Owning your own home is the American Dream. And that dream is more alive today than ever before. Yet one of the first realizations a prospective home buyer often comes to is that the "dream home" does not always seem affordable.

Buying a home has changed. Before, buyers usually shopped for the best house they could find, then “took out” a loan. Today, prospective buyers must shop as thoroughly as they can for the best financing as they do for the best house. In today’s market, both tasks are equally important.

Experience has taught us that the buying process involves common stages for all home buyers. To help you understand that process, and make the most of every day and dollar you spend, Long & Foster® REAL ESTATE, INC. has prepared this Home Buyers Guide to provide an overview from the planning table to the closing table.

Select a link below.

How Much House
House hunting begins at home—with planning. The first step toward buying a house is to sit down. Before you grab the road maps and hit the streets, you need to do a little planning. We call it “pre-qualifying”. Simply, it’s determining how much house you can afford to buy. Knowing your affordable price range will bring your house-hunting into focus. Many lenders, for a small “up-front” fee, will send out all required verification and pre-approve you for a mortgage, allowing you the opportunity to negotiate as a cash buyer.

How much house you can afford to buy depends on two things: how much you can afford for the monthly housing payment, and how much you can invest in the down payment. Monthly payments include principal and interest on the mortgage loan, and property taxes and insurance against fire and other hazards. These four costs are often abbreviated “P.I.T.I.”. For some buyers and lenders, monthly housing costs may also include homeowners association dues, condominium fees, and mortgage insurance.

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What To Look For
Choosing a place to live can be one of the most exhilarating experiences of a lifetime. We’ve learned through the thousands of home seekers we have helped that the best approach is to be prepared. Literally, to do some homework. Our observation is simple. Your move can be an improvement if you duplicate what you like in your present community and avoid what you dislike.

House Hunting Begins At Home
The search can begin in your present home so we’ve developed some questions to stimulate your thinking and help you identify your needs and preferences. Once you’ve clarified what you like in your present community, you will have a better idea of what you want to find. Plus, you will be able to express your preferences clearly to Bridget who can help you find it.

"The time to think about selling your home is when you’re buying it.” In other words, what appeals to you as a buyer today will probably also appeal (or what turns you off will be a turn off) to buyers tomorrow. A careful house hunter will benefit years from now when it’s time to sell to an equally value-conscious buyer. Build your buyer savvy by reading newspaper classified ads, homes-for-sale magazines, REALTOR® Web sites and visiting open houses.

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Negotiating The Purchase
You’ve found it—your “dream house”! You want to buy it. Now what? You make an offer by submitting a signed real estate offer to purchase with the type of financing you desire.

This will be the sales contract once the seller accepts. When you and the seller sign, you are agreeing to the contract conditions. Before you sign it, read it carefully and make sure you understand every detail. Ask questions. Verbal agreements should be written into the contract. If you plan to have a lawyer represent or advise you, retain one as early as possible. This is where Bridget and an attorney can give you the assistance you need.

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Locating The Right Loan

You have the option of shopping around for the best terms you can obtain. Generally, a mortgage acceptance requires 15-30 days for conventional, 30-45 days for VA and FHA from application to approval. In some cases, loans may be approved more quickly. Long & Foster has an affiliated mortgage company—Prosperity Mortgage® Company.

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Fire And Hazard Insurance
Most lenders require a home buyer to provide at settlement a one-year paid receipt for a fire and hazard insurance policy, often called homeowner’s insurance. These policies are available from several leading insurance companies through Long & Foster's Insurance Agency, Inc., or the insurance company of your choice. Fire and hazard insurance provides protection for fire and other perils to your home and its contents.

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The big day is here!
Tonight you can pop open the champagne, but today there will be a lot of paper signing and a poignant passing of the keys (don’t forget the garage keys and electric door opener, too).

At the settlement will be an attorney or title company representative (chosen by the buyers), all buyers, listing and selling brokers, and all owners. The home seller should bring all warranties on equipment and any instructions on equipment maintenance or operation.

The attorney will have searched the title, provided title insurance, and obtained old and new lender instructions. First, all unresolved walk-through deficiencies are resolved.

With the buyer, the attorney explains the deed of trust or mortgage; the deed of trust note or mortgage note; VA, FHA, or lender forms; and settlement sheets. Buyer signs all these and pays the balance of the down payment and buyer’s closing costs with cashier or certified check.

