Buyer

THE A B C’S OF HOME BUYING
Whether you are a 1st time home buyer or a seasoned professional the buying process takes knowledge and courage. Signature Real Estate will work with you to assist you in every step of the buying process and to make the transaction as smooth as possible.
To begin the buying process, take advantage of the step by step guide below.

Step A: Prepare to Buy
An investment for your future.
1. What I Need to Know before Buying a Home/Property.
Step B: Get Help; Find an Agent
Who is Protecting your Interests?
Step C: Obtain Financing
How much Home/Property can you Afford?
1. How much can I borrow?
2. Am I better off Refinancing and what will Refinancing Cost?
3. Which is better: Fixed or Adjustable Rate Mortgage?
4. Which is better: 15 or 30 Year Term?
5. What’s the Difference between Points and Rates?
6. Go to the “Mortgage Calculator” (Located at www.denverprops.com)
7. What Costs are incurred in Buying a Home/Property?
8. What Tax Deductions are Associated with a Home Purchase?
Step D: Find a Home/Property
What tools are Available to Help you find a Home/Property?
1. Checklist – What am I Looking for?
Step E: Make an Offer
What is a fair price for the Home/Property?
Step F: Perform Due Diligence
What is the Property Hiding from You?
1. What should I know about Home Inspection?
2. Performing a Survey of the Property.
Step G: Close on the Property
Understand your Settlement Costs and the Closing Process.
1. What is in a Settlement Sheet?
Step H: Protect Your New Investment
Keep your new Home/Property Safe and Secure.
1. 5 things to know about Insurance for my new Home/Property?
2. What to consider to make my Home Safe? (change locks/keys, check out or install security system…set new passwords, add or make sure smoke and CO2 detectors work properly…)
3. What’s a Home Warranty?
WHAT TO KNOW BEFORE BUYING A HOUSE:
1. HOW LONG WILL YOU STAY IN THIS HOUSE?
a. Unless you are trying your hand in the home flipping world, you should plan on living in your new house for at least two years. The reason being there are multiple costs associated with buying and selling a house. If you sell right away you may end up losing money, even in rising markets.
2. CHECK YOUR CREDIT.
a. If you will need a mortgage to purchase a house, you will need your credit to be as good as possible. In the months prior to starting your home search get a copy of your credit history. If necessary fix any problem you discover.
3. GET PRE-QUALIFIED (PREFERABLY PRE-APPROVED) FOR A HOME LOAN.
a. This will tell you what price range you can afford and keep you from falling in love with a property that is out of your range.
4. CREATE A BUDGET.
(Multiple budgeting programs are available such as Quicken), remember to factor in:
a. Down payment deposit
b. House payment (payment should not exceed 28%-38% of your gross monthly income)
c. Taxes
d. Insurance
e. Utilities
f. Credit cards balances
g. Auto expenses / School expenses / Household expenses
h. Etc.
5. IDENTIFY PROPERTY SEARCH AREAS.
a. Identify neighborhoods where you would like to live, consider what area best fits your life style and needs. Remember to consider: location to shops, malls, road access, commuting times to/from work and school districts. Even if you do not have children in school, when it comes time for resale, areas with good school districts are top priority for many families thus driving property values up.
6. DO YOUR HOMEWORK BEFORE SUBMITTING AN OFFER.
a. The initial bid should be based off the last three months sales of similar homes in the neighborhood. Determine if homes in that area are going for more or less than the current asking price. If recent sales show homes have sold for 5% less than asking price, your first bid should start 7%-10% below asking price.
7. GET PROFESSIONAL REAL ESTATE HELP
a. Look for a buyer’s agent who understands your wants and needs, as well as has your interests at heart. This professional can help you with bidding strategies, and guide you through important deadlines in the contract.
b. The internet is a great tool for you the buyer to do research and run basic property searches. This will help your agent in identifying the right property for you.
Why should you use Signature Real Estate? –We are skilled Real Estate Professionals that offer top notch personal services to all clients. We utilize cutting edge technology to produce the desired outcome. We get the job done through team work, dedication and commitment. We are here to serve your needs now and for years to come!
Buyers
• We will customize E-Mailing Lists for clients, with signed brokerage agreements, to help find properties that meet specific criteria.
• Offer Rebate Programs.
• As a buyer, you typically don’t pay us directly (the seller pays commissions…)
• Free client information and “how to” guides online.
• We provide you up to date Market Information.
• Communicate with us through text messaging, email, Facebook, phone, instant messenger, mail, fax, Skype, video conferences and face to face meetings.
• We search for new listings daily to insure our clients’ see the new deals as soon as possible.
• We receive continuous training on new trends that can benefit you as well as traps we can help you avoid.
8 REASONS WHY YOU SHOULD WORK WITH ME

1. Navigate a complicated process. Buying or selling a home usually requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multipage settlement statements. A knowledgeable expert will help you prepare the best deal, and avoid delays or costly mistakes.

