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2 Thinking of buying your first home? Bet you re pretty nervous, huh? Maybe even cold sweats nervous. How in the world are you going to afford it? Where do you start? All these questions make you wonder if it s worth the hassle. And when you own, Uncle Sam gives you a lot more breathing room. Because the majority of the monthly payment early on in a mortgage is going towards interest, consequently a large portion of your monthly housing payment can be deducted, reducing your taxes, big time. Take it easy. It s really not that bad. Once you finish the process, you ll be wishing you d done it sooner. After all, if buying a first home was really that difficult, we d all live in tents, right? Why is buying so much better than renting? For one, you ll have a place you can call your own. No landlord doing improvements on his time. It s all up to you. You are the master of your domain. Then there s the fact that renting is like flushing money down the toilet. Your payments do nothing for you in the long term. But when you own, each monthly mortgage payment builds equity, increasing your net worth. (Equity is the amount of home that you own outright, excluding the mortgage or other debts against it. The more payments made on your mortgage, the more equity you have in your home.)

3 You start with just a few baby steps. By getting answers to a few basic questions, you ll start to see this home buying process is no big sweat. Pre-approval is the first step. This simply entails calling your friendly Port Washington State Bank representative or applying online at and providing them your income and general amount of debt. They ll quickly give you an idea of how much a loan you can expect. All your qualifications will be taken into account, including your income and debts. Once you are approved, we ll issue a letter stating you have been pre-approved for a certain amount. This lets you know what size mortgage you can get and, along with your down payment, determine the price range of homes you can afford. Your credit report plays a big part in the pre-approval process. It s important to see how you ve handled debt in the past. We do this by obtaining your credit report from a credit bureau. Get a sneak peek of your credit. You can get your own credit report for free by visiting our website at On it, you ll find your personal credit history, including: information on every credit card or loan you ve had; when and how promptly you made the payments; department store charges; auto loans and other details. However, this is not a rating service, as many believe. Credit bureaus merely collect data and pass it along. This pre-approval process should give you an idea of the percentage of down payment you should expect. Your down payment is your initial payment on a home. There are certain minimums of down payments depending on the type of loan. Although most down payments are 5 to 10 percent of the loan, there are other programs that allow as little as 0 to 3 percent down. Better yet, you may even qualify for grant funds to help you come up with down payment and closing costs.

4 Once you ve started this journey you ll need someone with a road map. This is where a realtor comes in. He or she can pre-select homes that are in your price range and meet your criteria, such as size, location, etc. Realtors can also schedule appointments for you to see homes, even when the owners aren t there. They re also a great resource for pertinent information about taxes, school districts and details of the surrounding area. Once you decide to make an offer, a realtor can handle the negotiations over the price and terms of your offer. And once a price has been agreed upon, he or she can arrange for a home inspection, a crucial step before the purchase is complete. Look for a realtor who is experienced, knowledgeable and patient. Your family and banker are good sources of referrals.

5 You might think reviewing loan options is up there with deciphering ancient Greek text. But read on, and soon you ll realize it s rather simple. Fixed Rate Loans The majority of people seeking to finance a home will choose a fixed rate loan. This product offers stability and security. Knowing what your monthly payment will be for the life of the loan allows for budget planning and peace of mind. Port Washington State Bank offers a variety of terms at competitive rates. A lender will help you determine which program best meets your needs. Balloon Loans If you are planning to stay in your home for 7 years or less, or know that your financial circumstances may change in a few years, a balloon loan may be right for you. This loan is locked for 7 years. After 7 years, the balance of the loan must be refinanced at current rates either for another balloon term, or into a fixed rate. The advantage of this product is a substantially lower interest rate for the initial 7-year period. Adjustable Rate Mortgages (ARM) ARMs are fixed for a short period, usually one, two, three or five years, and then the rate and payment adjust annually for the remainder of the term. These products are appealing during rising rate markets, as the ARM rates are lower than those for fixed rate products. Special Programs Port Washington State Bank also offers special programs for first-time home buyers, veterans and those with low to moderate income, low or no down-payment or less than perfect credit. We will advise you about the programs for which you may be eligible. Another factor to keep in mind is Private Mortgage Insurance. PMI is a type of insurance that helps protect a lender against losses due to foreclosure. This protection is provided by Port Washington State Bank and allows us to accept lower down payments than would normally be allowed. It s also important to remember that at Port Washington State Bank, we service the vast majority of our home loans ourselves and never farm them out to another mortgage company. This way, you know you'll receive the highest quality service throughout the life of your loan.

