For Homebuyers

CHFA First-time Homebuyer Guide

The Connecticut Housing Finance Authority (CHFA) is committed to empowering first-time homebuyers with information that can help them make responsible financial decisions as they prepare for homeownership. If you are considering buying your first home, but are uncertain how to begin, let us guide you along the path towards homeownership, one step at a time.

To help you achieve your dream of homeownership, CHFA offers a variety of mortgage programs. (See, CHFA Homebuyer Programs.) Some of our loan programs provide supplementary assistance with the upfront expenses associated with buying a home, like down payments, inspection fees and closing costs. (See, Downpayment Assistance Program.)

In partnership with over ten HUD- and CHFA-approved Housing counseling agencies, CHFA also provides free homeownership education programs at different locations throughout Connecticut. If you believe you might benefit from comprehensive instruction in the financial and practical details of buying and owning a home, register for an eight-hour course today. (See, Homebuyer Education schedule of classes.)

In addition, at any point along this journey, you can direct questions to one of the more than 100 CHFA-approved Participating Lenders (banks and mortgage companies) across the state. (See, Participating Lenders near you.)

Because buying a home can take several months, it’s helpful to have a strategy. Following the basic steps listed below will guide you through one the most important transactions of your lifetime, the purchase of your first home.

Get pre-qualified for a mortgage.
Get the help of a real estate agent.
Find the right home for you.
Make an offer on a home.
Apply for a mortgage.
Get a home inspection.
Attend the closing prepared.

Step 1: Get pre-qualified for a mortgage.

A CHFA Participating Lender can assess your credit-worthiness and eligibility for a home loan before you formally apply in a process called “pre-qualification.” By evaluating your household income, your savings and your existing debt, a lender can tell you “how much house” you can afford. (For a quick, do-it-yourself estimate of your mortgage limit, use the home affordability calculator.)

During the pre-qualification, you should also ask your lender to provide you with a list of potential closing costs. A lender is not required to provide you with a formal quote of these costs until you actually apply for a mortgage, but it may be prudent for you to have this information early so you can budget for the overall costs of the home purchase.

Though a pre-qualification is not a guarantee of obtaining a mortgage on the home you hope to buy, obtaining a pre-qualification before you make an offer on a home can strengthen your negotiating position. A seller who is confident in your ability to finance the purchase of a home is likely to seriously consider your offer.

Remember that you are under no obligation to obtain a loan from the lender that pre-qualifies you. However, the lender can answer questions and provide further details on the preliminary financial assessments and decisions you need to make as you prepare for homeownership. (Find a CHFA Participating Lender near you.)

Obtain credit counseling if needed to improve your credit.

If you learn during pre-qualification that your credit status has temporarily put your dream of homeownership on hold, register for free credit repair counseling services provided by CHFA to prospective homebuyers. (See, Homebuyer Education schedule of 8-hour classes for information on counseling opportunities.) Or, take advantage of not-for-profit resources available to consumers that provide free debt management or credit counseling services. With a plan in place, you can improve your credit score, build your financial profile and move closer to realizing your dream of becoming a homeowner.

Step 2: Get the help of a real estate agent.

While it is certainly possible to search for homes on your own by scanning newspapers and internet sites dedicated to real estate listings, you can place yourself at an immediate advantage by enlisting the services of a professional. Real estate agents have in-depth and up-to-date knowledge of the communities and real estate markets that you are considering. They can easily locate neighborhoods and homes that not only fall within your price range and the CHFA sales price limits but satisfy many of your other requirements as well. An agent can search for a home that meets your specifications. In addition, an agent can schedule opportunities for you to view and tour homes. (See: www.realtor.com, www.iqrealestate.com, or www.homegain.com, for information on realtors in your area.)

Understand the real estate contract before you sign.

Before you enter into a relationship with a real estate agent, make sure you understand the terms of your relationship and record them in a written contract. Your contract should state specifically that the agent represents you as the buyer. This will ensure that the agent is representing your interests alone and not those of a potential seller. Typically, agents are not paid upfront by the buyer. Their fees are generally paid by the seller as a commission drawn from a percentage of the sale price of a home. Nevertheless, the terms and conditions of payment should be clearly stated in your contract with your agent.

Step 3: Find the right home for you.

Once a lender has pre-qualified you by calculating the maximum mortgage you can afford, the next step is to look for and find the right home for you and your family that is within your price range.

Describe your ideal home.

