HOME BUYING GUIDE Step 1. Pre-Approval/ Mortgage Options

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1 HOME BUYING GUIDE Buying a home will be one of the biggest decisions of your life. We believe that education and a general understanding of the process keeps our clients more informed and confident about finding and securing their next home! This home buying guide gives you a step by step process and will discuss further in detail: 1. Pre-Approval / Mortgage Options 2. Finding the Right Property / Understanding The Market 3. How Much is the Property Worth / Negotiation 4. Understanding the Real Estate Contract / Steps Involved 5. Closing Process Step 1. Pre-Approval/ Mortgage Options The first step in the home buying process is speaking with a lender and getting pre approved for a loan. The loan approval process is fairly straightforward, as long as you understand a few key points: Pre-qualification is the first step you can take -- but it's not mandatory. If you want a ballpark idea of how much a bank will loan you so that you can shop within your price range, pre-qualification is a quick and easy way to find out. Most banks and credit unions will do this over the phone, and your credit history will usually not be checked. A loan officer asks you about your income, assets, debts and projected down payment and then calculates what kind of loan you'd likely qualify for. The process takes just a few minutes. Pre-approval is more involved and in this step, the lending institution gathers all the information it requires to offer you a loan, and your credit report will be checked. To document your identity and your assets you will need to have access to: A copy of your most recent bank statements (this includes your daily checking account as well as any money market, savings or other accounts) Your most recent W-2 (or entire tax return if you're self-employed) Proof of IRAs or retirement accounts and their current balances Ditto for any stocks or mutual funds you own outside of retirement accounts Your driver's license The most recent month's pay stubs from your job The result of the pre-approval process is the good faith estimate. At the end of the pre-approval process, if you qualify, you'll receive what's called a good faith

2 estimate (GFE), which is a brief document spelling out the likely terms of the loan, including the interest rate, loan type (fixed-rate, adjustable and so on) and closing costs. The pre-approval step may be a bit time-consuming, but we suggest to complete it with a few lenders in order to comparison-shop. Without a GFE, you can't truly compare terms among lenders. And it pays to compare, for a loan as large as a mortgage, little things like the interest rate make a big difference. To negotiate for a great interest rate, reduced closing costs, or lender-paid private mortgage insurance, you have to make lenders compete with each other. (Lining up GFEs is also a good way to spot lenders who charge unnecessary fees.) So don't just accept the first offer you get -- make sure it's a good one by soliciting several in a short time period. Don't worry about nicking your credit score with several loan applications, because credit scoring recognizes multiple checks in quick succession as part of the loan-shopping process and does not penalize you. Pre-approval does not mean the bank guarantees you the loan. It just means that you're approved to get loan -- unless something goes wrong. There are also several different types of financing ie FHA, Conventional, Adjustable rate, Balloon, VA etc. Speak with your lender to find out what loan is best for you and your situation Commitment to the loan generally comes after the bank has had the property in question appraised to make sure the price you're paying isn't higher than the home's market value. This protects them in case you default on the loan, which would leave them in the red even if they evicted you and sold the property. Banks also check to make sure the home has a clear title and that you've insured it for replacement value. Step 2. Finding the Right Property / Understanding The Market - Our team will work hand in hand with you to find the property that fits your needs. Once we know exactly what you are looking for, we will set you up on a comprehensive search based on your criteria. You will be able to view all current properties on the market and start to narrow down the properties that you would like to physically tour. How we work: Most properties require at least a 24hr notice for viewing, however, showings on the weekend, because it is peak touring days for the industry, typically takes at least 48hrs notice, please keep this in mind when you are requesting to view properties. We work around the clock for you, with that being said, our

3 business hours are between 8am to 7pm daily, if there is an issue that is not an emergency outside these hours please shoot us an and will back to you by the next business day, at the latest. Saturdays and Sundays are our busiest touring days so if you are trying to get a hold of us during this time please expect a slight delayed response, of course we will get back to you as soon as we can. Step 3. How Much is the Property Worth / Negotiation - Once we find the right property for you that you would like to put an offer on, we will do a complete Comparative Market Analysis (CMA) so you can see what similar properties in the area recently sold for. We will then put together a negotiation strategy and lock the home in at the right price. Step 4: Understanding the Real Estate Contract / Steps Involved The real estate contract puts into writing the agreement between the homeowner (Seller) and the home buyer (Purchaser). The agreement between these parties outlines the price, mortgage terms, closing date, possession date and other agreements reached between the parties. The written contract is basically the roadmap that guides you through to your closing. The contract also provides statutory requirements, such as disclosures regarding property condition, lead paint, and mold. These documents are legally necessary for the completion of the closing. The contract is usually prepared by the real estate agent, if the seller employs one, or the seller's attorney. The terms of the closing are clearly written in the contract and then signed by the Purchaser and the Seller. Once signed by both parties, the deal is sealed and a timeline to closing begins. - Earnest Money This is typically the first deadline of the usual real estate contract. In order to prove your offer to purchase a property is "earnest," or "in good faith," you need to put money on the table. The first time this happens is within 24 hours after we receive the signed contract back from the seller. This is called initial earnest and is typically around $1000. The check is typically written out to the seller's brokerage and is held in an escrow account and will be applied to your downpayment. In the Chicago market there are typically two rounds of earnest, initial earnest, which we just discussed, and final earnest. The second deadline outlined in the contract is the time for Purchaser's deposit of the Final Earnest money, which is typically 3-5% of the purchase price. The earnest money is an amount paid by the Purchaser to confirm the agreement. The

