Home Buyers Helper

Home Buyers Helper

A helpful guide to financing your new home.

Introduction	Comparison Checklist
Preparing for the Search	Making the Offer
Loan Pre-Approval	The Mortgage Loan
Types of Mortgage Loans	Closing the Sale
Selecting a Realtor®	Glossary
Previewing the Contract	Resources
Finding the Right Home	Contact Us

Introduction
At First Federal of Lakewood, we know how important it is to own your own home. We've been helping families make this dream come true for more than half a century. To make your home-buying experience pleasant, we've prepared this guide to share some helpful tips and to give you a better understanding of the mortgage loan process.

Buying a home is an emotional experience. At the same time, it is the largest investment most people make. As a result, the home you purchase should meet your personal needs and your financial objectives. Reconciling these two key areas calls for good planning, analysis, and compromise.

This guide can help determine the balance that's right for you and your family. By approaching the experience objectively and being well-informed about your options - for there are many - you can find the home that's just right.

We welcome your comments and questions. If you're ready to start a serious home search, call, or stop in and see us. One of loan originators would be happy to explain your financing options in greater detail (including any charges you may incur during the mortgage loan process) or to help you determine how much mortgage you can afford.

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Preparing for the Search
Choosing the Right Financial Institution
Your lender plays a major role in the success of your real estate transaction. Although the current interest rate is an important consideration, it should not be your only one. In today's tenuous financial times, it's important to pay careful attention to the financial strength and stability of the institution you are considering.

First Federal of Lakewood has been serving its communities since 1935. In terms of financial strength, we rank among the top of all savings & loans in the state. We also offer competitive mortgage rates.

From the beginning, we have been committed to the community, specializing in local mortgages and other locally secured loans. By reinvesting in our depositors, we help our neighbors build for a better future.

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Loan Pre-Approval
A pre-approval can help when you negotiate for the home you want to buy. With a pre-approval, the bank makes a conditional loan commitment based on limited information. You may be able to lock in an interest rate. Once you've signed a purchase contract, final approval is considered based on an appraisal and confirmation of your information.

To prepare for a pre-approval, complete the sheet "How Much Home Can You Afford?" which is included in the Home Buyer's Helper packet. It will help you organize the information we use to establish the debt-to-income ratios that determines the monthly payment most comfortable for you.

After you have completed the form, contact Customer Service & More at 216-529-2700 to set-up an appointment. We'll analyze the information and let you know the results.

Assets
Be prepared to provide complete, itemized information about your assets (savings accounts, CDs, stock certificates, etc.).

Employment
We will need full information about your past and current employment. In some instances, we may want to see pay stubs. If you are self-employed, we will want to see the last three years of the business' income tax returns. We will also require your personal tax return.

Liabilities
Gather specific information about each debt, including the full name and address of each creditor, account numbers, monthly payments, and how soon each debt will be repaid in full. Be prepared to furnish the names and addresses of past creditors as a credit reference.

Down Payment
Another important consideration is your down payment, the amount of your out-of-pocket investment in a property. Your down payment may be a combination of your own funds and gifts from other sources. Lenders require different down payments, usually 5, 10 or 20 percent, but some as low as 0 percent. Down payments of less than 20 percent may require private mortgage insurance (PMI), which can add to your monthly payment. Ask about special No-PMI loan options.

Debt-to-Income Comparisons
The mortgage amount you can afford is based on a comparison of your debts to your income. This is considered in two ways: 1) the percentage of income your loan payment will represent, and 2) the percentage of income your total debt (loan payment plus all other debts) will represent. The maximum percentages allowed vary, but are generally 28 percent for payment-to-income, and 36 percent for debt-to-income. Additional income sources beyond wages, such as child support or alimony payments, may or may not be included, depending on how long they will be paid.

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Types of Mortgage Loans
You'll need to consider the type of loan you prefer. First Federal of Lakewood offers both fixed rate and adjustable (or variable) rate mortgages. In general, the principal and interest payment on a fixed-rate mortgage remains the same for the life of the loan. Your payments on an adjustable rate mortgage can fluctuate, depending on market conditions.

