First Time Home Buyers (and Sellers)
The following list of items have been put together in helping you
understand the process of buying your first home and to answer commonly
asked questions for first time home buyers.
Why should I buy, instead of rent?
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?
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?
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 agent,
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 agent? How do I find one?
Using a real estate agent 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 agent
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 agent can
save you hours of wasted driving-around time. When it's time to make
an offer on a home, the agent 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 agent 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?
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 agent 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.
How do I know if I can get a loan?
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 agent or a HUD-funded housing counseling
agency? They will help you evaluate your loan potential. A agent
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?
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 agent 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?
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 agent 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
agent will be able to help you anticipate these costs.
So what will my mortgage cover?
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?
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?
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 agent 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?
Again, your real estate agent 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 agent 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?
They often are! But don't let that stop you. Now you begin negotiating.
Your agent 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?
Basically, you'll sit at a table with your agent, the agent 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 awt 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.
Should I sell before finding another home?
Most people don't want to move twice, that is, sell their home,
put everything in storage, and move into temporary quarters until
they find their new home. Often, however, sellers need the funds
from the sale of their home to purchase a new home. Deciding whether
to find a new home first, and then put your existing home up for
sale can depend on many factors:
If homes are selling quickly, you likely have to compete with other purchasers
when making an offer. Presented with a buyer who has no contingencies and one
who does, such as an offer subject to the sale of a home, a seller will usually
choose the least restrictive offer.
If homes are selling moderately, and a seller accepts your contingent offer
(subject to the sale of your home), you usually have a short time-frame within
which to sell your home before the seller can move on to someone else. Therefore,
you risk losing your purchase if your home doesn't sell and you are not able
to meet this condition.
If you qualify, you can obtain a "bridge loan" which allows you to
obtain your new loan while waiting for your home to sell. This is risky, however,
because you then have two mortgages and are making double payments until your
home sells.
If you sell your home after making a purchase, it can be tricky coordinating
the moving dates of all the parties involved.
For a negotiating advantage when making an offer to purchase, it's best to
have your home sold first, but if moving twice doesn't appeal to you, then
it's best to at least know the current market conditions and begin marketing
your home as far in advance as possible before purchasing a new home.
How do I get my home ready to sell?
This varies depending on many different factors, but in general, the following
are the most basic steps to take:
Clean Up The Outside
Buyers often make decisions based on a home's "curb appeal." If your
home doesn't look it's best on the outside, buyers may not even take the time
to go inside.
Clean Up The Inside
Your home doesn't have to be spotless, but it does need to be clean and tidy.
Clear clutter out of rooms, closets, and the garage by boxing up those items
you can do without for a while. Remove personal items, such as photos and valuables,
and make sure to keep your home smelling fresh.
Perform Necessary Repairs and Maintenance
Dry rot, broken or cracked windows, earth to wood contact, and outdated roofing
material are just some of the things that lenders will require be attended
to before approving a loan for a prospective purchaser.
You should read the great article "69
ways to Sell Your Home".
Should I be home when my home is being shown?
Definitely not! Purchasing a home is an emotional decision and buyers
need time to look your home over properly to make their decision.
By being present, you make the buyers feel obligated to move through
your home too quickly. Although an inconvenience to you, leaving
your home when it's being shown could make the difference between
a sale and not.
Because selling a home is also an emotional experience, it's important to leave
the selling to the Realtor and not let your emotions get in the way with a
prospective purchaser.
Should I use a Realtor?
Definitely! Even if you've sold a home before, getting through all
the steps can be time-consuming, complicated and create legal risks.
Having a professional Realtor assist and advise you can:
Save You Time
Realtors know the market and can help you establish a realistic asking price
for your home based on your specific needs. They also take care of all the
marketing, pre-screening prospective buyers, handling phone calls, processing
of necessary paperwork, and coordinating the many steps involved before, during,
and after the sale.
Save You Money
When selling a home, a Realtor provides experience, expertise and knowledge
to assist you in getting the most out of the transaction and avoid making costly
mistakes.
Protect Your Interests
Because real estate is what Realtors do every day, they are up-to-date on a
multitude of issues that can affect your property as well as the many real
estate laws that change on a regular basis.
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