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HOW DO I KNOW IF I'M READY TO BUY A HOME?
You
can find out by asking yourself some questions:
- 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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If
you can answer "yes" to these questions, you are probably
ready to buy your own home.
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.
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.
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.
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.
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.
FINDING
YOUR HOME
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.
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.
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.
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.
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.
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,
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.
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:
- Is
there enough room for both the present and the future?
- Are
there enough bedrooms and bathrooms?
- Is
the house structurally sound?
- Do
the mechanical systems and appliances work?
- Is
the yard big enough?
- Do
you like the floor plan?
- Will
your furniture fit in the space? Is there enough storage space?
(Bring a tape measure to better answer these questions.)
- Does
anything need to repaired or replaced? Will the seller repair
or replace the items?
- Imagine
the house in good weather and bad, and in each season. Will you
be happy with it year-round?
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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.
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.
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.
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, homebuyers
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
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 before you purchase the house.
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.
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.
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.
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.
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 homebuyers.
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.
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.
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.
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.
HOW DO I MAKE AN OFFER?
Your
real estate agent will assist you in making an offer, which will
include the following information:
- Complete
legal description of the property
- Amount
of earnest money
- Down
payment and financing details
- Proposed
move-in date
- Price
you are offering
- Proposed
closing date
- Length
of time the offer is valid
- 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.
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.
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.
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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