A loan originator can help you consider the many loan options available and which one's right for your personal financial situation. You'll gain a better understanding of your financial options, and be able to pursue your dream of home ownership with a realistic assessment of how much you can afford.

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Selecting A Realtor®
There are many complex factors that go into a successful real estate transaction. Buying a home can be much less complicated if you enlist the help of a Realtor®.

If you don't have anyone in mind, check with friends and relatives who have had successful home-buying experiences. Ask them what they like about their Realtor® and the broker their Realtor® represented. You may even want to talk with two or three Realtors® before making your final selection.

*Realtor® is a registered collective membership mark that identifies real estate professionals who are members of the National Association of Realtors® and who subscribe to its strict code of ethics.

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Previewing the Contract
Ask your Realtor® to review the blank contract form that will be used later to write your offer on a property. Some contract forms are written to favor the seller. As such, you should familiarize yourself with the fine print before you're in the middle of negotiations. Each real estate transaction is different, and many items may be negotiated. You may want to check with an attorney for tips on writing a contract that is in your best interests. Be sure to discuss:

Refund conditions
The conditions under which your earnest money deposit (a good-faith gesture that will accompany your offer) will be returned to you should the sale fall through.

Financing lead time
The amount of time you should allow to secure financing (45 days is reasonable).

Special Conditions
These may include any inspections to be performed on the property, including the name and company of the inspector, the purpose of the inspection, who will arrange for it, who will pay for it, the date it will be completed, and how the results will affect your offer to purchase.

Deed and title
The contract should specify the type of deed the seller will furnish. Although there are several types of deeds, a general warranty deed is the most preferred. In a general warranty deed, the seller guarantees the quality of the title and agrees to protect the buyer from any claims made by outside parties. You should also discuss how you will take title. Refer to the glossary for the definitions of the most common options: title in severalty, joint tenancy, tenancy in common, and tenancy by the entireties.

The contract should include a provision for title insurance, a policy that protects against any defects in the title not uncovered in the title search. Most title insurance protects only the interests of the lender. Ask your attorney about provisions for homeowners' title insurance. Again, expenses here are negotiable.

Possession
In most cases, the seller agrees to vacate the property no later than 30 days after closing.

Expenses
The buyer usually pays for the application fee, points, appraisal, location survey, title insurance premium, fees for recording and transfer, and credit report charges. Your lender may also charge a loan origination fee. Depending on the type of financing you require, there may be other charges. The seller of a property usually pays the Realtor's® commission and discount points charged to the buyer by lenders on FHA and VA mortgage loans (see glossary). Payment of points is negotiable.

Taxes and assessments
Review the statement that describes how property taxes, prepaid homeowner's insurance premiums, utility bills, prepaid tenant rent, etc., are to be prorated. In some counties, taxes are assessed six months in arrears, which means they are payable after a six-month period rather than before. You can check the tax rate for a community by calling the county auditor.

Contingencies
Most offers are contingent upon the buyer's ability to secure mortgage loan financing at a specific interest rate and term. In some cases, the offer may be dependent on the sale of another property. Ask your attorney how to cite any contingencies clearly and precisely.

*Realtor® is a registered collective membership mark that identifies real estate professionals who are members of the National Association of Realtors® and who subscribe to its strict code of ethics.

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Finding the Right Home
Personal Lifestyle
The type of home that's best for you depends on many factors besides your income. Are you single? Married? Do you have children? Do you enjoy yard work? Do you do a lot of traveling for business or pleasure? What are your plans five years from now? Ten years from now?

Consider your personal lifestyle, then narrow your choices to the locations and types of property that best accommodate the way you will be living for the next few years.

Location. Location. Location.
Evaluate the entire community you are considering. Find out about the zoning regulations, school district, city services, churches, shopping areas, entertainment opportunities, recreational facilities, places of employment, health care facilities, public transportation, and access to highways. Are there any known areas with environmental concerns?

Is the community growing? What is the tax base? Are the surrounding homes of comparable or better value than the one you are considering?

When it comes to quality of living, the greater Cleveland metropolitan area offers a wealth of amenities. Compared to other major markets, housing costs here are among the lowest in the country. From the established neighborhoods to the growing suburban communities, the Cleveland area offers homes to suit any taste and budget. New housing, business expansion, and educational opportunities abound - all within easy distance of world-renowned cultural centers.

