How To Buy Your First Home

by Brodman Summers, Diana

• ISBN13: 9781572484979
• ISBN10: 1572484977
• Edition: 2nd
• Format: Paperback
• Copyright: 2005-05-30
• Publisher: Sourcebooks Inc

Summary

This book guides you through the entire process of buying a home, from preliminaries to finances to caring for your new home. How to Buy Your First Home is the resource that will take the mystery out of buying a home.

Table of Contents

Introduction	xi
Section 1: FREQUENTLYASKED QUESTIONS
Top 20 Questions of First-Time Home Buyers	xvii
Section 2: PRELIMINARIES
Chapter 1: Buying versus Renting	3	(10)
Words
First Time Home Buyers
Financial Reasons
Equity
Tax Advantages
Passing to Heirs
An Investment
Buying vs. Renting
True Cost of Home Ownership
Intangible Reasons
Status
Privacy and Work Schedules
Community
Conclusion
Chapter 2: Qualifying Yourself for a Mortgage	13	(14)
Your Credit History
Credit Reports
Free Credit Reports
Credit Scores
Improving Your Credit Score
Credit Report Errors
Repairing Your Credit Report
Correcting Credit Report Errors
Credit Counseling
Chapter 3: Calculating What You Can Afford	27	(10)
Common Debt-to-Income Ratios
Housing-to-Income Ratio
Debt-to-Income Ratio
How to Use These Ratios
From Monthly Payment to Total Mortgage
Cost of Living Increases
Your Lifestyle
Chapter 4: Qualifying the Neighborhood	37	(12)
How to Research a Neighborhood
On the Internet
Field Trips
In the Library
From Your Couch
How to Select a Location
The Food Shopping Test
Other Cost of Living Amounts
Public Improvement Plans
Old vs. New
Section 3: SEARCHING FOR YOUR HOME
Chapter 5: Deciding Which House Features are Important	49	(12)
The Building, Itself
Features
Essentials
Handy-Man's Special or Fixer-Upper
We are All Getting Older
Condominiums and Townhomes
Building from the Ground-Up
Building Your House
Buying in a Builder's Development
Advantages/Disadvantages of Building
Chapter 6: Working with Real Estate Agents and Brokers	61	(16)
Real Estate Professionals
The Real Estate Profession
Problems with Real Estate Agents
Changing Agents
Whose Interest is Protected by the Real Estate Agent
How Real Estate Agents get Paid
Multiple Listing Services (MLS)
Comparables
Viewing a House Up for Sale
Notes and Checklists
Home Warranty
Home Inspection
What Not to Say to Real Estate Agents and Sellers
Games Played to Make the Sale
Inflating the Worth of the House
Another Offer
When Do You Legitimately Need to Act Fast
Chapter 7: Handling the Emotional Side of a Home Purchase	77	(10)
Emotions in House Hunting
Under a Deadline
House is Beautifully Decorated
It is a Real Steal
Using the Seller's Emotions
Buyer's Remorse
When Buyer's Remorse is Legitimate
Legal Consequences of Allowing Buyer's Remorse to Run Amuck
