 |
Audrie’s Home Buyer’s Guide Homebuyingtips.net
www.audrie.com www.homebuyingtips.net Copyright © 2003 by audrie.com |
|
|
|
|
Audrie’s Home Buyer’s Guide Homebuyingtips.net
www.audrie.com www.homebuyingtips.net Copyright © 2003 by audrie.com |
|
|
|
|
Table of Contents
How much house can you afford? *Page
Down payment __________________________________ 5
No Money Down ___________________________ 7
Government Programs ___________________________ 8
Closing costs ___________________________ 9
How big a mortgage loan? ______________________ 10
Monthly cost of home ownership ________________ 11
Where do you want to live?
School quality ___________________________ 15
Crime rates ___________________________________ 16
Other criteria for choosing a neighborhood ____ 17
Audrie's Neighborhood check list ______________ 20
Getting Pre-approved for a Mortgage Loan
Mortgage basics ___________________________ 22
Points ___________________________________ 23
Comparing mortgage loans ______________________ 24
Adjustable rate mortgage loans ________________ 25
Choosing a mortgage lender ____________________ 28
Documents required by mortgage lenders ________ 30
Selecting a House
Things to look for when viewing a home ________ 32
Buying a new home _____________________________ 37
Buying a pre-owned home _______________________ 38
Selecting a real estate agent _________________ 40
Working with a real estate agent ______________ 43
Home inspectors _______________________________ 45
Negotiating a Price
Evaluating the Seller's asking price __________ 47
Negotiating tips ______________________________ 49
Preparing an offer to purchase ________________ 52
Seller's counter offer ________________________ 61
Closing the Deal
Events between signing a contract and closing _ 63
Closing day ___________________________________ 64
The Settlement Statement ______________________ 65
(*Page numbers are based on printing from the web with Microsoft Explorer. Other browsers may insert blank pages or end pages on different lines.) |
|
|
|
|
As you might expect, the material is grouped into the same six sections found on our web site. How much house can you afford? Where do you want to live? Getting pre-approved for a mortgage loan. Selecting a house Negotiating a price Closing the deal |
|
|
|
||
|
Audrie’s Calculators Our web site includes several calculators to estimate most things you might want to estimate during the home buying process. One of the simplest of these calculators is depicted below (and at: http://www.homebuyingtips.net/Down_payment.htm ).
After entering the purchase price of a home and the cash available for a down payment, click “calculate” to get the amount of the required mortgage loan plus an estimate of closing costs. This is not all that helpful but it’s a good introduction to using our calculators, which, by the way, do not accept $ signs, commas or periods. In all cases a number such as $84,500 must be entered as 84500. $79.95 must be entered as 79. All of our Calculators for home buyers can be accessed from links at: www.homebuyingtips.net/Calculator_index.htm or from the link directory in the left column of most of our web pages. Popular Calculators
|
|||||||||||
|
|
||||||||||||
|
Down Payment “If I had known, I would have started saving much sooner” - I must have heard that phrase a thousand times during my career as a real estate agent. Earnest people with well paying jobs had simply failed to save enough cash for a reasonable down payment on a home. The 20% Solution: In an ideal world you would have saved $20,000 as a cash down payment if you wanted to buy a $100,000 house. That is 20% of the purchase price. Why not 10 or 15 percent? Actually, homes can be bought with as little as 3% or even zero down payment, but the best terms and lowest interest rates are reserved for those with 20%. Lenders have learned that buyers are not likely to default and walk away from a home in which they have invested a 20 percent cash down payment.
