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Why
should I buy, instead of rent?
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Answer:
You'll love the feeling of having something that's all yours - a home
where your own personal style will tell the world who you are. A
thriving vegetable garden in the backyard, a tiled entryway, a yellow
kitchen...when you own, you can do it all your way! But there's more
to owning a home than personal satisfaction. You can deduct the cost
of your mortgage loan interest from your federal income taxes, and
usually from your state taxes, too. And interest will compose nearly
all of your monthly payment , for over half the number of years
you'll be paying your mortgage. This adds up to hefty savings at the
end of each year. And you're also allowed to deduct the property
taxes you pay as a homeowner. If you rent, you write your monthly
check and it's gone forever. Another financial plus in owning a home
is the possibility its value will go up through the years.
I've heard
of HUD homes. What are HUD homes, and are they a good deal?
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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 - one might be right for you! And check
our listings of HUD homes - as well as homes being sold by other
federal agencies.
I've
had bad credit, and I don't have much for a down-payment. Can I
become a homebuyer?
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Answer:
You may be a good candidate for one of the federal mortgage programs
that are available. A good place for you to start is by contacting
one of the HUD-funded housing counseling agencies. They can help you
sort through your options. In addition, contact your local government
to see if there are any local 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.
I'm
a single mother. How would I go about buying a home?
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Answer:
Although you won't have the benefit of two incomes on which to
qualify for a loan, there's no reason that you can't become a
homeowner. Become familiar with the process, pick a good real estate
broker, and think about getting pre-qualified for a loan. You might
want to contact one of the HUD-funded housing counseling agencies in
your area to talk through your options. And you also might want to
think about buying a HUD home - they can be very good deals. Also,
contact your local government to see if there are any local
homebuying programs that could help you. Look in the blue pages of
your phone directory for your local office of housing and community
development or, if you can't find it, contact your mayor's office or
your county executive's office.
Should I
use a real estate broker? How do I find one?
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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.
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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.
How much
money will I have to come up with to buy a home?
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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.
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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.
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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.
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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.
How do I
know if I can get a loan?
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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.
How do I
find a lender?
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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.
In
addition to the mortgage payment, what other costs do I need to consider?
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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.
So what
will my mortgage cover?
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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.
What
do I need to take with me when I apply for a mortgage?
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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.
I
know there are lots of types of mortgages - how do I know which one
is best for me?
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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.
When I
find the home I want, how much should I offer?
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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.
What if
my offer is rejected?
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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!
So what
will happen at closing?
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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.
Need more information?
See our Home Buying Tips page. 
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