Complete Guide to Home Buying

Moving into your own place can be exciting and a little frightening at the same time. Sullivan Bank suggests considering the following questions when choosing your own home.

1. How much money do you have saved up?

Start with an evaluation of your financial health. Figure out how much money you have for a down payment or deposit on a rental. Down payments are typically 5 to 20 percent of the price of the home. But be sure to keep enough in savings for an emergency fund. It’s a good idea to have three to six months of living expenses to cover unexpected costs.

2. How much debt do you have?

Consider all of your current and expected financial obligations like your car payment and insurance, credit card debt and student loans. Make sure you will be able to make all the payments in addition to the cost of your new home. Aim to keep total mortgage payments plus utilities to less than 25 to 30 percent of your gross monthly income. Recent regulatory changes limit debt to income (DTI) ratio on most loans to 43 percent.

3. What is your credit score?

A high credit score indicates strong creditworthiness. Homebuyers can expect to have their credit history examined. A low credit score can keep you from qualifying for a low interest rate on your mortgage loan. If your credit score is low, you may want to delay moving into a new home and take steps to raise your score.

4. Have you factored in all the costs? Create a hypothetical budget for your new home.

Find the average cost of utilities in your area, factor in gas, electricity, water and cable. Consider the cost of yard maintenance and other basic maintenance costs. When planning to buy a home, factor in real estate taxes, mortgage insurance and possibly a homeowner association fee.

Now that you’re settling in to your new home, there are some important things you need to consider. Sullivan Bank recommends the following tips.

1. Create Budget

The key to a good budget is including as much information as you can, so that you can adequately prepare and plan. It’s important to keep accurate records of your spending so you can spot places to save money and know how much you can reasonably spend.

2. Protect your property

You need insurance to protect your belongings. Check with your local insurance agent, you might be able to get a discount if you have things like dead bolt locks, an alarm system, or smoke detectors, or if you already have a policy with that company, like car insurance. Also, find out if you’re in a flood zone. If you’re concerned about flooding, you will need to purchase a separate flood insurance policy. Learn more at floodsmart.gov.

3. Protect your safety

Make sure all of the locks on your doors and windows work properly. If it makes you more comfortable, look into having an alarm system installed. Also, check your fire and carbon monoxide alarms once a month to be sure they’re working. If you have a dryer, clean the lint from the entire system, from the dryer to the exterior vent cap. Lint is extremely flammable and poses a fire risk.

4. Take your tax deductions

Be sure you know all the tax deductions associated with your move and new home. If you use a portion of your home for business purposes or moved for a new job, you may be able to take deductions. Homeowners can deduct mortgage interest, property taxes and loans for home improvements.

5. Make your house – or apartment – your home.

Decorating your space will make it more comfortable and personal. Be smart about where you invest your money on improvements to ensure you’re building equity in your home. For example, updates in the kitchen and bathroom usually provide the best return on investment.

6. Save up for a rainy day

Although life may be sunny now, it’s a good idea to create a rainy day fund. The fund should have at least three to six months of living expenses in case you or someone in your household loses a job or becomes ill and unable to work.

Before you can make the transition from renting to owning your home, you will need to have a substantial down payment, typically 5 to 20 percent of the home’s value. Sullivan Bank suggests the following tips to help save for it:

1. Develop a budget & timeline

Start by determining how much you’ll need for a down payment. Create a budget and calculate how much you can realistically save each month – that will help you gauge when you’ll be ready to transition from renter to homeowner.

2. Establish a separate savings account

Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you’ll be less likely to tap into it when you’re tight on cash.

3. Shop around to reduce major monthly expenses

It’s a good idea to check rates for your car insurance, renter’s insurance, health insurance, cable, Internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts.

4. Monitor your spending

With online banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. meals out, vacations, etc.) and instead put that money into savings.

5. Look into state and local home-buying programs

Many states, counties and local governments operate programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants.

6. Celebrate savings milestones

Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.

An important step to finding a home is ensuring that you have a good credit history. Sullivan Bank suggests the following tips to improve your credit score.

