Steps to Homeownership
Step 1: Homebuyer Education
Homebuyer education will explain how the buying process works, credit and debt management, and budgeting. It also will help you to choose the mortgage option that is best for you.
If you are thinking of buying a home, plan to attend a hoMEworks class in person at one of several convenient locations statewide, or complete your homebuyer education on line.
- Attend a local class. hoMEworks offers a 8-hour homebuyer education class taught by non-profit organizations in an educational, non-sales oriented environment. The classes are conveniently offered statewide in the evenings and on weekends for a small charge. All classes require advance registration. Review the schedule of upcoming classes at www.mainehomeworks.org .
- Learn on line. hoMEworks also has partnered with eHomeAmerica to offer a fee-based online certification course. The course takes 6 to 8 hours, and you may stop and start at any time. You will then finish the course with an educational telephone session with a hoMEworks Educator who will provide information about local, state and federal homeownership programs available in Maine. Register for the course and select a hoMEworks Educator at https://mainehousing.ehomeamerica.org .
If your lender or mortgage assistance program requires that you attend a "HUD approved" home buyer education class, the eHome America online course may not be acceptable. Please check with your lender to find out which classes are allowed.
A hoMEworks-approved homebuyer education class is required to receive our $3,500 Advantage option towards down payment and closing costs offered only with MaineHousing’s First Home Loan.
Step 2: Check Your Credit Report
Your credit score is based upon information that appears on your credit report. It is important that you review the information in your credit report and be sure it is accurate before visiting a lender. A lower credit score could mean additional fees or a higher interest rate, resulting in a higher monthly payment.
To request a free copy of your credit report:
If there is any inaccurate or incomplete information in your report, write to the credit reporting company and tell them what information you think is inaccurate. For more information about how to dispute errors, visit the Consumer Federal Trade Commission website
MaineHousing’s First Home Program requires a minimum credit score of 640.
Step 3: Determine How Much You Can Afford
Being able to afford a home is about more than just making a mortgage payment. A lender will often tell you a dollar amount you are qualified to borrow, but not how affordable the payment will be. Once you factor in mortgage insurance, homeowners insurance and taxes, borrowing the full amount you qualified for can leave you with little cash left over. Use a mortgage calculator or a rent vs buy comparison to determine if buying a home is the right choice for you.
Before you visit a lender, work out a budget with a mortgage payment that is comfortable for you.
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Contact a First Home Lender for a loan pre-approval to confirm how much you can afford through the First Home or Salute ME Loan Programs. For buyers who do not have the resources to make a 20% down payment, a MaineHousing mortgage may be combined with a government guaranty (FHA/RD/ VA) or with a MaineHousing approved private mortgage insurance company, where little or no down payment is required. A First Home Lender will help you find the best loan guaranty or mortgage insurance option for you.
If you are pre-approved, the lender will provide you with a Loan Estimate a few days after you apply for the loan. The Loan Estimate will help you understand the full cost of the mortgage, including fees and interest. Keep this document safe as you will want to use it again before your loan closes.
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When shopping for a home, keep your needs and wants in mind, take notes, and ask questions. For most homebuyers, the first step toward buying a home is connecting with a trusted real estate professional to help them along the way. Consider working with one of MaineHousing’s First Home Finders , who are real estate professionals who have sold three or more homes that were purchased with the First Home Loan program in the previous year.
You may want to consider hiring a buyer’s agent who will work solely on your behalf and look out for your best interests. A buyer’s agent is different from the listing agent who represents the seller's interest to help them market their home.
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You’ve found the home of your dreams and are ready to make an offer, but how does that work?
Working with your real estate professional to submit a Purchase & Sale Agreement will assure that you’ve covered all aspects of the ever changing real estate laws. In addition, a real estate professional will help you determine how the asking price compares to the market value based on recent sales of comparable homes in the area.
The Purchase & Sale Agreement should also state the amount of the down payment, the total loan amount, and the exact financing terms you will accept, as well as how long you have to secure the agreed-upon financing.
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Step 7: Obtain a Home Inspection
You’re not just buying a home, you’re also buying problems that may be hiding just beneath that attractive façade, which is why it’s important to include a home inspection contingency in your offer to purchase. When making an offer and signing a contract, it is strongly recommended that you require a “satisfactory home inspection” as a condition of the purchase. Inclusion of this clause enables you to hire a home inspector for the purpose of doing a thorough structural and mechanical inspection of the home. You may also want to consider other third parties to test for arsenic, uranium, radon, and lead for homes with private well water and septic tank and field lines for a private wastewater system.
A home inspector will examine the home’s condition and alert you to any issues that may be present. The cost of a home inspection can vary depending upon the thoroughness of the inspection, time of year and location, however the inspection finding(s) will help you evaluate whether there are any deal-breakers. You can also use the findings to possibly help negotiate repairs with the seller before closing or credits with the seller before closing.
Unsure of where to find a home inspector? Home inspectors are not licensed, but many are certified which means they have passed an exam and have agreed to abide by standards of practice. There are three organizations that certify home inspectors:
Real Estate professionals have typically worked with a variety of qualified home inspectors and may be able to suggest a reputable contact. If you’re looking for a Real Estate professional, check out the list of MaineHousing’s First Home Finders .
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Step 8: Obtain Homeowner's Insurance
Mortgage lenders require borrowers to carry enough homeowner’s insurance, also called hazard insurance, to cover the full replacement cost of the home’s structure. Homeowner’s Insurance provides financial protection in the event that your home or its contents are damaged. It also provides protection if you or a family member are held legally responsible (liable) for injuries to others or damage to their property.
