Home Buyer's Guide

Buying a home in New Jersey

On this page of this New Jersey Real Estate Web Site. You will find useful information on How Much House Can You Afford, Shopping - What to Look For, Offer to Buy - Negotiating the Purchase, Money - Locating the Right Loan, Protection - Inspecting Your Investment, Closing - The Big Day, Glossary - Words to the Wise.

Home Buyer's Guide

The American Dream of owning your own home is alive and well. Yet many prospective home buyers often wake to the realization that the dream home doesn't always seem affordable.

Times have changed. Prior to the 1980s buyers usually shopped for the best house they could find, then "took out" a loan. Today, prospective buyers must shop as thoroughly for the best financing as they do for the best house. In today's market both tasks are equally important.

We have learned that the buying process involves common stages for all home buyers. To help you understand that process, and make the most of every day and dollar you spend, Bob Latigona has prepared this Home Buyers Guide. It provides an overview of the home buying investment from the planning table to the closing table.

Since this short guide cannot possibly answer all your questions, please contact Bob Latigona with your questions via E-Mail or by phone at 609-876-7689.

CONTENTS

• Planning - How Much House Can You Afford?
• Shopping - What to Look For
• Offer to Buy - Negotiating the Purchase
• Money - Locating the Right Loan
• Protection - Inspecting Your Investment
• Closing - The Big Day
• Glossary - Words to the Wise

PLANNING

How Much House?

Before you begin your search for that "dream home" it's a good idea to do a little planning. Knowing how much house you can afford to buy will bring your house-hunting into focus.

You'll have to consider how much you can afford for monthly payments and how much you can invest in the down payment. Monthly payments include four costs called P.I.T.I., principal and interest on the mortgage loan plus property taxes and insurance against fire and other hazards. (Monthly housing costs may also include homeowner association dues, condominium fees and mortgage insurance.)

Pre-Qualifying

The smart buyer understands financing first then shops for that dream home. After all, an "affordable" home is not so much determined by sales price as it is by the financing which translates that price into a monthly payment.

The pre-approval program from a Mortgage Company is just such a program. It lets you know exactly what you can afford right from the start.

As part of the program you receive a letter of approval which identifies the maximum mortgage, monthly payment (P.I.T.I.), qualifying interest rate and the type of loan. This letter shows that you're a qualified buyer which puts you in a better position with the seller.

Bob Latigona can put you in touch with a Professional loan officer.

How Much House Can I Afford?

The key items are the size of the down payment and the amount of the mortgage.

Sources for Your Down Payment and Closing Costs

The obvious source of money for your down payment and closing costs is either your savings or the proceeds from the sale of a home you already own. But there are some other not so obvious sources such as parents.

(Consult with your sales associate or financial advisor regarding other sources.)

Figuring Your Housing Budget

Generally, lenders figure that the home buyer shouldn't pay more than 25-28% of gross income for P.I.T.I. payments, or 33-36% both P.I.T.I. and monthly debts combined. This might be a little more or a little less depending on other outstanding long term debts, alimony/child support payments, number of children and their ages, other household budget items, loan type and down payment.

The easiest way to make a quick estimate of the mortgage amount you may qualify for requires applying the two basic formulas for loan application that lenders use. Keep in mind the loan amount you qualify for will vary according to the length of the loan and the interest rate, although the result (your maximum allowable monthly payment) is the same.

Two Lender Formulas

Most lenders will require that loan applicants meet a set of guidelines before approving a mortgage loan. For conventional loans, the first formula compares income to housing costs without including long term debts. The second includes all debts.

25-28% Formula

Total Monthly Housing Costs (P.I.T.I.) ,. Gross Monthly Income = 28% (or less)

33-36% Formula

P.I.T.I. + All Monthly Debts . Gross Monthly Income = 36% (or less)

To figure your housing budget, simply reverse the two formulas by multiplying your gross monthly income (before taxes) by 28% and 36%.*

For example, a family with a monthly income of $3,500 might qualify for a mortgage on a house that produces payments between $980 (without debts) and $1,260 (including debts).

*These ratios will vary, depending on loan type and down payment.

More Mortgage Help

New types of mortgages, such as graduated payment mortgages and adjustable rate mortgages feature monthly payments that start lower than usual in the early years-and thus help home buyers "afford" more house and buy sooner by qualifying for a higher mortgage amount.