1. Request a copy of your credit score report – and make sure it is correct

Your credit report illustrates your credit performance, and it needs to be accurate so that you can apply for other loans – such as a mortgage. Everyone is entitled to receive a free copy of his or her credit report annually from each of the three credit reporting agencies, but you must go through the Federal Trade Commission’s website at www.annualcreditreport.com, or call 877-322-8228. Note that you may have to pay for the numerical credit score itself.

2. Set up automatic bill pay

Payment history makes up 32 percent of your VantageScore credit score and 35 percent of your FICO credit score. The longer you pay your bills on time, the better your score. Avoid missed payments by setting as many of your bills to automatic pay as possible.

3. Build credit through renting

VantageScore’s scoring model, created by the three major credit bureaus, will now weigh rent and utility payment records. This will allow it to score as many as 35 million people who previously couldn’t get a credit score.

4. Keep balances low on credit cards and ‘revolving credit’

Racking up big balances can hurt your scores, regardless of whether you pay your bills in full each month. You often can increase your scores by limiting your charges to 30 percent or less of a card’s limit.

5. Apply for and open new credit accounts only as needed

Keep this in mind the next time a retailer offers you 10 percent off if you open an account. However, if you need a new line of credit, don’t jump at the first appealing offer; compare rates and fees offered through mail solicitation, on the Internet or at your local bank.

6. Don’t close old, paid off accounts

According to FICO, closing accounts can never help your score and can in fact damage it.

7. Talk to credit counselors if you’re in trouble

Using legitimate, non-profit credit counseling can help you manage your debt and won’t hurt your credit score. For more information on debt management, contact the National Foundation for Consumer Credit (www.nfcc.org).

Whether you’re a renter or a homeowner, chances are you care about protecting the environment – and saving money. Here are some tips from Sullivan Bank to help you do both.

1. Location, location, location

Carefully consider the location of your home. If you’re close to work, shopping, and entertainment, you may not need a car. Without a car you would save money on gas, car insurance, and maintenance, not to mention reduce pollution. If you’re thinking about moving further out, try to find something near public transportation and shopping.

2. Light up the house, not the electric bill

Replacing incandescent light bulbs with more energy-efficient compact fluorescent light (CFL) bulbs will save you about $6 a year in electricity costs per bulb and more than $40 over its lifetime. According to ENERGY STAR, if every American home replaced just one light bulb, we would save enough energy to prevent 9 billion pounds of greenhouse gas emissions per year. Remember to recycle used CFL bulbs. Go to www.epa.gov/bulbrecycling for recycling locations.

3. Some like it hot, hot, hot…or cold, cold, cold

Closely monitor your thermostat. Adjusting it just a few degrees while you’re out can save energy and money. You can make it easier by installing a programmable thermostat. Use fans, close the blinds during the warm months, and let the sun in for natural warmth in the winter. Also, change your filter every three months.

4. How low can you go? 

One way to save water is by using low-flow toilets. The most cost-effective way to do this is to simply take a 1 liter plastic bottle, fill it with water, and place it inside the tank. This will reduce your water use per flush. Another way to save water is placing an aerator on all of your faucets.

5. Make it mean-green-clean

Cleaning supplies can be expensive and are made with toxic chemicals. You can save money and the environment by making your own cleaning supplies. All you need are some basic household ingredients like vinegar, lemon juice, baking soda, and borax to clean everything from windows to tile. Look online for recipes and suggestions.

6. Reduce, Reuse, Recycle! 

Sticking to this mantra can help you save money around the house. Use a rag instead of paper towels. Buy products in bulk, concentrate, or refillable containers to reduce packaging waste. Look for products made from recycled content. And don’t forget to recycle!

7. Win-dos for your windows

There are several ways you can make your windows more energy-efficient without replacing them. For better insulation from the weather, you can caulk exterior joints, put shrink wrap on them, or hang blackout curtains.

8. Fan the green flames

To keep your refrigerator running efficiently, keep the fan clean. The motor won’t have to work as hard if the fan is clear of debris.

9. Decorate green

Houseplants are like living air-filters. English Ivy, rubber trees, peace lilies and red-edged dracaena can help clean the air and look pretty too.

