JOHN MAZZARA - SECRETS FOR SUCCESSFULLY PURCHASING YOUR FIRST HOME.pdf

SECRETS FOR SUCCESSFULLY PURCHASING YOUR FIRST HOME

John Mazzara

Table Of Contents

Owning Vs. Renting

Needs And Desires

Getting That First Home Loan

First-Time Homebuyer Programs

Common First-Time Mistakes

Searching For The Right Home

12 Steps To Buying A Home

Hire An Agent Or Buy Alone?

Dos And Don'ts Of Negotiations

10. What To Know About Home Inspections

11. The Closing Process

12. Moving Tips For The First-Timer

13. Real Estate Horror Stories

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Introduction Hi there! It’s nice to meet you. If you’ve received this book, it’s probably because you’re thinking about buying a home. And if you’re like most home buyers, you may be nervous about the entire process. But that’s why I’m here! My job is to make your job as a buyer as easy and seamless as possible. Throughout my years of experience in the real estate industry, I’ve amassed insider knowledge to help home buyers get great deals on their home purchases. And now, you’ve got all of that information at your fingertips.

In this book, you’ll find:

• An overview of the buying process • How to determine your wants vs. needs in your next home • Information on securing a home loan • Common mistakes to avoid • A negotiation guide to save money on your purchase • And much, much more Sure, you can try to employ these strategies yourself, but you should know that it costs you absolutely nothing to hire me to help you find your next home. Yes, buying a home can be stressful, but with this book (and my help!), we can make the process as seamless as possible.

About John Mazzara

Let me introduce myself. My name is John Mazzara. I have worked in real estate since 1986. I have a very extensive financial background. I began my career selling real estate and expanded my services to include mortgage services. I previously owned a mortgage brokerage where we arranged mortgage financing. I have also owned and managed rental real estate for myself and others. I've even written a book about it called "Reality-Based Real Estate Investing" which is available at Amazon.com or can be viewed online. Give me a call and I'll send you a PDF copy. I am a Realtor licensed to sell real estate in Minnesota and Wisconsin. So, How can I help YOU? It all comes down to this-knowledge, experience, and trust. When you select someone to help you, make SURE they have all three. You are about to make one of the biggest purchases of your life. Don't take the selection of an agent lightly. My background and experience as a trusted Realtor have helped hundreds of families throughout the Twin Cities make the right decision. I sincerely hope you will take a moment to meet and interview me to see if we are a match. I promise to do my best in making the home buying and/or home selling process as painless and fun as possible. I have a strong commitment to those who serve. I have completed the MRP-Military Relocation Professional designation. Let me assist you with your move to-from-or within Minnesota. If you are considering a move and want to work with an agent who has a commitment to relocation in general, I have the CRP

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(Certified Relocation Professional) designation from Worldwide ERC. I understand your stress and apprehension. As a lifelong Minnesota resident, let me answer your concerns and help you find the RIGHT property and neighborhood for yourself/and your family! Demonstrating my continued commitment to providing value to real estate investors, especially in light of all the distressed real estate and opportunities that they present within the marketplace today, I have completed the CIAS (Certified Investor Agent Specialist) designation. This program and its training provide additional information and resources that augment the real estate investment classes and real estate investment book that I have written and created. With my CIAS affiliation, I have access to a number of different investment analysis calculators and worksheets as well as supplemental information that my clients can utilize to determine if a particular property is right for them in helping them reach their investment goals. While real estate investing is not without risk, and there are no guarantees it will be profitable, it may be something to consider once you have researched the topic thoroughly. In an ongoing commitment to conservation, I have completed NAR’s Green Designation. I am a NAR Green Designee who has completed training from the National Association of REALTORS® (NAR) to help home buyers and sellers make educated decisions about green materials and upgrades, energy- efficient technology, green ratings, green design, green incentives, and more. NAR Green Designees have a broad knowledge regarding green topics and can have a positive effect on their community. Have you ever considered building a new home as an option? This can be done with a smaller local builder or a national builder. I have represented clients in BOTH situations. It doesn’t cost you anything more to have me represent you in this situation

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and I can bring you added value in the process. New construction IS an option for your next home! I have personally purchased new construction from the concept to the completed home, moved a house onto a lot where I was the general contractor, and have completed my own 18month 1500 sqft major remodel where the entire home was rebuilt from the studs, all mechanicals were redesigned and replaced as well as a complete redesign of the existing floor plan complete with custom-built features. Let my experience AND additional national training and certifications of RCC (Residential Construction Certified) and CHNS (Certified New Home Specialist) help guide you in this process. Being a baby boomer myself, I am sensitive to the needs of an older population contemplating making a downsizing move. In my 35 plus years and over 1000 homes sold, I have the skills, patience, and desire to help make a move as easy as possible. I have completed the SRES designation from NAR as a Seniors Real Estate Specialists. I have assembled a number of other professional partners who can assist you with your move. I teach classes on these topics- “Downsizing Made Easy” and “Moving Mom and Dad”. Both classes have wonderful resource booklets that I will be happy to share. If you or a parent are contemplating making a move, I would love to help. I sincerely hope you will take a moment to meet and interview me to see if we are a match. I promise to do my best in making the home buying and/or home selling process as painless and fun as possible.