Single Family Homes
The single-family home is still a popular choice for most buyers. Your options within this category are many and diverse, and each offers specific benefits and drawbacks.

If you prefer a home with a large lot in a rural location, you may have to contend with well water and a septic system rather than city water and sewer services.

If you purchase a home in a development, you may face deed restrictions that control what you can and cannot do to the property.

If you're handy with tools, you may want to consider a "fixer-upper" in a prime area. Good buys can be found but may be more difficult to finance. Your Realtor® can help you establish the potential worth of a "fixer-upper" and negotiate a fair price.

Condominiums
If you don't want the hassles of yard work or shoveling snow, consider a condominium. In a condominium, you receive title to the air space of a unit and an undivided interest in the common areas of the entire complex. Of course, you will be responsible for paying a monthly maintenance fee for upkeep of the common areas (landscaping, snow removal, janitorial service, management, etc.).

Like a single-family home, your condominium can be financed by a traditional mortgage loan.

As always, know what you are buying. Ask to see the declaration, by-laws, and budget of each complex. Restrictions vary. Some allow pets. Some don't. The services that are covered by your monthly maintenance fee also vary. Your Realtor® can help you review the appropriate documents to decide if a particular condominium is right for you.

Planned Unit Developments
For some people, the planned unit development (PUD) is a nice compromise between a single-family home and a condominium. In a PUD, you purchase an actual structure and the lot it sits on, as opposed to the purchase of air space in a condominium. The homes in a PUD may be free-standing or part of a cluster arrangement. As with some condominiums, you share ownership in the common areas as well. However, in a PUD, the common areas and the corresponding maintenance fees are generally not as significant as those associated with condominiums. Review the declaration, by-laws, and budget of each PUD complex with your Realtor® to understand what you are buying.

Income-Producing Residential Property
If you purchase a 2-4 family residence and are willing to occupy one unit, you can offset a good portion of your monthly mortgage payment with the rental income generated by the other units. Keep in mind that owner occupancy is a key issue with most lenders, entitling you to rates and terms different than those they will make available to absentee landlords.

Income-producing residential property is not for everyone. Besides caring for your own unit, you will have to collect rent, deal with non-payment of rent, make repairs on all units (sometimes at very inconvenient times), and fill vacancies. However, if you can handle the added responsibility, owner-occupied rental property can be a good way to build equity and generate additional income. It also provides significant tax advantages, which you should discuss with an accountant.

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Comparison Checklist
Once you begin serious house hunting, your Realtor® may show you several properties in a single day. It isn't uncommon for buyers to confuse the inside of one property with the outside of another.

Although your Realtor® will provide you with basic information about each property (price, number of bedrooms, room sizes, type of heating, age of property, etc.), it's a good idea to take notes of your own. Try to compare the same features of each property, so you will be in better position to analyze your choices objectively.

The following suggestions may help you design a checklist of your own:

Exterior

Is the lot nicely landscaped?
How old is the roof? Are there any indications that it will need to be repaired or replaced within the next few years? Signs of this include shingles that are curling or lifting at the ends. Shingles that have moss growth will need to be stripped off before new shingles can be installed.
Are the gutters strong and secure?
Is there central air conditioning?
Is the driveway concrete, asphalt, or gravel? Is it in good condition or does it have dips, ruts, and cracks?
Are the windows painted shut…well caulked…cracked?
Are the storm windows wood or aluminum?

Basement

Is the foundation solid? Are there cracks, peeling paint, concave walls, or other visible signs of weakness?
Are there signs of dampness such as water stains, musty smells, or mold growth?
Does the electrical system provide 60-, 100-, or 200-amp service? Will it be sufficient for your needs? If electrical wires are visible, are they frayed or has the insulation coating cracked leaving bare wires exposed?
Is the plumbing galvanized, copper, or plastic? If plumbing is galvanized, is the pressure adequate at each faucet throughout the home?
Does flushing the toilet significantly diminish pressure at the faucets? Is the water clear or rusty? If the basement is finished, will you have easy access to shut-off valves?
How old is the furnace? What was the date of the last professional service check and what was done? What is the fuel source; gas or electric?
How old is the hot water tank and what is the capacity?
Is there a finished recreation room?
Is any part of the basement carpeted or tiled?
In what condition are the walls, windows, floors, sub floors, and ceilings?
Is there adequate storage space?
Is there ample room for laundry appliances?
Are there any other special features such as; workshop area, full bath, ½ bath, wet bar, etc.?