What does your dream house look like? How big is it? Does it have a porch, a basement? How many bathrooms? How much closet and storage space? How many bedrooms, windows? Does it have laundry facilities? Does it come with appliances? Does it have a garage? A backyard? Your agent will ask you many questions to help you precisely describe the kind of home you hope to buy.

A good agent will help you to focus on what you really need, first. The agent knows that most first-time homebuyers do not get everything on their “wish list” in their first home.

Describe your ideal neighborhood.

A good agent has the experience and resources to guide you not only towards the right home for you, but to the right neighborhood and community as well. A house that seems perfect could become a source of future regret if the location and the community do not mesh with your budget, needs or lifestyle.

Part of your agent’s job is to help you to find a home and a community in which you and your family are most likely to thrive and find happiness. You and your agent will need to consider whether a town or city is fundamentally affordable to you. A typical list of questions that might be asked include: Are the property taxes and other local taxes within your budget? Will you be within reasonable commuting distance to your workplace? Is there convenient public transportation available to you and your family? If you have children or intend to have children, is the school system of good quality? Are there daycare centers nearby? Are town services sufficient? Is there a public sewer system? Are there sidewalks? Are there retail centers, parks, doctors and dentists, a clinic or hospital nearby?

The questions that are important to you will differ from other homebuyers. By discussing these questions with your agent, you increase the likelihood of finding your future home in a community where you will live happily.

Step 4: Make an offer on a home.

Once you have found a home that you hope to buy and are poised to make an offer, your real estate agent will represent you in drafting a reasonable offer and presenting the offer to the seller’s agent. It is important to remember that while you alone determine the price you are prepared to offer, your agent can provide expert advice to adequately protect your investment and interests in the terms, conditions, contingencies and deadlines included in your offer.

Your offer should take into consideration the age and condition of the home, the cost to make any repairs, the desirability of the home’s location, how long the home has been on the market and whether the seller appears motivated to move the property quickly, among other factors.

The offer is legally binding.

Remember that your offer becomes a legally binding contract that commits you to purchasing a specific property at a specific price within a specific timeframe, as soon as you make a good faith deposit and the seller accepts it by signing the document. Typically, an offer is conditioned upon the completion of particular actions by the seller before the loan closing, like making certain repairs. The offer is also typically conditioned upon the buyer’s ability to obtain mortgage financing within a particular time frame. This contingency protects you from losing your deposit should you fail to secure a timely approval on your home loan application.

The seller can accept, reject or counteroffer.

The seller has the option to accept your offer, reject your offer or make a counteroffer which modifies some or all of the conditions or terms of your offer. This negotiation can alternate back and forth several times before an agreement is reached and a contract is signed by both parties that finalizes the terms and conditions of the transaction. At this point, the legal ability of the seller to entertain other offers ends.

Watch the clock and the calendar.

Timing and deadlines are very important in real estate transactions. Once your offer is accepted and there is a preliminary contract on the home purchase, you should make sure to allow sufficient time to apply for and obtain mortgage financing, to schedule the closing and the home inspection of the property, and to negotiate the details of the final contract known as the Purchase and Sale Agreement between you and the seller.

Step 5: Apply for a mortgage.

Once you have a signed contract on a home, it’s time to apply for a mortgage. Remember that you still must formally apply for a mortgage even if you have already been pre-qualified. Also remember that you are not obligated to apply for a loan with the same lender that pre-qualified you.

Get the help of an Attorney.

Now is also the time to retain an attorney if you have not already done so. Applying for a mortgage and purchasing a home represent complex legal transactions. Having an experienced advocate looking out for your interests is important as you embark on these last steps towards becoming a homeowner. (See, the Connecticut Bar Association to find a list of attorneys that practice real estate law near you.)

Meet with a CHFA Participating Lender.

If you wish to purchase your home with a CHFA mortgage, you must meet with a CHFA Participating Lender who will originate and process your CHFA loan application.

Keep in mind that there are eligibility requirements for most CHFA homebuyer programs. To be eligible, generally, you must not have owned a home in the last three years. If you have owned and it has been less than three years since you sold or you are currently selling, you must be moving to a targeted area of the state. Also, in many cases, the home you wish to buy must not exceed CHFA sales price limits. Similarly, your total household income, before taxes and expenses, must fall within CHFA income limits, unless you are moving to a targeted area. Your CHFA Participating Lender can help you select the loan program with the most favorable interest rates to fit your circumstances. Your lender will then guide you step by step through the entire application process. (See, Participating Lenders near you.)

