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Be an informed buyer Gather as much information as you can Familiarize yourself with the mortgage process. Probably one of the reasons that buying a home is such an emotional experience is because of the fact that not only do you have the actual house buying to deal with, but for most home buyers you also have the mortgage process to encounter. This can be a smooth and almost uneventful process, or an unnerving one. A great deal depends on the preparation of the buyer as well as the selection of an efficient mortgage company. To help tailor a mortgage to fit your individual needs, Lenders need to know about your loan preferences. Whether you want a 30-year fixed or an adjustable rate mortgage. But, most important is your credit and ability to pay back a loan.

Credit plays a critical part in nearly everyone's life, but understanding what credit is and how it works can be a challenge. A great way to understand the role credit plays in your life — and to empower yourself as a consumer — is with a basic knowledge of two credit fundamentals: Credit Scores and Credit Reports.

Along with the credit report, lenders can also buy a credit score based on the information in the report. That score is calculated by a mathematical equation that evaluates many types of information that are on your credit report at that agency. By comparing this information to the patterns in hundreds of thousands of past credit reports, the score identifies your level of future credit risk.

In order for a FICO® score to be calculated on your credit report, the report must contain at least one account which has been open for six months or greater. In addition, the report must contain at least one account that has been updated in the past six months. This ensures that there is enough information - and enough recent information - in your report on which to base a score.

About FICO scores
Credit bureau scores are often called "FICO scores" because most credit bureau scores used in the US are produced from software developed by Fair Isaac and Company. FICO scores are provided to lenders by the three major credit reporting agencies: Equifax, Experian and TransUnion.

FICO scores provide the best guide to future risk based solely on credit report data. The higher the score, the lower the risk. But no score says whether a specific individual will be a "good" or "bad" customer. And while many lenders use FICO scores to help them make lending decisions, each lender has its own strategy, including the level of risk it finds acceptable for a given credit product. There is no single "cutoff score" used by all lenders and there are many additional factors that lenders use to determine your actual interest rates.

Other Names for FICO Scores
FICO scores have different names at each of the three credit reporting agencies. All of these scores, however, are developed using the same methods by Fair Isaac, and have been rigorously tested to ensure they provide the most accurate picture of credit risk possible using credit report data.

Credit reporting agencies maintain files on millions of borrowers. Lenders making credit decisions buy credit reports on their prospects, applicants and customers from the credit reporting agencies.

Your report details your credit history as it has been reported to the credit reporting agency by lenders who have extended credit to you. Your credit report lists what types of credit you use, the length of time your accounts have been open, and whether you've paid your bills on time. It tells lenders how much credit you've used and whether you're seeking new sources of credit. It gives lenders a broader view of your credit history than do other data sources, such as a bank's own customer data.

Creating Your Credit Report
Your credit report does not really exist until you or a lender asks for it. It is then compiled by the credit reporting agency based on the information stored in that agency's file. This information is supplied by lenders, by you and by court records.

Your credit report reveals many aspects of your borrowing activities. All pieces of information should be considered in relationship to other pieces of information. The ability to quickly, fairly and consistently consider all this information is what makes credit scoring so useful.

It's important to note that raising your score is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time.

Develop a personal checklist, Start Mortgage Pre-Approval process, Find an Agent,
Begin property search and Compare and evaluate homes

Why get prequalified and then preapproved for a mortgage before you begin your search for a home? Because there are 3 people who will benefit from your preapproval: You, your Agent, and the seller from whom you eventually buy a home!

You: The most important beneficiary, of course, is you. One of the most common questions we get from users of this site goes something along the lines of "Please let us know how much house we can afford." We're stumped! Why? There are simply too many variables--credit history, income, debt, special mortgage programs and variations in qualifying guidelines between different mortgage types--to answer that question. The only sure way of getting the question answered is through prequalification. The mortgage prequalification step is a relatively simple one, but it is an important one. It begins the process of formally applying for a mortgage, and it gives everyone involved--especially you--a clear sense of the direction they should be headed.

Your Agent: By knowing what your financial parameters are, your Agent can spend more time looking for houses that "fit" and less time pursuing dead ends. No matter how much you might want a 4000 square foot home for $275,000, if your qualifications say $125,000, your qualifications say $125,000. When it comes to mortgages, "yes, but" doesn't carry much weight!

The Seller: Want to strengthen your bargaining position? Get prequalified. Want your offer to stand out in a case of multiple offers for the same house? Get prequalified. Look at it from the seller's perspective. If you had 2 offers on the table for your house, one from a fully prequalified buyer and the other from an "I'll get around to that soon" buyer--to which offer would you devote the most attention? Even if the prequalified buyer's offer was $1000 less, would you take the chance on the buyer that perhaps may not be qualified? When it comes to a seller evaluating offers, "a bird in the hand..." definitely applies.

