Homeownership is becoming a reality for more and more
Americans. During 2000, the US homeownership rate reached 67.7%, the highest rate ever. Yet many Americans don't realize that
homeownership is within their grasp.
A home is a financial asset and more: it's a place to
live and raise children; it's a plan for the future; it's an investment in your community. That's why we at the U.S. Department
of Housing and Urban Development want all Americans to have an opportunity to enjoy the benefits of owning a home. And we
are especially proud of our work to help first-time homebuyers: thanks to our special programs, more than 81% of FHA-insured
loans went to first-time homebuyers during 2000.
Knowledge is said to open doors. This is literally true
when it comes to buying a home. To become a first-time homebuyer, you need to know where and how to begin the homebuying process.
The following questions and answers have been carefully selected to give you a foundation of basic knowledge. In addition
to helping you begin, this brochure will give you the tools necessary to navigate the entire process - from deciding whether
you're ready to buy, all the way to that final proud step, getting the keys to your new home.
Calling for this brochure was your first step. Now you
can use this information to determine if you're ready to buy a home. if you are ready, contact a real estate agent, lender,
or a housing counseling agency. They can help you decide your next step.
HUD's FHA has helped more than 30 million people become
homeowners since 1934. We want to help you open the door to your own home. After all, HUD and FHA are on your side.
Good Luck!
TABLE OF CONTENTS
Introduction
Glossary
GETTING STARTED
1. HOW DO I KNOW IF I'M READY TO BUY A HOME?
You can find out by asking yourself some questions:
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Do I have a steady source of income (usually a job)? Have I been employed on a regular basis for the last 2-3 years?
Is my current income reliable?
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Do I have a good record of paying my bills?
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Do I have few outstanding long-term debts, like car payments?
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Do I have money saved for a down payment?
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Do I have the ability to pay a mortgage every month, plus additional costs? |
If you can answer "yes" to these questions, you are probably
ready to buy your own home.
2. HOW DO I BEGIN THE PROCESS OF BUYING A HOME?
Start by thinking about your situation. Are you ready
to buy a home? How much can you afford in a monthly mortgage payment (see Question 4 for help)? How much space do you need?
What areas of town do you like? After you answer these questions, make a "To Do" list and start doing casual research. Talk
to friends and family, drive through neighborhoods, and look in the "Homes" section of the newspaper.
3. HOW DOES PURCHASING A HOME COMPARE WITH RENTING?
The two don't really compare at all. The one advantage
of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity,
take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without
permission and may be at the mercy of the landlord for housing.
Owning a home has many benefits. When you make a mortgage
payment, you are building equity. And that's an investment. Owning a home also qualifies you for tax breaks that assist you
in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial.
But given the freedom, stability, and security of owning your own home, they are worth it.
4. HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN
AMOUNT THAT CAN AFFORD?
The lender considers your debt-to-income ratio, which
is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term
debts as car or student loan payments, alimony, or child support. According to the FHA,monthly mortgage payments should be
no more than 29% of gross income, while the mortgage payment, combined with non-housing expenses, 4 should total no more than
41% of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining
your maximum loan amount.
5. HOW DO I SELECT THE RIGHT REAL ESTATE AGENT?
Start by asking family and friends if they can recommend
an agent. Compile a list of several agents and talk to each before choosing one. Look for an agent who listens well and understands
your needs, and whose judgment you trust. The ideal agent knows the local area well and has resources and contacts to help
you in your search. Overall, you want to choose an agent that makes you feel comfortable and can provide all the knowledge
and services you need.
6. HOW CAN I DETERMINE MY HOUSING NEEDS BEFORE
I BEGIN THE SEARCH?
Your home should fit way you live, with spaces and features
that appeal to the whole family. Before you begin looking at homes, make a list of your priorities - things like location
and size. Should the house be close to certain schools? your job? to public transportation? How large should the house be?
What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements and a
'wish list." Minimum requirements are things that a house must have for you to consider it, while a "wish list" covers things
that you'd like to have but aren't essential.
FINDING YOUR HOME
7. WHAT SHOULD I LOOK FOR WHEN
DECIDING ON A COMMUNITY?