Your lender will discuss mortgage terms and rates.

Your lender may discuss with you various types and terms of mortgages. While CHFA only offers 30-year fixed rate mortgages, some lenders offer more exotic alternatives. 30-year fixed rate mortgages are generally safe because they lock in an interest rate for the life of a loan enabling you to predict and plan your monthly budget. Some mortgages, like adjustable rate mortgages (ARMs), are more risky because their interest rates are reset after a period of time. CHFA encourages first-time homebuyers to investigate our mortgage programs.

Your lender will explain "PITI."

Your lender will explain the components of a monthly mortgage payment known as “PITI.” PITI stands for “principal, interest, taxes and insurance” and represents the monthly loan service of principal and interest, as well as the monthly property tax payment, homeowners insurance premium, and mortgage insurance premium, if required, (as well as any other insurance premiums) that combine to form your monthly mortgage payment.

For a CHFA mortgage, your taxes and insurances are required to be escrowed, which means that your lender will deposit the funds in an escrow account each month and pay them on your behalf when they come due. Your lender will provide you with a monthly breakdown of these components and will explain the schedule of payment over the life of the loan. Typically, a home loan is amortized, which means that you will pay more interest than principal in the early years and less interest than principal in the final years of the loan. The amount of your monthly combined principal and interest payment, however, will stay the same for the life of the loan. Amounts required for property taxes and insurance, on the other hand, can fluctuate. Should this happen, the amount you will pay your lender each month will also change. Your lender will notify you in writing should these changes affect your monthly mortgage payment.

Your lender will provide a “good faith estimate” of closing costs.

Federal law requires your lender to provide you with a “good faith estimate” of closing costs within three days of applying for a loan. Closing costs can range from between 3% to 5% of the sale price of the home.

Closing costs include fees associated with the services provided during the processing of your mortgage application. Some of these fees cover the costs of the credit report, the title search, the title insurance, the lender's attorney, the buyer’s attorney, the home appraisal, the property survey, the document recording and the transfer taxes. Closing costs also include escrow accounts. Knowing what your closing costs will be in advance helps you to plan your budget for the loan closing, which is when you will be required to pay them.

If you do not have funds saved for closing costs, you may be eligible to borrow the closing costs through CHFA's Downpayment Assistance Program. This becomes a second mortgage on the property.

Step 6: Get a home inspection.

A home inspection protects your interests.

The expression “buyer beware!” holds especially true when the buyer is purchasing a home. Hiring a licensed, independent home inspector licensed by the State of Connecticut to visually inspect the home you hope to buy will provide you with information that you and your agent will need as you negotiate the terms and conditions of the contract. Typically, the mortgage insurer of the loan will inspect the home and require that the home meet local ordinances with regard to health and safety. You will be responsible for paying for the home inspection done by an independent home inspector if you choose to have one. Some buyers and sellers agree to share the cost of the repairs.

Even under circumstances where the seller provides you with an inspection report or offers you a home warranty, a prudent homebuyer will insist on obtaining an independent inspection. This will lower the risk of any unforeseen surprises that could either defeat your effort to buy the house or, worse, lead to costly repairs after you buy the house. Homebuyers and home sellers alike depend on accurate home inspections to help them reach fair agreements regarding the sale of a home.

A home inspection is not an appraisal.

All lenders and mortgage insurers require an appraisal to confirm that the home and the value of the home meet their requirements, but an appraisal is not the same as an inspection and you should not rely on the appraisal to assess the condition of the home you are purchasing.

An appraisal is intended to assess the value of a home based on the value of comparable homes in the neighborhood for insurance purposes. On the other hand, a home inspection is intended to ensure that a homebuyer is thoroughly informed as to the condition of the home prior to purchase. Nevertheless, you should plan to be present during the lender’s appraisal of the home.

A home inspector should be state-licensed.

Hiring a qualified, licensed home inspector is essential. Often your real estate agent, your attorney or your lender can provide you with a list of local home inspectors. Be sure to screen out unqualified candidates by asking for multiple references and contacting them. Also make sure you verify that the candidate has a valid and current Connecticut Home Inspector’s License with the Connecticut Department of Consumer Protection. Finally, make sure you are present during the home inspection.

A licensed home inspector will thoroughly examine a detailed list of elements in the home you hope to buy. Generally, your inspector will examine the structure of the home, including the roof, walls, ceilings, floors, windows, doors, foundation and basement as well as the heating, plumbing, electrical and air conditioning systems. You can also hire an inspector to inspect for termites, radon, lead paint and asbestos.

