Things you should know about buying
a home
Homeownership
Choosing Homeownership
Homeownership is about security, comfort, and fulfilling the
American dream. The sense of community that comes with putting
down roots in a place of your own, the security of owning the
roof over your head, the opportunity for financial growth--all
these accompany the choice to become a homeowner.
But buying a home is also the single largest investment most
people ever make. Along with all the benefits of homeownership
comes the responsibility to manage that investment wisely.
The Benefits of Homeownership
The rewards of owning your own home include many benefits unavailable
to renters. Among other things, homeownership allows you to:
- Start building wealth: Making a mortgage payment every
month builds up your equity stake in your home, contributing
to your long-term savings and helping you solidify your financial
future.
- Reduce your tax burden: The interest you pay on
your mortgage is usually tax-deductible, which can lead
to significant tax savings--especially in the early years of
the mortgage term, when most of your monthly payments go toward
interest. Make sure you consult your tax advisor about the
deductibility of interest.
- Build your credit history: Timely mortgage payments
can contribute to a positive credit history.
- Eliminate landlord
hassles: You'll no longer have to fear non-renewed leases
and rent increases.
- Make the house your own: Aside from zoning
rules, Homeowner's Association requirements, and local
building codes, you'll be free to decorate, remodel, and renovate
as you wish.
Responsibilities of Homeownership
Before deciding to buy a home, consider the responsibilities
that will accompany your purchase. You will most likely have
to make some adjustments to account for the following:
- Additional financial responsibility: Whether buying is
more costly than renting depends on your individual
circumstances. As a renter, some or all of your utilities
may have been paid for, but they will now be solely your
responsibility. You'll also be responsible for property
taxes and homeowner's insurance in addition to your loan.
- Maintenance and repairs: Maintaining your property
will be up to you, not the landlord.
- Less mobility: Unlike
having a lease where you can move with minimal notice,
moving when you own a home is more complicated since you're
responsible for ensuring the mortgage gets paid.
- Depreciation: Real estate
often increases in value over time, but not always. Owning
a home means facing the risk that its value will depreciate.
Beyond the financial benefits,
the personal rewards of homeownership can be tremendous--as
long as you prepare for the responsibilities that come along
with it, and choose a home and a mortgage that are well-suited
to your needs. Hamilton Lending Group advisors can help you
make the right decisions throughout the home financing process,
so get in touch with one today.
Getting Ready to Buy
Financial preparation is the first — and perhaps the most
important — step in the homebuying process.
Get ready for your purchase by taking a careful look
at your finances, especially your savings, credit,
income, and debt.
Down-Payment Options
Buying a home doesn't necessarily mean having to make a large
down payment. Hamilton Lending Group offers a variety of
low- and no-down payment options that can help you buy
a house using little or no cash. If you have a down payment
goal in mind that you need to save for, you'll reach it
more quickly if you stick to these simple rules:
- Pay yourself first. When you pay your monthly bills,
the first check you write should be to your savings
or investment account.
- Avoid unnecessary purchases. The less you spend on big-ticket
items that you don't really need, the sooner
you'll become a homeowner. Keep that goal in mind when you
shop.
- Set realistic goals.
Take an objective look at your monthly income and
expenses, and decide how much you can really afford to
put aside. If saving for a home causes you to fall behind
on your other obligations, it will defeat the purpose.
Your Credit 
The way you use credit is an important part of the mortgage
equation. Your lender takes your credit history into account
when deciding whether to approve you for a mortgage, and
what interest rate you will have to pay.
If you’ve experienced financial difficulties that may
have impacted your credit, it doesn’t mean you can’t
get financing to buy a home. Learn how our flexible programs
can help you begin to help you move beyond your credit history
to “lend you in the right direction.”
Mortgage Basics
Although each individual home financing package has its own
variety of features, the concept of a mortgage is really quite
simple: a mortgage is a loan made to help you finance a home.
Your lender advances you a certain amount of money, which you
repay over a specified period.
Rates, Points & Loan Fees
The total cost of your mortgage is determined by a number
of different factors, most notably the interest rate, discount
points, and loan fees. The expenses that contribute to the
cost of your loan can be expressed as the annual percentage
rate (APR).
- Interest Rate refers to the percentage of your outstanding
loan balance that you pay the lender each month as
part of the cost of borrowing money. Your interest rate will be based on
the current overall rate environment, as well as your financial profile
and the specific features of your loan.
- Discount
Points allow you to “buy down” your
interest rate at closing.
One point equals 1% of your loan amount,
and the more points you pay, the lower
your interest rate will be, and the
less you will have to pay each month.
How much your rate will decrease with
each discount point you pay will depend
on the specific features of your loan.
- Loan Fees
are up-front charges to cover the cost of originating,
processing, and closing your loan, among other things.
An origination point is a loan fee that equals 1% of your
loan amount.
When considering loan pricing, keep in mind that rates,
points and fees should be considered together. The
interest rate alone only tells part of the story.
