Questions and Answers
About Buying a New Home

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?

If you can answer “yes” to these questions, you are probably ready to buy your own home.

How does the lender decide the maximum loan amount that I 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, 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.

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.

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.

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 office. 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.

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 be 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?

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.

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.

How do I make an offer?
Your real estate agent will assist you in making an offer, which will include the following information:

Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer.

What is a mortgage?
Generally speaking, a mortgage is a loan obtained to purchase real estate. The “mortgage” itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

What types of loans are available and what are the advantages of each?

Fixed Rate Mortgages: Payments remain the same for life of the loan

Types: 15-year or 30-year

Advantages:

• Predictable
• Housing cost remains unaffected by interest rate changes and inflation.

Adjustable Rate Mortgages (ARMS): Payments increase or decrease on a regular schedule with changes in interest rates; increases subject to limits.

Types:

• Balloon Mortgage—Offers very low rates for an Initial period of time (usually 5, 7, or 10 years); when time has elapsed, the balance is due or refinanced (though not automatically).
• Two-Step Mortgage—Interest rate adjusts only once and remains the same for the life of the loan.
• ARMS linked to a specific index or margin.

Advantages:

• Generally offer lower initial interest rates
• Monthly payments can be lower
• May allow borrower to qualify for a larger loan amount

Are there special mortgages for first-time homebuyers?
Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don’t have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

What is included in a monthly mortgage payment?
The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner’s insurance, and mortgage insurance (if applicable).

What makes up closing cost?
There may be closing cost customary or unique to a certain locality, but closing cost is usually made up of the following:

• Attorney’s or escrow fees (Yours and your lender’s if applicable)
• Property taxes (to cover tax period to date)
• Interest (paid from date of closing to 30 days before first
  monthly payment)
• Loan Origination fee (covers lenders administrative cost)
• Recording fees
• Survey fee
• First premium of mortgage Insurance (if applicable)
• Title Insurance (yours and lender’s)
• Loan discount points
• First payment to escrow account for future real estate taxes
  and insurance
• Paid receipt for homeowner’s insurance policy
  (and fire and flood insurance if applicable)
• Any documentation preparation fees
  

Information abbreviated from the U.S. Department of Housing and Urban Development