Select a community that will allow you to best live your
daily life. Many people choose communities based on schools. Do you want access to shopping and public transportation? Is
access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a rural community?
When you find places that you like, talk to people that live there. They know the most about the area and will be your future
neighbors. More than anything, you want a neighborhood where you feel comfortable in.
8. WHAT SHOULD I DO IF I'M FEELING EXCLUDED FROM
CERTAIN NEIGHBORHOODS?
Immediately contact the U.S. Department of Housing and
Urban Development (HUD) if you ever feel excluded from a neighborhood or particular house. Also, contact HUD if you believe
you are being discriminated against on the basis of race, color, religion, sex, nationality, familial status, or disability.
HUD's Office of Fair Housing has a hotline for reporting incidents of discrimination: 1-800-669-9777 (and 1-800-927-9275 for
the hearing impaired).
9. HOW CAN I FIND OUT ABOUT LOCAL SCHOOLS?
You can get information about school systems by contacting
the city or county school board or the local schools. Your real estate agent may also be knowledgeable about schools in the
area.
10. HOW CAN I FIND OUT ABOUT COMMUNITY RESOURCES?
Contact the local chamber of commerce for promotional
literature or talk to your real estate agent about welcome kits, maps, and other information. You may also want to visit the
local library. It can be an excellent source for information on local events and resources, and the librarians will probably
be able to answer many of the questions you have.
11. HOW CAN I FIND OUT HOW MUCH HOMES ARE SELLING
FOR IN CERTAIN COMMUNITIES AND NEIGHBORHOODS?
Your real estate agent can give you a ballpark figure
by showing you comparable listings. If you are working with a real estate professional, they may have access to comparable
sales maintained on a database.
12. HOW CAN I FIND INFORMATION ON THE PROPERTY
TAX LIABILITY?
The total amount of the previous year's property taxes
is usually included in the listing information. If it's not, ask the seller for a tax receipt or contact the local assessor's
off ice. Tax rates can change from year to year, so these figures may be approximate.
13. WHAT OTHER TAX ISSUES SHOULD I TAKE INTO
CONSIDERATION?
Keep in mind that your mortgage interest and real estate
taxes will be deductible. A qualified real estate professional can give you more details on other tax benefits and liabilities,
14. IS AN OLDER HOME A BETTER VALUE THAN A NEW
ONE?
There isn't a definitive answer to this question. You
should look at each home for its individual characteristics. Generally, older homes may be in more established neighborhoods,
offer more ambiance, and have lower property tax rates. People who buy older homes, however, shouldn't mind maintaining their
home and making some repairs. Newer homes tend to use more modern architecture and systems, are usually easier to maintain,
and may be more energy-efficient. People who buy new homes often don't want to worry initially about upkeep and repairs.
15. WHAT SHOULD I LOOK FOR WHEN WALKING THROUGH
A HOME?
In addition to comparing the home to your minimum requirement
and wish lists, use the HUD Home Scorecard and consider the following:
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Is there enough room for both the present and the future?
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Are there enough bedrooms and bathrooms?
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Is the house structurally sound?
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Do the mechanical systems and appliances work?
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Is the yard big enough?
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Do you like the floor plan?
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Will your furniture fit in the space? Is there enough storage space? (Bring a tape measure to better answer these questions.)
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Does anything need to repaired or replaced? Will the seller repair or replace the items?
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Imagine the house in good weather and bad, and in each season. Will you be happy with it year-round? |
Take your time and think carefully about each house you
see. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint.
16. WHAT QUESTIONS SHOULD I ASK WHEN LOOKING
AT HOMES?
Many of your questions should focus on potential problems
and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance (e.g., paint, roof, HVAC,
appliances, carpet)? Also ask about the house and neighborhood, focusing on quality of life issues. Be sure the seller's or
real estate agent's answers are clear and complete. Ask questions until you understand all of the information they've given.
Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.
The HUD Home Scorecard can help you develop your question list.
17. HOW CAN I KEEP TRACK OF ALL THE HOMES I SEE?
If possible, take photographs of each house: the outside,
the major rooms, the yard, and extra features that you like or ones you see as potential problems. And don't hesitate to return
for a second look. Use the HUD Home Scorecard to organize your photos and notes for each house.
