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First Time
Buyers
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Questions
and Answers for
First Time Buyers
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1.
Why should I buy, instead of rent?
| 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 |
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2.
I've had bad credit, and I
don't have much for a down-payment. Can I become a homebuyer?
| Answer:
You
may be a good candidate for one of the federal
mortgage programs that are available.
Contact your local government to see if there
are any local home buying 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 |
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3.
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. Also,
contact your local government to see if there are
any local
home buying 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.
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4.
Should I use a real estate broker? How do I find one?
| 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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5.
How much money will I have to come up with to buy a home?
| 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.
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.
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.
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.
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6.
How
do I know if I can get a loan?
| 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.
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.
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7.
How do I find a lender?
| 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.
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8.
In addition to the mortgage payment, what other costs do I
need to consider?
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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. |
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9.
So
what will my mortgage cover?
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.
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10.
What do I need to take with me when I apply for a mortgage?
| 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. |
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11
When
I find the home I want, how much should I offer?
| 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.
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12.
What if my offer is rejected?
| 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!
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