Welcome to the Rockford Area Realtors first-time home buyer resource page!

Here you'll find everything you need to know about buying a home — from the top reasons to purchase a home to the brass tacks of buying. Click on any topic that interests you.

9 reasons to buy a house
First-time buyer FAQ's
The skinny on the housing market
10 steps to buying a home
Why should I use a Realtor®?

Why should I buy a house?
1. Pride of Ownership
Pride of ownership is the number one reason people buy a home. You can paint your walls any color you want, turn up the volume on your CD player, attach permanent fixtures and decorate however you'd like. But more than that, home ownership gives you and your family a sense of stability and security, and provides years of enjoyment.

2. Affordability
Most people are surprised to discover they can own a home for about the same as they pay in rent. Effective mortgage payments (which is to say your mortgage payment less the tax benefits of owning a home) are surprisingly competitive with rents.

3. Savings
Every time you make a rent payment, you're effectively throwing money away. Mortgage payments, on the other hand, build personal equity. It’s never too early to start building your nest egg, since on average 60% of a person’s equity is held in the property they own. Average net worth of a renter is $4,000, compared to $184,000 for a homeowner.

4. Appreciation
Although real estate moves in cycles, sometimes up, sometimes down, over the years, real estate has consistently appreciated.

5. Mortgage Interest Deductions
Home ownership is a superb tax shelter and our tax rates favor homeowners. As long as your mortgage balance is smaller than the price of your home, mortgage interest is fully deductible on your tax return. Interest is the largest component of your mortgage payment. Consult with your tax accountant on the full tax benefits you can gain.

6. Property Tax Deductions
IRS Publication 530 contains tax information for first-time home buyers. Real estate property taxes paid for a first home and a vacation home are fully deductible for income tax purposes.

7. Preferential Tax Treatment
If you receive more profit than the allowable exclusion upon sale of your home, that profit will be considered a capital asset as long as you owned your home for more than one year. Capital assets receive preferential tax treatment.

8. Mortgage Reduction
Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment.

9. Equity Loans
Consumers who carry credit card balances cannot deduct the interest paid, which can cost as much as 18% to 22%. Equity loan interest is often much less and it is deductible. For many home owners, it makes sense to pay off this kind of debt with a home equity loan. Consumers can borrow against a home’s equity for a variety of reasons such as home improvement, college, medical or starting a new business.

First-time buyer FAQ's
What does it take to buy a house?
Today’s homeowner needs to have stable employment of two years, sufficient income to cover the monthly mortgage payment and living expenses, adequate savings to make at least a 5% down payment and a FICO credit score of at least 620.

Can I afford a home?
There are many factors that come into play. For a quick answer, use this affordable home calculator. http://www.ginniemae.gov/2_prequal/intro_questions.asp

What is private mortgage insurance (PMI)?
You may require this insurance if you’re applying for a low down payment mortgage to protect the lender in case you default on your loan. It is usually required on mortgages with a down payment of less than 20 percent and costs about one-half of one percent of the mortgage amount per year, or $500 for a $100,000 loan. The good news is that once you’ve paid down your mortgage to the point where you achieve 20 percent equity in your home, most lenders will allow you to cancel the insurance.

What about credit scores?
Your credit risk score is a number used by lenders that provides a snapshot of your credit risk picture at a particular point in time. It helps the lender decide: “If I give this person a loan, how likely is it that I’ll get paid back on time?” The higher your score, the lower your risk to the lender and the better your loan terms are likely to be. The credit score used by most lenders is the FICO® score, developed by Fair Isaac Corporation. The FICO® score is calculated by each of the three major credit reporting agencies – Equifax, Experian or TransUnion – from a mathematical equation that evaluates many types of information from your credit report. The resulting score gives lenders a quick, objective measurement of an applicant’s credit risk. FICO® scores range from 300 to 850.

What if my credit isn’t so great?
If you’re planning to apply for a loan, there are ways you can improve your credit history: - Open and use a savings account and a checking account - Pay bills by personal check - Pay monthly obligations on time - Obtain a major credit card, or some other means of establishing an ongoing credit history - Be at the same place of employment for at least two years

Should I use a Realtor?
A full 78 percent of home buyers purchased their home through a real estate agent. Real estate professionals are relied upon to have experience in every aspect of a typical home purchase. Realtors can help the first-time home buyer understand the home buying process, point out unnoticed features with property, negotiate better contract terms, improve buyer’s knowledge of search areas and ultimately shorten the buyer’s home search process.