Sincerely,

John Mazzara CFP RICP WMCP CLU CHFC CEBS CMB MBA MS AIF 612-386-7027 john@johnmazzara.com

http://www.MinneapolisStPaulHomes.com

RE/MAX Results 7700 France Ave S Suite 230 Edina MN 55435 NMLS # John Mazzara - 332556

Testimonials & Reviews for John Mazzara Here’s a list of people whom I have helped buy or sell a home, and what they said about working with me:

Excellent Service!!!!!!!!! — Kim K

JOHN MAZZARA IS THE BEST! — Fallah J

Great advice, effort and work. Couldn't ask for a better person to have in our corner. Made it easy and comfortable to buy and sell a home. What a 2016 it was! — Houston N I had a great experience with john. If you are looking for an honest, personable, and knowledgeable agent he is the one! He was really patient in helping me find the right home. I couldn't be happier and plan to seek his help in future real estate transactions. — Josie S John is thoroughly knowledgeable and customer-service oriented. There is no one better. He works for his clients and goes above and beyond. He is a professional who listens to you, protect your interests, and gets right to business. I've recommended him to several people, to include family, and I will continue to do so. He's the best. Look no further. — Kris B We couldn't have asked for a better experience with a realtor. My husband and I especially appreciated John's professionalism and xi

quick response to any questions we had. — Kathy J

Excellent — Ben H

We always felt we were in good hands from the beginning of the home buying and selling process until the end. John is extremely knowledgeable and always used a low pressure approach to help us make the hard decisions that were best for our family. — Sharriah A John took the time to make sure I understood every aspect of the home buying experience. I have repeatedly submitted John's name to friends and family members interested in potentially buying or selling a home. — Bob K John Mazzara was great!! He is knowledgeable, patient, and worked well with us to prepare for and work the sales process. We got our first (and acceptable) offer within 24 hours of when we first put it up for sale. Thanks, John!!!! — Ben J Our experiences with John have been the most positive Real Estate transaction we have ever experienced. I don't think there has ever been a question he hasn't been able to answer. Always returns calls. A delightful person is every way. — Sharon T I could not have asked for a better home buying experience then we had with John! He is knowledgeable, easy to work with, answered questions at all times of the day, and made sure that we didn't settle but found the home perfect for us! No doubt about it that we will use John again and recommend him to our friends and family!

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— Brittani H.

John was a great to work with. We highly recommend him! John helped guide us through the buying process as fist time homebuyers and made us feel so informed. When we out grew out starter home John helped us with the sale of our first and purchase of our 2nd home. John was always available to help (us even at odd hours). He always had a positive attitude and sense of humor with each and every one of the 100+ houses we looked at. John helped 2 very picky buyers find the perfect house...Twice. — Ashley P. One of the best experience I've had with a realtor. Looking forward to work with John Mazzara in the future — Khang Y. John has helped me with 2 real estate transactions, and he was a great buyer and seller agent. He represented my interests, and I like his friendly, direct approach. He has a large network, and I appreciated his referrals to a variety of contractors. I will continue to recommend John to my friends. — Barb H I have bought a sold a couple of houses with John and his amazing team...they never disappoint! His expert advice and knowledge in so many areas makes the whole process as painless as possible. More than that, he's trustworthy, kind and patient. I would highly recommend his services to anyone looking to move. He will take care of you! — Noemi H John was very helpful and found us the home we always wanted within a week! — Jake S

As rookie real estate investors the service and insight we received

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from John Mazzara and RE/MAX has been top shelf. John receives our highest recommendation for anyone's real estate needs. — Tom B John was so unbelievably helpful and had nothing but our best interest at heart. You could tell that he truly cared about making the home purchasing process, as care free & fun as possible. After all, it was our first home! — Nicole B John was great! He really had my best interest at heart. He was patient and quick to answer my calls and emails. The experience was great. — Michelle L. John is a great agent for us. He is honest and is willing to share with us examples of how we can reach our goals. He also is willing to spend time going through our goals and determine what works best for us. — Casey J. John was great in helping us navigate through the complexities involving buying and selling our homes in 2015. We found John to be honest, understanding and responsive to our needs and goals. — Mohamed P. John went above and beyond to help me find my current home. — Amy J John Mazzara was so kind & patient with our house hunting & he was always readily available to look at a house with us. We found our home with John's help & couldn't be happier with his services. — Brittany R.