It is important to remember that the amount of mortgage you will qualify for is the maximum. It is the amount that the lender feels you can afford, but it is not necessarily the amount that you want to pay. It sometimes is advantageous to be conservative here. For example, if you qualify for a $100,000 mortgage and you have $15,000 available in cash for down payment and closing costs, you are qualified to buy homes with a maximum selling price of $115,000. So as to not push yourself to the limit, you may want to look at homes that sell in the $100,000 to $110,000 range. Too many buyers simply rush off to the $115,000 level and some find themselves strapped when it comes time to purchase necessary items (such as draperies, additional furniture and lawn and garden tools, for example) or when they forget to factor in increases in monthly expenses (for example utilities and maintenance and repair costs).

Conventional: A "traditional" mortgage, not directly insured by the Federal Government. Most conventional loans under $275,000 are administered through Fannie Mae or Freddie Mac (private corporations but regulated by the government). Those loans over that amount are designated "jumbo loans" and are funded by the private investment market.

FHA: Insured by (but not funded by) the Federal Housing Administration (FHA) a division of the U.S. Department of Housing and Urban Development (HUD), and designed for, in general, low- and middle-income borrowers and many first-time buyers. There are, however, limits (which vary from county to county) to the maximum loan amount. On January 1, 2000 HUD began insuring home mortgage loans of up to $121,296 in communities where housing costs are relatively low, and loans ranging up to $219,849 in communities where housing costs are relatively high. FHA loans have somewhat more relaxed qualifying standards and ratios than conventional loans and have the availability of both 15 and 30 year fixed as well as 1 year adjustable mortgages.

VA: For those qualified by military service, the Veterans Administration (VA) insures (but does not fund) 15 and 30 year fixed as well as 1 year adjustable mortgages with lower down payment requirements (as low as 0 down) and somewhat more lenient qualifying ratios.

No-Document ("No-doc) Loans: No-doc mortgages are generally a wise choice for self-employed people, those who do not wish to verify their income, and those with a brief or blemished credit history, or no credit. The benefits of a no-doc mortgage include a shorter application process since you are not required to provide income, employment or asset documentation, as well as a streamlined approval process because there is little subsequent verification. However, no doc mortgages generally will be at slightly higher interest rates and are offered by fewer lenders.

Your Agent will need your mortgage qualification, and it will significantly strengthen your offer when you find a home. Find an Agent that you trust. It is important to do this before you go rushing off looking for homes or you may end up with no representation.

Determine your housing needs and wants to determine what types of houses you should be considering. Familiarize yourself with the various types of housing available: Single family, townhouse, and condo. If you are planning on buying or building a new home,

There are probably few things in life that are as exciting--or as nerve- racking--as the search for a house. All the good emotions and the bad emotions seem to converge when the house hunting begins. Don't worry, this is a normal reaction, and is found in seasoned home buyers as well as those who are looking for their first home. One of the first decisions you need to make is whether you want to do your house hunting on your own, or by using an Agent. If you decide to go it on your own, you will be able to see (and buy) those houses that are For Sale by Owner (known as FSBO's). Depending on your area and the overall market, this will be around 20% or so of the total homes available (the other 80% are the "listed" properties--being sold through an Agent. Those homes you can't buy--or even see--on your own).

With an organized house buying plan, you can minimize a great deal of the emotional impact. By determining your buying power, your wants and needs, and having an organized search plan, your chances of a stress-free experience are much better.

Before you embark on your search for the perfect house, it is important that you make a realistic "shopping list" in an attempt to narrow your choices of properties. Hunting for a home can be a time consuming process, especially if you have not determined in advance the parameters of your search. Many home buyers make the mistake of misinterpreting a WANT as a NEED. As a result, they often dismiss homes that perfectly fit their needs in search for one that has their wants. This is not to say that you cannot have what you desire in your home--just that you must be able to differentiate between what you truly need and what you would like to have. Your budget must be the determining factor here, not a "wish list." Note, also, that in the examples below, many WANTS can be changed in a particular home (if the house doesn't have that feature now, you can change it later).

Take a few minutes to develop your own list of NEEDS and WANTS. You can start a list that you can use as you begin to evaluate homes. The goal is to put the emphasis on finding a house that includes all of your needs and as many of your wants as is practical--yet remains in your budget. Once you have a clearer view of what your house will need to have, the next step, actually looking for a home, will be a great deal easier!

Get your financial picture in focus as soon as possible. Since it is an important component, be aware of your credit situation. The best time to work on your budget is before you move.