Lenders hate foreclosures because the foreclosure process is expensive. They would much prefer you stay around to sell the house and pay off their mortgage loan, and they reason that you are not likely to abandon a house in which you have a 20% investment ($30,000 in the case of a $150,000 house). Most mortgage lenders will require private mortgage insurance (PMI) if your down payment is less than 20 percent of the purchase price of the property. PMI protects the lender if you default on repaying the loan. By itself, PMI is not very expensive, but Buyers with low down payments are also charged higher mortgage origination fees. These combined fees can push the cost of a mortgage loan to 4% of the loan amount ($3,200 on a $80,000 loan). A 20% down payment is almost always the cheapest way of purchasing a home. But 20% can be a big number, so if the down payment needed to purchase a $140,000 home are stretching you, consider scaling back to a $110,000 or $90,000 home where you might more easily afford the 20% down payment, …or see if you can get help from family, friends or government programs. The 10% Standard: with rising home prices making it impossible for most first -time home buyers to come up with a 20% cash down payment, 10% has become the standard for people buying their first home. These buyers pay a monthly fee for private mortgage insurance (PMI) and a higher interest rate than buyers with 20% cash but they pay a lot less than buyers with only 5% of the purchase price in cash. |
|
|
|
||
|
Can your family help ? More than 20 percent of all first time home-buyers get financial help from parents or other relatives. If Mom and Dad can truly afford a $10,000 loan, don’t be afraid to ask. The lender will probably ask them to sign a letter stating that the money is a gift that does not have to be repaid. Your parents might also have to provide a bank statement or other document to show that they have the money to give. Your parents can also help with a cash loan. Some lenders will not grant a
mortgage loan if all of the buyer’s down payment is borrowed, but in many case, lenders will
simply factor in a repayment plan to your parents with your other financial obligations. That
will reduce the size of the loan they are willing to make, but it might be enough to buy that
dream house. Get a partner or two. Typically, partners purchase a two-family house, and each takes one apartment, but sharing a single-family house is increasingly popular. People who can’t afford a $180,000 house in a nice neighborhood, simply purchase half that house at $90,000. This works best when the house is laid out in manner conducive to sharing. For example, a house with a master bedroom/bath at one end and another bedroom and bath or two at the opposite end works better than a layout with all of the bedrooms clustered at one end of the house. Get a lawyer to draw up an agreement covering every aspect of the joint ownership, and absolutely do not buy with a partner without full disclosure of each others financial situation. “…in my experience joint ownership works best when each partner has similar incomes and assets” … Audrie
|
|
|
|
|
|
|
|
|
||
|
Government Programs The Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) and the Farmers Home Administration (FmHA) all sponsor programs that enable buyers to purchase homes with extremely small, and in some cases zero down payment. These agencies do not provide mortgage loans themselves. They insure the lenders against loss on loans to people who qualify for federal programs. Secure in the knowledge that the Federal Government will pay off your loan balance if you default, mortgage lenders are willing to provide low interest loans with very low down payment. The FHA helps low-to-moderate income folks get mortgage loans with as little as 3% down payment. These loans are not available in all areas and tend to be concentrated in neighborhoods targeted for development. The FHA is part of the Department of Housing and Urban Development (HUD), so check with the HUD web site at www.hud.gov/buying/mortprog.cfm to find out if your income and target neighborhood qualify you for a FHA insured loan. Due to paperwork required by federal agencies, not all mortgage lenders choose to participate in the FHA program, but the FHA (or the above web site) can provide a list of approved lenders in your area. The VA helps veterans and eligible people on active duty buy a primary residence. Like the FHA, the VA can provide a list of mortgage lenders that participate in the VA’s low down payment and low interest loan program. Check the VA’s web site at www.homeloans.va.gov/ RHS: The Rural Housing Service of the U.S. Department of Agriculture offers both direct loans and loan guarantees to people buying homes in a rural area (and in some counties that can be a lot closer to downtown than you might imagine). Direct loans are available to home-buyers with incomes below the median income of the community where they live. Mortgage guarantees are available for mortgage loans up to 100% of the appraised value of the property. Check the Rural Development web site at: www.rurdev.usda.gov/rhs/Individual/ind_splash.htm State Mortgage Programs Most states offer a home-buying program for first timer home-buyers that features low down payments and low interest rates. These programs are usually handled by a mortgage finance agency or housing finance authority, and they operate very much like the FHA in that they target their help to lower income people in certain towns and parts of towns. Contact your governor's office for the name and phone number of your state’s mortgage finance agency. |
