Common Questions from First-time Homebuyers
Home
Buyer Defense Guide:
Real estate insider advice to help homebuyers avoid common mistakes when buying
a home....
info found at http://www.hud.gov/buying/comq.cfm
- Why should I
buy, instead of rent?
 | Answer:
A home is an investment. When you rent, you write your monthly check and
that money is gone forever. But when you own your home, you can deduct
the cost of your mortgage loan interest from your federal income taxes,
and usually from your state taxes. This will save you a lot each year,
because the interest you pay will make up most of your monthly payment
for most of the years of your mortgage. You can also deduct the property
taxes you pay as a homeowner. In addition, the value of your home may go
up over the years. Finally, you'll enjoy having something that's all
yours - a home where your own personal style will tell the world who you
are.
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What are
"HUD homes," and are they a good deal?
| Answer:
HUD homes can be a very good deal. When someone with a HUD insured
mortgage can't meet the payments, the lender forecloses on the home; HUD
pays the lender what is owed; and HUD takes ownership of the home. Then
we sell it at market value as quickly as possible. Read all about buying
a HUD home. Check our listings of HUD
homes and homes being sold by other federal agencies.
|
Can I become a
homebuyer even if I have I've had bad credit, and don't have much for a
down-payment?
| Answer: You
may be a good candidate for one of the federal mortgage programs. Start
by contacting one of the HUD-funded housing counseling agencies that can
help you sort through your options. Also, contact your local government
to see if there are any local homebuying 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.
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Are there
special homeownership grants or programs for single parents?
| Answer:
There is help available. Start by becoming familiar with the homebuying
process and pick a good real estate broker. Although as a single parent,
you won't have the benefit of two incomes on which to qualify for a
loan, consider getting pre-qualified, so that when you find a house you
like in your price range you won't have the delay of trying to get
qualified. Contact one of the HUD-funded housing counseling agencies in
your area to talk through other options for help that might be available
to you. Research buying a HUD home, as 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.
By the way, if you want to buy a HUD home, you will be required to
use a real estate broker to submit your bid. To find a broker who sells
HUD homes, check your local yellow pages or the classified section of
your local newspaper.
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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. You can find FHA-approved
lenders in the Yellow Pages of your phone book. HUD does not make
loans directly - you must use a HUD-approved lender if you're
interested in an FHA loan.
|
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. <\li>
|
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,including the Veteran's
Administration's programs and the Department
of Agriculture's programs. 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?
| Answer: They often are! But don't let that stop you. Now you
begin negotiating. Your broker will help you. You may have to offer
more money, but you may ask the seller to cover some or all of your
closing costs or to make repairs that wouldn't normally be expected.
Often, negotiations on a price go back and forth several times before
a deal is made. Just remember - don't get so caught up in negotiations
that you lose sight of what you really want and can afford!
|
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 our booklet on settlement costs. It will help you understand
your rights in the process. Don't hesitate to ask questions.
|
More information?
| Answer: See our little E-book about buying a home. |
Home
Buyer Defense Guide
Real estate insider advice to help homebuyers avoid common mistakes when
buying a home....
| | |