When they first begin looking for a home, many buyers ask "can't we do this on our own? Do we really need to use a Real Estate Agent?" The answer is yes, you can do it on your own. There is no law that prevents you, as an individual, from buying property without professional Real Estate assistance. You can search for homes, arrange showings, and even negotiate on your own (although, in some localities, the actual contract for purchase will need to be drawn up by an Attorney). The real question may be "do we want to do it on our own?"

There is a misconception among many first time home buyers that by using a Real Estate Agent, they will be subject to paying a commission. In virtually all situations, this is not the case. The commission for the sale of a home is paid for by the seller, not the buyer. If you went to your local appliance store and bought a new refrigerator, you wouldn't expect to pay a commission to the salesperson. The same applies when you buy a house--it is the seller of the item (in this case a house) that is responsible for paying to have it sold.

If you do decide to "go it on your own," your choices will obviously be very limited. The only homes that you can buy without any Agent assistance are those that are "For Sale By Owner" (FSBO)--generally a small percentage of the market. These are home owners who, for whatever reason, have decided not to use an Agent in the sale of their house. It may be because they think they can get more return by not paying a commission, or it may be because there was no Agent who would take their house listing at the price they demanded. Many Real Estate analysts have found that the selling prices of FSBO homes are equal to--or higher--than those listed by Agents. A problem arises when, as a "do-it-yourself" house buyer and without the benefit of a Comparative Market Analysis, you need to make a determination whether or not the house is worth the asking price.

Here's some important advice: as soon as you have made the decision that you want to buy a house, one of your first steps should be to make certain that you have a clear picture of your financial situation. At a minimum, you will most likely want to do the following:

Run a Credit Report to make certain that there are no discrepancies or problems in your credit history.

Do an analysis of what your current financial situation is: where the money comes from and where the money is presently going. Develop a household budget for your current situation. Get into the habit of using it on a consistent basis!

Keep your spending patterns in check.

Do an analysis of how a house purchase will affect your budget. Be sure to factor in not only mortgage payments (including insurance and taxes) but also funds for items such as repairs and maintenance.

Begin to gather items such as: last 3 years Income Tax returns, current copies of pay stubs, records of any past derogatory credit history that has since been paid off, and records of any supplemental income you may have. If you are self employed, you will need all business records and tax returns for the last 3 years. Having these items close at hand will save an enormous amount of time when the Mortgage Company begins to ask for them (and ask for them they will!)

If it is possible to do so without adversely affecting your down-payment situation, pay off minor debts. The less debt you have the easier your Mortgage "sailing" will be.

Do not incur any new debt. Many mortgage applications have been stopped in their tracks because the applicants had decided a week before the application that a shiny new car with a big finance or lease payment would look just perfect in the driveway of their new home. Since mortgages are based on debt to income ratios (the amount you pay out monthly versus the amount you bring in) a newly acquired debt could be enough to throw the ratios off and make the mortgage unobtainable.

Be realistic in your budget assessment. Make provisions for possible increases in some items (for example, school tuitions, insurance and taxes). Then, look for ways to get (and maintain) control over your budget.

Most People Spend 10% More Than They Make! You probably know how much money you made last month, but do you know how much money you spent? Or do you know how much money you have left to spend this month? If you don't you're not alone, most people have no idea. The fact is most of us spend 10% more per month than we make. That comes out to $431 per month based on the average American income. No wonder the average credit card debt is now at $8,500!

So why is it so difficult to track spending? Today we live in a near "cashless" society. Using debit cards, credit cards, automatic deposits, and wire transfers we rarely even see our money. It's easier than ever to spend, spend, spend!

When you find an acceptable house, write an offer. Familiarize yourself with how offers become contracts.

One of the most common misconceptions among home buyers occurs when it comes time to making an "offer" or a "bid" on a home. Many believe that even though they have tendered an offer to the sellers, that their options are still open. To some degree, this is correct. If the seller rejects the offer, counteroffers it, or simply does not respond, options are still open. You, as the buyer, can accept the counteroffer, make another offer, or simply move on.

If, however, the seller accepts the offer (and you are notified of its acceptance) then a legally binding contract has most likely been struck. In the majority of cases and localities, there is not even the need for additional paperwork--the signed offer becomes the contract. Your options now are more of the "do we want to paint the master bedroom before or after we move in?" Once the offer has been accepted, the "lets think it over just a little bit more" phase has passed. This is why it is crucially important to make sure that all of your bases are touched and all of your intentions made clear in the offer--it can become a binding contract in the blink of an eye and a stroke of the seller's pen.

Since an offer can become a contract very quickly, it is important to understand how they are two sides of the same coin.

