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.
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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.
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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.
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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.
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5.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.
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FINDING YOUR HOME
6. 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.
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7. 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.
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8. 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 maybe approximate.
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9. 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.
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10. 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.
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11. 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:
- Is there enough room for both the present
and the future?
- Are there enough bedrooms and bathrooms?
- Is the house structurally sound?
- Do the mechanical systems and appliances
work?
- 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. Using the
HUD Home Scorecard to keep track of the homes
you see is a great way to keep organized. (Refer
to the HUD Home Scorecard).
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12. 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.
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13. 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.
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14. 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, home buyers
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.
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15. 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 clause gives you an 'out" on
buying the house if serious problems are found,
or gives you the ability to re-negotiate 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.
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16. 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.
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17. 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.
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18. 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 home buyers.
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19. 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.
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20. 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.
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21. HOW DO I MAKE AN OFFER?
Your real estate agent will assist you in making
an offer, which will include the following information:
- Complete legal description of the property
- Amount of earnest money
- Down payment and financing details
- Proposed move-in date
- Price you are offering
- Proposed closing date
- 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.
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22. 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.
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23. 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.
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24. 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.
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