How does a real estate agent get paid?
Real estate agents work for a real estate broker. All fees paid to a real estate agent pass through the broker. Only a real estate broker can pay a real estate commission and sign a listing agreement with a seller.

What is a home inspection?
The purchase of a home is a major investment. A professional home inspection can protect you by providing an objective evaluation of a home’s value and soundness. An inspector visually surveys the major working elements of a house, including heating, cooling, electrical and plumbing components as well as a home’s structure. A test for radon may also be performed.

Do I need mortgage insurance?
Mortgage insurance, which protects the lender against a part of the loss should you default on the loan, is generally required when loans are granted with a low down payment. Mortgage life and disability insurance, on the other hand, is not usually required, and is designed to pay off the entire loan is case of your death or disability. Keep in mind that mortgage insurance policies usually name the lender as the beneficiary. You can obtain coverage through your lender or from a variety of other sources.

How can I be sure the real estate agent represents only my interests?
When you hire a buyer’s agent or buyer’s broker, you contract with an agent who agrees to legally represent you throughout the property transaction. In turn, you agree to pay the agent, usually a percentage commission, an hourly rate, or a fixed fee. To locate an agent who will represent you as a buyer, contact a real estate agent who is a Realtor®, who has agreed to abide by a strict Code of Ethics, binding them to fair treatment for both buyers and sellers.

How does the offer-counter offer process work?
Whether it’s the only offer, or the first of many, a seller usually doesn’t have to accept any particular offer. If a bid is way out of line price-wise, the seller is likely to reject it on the spot. But even with very attractive offers, the seller is likely to respond with a written counteroffer accepting some or most of the terms. You can accept the seller’s counteroffer, reject it, or present a “counter counteroffer.” Then, the negotiations will continue until either a deal or an impasse is reached. A contract is formed when either the seller or the buyer accepts all of the terms of the other’s offer or counteroffer in writing within the time allowed.

The skinny on the housing market
While there's a lot of talk about the current state of the market in the news, one fact is crystal clear: this is one of the best times in history for a first-time buyer to purchase a home. This is especially true in Rockford, one of the most affordable housing markets in the country. Just look at the evidence:
- Interest rates are at a 40-year low
- Home prices are down 4-5% over the same period last year
- You can purchase a home with a down payment of as little as $3,354
- Instead of renting, buyers can own their own space for an effective monthly mortgage of around $757.00
- Home loans are readily available, with options for those with less-than-desired credit scores
- Rockford consistently ranks in the top 8 markets in the U.S. for most affordable housing

Why buy now?
Because opportunities this good simply won't last.
- Interest rates are expected to increase by year’s end; each 1% increase in interest rates can mean a 15% smaller house
- Affordable down payments are based on current lower-than-average interest rates
- Interest on a mortgage is the only deduction for singles and young couples without children.
- Less expensive loans are now available, which significantly reduces your monthly payment.
- More FHA loans are now available

10 steps to buying a home
1. Assess your readiness
2. Get a Realtor®
3. Get loan pre-approval
4. Look at homes
5. Choose a home
6. Get funding
7. Make an offer
8. Hold an inspection
9. Get insurance
10. Hold closing

1. Assess your readiness
One of the keys to making the home buying process easier and more understandable is planning. Planning will help you discover valuable shortcuts in the home buying process. Do you know what you want? Are you planning to move to a new community due to a lifestyle change or is buying an option and not a requirement? What would you like in terms of real estate that you do not now have? Do you have a purchasing timeframe? Do you have enough money for a down payment and other expenses? The answer may surprise you. In recent years new and innovative loan programs have evolved which require a 5 percent down payment or less. In fact, a number of programs now allow purchasers to buy real estate with nothing down. In addition to a down payment, purchasers also need cash for closing costs (the final costs associated with closing the loan). Is your financial house in order? Those great loans with little or nothing down are not available to everyone — you need good credit. For at least one year prior to purchasing a home, you should assure that every credit card bill, rent check, car payment and other debt is paid in full and on time.