A home inspector should provide a written report immediately.

A good home inspector will provide you with a written report immediately following the inspection. Any conditions of disrepair in the inspector’s report can reopen negotiations with the seller. You may decide to condition your offer on the seller paying for and making repairs before the transfer of property at the loan closing. You may also decide to lower the purchase price of your offer to account for the costs that you will incur to make the repairs. A failed inspection usually allows the buyer to withdraw from a contract entirely, as long as this contingency was included in the buyer’s offer.

Step 7: Close on your home.

The closing is the last step in the process of buying your home. “Closing” refers to the transaction during which you close your deal with the seller to buy a home at the same time that you close your deal with your lender to borrow a loan.

Schedule the closing with room to spare.

If you have been a renter before venturing down this path to homeownership, be especially aware of the timing of the closing. Allow a week or more before your lease expires to give you ample time to paint, make any repairs and to physically move your family and your belongings into your new home. Moving often takes several days.

If you are selling a house and buying another, remember that you must schedule two closing dates in the right order. Be sure to “close” on your first home before you “close” on your new home so that you will have the proceeds, if applicable, from the first transaction available to you to cover some of the costs of the second transaction.

Conduct a final walk-through of the home before the closing.

Conduct a walk-through or last inspection of the home with the seller and your attorney 24 hours before the closing to ensure that the home is in acceptable, move-in condition.

This is important because, once you close on the property, you will lose any legal recourse against the seller for a condition that you did not previously discover.

Come to the closing prepared.

Your attorney will provide you with detailed information about what you must bring to the closing. In general, you will be required to bring two forms of identification as well as a certified cashier’s check to cover the exact amount of the closing costs you have agreed to pay. (Who pays closing costs can be a subject of negotiation with the seller. Talk to your agent about this.) CHFA allows for seller paid closing costs of up to 6% of the total closing cost amount associated with the purchase of the home.

This is the step in the home buying process when your attorney’s expertise is particularly relevant. Make sure you ask your attorney any questions that occur to you before the closing. Come to the closing prepared to carefully read and sign closing documents and do not hesitate to ask more questions during the closing. It is vital that you understand all documents before you sign them.

Familiarizing yourself ahead of time with some of the mortgage and real estate documents that are likely to be included in your closing will minimize the potential for surprises and confusion.

Some or all of the following documents related to your home loan will be presented to you at your closing:

Truth in lending statement lists the interest rate, annual percentage rate, amount financed and the total cost of the home loan over its life.
Itemization of amount financed summarizes the finance costs of the loan.
Monthly payment letter breaks down your monthly payment into principal, interest, taxes and insurance.
Mortgage puts a lien on the house as security for the loan, which allows the bank to foreclose if you default.

Some or all of the following real estate documents connected with the sale of the home will be presented to you at your closing:

Settlement Statement contains all settlement costs and amounts.
Warranty deed guarantees that the seller has the right to sell the property and is signed by the seller and the buyer to transfer title of the property.
Proration agreements describe how you and the seller will divide the costs associated with the home for the current month. These costs could include property taxes or condo association fees.
Name affidavit certifies that you are who you say you are.
Acknowledgment of reports signifies that you have seen all of the reports regarding the property, including surveys and inspections.
Search or Abstract of Title lists the documentary history of the property including all titles and all liens. This document ensures you that the seller has clear title to the property and that there are no claims against the property by other parties.

Take the keys and move into your new home.

At the loan closing, the title of the home will be transferred from the seller to you. Also, the mortgage agreement between you and your lender will be finalized, which will enable you to pay the seller with the proceeds of the loan at the same time you receive title to your new home. Your attorney will ensure that payment is made on your behalf at the closing.

The closing often takes place in the office of the seller’s attorney but can take place at any mutually agreed upon location. You can expect multiple participants at the closing. Besides yourself, among those present will be the seller and his attorney, the real estate agents and/or brokers, your attorney and the lender’s attorney.

At the closing, your lender will give you a mortgage payment schedule which will include payment instructions. At the end of closing, you will leave with a folder full of paperwork and a set of house keys (or two!).

Congratulations; you are now officially a homeowner!

Disclaimer: CHFA intends the following guide to be viewed as representative of the steps that are commonly involved in buying a home and therefore as advisory only. We encourage all prospective homebuyers to seek information from a variety of sources, to avoid relying on any one source exclusively and to seek professional support and advice when necessary.