10. Vampire energy is sucking you dry

On or off, anything plugged into the wall sucks energy. Vampire power costs U.S. consumers more than $3 billion a year, according to the U.S. Energy Information Administration. Unplug your electronics and appliances when they’re not in use.

When you’re preparing to buy, the Sullivan Bank encourages you to be familiar with the following housing terms before buying:

APR:

Short for annual percentage rate, APR is how much your loan will cost over the course of a year. This figure is almost always higher than the interest rate, because it takes into account the interest charged as well as certain fees or additional costs associated with the loan. Since all lenders use the same formula, it can be a more effective way of comparing mortgages rather than just the interest rate.

Closing Cost/Settlement Fees:

The costs, in addition to the price of the property, that buyers and sellers are charged to complete a real estate transaction. Costs include loan origination fees, discount points, appraisal fees, title searches, title insurance, surveys, taxes, deed-recording fees and credit report charges.

Escrow:

Escrow accounts are usually required by lenders to cover property taxes and mortgage insurance. After an initial deposit, borrowers pay into the escrow monthly – usually as part of the mortgage payment. 

Loan Estimate (LE):

An estimate of fees associated with a loan provided to the customer by a mortgage lender. A LE is required by law under the Real Estate Settlement Procedures Act (RESPA). The estimate must be provided within 3 business days of applying for a loan.

Points:

Borrowers can pay a lender points to reduce the interest rate on the loan, resulting in a lower monthly payment. The cost of one point is equal to 1 percent of the loan amount.

Debt to Income (DTI):

Monthly debt payments divided by gross income.

Loan to Value (LTV):

Loan amount divided by lower of purchase price or appraisal value.

Are you thinking about buying a new home? Is it your very first home, or has your family outgrown your current home? Whatever your circumstances may be, the outcome is the same: you want a new house! We hope that you will find this information helpful as your start the process of buying a home.

The first step to buying a home

The first step to buying a home is talking to a Sullivan Bank lender. We’ll help you pre-qualify, get an idea how much you can afford, help you understand your credit, understand the different loan products available to you, and what you can expect as you start looking.  A pre-qualification doesn’t guarantee that you will get a loan, but it may be expected when you make an offer on a home. It assures the realtor and seller that you are serious about buying, and that you have taken the right steps toward buying a home; starting with financing.

What can you afford?

Determining how much home you can reasonably afford is an important step in understanding the buying process.

1. The first step is to determine your gross monthly income.
2. Next, determine your total monthly debt. This does not include utilities, car insurance, or daily living expenses.
3. Your monthly housing expenses, including taxes and homeowners insurance, should not exceed around 28 – 30% of your gross monthly income.
4. In addition, your monthly housing expense plus your other total monthly debts cannot exceed 41 – 43% of your gross monthly income. Each of us has a unique situation and different loan programs may be more flexible than the suggested guidelines, but this will give you a starting point. At Sullivan Bank, we have an easy chart that helps you to calculate the guidelines above, and we are always happy to help you through it.

Tips for the First time home-buyer

Determining how much home you can reasonably afford is an important step in understanding the buying process.

1. Know your credit. Understanding your credit and taking the time to discuss any credit issues with a qualified Sullivan Bank Lender may mean waiting a few months to buy a home, but it may also help you afford more home, and get a better interest rate.
2. Look for first-time home buyer’s programs. Some are tailored for people with slight credit issues, and most can help people who haven’t saved a lot for a down payment.
3. Get pre-qualified! Pre-qualification is a pretty casual process, where the lender will look at your credit, discuss your income, and tell you how much home you can afford based on the information you have given. It doesn’t cost a thing and will help make the process of buying a home much easier. 
4. Don’t borrow too much money. Buying your first home doesn’t necessarily mean that you should get the biggest loan (and home) that you can qualify for. Budgeting is an important part of homeownership. There will be unexpected expenses that occur when you own a home, and it helps if you can be somewhat prepared. It is a good idea to have 3 months reserves (equal to 3 months’ worth of expenses) after closing to help you handle the added costs of owning a home.
5. Trust your lender. At Sullivan Bank, we have the same standards and ideals that the Bank has had for over 100 years. We are your friends, our kids go to school together, we shop together, and we have your best interest at heart. We are your community mortgage lender, and want to stay that way. You can trust that your loan is the best that the industry has to offer.
6. Plan for closing costs. There are fees involved with buying a home, and you should be prepared to pay for those fees in some way. Each loan program has guidelines that allow for the fees to be paid in full or in part by the seller, the lender, a gift, from a loan, or your 401K. You should always understand what your expected closing costs will be and how much of that you might have to come up with on the day of closing. A good faith estimate will be provided to you after you apply for a loan, and at Sullivan Bank, we will also give you an estimate when you apply.