|
|
|
|
Closing Costs On closing day the Buyer and Seller meet at the office of the closing attorney, Escrow Agent, or Title Officer, and finalize the sale. The Buyer gets the deed to the property, the Seller gets her cash, and all expenses related to the sale are paid. These fees and charges are grouped together and called closing costs, a term that generates confusion because there are two distinct types of closing costs and people seldom specify which type they are talking about. 1. Mortgage loan origination fees: The larger of the two types of
closing costs, these range between 2% and 3% of the mortgage loan amount. This includes the
application fee, credit report fees, a processing fee and most important, points, a form of
interest paid up front as a one-time fee. 2. Other Closing Fees: (Buyer's closing cost)
Buyer's closing cost average about 1% of the purchase price, or $1,000 for a typical $100,000 home. |
|
|
|
|
How big a mortgage loan ? Mortgage lenders decide how much money they will lend you based on methods similar to Audrie’s Mortgage Size Calculator at: www.homebuyingtips.net/Mortgage_size.htm or www.homebuyingtips.net/Buyers/Mortgage_size.htm Audrie’s calculator will estimate a maximum mortgage loan amount based on your gross annual income and current monthly payments on long-term obligations such as auto-loans, credit cards, and other unavoidable recurring payments. The program makes statistical assumptions about food, clothing, housing and all other expenses, then estimates: The calculator initially assumes that you can put down 10% of the purchase price but the down payment can be moved up to 20% or down to 3% to see the effect on maximum mortgage loan amounts and home prices. These estimates are for conventional mortgage loans (those not backed by a government agency). Buyers qualifying for VA or FHA loans should get slightly larger loan amounts. Audrie’s calculator provides accurate estimates because most mortgage lenders follow loan-evaluation criteria set by Ginnie Mae (GNMA: the Government National Mortgage Association) and Fannie Mae (FNMA: the Federal National Mortgage Association). Mortgage lenders follow these criteria because Ginnie Mae and Fannie Mae guarantee repayment of loans that meet their rules. In what appears to be a trend, more and more lenders are using loan evaluation software provided by Fannie Mae, or at least following the Fannie Mae formula that aims to keep the borrower’s monthly "housing expense" below 33% of monthly before-tax income, where monthly "housing expense" is defined as monthly mortgage payment + property taxes + insurance. Given that mortgage lender's calculations ignore the cost of neat stuff like maintaining the house, or savings for college tuition and retirement, most of us should focus on mortgage amounts less than the maximum a mortgage lender will lend. If lenders are willing to loan $160,000, we would advise planning on a $130,000 loan and a house costing no more than $155,000. Why bother shopping for a mortgage loan if all mortgage lenders use the same evaluation criteria? Because lenders use the same criteria to decide how much they will lend, but they use very different criteria to decide how much they will charge in terms of interest rates, points and other fees. One mortgage lender might charge $1,600 in up front fees for a $120,000 loan, while another lender might charge as little as $400 for the same size loan. |
|
|
|
|
The Monthly Cost of Home Ownership On this and the next few pages we provide detailed calculations which might be more than you care to know at this time. You can easily skip to page 15 on the first reading. On the other hand, the monthly cost of home ownership is the most important number in deciding what you can afford to pay for a home. Unless you like living dangerously, the monthly cost of home ownership had better fit comfortably within your monthly income. First we will explain Audrie’s calculator. If you have a computer handy and can get to the Internet, the discussion will be easier to follow if you go to our calculator at: www.homebuyingtips.net/How_big_a_house.htm . This calculator estimates monthly cost of home-ownership. We’ll review the terms used by the calculator then take you through a manual calculation. Use the calculator by entering the price of a house you are interested in buying and a down payment you can afford (as with all Audrie calculators, commas, $ signs, and periods are not accepted: enter $149,000 as 149000). Click calculate and the calculator calculates the mortgage loan amount needed and the monthly mortgage payment needed to carry that mortgage amount. The estimated monthly payment is initially based on a 30 year fixed term mortgage at 7% interest rate, but the term can be changed to 15 or 20 years. The interest can be moved to as low as 5.25% and as high as 9.75%. In addition to the monthly payment, the calculator estimates monthly cost of home-ownership by including estimates for:
