Table of Contents Step #1 - FINDING A QUALIFIED REAL ESTATE AGENT 2 Step #2 - WHAT TO DO BEFORE YOU START TO SHOP FOR A HOME 3 Step #3 - PAYING FOR YOUR DOWN PAYMENT AND CLOSING COSTS 4 Step#4 - WHAT TO DO IF YOU HAVE CREDIT CHALLENGES 5 Step #5 - WHAT TO LOOK FOR WHEN BUYING A HOME 6 Step #6 - MAKING AN OFFER TO PURCHASE A HOME 8 Step #7 - MAKING YOUR FINAL LOAN APPLICATION 10 Step #8 - SETTLEMENT DAY 10 Written by: Richard Simon, Co-founder, Realty AZCentral& Founder of AZ Lending Experts. AZ Lending Experts (MB 0919384) | Richard Simon (NMLS # 155480) Published by: Abounding Media, LLC Copyright 2013, Realty AZ Central 3707 E Southern Avenue, Suite 2114Mesa, AZ 85206 Tel: (602) 753-7618 info@realtyazcentral.com http://www.realtyazcentral.com Step #1 - FINDING A QUALIFIED REAL ESTATE AGENT Finding the right real estate agent to work with is the most crucial part of your home buying journey. Your agent will play a key role in helping you find the right property, negotiate terms, and walk you through the entire process. The agent you work with can impact whether your offer is accepted and whether you ultimately make a good investment. Often prospective homebuyers will want to help a friend or family member who is getting started in the business and, while I can appreciate the sentiment, in the end it could strain a relationship if you lose a property you really wanted.In addition, you maybecome locked into a contract with terms that are not in your favor all because you have a good heart and wanted to help a friend of family member out. In addition, newer agents often work in the business part time, which means they are often unavailable to receive critical phone calls.Newer agents may not return messages during the day (when full time agents work), which reduces your chances of havingyour contract approved in a timely manner. When looking for a real estate agent, you want to work with a specialist from the neighborhood that you are looking to buy in. These agents know what is currently available, what hasn’t sold (maybe why it didn't sell), and often what is coming on the market soon. They are often in contact with the sellers who are not yet on the market and you may be able to find a gem that has yet to be listed. We have performed an extensive search in each city in the Phoenix Metro area to find the best Real Estate Agents. These agents have the ability to achieve better results for their clients due to their experience and expertise. They are true market experts who will work in your best interest. They are effective negotiators and innovative problem-solvers whose approach makes us extremely confident they will achieve the very best results for you. At Realty AZ Central, we stand behind our certified Real Estate Agents with a $1,000 guarantee. This guarantee ensures that the service agreed upon between you and the Realty AZ Central Certified & Guaranteed Agent was provided. If the service was not done right or if there were any last minute surprises or exclusions, we'll try to facilitate a good outcome for you and the agent. In cases where a resolution is unachievable, we'll either find and pay for any damages or, at our option, reimburse you up to $1,000 toward any damages. Having a Real Estate Agent misrepresent you is an aggravating waste of time and in some instances money, which is why we strive to only work with the best Real Estate Agents. The Realty AZ Central Guarantee does not cover any expenses other than those directly involved with the transaction. All Realty AZ Central Certified & Guaranteed Agents are fully vetted by our Pre-screening and Certification team. Further, all the Realty AZ Central Certified & Guaranteed Agents have explicitly agreed to abide by the high standards set forth by us, including making sure you are completely satisfied with the service you hired them to perform. We are confident your experience with one of our Certified & Guaranteed Agents will be second to none. In the rare instance an issue arises, we are confident you will be able to remedy any differences you may have with one of our Certified & Guaranteed Agents without our direct involvement but if you can't, let us know and we will do our very best to make sure you're fully satisfied. You can learn more about our Agent Certification Process here: http://www.realtyazcentral.com/agent_guarantee.cfm Your home purchase is one of the biggest investments you'll ever make. Put a Certified Agent on your side. Step #2 - WHAT TO DO BEFORE YOU START TO SHOP FOR A HOME The most critical step before shopping for a home is confirming that you can afford it. For most people, this means getting a mortgage. You will want to contact a trusted mortgage lender and make sure you are pre-approved before you start your home search. Most real estate agents will want to know that you are qualified before they start to show you houses. You will also want to know your financial status before you start to look because there is nothing more discouraging