Rob Smashnuk

With so many housing choices, especially in urban areas, many first-time home buyers are confused about which kind of residence to invest in. Any kind of dwelling, whether it is a condominium, townhouse or detached home have their respective pros and cons. Before looking into the pros and cons of each property type, it is essential to know what kind of property options are available in the market. Understanding the basic differences between the types of homes can help to make a prudent judgement, especially if you are a first-time buyer.

What Is a Townhouse?

The physical characteristic of a townhouse is a narrow, multilevel residence that is attached to other residences on a street. However, some areas have condominium communities that have two or three-story attached residences. These residences, though physically resemble a townhouse, are in principle condos.

One of the most defining features of a townhouse is its ownership. In the case of a townhouse, the owner usually owns the land on which the house is situated. This ownership is also extended to the front and backyard in conjunction with the residence. Irrespective of the size of a townhouse, the house’s exterior belongs to the owner. In addition, as most townhouses come under the homeowners’ association’s (HOA) regulation, they have to follow several guidelines pertaining to aesthetics rules, fencing, etc. Owners also need to pay for costs involved in insurance and maintenance of the community’s common areas, trash pickup and snow removal.

Condos

Just like townhouses, condominiums (or condos as they are generally called), provide the most hands-off approach to home ownership. The responsibility of maintaining condo exteriors lies with the condo company. However, the costs for maintaining the area are typically borne by the condo owners through their monthly cost and maintenance fees. As compared to a townhouse, condo owners to need to pay for monthly HOA fees as these fees are expected to cover many accessory costs pertaining to condo exterior maintenance, the insurance that covers costly repairs, up keeping and replacements such as that of roofs, elevators, and parking, trash and snow removal. The condo is most suitable if you are eyeing real estate as an investment.

House

Land, exteriors, garage, garden and just about everything else is in your ownership. If this is something you wish for, owning a house is perfect. Detached homes provide the maximum freedom to their owners. Whether it is changing your exteriors, levelling your driveway, decorating, painting or renovating, as a house owner you can make almost all major decisions single-handedly. A house includes ownership and cost of land.

Houses do demand a lot of maintenance and upkeep, whether it is getting your roof fixed, shovelling the snow or maintaining your yard, owning a house requires a major commitment to maintenance. If you are a small family, it may be a little overwhelming to do everything by yourself. In this case, a condo or townhouse may be a much suitable option.

Choosing a home can be overwhelming and confusing, especially if you are not sure which option to choose. Contact Rob Smashnuk Remax. Our agents can help you with making the right choice. No matter what the question is, we have all the answers when it comes to real estate.

Keep your cash in your wallet

Before taking on a huge commitment like a new mortgage, it is best to refrain from making large purchases. Lenders are more likely to give you a better contract for your property if they can see you are a responsible borrower. If you open new credit accounts, max out your cards, or buy several big-ticket items it could be difficult to secure a loan.

Get pre-approval not just pre-qualified

There is a big difference between the two. Anyone can get pre-qualified, but getting pre-approved means a lender has looked at your credit history and financial information and determined exactly how much they should lend you. It can make house hunting more efficient getting pre-approved so you do not waste time looking at houses you cannot afford. It also gives you the opportunity to get the best interest rate on your loan and to make sure there are no hidden fees. You will likely have this loan for decades so it is imperative to make sure you get the best deal possible.

Get your new home surveyed

Doing so will prevent future disputes with your neighbours and it is always a good idea to know exactly what you are buying. Your property tax is based partly on how much property you own so it is ideal to have an accurate map drawn up.

Predicting the market

Housing prices have been steadily increasing making it only natural to try and time buying for when they go down. This can be an impossible task though as markets are unpredictable and housing appears to be on an indefinite upward trend. The best time to buy is when you find the perfect home and can afford it. Do not try to wait it out or you may miss out.

