Why should I buy, instead of rent?
Answer: You'll love the feeling
of having something that's all yours - a home where your own personal
style will tell the world who you are. A thriving vegetable garden in
the backyard, a tiled entryway, a yellow kitchen...when you own, you
can do it all your way! But there's more to owning a home than
personal satisfaction. You can deduct the cost of your mortgage loan
interest from your federal income taxes, and usually from your state
taxes, too.
And interest will compose nearly all
of your monthly payment , for over half the number of years you'll be
paying your mortgage. This adds up to hefty savings at the end of each
year. And you're also allowed to deduct the property taxes you pay as
a homeowner. If you rent, you write your monthly check and it's gone
forever. Another financial plus in owning a home is the possibility
its value will go up through the years.
I've had bad credit, and I don't
have much for a down-payment. Can I become a homebuyer?
Answer: You may be a good
candidate for one of the federal mortgage programs that are available.
A good place for you to start is by contacting one of the HUD-funded
housing counseling agencies. They can help you sort through your
options. In addition, contact your local government to see if there
are any local homeownership programs that might work for you. Look in
the blue pages of your phone directory for your local office of
housing and community development or, if you can't find it, contact
your mayor's office or your county executive's office.
I'm a single mother. How would I go
about buying a home?
Answer: Although you won't have
the benefit of two incomes on which to qualify for a loan, there's no
reason that you can't become a homeowner. Become familiar with the
process, pick a good real estate broker, and think about getting
pre-qualified for a loan.
You might want to contact one of the
HUD-funded housing counseling agencies in your area to talk through
your options. And you also might want to think about buying a HUD home
- they can be very good deals.
Also, contact your local government to see if there are any local
homebuying programs that could help you. Look in the blue pages of
your phone directory for your local office of housing and community
development or, if you can't find it, contact your mayor's office or
your county executive's office.
Should I use a real estate broker?
How do I find one?
Answer: Using a real estate
broker is a very good idea. All the details involved in home buying,
particularly the financial ones, can be mind-boggling. A good real
estate professional can guide you through the entire process and make
the experience much easier.A
real estate broker will be well-acquainted with all the important
things you'll want to know about a neighborhood you may be
considering...the quality of schools, the number of children in the
area, the safety of the neighborhood, traffic volume, and more. He or
she will help you figure the price range you can afford and search the
classified ads and multiple listing services for homes you'll want to
see. With immediate access to homes as soon as they're put on the
market, the broker can save you hours of wasted driving-around time.
When it's time to make an offer on a
home, the broker can point out ways to structure your deal to save you
money. He or she will explain the advantages and disadvantages of
different types of mortgages, guide you through the paperwork, and be
there to hold your hand and answer last-minute questions when you sign
the final papers at closing. And you don't have to pay the broker
anything! The payment comes from the home seller - not from the buyer.
How much money will I have to come
up with to buy a home?
Answer: Well, that depends on a
number of factors, including the cost of the house and the type of
mortgage you get. In general, you need to come up with enough money to
cover three costs: earnest money - the deposit you make
on the home when you submit your offer, to prove to the seller that
you are serious about wanting to buy the house; the down payment,
a percentage of the cost of the home that you must pay when you go to
settlement; and closing costs, the costs associated with
processing the paperwork to buy a house.
When you make an offer on a home,
your real estate broker will put your earnest money into an escrow
account. If the offer is accepted, your earnest money will be applied
to the down payment or closing costs. If your offer is not accepted,
your money will be returned to you. The amount of your earnest money
varies. If you buy a HUD home, for example, your deposit generally
will range from $500 - $2,000.
The more money you can put into your
down payment, the lower your mortgage payments will be. Some types of
loans require 10-20% of the purchase price. That's why many first-time
homebuyers turn to HUD's FHA for help. FHA loans require only 3% down -
and sometimes less.
Closing costs - which you will pay at
settlement - average 3-4% of the price of your home. These costs cover
various fees your lender charges and other processing expenses. When you
apply for your loan, your lender will give you an estimate of the
closing costs, so you won't be caught by surprise. If you buy a HUD
home, HUD may pay many of your closing costs.
How do I know if I can get a loan?
Answer: Use our simple mortgage
calculators to see how much mortgage you could pay - that's a good
start. If the amount you can afford is significantly less than the
cost of homes that interest you, then you might want to wait awhile
longer. But before you give up, why don't you contact a real estate
broker or a HUD-funded housing counseling agency? They will help you
evaluate your loan potential.
A broker will know what kinds of
mortgages the lenders are offering and can help you choose a lender
with a program that might be right for you. Another good idea is to
get pre-qualified for a loan. That means you go to a lender and apply
for a mortgage before you actually start looking for a home. Then
you'll know exactly how much you can afford to spend, and it will
speed the process once you do find the home of your dreams.
How do I find a lender?
Answer: You can finance a home
with a loan from a bank, a savings and loan, a credit union, a private
mortgage company, or various state government lenders. Shopping for a
loan is like shopping for any other large purchase: you can save money
if you take some time to look around for the best prices.
