Introduction

At one time or another, most Americans dream of owning their own home. For most, it's also the largest, most complicated purchase they will ever make. Without an understanding of what's involved in buying a house, it's almost impossible to keep up with the process, forcing you to depend on others to make decisions for you. You don't need to become a realtor to buy a house, but it's to your advantage to be as informed as possible.

This section is a summary of all the information you will find on our website about buying your first home. The links on the right side of this page outline the entire process, from your initial decision to buy all the way to getting the keys at closing. 1st Source Bank gives you a roadmap that shows the big picture, step-by-step. The more you know, the more rewarding your home buying experience will be. Follow these guidelines and check off each section as you work through them. This will help you stay on course during a complex -- and often intimidating -- process.

Organize Your Finances

When you decide to buy a home you're definitely going to need two things: a down payment and the ability to make monthly payments. OK, you already know that. But do you know what you can afford? Determining the maximum amount you can borrow will help you decide what house you are going to buy and where it will be located. In order to do that you'll need to take a good hard look at your current financial situation. A prospective lender will also want to know everything about the economic condition of your household.

If you've never worked out a formal household budget, now is the time to start. This is the only true way to know how much you have coming in, how much is going out, and what's left over each month. Without a good understanding of your finances, they can end up controlling you instead of the other way around. Making a budget is a good opportunity to improve the management of your money and cut down on debt. Debt is a huge factor when lenders determine how much they will lend you.

Now working out a budget is easier than ever. 1st Source has some no-hassle budgeting worksheets to simplify the process. For more information on organizing your finances, visit the section on our website devoted to this topic.

Applying For a Mortgage

Unless you have one heck of a nest egg, you're going to need to borrow some money to buy a home.

• Find a lender you know and trust, preferably someone with whom you've already established a relationship. If you don't have a relationship with a financial institution, ask a friend or relative if they were happy with the lender they used.
• Get pre-approved before you go house hunting. This prepares you for the final application process, lets you know what you can afford, and tells the seller you're a serious player.
• When you search for a lender, compare apples to apples. Beware of companies that offer super low interest rates but stick you with huge fees buried in the closing costs.
• When you meet with a lender you'll be asked to bring information about yourself so they can complete the application. The more prepared you are, the faster the process will go, and the better your chances of being approved.
• You will be evaluated on your income, job history, amount of debt, and credit history.
• After reviewing all of the information, the mortgage lender will recommend the best type of mortgage to fit your particular needs. They may even be able to tell you whether or not you've been approved at the first meeting.

After your meeting, you'll have a lot of information you didn't have before.

• The size of your expected down payment.
• An estimate of the closing costs.
• What additional documents are required, if any.
• Any discounts or perks the lender offers to its mortgage customers.

At 1st Source Bank, you can apply for a mortgage online from the convenience of your home or office, and get your answer within two hours. Visit the "Applying For a Mortgage" area for more detailed information on the application process.

Determine How Much You Can Afford

What a financial institution will lend you and what you can truly afford may well be two entirely different amounts. Look at your financial situation realistically and decide how the expense of owning a home will affect your life. You might be able to borrow enough money for an expensive house, but will all of your money go into your mortgage payments preventing you from doing anything else?

These are some points that will help you and the lender determine what you can realistically afford:

• Ratio of debt to income -
  • This ratio is "The Big One" as far as lenders are concerned. It looks at how much you have coming in compared to how much you have going out, and then shows the relationship between those two numbers as a percentage. More coming in and less going out usually means you'll be able to borrow more.
• Down payment -
  • The larger the down payment the less you'll need to borrow and the smaller the monthly payments will be. If you're short on a down payment there are programs that might help. If the down payment is too low you may have to obtain Private Mortgage Insurance.
• Increase your borrowing power -
  • To increase what you can borrow you must increase your income, decrease your debt, or wait for rates to drop.
• Find out for yourself -
  • 1st Source provides calculators that help you figure out for yourself what you can afford.

For more details on determining what you can afford, spend some time at our "How Much Can I Afford?" section, which provides all the information you'll need to know.

Finding a Home

Before you start looking for a home, evaluate your lifestyle, then make a list of needs and wants. Needs are non-negotiable features such as a bedroom for grandma or a two-car garage. Wants are things you'd like to have but can live without.

Needs:

• Number of bathrooms
• Room size
• Number of bedrooms
• Garage
• School district
• Proximity to work and school
• Access to public transportation
• Room for animals
• Proximity to family

• Neighborhood
• Old vs. New
• Amenities
• Design
• Proximity to shopping and entertainment
• Lot size

Consider your needs now and in the future. What will your family require in the years ahead? Keep in mind the possibility of selling this home someday and how marketable it will be. 1st Source Bank offers a checklist you can use to help you sort out your wants and needs.

Pick Your Neighborhood and Type of Home

The neighborhood you'd like to live in is an important factor when choosing a home. City? Suburbs? Country? Established neighborhood? New neighborhood? Your choices may be limited by how much you can afford. Whatever the case, there are several factors involved.

