From Tenant to Home Owner-1

The Home Buyer’s Guide/Washington Metropolitan

published by

The Home Buyer’s Guide

Table of Contents

Warning__________________________________________________________ 2

1. Should one remain a Tenant or buy a home?________________________________ 31.1. Renting: Advantages and Disadvantages 31.2. Buying: Advantages and Disadvantages 3

2. If I decide to buy, how do I go about it?_______________________________ 42.1. Be ready 42.2. Choose your Real Estate Agent (Realtor®) 4

2.2.1. Can I carry out the transaction myself without a Realtor®? 2.2.2. What will be therefore, the role of the Realtor®?2.2.3. How do I choose my Realtor®?

2.3. Choose your Loan Officer (L.O.) 52.4. Pre-qualification: What do we understand by that? 6

2.4.1. What documents do I have to tender in for my pre-qualification?2.4.2. These are my personal informations.Will they be secured? 2.4.3. Once pre-qualified, what are the documents I have to receive from the Agent?2.4.4. At what time do I know the definite figures?2.4.5. Can the definite figures differ from estimated figures?2.4.6. If I’m qualified what other information do I need to know?

2.5. As concern the Credit Score (C.S.) 72.6 Choose the type of house you want to buy 82.7. House Hunting time 82.8. Purchase offer 82.9. Inspection 8

2.9.1. Contingence2.9.2. As it is condition

2.10. Insurance 92.11. Loan Approved 92.12. The walkthrough 92.13. Closing the transaction 10

3. Before you move to your new house 104. After you have moved to your new house 105. As Concern… 10

5.1. Down Payment (DP) 105.2. Deposit (or Earnest money Deposit) 115.3. Closing Cost 11

6. Closing Statement 11

References:_______________________________________________________ 12

______________________________________________________________________________________ inepos® Collection; © 2008

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Warning

The information contained in this brochure has been collected from sources of faith. It is solely prepared in this case to inform and educate the consumer on the general plan. This document should not be considered a judicial reference. The reader is therefore advised to seek the help of lawyer specialized in real estate for more details.

All rights reserved. The text of this publication, or any part thereof, may not be reproduced in any manner whatsoever except as permitted under Section 107 or 108 of the 1976 United State Copyright Act, without written permission from the author.

Copyright 2008 by Charles NgansopTranslated from French


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1. Should one remain a Tenant or buy a home?

The answer to this question can differ from according to the various cases.

1.1. Renting: Advantages and Disadvantages

a)Advantages of renting Affordable prices, No maintenance fees, Cheaper for a short term lodging

b) The disadvantages of renting- Obligations and exigencies of the landlord

(For example, you can’t effect any modification in your apartment without his permission),

- You’re exposed to the worries and humbugs of the neighbors,

- Limited space,- Limited time (Length of time as Tenant

limited by the landlord),- You are limited by the humours of the

landlord who can increase the rent anytime,- No tax benefit,- Costly at the long run

1.2. Buying: Advantages and disadvantages

a) The advantages of being a home owner The prestige of proprietorship, Tax benefit, You enjoy more space and freedom, You can modify your house to your taste, More privacy in your life,

Saving: in the course of time, your house will become valuable as such as constituting a real capital saving,

You have the possibility of having access to new credit lines, It proves your stability in the eyes of the local collectivity.

b) The disadvantages of being a home owner- The need for big amount of capital,- The cost of maintenance is high.


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2. If I decide to buy, how do I go about it?

2.1. Be ready

These are some ideas to help you to better prepare yourself:1. Put in place a family budget. Its importance cannot be over emphasized. This

helps you to better control your expenses;2. Reduce your debt. Investors are very particular about your depts which, in a

general way, should not exceed 36% of your monthly income;3. Warning! Reducing your dept does not mean closing out your credit cards

account which you already have;4. Increase your income; look for a part time job. This will increase your chance of

being qualified for a loan;5. Save some money: Buying a house without having some money in saving

account is a real adventure. Indeed, investors insist on seeing your economies which must be, at least, equal to three monthly payments of your future mortgage;

6. Do not quit your job. But if you’re forced to do so, be sure that you remain in the same professional field;

7. Establish a detailed line of credit. Get some credit cards if you do not have any yet. After using them, make sure you pay back on time;

8. If you’re in an apartment, respect the payments due dates of your rents. Do the same for others bills such as telephone, car insurance, car payments etc;

9. Get a detail account of your score credit; you can obtain it freely from one of the offices indicated in paragraph B.5.