2. Information and opinions. I can provide local community information on utilities, zoning, schools, and more. They’ll also be able to provide objective information about each property. A professional will be able to help you answer these two important questions: Will the property provide the environment I want for a home or investment? Second, will the property have resale value when I am ready to sell?

3. Help finding the best property out there. Sometimes the property you are seeking is available but not actively advertised in the market, and it will take some investigation to find all available properties.

4. Negotiating skills. There are many negotiating factors, including but not limited to price, financing, terms, date of possession, and inclusion or exclusion of repairs, furnishings, or equipment. In addition, the purchase agreement should provide a period of time for you to complete appropriate inspections and investigations of the property before you are bound to complete the purchase. Your agent can advise you as to which investigations and inspections are recommended or required.

5. Property marketing power. Real estate doesn’t sell due to advertising alone. In fact, a large share of real estate sales comes as the result of a practitioner’s contacts through previous clients, referrals, friends, and family.

6. Someone who speaks the language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with a professional who is immersed in the industry and knows the real estate language.

7. Experience. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. Even if you have done it before, laws and regulations change.

8. Objective voice. A home often symbolizes family, rest, and security — it’s not just four walls and a roof. Because of this, home buying and selling can be an emotional undertaking. And for most people, a home is the biggest purchase they’ll every make. Having a concerned, but objective, third party helps you stay focused on both the emotional and financial issues most important to you.

HOW MUCH CAN I BORROW?
Upon talking to a lender you will determine the exact dollar amount you qualify for. The following section will introduce you to the world of finance.
The amount you can borrow depends on your ability to repay the mortgage note. Many websites offer online calculators that estimate how much you can borrow to buy a house. You can also make some calculations on your own based on your income, savings, creditworthiness, and other debt obligations.
1. Percent of Income
• Generally, lenders allocate 28% to 30% of the household monthly income to mortgage payments. The monthly payments will include principal reductions, interest, taxes, and home owners insurance (PITI). In addition, lenders factor your total debt payments for housing plus other debt, including auto loans, credit card debt and student loans. All of which should be no more than 36-38 percent of income.
Down Payment
• The down payment is typically 20 percent of the home’s value. Some lenders lend over 80 percent of a home’s value, in those instances one must pay for private mortgage insurance (PMI). In some cases, for example, if you are a first time home buyer FHA runs a program that has a 3.5% down payment of the home’s value. These programs and regulations change often but please discuss all available options with your lender.
Credit Score Effects
• If your credit score is below 600, you might have trouble borrowing money to buy a house. This is because lenders consider your credit score an indication of how risky lending to you would be. Among those approved for mortgages, interest rates generally are lower for people with higher credit scores. Ask your potential lender for an interest rate quote based on your credit score.
Considerations
• Before making the purchase, consider the long-term implications of buying a house. For example, if you are married and using both of your incomes in the calculation for your mortgage amount, consider whether you could continue to afford the mortgage after having children. The expense of childcare or the reduced income of having one parent stay home with the kids would make it more difficult to afford payments. If you are nearing retirement age, buying a home with a 30-year mortgage might be difficult, because your income will decrease when you retire.

AM I BETTER OFF REFINANCING? WHAT WILL MY REFINANCING COST?
The costs associated with refinancing include: Loan origination fees / points / appraisal.
When you consider refinancing your current property the two factors that should be considered are how much longer you plan on owning the property and the difference between your current payment and the new payment. The following example will show how long the occupant will need to stay in the property to make the refinance logical.
Current Loan Terms and Payment: Loan Amount: $200,000 / Interest Rate: 6% / Term 30 Year / Monthly Payment: $1,199.10.
Proposed New Loan and Payment: Loan Amount: $200,000 / Interest Rate: 5% / Cost of new loan 1 point= $2,000 / Term 30 Year / Monthly Payment: $1,073.64 PLUS additional fee considerations for an Appraisal Cost of approximately $500.
Loan difference is $125.46/month. Initial loan Cost $2,500. To make the refinance make sense you would need to own the property for at least 19.93 months or 1.66 years after refinancing.