Monthly Property Taxes |
|
|
|
|
Monthly Maintenance Monthly Property taxes After-tax Monthly Cost of Home-ownership Manual Calculation of Monthly Cost of Home-ownership Start by using Table I on the next page to estimate basic monthly mortgage payments. Go to the first column of Table I and find “7%,“ then go across to the “30 Year” column to find $665.30 as the monthly payment on a $100,000 loan. Unless you happen to have a $100,000 loan you will need to convert the $665.30 to the monthly payment for your loan amount. You do the conversion with the following formula: Your Loan amount x Payment shown in table
= Your Monthly mortgage payment
|
|
|
|
|
Table I
Your Monthly payment = Your loan amount x Payment shown in table For our example we need the monthly payment for a $135,000 loan so we substitute $135,000 for “Your Loan Amount” in the above formula and 665.30 from the table as follows: Your Monthly payment = $135,000 x 665.30 = $898.15 $898.15 is the basic monthly mortgage payment for our $135,000 mortgage loan. To this we must add Property taxes, Insurance, and Maintenance. We estimate these by using the following national averages: Property taxes (annual): 1.5% of the purchase price. Property taxes (annual): 1.5% of the purchase price. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Maintenance (annual): 1% of the purchase price Insurance (monthly): .036% of the purchase price This is already in monthly form so we don’t have to divide by 12, we simply replace Purchase Price with the $150,000 price of our sample house. Monthly Insurance = .00036 x Purchase Price = .00036 x 150,000 = $54.00. The easy part is adding monthly property taxes, maintenance and insurance to the monthly mortgage payment to get pre-tax monthly cost of home ownership. Monthly mortgage payment $898.15 Monthly Property taxes 187.50 Monthly Maintenance 125.00 Monthly Insurance 54.00 Monthly cost of home ownership $1,264.65 (pre-tax) The above ignores the considerable savings in income tax that comes from home ownership. To get a more accurate picture of the cost of home ownership we need to estimate the tax benefit and subtract that benefit from the pre-tax monthly cost. Start by multiplying the basic monthly mortgage payment by 12 to get the annual mortgage payment ( 12 x $898.15 = $10,778) which for the first few years is a good estimate of your deduction from taxable income. Subtract your annual mortgage payment from last year’s taxable income to get a new taxable income. Use the Federal tax tables to calculate a new, lower tax on the new, lower taxable income. The difference between your original tax and the new, lower tax is your annual tax benefit from home ownership. Divide this annual tax benefit by 12 to get a monthly tax benefit. The after-tax monthly cost of home ownership is equal to the pre-tax cost minus the monthly tax benefit. |
|
|
|
|
Location, location, location Most buyers know where they want to live, usually close to work, friends and family, and in homes that testify to their hard work and success. Typically, several neighborhoods will meet those requirements.... You may get lucky and find the perfect neighborhood right away, but you are far more likely to end up considering the strengths and weaknesses of several neighborhoods, which on the surface, look very much alike. We advocate a walking tour through each neighborhood. A walk, not a slow drive! You don’t meet people when you are driving and what you want to do is talk to people who live in the neighborhood. Ask how they feel about their neighborhood. Spark a little neighborhood rivalry by mentioning the other neighborhoods you are considering. Okay, so you’re too shy to ask strangers about their neighborhoods. Look to your real estate agent. A good one can guide you to the neighborhoods with the most value, which usually means neighborhoods with good schools and low crime rates. Schools Press your real estate agent for details about the school system. Ask the following:
Buyers with children should take the time to visit schools. Principals and teachers are usually happy to talk with prospective parents. If pressed for time, good school information is available on the Internet at: |
|
|
|
|
Crime Rates Can you go out safely at night? Are break-ins common? Does the town maintain rescue vehicles? How large is the police force in relation to the population? How does this compare with other areas? Real estate agents are often reluctant to knock a neighborhood, but the community relations department of the local police force can provide much of this information, sometimes even over the phone. Look them up in the local telephone directory. Like school reports, crime rate statistics are available on the Internet. The
following sites provide free crime rate statistics for most neighborhoods: For a fee, crime rate statistics are also available at HomeFair’s Relocation Crime Lab: www.homefair.com/homefair/calc/crime.html
Go to our web page at: www.homebuyingtips.net/Location_crimerate.htm for links to all the above sources of crime rate statistics.
