home? Already have your dream home under contract? Make sure your home buying process goes smoothly, and as planned. Here are 10 things you need to avoid to make sure you actually get your home in a timely fashion.

  1. Don’t lose the money trail – Where is your money coming from?
    • Your lender will need documentation of all your transactions to make sure you really have enough money. “The dog ate my receipts” will work as well as it did with your high school Physics teacher.
  2. Don’t spend your savings – You may need a higher down payment.
    • I know you think you really need that couture pink flamingo lamp but you know what you’ll need more than even that? Cash for a down payment!
  3. Don’t make late payments – Keep showing you’re creditworthy.
    • Are you sensing a theme here? You’re going to have to stay on top of your credit in order to be worthy of a loan.
  4. Don’t close credit accounts – This causes your credit scores to drop.
    • I know that Youtube Guru raves about the benefits of transferring balances and closing unused cards. Don’t listen to that guy. It can really hurt your credit score and then you’ll be in the same place that guy is: his mother’s basement.
  5. Don’t change jobs – Job stability is an important factor.
    • Although job changes can help you advance in your career it could delay your quest for homeownership.
  6. Don’t buy furniture yet – Wait until you actually own the home.
    • I know you’ve picked out the perfect luxury items for your brand new home but avoid buying them until AFTER you close on your home.
  7. Don’t finance a car – Keep your debit-to-income ratio as is for now.
    • If you’d like to live in your new car instead of your dream home then go ahead and pick on up.
  8. Don’t apply for new credit – This affects your debit-to-income ratio and your credit scores.
    • Applying for a new credit card amid the homebuying process will make lenders wonder why you’re in such a rush for extra cash. Look stable and wait.


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Learning Homeownership Skills by Getting Your Hands Dirty

In southern Virginia, the Danville Redevelopment and Housing Authority (DRHA) recently expanded their housing program by developing a full-service housing education department. The Center for Housing Education is a three-year venture that offers Virginia’s first Post-Purchase Home Program, along with a host of other professional services.

The program fights blight by empowering individuals to purchase and maintain homes that would otherwise be slated for the wrecking ball. The Center provides a post-purchase workshop that focuses on three core components: preventative maintenance, financial management, and community. They also have a hands-on workshop that teaches homeowners preventive maintenance such as: how to repair wall board, change plumbing in sinks and toilets, install door knobs, and other home maintenance basics like how to properly use a hammer and nail.

The Center’s other professional services include financial management, credit counseling, debt management counseling, rental counseling, pre-purchase counseling, a homebuyers’ educational course, post-purchase counseling, and Fair Housing training – all of which are free to homeowners!

The Center has also partnered with The City of Danville Community Development Department to facilitate the first HUD-based Lease Purchase Program in the State of Virginia. The 36-month program gives low-income families the opportunity to remove barriers that may prevent them from purchasing a home. Kimberly Walker, Director of Housing Education, leads DRHA’s housing education department and has created strategies that will inspire others to reach for their goals and to fulfill their dreams.

The mission of The Center is to cultivate new housing lifestyles for any housing situation an individual or family may be in, and to fit their housing lifestyle needs for today with a focus towards tomorrow.

Read the latest issue of The Bridge from HUD’s Office of Housing Counseling or subscribe at TheBridge@hud.gov.

Written by: Office of Housing Counseling


Today on the blog, we discuss what mold is, health risks, & how to keep your family safe.

About Mold and Moisture

Molds are living organisms that grow in damp places in your home. They stain or discolor surfaces and smell musty. There are hundreds of thousands of different types of mold.

[Photo: Mold Spore]

Mold can grow almost anywhere: on walls, ceilings, carpets, or furniture. Humidity or wetness, caused by water leaks, spills from bathtubs or showers, or condensation, can cause mold to grow in your home.

Mold spores are tiny particles that float through the air. These can sometimes cause health problems. Mold does not affect everyone, and different people are affected differently when mold is breathed or inhaled.

People with allergies to mold may get:

  • Watery eyes
  • Runny or stuffed noses
  • Itching
  • Headaches
  • Difficulty breathing

Mold can also trigger asthma attacks. Some molds produce toxins (poisons) that may be hazardous if people are exposed to large amounts of these molds. Mold spores and related mycotoxins can also pose a serious health threat to individuals who have compromised immune systems.

What can you do?

To prevent and get rid of mold:

  • Keep your house clean and dry.
  • Fix water problems such as roof leaks, wet basements, and leaking pipes or faucets.
  • Make sure your home is well ventilated and always use ventilation fans in bathrooms and kitchens.
  • If possible, keep humidity in your house below 50% by using an air conditioner or dehumidifier.
  • Avoid using carpeting in areas of the home that may become wet, such as kitchens, bathrooms and basements.
  • Dry floor mats regularly.

To find mold that might be growing in your home:

  • Search for moisture in areas that have a damp or moldy smell, especially in basements, kitchens and bathrooms.
  • Look for water stains or colored, fuzzy growth on and around ceilings, walls, floors, windowsills and pipes.
  • If you smell a musty odor, search behind and underneath materials such as carpeting, furniture or stored items.
  • Inspect kitchens, bathrooms and basements for standing water, water stains and patches of out-of-place color.