SHOPPING

House Hunting Begins at Home

The search for your next home begins in your present home. And as you begin house hunting you should keep this in mind:

"The best time to think about selling your home is when you're buying it."

What appeals to you as a buyer today will probably appeal to buyers tomorrow. And the opposite is also true: what turns you off will also turn off other buyers later.

A careful house hunter will benefit years from now when it's time to sell to an equally value-conscious buyer.

What to Look For

The best approach when choosing a place to live is to be prepared-literally to do some homework. Your move can be an improvement if you duplicate what you like in your present community and avoid what you dislike. Most people pass through three distinct stages: Choosing a County and City; Choosing a Neighborhood; and Choosing a House.

We've developed some questions to help you identify your needs and preferences in these areas. Once you've clarified what you like in your present community, you will have a better idea of what you want to find in a new community. It will also let you convey what you are looking for to Bob Latigona: the person who can help you find it.

County and City Questions

• How would you characterize your present area? (Urban, suburban, semi-rural or rural.) What is it you like or dislike about the area?
• What natural features do you like or dislike? (Woods, hills, flat land, rivers, lakes, etc.)
• How do you commute to work? (Is it far, does it take long? Do you use public transportation? Can someone reach your home on public transportation?)
• Where do you do your shopping? (Imagine a list of typical stops in one week ... how many miles and how much time would visiting the entire list require? Do you want greater convenience?)
• What types of schools does your family currently attend and what type will their needs be in the future? (Is this what you're looking for in a new area?)
• What does the area offer for recreation and entertainment? (Theaters, sports arenas, museums, parks, country clubs, social clubs, indoor and outdoor sports facilities, etc.)

Choosing a Neighborhood

An old real estate maxim says there are three criteria that determine market value: "Location, location, and location." The fact is that the same boards and brick may be used to build two houses at two sites, yet the identical house across the country will bring a price thousands of dollars higher. The difference is location ... or neighborhood.

The best way to define "neighborhood" is the immediate area around your house. But every neighborhood can be described from three standpoints: its people (your future neighbors), what it looks like, and where its services are located. Yet any neighborhood description is highly subjective.

No matter how much hard data one gathers about a neighborhood, nothing compares to information that can be provided by a real estate agent who knows the neighborhood professionally.

Neighborhood Questions

• Taken as a group, how would you describe the neighbors? (Families, singles, couples-the ages of the adults and children)
• How do the families earn their livings? (Professional, white collar, blue collar-one or two wage-earner households-Upper, upper middle, middle, lower middle, low income)
• Do the neighbors' interests and backgrounds make them a homogeneous or varied group? (Do you have things in common-do neighbors socialize-do home owners or renters make up the majority)
• What types of dwellings make up the neighborhood? (Apartments, condominiums, multi-family structures, single-family houses, mobile homes, etc.)
• How are yards and homes maintained? (Cars parked in garages, driveways, on the street-age of homes-homes close together or spread apart-homes have swimming pools, tennis courts, fences, walls, patios, extensive landscaping)
• How does the neighborhood rate for convenience? (List your five most frequent destinations-are they clustered together? How much time is required for fire, police or ambulance service to arrive in an emergency? How close are cultural centers, parks, restaurants, theaters, playgrounds?)
• How do the children routinely reach their schools, play areas, friends' homes? (Walk, bike, bus, car, public transportation)
• Do any local ordinances affect pets, parking, lawn care or other activities?
• What are the disadvantages of the neighborhood? (Freeway, railroad, airplane noise, factory pollution, heavy traffic, exposure to heavy storms, possible flooding, etc.)

Choosing a House

In many ways finding a home is easier than choosing a county and a neighborhood, because you are considering tangible details. Yet our experience suggests that many people "decide with emotion, and justify with facts." This section will help you strike a better balance.

First, one should realize that tens of thousands of houses are sold every year. Inspecting every home on the market is obviously impossible. You can turn this overwhelming selection to your advantage by clearly describing the features you require. Then Bob can make a preliminary screening for you. After you select the best houses, you can concentrate on inspecting your top choices. The key is knowing what you need.

