In today’s ever-changing real estate market, South Florida home buyers require many tools and resources to find the family's dream home. Use this Home Buying Guide as a comprehensive resource to help you locate the home that best fits your family's needs!

Buying a Dream Home

No doubt, buying a home is a huge step. Considering the amount of money involved, it in fact is the single largest transaction one ever makes. This is the reason why one should choose a home financing company which takes into consideration all these factors.

Now consider this – before you buy a TV set, you research a lot about it on internet, ask your friends, research pricing and then decide which one to buy. So why should home buying be any different? Though it is not exactly rocket science, lots of factors come into play as far as home financing and mortgages are concerned. Most people planning to buy a home face this dilemma. This guide is designed to educate you and make the home buying process a lot easier.

Buy or Rent?
Owning a dream home is an American dream. The moment you buy a home for yourself or for your family, it becomes a long-term investment. Real estate prices invariably increase over a period of time (the same cannot be said for other kind of investments). Owning a home means you have some sort of equity and can borrow against it. Apart from that, homeowners who have purchased their homes through financing get government tax advantages. None of this is possible if you are staying in a rented premise. Do we need to explain more? And last but not the least, the satisfaction of owning your home is unparalleled.

The Home Buying Team

Real Estate Agent
Your real estate agent plays a very important role in home hunting and buying process. He or she is the person who analyzes your exact needs, finds the exact property match, negotiates with the homeowner on your behalf, helps in getting the property inspected and finally clinches a value deal for you. If your agent is not efficient, you might end up paying thousands of dollars more for the property just because he or she was unable to value it properly. Moreover, property contracts and documents are too technical to be understood by common people like you and me; hence your agent should walk you through all this with ease.

Home Mortgage Consultant
Do you go out for shopping without any budget? In a similar way, if you are planning to buy a home you first need to know how much finance you are going to get. This helps your real estate agent to zero on the exact price range that will fit your pocket. As your home mortgage consultant, we are committed to simplify your home financing process. We won’t jump to conclusions immediately; first we will ascertain your short and long term goals and then present the available options to you. You can even get your finance pre-approved within a very short time, which will help you to start the home hunting process immediately.

This guide is designed in such a way that you will be able to make your home purchase as an educated consumer. By now you must have realized that a mortgage consultant is an integral part of home financing process. Here are some questions to ask a potential mortgage consultant

Does the consultant have a local office? Are in-person services offered?
If need arises, can the consultant be reached at nights or on weekends to raise queries or decide to lock in a rate?

-Is your credit report accessible to you on demand?
-What options do you have as far as down payment and closing costs are concerned?
-What will it cost to lock your home finance interest rate and how long will the rate be available?
-Does the consultant offer any limited or no documentation program?
-Is the pre-approval guaranteed?
-What are the exact fees of the mortgage consultant and will the estimates you receive will be fair?
-Can you have more than one mortgage on your home and how much will it cost you?
- Is the second mortgage also pre-approved?
-Is the appraiser, used by the mortgage consultant, licensed and allowed to practice locally?
-What is the time required to get the appraisal done?
-Under ideal conditions, how long the entire process will take?

Basics of Home Financing

Understanding Mortgage
Financing companies extend loans to property owners by keeping the property as a security. So in a nutshell, when a finance company extends a loan to you against the property you are buying; it is referred as mortgage loan. The lender expects the property owner to return the amount over a certain period of time in installments, which are calculated by taking into consideration the principal amount of loan, the loan tenure or period, interest rate, taxes and insurance charges. If the borrower fails to pay installments or refuses to pay the loan amount back, the lender can seize the mortgaged property according to stipulated guidelines.
Monthly payment or installment is made up of four parts

Principal – The actual amount of loan extended
Interest – Charges for using the lenders money over a period of time
Taxes – Service charges and other expenses incurred by the finance company for extending the loan
Insurance – The lender needs some sort of security in case something happens to the borrower/property or the borrower fails to repay the loan. Thus the lender insures the borrower, his/her property, charges of which are collected by the lender from borrower. Sometimes other charges such as maintenance charges of housing societies are also collected on monthly basis from the borrower to keep the property free of any additional obligations.

How Monthly Payments Are Calculated?
For determining the value of the monthly payment, the borrower’s financial profile is taken into consideration, which includes:

-Credit history
-Available cash for down payment and closing costs
-Annual income
-Existing financial obligations such a credit card payments, insurance payments, and personal loan payments

After all these things are determined, the credit officer of the finance company determines how much amount you can pay on monthly basis to the company over a certain period of time without straining you financially. This helps the credit officer to determine an amount, which basically is the final amount of loan that can be extended to you. The amount thus calculated is added to the down payment you have with you to determine the price range of your house.

How Is The Maximum Loan Amount Calculated?
Before extending a loan to a borrower, the lender makes sure that the monthly payment should not eat into your monthly expenses and leave you high and dry. This is calculated by using a formula called debt-to-income ratio.

