QUESTIONS FOR FIRST TIME HOME BUYERS
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
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
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
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
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
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.
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.