HOME BUYING BASICS

By Glenwood Johnson Jr. Do you want to buy a home but are undecided whether to finance it via a bank or through your best friend’s uncle, a broker who says he can guarantee you the best rate? Do terms and acronyms such as GFE, TIL, ARM, points, or escrow confuse you? Do you know how much you can afford for your payment without stretching your budget too thin? Are you in the process of buying and are stressed out because of the seemingly endless documentation and investigation into your finances? For many the purchase of a home represents the largest single purchase that one may make during their lifetimes. It also is one of the most complicated and detailed. For the first time homebuyer the journey into the previously “unknown” can be intimidating. Regardless of whether you are a first time homebuyer, or a seasoned buyer of investment properties, numerous individuals and companies are involved with helping you. Some individuals and companies work on behalf of the BORROWER, such as a realtor or a mortgage broker. Other entities represent the FINANCIAL interests, such a lender, mortgage bank, or an escrow company. Lastly, the LEGAL interests may be handled partially by an escrow company, a title company, or sometimes title and escrow may be one company. Are you confused and stressed even more?? Fear not; some basic knowledge of how these seemingly different pieces work together can help. First, you should decide not only what kind of home you want, but also its affordability. The real estate agent, sometimes called a listing agent, will help you to choose a house and will eventually draw up a contract between you and the seller. This is also called a purchase and sale agreement. They still need to know how much you can afford and for this, a mortgage broker can help you. The broker will collect a snapshot of information about your finances and will provide you an estimate of the associated costs in a form called a Good Faith Estimate or GFE. Items such as points, inspection fees, settlement or closing costs will be included and this must be provided to you within 3 days of initial application. Once your snapshot is complete the broker seeks a lender whose programs, products, and rates will best fit you. If you are using the services of a retail bank they may perform both functions. If you have a broker working for you they may select a company whose purpose is to originate, or to lend money. Either way the lender will look at your snapshot in much more detail. Before lenders lend they will ensure that the collateral (property) is in suitable condition. They will ensure that the borrower can repay the loan by verifying the income documentation provided. They will use credit scores to determine the borrower’s willingness to repay previous and current debt obligations. Normally you will not have direct contact with the lender; your broker represents you. Once a final approval is issued to your broker it’s time for closing, or settlement. This is where it all comes together. Terms and conditions of the transaction outlined in the contract and by the lender instructions are handled by escrow. You, the borrower, will sign all pertinent loan documents, deeds transferring ownership, and all other terms and conditions executed. Before you can move in funds for the transaction must be transferred to escrow, and the deed must be recorded within your county jurisdiction. Title companies perform this function. Washington State is one of a handful of states where the signing of documents and the transfer of funds are two separate events. Finally, all information has been verified and the money is with escrow. Ownership has been legally transferred and the keys are now in your hands! You are ready to move in! It’s that simple, but as with many things in life there can be many bumps on a seemingly smooth road. Being prepared with a little knowledge of who what, where, when, and how, can turn the road towards home ownership from a pothole-scarred battleground to a smooth highway with clearly marked turns and exits. Enjoy the ride!!Glenwood Johnson Jr., is a member of Pacific Northwest Bankers Association, and an Account Manager for a California based, leading mortgage lender. The views and opinions expressed in this article are not endorsements of, nor are attempts to promote products or policies. His phone is (800) 623-5626 x3412. His can be reached via email at gljohnson@ncen.com.