than finding a house you love and then finding that you can't afford it or don’t quality for it. Knowing in advance, what you will need to apply to secure your loan can be a majortime saver. Here is a generic list of the documentation your loan officer will likely ask you for: - Copy of your driver’s license or other government issued ID (to verify your identity) - Copy of your last two pay stubs - Copy of your last two years W-2's - Copy of your last two years tax returns - as filed. - Name and contact information of your homeowners insurance agent; this is for your new homeowners policy. Always check with your car insurance agent to see if you can get a package deal for both car and homeowners insurance. - Copy of your last two months bank statements (or whatever institution holds the money being used for the home purchase) I emphasize the word “copy” because you never want to give your original documents to anyone. Accidents happen, documents get lost, and the process of replacing some of these documents is very time consuming. If you’ve already taken these steps, then you are on the right track. If you need a mortgage lender referral, I would suggest AZ Lending Experts. I happen to be one of the principals of that company and my team and I would be happy to look at your credit situation to help get you on a path to homeownership, regardless of the financial hardship you have endured. If you would like to discuss your situation, please simply contact me at rsimon@azlendingexperts.com or 480-649-3825. Step #3 - PAYING FOR YOUR DOWN PAYMENT AND CLOSING COSTS Do you know how much money you need for a down payment? This is something you will want to discuss with your loan officer and will depend on many factors including how much money you are borrowing. Closing costs vary from region to region, but a good rule of thumb is 3% of the purchase price. The fees including county and state recording and transfer fees, lender fees, and attorney or settlement company charges. Many people put off buying a home because they don’t have money saved up for a down payment and closing costs. Here are a few sources you may not have considered: 1. 401k / TSP (Thrift Savings Plan) Loans. Very often, employers will allow for a one time penalty free withdrawal or loan from your retirement funds. Check with your human resources department to find out what your company’s policy is. Find out a realistic time frame for when you will have the money because your mortgage lender will not only want to know where the money is coming from, they will want to see it transferred to your account before they fully approve your loan. Keep in mind that this may stretch your budget by giving you a monthly payment to repay the loan if required. 2. Family Gifts. While the bank allows for gifts from family members, it is not uncommon for those “gifts” to be repaid. The bank does not want to know about this because this would constitute taking out another loan and thereby creating another debt. In fact, the bank will require that the gift donor sign a document (called a gift letter) stating that the gift does not need to be repaid. Sometimes, the donor must provide their bank statements (last 2 months) to show that the money is in fact theirs to give and the underwriter will confirm this by looking at their bank statements to ensure that there were no other large deposits into the donors’ bank account. 3. Anxious Sellers. If you find a desperate (or generous) seller, they may be willing to help you by offering to pay some or all of your closing costs. Some programs even allow the sellers to "gift" you the down payment. Your real estate agent will be key in helping you find flexible sellers. Ask them to look for properties that have been on the market for several months as those sellers may be willing to negotiate to get their property sold. 4. Community Lending Programs. Often local banks and lenders offer programs designed to help people buy homes in certain areas. Sometimes these are limited to "low to moderate income" borrowers or first time buyers and may be based on need or family size. Sometimes these programs are made available to anyone who asks (ask and ye shall receive). The team at AZ Lending Experts can advise you if any such programs exist in your area. Feel free to contact me directly at rsimon@azlendingexperts.com 480-649-3825 to discuss what is available to you. Step#4 - WHAT TO DO IF YOU HAVE CREDIT CHALLENGES Many people have suffered credit challenges over the past several years. These challenges may include a bankruptcy, a foreclosure, repossession, or just late payments on bills.You need to address these issues, as they will not go away on their own. Also, you don't want to wait until you apply for a mortgage to correct them because it will delay your purchase that much longer. If you know you have credit challenges, be up front with your lender about it. A good loan officer is always willing to help you get through your challenges but if you