your own home is the American Dream. And that dream
is more alive today than ever before. Yet one of the
first realizations a prospective home buyer often comes
to is that the "dream home" does not always seem affordable.
a home has changed. Before, buyers usually shopped for
the best house they could find, then “took out” a loan.
Today, prospective buyers must shop as thoroughly as
they can for the best financing as they do for the best
house. In today’s market, both tasks are equally important.
has taught us that the buying process involves common
stages for all home buyers. To help you understand that
process, and make the most of every day and dollar you
spend, Long & Foster® REAL ESTATE, INC. has prepared
this Home Buyers Guide to provide an overview from the
planning table to the closing table.
a link below.
House hunting begins at home—with planning.
The first step toward buying a house is to sit down.
Before you grab the road maps and hit the streets, you
need to do a little planning. We call it “pre-qualifying”.
Simply, it’s determining how much house you can
afford to buy. Knowing your affordable price range will
bring your house-hunting into focus. Many lenders, for
a small “up-front” fee, will send out all
required verification and pre-approve you for a mortgage,
allowing you the opportunity to negotiate as a cash
How much house you can afford to buy depends on two
things: how much you can afford for the monthly housing
payment, and how much you can invest in the down payment.
Monthly payments include principal and interest on the
mortgage loan, and property taxes and insurance against
fire and other hazards. These four costs are often abbreviated
“P.I.T.I.”. For some buyers and lenders,
monthly housing costs may also include homeowners association
dues, condominium fees, and mortgage insurance.
To Look For
Choosing a place to live can be one of the most exhilarating
experiences of a lifetime. We’ve learned through
the thousands of home seekers we have helped that the
best approach is to be prepared. Literally, to do some
homework. Our observation is simple. Your move can be
an improvement if you duplicate what you like in your
present community and avoid what you dislike.
House Hunting Begins At Home
The search can begin in your present home so we’ve
developed some questions to stimulate your thinking
and help you identify your needs and preferences. Once
you’ve clarified what you like in your present
community, you will have a better idea of what you want
to find. Plus, you will be able to express your preferences
clearly to Bridget who can help you find it.
time to think about selling your home is when you’re
buying it.” In other words, what appeals to you
as a buyer today will probably also appeal (or what
turns you off will be a turn off) to buyers tomorrow.
A careful house hunter will benefit years from now when
it’s time to sell to an equally value-conscious
buyer. Build your buyer savvy by reading newspaper classified
ads, homes-for-sale magazines, REALTOR® Web sites
and visiting open houses.
You’ve found it—your “dream house”! You want to buy
it. Now what? You make an offer by submitting a signed
real estate offer to purchase with the type of financing
will be the sales contract once the seller accepts.
When you and the seller sign, you are agreeing to the
contract conditions. Before you sign it, read it carefully
and make sure you understand every detail. Ask questions.
Verbal agreements should be written into the contract.
If you plan to have a lawyer represent or advise you,
retain one as early as possible. This is where Bridget
and an attorney can give you the assistance you need.
The Right Loan
You have the option of shopping around for the best
terms you can obtain. Generally, a mortgage acceptance
requires 15-30 days for conventional, 30-45 days for
VA and FHA from application to approval. In some cases,
loans may be approved more quickly. Long & Foster
has an affiliated mortgage company—Prosperity
And Hazard Insurance
Most lenders require a home buyer to provide at settlement
a one-year paid receipt for a fire and hazard insurance
policy, often called homeowner’s insurance. These
policies are available from several leading insurance
companies through Long
& Foster's Insurance Agency, Inc., or the insurance
company of your choice. Fire and hazard insurance provides
protection for fire and other perils to your home and
big day is here!
Tonight you can pop open the champagne, but today there
will be a lot of paper signing and a poignant passing
of the keys (don’t forget the garage keys and
electric door opener, too).
the settlement will be an attorney or title company
representative (chosen by the buyers), all buyers, listing
and selling brokers, and all owners. The home seller
should bring all warranties on equipment and any instructions
on equipment maintenance or operation.
attorney will have searched the title, provided title
insurance, and obtained old and new lender instructions.
