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Common Questions
House Buying Mistakes
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Common
Questions
of
First
Time
Homebuyers
Courtesy of HUD
Question:
Why should I buy, instead of rent?
Answer :
A
home is an investment. When you rent, you write your monthly check and
that money is gone forever. But when you own your home, you can deduct
the cost of your mortgage loan interest from your federal income taxes, and
usually from your state taxes. This may allow you to take itemized
deductions instead of just the standard deduction,
because the interest you pay will be the majority of your monthly payment for
many years of your mortgage. You can also deduct the property
taxes you pay as a homeowner. In addition, the value of your home may go
up over the years. Finally, you'll enjoy having something that is all
yours --a home where your own personal style tells the world who you are.
Question:
Can I become a homebuyer even if I have bad credit, and don't
have much for a down-payment?
Answer:
You
might be surprised and find that with a little work on your credit report
and bills that you will qualify for mainstream financing. So, check first
with a reputable lender. If that is not the case, do not despair, you
may be a good candidate for one of the federal mortgage programs. Start
by contacting one of the HUD-funded housing counseling agencies that can help
you sort through your options. Also, 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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Question:
Should I used a real estate broker?
Answer:
Using a
real estate broker may be in your best interests. 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 will want to know about a
neighborhood you are 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 determine 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 are listed,
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 transaction to make it compelling and 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 counsel and answer last-minute
questions when you sign the final papers at closing. And remember the
broker's commission is paid by the seller on a listed property.
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Question:
Are there special homeownership grants or programs for
single parents?
Answer:
There is
help available. Start by becoming familiar with the home buying process and
pick a good real estate broker. Although as a single parent, you won't
have the benefit of two incomes on which to qualify for a loan, consider
getting pre-qualified, so that when you find a house you like in your price
range you won't have the delay of trying to get qualified. Contact one
of the HUD-funded housing counseling agencies in your area to talk through
other options for help that might be available to you. Research buying a
HUD home, as they can be very good deals. Also, contact your local
government to see if there are any local home buying program that could help
you.
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Question:
How much money will I need up front to buy a home?
Answer:
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 have enough
money to cover three costs: earnest money --the deposit you make on the
home when you submit your offer indicating you are serious; the down payment, a percentage of the
cost of the home that you must pay at closing; and closing costs,
the costs associated with the processing the paperwork to buy a house.
When you make a 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 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 homebuyer's turn to HUD's FHA for help. FHA
loans require only 3% down - and sometimes less.
Closing costs- which you will pay at settlement, or closing --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 will not be caught by surprise. If
you buy a HUD home, HUD may pay many of your closing costs.
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Question:
In addition to the mortgage payment, what other costs do I need
to consider?
Answer:
You will 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. If you are putting less than 20% down on your home, you may
also have the additional cost of private mortgage insurance. Your lender
does have options in structuring your loan to avoid PMI insurance. Your broker will be able to help you anticipate
these costs.
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Question:
When I find the home I want, how much should I offer?
Answer:
Your real
estate broker will advise you to help you decide. You will want to
consider: 1.) if the asking price is in line with prices of similar homes in the
area? 2.) if the home is 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 have a professional home inspection as a condition of your offer and your
real estate broker can help you arrange one. 3.) how much mortgage will
be required? Make sure you really can afford whatever offer you make.
4.) 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 want to offer more than the asking price if you know you are
competing with others for the house.
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Question:
What if my offer is rejected?
Answer:
This
sometimes happens, but do not let it stop you! Now you begin negotiating
with your broker's assistance. 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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Question:
What will happen at closing?
Answer:
You will likely sit at a table with your closing agent, but you may receive
all of your documents via mail. The closing agent will have a stack of
documents for you 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 this is a major commitment and investment. 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.
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7 Home Buying Mistakes
Courtesy of Home Buyer's Information Center
-
Running Before Walking --
You've made the decision to buy a home, now it is time to do your homework.
It means consulting with an agent, surfing the web, calling on ads and
driving around your favorite areas before scheduling a showing appointment. Some people forget this step and decide to buy
the first house they see. Once you are under contract to purchase a
home and "change your mind" the chances of getting released from the
contract are slim. Make completely sure that the home you put an offer
on is the one you truly want.
-
Over-buying the first time. -- Being "house
poor" is a very uncomfortable existence. A beautiful, large home with
little or no furniture can seem cold and empty. Pushing yourself right
up to-or beyond- your limits leaves you highly exposed when the inevitable
changes to the national or your personal economy occur. Leave yourself
some breathing room!
-
Finding out too late that you have no representation
--This
can be a real nasty surprise when you assume that the Agent with whom you are
working represents you when they actually represent --and owe complete
allegiance to --the seller. This happens by not taking the time to
investigate and familiarize yourself with the laws regarding Agency.
-
Not comparing mortgages -- There are far too many
variables --types of mortgages, terms, lenders and fees to mention
a few --not to investigate all of your options. Spend time comparing
to get the most advantageous plan for your requirements and financial
situation.
-
Not getting mortgage pre-approval -- In the 21st
century prequalification and pre-approvals are a necessary part of the home
buying process. It will give you an exact price range for your
purchase and pre-approval will add a great deal of strength to your offer.
-
Waiting for the "perfect" home --
Many first time buyers make the mistake that they will, if they look around
long enough, find a home that meets 100% of their needs and wants.
This is usually an unrealistic goal. First, these buyers pass up homes
that meet 90% or more of their requirements only to eventually give up.
Second, while they are waiting for the "perfect" home, housing market prices
continue to rise, adding expense to their purchase. Instead, it makes
sense to determine the most important of your needs and the most desired of
your wants and select a home that meets the majority of them.
-
Shortcutting the inspection process -- This can
involve skipping a whole house inspection completely in order to save the
relatively small amount of money involved or it may involve using a friend
or relative with limited experience to conduct the inspection. In either
case you run the risk of not exposing potentially expensive --or even
hazardous defects in the property.
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