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Different Mortgage Strategies
When it comes to paying for a home, buyers today have an almost unlimited number of financing options from which to choose. ask Bridget for current market rates.

Here’s a run-down on the main types of financing every home buyer should know today. Interest rates are intended for illustration only; ask Bridget or loan a officer from Prosperity Mortgage Company, a Long & Foster affiliated company, for current market rates.

Here are some of the financing options at your disposal:

Conventional Mortgage.
A conventional loan is an indebtedness or mortgage made between a lending institution and a borrower without a third party participant, such as VA or FHA. Most types of conventional loans are paid off in equal monthly payments spread over 15, 25, or 30 years. The interest rate stays the same for the life of the loan. Therefore the monthly principal and interest payment also remains constant.

Terms of a conventional loan vary among lenders, but basically a loan can be obtained with as little as 5% down payment. When the down payment is less than 20% it is, in most cases, necessary for the loan to have private mortgage insurance to protect the lender.

Example: The buyer purchases a $300,000 home. Typically, the lender will require a down payment of $60,000 or 20% of the purchase price. Assuming 7% market rate; $240,000 loan amount; 30 years, $1,597.92 monthly payment. With private mortgage insurance, however, the lender would lower the down payment requirement to 5%, or $15,000 which increases the monthly payment. Lenders refer to private mortgage insurance as “PMI”.

Advantage: Fixed rate financing is straight forward and easy to understand. Using private mortgage insurance normally adds up-front costs but new PMI plans allow premiums to be financed or paid monthly.

VA Loan.
The VA does not lend money; VA guarantees a portion of the loan. Thus the lenders who originate the loans feel comfortable with their risk. Qualified veterans can take out loans up to $240,000 with no down payment. VA-guaranteed loans can be combined with second mortgages and are assumable upon qualifying by any future buyer.
Example: The veteran agrees to buy a home for $235,000. With no down payment, the loan amount is $239,700 (includes a minimum 2% VA Funding Fee) for 30 years, and say the VA interest rate is 7%, plus “points”. The monthly payment for the $239,700 loan will be $1,595.92.

Advantage:No down payment necessary.

FHA Loan.
FHA does not lend money; FHA insures loans against default. This makes lenders willing to finance home purchases on favorable terms.

With an FHA loan, the down payment can be as low as 2.25% of the purchase price. Points (prepaid interest) may be charged by the lender. Purchasers can choose different rate and point combinations. FHA charges an up-front Mortgage Insurance Premium (M.I.P.) fee. (There is no “up-front” premium on condos.) FHA charges a monthly M.I.P. of .5%.

Example: The buyer of a $200,000 home would make a down payment of approximately $4,500, resulting in a base loan amount of $195,500 and a total loan amount of $198,432 including the financed M.I.P. At a rate of 7%, the monthly principal and interest would be $1,321.37 plus $81.46 for the monthly M.I.P., for an adjusted payment of $1,402.83.

Advantage: Low down payment and low interest rates. Fixed or adjustable rates are available. Especially designed for first-time home buyers.

Lender Funded Programs
Many lenders today are willing to assist buyers with the closing costs. In exchange for paying a higher interest rate, a lender may forgo its normal charges plus pay other closing costs on behalf of the buyer. These plans vary widely, so study them carefully. The advantage is that less cash is required to close. This is offset by higher monthly payments due to the higher interest rates.

Balloon Mortgages.
A balloon mortgage is typically a loan which must be paid off after a certain period. The advantage they offer is an interest rate that is lower than a mortgage that is made for 30 years. Balloons may range in duration from 5-to-7 or 10 years. If the 30-year fixed rate quote was 7%, the 7-year balloon may be as low as 6.5%, providing lower payments for the 7-year period. One point to consider, however, is that the investor typically does not guarantee to extend the loan past the balloon date even though most balloon plans contain provisions for optional refinancing.

Long & Foster®, Realtors®, is not a mortgage lender. These examples are for illustration only and were provided by Prosperity Mortgage® Company, a Long & Foster affiliated company. The exact terms of any financing are subject to the requirements of the investors in each specific case. Choosing the “best” method depends on the circumstances of the individual. A Long & Foster Sales Associate will be happy to fully explain the home buyer’s options for financing.

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Words To The Wise
Below is a handy guide of terms that buyers need to know.