To control moisture problems and mold:

  • Fix any water problems immediately and clean or remove wet materials, furnishings or mold.
  • Clean up spills or floods within one day. If practical, take furniture that has been wet outside to dry and clean. Direct sunlight prevents mold growth.
  • Dry all surfaces and fix the problem or leak to prevent further damage.
  • Install a dehumidifier when a moisture problem is evident or when the humidity is high.

Transitioning Renters to Homeowners


Photo: Esperanza sits in the living room of her home.

When a HUD-approved housing counselor at ACTS Housing first met Esperanza, she was on her hands and knees scraping old tile off the floor of her new home, debris flying everywhere.  In that moment, her housing counselor knew she was a woman on a mission.

Esperanza went to ACTS Housing, a HUD-approved housing agency, because she was tired of paying high rental costs. “Half of my check goes to the rent,” said Esperanza. “With three kids, I was ready. I’ve been saving so long and my kids deserve more.”

The first step in Esperanza’s homeownership journey was a meeting with Maria Santos, Director of Homebuyer Counseling for ACTS Housing.  Maria Santos, pulled Experanza’s credit report, walked her through various housing options, and supported her every step of the way. Maria explained, “Esperanza was a joy to work with. She was passionate and focused on homeownership from day one.”

With Maria’s help, Esperanza purchased a property that had been in foreclosure on the South Side of Milwaukee, and renovated it into the home of her dreams. Having worked in the construction trade for five years, Esperanza had the perfect skillset to take on such a big project. She explained, “Once I got the house, the kids were excited because everyone has their own room now. And, I have more money in my pocket.” Esperanza, her three children, their dog and cat are now happy and cozy in their newly renovated South Side home.

Maria explains that watching homeowners like Esperanza achieve their home buying dreams makes her job worthwhile. “The most rewarding part of my work is watching families overcome obstacles and move closer to homeownership,” said Maria. “I work with a lot of incredibly strong individuals who work hard to become homeowners. Once the keys are in hand, it makes all the hard work worth it.”

ACTS Housing is thankful for Esperanza’s commitment to her family and her home. She has joined a cohort of more than 2,200 ACTS families since 1995 who have done the hard work necessary to become homeowners throughout Milwaukee.

Read the latest issue of The Bridge from HUD’s Office of Housing Counseling or subscribe at TheBridge@hud.gov.

- See more at: http://blog.hud.gov/index.php/2017/06/16/transitioning-renters-homeowners/#sthash.0WK6SmvR.dpuf

Written by: 


HUD Logo

WASHINGTON - The Trump Administration proclaimed June as National Homeownership Month, a time to reflect upon the impact owning a home has on household wealth, neighborhood stability and the nation’s broader economic health. The theme of National Homeownership Month 2017 is “Find Your Place in a New Era of Homeownership.”  Read the President’s Homeownership Month Proclamation.

Today, U.S. Housing and Urban Development Secretary Ben Carson kicked off the month-long recognition by hosting an academic forum on the state of homeownership in the U.S. following the housing crisis, specifically the challenges Millennials face as they enter the market in greater numbers. Watch HUD’s National Homeownership Forum.

“After all we’ve been through, homeownership remains an American value and the cornerstone of our economy,” said Secretary Carson. “Today, we recognize the abiding value of owning a home, and rededicate ourselves toward ensuring that every hardworking and credit-worthy American enjoys a fair chance at becoming a homeowner.”

President Trump is committed to growing America’s middle class and strengthening the national housing market. The 2018 Budget continues to support homeownership through the Federal Housing Administration’s mortgage insurance programs, providing up to $400 billion in new loan guarantee authority. In addition, the Budget seeks $500 billion in new guarantee authority for Ginnie Mae, a part of HUD. Ginnie Mae makes affordable housing a reality for millions of low- and moderate-income households by channeling global capital into the nation's housing markets. Specifically, Ginnie Mae provides significant liquidity, allowing lenders to obtain a better price for their mortgage loans in the secondary mortgage market. The lenders can then use this liquidity to fund new mortgage loans.

Since its creation in 1934, the Federal Housing Administration (FHA) has helped more than 46 million Americans purchase or refinance their homes.  Last year alone, FHA insured more than 1.2 million home loans, totaling $245 billion. An estimated 40 percent of all first-time homebuyers use FHA; 47 percent of home purchases by African American households are FHA-insured borrowers; and nearly half of Hispanic homebuyers rely upon an FHA-insured mortgage to purchase their homes.

Throughout Homeownership Month, HUD will host several social media events. Follow National Homeownership Month activities on Twitter at #FindYourPlace.

IDX provided courtesy of Realcomp II Ltd., via Inside Realty, LLC, Copyright 2017 Realcomp II Ltd. Shareholders. Real Estate listings other than those of Inside Realty, LLC are marked with the Broker Reciprocity logo and detailed information about them includes the name of the listing brokers. Information deemed to be reliable but not guaranteed. Any use of search facilities of data on the site, other than by a consumer looking to purchase real estate, is prohibited. Last updated on 2017-07-23.

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Evduza Ramaj Broker/Owner/GRI/SFR/ABR | Nationally Certified (WBENC/WOSB) | 1877 Orchard Lake Road Suite 204 | Sylvan Lake, MI 48320 | Office - 248-758-0022 | Cell - 586-995-5054