|
|
|
|
|
Other Criteria for Comparing Neighborhoods Even when we know crime rates and school quality we often find ourselves spending time visiting neighborhoods and touring houses then coming home with a jumble of feelings and not enough tangible stuff to compare. Audrie's Neighborhood checklist is a handy and simple tool to compare neighborhoods on criteria such as price trends, personal comfort and convenience. Most of the checklist items are described below. Use them in conjunction with advice from your real estate agent. Price Trends (Price information is not available to the public in Texas and a few other states, but real estate agents can get this information for prospective buyers) Not the analytical type? Price trend can be estimated by the factors that drive value. Prices move up in neighborhoods with lots of jobs, quality schools, low crime rates, stability and lots of amenities. Jobs Stability Amenities
|
|
|
|
|
Shopping Traffic Garbage collection Sewers Water Road service Fire department Library services
Check the library bulletin boards. A bulletin board full of notices indicates a lively community. |
|
|
|
|
Social services Recreation Accessibility to work
Neighborhood checklist:
|
|
|
|
||
|
Audrie's Neighborhood check list Name of neighborhood:________________________________________
Real estate agent: _____________________________________________ |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Getting Pre-Approved for a Mortgage Loan Most buyers want to look at homes... they shop for a mortgage loan only after they've fallen in love with a house. Arguing against that approach is like shoveling water with a sieve but we keep trying because all the logic is on the side of shopping for a mortgage loan before you shop for a house. For starters, you can find your dream house then see it get sold to another buyer while you wait for mortgage loan approval. Sellers may refuse to consider your offer because without a pre-approved mortgage loan you can't prove you have the financial resources to purchase a home. Worst of all, you can end up paying through the nose for a mortgage loan you could have gotten for thousands of dollars less if you had taken the time to shop. Definitions:
Audrie's Advice:
Do your homework:
|
|
|
|
|
Mortgage Basics When we say basic we really mean basic.... Definition Mortgage loans are used to pay the difference between the purchase price and the cash you have for a down payment. A person with $15,000 in cash ------------- ------- $15,000 Mortgage lenders charge for the use of their money. The biggest fee is the interest, expressed as an annual percent of the loan and typically falls in a range between a low of 4% and a high of 12%. Interest rates are rightly the most important thing about a loan, but because it is charged over the entire life of the loan, interest rate might not have as big an immediate impact as loan origination fees which must be paid in cash on closing day. Mortgage loan origination fees consist of:
Application fees
|
|
|
|
|
Credit report fees Before you apply for a mortgage: Appraisal fees:
Points: Points are connected to the on-going interest rate for the mortgage loan.
|
|
|
|
|
Comparing Mortgage Loans To compare mortgage loans, one needs to combine interest rate and origination fees. This is what the annual percentage rate (APR) was created to do. The APR combines the base interest rates with the points and all other loan fees to produce a single interest rate. The APR is always higher than the base interest rate for loans that have points or fees. Fixed Rate Mortgage Loans Our calculator at: www.homebuyingtips.net/Mortgage_basics.htm shows monthly payment amounts for a $85,000 loan. This small calculator lets you change the mortgage term from 30, to 20 to 15 years and see the effect on the monthly payments. At an interest rate of 7.5% The 30 year, $85,000 fixed rate loan is paid back in 360 (30x12) monthly payments of $594 each. The 15 year loan is paid back in 180 payments of $787, or almost $200 per month more than the 30 year loan. Most people select 30 year fixed rate mortgage loans precisely because the monthly payments are much smaller than the payments on a 15 year loan. When we look at total payments for a $85,000 loan at 7.5% interest, for 15, 20 and 30 year terms, we see that the interest paid on a 30 year loan is almost twice the total interest paid on a 15 year loan:
With a 30 year mortgage, the borrower pays $594 each month for 360 months for a total of $213,840: ($85,000 to repay the principal plus $128,840 in interest ! ) A 15 year mortgage loan is usually the least expensive way to go, but only for those who can afford the larger monthly payments. If you plan to keep the house for ten or more years, look at our calculator for monthly housing cost at: www.homebuyingtips.net/How_big_a_house.htm and consider a 15 year mortgage loan. As we will see below, an adjustable rate mortgage loan might even be cheaper, but with a fixed-rate loan you have the advantage of knowing what your monthly payment is going to be and that makes it easier to budget and plan the rest of your personal finances. |