18. HOW MANY HOMES SHOULD I CONSIDER BEFORE CHOOSING
ONE?
There isn't a set number of houses you should see before
you decide. Visit as many as it takes to find the one you want. On average, homebuyers see 15 houses before choosing one.
Just be sure to communicate often with your real estate agent about everything you're looking for. It will help avoid wasting
your time.
YOU'VE FOUND IT
19. WHAT DOES A HOME INSPECTOR
DO, AND HOW DOES AN INSPECTION FIGURE IN THE PURCHASE OF A HOME?
An inspector checks the safety of your potential new
home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the house and will make you
aware of only repairs,that are needed.
The Inspector does not evaluate whether or not you're
getting good value for your money. Generally, an inspector checks (and gives prices for repairs on): the electrical system,
plumbing and waste disposal, the water heater, insulation and Ventilation, the HVAC system, water source and quality, the
potential presence of pests, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector
that is qualified and experienced.
It's a good idea to have an inspection before you sign
a written offer since, once the deal is closed, you've bought the house as is." Or, you may want to include an inspection
clause in the offer when negotiating for a home. An inspection t clause gives you an 'out" on buying the house if serious
problems are found,or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause
can also specify that the seller must fix the problem(s) before you purchase the house.
20. DO I NEED TO BE THERE FOR THE INSPECTION?
It's not required, but it's a good idea. Following the
inspection, the home inspector will be able to answer questions about the report and any problem areas. This is also an opportunity
to hear an objective opinion on the home you'd I like to purchase and it is a good time to ask general, maintenance questions.
21. ARE OTHER TYPES OF INSPECTIONS REQUIRED?
If your home inspector discovers a serious problem a
more specific Inspection may be recommended. It's a good idea to consider having your home inspected for the presence of a
variety of health-related risks like radon gas asbestos, or possible problems with the water or waste disposal system.
22. HOW CAN I PROTECT MY FAMILY FROM LEAD IN
THE HOME?
If the house you're considering was built before 1978
and you have children under the age of seven, you will want to have an inspection for lead-based point. It's important to
know that lead flakes from paint can be present in both the home and in the soil surrounding the house. The problem can be
fixed temporarily by repairing damaged paint surfaces or planting grass over effected soil. Hiring a lead abatement contractor
to remove paint chips and seal damaged areas will fix the problem permanently.
23. ARE POWER LINES A HEALTH HAZARD?
There are no definitive research findings that indicate
exposure to power lines results in greater instances of disease or illness.
24. DO I NEED A LAWYER TO BUY A HOME?
Laws vary by state. Some states require a lawyer to assist
in several aspects of the home buying process while other states do not, as long as a qualified real estate professional is
involved. Even if your state doesn't require one, you may want to hire a lawyer to help with the complex paperwork and legal
contracts. A lawyer can review contracts, make you aware of special considerations, and assist you with the closing process.
Your real estate agent may be able to recommend a lawyer. If not, shop around. Find out what services are provided for what
fee, and whether the attorney is experienced at representing homebuyers.
25. DO I REALLY NEED HOMEOWNER'S INSURANCE?
Yes. A paid homeowner's insurance policy
(or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. Plus, involving
the insurance agent early in the home buying process can save you money. Insurance agents are a great resource for information
on home safety and they can give tips on how to keep insurance premiums low.
26. WHAT STEPS COULD I TAKE TO LOWER MY HOMEOWNER'S
INSURANCE COSTS?
Be sure to shop around among several insurance companies.
Also, consider the cost of insurance when you look at homes. Newer homes and homes constructed with materials like brick tend
to have lower premiums. Think about avoiding areas prone to natural disasters, like flooding. Choose a home with a fire hydrant
or a fire department nearby.
27. IS THE HOME LOCATED IN A FLOOD PLAIN?
Your real estate agent or lender can help you answer
this question. If you live in a flood plain, the lender will require that you have flood insurance before lending any money
to you. But if you live near a flood plain, you may choose whether or not to get flood insurance coverage for your home. Work
with an insurance agent to construct a policy that fits your needs.
28. WHAT OTHER ISSUES SHOULD I CONSIDER BEFORE
I BUY MY HOME?