2.2. Choose your Real Estate Agent (Realtor®)

His job is to represent you all through the buying process. This procedure is very complex. Without being a jurist, he defends your interest throughout the transaction. You’re related by an agreement of faithfulness and loyalty towards each other. This agreement will be served to you for signature at the first meeting or before visiting the houses. It’s advisable to tell him the truth on your finances, in order for him to better preserve your interests.The Realtor® is rewarded by the seller, through is company once the transaction is accomplished. But in certain cases, he can insist on having money for transport to move about showing the houses.

2.2.1. Can I carry out the transaction myself without a Realtor®?

Sure. You can carry out the transaction without the assistance of a Realtor®, if you have the necessessary competence. You don't need a license to carry out your own transaction.


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The Home Buyer’s Guide 2.2.2. What will be therefore, the role of the Realtor®?

Like in all professions, the real estate industry has its own peculiarities which are not always evident to the outsider. A real estate transaction needs a lot of patience and endurance, the enemy of time. Many documents to consult and sign, add to the complexity of a transaction.

The presence of an expert beside you will be more than beneficial. Sure, your house constitutes, without doubt, one of the greatest investment of your life. Why take the risk to venture in a domain as complex as this without the help of a guide? And, best of all, this is a free service for you.

2.2.3. How do I choose my Realtor®?

The following qualities to govern your choice of Realtor®: Availability: A good Realtor® has to be available. Generally, those who

work part-time will give you appointments they will hardly honor because they are occupied by their first job.

Experience: If he is in the job for less than a year, there are high chances of him not mastering all the rules of the transaction. You risk to be abandon as well as to waste your time and money when the transaction becomes complicated.

Fame, Honesty, Aggressiveness in work etc. A good Realtor® makes himself known in his community by the quality of his work. Inform yourself from those who have had his service in the past. Avoid the trap on the internet where you risk falling in the hands of unscrupulous agents.

2.3. Choose your Loan Officer (L.O.)

It is generally advisable for you to seek the opinion of your Realtor® who can help you in finding one. The Loan Officer controls all the financial aspect of the transaction starting with your pre-qualification.


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2.4. Pre-qualification: What do we understand by that?

You are pre-qualified in the process of purchasing a house when you fulfill certain preliminary conditions, established by Lenders. Among these criteria, one can quote:

Your Credit score; Your annual income; Your debts; Your activities (at least two years in the same line of work);

Your place of residence (at least two years in the same residence); Your asset (at least the equivalent of three months of your monthly

payment of your future house).

2.4.1. What documents do I have to tender in for my pre-qualification?

The documents to be tender vary depending on the Lenders. But following a general rule, you have to produce:

1. Your social security card2. The prove of your status in the USA (If you’re illegal alien, you cannot be

qualified for such loan. But somebody can be a guarantor for)3. The prove of your incomes: the W-2 form for the last 2 years if you’re an

employee or the Profit and Lost Statement plus the last 2 years tax return, if your are a Self employee;

4. Two resents pay slips for the employee;5. The last three months bank statement;6. The prove of your residence during the past two years;

This list is far from being exhausted.

2.4.2. These are my personal informations.Will they be secured?

In general, there is no guarantee that your informations shall be in security. But the Agents are supposed to respect the confidential of all the personal information that you give them.

2.4.3. Once pre-qualified, what are the documents I have to receive from the Agent?

Agent has to give you at least two documents: 1) your letter of pre-qualification and 2) the transcript of estimates of your expenses that you will have to engage in the transaction. It is called “Good Faith Estimate” (GFE).If you don’t understand anything in this sheet, you have to at least retain three things: a) your interest rate, b) your monthly payment and c) closing fees for the transaction, commonly known as “closing cost”.

It is a duty of the loan officer to give you these documents.


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The Home Buyer’s Guide 2.4.4. At what time do I know the definite figures?

Just before the closing of the transaction, generally 24 hours before the closure. These figures are contain in a form call HUD-1, given to you by the Title company in charge to close the transaction.