Section 4: FINANCES
Chapter 8: Explanation of Mortgage Basics	87	(18)
Prequalifying
Preapproval
Mortgage Lender Types
Portfolio Lenders
Mortgage Bankers
Direct Lenders
Mortgage Brokers
What Does This Mean for You
Mortgage Types
Adjustable Rate Mortgage (ARM)
Assumable Mortgages
Balloon Mortgages
Buy-Down Mortgage
Convertible ARM
Deferred Interest Mortgage
Faith Financing
Fixed-Rate Mortgage
Subprime Mortgage
Wraparound Mortgage
Zero Down Mortgage
Necessary Documents to Apply for a Mortgage
Internet Mortgages
Your Mortgage is Approved, Now Lock-In That Rate
Your Mortgage is Not Approved
Points
Chapter 9: Government Agencies and the Secondary Mortgage Market	105	(6)
Housing and Urban Development Agency (HUD)
Federal Housing Administration (FHA)
Ginnie Mae
Fannie Mae
Freddie Mac
Government Agencies and the First-Time Home Buyer Secondary Mortgage Market
Chapter 10: Additional Sources of Money	111	(8)
Living Together
Roommates
Friends and Relatives
Retirement Savings
Local Government Assistance
Zero Down Payment
Low Interest Mortgages
Renting with an Option to Buy
Pluses
Minuses
Chapter 11: VA Guaranteed Home Loans	119	(8)
Qualifying
VA Appraisal
The Loan
Approval
Advantages
Disadvantages
Section 5: THE BUYING PROCESS
Chapter 12: The Legal Side of Real Estate	127	(6)
Do I Need an Attorney
Title Searches and Surveys
How to Hold Title
Joint Tenancy
Tenancy by the Entireties
Tenancy in Common
Chapter 13: The Offer	133	(8)
The Contract
What is in a Real Estate Contract
Components of a Real Estate Contract
Negotiation
Things to Remember in Negotiations
Earnest Money
Escrow
Chapter 14: Appraisers, Inspectors, and Homeowners Insurance	141	(10)
Appraisers
Inspectors
The Inspection
Defects
Insurance
Home Insurance
Flood Insurance
Mortgage Insurance
Title Insurance
Chapter 15: The Closing	151	(10)
The Walk Through
What Really Happens at a Closing
Closing Documents
What to Bring to the Closing
Closing Costs
Problems
Section 6: THE FUTURE
Chapter 16: Enjoying Your Home	161	(6)
Responsible Home Ownership
Keeping Utility Expenses Down
Correspondence from the Mortgage Company
Congratulations-You Get a Tax Benefit
Reducing Your Mortgage Debt
Chapter 17: Foreclosure and How to Avoid It	167	(6)
Preventing Foreclosure
When You Can't Pay the Mortgage
Federal Housing Authority (FHA), Fannie Mae, and Freddie Mac
Staying Positive	173	(2)
Glossary	175	(42)
Appendix A: Internet Sites by Subject	217	(4)
Appendix B: Worksheets	221	(12)
Appendix C: Sample Letters	233	(6)
Appendix D: State Offices of Real Estate Regulation	239	(6)
Appendix E: HUD-1 Settlement Statement	245	(4)
Appendix F: HUD Offices	249	(22)
Appendix G: VA Guaranteed Loan	271	(12)
Appendix H: VA Regional Offices	283	(6)
Index	289	(16)
About the Author	305

