The
Following Information Is From U.S. Department of Housing
and Urban Development
Home ownership is becoming a
reality for more and more Americans. During 2000, the US
home ownership rate reached 67.7%, the highest rate ever.
Yet many Americans don't realize that home ownership is
within their grasp.
Thanks to HUD and their
special programs, more than 81% of FHA-insured loans went
to first-time home buyers during the year 2000. HUD's FHA
has helped more than 30 million people become homeowners
since 1934.
TABLE OF CONTENTS
Introduction
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Part I
Getting Started |
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Part II
Finding Your Home |
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Part III
You've Found It |
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Part IV
General Financing -- Questions:
The Basics |
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Part V
First Steps |
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Part VI
Finding The Right Loan For You |
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Part VII
Closing |
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Part VIII
How Can HUD And The FHA Help Me
Become a Homeowner |
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Part IX
Mortgage Insurance |
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Part X
FHA Products |
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:
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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?
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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.
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? |
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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, 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.
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 problems
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 home buyers.
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
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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.
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