Always check to see if the house is in a low-lying area,
in a high-risk area for natural disasters (like earthquakes, hurricanes, tornadoes, etc.), or in a hazardous materials area.
Be sure the house meets building codes. Also consider local zoning laws, which could affect remodeling or making an addition
in the future. Your real estate agent should be able to help you with these questions.
29. HOW DO I MAKE AN OFFER?
Your real estate agent will assist you in making an offer,
which will include the following information:
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Complete legal description of the property
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Amount of earnest money
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Down payment and financing details
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Proposed move-in date
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Price you are offering
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Proposed closing date
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Length of time the offer is valid
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Details of the deal |
Remember that a sale commitment depends on negotiating
a satisfactory contract with the seller, not just Making an offer.
Other ways to lower ins-insurance costs include insuring
your home and car(s) with the same company, increasing home security, and seeking group coverage through alumni or business
associations. Insurance costs are always lowered by raising your deductibles, but this exposes you to a higher out-of-pocket
cost if you have to file a claim.
30. HOW DO I DETERMINE THE INITIAL OFFER?
Unless you have a buyer's agent, remember that the agent
works for the seller. Make a point of asking him or her to keep your discussions and information confidential. Listen to your
real estate agent's advice, but follow your own instincts on deciding a fair price. Calculating your offer should involve
several factors: what homes sell for in the area, the home's condition, how long it's been on the market, financing terms,
and the seller's situation. By the time you're ready to make an offer, you should have a good idea of what the home is worth
and what you can afford. And, be prepared for give-and-take negotiation, which is very common when buying a home. The buyer
and seller may often go back and forth until they can agree on a price.
31. WHAT IS EARNEST MONEY? HOW MUCH SHOULD I
SET ASIDE?
Earnest money is money put down to demonstrate your seriousness
about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price
(though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part
of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal,
you may forfeit the entire amount.
32. WHAT ARE "HOME WARRANTIES", AND SHOULD I
CONSIDER THEM?
Home warranties offer you protection for a specific period
of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which
are not covered by homeowner's insurance. Warranties are becoming more popular because they offer protection during the time
immediately following the purchase of a home, a time when many people find themselves cash-strapped.
GENERAL FINANCING QUESTIONS:THE BASICS
33. WHAT IS A MORTGAGE?
Generally speaking, a mortgage is a loan obtained to
purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to
pay the debt. All mortgages have two features in common: principal and interest.
34. WHAT IS A LOAN TO VALUE (LTV) HOW DOES IT
DETERMINE THE SIZE OF MY LOAN?
The loan to value ratio is the amount of money you borrow
compared with the price or appraised value of the home you are purchasing. Each loan has a specific LTV limit. For example:
With a 95% LTV loan on a home priced at $50,000, you could borrow up to $47,500 (95% of $50,000), and would have to pay,$2,500
as a down payment.
The LTV ratio reflects the amount of equity borrowers
have in their homes. The higher the LTV the less cash homebuyers are required to pay out of their own funds. So, to protect
lenders against potential loss in case of default, higher LTV loans (80% or more) usually require mortgage insurance policy.
35. WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT
ARE THE ADVANTAGES OF EACH?
Fixed Rate Mortgages: Payments remain the same for the
the life of the loan
Types
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15-year
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30-year |
Advantages
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Predictable
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Housing cost remains unaffected by interest rate changes and inflation. |
Adjustable Rate Mortgages (ARMS): Payments increase or
decrease on a regular schedule with changes in interest rates; increases subject to limits
Types
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Balloon Mortgage- Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed,
the balance is clue or refinanced (though not automatically)
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Two-Step Mortgage- Interest rate adjusts only once and remains the same for the life of the loan
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ARMS linked to a specific index or margin |
Advantages
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Generally offer lower initial interest rates
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Monthly payments can be lower
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May allow borrower to qualify for a larger loan amount |
36. WHEN DO ARMS MAKE SENSE?
An ARM may make sense If you are confident that your
income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential
increases in interest rates.
37. WHAT ARE THE ADVANTAGES OF 15- AND 30-YEAR
LOAN TERMS?
30-Year:
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In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions.
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As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses. |
15-year:
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Loan is usually made at a lower interest rate.