• Fixer-upper - Usually city neighborhoods or aging suburbs - possibly a country farmhouse
• Recent construction - Probably a newer housing development
• School district - Do you have children or plan on having them? This is an important consideration for potential buyers if you resell the home.

Save time and narrow your search before you begin. Finding a home that matches every single condition exactly is pretty tough, so decide where you'd be willing to compromise and where you would not.

It's not necessary to buy or sell a home with a real estate agent. But remember, realtors provide a great deal of support and many resources besides saving you a lot of time. Here's some of what they offer:

• Help with search - They have access to the Multiple Listing Service (MLS) which lists nearly every home for sale in the area you have targeted.
• Help narrow your search - Give them your "wish list" and they'll come up with several choices saving you lots of time and energy.
• Familiar with community - Find out how long they have lived and worked in the community. This is especially helpful if you're moving from out-of-town.
• Help with transaction - Buying a home can be a complicated process and a professional can be a big help.
• Recommend inspectors - Realtors deal with these folks every day and will be able to steer you toward reputable service providers.

Keep in mind, the realtor who lists the home acts in the best interest of the seller, not you. This doesn't mean they're trying to take advantage of you, but it is something to keep in mind. If, for example, you're very excited about a particular house, it's probably best to not let the realtor know. They're obliged to communicate that to the seller, which gives them leverage during the bargaining process.

For more information on how to find a home, visit our "Finding a Home" section, which covers this topic in detail.

Making an Offer & Negotiating

Some people enjoy the challenge of negotiating the purchase price of a home while others do not. If you are one of those who don't, you'll be happy to know the realtor will handle all negotiations. Here are some things to keep in mind.

• Most sellers anticipate a low initial offer and add a 5% "cushion" to the sale price right from the beginning.
• The offer includes: the price, amount of down payment, legal description of the property, the amount of earnest money, list of items the seller has offered to leave behind that you would like to keep, length of time the offer is valid, proposed closing and occupancy dates, and the stipulation that your obligation to buy is contingent upon the successful negotiation of the contract.
• To help you decide what your offer should be, review the prices of similar homes for sale in the area, the results of the home inspection, and how motivated the seller is to complete the transaction. Negotiating items other than selling price may include property the seller offers to leave behind (appliances, gardening equipment, etc.), the amount of earnest money, and possession date.
• The seller will accept your offer, reject it, or (most likely) make a counter offer. This process takes place until the buyer and seller come to a price they can both agree on. If the negotiations go on too long however, hard feelings may arise and bring the process to an end.

Visit the "Making An Offer" section on our website for more detailed information on making an offer and negotiating.

Closing: Before, During, and After

There are a great many details to pay attention to when closing on a home - not only during the closing, but before and after as well. Make a note of these reminders:

• Finalize your loan
  • Make sure the lender has a copy of the sales agreement.
  • Submit all required documentation.
  • Inform the lender of any changes in your personal situation that may impact your loan approval.
  • Be sure the closing takes place before the commitment letter expires.
• Obtain homeowner's insurance
  • The insurance company needs a copy of the sales agreement to provide a quote for coverage.
  • Get quotes from several companies. Make sure the coverage is comparable.
  • Be sure you have proof of coverage for closing.
• Home inspections
  • If you want a home inspection, you will be required to pay for the home inspection, but it is money well spent.
  • Try to accompany the inspector. In doing so you'll learn a great deal about the house.
  • Make sure the furnace, air conditioner, plumbing, etc. are all in working order.
  • The lender will take care of ordering the appraisal, title search/title insurance, survey, termite inspection, along with well and septic inspections.
• Final walk through
  • The realtor will probably accompany you during the walk through.
  • Get all warranties and owner's manuals from the owner. Learn how to operate heating and air-conditioning systems.
  • Be certain that anything that was supposed to be repaired has been fixed.
  • Talk to the realtor to make sure you receive a copy of the appraisal. Also, ask if there are any other documents that need to be brought to closing.
• Closing
  • Make sure there is someone at the closing to act as your advocate. That means a realtor (yours, not theirs) or a representative from your financial institution.
  • This is your last chance to make sure everything is correct. If you notice something isn't right, speak up!
  • Get instructions regarding your payment schedule, and when the first payment is due.
  • You should already know what your closing costs are going to be and have payment ready. Most lenders require a cashier's check or money order.
  • Make sure you receive all of the keys to the house or anything else that locks.
    
• After closing
  • Set up a file that contains all of your closing documents and store it in a secure place. A fireproof safe or safe deposit box is a good idea.
  • Make a set of files that will hold other information pertaining to your new house including: warranties, owner's manuals, and housing expenses. Should you decide to sell your home, some of your home improvement expenses may be tax deductible.
  • File any exemptions that may lower your future tax bills. Ask your lender how you go about doing this.

To find more specifics on closing your loan, visit the "Closing Your Loan" section of our website, which explains all phases of the closing process.