Bigger ≠ Better

For those not in the real estate business, there is an old adage that says not to buy the biggest, most beautiful house on the street. Even though it catches everyone eye, only a few people can afford it. This limits the number of potential buyers should you want to re-sell it. Your home is only going to go up in value in proportion to the houses around it. Sometimes, it can pay off to buy the worst house on the street because it will trade up better per square foot than the biggest house.

Sleeper Costs

The biggest difference you will notice between renting and owning are these costs. Most home buyers focus on the monthly mortgage payment, forgetting about property tax, utilities, repairs, and maintenance costs. Make sure to budget for all the expenses that come with home ownership.

Emotional Attachment

Some homes take our breath away so well that we overlook issues that good come up down the line. Maybe the place was your childhood home, or perhaps it is in an amazing neighbourhood. At the end of the day, buying a home is an investment so try to make this decision practically by avoiding emotional bias.

Check Under the Roof

Just as you would check under the hood of a car before buying it, you should also get your potential new home inspected by a professional. It would cost you a couple hundred dollars, but will save you thousands in the long run. It is the best way to get an unbiased opinion and, if they do find problems, you can use it to bargain for a lower price.

Bidding

Most people think that starting with a low owning bid is the best tactic to use when bargaining for a home. The best approach is to see what other homes are going for in the neighbourhood and be aware of how the markets are doing. Your opening bid should be based on two things: what you can afford and what you really believe the property is worth. Also, try avoiding rounded off numbers – sellers are more likely to take a specific number more seriously because they will assume you put a lot of thought into it.

Research the Neighbourhood

Drive by the house at all times of the day to get a thorough understanding of the area. Many people have bought homes only to realize the community was not for them. Take trips from the new place to your work to see if the commute is manageable and keep an eye out for amenities like grocery stores and gyms. Even if you do not have kids it can be beneficial to make sure the schools in the area are ranked well as this can affect the price of the property.

Contact us to stay updated.

Should you buy a home first or sell your old one? That’s a million dollar question and a pretty stressful one at that. Buying a property involves investing nearly all your savings. How do you invest before you sell if you don’t have enough saved up for your down payment? What if you find the home of your dreams before you sell?

Real estate and finance experts say that buying and selling involve a good deal of research and a clear understanding of all the pros and cons involved. The upside of selling first is that you will
be able to budget better. If you have the money in your hands, you can plan with purpose. However, if you face challenges selling your home but find just the one you were looking for at the budget you had in mind, does it make better sense to buy first? Let real estate expert in Edmonton, Rob Smashnuk from Remax, guide you.

4 Reasons Why You Should Buy a Home Before Selling

1. When you find your dream home: It is not uncommon to walk into a home and find everything you ever wanted inside. Sometimes you need to make the decision in a flash. If there are multiple buyers interested, it’s best to jump in and snap it up. It’s rare to find all you want under one roof. Why take a chance and lose it? You might regret the decision for the rest of your life.

2. When the home is within your budget: It’s hard to find your dream home within your budget or at a cost that you never thought possible. When you find such a home, you may as well take it. If you sit on it, chances are you will lose it to another buyer.

3. When it’s a sellers’ market: If it’s a good time for sellers, you may as well buy your home first if you find what you are looking for. You are assured of selling it quickly so why sit on it?

4. When you have enough savings to invest: If you have a large sum of money stacked away or are in a position to afford two mortgages, go for it. This is also possible when you have regular rental income from your current home that pays off your mortgage. Do your maths, assess the market, consult a real estate professional on the situation of home selling in your neighbourhood. If all looks promising, consult an experienced real estate agent and buy your dream home. You are lucky to be in such a position. Make the best of it!

Buying a Home in Edmonton? Call Rob Smashnuk Remax for Help

It can take hours to look through listings to figure out the right homes for you. If you are ready to invest, give me a call.

