1. How
do I know if I'm ready to buy a home? If
you can answer "yes" to these questions,
you are probably ready to buy your own home.
- 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?
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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 be afforded? 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. 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.
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.
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6.
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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7.
What is a Loan To Value (LTV)? How does it determine
the size of my 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 up 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 pay out
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.
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8.
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
15-year- 30-year
- Advantages
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
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9.
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.
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10.
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.
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11.
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.
Some mortgages don't require a down payment at all.
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.
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12.
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).
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13.
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.
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14.
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 less than your current one, refinancing
is smart, if you don't pay more in fees than you'll
save in the time you'll live in the house.
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15.
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
(in some cases)
- 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.
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16.
How are pre-qualifiying 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.
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17.
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 |
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18.
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.
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19.
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
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20.
What happens after I've applied for my loan?
It usually takes a lender between 1-4
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.
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21.
What makes up closing costs? There
may be closing costs customary or unique to a certain
locality, but closing costs 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 lender'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 fee
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22.
What is mortgage insurance? Mortgage
insurance is a policy that protects lenders against
some or most of the losses that result from defaults
on home mortgages. It's required primarily for borrowers
making a down payment of less than 20%.
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