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We've known and trusted John for over twenty years. He has been our "go-to-guy" for buying, selling and expert advise for countless events. John is very accessible and has always eased any concerns during the buying/selling process. Steve & Vicki M

Chaska MN — Vicki M

John was very helpful, knowledgeable, and professional. You will be delighted to have him as your agent. — Yohannas A. We have worked with John for many years. He is honest, extremely helpful, and very easy to work with. We have recommended him to several friends over the years who have also had him help find their homes. Call John to help you find your new home - you won't be sorry! — Jen Z John recently helped me sell my mother's townhouse. From listing to closing, he was great to work with. I was a first time seller and he patiently walked me through the whole process. Everything went very smoothly. I would highly recommend him. — Julie D. John is an expert in the field and we consistently have great results working with him! — Mark V I would recommend John to anyone looking to buy or sell. His knowledge and hospitality is beyond measure. I'm looking forward to working with him and Re/max in the future. — Lyda O John was ver helpful and looked out for you as if he was buying the house. He went the extra mile even when it wasn't necessary.

I will use John again for our next home! — Thomas H

John is OUTSTANDING, his knowledge and depth of experience in real estate and helping people make the right choice is totally unmatched! His incredibly vast knowledge of anything real estate, from rules, banking, loans, purchase agreements, financing, market trends, and prices provides a huge advantage to any buyer or seller. John also saves a lot of time do to his knowledge and willingness to help. You don't have to run around asking others questions, as John can provide a correct answer to your questions without delay or left wondering. Simply the best there is and extremely valuable to anyone making such a huge decision as buying or selling a home! — Brian D John Mazzara was a pleasure to work with during my first home buying experience. I appreciated the time that John took to explain the home buying process, as well as his flexibility in maneuvering around my sometimes hectic working schedule. John is very knowledgeable about the market in the Twin Cities area, and I am thankful to have had his expertise on my side. — Ben C John helped our family to buy 2 town homes which are the right choices for us. We can count on his real estate knowledge & advice. Our home purchase process was really smooth without any issue. We would strongly recommend him to our family & friends for home purchase. — Shantha R John is great to work with. He's helped us buy 2 of our homes. He is very knowledgeable, objective and a through professional. Our second home search took us over a year, and John was very patient throughout the process with us. He went out of his way to help us rent our townhouse and manage the rental/transition

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process. We feel very lucky to have found him to work with, and appreciate his guidance. — Nitika M John & Patti, Thank you so much for your help in purchasing and managing an investment property. John, your commitment to education really made this possible-your professionalism really shines while patiently answering questions. — Chris T Hi John, I just wanted to take a minute to say "Thank You" for handling my entire real estate sale in such a professional manner. I really enjoyed working with you, and I definitely felt like you were representing my best interests throughout the entire transaction. You will definitely be the person I call for future real estate transactions, and I will continue to refer my friends to you! — Barb H John, Thank you for being there every step in buying our first home. We're so appreciative for all of your guidance. We are looking forward to working with you in the future. — Beth and Josh Dear John, We recently purchased our first home with your help. Being first-time home buyers, we were not sure where to begin. But with the help of you and Patti/Venture Development we were well on our way with little effort on our part. When it came time to hitting the pavement and looking at possible houses we really appreciated you giving us your thoughts on the prospective houses; not something that many Realtors do. You were more than willing to take a phone call at 11 pm at night to schedule a walk-through the next day, again something most Realtors don't do. Once we found "the one" and were ready to write an offer and play-back and forth game of negotiations your company made it painless. The tactfulness and professionalism of how you conduct business really shows how much you care about each client and

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want them to get the best deal for their money. My wife and I are very pleased with the end result. John and Patti make a great team. When people hear about the nightmare of buying a short sale, Patti & Co take the guesswork out of everything. John, the commitment and never-ending guidance and support speak volumes to your dedication and true passion for your profession. Then you helped us through the never-ending bumps in the road made our purchase one of the best experiences of our lives. We will be repeat customers with John & Patti in the future. — Guy & Nicole I have many more testimonials. If you would like to see the originals or any of my others please call me to set up an appointment. I would love to count you as a satisfied long-term client and friend! I like what I do and I genuinely want to help you make the best real estate decision possible.

— Please call me to set up a time to meet! 612-386-7027

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CHAPTER 1 Owning vs. Renting