I can help you navigate the confusing landscape of Edmonton real estate market. I have the experience, education, and enthusiasm that’s needed to help you make the best decision possible in the neighbourhood of your choice. I have valuable connections in the Edmonton real estate industry with connections to the best mortgage brokers, real estate lawyers and home inspectors to work with and protect your investment. From negotiation to purchase, I will save you time and money and most importantly, help you get complete peace of mind, knowing you made the best possible choice. Give me a call. I look forward to discussing more with you.

Before you set out to buy a residential or commercial property, you need to know the real estate laws and terms to get a good grip on the discussions with your realtor. Here are a few to start with:

Buyer’s and Listing Agents

When you are buying a home, two agents are involved in the process. The buyer’s agent who represents you and the seller’s agent. Sometimes there is only one agent who represents both the buyer and seller but that is not the ideal situation.

Fixed Rate vs Adjustable Rate Mortgages

For conventional loans, you get fixed and adjustable mortgage rate options.

● Fixed rate, like the name, is a predetermined interest rate that remains the same throughout the loan period (usually 20 to 30 years). This offers lesser risks.
● Adjustable rate offers a variable interest rate (5, 7 or 10 years usually). If you are planning to sell or refinance your home before the introductory period ends, this makes better sense.

Pre-approval Letter

You need a pre-approval letter from the bank before you start house hunting, giving an estimate on the amount they can lend you. This helps you determine how much you can afford and reassures lenders when you apply for a mortgage.

Home Listings

Homes for sale fall under the “listings” category. Home listings on websites throw light on the price and number of bedrooms among other details. Look up realtors who list all homes for sale or you may lose out while selecting from a limited listing.

Home Inspection

Once you place an offer on a home you like, the realtor will help you with home inspection for a certain charge. The inspector will look around the home and review the plumbing, HVAC, foundation walls, and electric appliances. If they find substandard fittings or sense something wrong, the realtor can help you bring down the price. If there are severe concerns, you could reconsider the property to save further costs in repairs later.

Appraisal

Once you apply for a mortgage with a lender, a home appraisal is required to estimate the value. This is done with a comparative analysis of other homes sold in the neighborhood, in addition to evaluation of the neighborhood’s value. If the appraised value falls short of the offer you are making, you might be rejected for your home because the lender will be overpaying. To avoid this, ask your realtor to check out the property and neighborhood value beforehand. When you sell, get an estimate on the worth of your home and find out ways to increase home appraisal value.

Contingencies

When you place an offer for your home, you can ask for certain conditions to met before the deal is passed. This is called contingencies. Inspection contingency is when you ask for inspection of the home. Financial contingency is when you get the finances for the loan. There are many other contingencies that your agent should inform you of.

Rob Smashnuk, West Edmonton Realtor

There’s a lot to deal with in real estate matters. A good realtor can explain matters in simple language and is well connected to reliable service providers. Make sure your home search starts with a good realtor to navigate more smoothly. The Rob Smashnuk team specializes in the Secord neighborhood that is growing in popularity rapidly. Our team has the expertise to help you both buy and sell your home in West Edmonton, every step of the way. Give us a call today.

When looking for a place to call home, it’s easy to get sidetracked by thinking with your heart rather than your head. Although it takes less than seven seconds to make a first impression, a quick decision could lead to an unavoidable case of buyer’s remorse. In order to avoid this, I’ve listed a checklist for the top ten house hunting tips you need to know before you attend a viewing.

Location: There are many things that can be changed, upgraded, or improved after you have purchased a home, but the location isn’t one of them. You need to think about the proximity to work, schools, and other attractions you frequently visit and also research any new developments or upcoming changes to the area in the future.

Smells: While air fresheners and open windows can clear out certain scents, it’s important to pay attention in order to sniff out other potential issues. For example, if you notice a damp smell, it could mean the home has poor ventilation or issues with mold.

Even Floors: Noticing a slanted floor is one of the major hints that there could be a large structural issue with the home. If you do notice something, you can ask your Agent to inquire with the owners or make note of it for the home inspection if you decide to go that far in the purchase process.