Different lenders can offer quite
different interest rates and loan fees; and as you know, a lower
interest rate can make a big difference in how much home you can
afford. Talk with several lenders before you decide. Most lenders need
3-6 weeks for the whole loan approval process. Your real estate broker
will be familiar with lenders in the area and what they're offering.
Or you can look in your local newspaper's real estate section - most
papers list interest rates being offered by local lenders.
In addition to the mortgage
payment, what other costs do I need to consider?
Answer: Well, of course you'll
have your monthly utilities. If your utilities have been covered in
your rent, this may be new for you. Your real estate broker will be
able to help you get information from the seller on how much utilities
normally cost. In addition, you might have homeowner association or
condo association dues.You'll
definitely have property taxes, and you also may have city or county
taxes. Taxes normally are rolled into your mortgage payment. Again,
your broker will be able to help you anticipate these costs.
So what will my mortgage cover?
Answer: Most loans have 4 parts:
principal: the repayment of the amount you actually borrowed;
interest: payment to the lender for the money you've borrowed;
homeowners insurance: a monthly amount to insure the property against
loss from fire, smoke, theft, and other hazards required by most
lenders; and property taxes: the annual city/county taxes assessed on
your property, divided by the number of mortgage payments you make in
a year.
Most loans are for 30 years, although
15 year loans are available, too. During the life of the loan, you'll
pay far more in interest than you will in principal - sometimes two or
three times more! Because of the way loans are structured, in the
first years you'll be paying mostly interest in your monthly payments.
In the final years, you'll be paying mostly principal.
What do I need to take with me when
I apply for a mortgage?
Answer: Good question! If you
have everything with you when you visit your lender, you'll save a
good deal of time.
You should have:
1) social security numbers for both your and your spouse, if both of
you are applying for the loan;
2) copies of your checking and savings account statements for the past
6 months;
3) evidence of any other assets like bonds or stocks;
4) a recent paycheck stub detailing your earnings;
5) a list of all credit card accounts and the approximate monthly
amounts owed on each;
6) a list of account numbers and balances due on outstanding loans,
such as car loans;
7) copies of your last 2 years' income tax statements; and
8) the name and address of someone who can verify your employment.
Depending on your lender, you may be asked for other information.
I know there are lots of types of
mortgages - how do I know which one is best for me?
Answer: You're right - there are
many types of mortgages, and the more you know about them before you
start, the better. Most people use a fixed-rate mortgage. In a fixed
rate mortgage, your interest rate stays the same for the term of the
mortgage, which normally is 30 years. The advantage of a fixed-rate
mortgage is that you always know exactly how much your mortgage
payment will be, and you can plan for it.
Another kind of mortgage is an
Adjustable Rate Mortgage (ARM). With this kind of mortgage, your
interest rate and monthly payments usually start lower than a fixed
rate mortgage. But your rate and payment can change either up or down,
as often as once or twice a year. The adjustment is tied to a
financial index, such as the U.S. Treasury Securities index. The
advantage of an ARM is that you may be able to afford a more expensive
home because your initial interest rate will be lower. There are
several government mortgage programs that might interest you, too.
Most people have heard of FHA
mortgages. FHA doesn't actually make loans. Instead, it insures loans
so that if buyers default for some reason, the lenders will get their
money. This encourages lenders to give mortgages to people who might
not otherwise qualify for a loan. Talk to your real estate broker
about the various kinds of loans, before you begin shopping for a
mortgage.
When I find the home I want, how
much should I offer?
Answer: Again, your real estate
broker can help you here. But there are several things you should
consider:
1) is the asking price in line with
prices of similar homes in the area?
2) Is the home in good condition or will you have to spend a
substantial amount of money making it the way you want it? You
probably want to get a professional home inspection before you make
your offer. Your real estate broker can help you arrange one.
3) How long has the home been on the market? If it's been for sale for
awhile, the seller may be more eager to accept a lower offer.
4) How much mortgage will be required? Make sure you really can afford
whatever offer you make.
5) How much do you really want the home? The closer you are to the
asking price, the more likely your offer will be accepted. In some
cases, you may even want to offer more than the asking price, if you
know you are competing with others for the house.
What if my offer is rejected?
So what will happen at closing?
Answer: Basically, you'll sit at
a table with your broker, the broker for the seller, probably the
seller, and a closing agent. The closing agent will have a stack of
papers for you and the seller to sign. While he or she will give you a
basic explanation of each paper, you may want to take the time to read
each one and/or consult with your agent to make sure you know exactly
what you're signing. After all, this is a large amount of money you're
committing to pay for a lot of years!
Before you go to closing, your lender
is required to give you a booklet explaining the closing costs, a
"good faith estimate" of how much cash you'll have to supply at
closing, and a list of documents you'll need at closing. If you don't
get those items, be sure to call your lender BEFORE you go to closing.
Be sure to read about settlement costs. It will help you understand
your rights in the process. Don't hesitate to ask questions.
|