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Equity is built faster because early payments pay more principal. |
38. CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?
Yes. By sending in extra money each month or making an
extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be
sure to indicate that the excess payment is to be applied to the principal. Most lenders allow loan prepayment, though you
may have to pay a prepayment penalty to do so. Ask your lender for details.
39. ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME
HOMEBUYERS?
Yes. Lenders now offer several affordable mortgage options
which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now
be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit
history, have quite a bit of long-term debt, or have experienced income irregularities.
40. HOW LARGE OF A DOWN PAYMENT DO I NEED?
There are mortgage options now available that only require
a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the
more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure
the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses,
and - possibly -repairs and decorating.
41. WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?
The monthly mortgage payment mainly pays off principal
and interest. But most lenders also include local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable).
42. WHAT FACTORS AFFECT MORTGAGE PAYMENTS?
The amount of the down payment, the size of the mortgage
loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.
43. HOW DOES THE INTEREST RATE FACTOR IN SECURING
A MORTGAGE LOAN?
A lower interest rate allows you to borrow more money
than a high rate with the some monthly payment. Interest rates can fluctuate as you shop for a loan, so ask-lenders if they
offer a rate "lock-in"which guarantees a specific interest rate for a certain period of time. Remember that a lender must
disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in
terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points,
mortgage insurance, and other fees included in the loan.
44. WHAT HAPPENS IF INTEREST RATES DECREASE AND
I HAVE A FIXED RATE LOAN?
If interest rates drop significantly, you may want to
investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a
rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid
at the original closing, plus origination and application fees.
45. WHAT ARE DISCOUNT POINTS?
Discount points allow you to lower your interest rate.
They are essentially prepaid interest, With each point equaling 1% of the total loan amount. Generally, for each point paid
on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans, ask lenders
for an interest rate with 0 points and then see how much the rate decreases With each point paid. Discount points are smart
if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when
you purchase a home and you may be able to negotiate for the seller to pay for some of them.
46. WHAT IS AN ESCROW ACCOUNT? DO I NEED ONE?
Established by your lender, an escrow account is a place
to set aside a portion of your monthly mortgage payment to cover annual charges for homeowner's insurance, mortgage insurance
(if applicable), and property taxes. Escrow accounts are a good idea because they assure money will always be available for
these payments. If you use an escrow account to pay property tax or homeowner's insurance, make sure you are not penalized
for late payments since it is the lender's responsibility to make those payments.
FIRST STEPS
47. WHAT STEPS NEED TO BE TAKEN TO SECURE A LOAN?
The first step in securing a loan is to complete a loan
application. To do so, you'll need the following information.
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Pay stubs for the past 2-3 months
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W-2 forms for the past 2 years
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Information on long-term debts
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Recent bank statements
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tax returns for the past 2 years
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Proof of any other income
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Address and description of the property you wish to buy
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Sales contract |
During the application process, the lender will order
a report on your credit history and a professional appraisal of the property you want to purchase. The application process
typically takes between 1-6 weeks.
48. HOW DO I CHOOSE THE RIGHT LENDER FOR ME?
Choose your lender carefully. Look for financial stability
and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel
comfortable. A lender that has the authority to approve and process your loan locally is preferable, since it will be easier
for you to monitor the status of your application and ask questions. Plus, it's beneficial when the lender knows home values
and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations.
49. HOW ARE PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?
Pre-qualification is an informal way to see how much
you maybe able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your
long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark
figure of the amount you may have available to spend on a house.
Pre-approval is a lender's actual commitment to lend
to you. It involves assembling the financial records mentioned in Question 47 (Without the property description and sales
contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford
and shows sellers that you are serious about buying.
50. HOW CAN I FIND OUT INFORMATION ABOUT MY CREDIT
HISTORY?
There are three major credit reporting companies: Equifax,
Experian, and Trans Union. Obtaining your credit report is as easy as calling and requesting one. Once you receive the report,
it's important to verify its accuracy. Double check the "high credit limit,"'total loan," and 'past due" columns. It's a good
idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report
to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to
acquire a free one. Contact the reporting companies at the numbers listed for more information.