2. Get a Realtor®
How do I find a local Realtor? - Use the “Find a Realtor” search engine on rockfordarearealtors.org to find individuals who actively sell in your community. - Get recommendations from past sellers. - Look for Realtor signs in your community. - Check the classifieds in local newspapers and “shopper” publications. - Look at the listings in local real estate magazines. In some cases, sellers elect to meet only with one Realtor while other owners elect to meet with several. Whatever your preference, there will be a number of questions you will want to ask:
1. What services do you offer?
2. What type of representation do you provide? (There are various forms of representation in different states. Some brokers represent buyers, some represent sellers, some facilitate transactions as a neutral party, and in some cases different salespeople in a single firm may represent different parties within a transaction.)
3. What experience do you have in my immediate area?
4. How long are homes in this neighborhood typically on the market? (Be aware that because all homes are unique, some will sell faster than others. Several factors can impact the amount of time a home remains on the market, including changing interest rates and local economic trends.)
5. What is your fee? Brokerage fees are established in the marketplace and not set by law or regulation. Typically, brokers who list homes are compensated on a performance basis – that is, the broker is not paid unless the home sells under the terms and conditions that are acceptable to you.

3. Get loan pre-approval
Prequalifying helps determine how much house you can afford. It is a conditional loan approval granted when a credit report has been obtained and reviewed. By being prequalified, you can search for homes within your price range, and your budget. This is the quickest path to home ownership. Today, most lenders encourage prospective homebuyers to obtain a preapproval before they start shopping for a home. Preapproval saves time for everyone and helps make the closing process more efficient. With verification of financial information upfront while you are shopping the total underwriting time and eventual closing of the loan can be faster and more efficient. Because sellers and real estate agents view consumers who are pre-approved as serious buyers, you can increase your purchasing power and may be able to negotiate a better deal. You can go to a mortgage lender to get prequalified and to lead you through the pre-approval process. Many lenders and programs are available right here on this web site (Real Estate Lenders and Services). When you go to a lending institution to apply pre-approval, you should be prepared to show the following documents:
- Pay stubs
- Bank statements - two current monthly statements on all accounts generally are sufficient
- Earnest money—from a verifiable source
- Employment verification—a form must be filled out by your employer
- Tax returns
- Gift letter – a letter must accompany any monetary gift used to purchase the property, which should be given in the form of a check
You’ll most likely be charged a credit report fee by the lender, which will cover the cost of having your credit history examined. Credit reporting agencies compile credit reports on consumers, including bill payment history, as well as whether you have been sued or filed for bankruptcy among other information. Federal credit reporting laws do not give you the right to inspect the actual credit report at the reporting agency or to receive an exact duplicate of the report. But, you are entitled to a summary containing the sources of the report’s information. If your ability to obtain a mortgage is adversely affected by the credit report, you have the right to challenge its accuracy and seek corrections. Preapproval is typically subject to certain conditions, such as no change in your financial condition, the property passing title and appraisal review and possibly other guidelines.

4. Look at homes
Rockfordarearealtors.org offers a MLS property search in this web site, offering the most comprehensive listing of homes available in the area, representing homes listed by more than 1,200 area Realtors. This site is searchable by price, location, different home amenities. It’s important to target your search. By using basic measures such as general location and price, you can refine your search and focus on homes that offer the most desirable features. Recent home buyers searched for a home for a median 8 weeks and saw a median 11 homes.

5. Choose a home
Once you’ve made the decision to enter the housing market, there are many points you need to consider. Some of the best preparation for buying a home is to be clear about your needs, financial ability, and preferences. Because only you know what you like, it makes sense to develop a list of wants and needs. Start your list by recalling houses you like and write down a description of each. It's a good idea to create a list of “don’t wants,” too. Here is a list of common home features to get you started:
-Enclosed garage (1, 2 or 3 car)
-Number of bedrooms
-Central air conditioning
-Bedroom fireplace
-Laundry room
-Spacious backyard/garden
-Breakfast nook
-Walk-in/multiple closets
-Built-in cabinets, bookcases
-Number of full baths
- Finished basement
-Formal dining room
-Bay windows
-Large, modern kitchen
-Half-acre lot
-Walk-up attic
-Full basement
-Enclosed porch
-Living room
-fireplace
-Treed or wooded lot
-Swimming pool

