FAQ - Tutorial for Buyers -

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.

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.

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. If you buy a HUD home, for example, your deposit generally will range from $500 - $2,000.

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 homebuyers turn to HUD's FHA for help. FHA loans require only 3% down - and sometimes less.

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. If you buy a HUD home, HUD may pay many of your closing costs.

Q4: I really want to own my own home, but I'm not sure I can afford it. Where do I start?

Answer: Lots of people don't even consider buying a home because they're afraid they can't afford it. But for most people, home ownership is within reach - especially with some of the special programs for first-time home buyers. In fact, for many, home ownership is as affordable as renting - in some cases even more affordable.

The best place to start is with a mortgage lender; a lender can help you explore all the options of home ownership.

Answer: Before you start looking at homes, you need to have some idea of what you can afford. As a general guide, you can purchase a home with a value of two or three times your annual household income, depending on your savings and debts. However, you may be able to take advantage of special loan programs for first time buyers to purchase a home with a higher value.

If you'd like to know exactly how much you can afford, talk to a mortgage lender. Your REALTOR can help you with this too.

Answer: The short answer: when you start thinking about buying a home. It's true you actually apply for a mortgage before you've chosen your home and signed a contract to buy it.

Any reputable mortgage lender will be happy to help you as you look for a home. The lender will work with you to determine how much house you can afford, help steer you to special mortgages for first time home buyers, and perhaps make suggestions that could make it easier to get the best mortgage for you.

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. But before you give up, why don't you contact a real estate broker or a HUD-funded housing counseling agency? They will help you evaluate your loan potential.

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.

Answer: When most people think about choosing a mortgage lender, they think about finding the lowest rate. Period.

Of course, financial considerations are important to every home buyer, and you certainly should consider the different rates lenders in your area offer on comparable loans. But you also want a lender you can trust, and someone you can work with effectively. So don't let rates be your only criterion. Here's the process I recommend:

Build a list of lenders. Talk to people you know who have bought or refinanced a home recently. Check the newspaper's real estate or business section. Or just look in the yellow pages under "Mortgages."

Talk to a loan officer. Call or visit the lenders on your list. Get a feel for what it will be like to work with them, and how they approach your needs. If you're still uncertain, ask for references -- recent home buyers like yourself -- and talk to them.

Compare rates for similar loans. Among the things you'll want to discuss with prospective lenders are the rates they offer on mortgages. But when comparing rates between lenders, be sure the rates are for comparable loans -- and remember to include fees and other costs so you're really comparing apples to apples.

Q9: Aren't there really just two kinds of mortgages: fixed and adjustable rate?

Answer: You could say that, because all mortgages fall into one of these two categories -- that is, the interest rate you pay is either the same (fixed) for the life of the mortgage, or it can change (adjust) over the life of the mortgage.

With this type of mortgage your monthly payments for interest and principal never change. Property taxes and homeowners insurance may increase, but generally your monthly payments will be very stable.

Fixed-rate mortgages are available for 30 years, 20 years, 15 years and even 10 years. There are also "bi-weekly" mortgages, which shorten the loan by calling for half the monthly payment every two weeks. (Since there are 52 weeks in a year, you make 26 payments, or 13 "months" worth, every year.)

These loans generally begin with an interest rate that is 2-3 percent below a comparable fixed rate mortgage, and could allow you to buy a more expensive home.

However, the interest rate changes at specified intervals ( for example, every year) depending on changing market conditions; if interest rates go up, your monthly mortgage payment will go up, too. However, if rates go down, your mortgage payment will drop also.

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.

Answer: Your lender will begin the work of verifying all the information you've provided. This process can take anywhere from one to six weeks, depending on the type of mortgage you choose, whether you're buying a home outside your local community, and other factors.

Within three business days after your application, the lender must give you an estimate of your closing costs. (The closing is the actual settlement of your loan.) You'll also get a statement that shows your estimated monthly payment, the cost of your finance charges, and other facts about your mortgage.

For many home buyers, this waiting period can be nerve-wracking. So stay in touch with your mortgage lender, be prepared to answer any questions that might come up -- and remember that mortgage lenders are in the business of making loans, not denying them.

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.

Answer: It's probably less than you think. Many first-time buyers are surprised to learn there's no set answer to this question. Generally, though, your down payment can be anywhere from three to twenty percent of the home's value. Down payments can be lower for some special, first-time buyer loan; veterans or those on active military service can obtain loans with no down payment at all.

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.

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!

Answer: Basically, you'll sit at a table with your broker, the broker for the seller, probably the seller, and a closing agent. The closing agent will have a stack of papers for you and the seller 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 large amount of money you're committing to pay for a lot of years!

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. Be sure to read about settlement costs. It will help you understand your rights in the process. Don't hesitate to ask questions.

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