CREDIT REPORTING COMPANIES
| Company Name |
Phone Number |
| Experian |
1-888-524-3666 |
| Equifax |
1-800-685-1111 |
| Trans Union |
1-800-916-8800 |
51. WHAT IF I FIND A MISTAKE IN MY CREDIT HISTORY?
Simple mistakes are easily corrected by writing to the
reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments
added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are
usually understanding about legitimate problems.
52. WHAT IS A CREDIT BUREAU SCORE AND HOW DO
LENDERS USE THEM?
A credit bureau score is a number, based upon your credit
history, that represents the possibility that you will be unable to repay a loan. Lenders use it to determine your ability
to qualify for a mortgage loan. The better the score, the better your chances are of getting a loan. Ask your lender for details.
53. HOW CAN I IMPROVE MY SCORE?
There are no easy ways to improve your credit score,
but you can work to keep it acceptable by maintaining a good credit history. This means paying your bills on time and not
overextending yourself by buying more than you can afford.
FINDING the RIGHT LOAN for YOU
54. HOW DO I CHOOSE THE BEST
LOAN - PROGRAM FOR ME?
Your personal situation will determine the best kind
of loan for you. By asking yourself a few questions, you can help narrow your search among the many options available and
discover which loan suits you best.
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Do you expect your finances to changeover the next few years?
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Are you planning to live in this home for a long period of time?
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Are you comfortable with the idea of a changing mortgage payment amount?
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Do you wish to be free of mortgage debt as your children approach college age or as you prepare for retirement?
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Your lender can help you use your answers to questions
such as these to decide which loan best fits your needs.
55. WHAT IS THE BEST WAY TO COMPARE LOAN TERMS
BETWEEN LENDERS?
First, devise a checklist for the information from each
lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment
required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed.
Speak with companies by phone or in person. Be sure to
call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research,
your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated
with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.
56. ARE THERE ANY COSTS OR FEES ASSOCIATED WITH
THE LOAN ORIGINATION PROCESS?
Yes. When you turn in your application, you'll be required
to pay a loan application fee to cover the costs of underwriting the loan. This fee pays for the home appraisal, a copy of
your credit report, and any additional charges that may be necessary. The application fee is generally non-refundable.
57. WHAT IS RESPA?
RESPA stands for Real Estate Settlement Procedures Act.
It requires lenders to disclose information to potential customers throughout the mortgage process, By doing so, it protects
borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs,
lender servicing and escrow account practices, and business relationships between closing service providers and other parties
to the transaction.
For more information on RESPA, or call 1-800-569-4287 for a local counseling referral.
58. WHAT IS A GOOD FAITH ESTIMATE, AND HOW DOES
IT HELP ME?
It's an estimate that lists all fees paid before closing,
all closing costs, and any escrow costs you will encounter when purchasing a home. The lender must supply it within three
days of your application so that you can make accurate judgments when shopping for a loan.
59. BESIDES RESPA, DOES THE LENDER HAVE ANY ADDITIONAL
RESPONSIBILITIES?
Lenders are not allowed to discriminate in any way against
potential borrowers. If you believe a lender is refusing to provide his or her services to you on the basis of race, color,
nationality, religion, sex, familial status, or disability, contact HUD's Office of Fair Housing at 1-800-669-9777 (or 1-800-927-9275
for the hearing impaired).
60. WHAT RESPONSIBILITIES DO I HAVE DURING THE
LENDING PROCESS?
To ensure you won't fall victim to loan fraud, be sure
to follow all of these steps as you apply for a loan:
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Be sure to read and understand everything before you sign.
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Refuse to sign any blank documents.
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Do not buy property for someone else.
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Do not overstate your income.
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Do not overstate how long you have been employed.
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Do not overstate your assets.
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Accurately report your debts.
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Do not change your income tax returns for any reason. Tell the whole truth about gifts. Do not list fake co-borrowers
on your loan application.
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Be truthful about your credit problems, past and present.
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Be honest about your intention to occupy the house
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Do not provide false supporting documents. |
CLOSING
61. WHAT HAPPENS AFTER I'VE
APPLIED FOR MY LOAN?