6. Get funding
A mortgage is a lien on a property/house that secures a loan and is paid in installments over a set period of time. The mortgage secures your promise that you’ll repay the money you’ve borrowed to buy your home. Mortgages come in many different shapes and sizes, each with its own advantages and disadvantages. Make sure you select the mortgage that is right for you, your future plans, and your financial situation. Often the cost of real estate financing is greater than the original purchase price of a home (after including interest and closing costs). Because financing is so important, buyers should have as much information as possible regarding mortgage options and costs. Where do you get a loan? Mortgage financing can be obtained from mortgage bankers, mortgage brokers, savings and loan associations, mutual savings banks, commercial banks and credit unions. A list of local lenders can be found on this web site at Find Real Estate Services/Lenders. Choose a lender and have them help you through the funding process. Once you decide on the mortgage you want, do your homework. Different lenders offer different rates, points, and fees. There are thousands of loans available out there from a variety of lenders, but in general, the mortgage you choose will likely be determined by at least several key factors: How much down? Loans with 5 percent down or less are now widely available—in fact, loans from major lenders with no money down have appeared in recent years. If you place less than 20 percent down, lenders will want the mortgage guaranteed by an outside third party such as a private mortgage insurer (PMI, or private mortgage insurance, is required by lender to protect against any mortgage defaults). How’s your credit? The best rates and terms are only available to those with solid credit. To get the best loans, make a point of paying credit cards, installment payments, rent and mortgage bills in full and on time.

Home Financing Programs
- Freddie Mac - Housing and Urban Development - VA (Veteran Affairs) - Partners in Charity - City of Rockford - AmeriDream - FHA (Federal Housing Authority) - Illinois Housing Development Authority (IHDA) - Fannie Mae

How do you get a loan?
To obtain a loan you must complete a written loan application and provide supporting documentation. Specific documents include recent pay stubs, rental checks and tax returns for the past two or three years if you are self-employed. During the prequalification procedure, the loan officer will describe the type of paperwork required.

7. Make an offer
No aspect of the home buying process is more complex, personal or variable than bargaining between buyers and sellers. This is the point where the value of an experienced Realtor is clearly evident because he or she knows the community, has seen numerous homes for sale, knows local values and has spent years negotiating realty transactions. Once you’ve found a house you like, you must make a written offer to buy it. The seller will either accept your offer, make a counteroffer with one or more changes, or reject it outright. The advertised price of a house is just a starting point. It’s up to you to decide how much the house is really worth, based on such factors as: - How much comparable houses have recently sold for - Whether the local real estate market is hot - The seller’s needs, such as to move quickly - Whether the house is uniquely valuable to you - What you can afford Real estate offers almost always contain contingencies—events that must happen within a certain amount of time (such as 30 days) or else the deal won’t become final. For example, you may want to make your offer contingent on your qualifying for financing, the house’s passing certain physical inspection, or your ability to sell your existing house first. Whether it’s the only offer, or the first of many, a seller usually doesn’t have to accept any particular offer. If a bid is way out of line price-wise, the seller is likely to reject it on the spot. But even with very attractive offers, the seller is likely to respond with a written counteroffer accepting some or most of the terms. You can accept the seller’s counteroffer, reject it, or present a “counter counteroffer.” Then, the negotiations will continue until either a deal or an impasse is reached. A contract is formed when either the seller or the buyer accepts all of the terms of the other’s offer or counteroffer in writing within the time allowed.

8. Hold an inspection
Professionally trained home inspectors will conduct a thorough examination of your home to detect any potential systems or components requiring attention before the home purchase if finalized. Professional home inspectors examine existing homes using professional standards as a measure to accurately report their condition to parties involved in the real estate transaction. The home inspector does not evaluate the home for cost or value, but reports objectively in writing the condition of the home’s systems as they appear and operate at the time of the inspection. A detailed home inspection usually takes two to three hours or longer, depending on the home’s age and square footage. You should be present at your home inspection so that you can ask your inspector any questions and to look at any areas needing maintenance or repair. You will receive a detailed report of the condition of your home. A list of professional area inspectors can be found on this web site at Find Real Estate Services/Home Inspectors.