are not up front with them, they can’t help you. If they find out later and feel you have been dishonest with them, they may not want to work with you. There are many options for cleaning up your credit reports and your loan officer should be able to review your credit report with you and show you what needs to be corrected in order to qualify for a loan. In some cases, they will refer you to a credit repair specialist and if they do, just make sure you do your due diligence and check out the firm on your own. If you have had a major derogatory credit event such as a bankruptcy or foreclosure, your recovery time will be longer than if you just had a few unpaid medical bills. In either case, the sooner you start, the sooner you will be able to get qualified. Derogatory credit does not fix itself and time alone does not improve your credit scores. The team at AZ Lending Experts can also look at your credit situation to help get you on a path to homeownership, regardless of the financial hardship you have endured. If you would like to discuss your situation, please contact me directly at rsimon@azlendingexperts.com 480-649-3825 to discuss your situation. Step #5 - WHAT TO LOOK FOR WHEN BUYING A HOME There are so many things to keep in mind when looking at making the largest purchase of your life. In years past as we saw buying frenzies and bidding wars, many home buyers opted to buy homes without having home inspections because owners (arrogantly) would not take offers (contracts) with any contingencies including home inspections and appraisals. Here are some key areas to look at including two that many people leave out: 1. The Value - Is this house a good value? Of course, most banks will require an appraisal to protect their interest in the home (their interest is usually larger than yours). If the value of the home comes in lower than the contract price, you may be able to renegotiate the sale price with the seller by proving that it is not worth what they are asking. If the value comes in higher, then you most likely got a good buy based on the value. When homes are sold without an appraisal clause, the buyer is accepting responsibility for the difference in appraised value and sales price. For example, if you were getting 97% financing on a home with a contract purchase price of $220,000 and the appraisal came in at $215,000 butyou waived the appraisal clause, you would have to pay an additional $5,000 on top of your down payment to close the loan or forfeit your earnest money deposit. If you didn't have the money, the underwriter may even turn you down for the loan. 2. The condition - Is this house in good condition? Perhaps you have heard the phrase "caveat emptor"? It is often quoted in the real estate industry and is Latin for "let the buyer beware". My recommendation is to always have a home inspection to make sure the home is sound and that there are no deficiencies. Another good recommendation is purchasing a Home Warranty, which will cover most appliances and major systems for the first year of home ownership. Beware of "foreclosure deals" unless you are dealing with a trusted source. These CAN be great deals but they can also cost you a lot of money if you are not aware of the true condition of the property, both physically and legally. I recommend every purchaser obtaining an owners title insurance policy.This is valuable when buying a foreclosed property, as there is a higher likelihood of a claim being brought against the property later. 3. Parking (one of the two often missed areas). When trying to choose a neighborhood, make sure you notice how many parking spaces you are allotted, how many visitor spaces exist, do they allow commercial vehicles, and how far will you or your visitors have to walk to your home from visitor parking or overflow parking areas. 4. Safety (the second of the two often missed areas). So many peoplefocus on value and property condition and so forget to inquire about the neighborhood. If you already know the area, then it isn't a problem but more often than not prospective buyers look in areas other than those they originally desired, which due to price factors. Here are a few pointers for checking out an area: - Don't ask your agent about the condition of the neighborhood. First, they may not want to do anything to jeopardize the sale. Secondly, in most areas, the agent is prohibited by law to answer these questions because they are not criminology experts andmost of all, because of anti- discrimination laws. - Check with the local police department. Ask about crime statistics on the specific street you are looking to buy on, as well as the surrounding areas. - Ask neighbors. This is particularly effective if you know them because they will be real with you as opposed to someone who is biased and is denying that crime takes place in their neighborhood. - Drive the neighborhood at night. One of my pet peeves is lighting. I like to see a well-lit community. Also, check and see if lots