WHICH IS BETTER FIXED OR ADJUSTABLE RATE MORTGAGE?
Fixed Rate Mortgages – Are great because the payments are the same amount every month for the duration of the loan. Fixed Rate mortgages make budgeting easier due to the consistently. The terms and conditions of a fixed rate mortgage are easy to understand in comparison to adjustable rate mortgages. Fixed rate mortgages are often used by first time home buyers and home owners planning on staying in the home for a longer period of time. The drawback to fixed rate loans is if interest rates drop, you must refinance to take advantage of the rate causing additional costs and paperwork.
Adjustable Rate Mortgages (ARM’s) – In most cases ARM’s allow you to afford a more expensive house. They are good options if you plan on staying in the house less than 5 years. ARM’s are linked to an index rate which can allow you to take advantage of falling interest rates as they will adjust automatically to new rates. However the opposite can also be true when rates are increasing. When ARM’s adjust upwards, there are times when large increases are seen even with caps already in place to help moderate increases on the loan.
For example, an annually adjusted ARM for $200,000 may start at 5.00% on a 30 Term, with a stipulation that allows the lender to increase the loan up another 6% interest that would force the interest rate to 11.00% within five years. The payment would then increase from $1,073.64 to $1,904.65, an increase of $ 831.01 per month.
WHICH IS BETTER: 15 OR 30 YEAR TERM?
Determining which mortgage term is right for you can be a challenge. With a 15 year mortgage you will pay significantly less interest, however the monthly payment will be higher. Please use our mortgage calculator to compare these two mortgage terms.

WHAT’S THE DIFFERENCE BETWEEN POINTS AND RATE?
When obtaining a loan many property buyers are confused in the difference between points and rate.
Points are in reference to the initial cost of a loan and a fee collected for the origination of the loan. A point is equal to one percent of the amount being borrowed, a typical cost of a loan is 1 -2 points. (For example, if you were to borrow $200,000 to purchase a property and the lender terms were 1-1/2 points, your loan would cost $3,000).
Rate when specified in loan terms is the interest rate that is charged for the use of money. An interest rate is often calculated on an annual percentage basis. Interest rates vary from day to day as a result of inflation and Federal Reserve Policies. (For example, if a lender (like a bank)) charges a customer $50 in a year on a loan of $1,000.00, then the interest rate would be = 5%).

WHAT COSTS ARE INCURRED IN BUYING A HOUSE?
1. Government Fees:
a. Document Recording
b. State and Local Mortgage Taxes

2. Interest and Escrow Fees:
a. Home Owner’s Insurance
b. Loan Interest
c. Private Mortgage Insurance (in certain instances)
d. Real Estate Taxes
e. Title Insurance

3. Lender Fees:
a. Appraisal
b. Loan processing
c. Underwriting

4. Third Party Fees:
a. Common Interest Community Documents (if applicable)
b. Home Owners Association (if applicable)
c. Inspections
d. Insurance
e. Property Tax Transfer
f. Title Search
g. Water / Sewer Escrow

5. How do you plan for these costs to avoid paying for them out of pocket?
a. Generally, if you add up all of the costs listed above it would equal 3% of a home’s purchase price. Thus when an offer is submitted we ask for the Seller to assist in these costs which is called “Seller Concessions.” And the general request is 3%.

WHAT TAX DEDUCTIONS ARE ASSOCIATED WITH HOME PURCHASE?
The significant investment of buying a home also comes with significant tax deductions. Most of the deductions are itemized deductions, meaning you can only take them if you do not take the standardized deduction. Above-the-line deductions can be taken regardless of whether or not you take the standard deduction.
Origination Points
• Origination points are fees related to the bank’s cost of closing the loan. As long as they do not include costs that would usually be itemized, such as notary fees, these points are deductible.
Discount Points
• Discount points are paid by the borrower to reduce the rate of interest paid. These points are always deductible.
Mortgage Interest
• Mortgage interest is deductible as an itemized deduction on the first $500,000 for mortgages issued after October 13, 1987. If your mortgage was issued before that date, all interest is tax deductible.
Private Mortgage Insurance
• Private mortgage insurance is an extra fee tacked on to the monthly mortgage payment if your down payment was less than 20 percent of the cost. For mortgages issued after 2006, this is deductible as an itemized deduction.
Property Taxes
• The real estate taxes that you pay on your home are tax deductible. You can claim up to $1,000 as an above-the-line deduction.

