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CONGRATULATIONS! You have decided to buy a new home. These pages will help you take this big financial step by describing the home buying, home financing, and settlement process.

You probably started the home buying process in one of two ways: you saw a home you were interested in buying or you consulted a lender to figure out how much money you could borrow before you found a home (sometimes called pre-qualifying). The next step is to sign an agreement of sale with the seller, followed by applying for a loan to purchase your new home. The final step is called ´´settlement´´ or ´´closing,´´ where the legal title to the property is transferred to you.

At each of these steps you often have the opportunity to negotiate the terms, conditions and costs to your advantage. These pages will highlight such opportunities. You will also need to shop carefully to get the best value for your money. There is no standard home buying process used in all localities. Your actual experience may vary from those described here. These pages takes you through the general steps to buying a home, to eliminate, as much as possible, the mysteries of the settlement process.

Buying and Financing A Home
Role of the Real Estate Broker
Frequently, the first person you consult about buying a home is a real estate agent or broker. The most common practice is for the seller to hire the broker to find someone who will be willing to buy the home on terms and conditions that are acceptable to the seller. Therefore, the real estate broker you are dealing with may also represent the seller. However, you can hire your own real estate broker, known as a buyer’s broker, to represent your interests. Also, in some states, agents and brokers are allowed to represent both buyer and seller.

Even if the real estate broker represents the seller, state real estate licensing laws usually require that the broker treat you fairly. If you have any questions concerning the behavior of an agent or broker, you should contact your State’s Real Estate Commission or licensing department.

Sometimes, the real estate broker will offer to help you obtain a mortgage loan. He or she may also recommend that you deal with a particular lender, title company, attorney or settlement/closing agent. You are not required to follow the real estate broker’s recommendation. You should compare the costs and services offered by other providers with those recommended by the real estate broker.

Selecting an Attorney
Before you sign an agreement of sale, you might consider asking an attorney to look it over and tell you if it protects your interests. If you have already signed your agreement of sale, you might still consider having an attorney review it. An attorney can also help you prepare for the settlement. In some areas attorneys act as settlement/closing agents or as escrow agents to handle the settlement. An attorney who does this will not solely represent your interests, since, as settlement/closing agent, he or she may also be representing the seller, the lender and others as well.

If choosing an attorney, you should shop around and ask what services will be performed for what fee. Find out whether the attorney is experienced in representing home buyers. You may wish to ask the attorney questions such as:

What is the charge for negotiating the agreement of sale, reviewing documents and giving advice concerning those documents, for being present at the settlement, or for reviewing instructions to the escrow agent or company?

Will the attorney represent anyone other than you in the transaction?

Will the attorney be paid by anyone other than you in the transaction?

Please note, in many areas of the country attorneys are not normally involved in the home sale. For example, escrow agents or escrow companies in western states handle the paperwork to transfer title without any attorney involvement.

Shopping for a Loan

Your choice of lender and type of loan will influence not only your settlement costs, but also the monthly cost of your mortgage loan. There are many types of lenders and types of loans you can choose. You may be familiar with banks, savings associations, mortgage companies and credit unions, many of which provide home mortgage loans. You may find a listing of some mortgage lenders in the yellow pages or a listing of rates in your local newspaper.

Mortgage Brokers. Some companies, known as ´´mortgage brokers´´ offer to find you a mortgage lender willing to make you a loan. A mortgage broker may operate as an independent business and may not be operating as your ´´agent´´ or representative. Your mortgage broker may be paid by the lender, you as the borrower, or both. You may wish to ask about the fees that the mortgage broker will receive for its services.

Government Programs. You may be eligible for a loan insured through the Federal Housing Administration (´´FHA´´) or guaranteed by the Department of Veterans Affairs or similar programs operated by cities or states. These programs usually require a smaller downpayment. Ask lenders about these programs. You can get more information about these programs from the agencies that run them. (See Appendix to this Booklet.)

CLOs. Computer loan origination systems, or CLOs, are computer terminals sometimes available in real estate offices or other locations to help you sort through the various types of loans offered by different lenders. The CLO operator may charge a fee for the services the CLO offers. This fee may be paid by you or by the lender that you select.

Types of Loans. Loans can have a fixed interest rate or a variable interest rate. Fixed rate loans have the same principal and interest payments during the loan term. Variable rate loans can have any one of a number of ´´indexes´´ and ´´margins´´ which determine how and when the rate and payment amount change. If you apply for a variable rate loan, also known as an adjustable rate mortgage (´´ARM´´), a disclosure and booklet required by the Truth in Lending Act will further describe the ARM. Most loans can be repaid over a term of 30 years or less. Most loans have equal monthly payments. The amounts can change from time to time on an ARM depending on changes in the interest rate. Some loans have short terms and a large final payment called a ´´balloon.´´ You should shop for the type of home mortgage loan terms that best suit your needs.