2.4.5. Can the definite figures differ from estimated figures?Yes. More or less, from a hundred to a thousand dollars at the most. It is for

that reason you should always have you check booklet with you on the day of the settlement, to “round up the angles”

2.4.6. If I’m qualified what other information do I need to know?These are some questions you will ask your L.O.

1. What are the different types of popular real estate loan that you offer?2. What type of loan will be convenient for me and why?3. Are your interest rates, closing cost and miscellaneous negotiable?4. Is mortgage insurance, commonly called PMI obligatory? If Yes, what will

be the amount?5. Do not mistake it with hazard insurance obligatory. The Premium

Mortgage Insurance is generally insisted upon by investors if the borrowers personal contributions less than 20% of the total of amount of the loan;

6. But as soon as your house accumulates a certain value, this insurance can be cancelled at the discretion of the investor;

7. For how long will you lock up my interest rates?8. How many points will you charge me? How much time do you need to

close this transaction?9. Will there be an escrow account along with my mortgage? An Escrow

account is an account in which part of your monthly payment is deposited for the benefit of taxes and hazard insurance.

10.Does my loan has a pre-payment penalty provision?

2.5. As concern the Credit Score (C.S.)

The Credit Score is a numerical evaluation, a detail account of your credit history. It is used by investors to measure the degree of risk of every borrower. This variable is calculated by complex mathematical formula which take into account, among others:, your debt, your payment history, the length of your credit history etc.The Credit score varies generally between 300 and 850.The more it is high, the more it is good. Generally, any score less than 400 is said to be bad. Every score more than 700 is said to be good. In USA exist many credit bureau. The best known are:Equifax (www.equifax.com) Po Box 740341, Atlanta, GA 30074Experian (www.experian.com) Po Box 2002,Allen ,TX, 75013Transunion (www.transunion.com) Po Box 1000, Chester, PA 19022.


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http://www.transunion.com/

http://www.experian.com/

http://www.equifax.com/


2.6. Choose the type of house you want to buy

Discuss this issue with your Realtor®. Prices vary according to the model, size and location. Single Family (SFH), Town House (TH) and Condominium (CD) are the most common in the Washington Metropolitan area.

2.7. House Hunting time

Select your dream home, get a road map ready and write on it:1. Characteristics of your future house. For example the style of the house, the

number of rooms and toilets, the necessity of a garage and a basement, the material of the floor, etc.

2. Location. Generally, many factors govern these criteria: the nearness to the place of work, children’s school or place of worship, the existence of public transportation and many other factors.

Select your house with your Agent. Examine it in and out. Be sure that this house answers to at least 70% of your expectation. Avoid being guided in your choice by emotions. Be rational. Compare the positive and negative points of each house before you decide. If you do not find it easy to choose, ask the opinion of your Agent. A house might be pleasing to you without being that which is convenient to you. Let a friend accompany you. His opinion can influence your choice. A good or bad choice can make you loose or save money in your transaction.

2.8. Purchase offer

Your Agent will prepare an offer which you are going to sign. The Agent will be in charge and transmit it to the other party. The contract must absolutely have an engagement (Earnest Money Deposit) in the form of a money order or check filled in the name of a neutral party (The Title company). The dollar amount of the Deposit is not determined by the law. In case you desist or a break up of the contract this amount is not refundable.

2.9. Inspection

2.9.1. Contingence

If your offer is accepted, the law obliges you to make the house be inspected within seven days following the acceptance of your offer. With the help of your Agent, recruit a Certified Residential Home Inspector. His role is to establish a “medical“ report of the house you want to buy. He will insist on points such as: plumbing, A/C and heating and the electrical systems, the roof, the foundation, the door, the windows, the kitchen appliances, etc.


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All the faults observed shall be contained in the inspection report. The seller has the obligation to repair all the vital defects like the plumbing, electrical, AC and Heating systems, the roof and the foundation. Minor defects can be repaired or constitute a point of negotiations. If no compromise is arrived at, you can breach the contract and insist on the reimbursement of your deposit.

2.9.2. As it is condition

If the house is sold as it is, the seller is under no obligation to repair any defects as noted by the inspection. All vital installations, however, should be in a good functioning condition

The law recommends the seller to give to the buyer a document that summarizes to his knowledge the state of the house. Your Agent has to play a very important role in the analysis of this document which can contain very unpleasant surprises.

The inspection fees vary from one Home Inspector to another, from one house to another. Be prepared to pay at least $400 for SFH, $350 for a TH and $300 for a CD.

A certified Real estate Appraisal will equally be recruited by the Lender at your expenses to determine the market value of the house you wish to buy (It will cost you no less than $450 for this service). If the report of the evaluation indicates a price inferior to the price offered , the seller has to conform to it so that the lender can accept to finance it. If the report indicates a higher price than that offered, it is to the advantage of the buyer.