6 Let s start out nice, neat and simple: interest is a finance charge you pay when you borrow money. Now here s a little further elaboration. Fixed Rates: They do not change. The interest rate remains the same throughout the loan term. Usually, fixed monthly payments include both interest and principal. Variable or Adjustable Rates: Tied to an independent base rate (Index) such as the Prime Rate. The interest rate will change as the index rises or falls. Therefore the monthly payments on your home vary according to outstanding balance and current rate. If you choose to go with variable or adjustable rate, you should look into an adjustable-rate cap. This sets a ceiling and floor for rate increases and decreases over the life of the loan. HOME INSPECTIONS Buying a home is the biggest investment in your life. So we hope it's safe to assume you'd like to make sure you're not buying a lemon. In a nutshell, that's what home inspections are for. After your offer has been accepted and you have signed a sales contract, an inspector of your choice will ensure there are no unpleasant surprises after you move in. The inspector will check for things that may not have been obvious to you things that could cost you a whole heap of cash to repair. If there are important problems, you may still choose to buy the house. But with the cost of these repairs in mind, you will have an opportunity to renegotiate with the owner. Another advantage is that the house inspector can help familiarize you with the property that is about to be yours. 30-YEAR MONTHLY LOAN PAYMENTS LOAN AMOUNT 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00% 100, , , , , , , , , , , , , , , , , , , , , , , , , , , ,000 1, , , , , , , ,000 1, , , , , , , YEAR MONTHLY LOAN PAYMENTS LOAN AMOUNT 5.00% 5.50% 6.00% 6.50% 7.00% 7.50% 8.00% 100, , , , , , , , , , ,000 1, , , , , , , ,000 1, , , , , , , ,000 1, , , , , , , ,000 1, , , , , , , ,000 1, , , , , , , ,000 1, , , , , , , ,000 1, , , , , , , ,000 1, , , , , , ,911.30

7 1 2 3 Seems relatively simple, doesn t it? But just to make sure you re comfortable, here s a quick summation of the whole process. Pre-approval for a Mortgage: Meeting with one of our loan officers will help you analyze your financial qualification for purchasing a home. You can also apply online at We will review your income, current debts and credit history. This analysis will help to determine a mortgage range for which you are qualified. The mortgage plus your down payment will provide a price range for homes you can afford. Best of all, there is no charge for pre-approval. Write an offer to Purchase: Your real estate associate will help you find the perfect home within your price range. The associate will then draft an offer to purchase and present it to the seller. A check for earnest money normally accompanies the offer. If you are writing an offer on a home that is for sale by owner, it is a good idea to get help from a real estate attorney. The offer will contain a contingency saying that the contract depends upon your ability to get a mortgage loan. Acceptance of the Offer: After the offer to purchase has been presented, any further negotiation is accomplished through counter offers or amendments. When all the terms are agreed upon, the offer becomes a contract. 4Loan Application Process: Our loan officer will meet with you to fill out the loan application and other related documents and disclosures. This meeting will take about an hour. At this time, your pre-approval will be reviewed to determine if any changes have occurred which will affect the application. You will be expected to come to the meeting with items listed by the lender that allow the bank to verify your credit worthiness, income, job history and down payment. We will then disclose the amount of money needed to close the transaction. 5 The loan application is then reviewed by one of our loan underwriters who determines if the loan can be approved or if additional information is necessary. Underwriting is a subjective process and, therefore, questions may arise and should be dealt with quickly by you and your loan officer. A credit decision concerning your qualifications can usually be made within 24 to 48 hours after application, but it will be contingent on an acceptable appraisal of the property being purchased. Loan Approval and Closing: Once the underwriter has the appraisal and has approved the loan, the closing time is set. The closing will take place here at the bank. At closing, various forms are signed and checks and keys are transferred. Pop open the champagne. The real estate firms, or lawyers, and the lender gather the necessary information and prepare the closing documents. You are now a homeowner.