||||||||||||||||||||
|
|
|||||||||||||||||||||
|
Adjustable Rate Mortgage Loans Because they can’t see into the future, mortgage lenders believe they take greater risk when they accept a fixed interest rate for a long period. When we compared $85,000 mortgage loans at terms of 30 and 15 years, we assumed for simplicity that both loans were available at a 7.5% interest rate. In the real world, if a 30 year loan is available at 7.5%, a 15 year loan might carry an interest rate closer to 7.25%. In general, the shorter the term, the lower the interest rate, with the lowest rates available for one to three year loans. Mortgage lenders charge lower interest rates for short-term loans because common financial instruments (such as Treasury Bills) provide easy means to forecast short-term interest rates, or at least protect against fluctuations in short-term rates. Adjustable Rate Mortgage Loans (ARMs) take advantage of lower short-term interest rates by guaranteeing the interest rate for only the first few years. As you might expect, adjustable rate mortgage loans start out with an interest rate lower than a fixed-rate mortgage loan for the same amount. The catch is, as the word adjustable implies, the interest rate may change as often as every six months. Few borrowers would accept a loan with interest rates that could increase without limit, so the Adjustable Rate Mortgage will usually specify limits called "caps" on how much the interest rate can increase.
Lets take a look at how this would work for a 30 year Adjustable Rate Mortgage for $85,000 with an initial interest rate of 6.25%, an annual cap of 2% and a life-time cap of 7%
|
||||||||||||||||||
|
|
|||||||||||||||||||
|
For the first two years the interest rate is locked in at 6.25% and the monthly payment fixed at $523. In the third year the interest rate is allowed to rise to 8.25% while the monthly payments rises to $638. However, and this is a big however, the interest rate on this loan will not increase beyond the initial 6.25% if interest rates on Treasury Bills and CD’s fall or remain the same as they were at the start of the loan. Adjustable Rate Mortgage Loans have two big attractions for the average home-buyer:
Lower Monthly Payments Larger Mortgage Loan Amount Consider an adjustable rate mortgage loan only if you:
How would rising interest rates impact your financial security?
|
|
|
|
|
Unless you are among the independently wealthy, don’t consider an adjustable rate mortgage loan unless you can answer the following questions with a resounding “yes!”
How long do you expect to be in this house or hold this mortgage loan? Why? Because the interest on an adjustable rate mortgage loan (ARM) is guaranteed at a low rate for the first two or three years. This initial low interest rate plus the cap on annual increases means that for the first five or six years, an adjustable rate mortgage loan is usually cheaper than a fixed rate loan of the same amount. If you plan to hold onto your home for much more than seven years, a fixed-rate mortgage loan probably makes more sense, especially if you have trouble with fluctuating monthly payments. Hybrid Mortgage Loans: A hybrid loan is a type of adjustable rate mortgage loan that has an initial period of three to five years rather than the two years standard in most adjustable rate mortgage loans. Because of this longer initial period, the hybrid loan has a higher initial interest rate than a standard ARM, but still lower than the interest on a fixed term mortgage loan. If a $85,000, 30 year fixed term loan has an interest rate of 7.5%, a standard adjustable rate loan for $85,000 might have a initial interest rate of 6.5%, while the hybrid loan might carry an interest rate of 6.75%, somewhere between the fixed rate loan and the standard adjustable loan, but closer to the adjustable. If you plan to own your home for less than eight years, a hybrid mortgage loan will probably be cheaper than a fixed rate loan, and safer than a standard adjustable rate mortgage loan. |
|
|
|
|
