Buying Your First Home

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.

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.

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.

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. 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.

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 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 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.

Use simple online 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? 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 your dreams.

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.

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.

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.

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.

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.

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.

hey 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!

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.