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Common Question from
First-Time Homebuyers
1.
Why should I buy, instead of
rent?
o
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.
2.
What are "HUD homes," and are they a good
deal?
o
Answer:
HUD homes can be a very good deal. When
someone with a HUD insured mortgage couldn’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.
3.
Can I become a homebuyer even if I have I've had
bad credit, and don't have much for a down
payment?
o
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 home buying 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.
4.
Are there special homeownership grants or
programs for single parents?
o
Answer:
There is help available. Start by becoming
familiar with the home buying 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 home buying 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.
5.
Should I use a real estate broker? How do I find
one?
o
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.
6.
How much money will I have to come up with to buy
a home?
o
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.
7.
How do I know if I can get a
loan?
o
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.
8.
How do I find a lender?
o
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.
9.
In addition to the mortgage payment, what other
costs do I need to consider?
o
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 many 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.
10.
So what will my mortgage
cover?
o
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.
11.
What do I need to take with me when I apply for a
mortgage?
o
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.
12.
I know there are lots of types of mortgages - how
do I know which one is best for
me?
o
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.
13.
When I find the home I want, how much should I
offer?
o
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 a while, 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.
14.
What if my offer is
rejected?
o
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!
15.
So what will happen at
closing?
o
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.
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