Choosing a Mortgage Lender If you hate shopping, we sympathize, but unless you get a thrill from throwing away money, you need to shop …and shop for a Lender or risk paying tens of thousands more than you need to pay. At 7.5%, a 30 year $100,000 fixed rate loan costs almost $16,000 more than a similar loan at 7.0%. "Up-front" costs in points and fees can vary by thousands of dollars between lenders. Our grandparents might have applied for a mortgage loan at the local Savings and Loan bank, but the mortgage industry has changed drastically as Savings and Loans have gone bankrupt or been absorbed into larger commercial banks. Today, most mortgage loans are provided by mortgage banks, which are not really banks in the sense that they don't accept deposits and they don't offer checking accounts. Thousands of these mortgage banks compete for every mortgage loan, which (because they don’t have deposits, or any other huge pool of cash) they promptly sell to replenish their capital. Apply for a mortgage loan at your neighborhood big-name bank and the loan officer will most likely offer you a loan from a mortgage bank. Almost all these mortgage banks use Fannie Mae (FNMA: the Federal National Mortgage Association) loan-evaluation criteria that aim to keep the borrower’s monthly "housing expense" below 33% of his or her monthly before-tax income. People with the same before-tax income tend to get the same mortgage loan amounts, but interest rates and up-front points and fees can vary widely. Use Audrie's two step shopping method
Step One: Find the best mortgage loan on the Internet You can find out how much you can borrow at www.iown.com/index.htm or you can use Audrie's calculator at www.homebuyingtips.net/Mortgage_size.htm. You can shop for a mortgage loan at www.iown.com/index.htm or at the E-Loan web site at: www.eloan.com/ These sites will:
Get a list of mortgage lenders at MonsterMoving. www.monstermoving.com/Mortgage_and_Finance/Quotes/ |
|
|
|
|
Phone MonsterMoving lenders who offer the lowest annual percentage rates (APR), a number that combines the base interest rate with the points and all other loan fees to produce a single interest rate for comparison purposes. Check the real estate section of Sunday newspapers for tables of mortgage lenders and their current interest rates. These tables might not include the lowest available rates, but newspapers are still a good and easy place to start even if you have access to more complete information on Internet sites. Check with HSH Associates: Step Two: Find a local Mortgage broker Find a local Mortgage broker and ask him or her to match the best interest rate you found on the Internet. Finding a local mortgage broker:
If none of the above turns up local mortgage brokers, find some in the local telephone directory. Mortgage Brokers A mortgage broker is a must for people with:
What if you can’t find a local mortgage broker? |
|
|
|
|
The long list of personal documents required by mortgage lenders Items on this list might drive you to ask if your constitutional right to privacy is being invaded. Don’t bother, the list has met and conquered all legal challenges. The good news is that the entire list most likely does not apply to you, not unless you are simultaneously getting a divorce, completing bankruptcy papers, and being relocated by your employer. The bad news is that the list of items that applies to you is still long and very personal. We might not like giving up copies of our bank statements, pay stubs, and tax returns, but lenders need these to decide if we are dependable, good risks for a mortgage loan. Required documents:
Permissions to inspect your finances If turned down for a mortgage loan Pay off the credit card debt, and consider asking Mom and Dad to cosign your loan. You might also choose to set your sights lower. You might actually qualify for a mortgage loan to buy a less expensive home. |
|
|
|
|
Things to look for when viewing a home Strolling through homes is the fun part, so much so that we often loose track of our purpose. Be sure to take a notebook and for starters, record the address, price, number of bedrooms and owner's phone number. A plan that works well is a two pass approach where you eliminate homes on the first viewing then go back for a second look at the two or three homes you like best. A half hour should be enough time to view a home on the first pass. If you stumble onto a house you love, ...Strangle your emotions! Unless you want to pay more than you have to, don't let the Seller know you would "die" to have her kitchen.
Basements: Bedrooms: Attic additions and basement bedrooms are a plus if they provide five bedrooms in a four bedroom price range. If the fourth bedroom is an attic addition with sloping ceilings, or located in the basement, the home should sell for less than homes with four regular bedrooms. Closets:
|
|
|
|
|
Dining Rooms: Direction: Driveways: Entranceways: In northern states, the "ideal" back door opens into a mud room, a back hallway, or cubicle where there is space to hang coats and remove wet boots. In the sunny South, back doors often open directly into the kitchen, which is better than opening into a carpeted family room. Fireplace: Garages: Heating:
|
|
|
|
|
The second consideration is heating method (heat pump, steam radiators, circulating hot water, forced air, and baseboard).