Prior to closing, your lender will require that you have paid the first year homeowner’s insurance premium upfront. After closing, your lender may include insurance premiums and property taxes in your monthly payment and hold the funds in an escrow account until the bills for each are due to be paid.
When looking for an insurance policy, you should first decide what coverages and policy limits you need. It’s important that you know how much it would cost to rebuild your home. Talk with a contractor or your insurance agent about what it would cost to rebuild your home at current material and labor rates to ensure your coverage is adequate.
Getting premium quotes is a good way to compare different companies’ prices. When requesting quotes make sure you are asking each agent or company for the same coverages and limits so that you know you are comparing apples to apples.
The Bureau of Consumer Credit Protections’ publication “A Consumer’s Guide to Homeowners Insurance” is an excellent resource for first time homebuyers.
The location of your house may require additional insurance coverage, such as flood insurance, to be purchased prior to your loan closing.
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Step 9: The Importance of an Owner’s Title Insurance Policy
The owner's title insurance, called an Owner’s Policy, insures against any unforeseen problems should an issue with the title arise that was not discovered during the title search and results in financial loss.
The lender will arrange for a title search to determine whether or not the property has a clear title. Having a clear title means that there are no known liens or claims against the property which could affect your interest in the property. A title search will determine the history of ownership and whether there are any liens, claims, or unpaid taxes.
A lender will purchase a title insurance policy to protect the lender’s interest in the property. However, should a problem with the title arise after closing it does not protect the buyer, cover the owner's equity in the property, or pay the homeowner's legal expenses. For this reason, it is highly recommended that a buyer obtain an Owner’s Policy.
For more information, visit the Consumer Financial Protection Bureau (CFPB) website .
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Closing day is when the seller receives their funds and you receive the deed and keys to your new home! At the closing you will be required to sign legal documents for the loan and transfer of property. You will also need to pay any needed closing costs,escrow items, and down payment.
Three days before loan closing you will have an opportunity to review the final estimate of closing costs called a Closing Disclosure. The Closing Disclosure is a document that provides final details about the mortgage loan you have selected including the loan terms, your projected monthly payments, and how much you will pay in fees and other closing costs. It is recommended that you compare the Closing Disclosure information to the Loan Estimate, which the lender provided you with a few days after you applied for the loan. The Loan Estimate will help you understand the full cost of the mortgage, including fees and interest.
You have the right to request a walk-through inspection of the property 24 hours before closing. This walk-through is an opportunity to ensure that the seller has vacated the property and left it in an acceptable condition with all appliances and other items included in the sale as agreed.
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Step 11: Congrats, You're a Homeowner!
Keeping Up With Repairs
Every step you take now to care for your home will benefit you and your family in the future. It is important that you maintain the condition of your home for safety and comfort and to protect the value of your property. Maintaining your property requires both time and money. When it comes to budgeting for annual home maintenance, a general rule of thumb is to set aside one percent of the price you paid for your home.
If you are a homeowner whose drinking water comes from a private well, Maine’s Division of Environmental Health recommends testing your water once a year for bacteria and nitrates and every 3 to 5 years for contaminants such as arsenic, uranium, radon, and lead. Visit the Maine’s Division of Environmental Health website for a list of water testing laboratories.
Establish an Emergency Fund
An emergency fund can help you prepare for life’s unexpected events, such as a job loss, health issue, or large home or auto repairs. An emergency fund should cover at least 3 to 6 months' worth of living expenses, including the most common expenses such as, mortgage payment, utility bills, food costs, health insurance, student loans, car payments and car insurance. You can build your emergency fund by putting away small amounts on a regular basis, every week or every paycheck.
If you are looking for a tool to help establish your budget based on actual expenses as a new homeowner, Mint is a free, secure online tool that allows you to download all your financial information from your bank and then track and categorize your spending. Mint will create a budget for you based on your spending habits. https://www.mint.com/budgeting-3/home-budget-template-create-an-effective-household-budget
Other online money management tools can be found at:
Managing Financial Difficulties
Should you encounter a financial issue or a hardship that prevents you from making your mortgage payment, or you have not yet been late on your payments, but are worried that it could happen, make a call for help right away.
- Call your loan servicer. There are a variety of programs available to help you resolve your delinquency and keep your home. You may be eligible for a loan workout option to make your payments and terms more manageable. Ask your servicer to send you a loan workout (loss mitigation) packet of forms. After you fill out and return the forms, the servicer will review your income, debt, and hardship and determine whether you’re eligible for a foreclosure avoidance option.
- Call a HUD-approved housing counselor. Experienced and trained housing counselors can assess your situation, answer your questions, go over your options, prioritize your debts, and help you prepare for discussions with your loan servicer. A counselor can work with you over the phone and/or set up a time to meet with you in person to discuss your situation. There is no charge to work with a housing counselor — help is free!For a list of HUD-approved housing counselors who provide foreclosure prevention counseling services, visit http://mainehousing.org/docs/default-source/default-document-library/foreclosure-counseling-agencies.pdf?sfvrsn=9192d015_24
- Beware of scams! Do not pay a third party provider a fee for foreclosure prevention services.
Make Your Home Energy Efficient
Consider making your home more energy efficient. After your mortgage payment your monthly heating and utility bills are usually your next largest housing-related expenses. Investing in energy efficient improvements will decrease the money you spend on energy bills, increase the money you have for savings or home maintenance, increase the resale value of your home, and make your home more comfortable.
A home performance evaluation, or energy audit, is one way to determine where heat may be leaking out of your home. The energy audit report will identify where the greatest energy losses are in the home, estimate how long will it take for the upgrade to pay for itself, and determine if you can do the work yourself or need to hire a contractor. If you are interested in a resource for homeowners hoping to make their homes more energy efficient, visit the Efficiency Maine website .
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