Lighting: Natural lighting is something that is often overlooked in your house hunt, especially if you are viewing a home at night, or in the middle of winter. Think about how important natural lighting is to you, and plan your viewing times around when the lighting will be optimal.

Shape & Size of Rooms: It is important to take a good look at the layout to make sure not only you but also your furniture can fit comfortably in the space.

Parking: Is there enough space for everyone in your household to park or will this become an added expense? Additionally, if there is parking available, will your vehicle fit?

Laundry: If there is laundry in the home, you need to make sure it is in an accessible location. If there is no laundry, is it in a convenient location you can easily get to with or without a car?

Storage Space: Depending on how creative you can get with your storage, you will want to make sure that there is enough room to store your belongings without things becoming cluttered or unliveable.

It looks perfect, but are you missing something? Professional staging can sometimes fool buyers into thinking a property is perfect while diverting their eyes away from potential issues. Don’t let the professional décor and scent of fresh baked cookies take your attention away from the things that matter.

Assess the Kitchen and Bathrooms: The kitchen and bathroom are two of the most costly rooms in a home. Make sure you pay special attention to these rooms to avoid getting stuck with unwanted repairs or updates after purchasing the home.

While a home inspection will help advise you of any potential issues, it is still a good idea to pay attention to these things in the initial stages of your home search. This will also help ensure you don’t waste money on unnecessary home inspections.

A REALTOR’s Commitment to High Standards of Professional Conduct Works to the Advantage of Buyers and Sellers Alike.
The internet has ushered in an age of readily accessible information and with dozens of discount self-serve brokerages popping up each day, you can easily be swayed into thinking handling the sale of real estate is a simple affair. BUT, remember its been proved that up to 80% of all For Sale By Owners eventually turn to the services of a real estate professional. And with good reason.

Licensed REALTOR‘s are professionally educated, and fully trained to guide you through the sales process with the least amount of risk possible. They are monitored and guided by their brokers and governed by real estate law. They are sworn to uphold to a strict code of ethics and have access to vast array of resources, including their strong network of real-estate-related professionals with whom they have worked with personally, often for decades. Successful transactions and happy clients are key to their livelihood and reputation. It is their business to know exactly what’s going on in their market, as well as in their community.

I have been in the business long enough to have been involved in the sales process of the same home more than once – I can anticipate issues with underground oil tanks, previously problematic roofing, zoning issues, flood zones and other un-disclosed situations which may affect the true value of your property. I have a database of experienced professionals to offer solutions that I have personally worked with in the past and have networks of affiliates to facilitate the sales process.
When Buying Your Property, I Will Help You With the Following:

Maximizing your Purchasing Power:
I will help you get the best possible property for your budget, notifying you of the newest well-priced properties on the market so that you don’t miss out on a great opportunity. I can put you in contact with the best lenders, who are up-to-date with the latest financing options and programs. I will also help you understand and be aware of the hidden costs associated with purchasing.

Home Search Resources:
REALTOR’s are the first to hear about properties as they come onto the market. Additionally, sometimes the perfect property for you is available but not actively advertised in the market. REALTOR’s have extensive networks of resources and knowledge that will assist you in finding the best property on the market. A real estate agent’s business is to know what’s going on in the market, have the network, resources and insider knowledge to assist you in finding the best property for you.

Objective Information:
I will provide you with valuable community information on utilities, zoning, schools, etc. They will help you determine whether the property will provide the right environment you want as a home or investment and will advise you on its resale value when you are ready to sell in the future. I understand the history of the property and the neighbourhood and can give you an honest assessment of what’s going on in the market and how this will affect your property as an investment. Depending on the area and property, this could include inspections for pests, mould, structural deficiencies, roof condition, septic or oil tanks and well tests, just to name a few. I can assist you in finding qualified responsible professionals to do most of these investigations and provide you with written reports. They will also assist you regarding the title of the property, which is the document indicates ownership of property, financial liens, legal issues, and details rights of access/easements. This knowledge can help you resolve issues that might cause problems at a later date.

