Home Loan Center

Steps to Buying a Home

• Getting Started - Tips to help you enter the real estate market with confidence
• Calculating What You Need - How much cash do you need to buy a home & how to invest for the down payment
• Finding a Home - Helpful ideas to help you find the home of your dreams
• Making an Offer - Process of making an offer & negotiating a deal
• Finding a Loan - Learn about the loan option available & which ones fit your specific needs
• Final Steps - Learn about insurance, the closing process, & what to do after your loan closing.

Final Steps

• The Closing
• Home Insurance
• Ways to Save on Home Insurance
• Title Insurance
• Managing Your Finances
• Building Your Equity

Legal or Professional Advice
Closing costs and practices vary depending on your location, the type of property you're buying (house, condo or co-op), and individual circumstances. In some states, the entire closing process is transacted by a neutral third party, usually an escrow company, who is mutually chosen by the buyer and seller. In others, title companies customarily oversee the process. In the remainder, attorneys are engaged.

Understanding the Closing Process
As soon as you receive your Mortgage Commitment Letter (the final written approval after appraisal requirements have been met detailing mortgage terms and fees, tax and insurance information and closing requirements) from Northwoods Bank, you are ready to embark on the final path to home ownership. The easiest way to understand what is often viewed as a complicated process is to become familiar with.

Home insurance provides many benefits, including:

• Protection should your home become damaged from fire, wind or other disasters
• Cash to pay off your mortgage and/or rebuild your home if it is destroyed
• Protection for the contents of your home, like furniture, appliances and clothing
• Personal liability coverage — for example, if someone slips on your stairs and is injured

Home insurance coverage can be designed for your specific needs. Many people consider the following questions when determining which types and amounts of coverage would be helpful:

• How much would it cost to rebuild my home at today’s prices?
• What would it cost to replace the personal property and contents of my home?
• What kind of protection do I need against liability claims?
• Do I need additional insurance to cover valuable items like jewelry, art, silverware or computer systems?

The premium — the amount you pay for your insurance coverage — varies from insurer to insurer. No single insurance company can provide quality coverage at the best value for all customers.

Did you know that you might qualify for a discount on your insurance premiums if your home is equipped with security devices such as burglar alarms, fire alarms or other home safety features?

As you begin the exciting move into your new home, it’s a good idea to take photographs of your possessions — or even videotape them — in the event of damage or loss. Keep these photos/videos in a secure place, like a safety deposit box.

Insurance policies are obligations of the issuing insurance company, are not obligations or deposits of or guaranteed by any bank and are not FDIC insured.

• Improve your home’s safety by installing security systems and smoke detectors.
• Increase the deductible — which is the amount of money you pay toward a loss before the payment provisions of your policy begin.
• Upgrade out-of-date electrical, plumbing, and heating systems.

Your insurance should accurately reflect your home’s current value, condition and improvements. Check your policy annually and review your specific coverage so you’ll be able to make the necessary adjustments to fully protect your home.

Insurance policies are obligations of the issuing insurance company, are not obligations or deposits of or guaranteed by any bank and are not FDIC insured.

TYPES OF TITLE INSURANCE POLICIES

Owner's policy

• Insures property owners and, potentially, their heirs against losing equity caused by title problems.
• Is not required in a real estate transaction, but definitely is recommended for your protection.

Lender's policy

• Is required by most lenders for both purchase and refinance transactions.
• Insures the mortgage lenders against loss due to title defects, up to the amount of their loan.

What does an owners title insurance policy do?

• Insures that the seller has legal and marketable title to the property being sold.
• Protects the title as long as you own the property.
• It minimizes risk and protects your title from past matters of public record.
• May protect against certain losses a title search couldn't reveal.

Cost of title insurance

• Fees vary from state to state and are usually regulated by the state insurance commission.
• Owners pay a premium based on the purchase price of the property.
• Lender's policy also involves a one-time fee, based on the total amount of the loan.
• For refinance loans, ask whether there is a reduced premium for insuring the same home.

Who pays?

• Local custom generally dictates who ultimately pays for the owner or lender title insurance.
• However, it is a negotiable item between the buyer and seller.

Pay the Mortgage

• Your mortgage payment may well be your largest monthly obligation. It should be paid on time every month to avoid any credit complications.
• Establishing a good payment history is an essential element to your overall credit worthiness and can effect future borrowing opportunities.

Establish a Budget and Bill Payment Schedule

• Create a schedule with the payment dates for your mortgage and other bills. Consider Northwoods Online Banking as a way to automatically pay bills and keep control over your finances.

Set Aside Funds for Taxes and Insurance

• If your loan was established without an escrow account, you will need to set aside the necessary funds, from time to time, to pay your property taxes and home insurance premiums.

Maintain Good Records

• One of the many benefits of home ownership involves the tax deductions that are related to owning and financing a home. Having a good record-keeping system in place will help a great deal when tax time rolls around. Consult your tax advisor.
• Keep a file of all closing documents, monthly and annual mortgage statements, and any other home-related items, such as property tax statements, home insurance policies and warranties.
• If you have any work done on your home, keep track of these records (contracts, receipts, etc.), as they may be used to support tax deductions for capital improvements to your home.
  Set a Savings Goal
• While it may seem hard to squeeze additional funds out of your budget once you become a homeowner, it is important to maintain the discipline that led you to home ownership. Try setting aside a comfortable amount each month to cover emergency expenses such as home maintenance and repairs, and long-term financial goals, such as home improvements or college tuition.

As a new homeowner you may begin building equity in the following ways.

• Taking advantage of appreciation. When the real estate market is strong, home values rise due to higher housing demand.
• Increasing the value of your home. You can accomplish this by making certain home improvements, such as adding additional rooms, or by updating an older home.
• Paying down the mortgage on your home so there is less owed on the property.

The amount of principal you pay is small in the early years of a mortgage. Homeowners who wish to increase their equity may choose to pay more than their required monthly mortgage payment. The additional payment amount is applied as a principal payment to reduce your outstanding mortgage balance.

Some homeowners believe that because they've just bought a home, they have no equity — but keep in mind that whatever amount you paid as a down payment represents equity in your home. If you live in an area experiencing appreciation, you may find that your equity is already building. Northwoods Bank of Minnesota offers home equity loans that allow you to access up to 100% of your equity. One of our home equity experts will be glad to discuss available options or products with you.

New homeowners have varying cash needs. They might like to buy new furniture, install new landscaping or make home improvements. Lenders offer a variety of loan products that allow you to tap the equity in your home — you can use the cash however you wish, and the interest you pay may be tax-deductible.¹

¹ Consult your tax advisor for complete details.