of people are hanging out and about or if it seems to be a quiet area. Not everyone is the same; some will prefer communities where people hang all night and others prefer that it is quiet outside by 8PM. Just make sure you do your own homework. Step #6 - MAKING AN OFFER TO PURCHASE A HOME Once you have located the home of your dreams, it is then time to make an offer to purchase the home. This is usually referred to as "writing a contract." Keep in mind that a contract is just an offer until it is signed but you need to be willing to honor whatever terms you write into your offer because once the seller accepts and signs it, you are obligated to purchase the home and your deposit is now at risk. Everyone wants a "deal". So how do you get the best deal on a home? 1. Find out what the home is Worth. You need to know what similar homes have sold for (not just what they are listed for). An asking price is often just a seller's wish, but a sold price determines the true market value. Your real estate agent should be able to provide you with comparable sale prices for similar type homes in the area (known as "comps") before you make an offer. I strongly recommend using a buyer's agent so that your agent can legally look out for your best interest. Unless you have a signed Buyer Broker agreement, the agent normally represents the seller and looks to get the seller the maximum profit; you need to know this. 2. Make a strong Earnest Money Deposit. You want to put down a strong Earnest Money Deposit (a.k.a. EMD or Good Faith Deposit), so the seller knows that you are serious. Your check will not be cashed unless your offer is accepted, so no need to worry about that. Confirm with your agent that your desire is for them to hold the check until the contract is fully ratified (meaning all parties have signed agreeing to all of the terms). A 5% deposit is considered very strong but let your agent advise you based on your specific transaction. If you do not have 1% (of the offer price) available to put down, the seller will question your ability to make the purchase as they know you must have some money, even if it is just for your closing costs. At a minimum, put something down regardless of the amount; even if it is just $100 but know that the seller may not take your offer seriously and will feel little obligation to negotiate in your favor. Your real estate agent will advise you further depending on your circumstance and what they know of the seller. Also, you need to know that your deposit money is fully at risk. If you fail to perform certain duties under your contract, you could lose your deposit completely (it is written in the contract that you sign). Make sure you are fully aware of the terms & obligations of the contract your agent is writing and you are signing before writing an Earnest Money Deposit check. 3. Get pre-approved for a mortgage. Always submit a pre-approval letter from a mortgage lender with your offer. This not only shows the seller that you are serious but that you have taken the necessary steps to get your financing in order first, which means you are better prepared to close the deal than a buyer without a pre-approval. If you have not been pre-approved for your mortgage yet, I would be happy to help you get pre-approved (just reply to this email.) 4. Get a professional home inspection. Your agent should be able to advise you on a qualified home inspector in your area. It is critical that someone (not one of your family members) who has an independent but professional opinion on the homes condition. If there are problems found, you need to have the seller fix them prior to settlement (and always schedule a final inspection to verify the completion of work). Depending on the level of work, you may want to specify that the work has to be performed by a licensed contractor that will guarantee the repair (regardless of who owns the property), and that they need to provide you receipts for the work. This way you may have recourse if the repair is not performed correctly. 5. Determine what you want to offer based on your needs. Determining your asking price depends on whether or not you are asking for closing cost assistance and if so, how much you need / want. If you ask the seller to take a below market offer AND help you pay for your closing costs, they may think that is unrealistic. Some people think it can’t hurt to try but a seller does not have to counter your offer or accept future offers from you if they don't want to. If you want or need closing cost assistance and know that this is the home that you want, I would start with an offer at full market price (not the asking price if it is higher than market) and ask for the maximum in closing cost help, which is often determined by the lender and loan type. 6. Considerations for homes in disrepair. If a seller is willing to sell his or her home in a state of disrepair, they may be looking to get out from under it, which would be a good thing for you. In this