First, all unresolved walk-through deficiencies are
the buyer, the attorney explains the deed of trust or
mortgage; the deed of trust note or mortgage note; VA,
FHA, or lender forms; and settlement sheets. Buyer signs
all these and pays the balance of the down payment and
buyer’s closing costs with cashier or certified
When it comes to paying for a home, buyers today have
an almost unlimited number of financing options from
which to choose. ask Bridget
for current market rates.
a run-down on the main types of financing every home
buyer should know today. Interest rates are intended
for illustration only; ask Bridget or loan a officer
Prosperity Mortgage Company, a Long & Foster
affiliated company, for current market rates.
are some of the financing options at your disposal:
A conventional loan is an indebtedness or mortgage made
between a lending institution and a borrower without
a third party participant, such as VA or FHA. Most types
of conventional loans are paid off in equal monthly
payments spread over 15, 25, or 30 years. The interest
rate stays the same for the life of the loan. Therefore
the monthly principal and interest payment also remains
Terms of a conventional loan vary among lenders, but
basically a loan can be obtained with as little as 5%
down payment. When the down payment is less than 20%
it is, in most cases, necessary for the loan to have
private mortgage insurance to protect the lender.
Example: The buyer purchases a $300,000 home. Typically,
the lender will require a down payment of $60,000 or
20% of the purchase price. Assuming 7% market rate;
$240,000 loan amount; 30 years, $1,597.92 monthly payment.
With private mortgage insurance, however, the lender
would lower the down payment requirement to 5%, or $15,000
which increases the monthly payment. Lenders refer to
private mortgage insurance as “PMI”.
Advantage: Fixed rate financing is straight forward
and easy to understand. Using private mortgage insurance
normally adds up-front costs but new PMI plans allow
premiums to be financed or paid monthly.
The VA does not lend money; VA guarantees a portion
of the loan. Thus the lenders who originate the loans
feel comfortable with their risk. Qualified veterans
can take out loans up to $240,000 with no down payment.
VA-guaranteed loans can be combined with second mortgages
and are assumable upon qualifying by any future buyer.
Example: The veteran agrees to buy a home for $235,000.
With no down payment, the loan amount is $239,700 (includes
a minimum 2% VA Funding Fee) for 30 years, and say the
VA interest rate is 7%, plus “points”. The
monthly payment for the $239,700 loan will be $1,595.92.
Advantage:No down payment necessary.
FHA does not lend money; FHA insures loans against default.
This makes lenders willing to finance home purchases
on favorable terms.
an FHA loan, the down payment can be as low as 2.25%
of the purchase price. Points (prepaid interest) may
be charged by the lender. Purchasers can choose different
rate and point combinations. FHA charges an up-front
Mortgage Insurance Premium (M.I.P.) fee. (There is no
“up-front” premium on condos.) FHA charges
a monthly M.I.P. of .5%.
The buyer of a $200,000 home would make a down payment
of approximately $4,500, resulting in a base loan amount
of $195,500 and a total loan amount of $198,432 including
the financed M.I.P. At a rate of 7%, the monthly principal
and interest would be $1,321.37 plus $81.46 for the
monthly M.I.P., for an adjusted payment of $1,402.83.
Advantage: Low down payment and low interest rates.
Fixed or adjustable rates are available. Especially
designed for first-time home buyers.
Many lenders today are willing to assist buyers with
the closing costs. In exchange for paying a higher interest
rate, a lender may forgo its normal charges plus pay
other closing costs on behalf of the buyer. These plans
vary widely, so study them carefully. The advantage
is that less cash is required to close. This is offset
by higher monthly payments due to the higher interest
A balloon mortgage is typically a loan which must be
paid off after a certain period. The advantage they
offer is an interest rate that is lower than a mortgage
that is made for 30 years. Balloons may range in duration
from 5-to-7 or 10 years. If the 30-year fixed rate quote
was 7%, the 7-year balloon may be as low as 6.5%, providing
lower payments for the 7-year period. One point to consider,
however, is that the investor typically does not guarantee
to extend the loan past the balloon date even though
most balloon plans contain provisions for optional refinancing.
Long & Foster®, Realtors®, is not a mortgage
lender. These examples are for illustration only and
were provided by Prosperity Mortgage® Company, a
Long & Foster affiliated company. The exact terms
of any financing are subject to the requirements of
the investors in each specific case. Choosing the “best”
method depends on the circumstances of the individual.
A Long & Foster Sales Associate will be happy to
fully explain the home buyer’s options for financing.
To The Wise
Below is a handy guide of terms that buyers need to
A person acting on behalf of another, called the principal.
Agreement of Sale
Known by various names, such as “contract of purchase”,
“purchase agreement”, “sales agreement”,
or “binder”, according to location or jurisdiction.
A contract in which a seller agrees to sell and a buyer
agrees to buy, under certain specific terms and conditions
spelled out in writing and signed by both parties.