Once the perfect home has been found, it is time for the house buyer to take the step that makes so many of us tremble with fear: the sales contract. To take some of the mystery out of the house sales contract, we will discuss what the contract involves and the components of most housing sales contracts.

First, remember that what you are signing is a legal contract. No matter what anyone says, you are not just making an "offer". Most sales contracts will have some paraphrase of the following: "This is a legally binding contract. If not understood, seek competent advice before signing." To put it simply, if what is written on the contract regarding selling price and provisions is accepted by the seller, you have bought a home. Unlike other negotiable businesses, such as the automobile business, "would you take?" is defined in Real Estate by a legally binding contract backed with a monetary deposit.

Although there will be some variance based on the location of your residence, most Real Estate contracts contain most or all of the following items:

The exact wording of the sales contract will vary from locality to locality (and sometimes even within localities), but by being prepared to see at least the items listed above, you will be in a better position when it comes time for the Agent to ask for your signatures!

Compare and secure homeowners insurance. Since homeowners insurance is a long term expense, getting the best deal here brings savings that continue.

Unless you pay cash for your home, one of the requirements that will be made by your lender is proof of a valid homeowners insurance policy, secured before closing. This policy will protect both your investment as well as the lender's (and, in the beginning of the loan, the lenders investment in the total value of the home is much higher!) Here is a general overview of the protections offered by your Homeowners Insurance. Also see more

Casualty: The most common hazard insured against, of course, is damage due to fire. A homeowners policy may cover losses due to other hazards (for example, wind and hail) but it is important that you determine precisely what is--and is not--insured against. If you home is built in a flood-prone area, you must secure a separate flood policy.
Liability: This is to protect you against lawsuits resulting from injuries that occur to visitors or guests in your home. The cost for this coverage, to a large degree, is based on the limits (in dollars) of coverage. Secure as much as possible in order to protect your assets.
Personal Property: While the casualty or hazard insurance covers the rebuilding of the house structure, personal property coverage protects what is inside the home. Coverage here will vary widely, so it is important to be clear on exactly what the limits of the coverage are. Does, for example, it cover replacement cost of an item (its cost today) or is the value determined through its original cost or depreciation.

The price you pay for your homeowners insurance can vary by hundreds of dollars depending on the company you buy your policy from. Companies offer several types of discounts, but they don't offer the same discount or the same amount of discount in all states. That's why you should ask your agent or company representative about any discounts available to you.

Here are 12 STEPS you can take to help you SAVE MONEY on your
HOMEOWNERS INSURANCE:

1. SHOP AROUND

Friends, family, the phone book and Internet are some of the sources you can use to find homeowners insurers. Get a wide range of prices from several companies.

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 you buy insurance in case you need to make a claim, so it's important to get a company with a good reputation. 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 with AM Best or Standard and Poor's.

Deductibles are the amount of money you have to pay toward a loss before your insurance company starts to pay. Deductibles on homeowners policies typically start at $250.
Increase your deductible to:
$ 500 -- save up to 12 percent
$1,000 -- save up to 24 percent
$2,500 -- save up to 30 percent
$5,000 -- save up to 37 percent
Depending on your insurance company.

Some companies that sell homeowners, auto and liability coverage will take 5 to 15 percent off your premium if you buy two or more policies from them.

Consider how much insuring it will cost.
A new home's electrical, heating and plumbing systems and overall structure are likely to be in better shape than those of an older house. Insurers may offer you a discount of 8 to 15 percent if your house is new.
Check the home's construction:
In the East Brick, because of its resistance to wind damage
In the West Frame, because of its resistance to earthquake damage
Choosing wisely could cut your premium by 5 to 15 percent.
Avoiding areas that are prone to floods can save you about $400 a year for flood insurance. Homeowners insurance does not cover flood-related damage.
The closer your house is to firefighters and their equipment, the lower your premium will be.

The land under your house isn't at risk from theft, windstorm, fire and the other perils covered in your homeowners policy. So don't include its value in deciding how much homeowners insurance to buy. If you do, you'll pay a higher premium than you should.

You can usually get discounts of at least 5 percent for a smoke detector, burglar alarm, or dead-bolt locks.
Some companies offer to cut your premium by as much as 15 or 20 percent if you install a sophisticated sprinkler system and a fire and burglar alarm that rings at the police station or other monitoring facility. These systems aren't cheap and not every system qualifies for the discount. Before you buy such a system, find out what kind your insurer recommends and how much the device would cost and how much you'd save on premiums.

Smoking accounts for more than 23,000 residential fires a year. That's why some insurers offer to reduce premiums if all the residents in a house don't smoke.

Retired people stay at home more and spot fires sooner than working people and have more time for maintaining their homes. If you're at least 55 years old and retired, you may qualify for a discount of up to 10 percent at some companies.