4 earnest money guarantees Purchaser will close on the purchase. The earnest money is usually deposited one or two days after attorney review and inspection (This will be discussed in the next section). State real estate laws strictly regulate how real estate brokers conduct and manage these separate, professional escrow accounts. Brokers are not allowed to deposit any earnest monies in their own business bank accounts. Something Went Wrong, How Do I Get it Back? If you, the buyer, breach the terms of the contract, you may need to forfeit some/all of your deposit. The home seller took the house off the market for you and now he faces the loss of valuable time and money due to your default on the contract. That being said, there are numerous ways to back out of the contract and still get your earnest money back. Inspection issues can not be agreed upon or the buyer doesn t want to move forward after an inspection has been done. Buyer does not feel comfortable with the building rules and regulations, building documents, reserves etc. Buyer can not receive financing by the contingency date It is very important to know all the dates within the contract, and as your brokers, we will make sure you are aware of each milestone and what needs to be accomplished by the date set within the contract. It's also important to know that all earnest money deposit is not an extra cost of buying a home. It will be credited towards the down payment at closing, and in case it exceeds your mortgage down payment, you will receive the balance at closing. - Attorney Review and Inspection Contingencies Within the first 5 business days of the accepted contract (this can be extended through the attorney s if needed) is the time for the parties' attorneys to review the contract and for the buyer to obtain an professional inspectors services to inspect the property for any material deficiencies. This is important to the Purchaser because a professional inspection should detect any problems with the roof, foundation, plumbing, electrical and mechanical systems, as well as indicate the life expectancy of appliances and systems that bear watching even though they are currently in good

5 repair. Many times inspectors find deficiencies that sellers are unaware exist because they do not usually inspect their property. A good inspection allows a Purchaser and Seller to go through to closing without worrying about unknown problems popping up. You, as the buyer, will receive a full inspection report and it is at this point we can ask the sellers to fix or credit any major deficiencies that are uncovered. Attorneys also review the contract to make sure that it reflects the parties' agreement. If a party has forgotten to add or subtract something from the contract, their last chance to correct the agreement is during attorney review. - Mortgage Contingency The next deadline outlined in most real estate contracts is the time by which the Purchaser has to obtain the mortgage financing approval. This part of the agreement determines the type, amount and costs involved in the Purchaser obtaining their mortgage approval. It also contains the agreement between the parties as to what would happen if Purchaser is unable to obtain their mortgage approval in the time specified. Step 5: Closing Process - Final Walk Through Prior to closing, we will do a final walk through of the property to make sure any inspection items were taken care and that the property is delivered in the agreed upon state. - Closing Date The next, and usually final, deadline provided in the real estate contract is the closing date. This is the date where all the parties, the attorneys, and the lender meet at the office of the title insurer. During the closing the Purchaser signs all their mortgage documents, the seller signs all their documents transferring ownership and the title company representative makes sure all the documents meet the requirements of the lender and the title company to insure transfer of good title and insuring that title. The essential document of the closing is the Closing Statement, also known as the HUD or RESPA, so named for the federal statute that created the format of the document. The closing statement contains all the figures of money to be paid by the parties to each other or to providers of essential services for the closing. The base figures are derived from the contractual agreements between the parties, including the purchase price, the earnest money, the credit for the taxes, and credits for Seller prepaid items such as association assessments or prepaid water bills. The final figures tell the

6 Purchaser how much money he needs to bring to closing and the Seller how much he will be receiving at closing. Prior to closing, the attorneys are busy preparing all the documents necessary for the closing. - Possession Date The final act of any closing is the giving of possession, in the form of the keys to the property, to the Purchaser. Usually, this takes place at the end of the closing transaction after all money has been paid and received. While the Purchaser is working with his lender to obtain his mortgage approval, the Seller's attorney is generally preparing documents for the closing, according to the requirements of the contract. These documents include: title, survey, seller's mortgage payoff statement, realtor's fee statement, state, county and local transfer requirements and all transfer documents. - Title Insurance The real estate contract usually requires the Seller to provide proof of good clean title prior to the closing. The Seller's attorney will order a title commitment from a title company that he has regularly worked with. This commitment is a snapshot of any liens or encroachments against the property as of the date given. It discloses any current real estate taxes that are due and payable, as well as a history of any past taxes due. It discloses the names of the parties in title as well as any mortgages or home equity loans placed against the title. It shows matters of survey such as property setback lines, easements for utilities or other matters of public record. Finally, it discloses any judgments or liens placed against the property or against either the Seller or Purchaser. The title commitment is then cleared of all the objections prior to closing so that title can be insured to the Purchaser and Purchaser's lender.

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