Owning your own home may be one of the defining qualities of the American Dream, the set of ideals that includes opportunity for prosperity and success, and an upward social mobility for the family and children, achieved through hard work. Homeownership has long been considered one of the strongest representations of that vision — 66% of Americans own their own home, and many more hope they will or wish they did. Something about homeownership plucks a strong chord with Americans. Financial security, permanency, status, or pride; whatever the reason for wanting to own your own home, there has never been a time in recent memory when the health of our credit reports has meant so much as when we decide to buy a home of our own. Lifestyle plays a big role in the decision to own versus rent. Home-buying is most often driven by household formation, such as marriage and childbirth, but not always: for the millennial generation, the primary reported reason for buying a home is owning a dog. Age is also a major factor in general: less than 40% of people under 35 years old own homes, while 60% of people over 35 years old own homes, and more than 80% of people 65 years old or older own homes. The U.S. homeownership rate has fluctuated between 62% and 70% since the 1950s. Most young people begin their independent lives renting an apartment, maximizing lifestyle flexibility and minimizing the hefty upfront costs associated with purchasing a home. As they build careers, save money, and start families, many choose to buy a home, recognizing that homeownership 2

as opposed to rental living better accommodates their growing family needs. Their needs may be better filled by a single-family house, condominium, townhouse, or duplex of their own. At the other end of the age spectrum are homeowners nearing retirement who may now desire to sell their homes, downsizing and avoiding the maintenance and other obligations of homeownership by renting.

WHICH IS BEST?

Is it better to rent or buy a home? Virtually all adults ask themselves this at some point as they form their goals and plan for the years ahead. Owning and renting each have their advantages, but what is best for you depends on your circumstances. Before you decide, here are some things to ask yourself. • How long will you stay in the home? Each market is different, but whether the time you plan to spend in the house warrants its purchase can be predicted. In general terms, it takes four to seven years to break even on a home (i.e., where there has been enough appreciation to pay back the cost of the transaction and cost of ownership). If you are thinking about buying a home and selling it in two years, it is very unlikely that buying will be cheaper than renting. • Do you think of or need your house as an investment in your retirement plan? Americans are used to their homes being a store for wealth they can liquidate in retirement as part of downsizing their lifestyle. In 2015, Gallop reported for the second straight year that more Americans named real estate as the best long-term

investment, over stocks, gold, savings accounts/CDs, and bonds. Real estate leads with 31% of Americans choosing it, followed by stocks/mutual funds, at 25%. A cautionary note though — although home prices have recovered from their pre-2007 market slump and continue to rise, the price of your home can still fall. • Are you financially ready? Owning a home is a financial commitment that requires planning how homeownership will fit into where your life is headed. Ask yourself what your budget is and if either buying or renting would require you to stretch your finances. Crunch all the numbers. A frequent mistake of first-time homebuyers is comparing a month’s rent to a month’s mortgage payment. There are many additional fees necessary to include to make a fair comparison: principal interest, property taxes, property insurance, homeowners’ association fees, and maintenance. • Are you prepared for the down payment? This is the lump sum payment that funds your equity in the property (how much of the property you actually own). Down payments vary; 20% is preferred and gets the best rates. There are some loans that allow down payments as low as 3%. Sometimes, relatives contribute to the down payment. If you have an opportunity, take a gift rather than a loan because lenders will add that debt to other monthly obligations and potential mortgage payments to determine your debt-to-income ratio, which generally can’t top 43% to qualify for a home loan. • Can you afford the monthly mortgage and its components? Generally, a mortgage includes loan principal and interest (both amortized over the life of the

loan) plus homeowner’s insurance and property taxes (which are pro-rated). These items can affect the monthly loan-only payment by several hundred dollars. • Are you emotionally ready? Can you handle the stress? A big factor to consider when buying a home is stress. The Holmes and Rahe Stress Scale, a landmark stress study, ranks many events that go along with buying a home in the top 43 most stressful circumstances in life. Four events are specifically home-related: change in financial state (No. 16), large mortgage or loan (No. 20), change in living conditions (No. 28) and change in residence (No. 32). If someone has recently made other life changes such as marriage (No. 7), switching careers (No. 18) or having a child (No. 14), it might be wise to postpone buying a home. Stress overload can lead to missed payments, which can destroy your credit or even make you lose your home. It’s better to rent if your life is in flux, and then buy when your stress levels are lower. • Are you ready for commitment? Are you ready to make lots of decisions, from picking a real estate agent to picking paint colors? Are you confident enough to choose a neighborhood where you believe home values will continue to appreciate in value and that will serve your needs (e.g., proximity to schools, shopping, recreation, etc.)? Are you ready to devote the time and attention to maintain a home (e.g., leaf-raking, grass-cutting, appliance maintenance and repair, etc.)? Taking care of your investment can be gratifying, but only if you are prepared.