Alumni and business associations often work out an insurance package with an insurance company, which includes a discount for association members. Ask your association's director if an insurer is offering a discount on homeowners insurance to you and your fellow graduates or colleagues.

If you've kept your coverage with a company for several years, you may receive special consideration. Several insurers will reduce their premiums by 5 percent if you stay with them for 3 to 5 years; by 10 percent if you remain a policyholder for 6 years or more.

11. COMPARE THE LIMITS IN YOUR POLICY TO
THE VALUE OF YOUR POSSESSIONS AT LEAST ONCE A YEAR

You want your policy to cover any major purchases or additions to your home. But you don't want to spend money for coverage you don't need.

If you live in a high-risk area --- one that is especially vulnerable to coastal storms, fires, or crime --- and have been buying your homeowners insurance through a government plan, you should check with an insurance agent or company representative. You may find that there are steps you can take that would allow you to buy insurance at a lower price in the private market.

Courtesy of the Insurance Information Institute

Ask 10 different people about the value (or lack of it) of home warranties and you'll probably get 10 different responses--everything from "huge waste of money" to "best thing we ever did. It saved us $2500!"--and just about every other comment in between.

Coverage. A home warranty covers repair or replacement of some major and minor items and components of a house. Typically, they will be on a 1 year duration, beginning at the time you take occupancy. Some of the items and components that are typically covered are:

Costs. The cost of a warranty will generally range from $300 to $600, depending on the level of coverage and/or the size of the house being covered, and will usually carry deductibles of between $25 and $100.

What you are buying, in essence, is an insurance policy protecting against the breakdown of any of the covered items. Like any insurance policy, its value is tied to its use--if you never use the warranty, you could have saved its cost. If you do have a need for it, you very likely may have saved money.

Are they a wise purchase? In a newer home (less than 5 years old for example) a warranty may not be necessary, other than for peace of mind. As a general rule, the components covered by a home warranty last longer than 5 years. In a home aged from 5 to 15 years, a warranty may be a wiser consideration, since the upper end of that age range is often within the life expectancy of such items as refrigerators, stoves and air conditioning systems. In a home that is aged 15 years or longer (especially one with older systems and appliances) a home warranty should bear strong consideration since the likelihood for repairs or replacements goes up as the age of a house increases. $500 in warranty and deductible costs are obviously preferable to paying $2500 or $3000 for a new heating system should you need it.

Moving arrangements
Monitor mortgage process
Arrange for any school transfers or registrations
Arrange homeowners insurance

Make moving plans. If you plan to use a moving company, make comparisons and reserve time now

To avoid surprises, get coordinated in advance: Use A checklist to monitor your progress. Make agreements with sellers (ideally at the time of the contract, but definitely long before the closing date) regarding possession of the home and moving date. Having sellers and buyers meet on the front walk--each with a house full of furniture--is not a happy situation. Get these agreements in writing to avoid unnecessary hassles on moving day! Start planning early. Once you are reasonably confident that you will be proceeding with the purchase, start weeding out your current possessions. Get rid of (or give away, or sell at a yard sale) things that you don't want to move. This goes a long way toward uncluttering your life, too! Compare moving plans. Are you going to want to do the entire move yourself? Will you want a professional mover to handle the entire process? Don't wait until the last minute--or you may be doing the whole move on your own. Compare rates and services as well as availability. You can get free, multiple estimates from licensed and insured movers in your area. Make a list on any important items you will need to buy for the new house. Examples: draperies, blinds, shower curtains, etc. Having these things with you on the day you move in prevents unnecessary surprises.

At some point (shortly before the date of final closing) it will be necessary for you to make a final inspection of the house that you are purchasing--a final walk through. In all probability, you will be accompanied by your Agent, who will help you examine the house. This is to verify that all items for which you have contracted to buy are there, and items that you have not contracted to buy have been removed. For example, you do not want to arrive at your new house after closing to find that the beautiful chandelier in the dining room has somehow been replaced by a cheap overhead fixture, or that the draperies and window treatments that were specifically referenced in the contract have been packed and moved away. Additionally, you do not want to move in to find that numerous items have been left by the sellers because they did not want to move them or take them to the dump. When you do your walk through, pay particular attention to attics, crawl spaces or basements, and garages. If the sellers have not moved yet, you still may get a clear picture that there are certain items (since they may not be boxed or appear to be ready to move) that they have no intention of taking with them. Bring this to the attention of your Agent to avoid the hassles that can surface on moving day.