Negotiating Skills:
Every deal requires patient and precise negotiating on such important factors as price, financing, terms, date of possession and often the inclusion or exclusion of repairs and furnishings or equipment. The purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. As your agent I can advise you as to which investigations and inspections are recommended or required.

Contract Knowledge:
It is crucial to have a full understanding of the contract that you are entering into! I will explain the details, wording and meaning of these legal documents, and keep you aware of the deadlines, deposits, paperwork, etc. involved in the Contract of Purchase and Sale. I will make sure that your needs are protected, both now and in the future, and ensure that you get what you are paying for. Above all, I will guide you through the entire purchasing and closing process and make sure everything flows together smoothly.

When Selling Your Property, a I Will Help You With the Following:

Market Evaluation:
My business is to know what’s going on in the real estate market in your neighbourhood, and will provide you with accurate and up-to-date information on pricing and market activity, including details on the price, financing, terms and condition of competing properties. These are key factors in getting your property sold at the best price, quickly and with minimum hassle.

Advertising:
I have the right tools and know-how to get the word out to other real estate agents and to qualified buyers. I will help you with staging your property so that it shows in the best possible light. I can also recommend repairs or cosmetic work that may increase your property’s selling price and saleability. I can take advantage of the Multiple Listing Service, as well as their own websites and buyer networks. I can host open houses for other REALTOR’s and homebuyers, and will assist in coordinating appointments to show your home to pre-screened, qualified buyers and accompany prospects through your home to point out the properties strengths, answer questions and to ensure the security of your home.

Contract Negotiation:
I will objectively evaluate every buyer’s offer without compromising your marketing position. This initial agreement is only the beginning of a process of appraisals, inspections and financing –a lot of possible pitfalls. I can help you write a legally binding, win-win agreement that will be more likely to make it through the process and protect you in the long run.

Closing Process:
Between the initial offer and the final closing (or settlement), questions and issues may arise. For example, unexpected repairs, financing snags or an issue in the title is discovered. The necessary paperwork alone is overwhelming for most sellers. I’m the best person to objectively help you resolve these issues and move the transaction to completion.

Don’t Be Fooled By Low Fees:
REALTOR’s and their related Brokers charge various fees for services. Some Companies will claim to offer the same services as their competitor for a lower fee. Make sure before you list with any company that you get a written marketing plan that details all of the services provided. The more exposure your property receives the more likely you are to achieve a higher selling price.
Can You Do It by Yourself?

Although it is true that a few people have been able to stick a For Sale sign on their lawn and sell it themselves in a reasonable amount of time, the level of effort, expense and hassle often isn’t broadcast. For both buyers and sellers, stop and think about how much you trust the honesty, abilities and legal knowledge of the layperson with whom you are about to enter into one of the most important transactions of your life. As with any profession if you decide to take on the role yourself, you must fully comprehend the potential legal and financial risks, as well as weigh up the potential savings against the extra work and time.

The internet is covered in high quality information aimed at helping first time home buyers understand the process of getting a house. However, there is one small problem. There are a LOT of steps involved in buying a home. Most of the articles and videos that are available deal with one, two or may be three parts of the process. While this article could not possibly contain every scenario about getting a mortgage and finding a home, it will touch on the main points that are common to nearly every home purchase.

FIRST: GET PRE-APPROVED

Buying a home is a wonderful investment, but it should be approached with the right strategy. BEFORE finding a home, and falling madly in love with a neighborhood, people should first talk to a mortgage loan officer to get pre-approved vs pre-qualified.

It’s Best for the Buyer

Getting pre-approved gives the buyer a chance to find out how much home they can afford. A competent loan officer will tell the buyer not only the principal and interest payments per month, but also the estimated taxes, insurance and mortgage insurance monthly amounts. This gives the borrower a true number to work with in order to decide their comfort zone when looking at potential properties.