Your Monthly Mortgage Payment
Mortgage payments can generally be divided into four parts: principal,
interest, taxes, and insurance. These are often referred to
with the acronym PITI.
- Principal refers to the amount of money you borrow to
buy a home and to the outstanding loan balance
at any point during the mortgage term.
- Interest is the cost of
borrowing money. As noted above, the amount of interest
you pay each month is determined by your interest rate.
- Taxes assessed
by your local government will likely be collected by your
lender as part of your monthly payments, and then paid
annually or semi-annually on your behalf. This process
is known as an escrow.
- Insurance, like property taxes, is normally collected
by the lender in an escrow account. Insurance offers financial
protection, and has two major components:
- Homeowner's insurance, also called
hazard insurance, protects you against damage to your property
caused by fire, wind, or other hazards.
- Mortgage insurance
protects your lender in the event that you fail to repay
your mortgage. Whether you must pay mortgage insurance
usually depends on the loan program and the size of your
down payment.
Choosing a Loan
Selecting the right mortgage is central
to the homebuying process–that's
why it's so important to understand
your options. You'll need to consider two things
at the outset: which loan type best meets your
homebuying needs, and which loan term offers the
ideal repayment schedule.
Loan Types
Most home loans fall into one of two general categories: fixed-rate
mortgages and adjustable-rate mortgages (ARMs).
Fixed-rate mortgages have
interest rates that stay the same for the entire life
of the loan.
- You will have predictable monthly payments
throughout the life of the loan.
- You'll be protected
from rising rates, so your principal and
interest payments can never increase, no matter how high
interest rates rise.
Adjustable-rate mortgages have
interest rates that adjust periodically
based on market conditions.
-
The initial rate is
fixed for an introductory period
(usually one to ten years), and is typically lower than
for a fixed-rate mortgage. After that, the rate adjusts
annually based on a market index, but can't go above
a predetermined adjustment cap.
-
Because of the lower initial
rate, some borrowers may be eligible for a larger
loan amount with an ARM than with a fixed-rate mortgage
Getting Preapproved
A preapproval is your lender's written commitment to finance
your home purchase up to a specific amount. Getting preapproved
is a smart move for serious homebuyers because it shows sellers
that you come to the negotiating table ready to complete the
transaction.
Preapproval vs. Prequalification
A preapproval
indicates that a lender has taken a detailed look into your
financial background and has committed to lend you a certain
amount of money, pending specific property details. Because
preapproval includes a credit check, it's more powerful than
a prequalification letter, which generally only estimates
what you can afford based on information you've provided.
What are the advantages of being preapproved?
Preapproval offers a number of advantages over waiting to apply
for a mortgage until after you've found a home. It lets you:
- Shop for a home with the confidence of knowing exactly
how much you can afford.
- Take advantage of
the preference many home sellers have for preapproved buyers.
- Find out about possible qualification problems early
in the homebuying process.
Choosing a Home
One of the most important parts of
the homebuying process is finding the right home for you
and your family. After all, you will probably be living there
for years to come, so it should be a place where you will
be happy.
Using a real estate
agent
If you want complete access to available
homes, you should consider hiring a real
estate agent. A real estate agent can take what you've
decided you want in a home, compare your needs with all
the homes being sold in your area, and show you the ones
that fit best. There are many agents that can fulfill your “real
estate” needs, but you
will want an agent that will work with
you as a partner in accomplishing your goals
in homeownership.
Making the Purchase
Once you've found a home you want to buy,
you'll need to negotiate a price with the seller and agree
to a purchase contract. Your real estate agent will handle
this procedure. Our expertise is lending…his/her expertise
is real estate.
Closing
The closing is the final phase of your homebuying
and mortgage process, so now your new home is just a few
steps away. If you haven't already, make sure you do the
following:
- Review your loan commitment with your lender
to make sure you understand all the requirements.
- Set the
closing time and date based on your sales contract and
the loan commitment expiration.
- Confirm that a survey of your property
has been ordered, if necessary. Check with your closing
agent or attorney.
- Make preparations to move (notify your landlord, complete
change of address forms, arrange
for utilities to be disconnected at your current address
and made available at your new home, and plan your actual
move).
- Conduct a final walk-through inspection
of your home-to-be.
- Make sure you've satisfied all the requirements
of your agreement with the seller.
- Get a certified or cashiers
check from the bank for your closing costs. Cash or personal
checks are generally not accepted.
On closing day, ownership of the property will
be transferred from the seller to you, and
you will sign documents that acknowledge your
rights to the property you have purchased,
your agreement to repay the money you have
borrowed, and the lender's right to the property
if you default on the loan. A closing agent
will coordinate and distribute all the paperwork
and funds, according to the terms agreed upon
by you and the seller.
As soon as you've taken care of the paperwork, you're a homeowner!
Grab the house keys and get ready to start life in your new home.