ADVANTAGES OF BUYING YOUR HOME

• Control over housing expenses. By selecting a fixed-rate 15-, 20-, or 30-year mortgage, the homeowner has assurance that housing costs will not increase over the period, and, in fact, will be eliminated at the end of the term (subject to refinancing). • You build equity. Some of each monthly mortgage payment goes toward the loan’s interest. Other portions may go to homeowner’s insurance and county taxes. The remainder pays down the loan principal. Every dollar put toward your loan’s principal represents a dollar of equity — actual ownership of the property. Further, the property should appreciate in value each year, adding to equity (the difference between the current fair market value of a property and the amount of debt owed against it). With certain blip periods such as the 2007 housing bubble burst, home prices in the US appreciate nationally at an average annual rate between three and five percent (home value appreciation in different metro areas can appreciate at markedly different rates than the national average). • Improvements increase your home’s value. A homeowner can also increase a home’s value through home improvements, thus both making your home more comfortable and enjoyable while growing its loan-to- value (LTV) ratio. For instance, adding a bathroom or finishing a basement substantially increases the property’s functionality and curb appeal, while potentially boosting its value. • Tax advantages of homeownership. You qualify for major tax benefits when you buy a house, both at the time of purchase and for the remainder of period you own the

home. >Homestead exemption. Many states exempt any and all owner-occupied homes (homesteads) from a portion of the property tax amount that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, such that a $200,000 home in New Orleans is taxed as if it were only worth $125,000. >Federal tax deductions. Property taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, reducing your income tax burden. Additionally, discount points can be claimed on the loan. Mortgage points are generally of two types: discount points and origination points. Each of these points is equivalent to 1% of your mortgage. Discount points involve prepaid interest, are tax deductible, and can reduce your total mortgage payment. The interest rate on your mortgage typically lowers by 0.25% per point you buy. • Current mortgage rates are relatively low. Interest rates rise and fall through the years. Several years ago, interest rates were higher, and it was more expensive to obtain a mortgage. Since these costs have been reduced, it is now easier and less expensive to own a house. • Ownership rights and creative freedom. Your decorating and home improvement choices are just that — yours, provided they don’t break building codes or violate homeowners’ association rules. You can paint walls any which way, add fixtures, update or finish your basement, or build a patio or deck. Changing your environment to suit your whims is a freeing aspect of homeownership. • A sense of belonging to the community. Homeowners tend to stay in homes for longer than renters and are

more likely to grow roots. They might join a neighborhood association, sponsor block parties or National Nights Out, volunteer at a nearby community center, join a school group, or align with a business improvement district. Renters might not do any of those things, particularly if they know their lease is up in a year and they might move. There is an intangible pleasure attached to owning your own house, a sense of freedom and independence. The home you live in belongs to you and only you (and, perhaps, your spouse), and you can do what you want with it. You are not daunted by increases in rent or the risk of losing your lease. You are free to make improvements and changes. Also, owning your home gives your children the guarantee of attending the schools in the area on a more permanent basis; you never have to worry about a notice from the landlord to vacate your rented house or apartment for any of a variety of reasons over which you have no control.

ADVANTAGES OF RENTING

It seems a shorter list, but one man’s pro is another man’s con, and there are definitely advantages to renting you should factor into your buy-rent decision. • No responsibility for maintenance. Admittedly, this is a big one. As a renter, you’re not responsible for home maintenance or repair costs. If a toilet backs up, a pipe bursts, or an appliance stops working, you don’t have to call an expensive repair person — you just call your landlord or superintendent. Renters in condos, townhomes, or apartments do not have lawn and grounds care obligations. 8

• Relocating is easier. When renting, relocating for work is easier. Though a sudden move may require you to break your lease, you can partially offset the cost by subletting your apartment or talking with your landlord. On the other hand, selling a home takes time and effort. If you have a short timeline to sell your home, you may be forced to accept a lower price and lose some of your investment. • No real estate market exposure. Home values fluctuate and can decline over time. If you’re a renter, that’s not your problem. If you’re an owner trying to sell — it is.

DISADVANTAGES OF OWNING

• Maintenance. The renter’s largest advantage may be the homeowner’s largest disadvantage. While insurance is available to protect against expenses from major catastrophes, everyday maintenance items are on the homeowner’s dime. Maintenance and repair can be as simple as repainting the baseboards or as extensive and expensive as replacing an H/VAC system or sewer pipe. The expense will vary from year-to-year; however, you can expect to pay about one percent of the value of your home annually toward these expenses. If you live in a $300,000 home for 10 years, that’s $30,000 over the period, and possibly more if you must replace a costly, long-lived mechanical item, such as a furnace. Keep in mind the usual homeowner’s chores of lawn care, snow removal, gutter cleaning, and other regular home maintenance needs. • Upfront & closing costs. Buying a home entails numerous

upfront costs. Some are paid out-of-pocket after the seller accepts your purchase offer, while others are paid at closing. These include earnest money, down payment (typically ranges from 3.5% — chiefly for Federal Housing Administration (FHA) loans — to over 20% of the purchase price), home appraisal, home inspection, property taxes, and first year’s homeowner’s insurance. • Loss of relocation flexibility. It is much easier to break a lease and move out of town than to arrange for the sale of a residence. Selling the home from out of town involves its own special logistical and financial problems, such as dealing with the mortgage while the home is on the market. • Financial loss potential. Homeownership builds equity over time; however, equity doesn’t equal profit. If home values in your area go down or remain stagnant during your time as a homeowner, the appraised value of your home could decrease, putting you at risk of a financial loss when you sell.