case, you need to know what the home is worth and need the inspection to know what needs to be repaired. In this instance, you also need to know the market value of the cost of getting the repairs done. Your agent should be able to help you find a contractor to estimate the price of repairs. After you have your list of repairs and cost estimates, you will want to look at the market value then subtract the market cost of all of the repairs.Also, take into account the time you may have to pay the mortgage and not live in the home (or risk paying two housing expenses), then look at that value. Also, subtract the cost of your time to get the house in order and then you have your baseline for market value for that property based on its condition. Whatever you can negotiate from there will be pure profit for you once you get the property back in shape. Please do not think that I am advising you to take advantage of someone's misfortune, I am just letting you know what to beware of when buying a home that is currently in below market condition. Also, you should know that buying a home in disrepair will cause concern for the mortgage company and could impact the approval of your loan. 7. Know Thy Contract. I am amazed by how many people will sign a contract without knowing what it really says. You need to know what your obligations are under the terms of the contract, so that you do not lose your deposit. If you have any questions about what the contract says, you can ask your agent but I recommend asking the settlement attorney who will be handling the closing. They will often help you make sense of what is often an unclear document (the sales contract). I hope this helps you as you prepare to make an offer on the home of your dreams. Step #7 - MAKING YOUR FINAL LOAN APPLICATION Has your offer has been accepted yet? If so, Congratulations! If not, once it does, you will need to secure your home financing at that time. This is where documentation submitted during pre-approvals are updated and calls are often made to verify things such as employment. Additionally, your lender will order an appraisal of the property to make sure it is sound enough for them to loan against. If you are not working with a mortgage lender yet, I hope that you’ve found the insights I’ve shared with you helpful and hopefully because of being direct, I have earned your trust. Give me a call at 480-649-3825 to discuss your mortgage needs, whether you are still in the pre-approval stage or ready to write a contract. And if you still haven’t found an agent, I’d love to refer you to one of the trusted, certified real estate agents from Realty AZ Central. Step #8 - SETTLEMENT DAY Settlement day is the day that you get the keys to your new home.Make sure you have scheduled your pre-settlement walk-through with your agent to make sure everything is still in the same condition as it was when you wrote the original contract to purchase it. Also, if any items were to be completed based on the home inspection, this is the time to make sure it is done. You will need to bring certified funds for your settlement. Often, the fees are not totaled until the morning of the settlement so the best person to contact to get the final figure is the settlement company (a.k.a. title company or escrow agent). In lieu of having this, you can always rely on the Good Faith Estimate that was given to you by your loan officer. Come prepared with this amount (from the Good Faith Estimate) in certified funds and bring your checkbook in case you are a little short. If you are over, the settlement company will give you a refund check before you leave. After settlement, call the utility companies to let them know of the change so that you can have the utilities either transferred or turned on in your name. I hope you saved some money for the housewarming party. No need to make it a big blowout but just make sure you invite your loan officer and real estate agent who helped make it happen for you. :-) I hope you have enjoyed this educational eBook. I am here to help you as I have helped countless others in the process of becoming a homeowner. I have worked over the last several years to make the process as painless and stress free as possible for my clients and for that, I continue to gain new referrals year after year. I hope to hear from you soon and I look forward to your referrals. If you know of anyone looking to buy a home, please refer them to Amazon where they can get their own copy of this Kindle eBook. For assistance with a home purchase or sale, contact Realty AZ Central at 602-753-7618 For mortgage or credit repair assistance, contact Richard Simon at AZ Lending Experts - 480-649-3825 . case, you need to know what the home is worth and need the inspection to know what needs to be repaired. In this instance, you also need to know the market. risk. Everyone wants a "deal". So how do you get the best deal on a home? 1. Find out what the home is Worth. You need to know what similar homes