CHARM Booklet

Your Home Loan Toolkit Booklet

Loan Payment Calculator

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Thinking about refinancing your home can be just as daunting as it was when you bought it for the first time. Mortgages are always changing and the media is full of advice on what you should or shouldn’t do. How do you make sense of it all? We can help. We will sit down with you, discuss your current loan, look at options, and crunch numbers before you start spending time or money on refinancing. No sales pitch, no gimmicks, just sound advice that you can trust.

When Is Refinancing Worth It?

Refinancing is a big decision. Consider how long you expect to live in the home if you can roll the closing costs into the loan if you want to cash out to pay off other debts, and what the difference will be in your payments. Divide the total costs by what you will save each month – the result is how many months it will take to break even on the deal. This will help you decide if refinancing is right for you.

How Much of Your Home’s Value Can You Borrow?

This depends on a variety of factors. Most borrowers can borrow up to 80% of the value of their home, but there are several loan options to borrow more; private mortgage insurance, or a government loan. An appraisal will require 3-5 comparable homes that have sold within the last 12 months, within a certain mile radius of your home. We can help you understand the appraisal process and what loan options are available with your appraisal valuation. 

Financial Calculators

Information and interactive financial calculators are made available to you as self-help tools for your independent use. We cannot and do not guarantee their accuracy or their applicability to your circumstances.

Use Financial Calculators

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• ARM Booklet
• HELOC Booklet
• Refinance Booklet
• USDA Guaranteed Loan Program
• FHA Loan Program
• VA Loan program
• Your Home Loan Toolkit

Homeownership Counseling

• Know Your Options
• Find a Housing Counselor

One of the most difficult aspects of the finance process is sorting through the multitude of loan products currently available. It is confusing! We can help you easily eliminate the mortgages that you don’t want and focus on the mortgage that will be best for your family. Things to consider are: How much down payment you have, if any? How long do you plan to live in the home? How much home do you need? How you will pay for closing costs and other expenses? How many recreational activities outside the home do you enjoy? Considering all aspects of home ownership is key to being a happy and confident homeowner.

Fixed Rate Loans

The interest rate stays the same throughout the life of the loan, so the principal and interest payments never change. Several types of fixed-rate mortgages exist and range from a simple refinance to a purchase with no down payment. Based on where the market has been over the last few years, a fixed-rate loan has been the obvious choice for most homeowners.

ARM (Adjustable Rate Mortgage) Loans

The interest rate stays the same for a fixed period of time and then can change periodically, so the payments will also change. Depending on what is happening in the market, the rate on an ARM loan may be higher, somewhat lower, or much lower than the rate on a fixed-rate loan, so it pays to examine both options carefully.

First-Time Homebuyer Loans

The term First Time Homebuyer Loan is used throughout the industry to explain any loan that helps someone purchase their first home, or a new home if you haven’t owned a home in the last 3 years. At Sullivan Bank, we have access to several different financing options for the first-time homebuyer and will gladly help find the right one for your family.

Construction to Permanent Loans

A construction loan is for those who wish to build their own home and is typically a short-term loan. After completing construction, long-term financing (a permanent loan) will be needed; which is generally a fixed-rate loan. Working with Sullivan Bank can ensure a smooth transition from construction to permanent financing.

Government Backed Loans

A government-backed loan is a loan that is backed by the federal government in case of default. It protects the lender, and in order to get the backing, the borrower typically pays a guarantee fee or insurance fee. USDA, FHA, and VA loans are considered government-backed loans.

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