A debt-to-income ratio compares monthly payments with monthly income, expenses, and other financial obligations. Once this ratio is conveyed to the borrower, it is up to him to decide whether he can afford it or if he wants it to be hiked or lowered. In either of the case, the final loan amount gets affected.

Importance of Credit History
Remember the recent recessionary period. In order to make profits, finance companies extended loans to individuals who had bad credit histories. Loans given to them were referred to as sub-prime loans. Once these borrowers started defaulting on their payments, finance companies/lenders started making huge financial losses. The problems were aggravated by falling real estate prices, which sort of set off a chain reaction leading to the sub-prime mortgage crisis. Thus lenders now are very particular about the borrower’s credit history.

If your credit history is good, in all probability you will have a lower interest rate and require a smaller down payment. People with a “less than perfect” credit score are not denied the loan altogether; they just have to pay more money in form of interest and other charges to make up the difference.

One role of the mortgage consultant is to produce your credit history report on demand. After scrutinizing your credit history report, if something is amiss, some of the following things can be done to improve it:

-Some people like to stay away from plastic money due to obvious reasons. Though it is good to make purchases using cash or check, none of it gets reflected on your credit history report. Buy low priced items through credit cards, and pay them off at the end of the month which will help you in improving your credit score.

-Some lenders also consider alternate credit records for determining your credit worthiness. If you had been paying your monthly utility payments, rent and insurance charges on time, this can be documented to create a legal credit report.

-If you already have some financial obligations or outstanding loans to be repaid, pay them off immediately to increase your credit score. The logic is simple – larger the amount of monthly obligations, lower the amount of loan amount you will get from lender.

-In case you have some unused credit cards do not close them immediately. On the other hand do not get newer ones as either of these actions may backfire. Pay the bill regularly to keep your credit score optimum.

How Much Amount is needed for Down Payment?
In early 80’s, buying a home was extremely difficult due to high down payment requirements. Liberal policies and intense competition between financial institutions have brought down payment amounts significantly lower. Typically, one is required to pay anywhere between 3 to 7 percent (of total property cost) as down payment. If you have a very good credit history, the company may wave off the down payment altogether.

And even if you are unable to garner the down payment amount, your mortgage consultant might be able to secure the required amount from another financer. Be cautious, such kind of financing strictly depends on your credit history.

Ideally one should pay 20 percent as down payment. In some cases, the lender may ask you to buy PMI, or premium mortgage insurance--increasing the overall costs of your property. PMI is primarily done to protect the lender from bad debts.

What if You Decide to Repay The Loan Early?
Closing costs generally fall in the range of 3 to 7 percent of the home purchase price. These costs entirely depend on policies framed by lenders, mortgage products and localities. As soon as you apply for the mortgage loan, your mortgage consultant will give you a Good Faith Estimate, which tells you the costs that will be incurred by you at or before closing. Though these costs are arbitrary, nevertheless it gives you an idea about costs involved while closing the loan account. The following are three types of closing costs that one may incur:

1. Out of Pocket Expenses
These expenses are borne by the borrower, which are not directly associated with the mortgage consultant, which are – attorney fees, appraisal fee, credit report, deed recording and tax services. Your mortgage consultant will explain to you in depth why these expenses are necessary and what are the associated costs involved.

2. Prepaid Items
Homeowner’s insurance, mortgage insurance and escrow account fees fall under this category. Lenders usually setup escrow accounts to pay property taxes and insurance premiums. Escrow accounts are for the benefit of borrower, stopping “sticker shock” when the property tax bill comes. Instead these taxes are adjusted into monthly payments. Setting up an escrow account is an option and not an obligation.

3. Points
Fees associated with mortgage loan, which are payable towards mortgage consultant are known as points. One point means 1 percent of the total loan amount. There are two types of points:

Origination Points – Percentage charged by the lender for disbursing the loan
Discount points – Discount points allow you to buy your interest rate down. The more discount points you pay, lower the interest rate of your loan and vice versa.

Which is the Best Suited Loan for You?
Before approaching a mortgage consultant, it is advisable to have an overview of available loan types. These loan types are not mutually exclusive; hence you might notice some similarities in each of them. Mortgage consultants have better understanding of loan types; hence they are better equipped to explain them to you. Study the table given below to get a rough idea of loan types:


Required Documentation for Mortgage Loan

- Pay-stubs – Latest pay-stubs of all the applicants (if it is a joint loan)

- Tax documents – W2’s for last 2 years, along with completed federal tax returns for past 2 years. If you are self-employed, profit and loss statement of the firm will also be required.
- Assets – Recent bank statements
- VA loan documents
- Divorce – Details of any community property
- Bankruptcy – Discharge papers, schedule of liabilities and letter of explanation


What Now?

The actual process of owning your dream home starts now. You have already taken a step towards it by going through this guide. Unlike other real estate agents, we won’t cajole you to buy a particular property; rather we will keep the hunt alive till you find a perfect home for yourself. As real estate agents we know, how excited people are when they start their hunt. We will multiply this happiness by clinching value deals for you and getting best mortgage lenders lined up for you. We are just a call away, and so is your dream home.