DISADVANTAGES OF RENTING

• No equity. The monthly rent you pay goes to the landlord. It represents the fee you pay for using the property. You gain no ownership in the property, no matter how long you live there. • No tax benefits. While homeowners can deduct property taxes and mortgage interest on their tax returns, renters aren’t eligible for housing-related federal tax credits or deductions. • Home improvements go to the landlord. Any structural

or decorative home improvements renters make belong to the building owner and will have to stay behind when you move to a different place. Additionally, approval will be necessary for any major redecoration. After all is said, the decision to buy or rent depends on the prospective homebuyer’s circumstances. There is no denying, though, that a home of your own is a good financial and emotional investment. An investment in a home can also mean an investment in the future of your children. There can be nothing better than leaving a home behind as a legacy for your children to enjoy. There is much to consider when you want to buy a home. Switching from renting to homeownership is highly challenging, but an exciting and amazing decision to make. Owning your first house is the first real step toward the perfect home you’ve been dreaming of. Because, at the end of the day, as we all know, there really is no place like home.

CHAPTER 2 Needs and Desires

After the decision is made to buy a home, what sort of home it is to be is the next decision point. Imagine your dream house. It fulfills both your needs and desires. It fits the need for a good roof over your head, a sturdy structure, modern fixtures and appliances, living space (e.g., bedrooms, living room) and function rooms (e.g., kitchen, bathrooms). Your needs fulfilled, you turn to your desires. A home on the beach or in the woods, a gourmet kitchen, a wood-paneled den, crystal chandeliers hanging over a banquet table in the manor- sized dining room and an Olympic-sized swimming pool with a hot tub and sauna. In your first home, you must ensure all needs are met; however, there are probably going to be some desires that you will have to let go for now due to affordability issues.

Decide which qualities are your needs and which are only desires.

• Would you like a swimming pool? Enough that a home without one is not worth looking at? • In what areas or neighborhoods might the home be located? Where do you want to live? Where might you have to live for work commute or home price reasons? • What features would make it special and which ones matter most? • What can you afford and what is out of your budget? Budget usually constrains us most in selecting a home. While some things are necessary for any home (as mentioned, a good

roof, a working furnace, a solid frame), others will just have to stay on the list of desires for now (the sauna, or that Beverly Hills address).

MAKE A LIST. CHECK IT T . CHECK IT TWICE.

You may have an existing impression of what you want from your new home. Putting that to paper and having a complete checklist can prove useful. Before starting your hunt for a new home, it is advisable to make a list of all your basic needs and desires, then rank the desires by priority, assuming that all needs must be met for a house to merit consideration in the first place. This will make the search easier. Realize that it is nearly impossible to find a home that meets all requirements at once in both needs and desires, though. Compromises will be necessary. It is a good idea to work in order from outside-the-house factors to inside-the-house. For example, location is perhaps the primary concern and both “need” factors and “desire” factors might be involved. A “need” would be “must be within 25 miles of work.” A desire might be, “would like Westwood” (a favored neighborhood), while a need might be “on west side of city,” (because work, family, friends, and recreation activities are all located there). Location needs may include proximity to schools, frequently used recreation facilities, or mode of transportation (bus or suburban rail access). Whether an item is a need or a desire depends on circumstance. Closeness to family might be a need for a couple with young children or elderly parents to care for, or a desire if those factors are not involved. It is items like these that make a checklist helpful.

After location needs and desires are compiled, housing factors

can be considered. Needs include having all essential house structures and systems in good working order. Accepting a house that needs a new roof because the owner is willing to knock $7,000 off the listing price is not a sensible deal when it will cost $10,000 to replace the roof in two years. Needs might include a minimum number of bedrooms and bathrooms, no steps, fenced yard (for pet owners or simply for privacy), perhaps a first-floor laundry facility, and any feature the prospective buyers have decided they cannot accept a home without. Desires are features that make the home more attractive or enjoyable — an upgraded kitchen, walk-in closets, a master bedroom suite. Of course, one buyer’s need is another buyer’s desire. The point is to know your own needs and desires so you can easily assess potential properties. Buying a house is not a simple process. Much of the planning should be done well in advance of contacting a real estate agent or looking at houses. Work out the costs and decide your budget. Choose a general location. Contact lenders well ahead of home shopping so your offers are not tied up in getting financial approval. Having the image of your dream home is reality married with imagination. In fact, you may find that some aspects of the house you intend to buy are different. It’s not the same as what your dreams would have told you. Different people have different requirements. It depends on your thought processes and personality. We understand important things and potential compromises differently. Needs are basic requirements that cannot be ignored or compromised. Desires, on the other hand, can be left behind if the situation demands. You need to make a clear distinction between what your necessities are and which items you would be better off classifying as desires.