For All Living Areas

Is the drywall or plaster on the walls and ceilings in good structural condition? Is it smooth? Are there any large cracks?
Is there an electrical outlet on each wall?
Is the room spacious enough to hold your furniture?
Is it nicely decorated? If not, are you willing to redecorate?
Do the draperies and rods remain with the property? If so, what are their condition and color?
What color is the carpeting? Is it in good condition?
Are the floors level or are there dips and bumps?
Is the fireplace in good working order?
Are there any other features that enhance its appearance such as; natural woodwork, bay window, beveled glass windows, french doors, built-in bookcases, etc?

Kitchen

Do the appliances remain with the property?
Are the appliances in good condition?
What is the condition of the cabinets, sink, and countertops?
Is the water pressure adequate?
Is there a dishwasher and garbage disposal unit?
Is there an area for eating?

For Each Bathroom

Are there signs of water leakage under the sink or around the toilet and tub (rotting wood, dampness, water stains, unevenness in the floor)?
Are there tiles around the tub and shower? Plastic or ceramic?
Is water pressure adequate if you flush the toilet and run the tap water at the same time?

For Each Room

Is there adequate closet space?
Is there a dressing area?

Third Story/Attic

What kind of access do you have to the attic?
Is it a finished attic? If not, is there enough usable space to accommodate an extra room someday?
Is it adequately heated?
Are the floors and ceilings insulated? Are there vents?
Do the rafters show any sign of water damage such as rotting wood or warping?

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Making the Offer
Your Realtor® will probably use a standard form, approved by the local Board of Realtors®, to write up your offer on a particular property. You should have reviewed this in blank form with your Realtor® to prepare for defining your terms and conditions clearly and precisely. The price you are offering to pay is just one of many factors. You may want to have an attorney review your offer before your Realtor® presents it to the seller.

After your offer is accepted, order any inspections you have requested. You can also start shopping for a homeowner's insurance policy. Your lender will require proof of coverage before closing the transaction.

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The Mortgage Loan
Now that you have a signed contract in hand, you are ready to make formal application for your mortgage loan. If you have already been pre-approved, a good portion of your work is done.

Your lender's work continues. Your loan originator will order and gather the results of your credit report, employment verification, title search, appraisal, location service, tax duplicates, and inspection reports. All these documents, in some way, establish the value of the property as collateral for the lender and as an investment for you. It is a process that protects you as much as your lender. Let's look at these activities in greater detail, so you will understand the purpose and significance of each one.

The Title Search
The title gives legal evidence of your ownership. Your lender protects its interests and yours by making sure the sellers are able to convey good title, a term that describes a title that is free and clear of all liens and encumbrances that may affect your rights of ownership. To do that, your lender will arrange for a title search to make sure the sellers truly own what is about to be conveyed to you. Any person holding an interest in the property you are about to purchase must be involved with and agree to the transaction. A property owned by two or more people cannot be conveyed by one of them. Ask your Realtor® to use the same title company that performed the last search on the property. It may save you some money and speed up the process. During the title search, the title company examines the history of ownership to make sure each prior transfer of title was handled properly. Besides confirming the right of the sellers to transfer ownership, the title search will reveal any claims on the property, including all liens, encumbrances, restrictions, and easements.

Title Insurance
Just in case the title company overlooks some defect in the title (or a long lost heir shows up after final closing), your lender will arrange for title insurance to protect its interests in the property. You may also want to consider purchasing additional title insurance that will cover your interests as well.

The Appraisal
The value of the home determines the maximum value of the mortgage. For this reason, your lender will arrange for an appraisal on the property to evaluate its worth. The appraisal report figures heavily in the loan approval process. Most appraisers will compare the property you want to purchase to similar homes that have sold recently in the same market. If you shopped wisely, evaluated your location, and negotiated a fair price, the appraisal should present no problem. However, if it comes back lower than the contract price, you may have to make up the difference by increasing your down payment.