It’s Best for the Realtor

Once the buyer is pre-approved they can contact a real estate agent and start looking for a home. Agents have the ability to search for a home based on a number of criteria. Some of the items can be number of bedrooms, number of baths, square footage, location and total price. Incorporating the maximum price along with the other criteria can eliminate homes outside of the buyer’s criteria.

Many people think that getting pre-approved for a mortgage loan is just as simple as a car loan. However, nothing could be further from the truth. A mortgage is a very detailed loan that requires a number of documents and the correct procedures in order to complete the entire process. It all starts with the loan application.

LOAN APPLICATION

The first step in getting a home, and possibly the most important step, is the application.

The application is a lengthy form completed by the loan officer on behalf of the borrower. This form actually covers the potential homeowner’s entire financial situation in amazing detail.

For starters, people are asked for their name, social security number, date of birth, current address and current place of employment. If the application is for the purchase of a home an address of the new home will be requested. However, it is not crucial if a new home has not been picked out yet. The loan officer can continue with the application with an assumed address and change it later if necessary.

It is important to note that all borrowers need to show at least two year’s history for their residence and employment.

Next, the borrower will be asked about their assets. The term assets is a very broad term and can include a whole host of items such as

• any available money in checking accounts
• most recent savings account balances
• stock and bond investments
• land ownership
• any rental properties
• retirement accounts such as 401-k or IRA accounts
• income from ownership in businesses

Finally, the application will provide an estimate of the amount financed, the estimated closing costs, prepaid items and any money that the borrower will need to pay at the closing.

It cannot be stressed enough that the borrower needs to provide as much accurate detail about their income, assets and employment history. Making sure this information is up to date and correct will make the approval and underwriting process much easier.

PROCESSING THE APPLICATION

Processing is a broad term that covers a lot of ground. Once the loan officer has completed the loan application with the borrower and determined a price range for the home purchase, the borrower (or borrowers) have work to do. It is at this time that the borrowers will gather all the necessary documentation to qualify for the loan. People who receive a paycheck and a W-2 will likely need the following list of items:

• Pay stubs covering the past 60 days
• Bank statements (checking and savings) covering the past 60 days
• Past two year’s W-2 forms from all jobs
• Most recent statement from retirement and/or investment accounts.

The list of items for self-employed individuals is slightly different. They will need these items:

• the last 2 years’ tax returns for their business
• the last 2 years’ personal tax returns
• cash flow statement for the current year
• Personal bank statements (checking and savings) covering the past 60 days
• Most recent statement from retirement and/or investment accounts.

The loan officer will have the borrower sign several documents such as the full loan application, the Good Faith estimate, the Truth in Lending and a few more forms. The processor will go over these documents, along with the financial documents mentioned above and make sure everything is in order. Once everything is signed and collected the processor will order the appraisal and the title insurance binder.

The appraisal is used to compare the home under contract with three or more other similar homes that have sold within the last 6 months. All comparable homes will usually be similar in design, square footage, general features and most importantly the location. The appraisal is used to determine the actual value of the home that the borrower wishes to buy.

The title insurance binder is protection for the buyer and the lender that the deed of record is correct before the home is sold. It also ensures that the new deed reflecting the new owners will be properly recorded after the sale.

Once the appraisal is complete and the title insurance binder is accurate all of the previously mentioned documents are combined and sent to the underwriting department.

DIFFERENT TYPES OF MORTGAGES

It is assumed in this country that any reasonably intelligent adult understands the basic points of a mortgage before purchasing a home. However, lots of people don’t know how to change the oil in a car they own. Likewise, millions of people own computers and have no idea how to fix some of the most common problems. For this reason, we want to explain the basics of the common types of mortgages.

Conventional – This is one of the most common types of mortgage loans available. It usually requires excellent credit scores (typically 700 and above) and a down payment of at least 3-5% of the purchase price. The conventional mortgage will usually offer the absolute best interest rate and payment compared to other programs.