Remember, no matter how many desires you leave unfulfilled now, they can be worked on later. A pool can be added after a promotion or two. Maybe you don’t like the color of the walls or the window frames; renovation may be a hassle, but it’s always an option for later. Paint color is rarely a need, but having a garage if you plan to run an auto-mechanic business out of it is.

A NOTE ABOUT PETS

Consider your pets when home-shopping. Homebuyers who are pet owners have special requirements they must meet for their pets. A third (33%) of millennial-aged Americans (ages 18 to 36) who purchased their first home say the desire to have a better space or yard for a dog influenced their decision to purchase their first home, according to a survey conducted online by Harris Poll on behalf of SunTrust Mortgage. Dogs ranked among the top three motivators for first-time home purchasers and were cited by more millennials than marriage/upcoming marriage (25%), or the birth/expected birth of a child (19%). It is essential that the neighborhood in which you are going to buy a house have no restrictions on pets. Do you raise American Staffordshire Terriers? There are cities that ban this breed — they’re better known as pit bulls. Goats? Vietnamese pigs? Do you love to always have fresh eggs from your own chickens? Include your animals in location planning. Some pet owners prioritize wood or other durable flooring, not wanting to risk pet damage or odors that might be a greater risk with carpeting. A fenced backyard of appropriate size is on the needs list for many pet-owning house buyers. Consider the arrangement of rooms and the structure of the house as well to make sure it is suitable for your pets. Traffic in the area may be another checklist

item.

Pet services such as veterinary, grooming, and exercising should be conveniently accessible nearby.

LOCATION, LOCATION, LOCATION!

You must make sure to be in a neighborhood that offers the closest possible match to the kind of lifestyle that you want. Trulia recently conducted a survey with Harris Interactive, and the real-estate site found 84% of Americans said the neighborhood would be equally important or even more important than the house itself if they were searching for a new home. Location is so important that people are willing to give up “must- have” features to buy into their desired neighborhood — 72% would forget about a pool, 55% would lose a finished basement, and 33% would accept less square footage. What matters is living in a safe place with good schools. According to Trulia, 69% of buyers would drive through the neighborhood during different times of day to determine if the neighborhood was the right fit. You can’t go to buy a home without choosing a location where you would like to live. Probably the most significant decision when buying a home is where it is. Location influences nearly every part of your everyday life. Your home does not exist in a bubble. It’s part of a bigger community. It is important to find a neighborhood or area that suits your needs. Do you want the peace of a secluded woods or the energy of a bustling city center?

Do research before starting your search. Drive through the area

and see if all the stores, activities, and features you want are there. Eat at local restaurants and walk through a nearby park. As price is mainly based on location and condition of the property, when someone starts looking for their house, it is important to consider the location and how far it is from schools, shopping areas, and other facilities. Home means comfort, and comfort can’t come if the location is not suitable.

CHAPTER 3 Getting That First Home Loan

Venturing into the housing market can be intimidating for anyone. Since the housing market crashed in 2007, the road to recovery has been rather uneven. This includes very tight lending, new requirements, and buyers held back by increasingly strict lending standards. There are signs of improvement in the housing market, though. Banks are relaxing previously strict minimum requirements, and lenders are offering mortgages with down payments at lower rates. This may very well be a good time to consider jumping into the market. With the housing market heating up and consumers ready to buy a home, it is time to begin preparing for the road that lies ahead of you.

THE CRITICAL IMPORTANCE OF A GOOD CREDIT SCORE

Your credit health is the most important factor in deciding what interest rate you will pay on your mortgage, and the difference could be substantial. Your credit rating’s impact is so significant that the difference could be in the thousands of dollars, just from a few points on your credit score. Consider this example. Let us take $178,500 as the price of a home. Two buyers buy at that price and both take a 30-year fixed mortgage. They both put 20% down. One buyer has a low credit score of 620, while the other has a higher score of 760. The one with the poor credit score will end up paying an interest rate as much as 3.5% to 5% higher. This difference could translate into hundreds of dollars per month in mortgage interest payments 18

and a difference of $59,000 or more over a mortgage’s lifetime.

The factors used to calculate an individual’s credit score are credit payment history, current debts, length of credit history, credit type mix, and frequency of applications for new credit. The different scoring systems are based on different criteria, weighted differently, so the three major credit bureaus in the U.S. (Equifax, TransUnion, and Experian) may produce different scores for an individual, even though the scores are based on the same credit report information. Your current credit score is a huge issue in determining if now is a good time to house shop. Having a good credit score before you take on a mortgage is an important factor.