The Location Service
The location service confirms the physical boundaries of the property, helping protect both buyer and lender. Among other assurances established by the location service, you know that for example; the neighbor's concrete driveway doesn't extend three feet onto your property or that your fence doesn't extend three feet onto your neighbor's property. As you did for the title search, ask your Realtor® to use the same location service company that performed the last study of the property. It may save you some time and money.

The Tax Duplicates
The title company will obtain a tax duplicate to discover if there are any delinquent taxes on the property. The tax duplicate may also be used to prorate taxes between you and the seller on the date of closing.

Once all these reports are completed (and any others dictated by your particular circumstances), your loan originator will submit your application for formal approval. While you wait for loan approval, your lender keeps right on working, preparing documents for your signature at closing.

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Closing the Sale
Closing the sale is the final step in the home-buying process. It occurs after all activities related to the sale have been completed (property appraisal, location service, title search, loan approval, etc.), and all documents have been prepared for final signature (mortgage loan, promissory note, deed, etc). At closing, title transfers from seller to buyer, the buyer's financial arrangements are completed, and all funds are disbursed.

It's important to read and understand each document you sign at closing. You may feel overwhelmed. However, these documents do no more than confirm what you have already agreed to in the sales contract and loan application process.

Some of the documents you sign at closing include:

Truth-in-Lending Disclosure Statement
This document includes the amount financed, total payments and finance charges, the type of loan (conventional, ARM, FHA), the amount of the monthly principal and interest payment, the number of payments, the first payment due date, and the penalties for prepayment and late payment and when they may be charged. The truth-in-lending statement also includes the annual percentage rate. This percentage reflects the true cost of your loan, taking into account the interest rate, points and 30-days interest. This document is perhaps most significant as an indicator of what you will be paying should you hold your mortgage loan until maturity. An initial disclosure will be sent to you shortly after you apply for your loan. A final disclosure is presented at closing.

The Promissory Note
This document is a formal, written acknowledgement of your debt. Like the mortgage, the promissory note states the amount of your loan, the rate of interest to be paid, manner of repayment, and the conditions which constitute default. By signing the promissory note, you assume personal liability for your loan and promise to abide by its terms.

The Mortgage
Through this legal instrument, you pledge your property as security for the loan. The mortgage will contain the amount of the loan, terms and condition of repayment, and the conditions for default and foreclosure.

The Settlement Statement
The buyer and seller receive separate settlement statements that account for all monies involved in the transaction. As the buyer, you will receive a document that itemizes all information pertinent to the purchase: the expenses you agreed to pay in the sales contract (appraisal, location service, real estate taxes, title search, title insurance, etc.), the charges associated with your mortgage loan (loan origination fee, credit report, mortgage insurance, homeowners insurance), and charges by the local government for transfer tax and to record the deed. Your settlement statement also shows your earnest money deposit, down payment, and the amount of the mortgage loan.

The Deed
Check the deed carefully. It is the instrument through which the seller's property becomes yours. Make sure the property is properly identified in the legal description, a detailed narrative that distinguishes your property from all others by establishing exact boundaries. Check to see that all names are spelled correctly and that the deed transfers title in the way you specified in the sales contract. Once the deed is signed by the seller and delivered to you, the legal transfer of title is completed.

Congratulations! You're a homeowner!

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Glossary
Adjustable rate mortgage (ARM): A type of mortgage loan that allows for periodic adjustments in interest rate (also call variable rate).

Amortization: A system of loan repayment in regular, equal installments of principal and interest.

Annual percentage rate (APR): The true rate of interest over the life of a loan, taking into account the interest rate for the loan and any points and fees charged for the loan.

Application fee: Fees paid upon application for a mortgage loan.

Broker: A licensed real estate professional who receives a commission for negotiating the sale of a property.

Closing costs: The final fees that must be paid before the transfer of title. Usually includes all expenses over and above the price of a property.

Condominium: A type of property ownership in which the buyer holds title to the air space of an apartment unit and an undivided interest in the common areas of the entire condominium complex.