Take your time when you are doing your walk through inspection. Try to be as calm as possible. Many a buyer has been so busy dreaming of themselves in the new home that they have neglected to take a good look and missed an important item that was contracted to convey upon Closing. Have a copy of your Sales Contract with you so that you can review any items that should be included with the house. Here are a few points to review:

After the searching for a home is done, the negotiations have been completed, the house has been inspected, and the mortgage has been applied for and committed to, the focus suddenly turns to the Closing, Settlement, or Escrow as it is known in some localities. For simplicity, in our discussions here we will refer to the process when it all comes together and you finally own the home as Closing. An understanding of the elements of and players in the closing, as well as a concise preparation for it, will eliminate many nervous hours as the day approaches.

It is time for "signing on the dotted line:" the process of which will put the title to the house in your name, verify homeowners' insurance on the property, commit in writing to the terms of the mortgage, and usually, put the keys to the house in your hands. In general, you will leave the closing and go to your new home as a homeowner. The weeks and months of anticipation are all settled in the short amount of time that you spend at the closing.

Closing procedures will vary from locality to locality. In some areas, the buyers and sellers (as well as their Real Estate Agents) will all attend the closing. In other areas, only the buyers will be present. The closing will take place at the office of an Attorney, a Title Company, or an Escrow Company (again, there is some variance here based on your local laws and tradition). In general, though, the closing will be attended by all of the buyers involved and their Real Estate Agent, as well as the Closing Agent, who has reviewed all of the components of the house sale and who is the one who will say "sign here" more times than you have ever heard in your life.

Although there may be additional documents involved, the primary items which are dealt with at the Closing are:

The Settlement Statement
The Contract
The Loan Papers
Title Insurance
Homeowners' Insurance
The Title or Deed
The Down Payment and Closing Costs

The Closing is your final opportunity to make certain that everything related to the purchase of your home is correct. It is important, therefore, that you do adequate preparation prior to the day of Closing. Although your Agent will most likely review all of the items needed with you, it is a good idea to have the right information in case you need to handle it on your own.

The following are the most important items that you will need prior to or at closing and some hints regarding them:

A Closing cost estimate: This should first be given to you by your Agent at the time of the contract, and then given to you by the Lender, a Good Faith Estimate, shortly after the application for the loan. This should give you a reasonably close estimate of funds you will need at the time of closing.

Homeowners' Insurance Policy: This must be secured prior to the date of closing.

Settlement Statement: You should have a copy of the Settlement Statement before the date of Closing. Generally this will not be available until one or two days prior to the actual Closing, but it is important to have it because it gives you the total amount of cash you will need at Closing and also how those various funds will be dispersed. In addition, it gives you an opportunity to iron out any discrepancies prior to sitting down at the Closing table. Your Agent should also have a copy for review.

Certified Funds: On the day of Closing you will need certified funds for closing costs and down payments. This is an important reason for needing a copy of the Settlement Statement a day or two in advance--so you know the amount of funds needed and so that any problems can be handled in advance.

By making adequate preparations in advance, you will be far less likely to have nasty surprises when everyone (especially you!) is ready for closing.

Bankrate.com
10 biggest home-buying mistakes
Thursday March 3, 6:00 am ET
Pat Curry

David Weekley, CEO of Houston-based David Weekley Homes, is one of the country's largest home builders and also the author of a new book, How to Buy a Home Without Getting Hammered.

Based on 25 years of home-building experience for 30,000 people, Weekley offers these 10 biggest mistakes in home buying:

Not doing your homework. Knowledge is power. Tremendous information is available on the Internet. There is no excuse for entering the market unprepared.

Trying to make a shrewd investment. People need to buy based on what fits their family. Don't try to guess what will happen to the market.

Choosing a poor location. Even within a neighborhood, location matters. Is it on the busiest street? Is there a shopping center out the back window?

Overlooking an inferior floor plan for an attractive exterior. It may have gorgeous curb appeal, but you don't live on the lawn. No matter how attractive the exterior, you need a livable home.

Overlooking how the house will function for your family. How do you really live? Do you really need a formal dining room and living room? Would you be happier with an eat-in kitchen and a great room and a den to use as a home office? The house only needs to fit one family -- yours.

Not having the home properly inspected in a resale. This is not the time for surprises. Get an inspection from a qualified, respected professional.

Not checking out the builder's reputation on a new home. Talk to three or four people who live in the builder's homes and see what they have to say. If one builder did all the houses in a neighborhood, talk to the residents and get their input. (It's also a great way to see what your neighbors would be like.)

Not getting what you want because you're impatient. This is a big decision. You need time. Impatient decisions can lead to mistakes.

Waiting for a better market and interest rates. Warren Buffett says the rear view mirror is always clearer than the windshield.

Not buying at all. If you can afford a home and you don't make that purchase, you'll lose the benefit of tax deductions, building home equity and the appreciation in value.

