- 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 will save you a lot each year, because the interest you
pay will make up most of your monthly payment for most of the 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's all yours - a
home where your own personal style will tell the world who you are.
- What are "HUD homes," and are they a good deal?
- Answer: HUD homes can be a very good deal. When someone
with a HUD insured mortgage can't meet the payments, the lender
forecloses on the home; HUD pays the lender what is owed; and HUD
takes ownership of the home. Then we sell it at market value as
quickly as possible. Read all about buying a HUD home. Check our
listings of HUD homes and homes being sold by other federal agencies.
- Can I become a homebuyer even if I have I've had bad credit, and
don't have much for a down-payment?
- Answer: 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 homebuying
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.
- Are there special homeownership grants or programs for single
parents?
- Answer: There is help available. Start by becoming familiar
with the homebuying 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 homebuying 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.
- 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.
By the way, if you want to buy a HUD home, you will
be required to use a real estate broker to submit your bid. To find a
broker who sells HUD homes, check your local yellow pages or the
classified section of your local newspaper.
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. 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.
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. 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.
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. HUD does not make loans directly - you must use a
HUD-approved lender if you're interested in an FHA loan.
In addition to the mortgage payment,
what other costs do I need to consider?
- Answer: 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.
So what will my mortgage cover?
- Answer: 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.
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. <\li>
I know there are lots of types of
mortgages - how do I know which one is best for me?
- Answer: You're right - there
are many types of mortgages, and the more you know about them before
you start, the better. Most people use a fixed-rate mortgage. In a
fixed rate mortgage, your interest rate stays the same for the term of
the mortgage, which normally is 30 years. The advantage of a
fixed-rate mortgage is that you always know exactly how much your
mortgage payment will be, and you can plan for it. Another kind of
mortgage is an Adjustable Rate Mortgage (ARM). With this kind of
mortgage, your interest rate and monthly payments usually start lower
than a fixed rate mortgage. But your rate and payment can change
either up or down, as often as once or twice a year. The adjustment is
tied to a financial index, such as the U.S. Treasury Securities index.
The advantage of an ARM is that you may be able to afford a more
expensive home because your initial interest rate will be lower. There
are several government mortgage programs, including the Veteran's
Administration's programs and the Department of Agriculture's
programs. Most people have heard of FHA mortgages. FHA doesn't
actually make loans. Instead, it insures loans so that if buyers
default for some reason, the lenders will get their money. This
encourages lenders to give mortgages to people who might not otherwise
qualify for a loan. Talk to your real estate broker about the various
kinds of loans, before you begin shopping for a mortgage.
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.
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!
So what will happen at closing?
- 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 our booklet on settlement costs. It will help you
understand your rights in the process. Don't hesitate to ask
questions.
More information?
- Answer: See our 100 questions
and answers about buying a home.
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