|
The Following Information
Is From U.S. Department of Housing and Urban Development
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.
Thanks to HUD and
their special programs, more than 81% of FHA-insured loans
went to first-time homebuyers during the year 2000. HUD's
FHA has helped more than 30 million people become homeowners
since 1934.
TABLE
OF CONTENTS
Introduction
Terms
- 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:
 |
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? |
| |
Do
I have a good record of paying my bills? |
| |
Do
I have few outstanding long-term debts, like car payments?
|
| |
Do
I have money saved for a down payment? |
| |
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 REALTOR, 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?
|
| |
Are
there enough bedrooms and bathrooms? |
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Is
the house structurally sound? |
| |
Do
the mechanical systems and appliances work? |
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Is
the yard big enough? |
| |
Do
you like the floor plan? |
| |
Will
your furniture fit in the space? Is there enough storage
space? (Bring a tape measure to better answer these
questions.) |
| |
Does
anything need to repaired or replaced? Will the seller
repair or replace the items? |
| |
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 |
| |
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 ME 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 u 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
payout 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
|
| |
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
| |
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) |
| |
Two-Step
Mortgage- Interest rate adjusts only once and remains
the same for the life of the loan |
| |
ARMS
linked to a specific index or margin |
Advantages
| |
Generally
offer lower initial interest rates |
| |
Monthly
payments can be lower |
| |
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:
| |
In
the first 23 years of the loan, more interest is paid
off than principal, meaning larger tax deductions.
|
| |
As
inflation and costs of living increase, mortgage payments
become a smaller part of overall expenses. |
15-year:
| |
Loan
is usually made at a lower interest rate. |
| |
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.
| |
Pay
stubs for the past 2-3 months |
| |
W-2
forms for the past 2 years |
| |
Information
on long-term debts |
| |
Recent
bank statements |
| |
tax
returns for the past 2 years |
| |
Proof
of any other income |
| |
Address
and description of the property you wish to buy |
| |
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.
| |
Do
you expect your finances to changeover the next few
years? |
| |
Are
you planning to live in this home for a long period
of time? |
| |
Are
you comfortable with the idea of a changing mortgage
payment amount? |
| |
Do
you wish to be free of mortgage debt as your children
approach college age or as you prepare for retirement?
|
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 1-800-217-6970 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 Off
ice 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:
| |
Be
sure to read and understand everything before you
sign. |
| |
Refuse
to sign any blank documents. |
| |
Do
not buy property for someone else. |
| |
Do
not overstate your income. |
| |
Do
not overstate how long you have been employed. |
| |
Do
not overstate your assets. |
| |
Accurately
report your debts. |
| |
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. |
| |
Be
truthful about your credit problems, past and present.
|
| |
Be
honest about your intention to occupy the house |
| |
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 MAKE 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:
| |
Attorney's
or escrow fees (Yours and your lender's if applicable)
|
| |
Property
taxes (to cover tax period to date) |
| |
Interest
(paid from date of closing to 30 days before first
monthly payment) |
| |
Loan
Origination fee (covers lenders administrative cost)
|
| |
Recording
fees |
| |
Survey
fee |
| |
First
premium of mortgage Insurance (if applicable) |
| |
Title
Insurance (yours and lenders's) |
| |
Loan
discount points |
| |
First
payment to escrow account for future real estate taxes
and insurance |
| |
Paid
receipt for homeowner's insurance policy (and fire
and flood insurance if applicable) |
| |
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?
| |
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)
|
| |
Truth-in-Lending
Statement |
| |
Mortgage
Note |
| |
Mortgage
or Deed of Trust |
| |
Binding
Sales Contract (prepared by the seller; your lawyer
should review it) |
| |
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 vary by area.
Because these maximums
are linked to the conforming loan limit and average area
home prices, FHA loan limits are periodically subject
to change. Ask your lender for details and confirmation
of current limits.
73.
WHAT ARE THE STEPS INVOLVED IN THE FHA LOAN PROCESS?
With the exception
of a few additional forms, the FHA loan application process
is similar to that of a conventional loan (see Question
47). With new automation measures, FHA loans may be originated
more quickly than before. And, if you don't prefer a face-to-face
meeting, you can apply for an FHA loan via mail, telephone,
the Internet, or video conference.
74.
HOW MUCH INCOME DO I NEED TO HAVE TO QUALIFY FOR AN FHA
LOAN?
There is no minimum
income requirement. But you must prove steady income for
at least three years, and demonstrate that you've consistently
paid your bills on time.
75.
WHAT QUALIFIES AS AN INCOME SOURCE FOR THE FHA?
Seasonal pay, child
support, retirement pension payments, unemployment compensation,
VA benefits, military pay, Social Security income, alimony,
and rent paid by family all qualify as income sources.
Part-time pay, overtime, and bonus pay also count as long
as they are steady. Special savings plans-such as those
set up by a church or community association - qualify,
too. Income type is not as important as income steadiness
with the FHA.
76.
CAN I CARRY DEBT AND STILL QUALIFY FOR FHA LOANS?
Yes. Short-term
debt doesn't count as long as it can be paid off within
10 months. And some regular expenses, like child care
costs, are not considered debt. Talk to your lender or
real estate agent about meeting the FHA debt-to-income
ratio.
77.
WHAT IS THE DEBT-TO-INCOME RATIO FOR FHA LOANS?
The FHA allows you
to use 29% of your income towards housing costs and 41%
towards housing expenses and other long-term debt. With
a conventional loan, this qualifying ratio allows only
28% toward housing and 36% towards housing and other debt.
78.
CAN I EXCEED THIS RATIO?
You may qualify to exceed if you have:
| |
a
large down payment |
| |
a
demonstrated ability to pay more toward your housing
expenses |
| |
substantial
cash reserves |
| |
net
worth enough to repay the mortgage regardless of income
|
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