8 So you don t feel like a stranger in a strange land, here s your very own glossary to help you speak the language. (Or at least give you an idea of the language the bankers and realtors are speaking.) Adjustable Rate Mortgage (ARM): Loans with interest rates that can fluctuate during the term, based on an index to which the interest rate is tied. Amortization Table: A chart that breaks out the total annual payment per year, over the entire term. Amortized Loan: A loan that is paid off in equal installments during its term. Annual Percentage Rate: The amount a loan costs, paid yearly and expressed as a rate of costs over the loan itself. Appraisal: An estimate of real estate value. The most important factor in determining its value is comparable neighborhood sales. Arbitration Agreement: An agreement between the seller and buyer to insure that an independent arbitrator will decide, out of court, any disputes over the property. Assessments: A city determined tax on homeowners used to pay for improvements to the city in which the homeowner lives. Association Dues: Payments made by homeowners to pay for the maintenance and management of shared property. Assumable Loan: A type of mortgage that allows the buyer to take over the responsibility of the mortgage on the encumbered real estate. Capital Gains Tax: A tax on the profit obtained from the sale of capital asset. Closing Costs: Expenses incurred for the purpose of closing a real estate or mortgage transaction. Examples include: attorneys fee, recording charges, survey fee, title policies, lender fees, discount points, etc. Commitment Letter: A letter that your lender may send you stating the terms of the loan and its approval. Conventional Loans: Non-governmental home loans. Contingency: A clause with a purchase agreement that has to be met before the contract can be exercised. Down Payment: The initial payment of a home. There are certain minimums of down payments depending on the type of loan. Most down payments are 5 to 30 percent of the loan. Earnest Money: Money that accompanies an offer made on a property. The money is then applied to the down payment at closing. If the offer is not accepted the money is returned. Equity: The difference between indebtedness and market value of a property. Escrow: Funds, either a bond or a deed, held by a third party that will not be released to the grantee until conditions of a contract or an agreement are fulfilled. FHA Loan: A Federal Housing Administration loan program that provides a guarantee against default. The borrower may benefit from a smaller down payment. Fair Credit Reporting Act: Information in your credit report that federal law gives citizens the right to challenge. Fixed Rate Mortgage: Loans with interest rates that do not fluctuate. Homeowner s Insurance: Insurance homebuyers must have in order to protect the investment of the property. Loan Processing: The lenders opinion of your financial and credit past combined with your income to calculate your ability to qualify for a loan. Loan to Value Ratio: This is the ratio of the amount borrowed to the appraised value of the home. Lock-In Agreement: This agreement allows you to lock-in an interest rate at or anytime up to the closing. Mortgage Insurance: This insurance protects the lender from possible loss if the borrower defaults on the loan. Multiple Listing Service (MLS): A service used by agents to obtain information on homes and land for sale. PITI: Principle, interest, taxes insurance-many mortgages are set up with monthly loan payments to include these. Purchase Agreement: This is the agreement that legally binds the buyer and seller. All contingencies of the agreement must be listed here. Title: Evidence of a person's legal right to the ownership of a property, usually in the form of a certificate or a signed contract. Title Insurance: Insurance purchased to protect the lender and homeowner against claims on the title from previous owners or encumbrances. Underwriting: An analysis done by the lender to determine if you qualify for a loan. Veteran's Administration Loan (VA loan): These loans are available to US veterans and their surviving spouses. The loans require no down payment and you can borrow the entire purchase price of the home.