Managing Your Investment
Your home is more than just a place
to live—it's
also an investment
that can help you build wealth. Managing
that wealth presents unique challenges,
but can lead to financial opportunities
that only come with homeownership.
Building Equity
As you make
your mortgage payments each month, you build
equity in your home. The term “equity” refers
to the difference between the value of your
home and what you owe on it. For example,
someone whose home has a fair market value of $200,000 and
whose mortgage balance is $180,000 has $20,000 of equity.
In the early stages of the mortgage
term each monthly payment is applied mostly to interest. But
over time, a larger and larger portion of each payment goes toward
the principal. So the rate at which you accumulate equity in
your home increases over time.
Your equity can also grow through home price appreciation. As
your property’s market value increases, so does
your equity. Most homeowners will gain more equity this
way than through paying down their principal, especially
early in the mortgage term.
How to Understand Where You Are
The first step toward leaving credit
challenges behind is understanding where you are right now.
Because your credit report is used by lenders to assess your
finances, it’s a good idea
to review it yourself beforehand.
This gives you the chance to correct any errors and identify
any continuing problems.
Ordering your credit report and examining it closely gives you
the best opportunity to explain any negative entries to your
lender. Your explanations can play an important role in determining
your mortgage options.
Credit reporting and scoring
Credit
bureau scores are often called “FICO scores” because
many are produced from software developed
by Fair Isaac Corporation (FICO).
While many lenders, including the ones with which Hamilton Lending
Group is affiliated, use credit scores to help make lending
decisions, other criteria play a significant role in determining
the level of risk involved in making a loan. Those other criteria
include income and debt, employment stability, and how the
borrower’s
payment history has changed over time.
Factors that affect your score
There are five basic factors that determine your
credit score. The levels of importance shown here are for
the general population, and will be different for each individual:
1. Your payment history: what is your track
record?
2. Amounts that you owe: how much is too much?
3. Length of your credit history: how established is it?
4. New credit: are you taking on more debt?
5. Types of credit in use: is it a “healthy” mix?
Loan pricing
Just as here
is no single minimum credit “cutoff score” for
approving a loan, there
is no specific score that determines how
much interest you pay. But there is a relationship
between your credit and the price of your
loan, which includes the interest rate.
When lenders review your credit history, they are trying to
determine how likely you are to repay the loan. How well
you’ve
done that in the past is one indicator of how likely
you are to do it in the future.
The credit score identifies
to the lender the level of future risk associated with your
credit history, as compared to hundreds of thousands of other
credit reports. The higher the score, the lower the risk.
Getting Closer to Your Goals
A supportive lending process
Taking
the first step and applying for a mortgage
may seem intimidating, especially when you’ve had
credit challenges. But Hamilton
Lending Group has the experience and expertise to help
you find a mortgage
that can deliver solid financial grounding for you and
your family.
A policy of integrity
A loan that turns
short-term problems
into long-term problems
won’t
make you more secure.
If your credit situation
calls for an alternative
financing solution,
our goal is to help you find a mortgage
that will have a
positive effect on
your finances.
Supporting your individual goals
Credit challenges
don’t change the fact that
you have
the same homeownership goals as
most people. Whether you want to
buy, build, renovate, or refinance
a home, you need financing that
supports your needs.
What to Expect When You Apply
Hamilton Lending Group offers multiple
ways to start the application process–online, over the phone, or in person–so you
can work with us however it’s
most convenient
for you. Once
your mortgage
application is
complete, our
loan processing
system will work
to give you an
approval decision
as quickly as
possible.
Applying
Before starting an application, you should have the
following information on hand for each applicant:
- Social Security
Number
- Email address
- Gross income amount, including secondary income
sources, if applicable
- Asset information, including the value
of your banking, investment, and other accounts
- Current expenses,
including housing, credit card and loan payments,
child support, and other obligations
- Previous address if you’ve
been in your current residence for less than
two years.
- Name and address of your employer,
and of your previous employer if you’ve
been at your current job for
less than two years
- Estimated
purchase price
(if you are purchasing a home)
- Estimated
property value (if you are refinancing a home)
- Loan amount
(if you are refinancing a home)
- Estimated down payment amount
(if you are purchasing a home)
After you complete your application, you will most likely be
required to send supporting documents (such as account statements
and paycheck stubs) to your mortgage advisor. In some cases,
your advisor may also send a copy of the completed application
for you to sign and return with the outstanding documentation.
Processing and the loan decision
After
you’ve completed the application, a mortgage specialist
will begin verifying all the
information you provided. Meanwhile, your credit report and
other financial information will be reviewed in order to
make an underwriting decision regarding the degree of risk
involved in lending you money.
 At Hamilton Lending
Group, most loan decisions are
performed by an automated underwriting
system designed to provide faster results,
often with reduced documentation. In
fact, conditional loan decisions can
often be made right over the phone!
If the automated system can’t approve a loan, it’s
turned over to one
of our lender partners’ underwriters who
will look for
alternative loan terms to accommodate your needs and circumstances.
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