2.10. Insurance

You will need to purchase hazard insurance. It is mandatory. The loan can be rejected if this insurance is not bought.

2.11. Loan Approved

You will be informed by your Agent who works in collaboration with the loan officer during all the transaction.

2.12. The walkthrough

Once your loan has been approved, make a short tour of the property with your Agent, preferably one or two days before the close of the transaction. Take down notes for any inadequate remark. Here your Realtor® has to show proof of his professionalism. He has to have on his hands a document to verify point after point and room after room. Everything to be corrected must immediately be reported to the seller through his agent. If no action is taken to remedy, the imperfection observed, the report should be envisaged on the day of the closing.


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2.13. Closing the transaction

The D-day is a great day. Around the table will be: a. The Seller and his Agent b. The Buyer and his Agentc. A Real Estate Attorney. This attorney is chosen by the Buyer,

according to law (Seek the advice of your Realtor® in getting a reliable and an experienced one)

The Attorney will explain to you the pros and cons of the documents to be signed, the related fees, from the beginning to the end of the transaction.You will sign a lot of documents. So, be prepared for lot of paperwork signatures.After all these, you’re done. Get the keys, give hook or shake hands with the other party.

Bravo! You’re now Proprietor. Welcome to the club! Do not forget to organize a HOUSE WARMING PARTY. I’ll be there. See you.

3. Before you move to your new house.

Your Realtor® will direct you how to transfer your utilities subscriptions. Recruit a pest control company to disinfect your house and keep away best such as cockroaches, rats etc.Seek advice from your Realtor for the choice of who offers competitive prices.

4. After you have moved to your new house

Surely, you will receive letters from many marketing and advertising companies. Don’t worry about them. But pay attention to your first bills which will start coming after about 45 days. Your Realtor®, if he is competent, has to assist you from time to time for a follow-up. Do not hesitate to call him if you have a question or concern.

5. As Concern…

5.1. Down Payment (DP)

Literally, DP is a personal endeavor in the process of asking loan. It is generally expressed in term of percentage in relation to the purchase of house. The rate varies from zero to twenty (or more) percent as the case may be. If the house you‘re buying is your first home and not designed for investment, and your Credit Score conforms


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to their standard, many Lenders will not ask you for any personal endeavor. It is the famous “Zero down” heard over radios and TVs in the advert pages.

On the contrary, if you’re buying a house for investment, or if your Credit Score is not conformed to the standard stipulated by the Lenders or lastly, if you belong to the Diplomatic corps then your personal endeavor will be asked.

5.2. …Deposit (or Earnest money Deposit)

It’s a caution fee. A proof of good faith. It assures the Seller of your real intention to buy his house (see paragraph 2.8.). The amount of money is not defined by law. But in practice it varies depending on the price of the sale of the house. It has to be in the form of check or money order, filled under the name of a third party (the title company or your Realtor’s company). This money will go towards the closing cost to the benefit of the Buyer in case the transaction is totally performed. But if the Buyer unilaterally provokes a breach in the contract, he looses this money.

5.3 …Closing Cost

It is fees inducted by the transaction. These fees are made up among things of: Loan application, title insurance, Hazard insurance, Lawyer, taxes, recordation, courier etc. In general these fees are estimated at about 4 to 6% of the price of the house. These fees are imputed on the buyer, but the Seller can assist the Buyer if he desires in the form of subsidies, in the payment of this amount. It all depends on the talent of your Realtor® to be a good negotiator.

6.Closing Remark

If you have questions regarding this Guide or if you want to have a personal consultation as to what concerns the buying and selling a house, contact the professional:

Charles NgansopFairfax Realty Inc.2403 Research Blvd., Suite 101, Rockville ,MD 20850Phone: 301-881-9800 Ext 543Fax: 301-881-2270;Cell 301-437-0163E-mail:[email protected].


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References:

1) Thomas A. Morgan: The Loan Officer’s Practical Guide to Residential Finance: 2007, 19th Printing; Quick Star Pub.

2) The Federal Reserve Board: A Consumer’s Guide to mortgage financing; April 2007

3) Long and Foster companies: The Buyers Guide: 20054) Universal settlements: The guide to home buying5) US Department of housing and Development: Buying your home: Settlement cost

and helpful information, June 19976) Realtor magazine online:www.realtor.org/realtormag.


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Documents

From Tenant to Home Owner-1