YOUR PROPERTY WISH LIST
What does your future home look like? Where is it located? As you hunt down your dream home, consult this list to evaluate properties and keep your priorities top of mind.

• Neighborhoods
What neighborhoods do you prefer?

• Schools
What school systems do you want to be near?

• Transportation
How close must the home be to these amenities?
• Public transportation
• Airport
• Expressway
• Neighborhood shopping
• Schools
• Other

• Home Style
• What architectural style(s) of homes do you prefer?
• Do you want to buy a home, condominium, or townhome?
• Would you like a one-story or two-story home?
• How many bedrooms must your new home have?
• How many bathrooms must your new home have?

• Home Condition
• Do you prefer a new home or an existing home?
• If you’re looking for an existing home, how old of a home would you consider?
• How much repair or renovation would you be willing to do?
• Do you have special needs that your home must meet?

• Home Features
Please circle one of the choices: Must Have, Would Like, Willing to Compromise, Not Important on the list found on the next page.

Front yard Must Have Would Like Willing to Compromise Not Important
Back yard Must Have Would Like Willing to Compromise Not Important
Garage ( __ cars) Must Have Would Like Willing to Compromise Not Important
Patio/Deck Must Have Would Like Willing to Compromise Not Important
Pool Must Have Would Like Willing to Compromise Not Important
Family room Must Have Would Like Willing to Compromise Not Important
Formal living room Must Have Would Like Willing to Compromise Not Important
Formal dining room Must Have Would Like Willing to Compromise Not Important
Eat-in kitchen Must Have Would Like Willing to Compromise Not Important
Laundry room Must Have Would Like Willing to Compromise Not Important
Finished basement Must Have Would Like Willing to Compromise Not Important
Attic Must Have Would Like Willing to Compromise Not Important
Fireplace Must Have Would Like Willing to Compromise Not Important
Spa in bath Must Have Would Like Willing to Compromise Not Important
Air conditioning Must Have Would Like Willing to Compromise Not Important
Wall-to-wall carpet Must Have Would Like Willing to Compromise Not Important
Wood floors Must Have Would Like Willing to Compromise Not Important
Great view Must Have Would Like Willing to Compromise Not Important

• Additional Notes:

MAKE AN OFFER
Establishing the market value of a home can be a challenge. There are multiple factors that need to be taken into consideration when drafting and offer. Some such factors are:
a. Recent sales of comparable properties
b. Location
c. Size
d. Age of property
e. Property Features and Improvements
f. Condition
g. Etc.
My job as your Real Estate professional is to perform a competitive market analysis (CMA) on the property you are interested in making an offer on. Thus determining the fair market value of the property and giving you the best information to make an educated offer.

