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FAQ's
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.
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.
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.
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.
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,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
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