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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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!
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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.