Interest Rate, ´´Points´´ & Other Fees. Often the price of a home mortgage loan is stated in terms of an interest rate, points, and other fees. A ´´point´´ is a fee that equals 1 percent of the loan amount. Points are usually paid to the lender, mortgage broker, or both, at the settlement or upon the completion of the escrow. Often, you can pay fewer points in exchange for a higher interest rate or more points for a lower rate. Ask your lender or mortgage broker about points and other fees.

A document called the Truth in Lending Disclosure Statement will show you the ´´Annual Percentage Rate´´ (´´APR´´) and other payment information for the loan you have applied for. The APR takes into account not only the interest rate, but also the points, mortgage broker fees and certain other fees that you have to pay. Ask for the APR before you apply to help you shop for the loan that is best for you. Also ask if your loan will have a charge or a fee for paying all or part of the loan before payment is due (´´prepayment penalty´´). You may be able to negotiate the terms of the prepayment penalty.

What Kind of Mortgage Gives the Best Tax Break?

First-time buyers are often low-cash-down buyers. A larger mortgage means more interest to write off, but there's a wrinkle in this financing picture. Lenders usually charge mortgage insurance (MI, also call Private Mortgage Insurance or PMI) when the mortgage amount exceeds 80 percent of the property value. Mortgage insurance protects the lender in case the borrower stops making mortgage payments. The cost of mortgage insurance varies with the loan program and the payment plan, but it can add the equivalent of 1/4 percent or more to the monthly payment. But MI isn't interest, so it can't be deducted.

There are ways to avoid MI when the mortgage exceeds 80 percent. One way is to break one mortgage, say for 90 percent of the purchase price, into two: a first mortgage for 80 percent and a second mortgage for 10 percent of the price. Many lenders won't charge MI with this financing arrangement. Another way around MI with a high loan-to-value mortgage is to use a portfolio lender. Portfolio lenders generate loans to hold in the lender's own portfolio, not to sell to other investors. Many portfolio lenders self-insure for MI. To cover the cost of self-insuring, the lender charges the borrower a higher interest rate which is tax deductible.

Most conventional home mortgages are amortized loans. The borrower makes monthly payments, part of which pays the interest owed and part of which pays back principal (the amount borrowed). With a 30-year fixed rate fully amortized loan, the monthly payments pay back the principal completely over 30 years. During the early years of a 30-year amortized loan, most of each monthly payment goes to pay interest. Very little principal is paid back. For example, at the end of the first year of a 30-year fixed mortgage at 8 percent, less than 1 percent of the principal is repaid. The longer you pay on an amortized loan, the more of each monthly payment goes to pay back principal. Less of each monthly payment goes toward interest. You lose some of your interest write off as you build equity in the property.

FIRST-TIME TIP: With an interest-only loan, all of each monthly payment goes to pay interest. None of the principal is repaid. An interest-only loan gives you the maximum tax write-off. But, at the end of five years of paying on an interest-only loan, you still owe the amount you originally borrowed. Several lenders offer interest-only loans. If you're looking for the maximum tax write-off, combine an interest-only first mortgage for 80 percent of the purchase price with a 10 percent second mortgage. Most conventional second mortgages have amortized payments. But if you can find sellers who'll carry a second mortgage for you, they might be willing to accept interest-only payments. Be aware that most conventional interest-only mortgages require amortized payments at some time. Often, they're interest-only for the first five years. After that they convert to an amortized loan that is fully paid off by the end of the loan term.

THE CLOSING: Keep in mind that in order to get the write-off you must first pay the interest. You don't get something for nothing. Leveraging your home for the maximum write-off isn't the best strategy for everyone. Consider your short term and long range financial goals. You may want to consult a financial advisor.

2 Ways to Lower Your Homeowners Insurance Cost

1. Be sure to shop around.

It´ll take a few phone calls, but they could save you a good sum of money. Ask your friends, check the yellow pages or call your state insurance department. Also check consumer guides, insurance agents and companies. This will give you an idea of price ranges and tell you which companies or agents have the lowest prices. But don´t consider price alone.

The insurer you select should offer both a fair price and excellent service. Quality service may cost a bit more, but it provides added conveniences, so talk to a number of insurers to get a feeling for the type of service they give. Ask them what they would do to lower your costs. Check the financial ratings of the companies, too. Then, when you´ve narrowed the field to three insurers, get price quotes.

2. Raise your deductible.

Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay according to the terms of your policy. Deductibles on homeowners policies typically start at $250. By increasing your deductible to $500, you could save up to 12 percent; $1,000, up to 24 percent; $2,500, up to 30 percent; and $5,000, up to 37 percent, depending, of course, on your insurance company.

Selling your Home?