Contingency: A condition(s) specified in the purchase contract that must be met or resolved before the transaction can be completed.

Debt-to-income ratio: A percentage used to determine the amount of a mortgage loan a buyer can afford.

Deed: A legal instrument by which one person conveys real property to another.

Deed restrictions: Any provisions in a deed restricting ownership or use of the property.

Default: Failure to adhere to the terms of an agreement.

Down payment: The cash portion of the purchase price that is not borrowed from the lender.

Earnest money: A small sum offered by the buyer to the seller with the purchase offer to demonstrate serious interest in a property.

Easement: The legal right to use another person's land for limited purposes.

Encumbrance: A claim against a property that inhibits the owner's ability to transfer good title.

Equity: The difference between the value of a home and the outstanding mortgage balance.

Escrow1: A procedure in which a third party holds all money and documents pertaining to a real estate transaction until the title clears.
Escrow2: When property taxes and home insurance are included in the monthly principal and interest payment, the lender sets up an escrow account to hold the borrower's monthly taxes and insurance premiums for payment at a later date.

FHA loan: A type of mortgage loan made by lending institutions and insured by the Federal Housing Administration through mortgage insurance purchased by the borrower. FHA loans generally provide more liberal terms than conventional loans. Any U.S. resident of legal age may apply.

Fixed rate mortgage (FRM): A type of mortgage loan in which the interest rate remains the same for the life of the loan

Foreclosure: The legal process in which the lender takes possession of the property of a buyer who has defaulted on a mortgage loan.

General warranty deed: Deed in which the seller warrants that the property is free and clear of all encumbrances.

Joint tenancy: The equal and undivided ownership of property by two or more persons with rights of survivorship.

Lien: Any legal claim against a property that is filed to ensure payment of a debt. These can include mortgages, overdue property taxes, unpaid repair bills (mechanics' liens), and judgments.

Loan-to-value ratio: The percentage of the appraised value that the lender will loan.

Location service: A process that confirms the boundaries of a property established by a surveyor.

Mortgage: A legal instrument that pledges property as security for a debt.

Origination fee: Fee charged by the lender for processing the loan.

Planned unit development (PUD): A type of property ownership in which the buyer holds title to a free-standing or attached structure and the land it sits on. The buyer of a PUD may also pay some fees for shared interest in common areas.

Point: An amount equal to one percent of the loan amount. Used by lenders to compute loan fees. Points can be paid to reduce the interest rate.

Pre-approval: Preliminary approval of a mortgage loan before the application is complete.

Pre-qualification: An informal estimate of the maximum mortgage a borrower could obtain based on available income and existing debt.

Promissory note: A legal document in which the borrower agrees to repay a loan according to the terms specified.

Quit claim deed: A legal instrument by which the seller conveys title to the buyer without making any assurances as to the status of the title.

Realtor®: A registered collective membership mark that identifies real estate professionals who are members of the National Association of Realtors® and who subscribe to its strict code of ethics.

Recording fees: The charges for filing the documents that transfer ownership and clear title.

Septic system: An underground tank for the disposal of waste materials.

Survey: A process in which a surveyor sets pins on all corners of a property. A document that shows the boundaries of a parcel of land, improvements on the land, and easements.

Tenancy by the entireties: A special form of joint ownership reserved for married couples in which ownership automatically passes to the surviving spouse.

Tenancy in common: Undivided, but not necessarily equal, ownership of real property by two or more persons without rights of survivorship.

Term: The period or duration of a note or loan.

Title: The legal evidence of ownership.

Title in severalty: Sole ownership of property.

Title insurance: Insurance against loss that results from claims and defects of title.

Title search: The review of all recorded documents to determine the history of ownership and the condition of title to a specific parcel of real property.

VA loan: A type of mortgage loan that provides favorable terms and conditions to eligible veterans. VA loans are made by lending institutions and guaranteed against default by the Department of Veterans Affairs.

Variable rate mortgage: A type of mortgage loan that allows for periodic adjustments in interest rate (also called adjustable rate).

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Resources
The following reference books should be available at your local library:

Kiplinger

Madorma

Suvanan

Consumer Reports

Woodson

Dorfman

Miller

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