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.

Making an Offer
Having a pre-approved mortgage lets you shop with confidence, defines you as a serious buyer to sellers and real estate agents, and accelerates the mortgage process.

• Getting Pre-Approved
• Negotiating the Deal
• What Lenders Look For
• Inspections

What are the advantages of being pre-approved?

• Not only will real estate agents perceive you as a serious homebuyer, but sellers are much more apt to accept offers from pre-approved buyers.
• Gives you an advantage over other buyers whose financing may be rather questionable.
• Makes the final mortgage process go more quickly and easily, since much of the work has already been done.

To begin the approval process, you will need to make a few assumptions:

• Purchase price of the property
• The amount of your loan and down payment
• Types of loans you’d like

It’s a good idea to get approved for the maximum amount that you can qualify for, so that you’re prepared. Keep in mind that you are not locked into these assumptions. Usually you are able to buy a lower priced home, lower your loan amount, or switch to another loan type. The beauty of having a pre-approval is the flexibility it provides for you and the ability to enter the real estate market with confidence.

Once you’ve located the home you’d like and have signed a contract with a seller, the pre-approval means that you should be able to close quickly and easily since much of the process has already been completed. It’s a smart move for serious homebuyers.

All negotiations should be handled in writing, not verbally — or, if verbal, followed in writing. This ensures that there is a clear understanding between the parties. Oral negotiations are usually not enforceable by law.

Have your pre-approval from your lender to give you maximum leverage. Northwoods Bank offers free pre-approvals. Sellers prefer offers from buyers who already have a lender’s financing commitment.

Be prepared to submit an earnest money deposit (also called a “good faith” deposit) to show your commitment to the transaction. This amount varies depending on the local real estate market. This money will go into an escrow account either as part of an executed purchase and sale agreement or while the other items of the contract are being completed. Even if you are using a real estate agent, it’s a smart idea to hire a knowledgeable real estate attorney to help you with this process.

The real estate purchase agreement will cover a number of topics, including:

• The sales price you’d like to pay, based on your assessment of the home’s value.
• The conditions, which are items that allow you an “out” in the event they are not met. If the property inspection, termite inspection or appraisal requirements are not satisfied, for example, you have the option of backing out, or of renegotiating with the seller using this new information.
• The timeframe for closing the transaction.

In a hot real estate market it’s common to see multiple offers, so you’ll want to make yours as competitive as appropriate. In addition to providing your pre-approval and offering a reasonable price, be prepared to be flexible in terms of what the seller requires. For example, if you would like to close in 60 days, but the seller wants to close in 30 days, you may agree to the faster closing date if that will clinch the deal.

The matter of who will pay buyer’s and seller’s closing costs, as well as the various recordation and transfer taxes, is almost always negotiated — although there are frequently traditional ways of splitting these costs, depending on your locality. In a competitive real estate market, you as the buyer may end up paying all of these costs in order to make your offer the most attractive. If the market is slow, you have more leverage to split these costs, or possibly to have the seller pay them for you.

1. Income Stability
   Any income that can be verified and has a 2-year history such as investment interest, commissions, royalties, social security, disability and alimony payments, in addition to your salary, counts to your advantage.
2. Debt-To-Income Ratio
   Lenders prefer that the proportion of your combined debt and housing expense be no more than 36% (28% for housing and 8% for debt) of your monthly pre-tax income.
   Housing expenses usually consist of principal, interest, taxes and insurance (PITI), but can also include maintenance.
   Other debt includes credit card balances, installment loans and anything else you might owe.
   Our monthly payment calculator can help you determine your monthly housing expense. If your individual situation is different from the standard ratios outlined above, don't despair! Northwoods Bank has programs that accommodate many financial situations.
3. Loan to Value (LTV)
   Loan to value (LTV) is the ratio of your loan amount to the value of your property. This ratio tells a lender how much equity you will have in your home. The higher your equity and the lower your LTV, the larger your stake in the investment and the less risk there is for the lender. A LTV of 80%, for example, means that you are putting 20% down and borrowing 80% of the property's value. Borrowers with less than 20% equity are generally required to buy Private Mortgage Insurance (PMI) which protects the lender in case of a loan default. Loan-to-value guidelines are determined by the borrower's circumstances and the type of loan.
4. Property Appraisal
   This is a professional assessment of your property by a licensed appraiser to make sure that its market value is sufficient for the loan amount. A lender needs to know that the borrower's collateral (property and down payment) will cover the loan amount in case of default.
5. Credit History
   Naturally a lender wants to know your payment habits before giving you a large sum of money. It's a good idea to check your credit report before you begin the process in order to correct any errors or to improve your creditworthiness. Knowing your credit score and how it is calculated is another way of building your credit confidence when applying for a home mortgage loan.

Know Your Score.

Professional Home Inspection (optional)
Before closing the deal on a home, you should give serious consideration to including professional home inspections. Consult with a real estate professional or an attorney about how to do this in your offer to buy the home. Home inspections may detect any previously unknown problems. Such inspections may also let you know:

• The condition of the property, as well as the need for any large-scale repairs.
• Both the positive aspects of the home and any large-scale maintenance that may be recommended.

It’s a good idea to accompany the home inspectors during the inspections. Afterward, you’ll have a much better understanding of the condition of the property and an estimate of the costs of suggested or recommended repairs.

To find qualified home inspectors, ask your real estate agent for a referral, or look for those who are members of the American Society of Home Inspectors (ASHI).

Termite/pest inspection (sometimes required by your lender)
A termite inspection, also referred to as a structural pest control report, will determine whether the house has any termite or pest infestation as well as dry rot. The report will also indicate any existing conditions that may lead to future infestation or dry rot, such as a plumbing leak or dirt that is in direct contact with wood.

Radon testing
According to the Environmental Protection Agency (EPA), radon is an odorless, colorless radioactive gas that has been shown to cause lung cancer in humans. It is sometimes found in the basement of homes entering through fissures and can be present in the upper floors as well.

• While most houses in this country are not likely to have a radon problem, radon testing can be performed by a professional using special equipment that evaluates the air in a home.
• There are professional companies that inspect homes for the presence of radon.

Environmental inspections
Because environmental hazards such as asbestos and chemical contamination are impossible to detect with the naked eye, specialized environmental companies can test for:

• Lead-based paint
• Asbestos
• Chemical contamination
• Other environmental health hazards

Other Specialty Inspections
Depending on the location and condition of the subject property, you may want to, or be required to, obtain other inspections, including structural, plumbing, roof, electrical, and site and soil.

Finding a Loan