It usually takes a lender between 1-6 weeks to complete
the evaluation of your application. Its not unusual for the lender to ask for more information once the application has been
submitted. The sooner you can provide the information, the faster your application will be processed. Once all the information
has been verified the lender will call you to let you know the outcome of your application. If the loan is approved, a closing
date is set up and the lender will review the closing with you. And after closing, you'll be able to move into your new home.
62. WHAT SHOULD I LOOK OUT FOR DURING THE FINAL
WALK-THROUGH?
This will likely be the first opportunity to examine
the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any
work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should
be brought up prior to closing. It is the seller's responsibility to fix them.
63. WHAT MAKES UP CLOSING COST?
There may be closing cost customary or unique to a certain
locality, but closing cost are usually made up of the following:
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Attorney's or escrow fees (Yours and your lender's if applicable)
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Property taxes (to cover tax period to date)
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Interest (paid from date of closing to 30 days before first monthly payment)
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Loan Origination fee (covers lenders administrative cost)
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Recording fees
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Survey fee
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First premium of mortgage Insurance (if applicable)
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Title Insurance (yours and lender's)
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Loan discount points
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First payment to escrow account for future real estate taxes and insurance
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Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)
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Any documentation preparation fees |
64. WHAT CAN I EXPECT TO HAPPEN ON CLOSING DAY?
You'll present your paid homeowner's insurance policy
or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller
(remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if
applicable). The seller will provide proofs of any inspection, warranties, etc.
Once you're sure you understand all the documentation,
you'll sign the mortgage, agreeing that if you don't make payments the lender is entitled to sell your property and apply
the sale price against the amount you owe plus expenses. You'll also sign a mortgage note, promising to repay the loan. The
seller will give you the title to the house in the form of a signed deed.
You'll pay the lender's agent all closing costs and,
in turn,he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage
will then be recorded in the state Registry of Deeds, and you will be a homeowner.
65. WHAT DO I GET AT CLOSING?
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Settlement Statement, HUD-1 Form (itemizes services provided and the fees charged; it is filled out by the closing
agent and must be given to you at or before closing)
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Truth-in-Lending Statement
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Mortgage Note
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Mortgage or Deed of Trust
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Binding Sales Contract (prepared by the seller; your lawyer should review it)
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Keys to your new home |
HOW CAN HUD and the FHA HELP ME BECOME a HOMEOWNER
66. WHAT IS THE U.S. DEPARTMENT
OF HOUSING AND URBAN DEVELOPMENT?
Also known as HUD, the U.S. Department of Housing and
Urban Development was established in 1965 to develop national policies and programs to address housing needs in the U.S. One
of HUD's primary missions is to create a suitable living environment for all Americans by developing and improving the country's
communities and enforcing fair housing laws
67. HOW DOES HUD HELP HOMEBUYERS AND HOMEOWNERS?
HUD helps people by administering a variety of programs
that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available
for lower- and moderate-income families through its FHA mortgage insurance program and its HUD Homes program. HUD owns homes
in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks
to protect consumers through education, Fair Housing Laws, and housing rehabilitation initiatives.
68. WHAT IS THE FHA?
Now an agency within HUD, the Federal Housing Administration
was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance,
the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans.
The FHA has helped more than 26 million Americans buy a home.
69. HOW CAN THE FHA ASSIST ME IN BUYING A HOME?
The FHA works to make homeownership a possibility for
more Americans. With the FHA, you don't need perfect credit or a high-paying job to qualify for a loan. The FHA also makes
loans more accessible by requiring smaller down payments than conventional loans. In fact, an FHA down payment could be as
little as a few months rent. And your monthly payments may not be much more than rent.
70. HOW IS THE FHA FUNDED?
Lender claims paid by the FHA mortgage insurance program
are drawn from the Mutual Mortgage Insurance fund. This fund is made up of premiums paid by FHA-insured loan borrowers. No
tax dollars are used to fund the program.
71. WHO CAN QUALIFY FOR FHA LOANS
anyone who meets the credit requirements, can afford
the mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence may apply for
an FHA-insured loan.
72. WHAT IS THE FHA LOAN LIMIT?
FHA loan limits vary throughout the country, from $115,200
in low-cost areas to $208,800 in high-cost areas. The loan maximums for multi-unit homes are higher than those for single
units and also va