FHA Loans – Authorized by the Federal Housing Authority (FHA) these loans are common for people buying their first home. The loan only requires a down payment of 3.5%* and the credit score requirements are less stringent compared to a conventional loan. FHA will allow the seller to pay up to 6% of the purchase price in closing costs to aid the buyer.

An added bonus is that the down payment can be a gift from a relative or friend. Another type of FHA loan, called FHA 203k loans, are also available if the house you are looking at needs rehab work done. The 203k loan allows borrowers to get the money needed for necessary repairs plus the price of the home and finance it all with one loan.

VA Loans – The Veterans Administration sanctions lending to veterans of the military. The VA loan does not require any down payment and also has lenient credit qualifications. In order to qualify for a VA mortgage loan a person will need to meet service criteria. The criteria vary based on active duty during war, reserve duty or duty served in the United States.

USDA Rural Housing – A division of the United States Department of Agriculture (USDA) provides home lending for properties in rural areas. No down payment is required if the appraised value of the home is high enough. For properties with a sufficiently high enough value, the closing costs can be added to the loan balance as well. The loan does have restrictions on income levels for the borrowers. Your loan office can compare your income to the USDA rules for your area and determine if you are eligible.

These are the primary types of loans available to the first time home buyer. Although the rates will vary from one loan to the next they are usually extremely close to each other. In order to decide which loan is best for your situation, you should consult with your loan officer.

THE MORTGAGE PAYMENT

Understanding a mortgage payment is very important for a first time home buyer. Most loans payments, such as for a car, are fairly simple to understand because it usually involves just two parts, the principal payment and the interest payment. However, that is not the case with the majority of mortgage loans.

Below is an example of what makes up a typical mortgage payment. We’ll assume there are escrows in place and mortgage insurance is required.

Mortgage Insurance

For this example, we will assume that your down payment is less than 20% of the home’s asking price. For conventional loans loans, any time a buyer pays less than 20% as a down payment; the borrower will be charged with mortgage insurance. This is an insurance protection to help the lender against any losses. The amount of the monthly mortgage insurance will depend on the type of loan, the borrower’s credit, the loan to value ratio, and the outstanding loan balance. The mortgage insurance is calculated as a percentage of the outstanding loan balance.

Homeowner’s Insurance

One common practice for new home buyers is the use of an escrow account. This account is a holding place for the homeowner’s yearly homeowner’s insurance premium as well as the property taxes.

When a loan officer calculates the monthly mortgage payment they will usually add an amount to cover 1/12th of the annual homeowner’s insurance policy.

Each time a mortgage payment is made some money is deposited into the escrow account. When the insurance premium comes due, money is removed from this account and directed to the insurance agent.

Property Taxes

Similar to the homeowner’s insurance, taxes are also accrued in the escrow account. When a person first buys the home, the taxes are pro-rated. The seller of the home pays the taxes for the part of the year in which they owned the home. This allows the new buyer to pay taxes only covering the time they actually owned the property.

Just like the homeowner’s insurance, 1/12th of the annual property tax amount is added to the monthly mortgage payment. When the monthly payments are made part of the payment is put in the escrow account to cover the annual property tax bill.

Principal and Interest

This is similar to other loans. The interest amount is determined based on the stated interest rate for the mortgage, the term of the loan and the borrowed amount. Each month the amount of interest being paid goes down as the amount of principal goes up, reducing the outstanding balance a little more every month.

UNDERWRITING

The underwriter reviews the entire loan file. Everything from the income documentation, the asset documents, the appraisal and the title binder are all reviewed. Based on the type of loan that the borrower is seeking, the underwriter will compare the facts contained in the application and other documents against the guidelines and rules for that specific loan, plus any additional mortgage overlays.

The decision to approve the loan is guided by three principles

Credit – the borrower’s past credit history is a good indicator of whether or not the borrower has the intention of repaying the loan. Reviewing various types of loans, their duration and how the borrower handled each type of debt will show the underwriter if the borrower wishes to repay the loan.

