1st Time Home Buying FAQ
Why should I buy instead of rent?
A. 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. 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.
Can I become a homebuyer with bad credit and very little for a down payment?
A. There are programs available for first time home buyers with poor credit and limited savings for a down payment.
Are there special home ownership grants or programs for single parents?
A. There is help available. Start by becoming familiar with the home buying 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.
Should I use a real estate broker? How do I find one?
A. 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 will want to know about neighborhoods being considering, the quality of schools, the number of children in the area, traffic volumes, and more.
How much money will I have to come up with to buy a home?
A. The answer to this question 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.
- Down payment - a percentage of the cost of the home that you must pay when you go to settlement
- 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 usually varies. Ask your realtor for more information.
How do I know if I can get a loan?
A. Start by using our mortgage calculators to see how much mortgage payment you could potentially handle. If the amount you can afford is significantly less than the cost of homes that interest you, then you might have to wait awhile longer. 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 you want.
In addition to the mortgage payment, what other costs do I need to consider?
A. You will, of course, have your monthly utilities. If your utilities have been covered in your rent, this may be new for you. 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 are normally rolled into your mortgage payment.
So what will my mortgage cover?
A. 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.
- Property Taxes: the city/county taxes assessed on your property.
The most common repayment period for home loans is 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.
I know there are lots of types of mortgages - how do I know which one is best for me?
A. 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. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be because future national rate changes will not affect your loan.
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. Talk to us 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?
A. There are several things you should consider:
- Is the asking price in line with prices of similar homes in the area?
- 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.
- 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.
- How much mortgage will be required? Make sure you really can afford whatever offer you make.
- 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?
A. Having your offer be rejected is not uncommon! Don't let that stop you. With your broker's help, begin negotiating. 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?
A. Typically, you will 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 are committing to pay back. And don't hesitate to ask questions!