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Dear Future Homeowner:
Homeownership is becoming a reality for more and more
Americans. During 2000, the US homeownership rate
reached 67.7%, the highest rate ever. Yet many Americans
don't realize that homeownership is within their grasp.
A home is a financial asset and more: it's a place to
live and raise children; it's a plan for the future;
it's an investment in your community. That's why we at
the U.S. Department of Housing and Urban Development
want all Americans to have an opportunity to enjoy the
benefits of owning a home. And we are especially proud
of our work to help first-time homebuyers: thanks to our
special programs, more than 81% of FHA-insured loans
went to first-time homebuyers during 2000.
Knowledge is said to open doors. This is literally true
when it comes to buying a home. To become a first-time
homebuyer, you need to know where and how to begin the
homebuying process. The following questions and answers
have been carefully selected to give you a foundation of
basic knowledge. In addition to helping you begin, this
brochure will give you the tools necessary to navigate
the entire process - from deciding whether you're ready
to buy, all the way to that final proud step, getting
the keys to your new home.
Calling for this brochure was your first step. Now you
can use this information to determine if you're ready to
buy a home. if you are ready, contact a real estate
agent, lender, or a housing counseling agency. They can
help you decide your next step.
HUD's FHA has helped more than 30 million people become
homeowners since 1934. We want to help you open the door
to your own home. After all, HUD and FHA are on your
side.
Good Luck!
TABLE OF CONTENTS
Introduction
Glossary
GETTING STARTED
1. HOW DO I KNOW IF I'M
READY TO BUY A HOME?
You can find out by asking yourself some questions:
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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? |
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Do I have a good record of paying my bills?
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Do I have few outstanding long-term debts, like
car payments? |
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Do I have money saved for a down payment?
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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.
2. HOW DO I BEGIN THE
PROCESS OF BUYING A HOME?
Start by thinking about your situation. Are you ready to
buy a home? How much can you afford in a monthly
mortgage payment (see Question 4 for help)? How much
space do you need? What areas of town do you like? After
you answer these questions, make a "To Do" list and
start doing casual research. Talk to friends and family,
drive through neighborhoods, and look in the "Homes"
section of the newspaper.
3. HOW DOES PURCHASING A
HOME COMPARE WITH RENTING?
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.
4. HOW DOES THE LENDER
DECIDE THE MAXIMUM LOAN AMOUNT THAT 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, 4 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.
5. 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.
Overall, you want to choose an agent that makes you feel
comfortable and can provide all the knowledge and
services you need.
6. 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.
FINDING YOUR HOME
7.
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. More than anything, you want a
neighborhood where you feel comfortable in.
8. WHAT SHOULD I DO IF
I'M FEELING EXCLUDED FROM CERTAIN NEIGHBORHOODS?
Immediately contact the U.S. Department of Housing and
Urban Development (HUD) if you ever feel excluded from a
neighborhood or particular house. Also, contact HUD if
you believe you are being discriminated against on the
basis of race, color, religion, sex, nationality,
familial status, or disability. HUD's Office of Fair
Housing has a hotline for reporting incidents of
discrimination: 1-800-669-9777 (and 1-800-927-9275 for
the hearing impaired).
9. HOW CAN I FIND OUT
ABOUT LOCAL SCHOOLS?
You can get information about school systems by
contacting the city or county school board or the local
schools. Your real estate agent may also be
knowledgeable about schools in the area.
10. HOW CAN I FIND OUT
ABOUT COMMUNITY RESOURCES?
Contact the local chamber of commerce for promotional
literature or talk to your real estate agent about
welcome kits, maps, and other information. You may also
want to visit the local library. It can be an excellent
source for information on local events and resources,
and the librarians will probably be able to answer many
of the questions you have.
11. HOW CAN I FIND OUT
HOW MUCH HOMES ARE SELLING FOR IN CERTAIN COMMUNITIES
AND NEIGHBORHOODS?
Your real estate agent can give you a ballpark figure by
showing you comparable listings. If you are working with
a REALTOR, they may have access to comparable sales
maintained on a database.
12. 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 off ice. Tax rates can change from year
to year, so these figures may be approximate.
13. 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,
14. IS AN OLDER HOME A
BETTER VALUE THAN A NEW ONE?
There isn't a definitive answer to this question. You
should look at each home for its individual
characteristics. Generally, older homes may be in more
established neighborhoods, offer more ambiance, and have
lower property tax rates. People who buy older homes,
however, shouldn't mind maintaining their home and
making some repairs. Newer homes tend to use more modern
architecture and systems, are usually easier to
maintain, and may be more energy-efficient. People who
buy new homes often don't want to worry initially about
upkeep and repairs.
15. 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:
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Is there enough room for both the present and
the future? |
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Are there enough bedrooms and bathrooms?