Capacity – This is a mathematical computation to show that the borrower has enough income to pay for the loan. The underwriter will look at regular wages, overtime wages if the person has worked on the job for more than two years as well as commissions. All of this factors into determining the borrower’s capacity to pay any existing debt on top of a new mortgage.

Collateral– This is where the appraisal and title insurance come in. The underwriter will go through the appraisal to see that the home is being compared to very similar properties. The pictures of the homes are inspected to determine the pride of ownership of the previous owner and see if there are any problems. The title binder is studied to make sure there are no “unknown” liens preventing the borrower from taking over ownership of the property.

Because each type of mortgage has varying rules the underwriter will compare the borrower’s information to the right guidelines for the loan. Consider the process of underwriting a loan in comparison to high school standardized tests. Standard tests are administered across the country to multiple grades. If a student scores at a certain reading level, then the person is awarded a particular grade level on their test. In other words, if the student’s knowledge meets a particular minimum level, they are deemed to be at or above their grade level. A mortgage underwriter does a similar function comparing a person’s credit, income and work history to the loan guidelines.

Once the underwriter has determined that all rules are being followed according to the lender’s policies the loan will be signed off and sent to the closing department.

CLOSING

Once the underwriting department has approved the loan and sent the file to closing a few more items are necessary. In the case that the homeowner is using an escrow service, an insurance policy and a property tax statement will be needed. The insurance policy is to replace the value of the home in case of fire, weather event or any other liability that may arise. The property tax statement provides the current year’s tax information so that the property taxes can be paid now and yearly going forward. An escrow service takes care of making the yearly insurance payment as well as the property taxes. The homeowner simply pays those amounts along with the monthly mortgage payment.

At the closing there will be either an attorney or the title company’s representative present to make sure of a few things. First and foremost is to properly identify the sellers and the buyers. This is usually done by getting a picture ID from each party. Secondly, many, if not all, of the documents must be notarized at the time of signing. Finally, the attorney or representative is there to explain all of the documents that will be signed by the borrowers and sellers. The outline of the amount being borrowed, the interest rate for the loan, the number of months for the loan and the monthly payment, including escrow, are all laid out in black and white for everyone to see.

There will be many forms to sign. Each form will be explained and you have the right to read over them and ask any questions. The representative or your loan officer will be able to answer any questions you may have.

Once all items are signed you will get a copy of everything to keep for your records. And then you will get something very precious: your set of keys!

SUMMING UP THE FIRST TIME HOME BUYER LOAN PROCESS

As you can see, there are quite a few details covered in the whole process of buying a home. However, if you are able to get your finances organized, promptly respond to requests from your loan officer, and have realistic expectations then you should experience a rather smooth process for buying a home.

Location, Location, Location & Weather: We all know it is all about location when it comes to finding your dream home, but before you find the right location, you need to consider the weather. Planning your search too late into the season may mean you are battling Mother Nature so the earlier you begin your search, the better.

Timing is Key: Although your busy summer is winding down, you certainly aren’t working with a clear schedule. Between back to school and the holiday season, finding the perfect time to begin your search is imperative to your overall success and is something you should expect as a buyer this fall.

Decision Time: Although there isn’t as much inventory as you would typically find in the spring, there are still many homes to choose one which is why narrowing down your options can be challenging. Using these tips and a House Hunting Comparison Checklist will help when it comes time to make your decision.

The Price is Right: As we get closer and closer to the holidays, you may begin to worry you are running out of time. With the added pressure, you may be tempted to make a decision by increasing your budget, but that will come back and haunt you in the long run. Make sure you plan your budget early in the buying process with help from my Monthly Home Budget Planner.

Make the Move: If you got a head start on the fall selling season and are ready to make your move, we have just the thing you need. Getting home and organized before the holidays is your main goal, and a moving checklist will help you do just that as quickly and efficiently as possible.

As we begin to see the leaves fall off the trees and the familiar sights and sounds of this beautiful season, these tips will be exactly what you need to find a new house to call home this fall.