Agent
A person acting on behalf of another, called the principal.

Agreement of Sale
Known by various names, such as “contract of purchase”, “purchase agreement”, “sales agreement”, or “binder”, according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Annual Percentage Rate (APR)
Includes quoted interest rate on the loan plus all additional service and finance charges associated with the loan. Includes all costs of financing; those paid at the time of closing and those paid over the term of the loan. The APR is usually slightly higher than the note rate.

Appraisal
An expert judgment or estimate of the quality or value of real estate as of a given date.

Assessed Value
The valuation placed upon property by a public tax assessor as the basis for taxes.

Bill of Sale
An instrument which transfers title to personal property (chattels); a “Deed” transfers real property.

Certificate of Title
A document signed by a title examiner or attorney, stating that the seller has a good marketable and insurable title.

Closing Statement (Settlement)
The computation of financial adjustments between buyer and seller as of the day of closing a sale to determine the net amount of money which buyer must pay to seller to complete purchase of the real estate and seller’s net proceeds. Also, “settlement sheets”, “HUD-1”.

Commission
Payment to a real estate broker for services performed.

Convey
To deed or transfer title of property from one person to another.

Deed
A formal written instrument by which title to real property is transferred from one owner to another. Also, “conveyance”.

Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender (or beneficiary).

Earnest Money
The money given to the seller by the potential buyer (usually held in escrow) upon the signing of the agreement of sale to show that buyer is serious about buying the house. Also, “deposit”.

Equity
The interest or value which owner has in real estate over and above the debts against it. (Sales Price – Mortgage Balance = Equity.)

Escrow
Funds, property, or other things of value left in trust to a third party. The escrow may be released upon the fulfillment of certain conditions or by agreement of the parties.

Fixture
What was formerly personal property which is now permanently attached to real property and goes with the property when it is sold.

Hazard Insurance
Protects against damages caused to property by fire, windstorms, and other common hazards.

Listing Contract
Between a homeowner (as principal) and a licensed real estate broker (as agent) by which the broker is employed to market the real estate within a given time for which service the owner agrees to pay a commission. Also, “listing agreement”.

Market Value
The highest price which a buyer, ready, willing and able but not compelled to buy, would pay, and the lowest price a seller, ready, willing and able but not compelled to sell, would accept. Basis for “listing price”, or “asking price”.

Market Price
The actual amount for which a piece of property is sold. Also, “sales price”, “purchase price”.

Mortgage
A lien or claim against real property given by the buyer to the lender as security for money borrowed.

Mortgage Note
A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. Also, “deed of trust note”.

P.l.T.I.
Principal, interest, taxes, and insurance. Most residential mortgage payments include the above and are therefore referred to as P.I.T.I. Also, “carrying charges”.

Points
Sometimes called “discount points”, a point is one percent of the amount of the mortgage loan.

Prepayment Penalty
Penalty for the payment of a mortgage note or deed of trust note before it actually becomes due.

Principal
This word has several meanings:
(A) to denote the most important;
(B) a capital sum lent on interest;
(C) one who appoints an agent to act on their behalf;
(D) either party to a contract.

Property Management
The operation of real property, including the leasing of space, collection of rents, selection of tenants, and the repair and renovation of the buildings and grounds.

Prorate
To allocate between seller and buyer their proportionate share of an obligation paid or due. For example, a prorate of real property taxes, fire insurance, or condominium fee.

Sales Associate
A person with a real estate license and associated with a specific real estate broker.

Survey
A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure a building is actually sited on the land according to its legal description.

Title
As generally used, a document that indicates rights of ownership and possession of a particular property.

Title Abstract
A summary of the public records relating to the title to a particular piece of land. An attorney or title company reviews an abstract or title to determine whether there are any title defects.

Title Insurance
Protects lenders and homeowners against loss of their interest in property due to legal defects in title.

Title Search or Examination
A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims.

Transfer Tax
State tax, local tax (where applicable), and tax stamps (in some areas) required by law when title passes from one owner to another.

Ask your Long & Foster Sales Associate for a copy of the “Understanding the Role of the Real Estate Agent” (LF1192, for use in the state of Maryland only);”A REALTORS® ROLE” (LF1193, for use in the state of Virginia only); or “The Agency Disclosure Brochure” (LF1195, for use in the District of Columbia only).

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