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Is the house structurally sound?
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Do the mechanical systems and appliances work?
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Is the yard big enough? |
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Do you like the floor plan? |
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Will your furniture fit in the space? Is there
enough storage space? (Bring a tape measure to
better answer these questions.) |
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Does anything need to repaired or replaced? Will
the seller repair or replace the items?
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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.
16. WHAT QUESTIONS SHOULD
I ASK WHEN LOOKING AT HOMES?
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 HUD Home Scorecard can help you develop
your question list.
17. HOW CAN I KEEP TRACK
OF ALL THE HOMES I SEE?
If possible, take photographs of each house: the
outside, the major rooms, the yard, and extra features
that you like or ones you see as potential problems. And
don't hesitate to return for a second look. Use the HUD
Home Scorecard to organize your photos and notes for
each house.
18. HOW MANY HOMES SHOULD
I CONSIDER BEFORE CHOOSING ONE?
There isn't a set number of houses you should see before
you decide. Visit as many as it takes to find the one
you want. On average, homebuyers see 15 houses before
choosing one. Just be sure to communicate often with
your real estate agent about everything you're looking
for. It will help avoid wasting your time.
YOU'VE FOUND IT
19.
WHAT DOES A HOME
INSPECTOR DO, AND HOW DOES AN INSPECTION FIGURE IN THE
PURCHASE OF A HOME?
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 t 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.
20. DO I NEED TO BE THERE
FOR THE INSPECTION?
It's not required, but it's a good idea. Following the
inspection, the home inspector will be able to answer
questions about the report and any problem areas. This
is also an opportunity to hear an objective opinion on
the home you'd I like to purchase and it is a good time
to ask general, maintenance questions.
21. ARE OTHER TYPES OF
INSPECTIONS REQUIRED?
If your home inspector discovers a serious problem a
more specific Inspection may be recommended. It's a good
idea to consider having your home inspected for the
presence of a variety of health-related risks like radon
gas asbestos, or possible problems with the water or
waste disposal system.
22. HOW CAN I PROTECT MY
FAMILY FROM LEAD IN THE HOME?
If the house you're considering was built before 1978
and you have children under the age of seven, you will
want to have an inspection for lead-based point. It's
important to know that lead flakes from paint can be
present in both the home and in the soil surrounding the
house. The problem can be fixed temporarily by repairing
damaged paint surfaces or planting grass over effected
soil. Hiring a lead abatement contractor to remove paint
chips and seal damaged areas will fix the problem
permanently.
23. ARE POWER LINES A
HEALTH HAZARD?
There are no definitive research findings that indicate
exposure to power lines results in greater instances of
disease or illness.
24. DO I NEED A LAWYER TO
BUY A HOME?
Laws vary by state. Some states require a lawyer to
assist in several aspects of the home buying process
while other states do not, as long as a qualified real
estate professional is involved. Even if your state
doesn't require one, you may want to hire a lawyer to
help with the complex paperwork and legal contracts. A
lawyer can review contracts, make you aware of special
considerations, and assist you with the closing process.
Your real estate agent may be able to recommend a
lawyer. If not, shop around. Find out what services are
provided for what fee, and whether the attorney is
experienced at representing homebuyers.
25. 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.
26. WHAT STEPS COULD I
TAKE TO LOWER MY HOMEOWNER'S INSURANCE COSTS?
Be sure to shop around among several insurance
companies. Also, consider the cost of insurance when you
look at homes. Newer homes and homes constructed with
materials like brick tend to have lower premiums. Think
about avoiding areas prone to natural disasters, like
flooding. Choose a home with a fire hydrant or a fire
department nearby.
27. IS THE HOME LOCATED
IN A FLOOD PLAIN?
Your real estate agent or lender can help you answer
this question. If you live in a flood plain, the lender
will require that you have flood insurance before
lending any money to you. But if you live near a flood
plain, you may choose whether or not to get flood
insurance coverage for your home. Work with an insurance
agent to construct a policy that fits your needs.
28. WHAT OTHER ISSUES
SHOULD I CONSIDER BEFORE I BUY MY HOME?
Always check to see if the house is in a low-lying area,
in a high-risk area for natural disasters (like
earthquakes, hurricanes, tornadoes, etc.), or in a
hazardous materials area. Be sure the house meets
building codes. Also consider local zoning laws, which
could affect remodeling or making an addition in the
future. Your real estate agent should be able to help
you with these questions.
29. HOW DO I MAKE AN
OFFER?
Your real estate agent will assist you in making an
offer, which will include the following information:
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Complete legal description of the property
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Amount of earnest money |
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Down payment and financing details
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Proposed move-in date |
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Price you are offering |
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Proposed closing date |
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