New Home Buyer FAQ
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 money saved for a down payment? Do I have few outstanding debts, like car payments? 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.
In addition to comparing the home to your minimum requirement and wish lists, you may want to consider the following: Is there enough room for both the present and the future? Are there enough bedrooms and bathrooms? Is the home 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? Imagine the home in good weather and bad – 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.
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. Ask questions until you understand all of the information they’ve given. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.
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.
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. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.
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 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(s) before you purchase the house.
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 Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer.
re-qualification is an informal way to see how much you may be able to borrow. You can be ‘pre-qualified’ over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house. Pre-approval is a lender’s actual commitment to lend to you. It involves assembling financial records and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.
This will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as any work the seller agreed to do in response to the inspection. Any problems discovered previously that you find uncorrected should be brought up prior to closing. It is the seller’s responsibility to fix them.
There may be closing cost customary or unique to a certain locality, but closing cost are usually made up of the following: Attorney’s or escrow fees Property taxes (to cover period to date) Interest (paid from date of closing to 30 days before first monthly payment) Loan Origination fees Recoding Fees Survey Fee First premium of mortgage insurance (if applicable) Title Insurance Loan discount points First payment to escrow account for future real estate taxes and insurance Paid receipt of homeowner’s insurance policy Any documentation preparation fees
You’ll present your paid homeowner’s insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc. Once you’re sure you understand all the documentation, you’ll sign the mortgage, agreeing that if you don’t make payments the lender is entitled to sell your property and apply the sale price against the amount you owe plus expenses. You’ll also sign a mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed. You’ll pay the lender’s agent all closing costs and, in turn he or she will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the state Registry of Deeds, and you will be a homeowner.
Settlement Statement, HUD-1 Form (itemizes services provided and the fees charged; it is filled out by the closing agent and must be given to you at or before closing) Mortgage Note Mortgage or Deed of Trust Binding Sales Contract (prepared by the seller) Keys to your new home!