Adjustable Rate--An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

Amortization--A repayment method in which the amount you borrow is repaid gradually though regular monthly payments of principal and interest. During the first few years, most of each payment is applied toward the interest owed. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.

Annual Membership--An amount that may be charged annually for having a line of credit available. Often charged regardless of whether or not you use the line. Also referred to as a "participation fee."

Annual Percentage Rate (APR)--The cost of credit on a yearly basis, expressed as a percentage. Required to be disclosed by the lender under the federal Truth in Lending Act, Regulation Z. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Does not include title insurance, appraisal, and credit report.

Application--An initial statement of personal and financial information which is required to approve your loan.

Application Fee--Fees that are paid upon application. An application fee may frequently include charges for property appraisal ($200-$400) and a credit report ($30-50).

Appraisal--A fee charged by an appraiser to render an opinion of market value as of a specific date. Required by most lenders to obtain a loan.

Assumption of Mortgage--The agreement of a purchaser to become primarily liable for the payments on a mortgage loan. Unless otherwise specified by the lender, the seller may remain secondarily liable for payments.

Balloon Payment--A lump sum payment for the unpaid balance of the loan.

Cap--The maximum allowable increase, for either payment or interest rate, for a specified amount of time on an adjustable rate mortgage.

Cash Out--Receiving money back when refinancing your present mortgage.

Ceiling--The maximum allowable interest rate over the life of the loan of an adjustable rate mortgage.

Closing Costs--Any fees paid by the borrowers or sellers during the closing of the mortgage loan. This normally includes an origination fee, discount points, attorney's fees, title insurance, survey, and any items which must be prepaid, such as taxes and insurance escrow payments.

Conforming Loan--Generally, a mortgage loan under $203,150. Qualifying ratios and underwriting methods are standardized to a large degree.

Contract of Sale--The agreement between the buyer and seller on the purchase price, terms, and conditions necessary to both parties to convey the title to the buyer.

Credit Limit--The maximum amount that you can borrow under a home equity plan.

Debt Service--The total amount of credit card, auto, mortgage or other debt upon which you must pay.

Deed of Trust--Used in many western states, the agreement used to pledge your home or other real estate as security for a loan. Similar to a mortgage.

Discount Points (or Points)--The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Down Payment--The difference between the purchase price and that portion of the purchase price being financed. Most lenders require the down payment to be paid from the buyer's own funds. Gifts from related parties are sometimes acceptable, and must be disclosed to the lender.

Due on Sale--A clause in a mortgage agreement providing that, if the mortgagor (the borrower) sells, transfers, or, in some instances, encumbers the property, the mortgagee (the lender) has the right to demand the outstanding balance in full.

Effective Interest Rate--The cost of credit on a yearly basis expressed as a percentage. Includes up-front costs paid to obtain the loan, and is, therefore, usually a higher amount than the interest rate stipulated in the mortgage note. Useful in comparing loan programs with different rates and points.

Encumbrance--A claim against a property by another party which usually affects the ability to transfer ownership of the property.

Equity--The difference between the fair market value (appraised value) of your home and your outstanding mortgage balance.

First Mortgage--A mortgage which is in first lien position, taking priority over all other liens (which are financial encumbrances).

Fixed Rate--An interest rate which is fixed for the term of the loan. Payments as well are fixed at one amount.

FHA Loan--More appropriately termed "FHA Insured Loan." A loan for which the Federal Housing Administration insures the lender against losses the lender may incur due to your default.

Good Faith Estimate--A written estimate of closing costs which a lender must provide you within three days of submitting an application.

Grace Period--A period of time during which a loan payment may be paid after its due date but not incur a late penalty. Such late payments may be reported on your credit report.

Gross Income--For qualifying purposes, the income of the borrower before taxes or expenses are deducted.

Home Equity Line of Credit--A loan providing you with the ability to borrow funds at the time and in the amount you choose, up to a maximum credit limit for which you have qualified. Repayment is secured by the equity in your home. Simple interest (interest-only payments on the outstanding balance) is usually tax-deductible. Often used for home improvements, major purchases or expenses, and debt consolidation.

Home Equity Loan--A fixed or adjustable rate loan obtained for a variety of purposes, secured by the equity in your home. Interest paid is usually tax -deductible. Often used for home improvement or freeing of equity for investment in other real estate or investment. Recommended by many to replace or substitute for consumer loans whose interest is not tax-deductible, such as auto or boat loans, credit card debt, medical debt, and education loans.

Hazard Insurance--A contract between purchaser and an insurer, to compensate the insured for loss of property due to hazards (fire, hail damage, etc.), for a premium.