House Questions

• How many people will be living in the house?
• Do you prefer a new or resale home?
• What is your preferred housing style? (Townhouse, colonial, contemporary, split level, split foyer, Cape Cod, ranch, rambler-note next section, 'Area House Styles")
• How many rooms do you require and what type of special features do you need? (Bedrooms, baths, formal dining room, family room, fireplace, garage, etc.)

House Hunting

Many of our customers find it helpful to keep a record of the houses they inspect. When I show homes, I will give you a color MLS printout of the home and a picture of the house. This way you can view them later and for comparison.

Area House Styles

The next three pages contain illustrations and descriptions of several styles of homes. This section is designed to introduce you to some of the basic styles most frequently found in the area. Numerous variations and other unique styles not shown or described here are also available.

Financial Details

• Asking price? (Original or reduce price? How much did owners pay for home?-how long ago?-why is seller selling?)
• How does the asking price compare to other homes in the neighborhood and/or area? (When comparing, be sure to take into account unique features and improvements that vary house-to-house, and consult your sales associate.)
• Is the existing mortgage assumable? (What is the cost to assume? Must I qualify?)
• What are the annual property taxes? (Have they changed recently-will the sale affect them?)
• Are there any local bonds or assessments to consider?

Computerized House Hunting

A complete description of homes you would like to visit is available through the Multiple Listing Service (MLS) system. Bob Latigona can show you what vital statistics the MLS includes and how it works.

Finger-Tip Home Search

Information based on your personal requirements can be fed into our computer: information like neighborhood preferences, kinds and styles of homes, the number and kinds of rooms, and the price range. In minutes our computer makes a quick search among the houses listed, and prints out all the houses that meet your criteria.

The computer can determine which home sellers will offer seller financing, calculate the amount of mortgage payments at various interest rates, under various financing plans and evaluate the investment and the financing that is right for you. Our computer is updated each morning to accommodate the hundreds of houses that enter and leave the market daily. In short, our computer is the only way you can check out almost everything that's "out there."

OFFER TO BUY

Negotiating the Purchase

Al right, you've found your "dream" house! You want to buy it. Now what?

You'll submit a signed offer to purchase with the type of financing you desire. If the seller accepts it, Contracts are then prepared. Once you and the seller sign the purchase agreement, you are agreeing to the contract conditions.

Make certain that you read it carefully and that you thoroughly understand it in every detail before you sign it. Ask questions! Verbal agreements must be written into the contract. This is where Bob Latigona can give you the assistance you need.

Offer and Counter Offers

When it comes to an offer to buy, your sales associate will take the offer to an "offer presentation" with the home seller and the listing broker. The seller will accept it as written, make "counter offers" on unacceptable aspects, or reject it. Your sales associate will then bring the offer back to you so that you can accept it, counter-the-counter offers, or reject it.

When you sign the offer to buy you will also have to submit a deposit to show that you are earnest about your desire to buy. This deposit is appropriately called "earnest money".

Combing Your Contract

Sales contracts differ, depending on circumstances. However, there are several provisions you may want to include in a contract for the purchase of real estate. Personal property, for example, is any item in the house that is not physically attached to the house. If there is an item that you are specifically interested in purchasing with the house, be sure to ask Bob if it is already included or if it can be included. Then make certain that it is part of the sales contract. Bob can elaborate or answer questions regarding any of the following:

1. Deposit (including "earnest money")
2. Contingency on Financing
3. Contingency on Inspection
4. Repair Work

MONEY

Locating the Right Loan

Bob Latigona can help you find a mortgage. Keep your options open, shop around for a reputable lender with competitive terms. Generally, a mortgage approval requires 30-45 days for conventional and FHA and 45-60 days for VA from application to approval. Allow additional time (after approval) to complete closing details.

Ten General Questions Most Lenders Will Ask You

Being prepared is the best way to approach lenders. Here's a sample of the information most lenders will need:

1. The amount of money you wish to borrow and the length of time you will need the money.
2. Your current address and, if you've been at your present address less than two years, your previous address,
3. Your social security number.
4. Your present employer's address and, if you've been at your present job less than two years, your former employer's address.
5. Your gross monthly income.
6. Your bank account numbers and your approximate balances.
7. Your assets (real estate, personal property, paid-up life insurance, etc.)
8. A complete list of your debts, with their account numbers.
9. A copy of the purchase agreement.
10. An account, in writing, of any problems which will affect your application.