Excerpts

How Much Can You Afford for a Mortgage?<br><br>Every lender has a formula to tell how much a person can afford in mortgage payments. Formulas are good because they can give a definitive number. However, most formulas do not factor in a person's lifestyle (what is important to that person), future financial down-turns, or what each person feels comfortable paying for housing.<br><br>COMMON DEBT-TO-INCOME RATIOS<br>Mortgage lenders loan money based on a set of criteria. That criteria rates the property, the neighborhood, the building, and the borrower. This chapter will explore the common criteria used to rate the borrower and how you can use that information to make decisions before you ask for a mortgage.<br><br>Housing-to-Income Ratio<br>Lenders usually use a two-part ratio calculation that sets the boundaries of what you can pay for a home. This is currently expressed as the 28/36 formula (but the exact numbers may change by the time you read this).<br><br>The first part, the front-end ratio or the housing-to-income ratio, is the total mortgage payment divided by your gross monthly income. The percentage result should be somewhere in the 28% to 33% range. Right now 28% is currently used by the majority<br>of lenders. Depending on your credit history, amount of debts, and amount of potential future income, your lender may change the front end percentage.<br><br>The total mortgage payment or housing costs includes: monthly loan payment, real estate taxes, home owners insurance, mortgage insurance (if any), and association fees (if any).<br><br>Gross monthly income is what you receive each month from every source. This income total is before taxes or any deductions (such as deductions for your 401(k) program) are taken out.<br><br>Debt-to-Income Ratio<br>The second part, back-end ratio or total debts ratio is the percentage of your gross income that can go towards all of your monthly debt. In the 28/36 formula, a person should not pay more than 36% of his or her monthly gross income for all debts. <br><br>Again, gross monthly income is what you receive each month from every source. This income total is before taxes or any deductions (such as deductions for your 401(k) program) are taken out.<br><br>Monthly debt includes payments on credit card debts, loans, alimony, child support, plus housing costs, but does not include household expenses like utilities, food, clothing, and the like.<br><br>Monthly housing costs are mortgage payment, real estate taxes, home insurance, mortgage insurance, and association fees.<br><br>HOW TO USE THESE RATIOS<br>So, you are probably looking at these ratios and saying "How does that affect me? All I want to do is to get a mortgage without the hassle of dealing with math equations." Not only do I understand, I feel exactly the same. These ratios were created and are routinely<br>used by lenders, you know, those people who enjoy working with numbers. For the rest of us, these ratios can give us an approximation of what we can afford in a mortgage and for our total debt.<br><br>While we can use the ratios like the lenders (as guidelines and generalities to determine if someone qualifies for a mortgage loan), there are two important pieces of information on ratios. First-the ratios can vary by lender, by type of mortgage, and by what the economy is doing. Second-lenders do not only use these numbers. Other factors such as your credit history, the size of your down payment, the cost of the home, the appraised value of the home, and other facts about you and the property go into the decision to issue a mortgage.<br><br>This can be better explained through examples. Let's follow two potential home buyers as they wade through the ratios. (We will also see how numbers can be deceiving.)<br><br>***<br>Example 1:<br>Janet is single. She works as a computer programmer making $42,000 per year. Her gross monthly income is $3,500.<br><br>According to the 28/36 formula:<br>Gross monthly income x 0.28 = Total monthly housing expense<br>$3,500 x 0.28 = $980<br><br>Or, in words, Janet can afford a $980 total monthly housing expense. (Remember that total monthly housing expense includes the mortgage payment, plus homeowners insurance, plus real estate taxes, plus any mortgage insurance payments or association payments.)<br><br>Looking at Janet's debts:<br>Gross monthly income x 0.36 = Total monthly debt expense<br>$3,500 x 0.36 = $1,260<br><br>This shows that Janet's total monthly debts should not exceed $1,260. Again, remember that this does not include those pricey household expenses such as utilities, food, clothing, transportation, and other living expenses. <br><br>Looking at Janet's monthly debt, she is paying $150 a month on credit card bills and $100 a month on a student loan. If you add the $980 of a total mortgage payment plus the $250 a month on debts, Janet comes up with a total of $1,230 in obligations. This is $30 less than the maximum debt obligation that the 28/36 ratio allows.<br><br>So Janet should be approved to get a mortgage from the lender that uses this ratio. Or should she? The numbers look great, but what if the credit history is not so good? Janet's employment history may be spotty. She may have had several jobs in the past 15 years, never staying longer than two years at each job. Janet's employer may have publicly announced that they are closing. So, Janet may not automatically get the mortgage loan she wanted. <br><br>What if Janet's credit worthiness is ok, but the property she wants has problems? Maybe the house is in terrible condition and did not appraise for the amount she is asking the bank to loan her? Janet may not be able to get the mortgage she wanted on that property.<br>***<br><br>These two scenarios show that although a person can be within the 28/36 ratio, there may still be problems obtaining a mortgage. In both of these cases, Janet may have to provide a larger down payment or she may have to select another property. On the other hand Janet, like many of us, may not feel comfortable with a $980 monthly mortgage payment. She may be planning to buy a new car, plus a house full of new furniture.<br><br>So how does the 28/36 ratio relate to real life? These numbers are merely maximums. This ratio says that Janet should not take on a total mortgage payment of more than $980 and that she should not have total debt of more than $1,260. So, if Janet can come up with a sizable down payment, or look for a house with a lower total cost, she may be able to get that total monthly mortgage payment down to around $600. This would allow her to go into more debt on other items.