Annual Percentage Rate (APR)
Includes quoted interest rate on the loan plus all additional
service and finance charges associated with the loan.
Includes all costs of financing; those paid at the time
of closing and those paid over the term of the loan.
The APR is usually slightly higher than the note rate.
An expert judgment or estimate of the quality or value
of real estate as of a given date.
The valuation placed upon property by a public tax assessor
as the basis for taxes.
Bill of Sale
An instrument which transfers title to personal property
(chattels); a “Deed” transfers real property.
Certificate of Title
A document signed by a title examiner or attorney, stating
that the seller has a good marketable and insurable
Closing Statement (Settlement)
The computation of financial adjustments between buyer
and seller as of the day of closing a sale to determine
the net amount of money which buyer must pay to seller
to complete purchase of the real estate and seller’s
net proceeds. Also, “settlement sheets”,
Payment to a real estate broker for services performed.
To deed or transfer title of property from one person
A formal written instrument by which title to real property
is transferred from one owner to another. Also, “conveyance”.
Deed of Trust
Like a mortgage, a security instrument whereby real
property is given as security for a debt. However, in
a deed of trust there are three parties to the instrument:
the borrower, the trustee, and the lender (or beneficiary).
The money given to the seller by the potential buyer
(usually held in escrow) upon the signing of the agreement
of sale to show that buyer is serious about buying the
house. Also, “deposit”.
The interest or value which owner has in real estate
over and above the debts against it. (Sales Price –
Mortgage Balance = Equity.)
Funds, property, or other things of value left in trust
to a third party. The escrow may be released upon the
fulfillment of certain conditions or by agreement of
What was formerly personal property which is now permanently
attached to real property and goes with the property
when it is sold.
Protects against damages caused to property by fire,
windstorms, and other common hazards.
Between a homeowner (as principal) and a licensed real
estate broker (as agent) by which the broker is employed
to market the real estate within a given time for which
service the owner agrees to pay a commission. Also,
The highest price which a buyer, ready, willing and
able but not compelled to buy, would pay, and the lowest
price a seller, ready, willing and able but not compelled
to sell, would accept. Basis for “listing price”,
or “asking price”.
The actual amount for which a piece of property is sold.
Also, “sales price”, “purchase price”.
A lien or claim against real property given by the buyer
to the lender as security for money borrowed.
A written agreement to repay a loan. The agreement is
secured by a mortgage, serves as proof of an indebtedness,
and states the manner in which it shall be paid. Also,
“deed of trust note”.
Principal, interest, taxes, and insurance. Most residential
mortgage payments include the above and are therefore
referred to as P.I.T.I. Also, “carrying charges”.
Sometimes called “discount points”, a point
is one percent of the amount of the mortgage loan.
Penalty for the payment of a mortgage note or deed of
trust note before it actually becomes due.
This word has several meanings:
(A) to denote the most important;
(B) a capital sum lent on interest;
(C) one who appoints an agent to act on their behalf;
(D) either party to a contract.
The operation of real property, including the leasing
of space, collection of rents, selection of tenants,
and the repair and renovation of the buildings and grounds.
To allocate between seller and buyer their proportionate
share of an obligation paid or due. For example, a prorate
of real property taxes, fire insurance, or condominium
A person with a real estate license and associated with
a specific real estate broker.
A map or plat made by a licensed surveyor showing the
results of measuring the land with its elevations, improvements,
boundaries, and its relationship to surrounding tracts
of land. A survey is often required by the lender to
assure a building is actually sited on the land according
to its legal description.
As generally used, a document that indicates rights
of ownership and possession of a particular property.
A summary of the public records relating to the title
to a particular piece of land. An attorney or title
company reviews an abstract or title to determine whether
there are any title defects.
Protects lenders and homeowners against loss of their
interest in property due to legal defects in title.
Title Search or Examination
A check of the title records, generally at the local
courthouse, to make sure the buyer is purchasing a house
from the legal owner and there are no liens, overdue
special assessments, or other claims.
State tax, local tax (where applicable), and tax stamps
(in some areas) required by law when title passes from
one owner to another.
Ask your Long & Foster Sales Associate for a copy
of the “Understanding the Role of the Real Estate
Agent” (LF1192, for use in the state of Maryland
only);”A REALTORS® ROLE” (LF1193, for
use in the state of Virginia only); or “The Agency
Disclosure Brochure” (LF1195, for use in the District
of Columbia only).