HOME INSPECTIONS
General home inspections are great for basic information on the property and to determine if additional inspections are needed. Additional inspections include:
• Asbestos – often found in older home heating systems, insulation, and vinyl tiles. The only way to know is to test the suspected material.
• Arborist – asses the trees health and structural condition.
• Chimney – many chimneys are fire hazards due to lack of maintenance (checking the flu for proper smoke disposal and repair interior cracking).
• Easements and Encroachments – the owner’s title policy will list all recorded easements. But not all encroachments will be listed and some will require a physical inspection. For that reason ask that the title company send you the easement document from public records.
• Electrical – assess potential hazards and costs for upgrading system to current code regulations.
• Formaldehyde – often found in rodent poisons, this invisible gas is known to cause cancer in lab test rats.
• Foundation – assessed by a foundation engineer, this inspection will indentify if the property is shifting, settling, or sliding. Foundation issues are often seen by exterior cracking and floor sloping.
• Heating and Air Conditioning – assesses any problems that may be wrong with the system that could potentially save you and your family from toxic CO2 levels.
• Lead base paint – often found in interior & exterior paints of homes built prior to 1978.
• Lot size and Boundaries – found in a preliminary title policy: a plat map will show the boundaries and size of the lot. To verify this information contract a surveyor.
• Methamphetamine – local police, fire and health organizations track properties that were involved in meth labs. Hazardous materials contractor should be used to remove materials.
• Mold – found by testing the property’s air quality; various types of mold are known to trigger health problems such as allergies, infections, respiratory and immune disorders.
• Permits and Building – city planning department will be able to tell you what permits were pulled on the property. Sometimes people will remodel without proper permits.
• Radon and Methane Gas – often found in crawl spaces. A mitigation contractor can perform the test and recommend how to remove the pollutants from the property.
• Sewer and Septic – a camera is pushed through the septic line inspecting for cracks, roots, blockages and collapses.
• Soil Stability – assesses the soil condition, contaminations, and instabilities that may currently or eventually affect the property.
• Structural – assesses instabilities in the structure causing damage to the property. Instabilities are often seen by interior cracks and sloping.
• Square footage – square footage information will be found in public records; however this information may be inaccurate. To safe guard yourself an appraiser should be hired to verify the information.
• Pool and Spa – experts can determine if cracks are present as well as expected life spans on vital parts such as heaters, pumps and blowers.
• Roof – experts can determine an estimated life span of the roof. A good inspection will identify problem areas such as: roofing material, ridges, caps, drip edges, drains, downspouts, gutters, flashing, pipes and vents. Buyers should ask that older roofs be covered by a roof certificate insuring against defects.
• Termite – found in all regions; predominantly warm climates, wood eating insects can devastate a property. A proper pest inspection will identify problem areas made by wood eating bugs and dry-rot conditions.
• Water and Plumbing System – assesses potential problems in the plumbing system. Also identifies faulty pipes such as decaying galvanized piping that may be clogged or in need of an upgrade.
• Well – determine the overall condition of the well including the construction, water table and overall sanitation.

PERFORMING A SURVEY OF THE PROPERTY
Surveying determines the exact borders and space on your property. Surveying is a must when purchasing Land. In a residential setting boundaries are usually visibly marked by fences or scrubs. However the only way to determine exactly where your property stops and the neighbor’s begins is by performing a survey. It’s possible to survey your land yourself, but to determine the area of your property for any legal discrepancies; you must be licensed by the state.

CLOSE ON THE PROPERTY
After all due diligence is preformed and your lending requirements are meet, it is time to close the deal! At this point we schedule a final walk through to verify all inspection demands have been fulfilled.
The day prior to closing a settlement statement will be given to all parties to review all financial information. This form is better known as a HUD1 settlement sheet. Your lender will go over this form line by line discussing what each category means and where the money is coming from and where it is going.

5 THINGS TO KNOW ABOUT HOMEOWNER’S INSURANCE
Once an offer on a home is accepted by the buyer and seller it is important to contact your insurance agent and obtain homeowner’s information and costs on the property. However you will not need coverage until the purchase date.
1. Know about exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard item. These types of coverage must be bought separately.
2. Know about dollar limitations on claims. Even if you are covered for a risk, there may be a limit on how much the insurer will pay. For example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
3. Know the replacement cost. If your home is destroyed you’ll receive money to replace it only to the maximum of your coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to replace it, you’ll only receive $150,000.
4. Know the actual cash value. If you chose not to replace your home when it’s destroyed, you’ll receive replacement cost, less depreciation. This is called actual cash value.
5. Know the liability. Generally your homeowner’s insurance covers you for accidents that happen to other people on your property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of coverage provided. Be sure that it’s sufficient if you have significant assets.
WHAT’S A HOME WARRANTY?
A home warranty is a service contract, normally for one year, which helps protect home owners against the cost of unexpected covered repairs or replacement on their major systems and appliances that break down due to normal wear and tear. Coverage is for systems and appliances in good working order at the start of the contract.
Check your home warranty policy to see which of the following items are covered. Also find out if the policy covers the full replacement cost of an item.

• Plumbing
• Electrical systems
• Furnace/Heating Ducts
• Water Heater
• Water Pump
• Dishwasher
• Garbage Disposal
• Stove/Cook Top/Ovens
• Microwave
• Refrigerator
• Washer/Dryer
• Swimming Pool (may be optional)

For more information visit American Home Shield, www.ahswarranty.com