With this information in hand, here are the steps the lender will take to process your application:

1. Verify the facts.
2. Get a credit report.
3. Make a property appraisal.
4. Review your application and all verified information.
5. Decide whether or not to make the loan.

Mortgage Strategies

When it comes to paying for a home, buyers today have an almost unlimited number of financing options to choose among. They have before them a real "mortgage smorgasbord" a table full with exotic names like "wraparounds," "balloons," and "buy downs."

Many involve financing assistance from the home seller. Others are from standard financial institutions like banks and savings and loans. Here's a partial list of the types of financing available today:

• Owner Assisted
• Second Mortgage
• Wrap-Around Mortgage
• Temporary Buy down Mortgage Plan
• Owner Financing
• Institution Assisted
• Conventional/VA/FHA
• Adjustable Rate Mortgage (ARM)
• Growing Equity Mortgage (GEM)

PROTECTION

The real estate industry has been a front runner in the area of consumer protection. Bob Latigona will be able to answer your questions pertaining to warranties that may be available on new home construction or your rights as a buyer in general.

What to Expect from a House Inspector

Professional house inspection is something you'll want to consider. A professional inspector, can probably spot flaws that you'd miss, especially in areas not easily accessible to a home buyer. However, if no serious problems are found, inspection can pay off indirectly in assurance that you are making a sound investment. In most cases the money spent on a home inspector is a very good investment.

Ask Bob for the name of some reputable firms. Keep in mind that the service is normally an additional cost which is your responsibility, not the home sellers.

Title Insurance

Title insurance provides protection in the event any of a number of past actions threaten the title of your property. You'll be required to carry title insurance on the amount of the loan from the mortgage company which protects their interest.

Bob Latigona or any Title Company representative can answer any questions you have regarding title insurance.

Walk-Through Inspection

This inspection, held the day before or the day of closing, is to determine if all conditions in the contract are satisfied.

It's up to you to perform the walk-through inspection and to make certain that all equipment is in good operating condition. You should be accompanied by the selling agent and the listing sales associate. The home seller should be sure utilities are on so that equipment can be operated.

You may also want to ask Bob about our Home Service Program that covers the cost of appliance repairs.

CLOSING

The Big Day!

The day you've been waiting for has arrived! Tonight you can pop open the champagne, but today there will be a lot of paper signing and a poignant passing of the keys (don't forget to get the garage keys, and the electric door opener, too).

There are four items that are essential for a smooth closing:

• Your down payment must be in the form of a certified or cashiers check (personal checks are not acceptable).
• You'll need your homeowner's insurance policy with proof of one year paid in full.
• Your personal checkbook for paying additional closing costs.
• Bring your driver's license and other proper identification.

You may want to have your own attorney examine the title and review the title insurance commitment prior to the closing. The closing will be attended by a title company representative, all buyers, all owners, and the listing and selling sales associates. The buyers or sellers may also wish to have their attorney present at the closing.

Closing Costs

You will receive an estimate of closing costs from the lender prior to the actual closing. Then at the closing a detailed accounting of all your actual closing costs will be provided for your records.

Signing on the Dotted Line

The title insurance closer will explain the closing statement to the seller and obtain the signatures needed for transfer of title to buyers. The real estate taxes will be charged according to the terms of the purchase agreement. Home owner dues or condominium fees will be prorated on a daily basis to date of closing. You, the seller and the sales associates will be supplied a copy of closing documents and closing statements. The house keys are passed. You are now the proud owner!