If you´ve decided to sell your home, chances are you´re caught up in a host of emotions. You may be looking forward to moving up to a new dream house or facing the uncertainty of a major move across country. You may be reluctant to leave your memories behind or eager to start new adventures. Whatever turbulent feelings you´re experiencing right now, there are plenty of practical matters that need your attention. Keep in mind the following considerations to help the whole process go more smoothly.
Time Becomes Money
It´s a good idea to place your home on the market as far in advance as possible of purchasing a new one. If you find a new home first and then try to sell your present home, you may wind up with two mortgages. If this does happen, ask your real estate agent or banker about a bridge loan to help you make the double payments. Lenders use the same criteria for offering bridge loans as they use for mortgages. Should you choose to accept a bridge loan, beware of the expense; during the term of the loan you must continue to pay both mortgages. Shop around for the best terms.

Keep in mind that when people move, sell and buy, there usually is a domino effect. Closing and moving dates have to be coordinated, and the more firmly everyone commits to a window of dates and sticks to them, the better for all involved. Put all agreements about dates in writing, and protect yourself by negotiating financial penalties for failure to comply.

Check Your Curb Appeal
A home that´s visually appealing and in good condition will attract potential buyers driving down the street. Use this checklist to view your property through an outsider´s eyes.

Are the lawn and shrubs well maintained?
Are there cracks in the foundation or walkways?
Does the driveway need resurfacing?
Are the gutters, chimney and walls in good condition?
Do the window casings, shutters, siding or doors need painting?
Are garbage and debris stored out of sight?

Inside the Home
Strong curb appeal will lure potential buyers inside, where you have to live up to their expectations. Fortunately, there are plenty of easy improvements you can make to your home´s interior without spending a lot of money. Cleaning is No. 1. Your windows, floors and bathroom tiles should sparkle. Make sure you have clean heating and air conditioning filters. Shampoo dirty carpets, repair dripping faucets and oil squeaky doors. It may not seem fair, but a peek in the oven may be the hallmark by which a buyer judges how well you have kept up your home.

Remove unnecessary clutter from the garage, basement, attic and closets. If your home is crowded with too much furniture, consider putting some things into storage. If a room needs a fresh coat of paint, use a neutral off-white. Think, too, about how your home smells. You may be used to the smell of a pet or cigarettes, but such odors can be a strong turn-off to others. Finally, set a mood for the buyer. Make your house homey with live flowers and fresh guest towels in the bathroom. Place scented potpourri around the house or, on the day you´re expecting a potential buyer, pop a batch of frozen cinnamon rolls into the oven for a welcoming aroma.

Remember, cosmetic changes do not have to be expensive. In fact, costly home improvements do not necessarily offer a good return on your investment when you sell. It´s attention to the basics -- anything that says ´´this home has been carefully maintained´´ -- that will help you get the price you want.

Why do Real Estate Deals Fall Apart?

Most, but not all, contingencies in a typical home purchase contract benefit buyers. The most common buyer contingencies are for financing, inspections and for the sale of another property. If the buyers' offer includes a financing contingency, but they can't get financing, they can withdraw from the contract. In this case, their deposit, or "good faith" money, is usually returned. In today's sophisticated real estate marketplace, deals rarely fall apart because the buyers can't get financing. Most buyers are pre-qualified or pre-approved before they shop for a home. Occasionally, a home doesn't appraise for the purchase price, but it's rare that willing buyers and sellers can't find a way to make the deal work.

However, if the buyers' ability to complete the purchase is dependent on the sale of another property, there's a higher chance that the transaction will fail. For this reason, many sellers won't accept this kind of offer. But if they do, the contract usually includes a release clause that allows the sellers to continue to offer their property for sale to other buyers until the contingent sale contingency is lifted. Buyers who are having difficulty finding a home to buy should make certain that their agent exposes them to listings that are pending sale with a release clause. If you make an offer that's acceptable to the sellers of such a listing, and the first buyers can't perform because their home isn't sold, your offer will go into primary position and the first buyers will have to withdraw.

FIRST-TIME TIP: The biggest reason that home sales fall apart these days is because of defects discovered during the buyers' inspections of the property. An inspection contingency gives the buyers permission to inspect the property to their satisfaction. When defects are discovered that the buyers are unwilling to correct at their own expense, the purchase contract becomes subject to negotiation. In this situation, the buyers usually present the sellers with a set of conditions under which they will remove their inspection contingency and close the sale. This may involve a price reduction or a commitment from the sellers to correct some or all of the defects. If the sellers agree, the deal stays together. If they don't, and the buyers and sellers can't come to an agreement, the deal is off. The house goes back on the market.

A contingency that benefits the sellers can also result in an aborted transaction. For instance, if the sellers condition their sale on their ability to purchase another property, they can withdraw form the sale if they are unable to find a suitable replacement property. Most buyers would be reluctant to accept such a provision because there's no guarantee that the sellers will perform. Buyers who do agree to such a contingency would be wise to include a provision in the contract that allows them to withdraw from the contract if they find another property to buy. Sometimes deals fall apart for reasons that are not covered by contract contingencies. For example, a buyer might get cold feet and decide not to proceed with the purchase.

THE CLOSING: In this case, before withdrawing, you should seek advice from a knowledgeable real estate attorney

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