In House Traffic Patterns:
Kitchens: |
|
|
|
|
Laundry Facilities: Many builders place a washer and dryer in the kitchen, behind folding doors. This does not usually hurt resale value, but if you don't like having dirty laundry in the kitchen, lower your bid on this type house. Pool: Windows:
|
|
|
|
|
On each viewing look for the following problems and make notes
The above defects are out in the open for attentive buyers to see. These can be used to eliminate homes from consideration but remember that some defects are hidden behind the walls, on the roof or out of site inside the furnace. A professional inspector is required to spot signs of hidden defects.
|
|
|
|
|
Buying a New Home Some people only consider new homes. They don't buy used cars so they're not interested in pre-owned homes. Here are some good reasons to prefer new homes:
A new home should be inspected before the walls are closed up, while structural problems are out in the open. Before making an offer on a new house built by XYZ Homes visit an older development built by XYZ Homes and ask owners if they would buy from XYZ Homes again. Okay, you're shy, but your home is the biggest investment of your life! Drive slowly and stop where someone appears to be home. You'll be surprised at how helpful strangers can be. If XYZ Homes had to be sued and forced by courts to keep their promises, owners will gladly tell. New homes can be great but they also have their the down side:
|
|
|
|
|
Buying a Pre-Owned Home The best homes in America are pre-owned, but you don't have to live in the White House to find big advantages in older homes. A few advantages of older homes:
The downside of older homes:
Buy Homes that can be Sold at a Profit: Like most of us, your home is likely to be your single biggest source of wealth, so the idea of picking a home that can be sold at a profit should be close to the top of your selection criteria. Yes, you want a house that fits your family’s life style, but before making an offer to buy a house, consider this: Will the things you love about this house make it easy to sell ? |
|
|
|
|
For instance:
Will the average buyer want these things when you are ready to sell? Don't buy this house if the honest answer is no. Homes outside the prevailing norms of a neighborhood are hard to sell. Don't buy:
Avoid neighborhoods and blocks filled with "for sale" signs, especially when sales are driven by plant closings or lay-offs. If you love the house, take the time to walk through the neighborhood, …on foot!
|
|
|
|
|
Get a good real estate agent Good real estate agents are good teachers: they explain the home-buying process step by step. He or she knows your target neighborhoods and can:
The best real estate agents work full time and they specialize. They restrict themselves by neighborhood and type of property, so they get to know each block or sub-division. A good agent is a key asset in finding the right home but always remember that agents work hard to make a living and they don't get a dime until a home is sold:
Clients who know what they want get the best service. Clients with pre-approved mortgage loans get the best service of all. Finding a good agent: Get referrals for agents working in the areas where you want to live (you want to interview at least two good agents). Sources of referrals:
Not enough referrals? |
|
|
|
|
Questions to ask prospective agents: Will you work with me personally or will I have to work with an assistant or associate ? Even the best agents can have idiot assistants. Will you be representing me, the seller, or both ? A few states have experimented with “Buyer’s Agents,” but in most cases you will be dealing with an agent who legally represents the Seller. This is not a bad thing as long as you understand that the agent is obligated to get the highest possible price for the property and cannot press the Seller to reduce his or her price. The agent can compare the Seller’s asking price to recent selling prices of similar homes, but don’t look to your agent for advice as to how low the Seller might drop his price. How many homes have you sold in my target neighborhoods ? Agents who have sold homes in your target area can give better advice about prices and other things about the neighborhood. How many clients are you currently representing ? The best agents have the most clients, but you don’t want an agent who has little time to consider your needs. How familiar are you with searching for homes on the Internet ? The Internet is an increasingly important source of information about homes for sale. Agents not familiar with the Internet might be “out of touch” and unable to provide the most current information. Select an agent who:
"Playing the field" and using several agents can be counter productive:
|
|
|
|
Purchase Price (enter $124,000 as 124000)