A SHORT GUIDE TO CREDIT HEAL IT HEALTH

We are increasingly dependent on credit; therefore, it is necessary that you have a good understanding of personal credit reports and your credit score before beginning the process of buying a home. When you apply for credit (i.e., a mortgage, credit card, or utility service), your credit score is checked. A credit score in the 500s is poor, while one in the 800s is excellent. Depending on your credit score, lenders will determine what risk you pose. Increased credit risk as shown by a low credit score means that a risk factor is added to the price at which money is lent. If you have a poorer credit score, lenders will lend you money at a higher interest rate than one paid by someone with a better credit score. Below a certain score, lenders will not even deal with you. Here is a short guide to help ensure that your credit is in good shape before you jump into the mortgage market.

• Monitor and analyze your credit history. With your credit

score being such a crucial aspect of the final approval on a mortgage, it is important to have a current idea of how your score is going to affect you. Keep a tab on your score well in advance. This will help you to have an accurate estimate of the rate that you can expect. If your credit score is good, it will help you get approval. Take this opportunity to find out areas where your credit history could use improvement, and take steps to make sure those improvements happen. • Report errors and inconsistencies. A study by the Federal Trade Commission (FTC) stated that one out of every four consumers had errors in their credit reports that were significantly affecting their scores. It also revealed that 5% of consumers found errors that — if left unresolved — would have led them to pay significantly higher amounts for mortgages and loans. Do not let errors on your report make you pay more than you should. Make sure you pull and carefully check the three credit bureau reports, and be sure to dispute any errors that would affect your score such as wrong credit limits or incorrect accounts. • Pay off outstanding accounts. Lenders and underwriters of your mortgage will want some certainty that you are a trustworthy buyer who will be able to make payments on time. This means that having any delinquent accounts or outstanding discrepancies on your credit report may hurt your chances of approval at the best interest rates. Before applying, try to clear any such accounts that are hurting your score. • Decrease the percentage of your income that goes into paying debts (your debt-to-income ratio). According to

Bank of America, keeping your debt at a manageable level is a requirement of good financial health. Your debt-to- income ratio compares your monthly debt expenses to your monthly gross income. To calculate your ratio, add up the payments you make toward debt during a month. That includes your monthly credit card payments, car loans, other debts (such as payday loans or investment loans) and housing expenses — either rent or the costs for your mortgage principal, plus interest, property taxes and insurance (PITI — Principal, Interest, Tax, and Insurance) and any homeowner association fees. Next, divide your monthly debt payments by your monthly gross income — your income before taxes are deducted — to get your ratio. (Your ratio is often multiplied by 100 to show it as a percentage.) For example, if you pay $400 on credit cards, $200 on car loans and $7,400 in rent, your total monthly debt commitment is $8,000. If you make $300,000 a year, your monthly gross income is $300,000 divided by 12 months, or $25,000. Your debt-to- income ratio is $8,000 divided by $25,000, which works out to 0.32, or 32 percent. While the preferred maximum varies from lender to lender, it’s often around 36 percent. • Beware of applying for credit. You want your credit score as high as possible when applying for a mortgage. Thus, you should try to avoid getting more credit, especially when your underwriter is deciding on your mortgage. Every credit application you fill out during this time could lead to an inquiry that might significantly decrease your score. • Keep your credit clean before purchasing a home. When it comes to your credit and purchasing a home, you must

be extremely careful how you handle your money. One wrong move and you can wave goodbye to your new home. In the case of purchasing a new home through an application for a mortgage, it’s best to wait before taking out any credit cards or applying for car loans. If it’s impossible to wait, make sure you speak to your loan officer or mortgage broker for some advice. You do not want to risk losing your home loan.

TIPS TO BE PREPARED

When it comes to taking out a home loan with a mortgage broker, you are going to need to be prepared. This means you will need to produce many documents, beginning with tax returns from at least three years before. Lenders will also want to see monthly bank statements, as well as proof of your income and all debts you may have. It’s also a good idea to have sources for any big ongoing deposits you may have. If you have family or friends making a down payment for you, it is important to have a written “gift letter” to document such information for your lender. Otherwise, the amount will be considered a loan and included in your financial analysis. You will need money for the down payment, closing costs, at least a year’s worth of taxes, and insurance payments. It is also recommended that you have extra cash because mortgage lenders will want to ensure that you have an adequate reserve. This is in case something in the home breaks and needs to be replaced, or if you lose your job and need money to make payments while you look for new employment. Multiple financial experts have agreed the general rule of thumb for a down payment is around 20%, but you are able to do it with as little as 3.5% in the case of Federal Housing Administration mortgages. A conventional mortgage with a VA loan, which is available to veterans of the 22

military, is around 5%.

Keep in mind that if you are paying less on the down payment, you will be paying more monthly. This also includes the private mortgage insurance you will need to pay, which is known as the mortgage insurance premium. The mortgage insurance premium only applies, however, if your down payment is less than 20%. One thing you should keep in mind is that improving your credit score will not happen overnight. It could take quite some time. It is essential that you begin keeping your credit score in check the moment you start thinking of buying your home. By keeping your credit score at a good level, you will not have to worry about paying extra interest on your house.

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