HUD I Settlement Statement--A form utilized at loan closing to itemize the costs associated with purchasing the home. Used universally by mandate of HUD, the Department of Housing and Urban Development.

Index--A number, usually a percentage, upon which future interest rates for adjustable rate mortgages are based. Common indexes include the Cost of Funds for the Eleventh Federal District of banks or the average rate of a one year Government Treasury Security.

Interest Rate--The periodic charge, expressed as a percentage, for use of credit.

Jumbo Loan--Mortgage loans over $203,150. Terms and underwriting requirements may vary from conforming loans.

Loan to Value Ratio (LTV)--A ratio determined by dividing the sales price or appraised value into the loan amount, expressed as a percentage. For example, with a sales price of $100,000 and a mortgage loan of $80,000, your loan to value ratio would be 80%. Loans with an LTV over 80% may require Private Mortgage Insurance, defined below.

Lock or Lock In--A commitment you obtain from a lender assuring you a particular interest rate or feature for a definite time period. Provides protection should interest rates rise between the time you apply for a loan, acquire loan approval, and, subsequently, close the loan and receive the funds you have borrowed.

Margin--An amount, usually a percentage, which is added to the index to determine the interest rate for adjustable rate mortgages.

Minimum Payment--The minimum amount that you must pay, usually monthly, on a home equity loan or line of credit. In some plans, the minimum payment may be "interest only," (simple interest). In other plans, the minimum payment may include principal and interest (amortized).

Mortgage Banker--Originates mortgage loans, loaning you their funds and closing the loan in their name.

Mortgage Broker--As do mortgage bankers, takes loan application and processes the necessary paperwork. Unlike a mortgage banker, brokers do not fund the loan with their own money, but work on behalf of several investors, such as mortgage bankers, S and L's, banks, or investment bankers.

Mortgage Insurance (MIP or PMI)--Insurance purchased by the borrower to insure the lender or the government against loss should you default. MIP, or Mortgage Insurance Premium, is paid on government-insured loans (FHA or VA loans) regardless of your LTV (loan-to-value). Should you pay off a government-insured loan in advance of maturity, you may be entitled to a small refund of MIP. PMI, or Private Mortgage Insurance, is paid on those loans which are not government-insured and whose LTV is greater than 80%. When you have accumulated 20% of your home's value as equity, your lender may waive PMI at your request. Please note that such insurance does not constitute a form of life insurance which pays off the loan in case of death.

Mortgage Loan--A loan which utilizes real estate as security or collateral to provide for repayment should you default on the terms of your loan. The mortgage or Deed of Trust is your agreement to pledge your home or other real estate as security.

Mortgagee--The lender in a mortgage loan transaction.

Mortgagor--The borrower in a mortgage loan transaction.

Negative Amortization--Amortization in which the payment made is insufficient to fund complete repayment of the loan at its termination. Usually occurs when the increase in the monthly payment is limited by a ceiling. The portion of the payment which should be paid is added to the remaining balance owed. The balance owed may increase, rather than decrease over the life of the loan.

PITI--Principal, interest, taxes and insurance, which comprise your monthly mortgage payment.

Points--The amount paid either to maintain or lower the interest rate charged. Each point is equal to one percent (1%) of the loan amount (i.e., two points on a $100,000 mortgage would equal $2,000).

Prepayment Penalty--A fee paid to the lending institution for paying a loan prior to the scheduled maturity date.

Qualifying Ratios--Comparisons of a borrower's debts and gross monthly income.

Right to Rescission--The legal right to void or cancel your mortgage contract in such a way as to treat the contract as if it never existed. Right of rescission is not applicable to mortgages made to purchase a home, but may be applicable to other mortgages, such as home equity loans.

Security Interest--An interest that a lender takes in the borrower's property to assure repayment of a debt.

Servicing a Loan--The ongoing process of collecting your monthly mortgage payment, including accounting for and payment of your yearly tax and/or homeowners insurance bills.

Title--The written evidence that proves the right of ownership of a specific piece of property.

Title Insurance--Protection for lenders or homeowners against financial loss resulting from legal defects in the title.

Transaction Fee--A fee which may be charged each time you draw on a home equity credit line.

Underwriting--The process of verifying data and approving a loan.

Variable Rate--An interest rate that changes periodically in relation to an index. Payments may increase or decrease accordingly.

VA Loan--More appropriately termed "VA Insured Loan." A loan for which the Veteran's Administration insures the lender against losses the lender may incur due to your default. Available only to veterans possessing a Certificate of Eligibility

This information provided to assist and educate you in the home buying process, you should contact professionals in each area of the process before you buy or purchase a home. Email us your comments or concerns at willisdacrooner@sbcglobal.net

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