Career Article 124:
Get Ready to Own a Home

By Tamara Dowling, CPRW

If you're thinking about buying your first home, here are some steps that you should take.

1.) Review your credit report.

Look for past errors. Write to both the credit bureau and the reporting creditor to correct the error. Remember to review all of the major credit bureaus. You must provide the credit bureau the following with your request:

• Signature
• Appropriate fees ($8 per bureau)
• Full name (including Jr., Sr., II, or III) plus any name variations such as a maiden name or hyphenated married name
• Current address
• Addresses for the previous 5 years
• Phone number
• Date of birth
• Social Security number, and photocopy of credit card statement, utility bill, driver's license or other document that links your name to the address where the report is to be mailed.
• Spouses requiring a joint report should include signatures and information for both persons.

Here is a listing of bureaus along with contact information.

Equifax
P.O. Box 740241, Atlanta, GA 30374, Phone: (800) 685-1111

Experian
P.O. Box 8030,Layton, UT 84041-8030, Phone: (800) 682-7654

TransUnion, Customer Relations Dept.
P.O. Box 390, Spring Field, PA 19064-0390, Phone: (610) 690-4909

2.) Save for the Down Payment.

Depending on the type of loan program, you'll probably need between 3% and 20% for your cash down payment. Check with your loan counselor for details. Inquire about the need or requirement for Purchase Mortgage Insurance. It may be required for smaller down payments.

3.) Learn About the Process.

Learn as much as you can about the lending process, terminologies and options available. Pay attention to things like points, fees, rates, and rate locks. Here are a few important terms.

Adjustable-Rate Mortgage (ARM)
A mortgage with a variable interest rate that changes during the term of the loan. The variable rate is linked to a published index.

Amortization
The process of reducing the outstanding principal on an open loan with each payment, usually monthly, so that it is fully repaid at the loan's maturity.

Annual Percentage Rate (APR)
A yearly interest rate that includes interest, points, and other loan fees. The APR is the appropriate number to use when comparing loan interest rates.

Appraisal
A report that estimates the market value of a property.

Cap
On adjustable-rate loans, the set limit to which the interest rate on your loan can increase during each adjustment period and/or throughout the duration of the loan.

Closing Costs
Costs linked with buying or selling real estate including the title, transfer, and loan fees.

Earnest Money
A deposit of cash given by the buyer to the seller at the time of the purchase offer.

Equity
The value of your home less the amount that you owe on your mortgage.

Escrow Account
An account established to pay for real estate taxes and homeowners' insurance.

FHA Loan
FHA loans are guaranteed by the federal government.

Fixed-Rate Mortgage
A mortgage loan with a specific interest rate that does not change during the life of the loan.

Index
A published interest rate used for adjustable-rate mortgages.

Jumbo Mortgage
A mortgage amount over $252,700 is considered a jumbo loan.

Lien
A claim against a property for outstanding debt.

Margin
The amount added to the index which determines the interest rate for adjustable-rate mortgages.

Mortgage
A document that gives a lender a lien on real estate property used as collateral for payment of a debt. Usually borrowers refer to both the note and the lien collectively as the mortgage.

Points
One point is equal to one percent of the mortgage loan.

Prepayment
Paying off the loan amount before it is due.

Principal
The balance of the mortgage not including interest.

Private Mortgage Insurance (PMI)
Lenders usually require this insurance when a borrower makes a down payment of less than 20 percent.

Title
Legal document that shows proof of ownership.

4.) Obtain Pre-approval.

Before you talk to a realtor or shop for a home, obtain a loan pre-approval. This will add credibility to any offers you make, and could possibly put you in a better spot when negotiating.

You also know your price range before you shop. You won't feel disappointed if you have to lower your standards.

5.) Monitor Fluctuations in Interest Rates.

While shopping for a home, continue to monitor interest rates and other lenders or loan programs available.