Glossary

Word to the Wise

• Abstract of Title. A summary of the public records relating the title to a particular piece of land. An attorney or title company reviews an abstract of title to determine whether there are any title defects.
• Agent. A person acting on behalf of another, called the principal.
• Appraisal. An expert judgement or estimate of the quality or value of real estate as of a given date.
• Assessed Value. The valuation placed upon property by a public tax assessor as the basis for taxes.
• Bill of Sale. An instrument which transfers title to personal property (chattels); a "Deed" transfers real property.
• Closing Settlement Statement. The computation of financial adjustments between buyer and seller as of the day of closing a sale to determine the net amount of money which buyer must pay to seller to complete purchase of the real estate, and seller's net proceeds. Also, "closing statement.15
• Commission. Payment of money or other valuable consideration to a real estate broker for services performed.
• Convey. To deed or transfer title of property from one person to another.
• Deed. A formal written instrument by which title to real property is transferred from one owner to another. Also "conveyance."
• Earnest Money. The money given by the potential buyer upon the signing of the agreement of sale to show that buyer is serious about buying the house. Also, "deposit;'
• Easement. The rights of certain parties to enter upon and use for specified purposes part or parts of someone's land.
• Equity. The interest or value which owner has in real estate over and above the debts against it. (Sales Price-Mortgage Balance = Equity)
• Escrow. Funds, property, or other things of value left in trust to a third party. The escrow may be released upon the fulfillment of certain conditions or by agreement of the parties.
• Fixture. What was formerly personal property which is now permanently attached to real property and goes with the property when it is sold.
• Hazard Insurance. Protects against damages caused to property by fire, windstorms, and other common hazards.
• Lien. An interest in real property, usually to secure a debt, which is enforceable by foreclosure of title. Mortgages, tax liens and judgements are examples of liens on real property.
• Listing Contract. Between a home owner (as principal) and a licensed real estate broker (as agent) by which the broker is employed to sell the real estate within a given time for which service the owner agrees to pay a commission. Also, "listing agreement."
• Market Value. The highest price which a buyer, ready, willing and able but not compelled to buy, would pay, and the lowest price a seller; ready, willing and able but not compelled to sell, will accept. Basis for "listing price" or "asking price."
• Market Price. The actual amount for which a piece of property is sold. Also, "sale price;' "purchase price."
• Mortgage. A lien or claim against real property given by the buyer to the lender as security for money borrowed.
• Mortgage Note. A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid.
• Opinion of Title (Title Opinion). A document signed by an attorney, stating whether the seller has good marketable and insurable title.
• Owners Duplicate Certificate of Title. A duplicate of the Certificate of Title which is issued to the owner of registered land as a safeguard against erroneous or fraudulent documents being filed and to evidence title in case the original is destroyed. The duplicate will be needed at closing to record documents.
• P.I.T.I. Principal, interest, taxes, and insurance. Most residential mortgage payments include the above and are therefore referred to as P.I.T.I. Also, "carrying charges."
• Points. Sometimes called "discount points." A point is one percent of the amount of the mortgage loan.
• Prepayment Penalty. Penalty for the payment of a mortgage note or deed of trust note before it actually becomes due.
• Principal. This word has several meanings: to denote the most important; a capital sum lent on interest; one who appoints an agent to act for and in principal's stead; either party to a contract.
• Proceedings Subsequent to Initial Registration. A District Court procedure or action which must be brought to change the contents of a Certificate of Title.
• Property Management. The operation of real property, including the leasing of space, collection of rents, selection of tenants, and the repair and renovation of the buildings and grounds.
• Prorate. To allocate between seller and buyer their proportionate share of an obligation paid or due. For example, a prorate of real property taxes, fire insurance, or condominium fee.
• Purchase Agreement. Known by various names, such as "agreement of sale," or "sales agreement" according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.
• Restrictive or Protective Covenants. Conditions that have been placed upon the use or occupancy of someone's land.
• Survey. A map or plat made by a licensed surveyor showing the results of measuring the land with its elevations, improvements, boundaries, and its relationship to surrounding tracts of land. A survey is often required by the lender to assure a building is actually sited on the land according to its legal description.
• Title. As generally used, documents that indicate rights of ownership and possession of particular property.
• Title Insurance. Protects lenders and home owners against loss of their interest in property due to legal defects in title.
• Title Insurance Commitment. A commitment on the part of a title insurer to issue its policy and insure title, subject only to those exceptions shown in the commitment and upon payment of the required premium.
• Title Opinion. A document signed by an attorney, stating whether the seller has good, marketable and insurable title.
• Title Search or Examination. A check of the title records, generally at the local courthouse, to make sure the buyer is purchasing a house from the legal owner and there are no liens, overdue special assessments, or other claims.
• Transfer Tax. State tax and local tax (where applicable) required by law when title passes from one owner to another.