9. Get insurance
The essential idea behind various forms of real estate insurance is to protect owners in the event of catastrophe. There are various forms of insurance associated with home ownership, including these major types:

Title insurance: Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid.\
Homeowners’ insurance: Provides fire, theft and liability coverage. Homeowners’ policies are required by lenders.
Flood insurance: Generally required in high-risk flood-prone areas.
Home warranties: With new homes, buyers want assurance that if something goes wrong after completion the builder will be there to make repairs. But what if the builder refuses to do the work or goes out of business? Home warranties bought from third parties by home builders are generally designed to provide several forms of protection: workmanship for the first year, mechanical problems such as plumbing and wiring for the first two years, and structural defects for up to 10 years. Home warranties for existing homes are typically one-year service agreements purchased by sellers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost. Insurance policies and warranties have limitations and individual programs have different levels of coverage, deductibles and costs. Meet with your insurance agent to determine the necessary and most appropriate insurance coverage for the home you are purchasing.

10. Hold the closing
The closing or “settlement” is a brief process where all of the necessary paperwork needed to complete the transaction is signed. The closing agent conducts the settlement meeting and makes sure that all documents are signed and recorded and that closing fees and escrow payments are paid and properly distributed. The result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. At closing, you will sign legal documents—the agreement between you and your lender regarding the terms and conditions of the mortgage and the agreement between you and the seller transferring ownership of the property. Be sure to read all documents carefully before signing them, and do not sign forms with blank lines or spaces. Often an attorney is involved in this step of the closing process to help you understand and properly understand the terms of sale. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices. Borrowers handle the numerous fees associated with obtaining a mortgage and transferring property ownership in one of two ways: they either roll them into the principal balance of the new loan or agree to pay higher interest rates and have their lenders foot the bill. Some buyers may have to pay these out-of-pocket fees. It’s also your opportunity to make any last-minute changes to the transaction. Most home sales contracts entitle you to a walk-through inspection of the property 24 hours before closing. This is to ensure that the seller has vacated the property and left it in the condition specified in the sales contract. If there are any major problems, you can ask to delay the closing or request that the seller deposit money into an escrow account to cover the necessary repairs. The day before closing, be sure to gather all of the paperwork you have received throughout the home-buying process: good faith estimate, contract, proof of title search, insurance, flood certification, proof of homeowners and private mortgage insurance, home appraisal and inspection reports. You may need to refer to these documents at closing.

Why should I use a Realtor®?
1. The Realtor® trademark assures that you are getting more than a real estate licensee – you are getting a member of the National Association of Realtors® and the Rockford Area Association of Realtors®. When you see the term ‘Realtor®’, you know that the real estate professional you choose to work with subscribes to a strict Code of Ethics, is informed about issues affecting the real estate industry, and those affecting you, the prospective seller, buyer or renter.

2. A Realtor has easy access to information to assist you in making the right decisions. They are committed to provide personalized service to their customers and clients, and informed about financing options, the housing market, commercial and investment properties. Your best interests are always first with a Realtor, whether you’re a buyer or a seller.

3. A full 78 percent of home buyers purchased their home through a real estate agent. Real estate professionals are relied upon to have experience in every aspect of a typical home purchase. Ultimately, the homebuyer wants the agent to help the buyer find the right property to purchase (57%).

4. Forty-two percent (44%) of buyers found their listing agent through a referral from a friend, neighbor or family member and 88 percent would probably or definitely use their real estate agent again or recommend the agent to others.

5. Knowledge of the purchase process, negotiation skills, knowledge of the real estate market, a shortened home search process, pointing out unnoticed property features were rated as benefits first-time buyers found in their real estate agents during the home purchase process

How do I find a Realtor®?
One place to find a local Realtor is this web site under “Find Real Estate Services/Realtors”. We have a complete list of Realtors servicing your community. Other sources include open houses, local advertising, web sites, recommendations from neighbors and suggestions from lenders, attorneys, financial planners and CPAs. The experiences and recommendations of past clients can be invaluable. In many cases buyers will interview several Realtors before selecting one professional with whom to work. These interviews represent a good opportunity to consider such issues as training, experience, representation and professional certifications.