Making the Offer
You may already have an idea of where you want to live, but if you don’t, here are few things to think about:
Look at the surrounding houses in the neighborhood. Are the homes and yards well kept? The condition of these homes will affect the value of the home you buy.
Is it visually appealing? Explore the lot thoroughly. Does it offer adequate privacy? Will you maintain the ground or hire someone? Do you like the landscaping or would you design your own? When looking into the back yard, are you greeted with the sight of a transformer, radio broadcasting tower, gas station, bus stop or ball field where night games are played?
What kind of area is it in? How close are shopping facilities, banks, churches, hospitals, schools, parks and movie theaters? And, of course, you’ll want to know what, if any, crime rate is associated with the neighborhood. Go to the local police station and ask for records of robberies, break-ins, vandalism, assaults and drug-related problems in the neighborhood. Is crime increasing or decreasing?
What is the traffic like and how will it affect your commute to and from work? Heavy traffic also produces noise and air pollution.
Is the home in an area that floods when it rains. How fast does the water drain from the streets and yard? Slope and the soil’s ability to absorb water will determine where and how fast water drains away from the house. You can check out local flood information through Stewart’s Flood Information Division to find out if the house is in a floodplain.
Whatever you do, don’t be afraid to ask questions. Your real estate agent will be very happy to provide you with as much information as possible. Remember, this is potentially the largest purchase you will ever make – ask questions until you are satisfied with the answers.
Here are a few other things you will want to consider in the selection of your dream home:
Don’t fall in love with the first home you see. New listings come onto the market all the time. The best deal may still be ‘just around the corner’. The more homes you see, the more you’ll learn about what you want and what each house has to offer.
Don’t choose a house because you like the interior decorating – a well-furnished home isn’t always the most structurally sound. Check out the actual structure of the home. Keep in mind, the furnishings will be leaving with the current owner.
Go through the house with a fine-tooth comb. Open cabinets, turn on every switch, notice details, move furniture away from the walls, look in the attic, turn on faucets and flush the commodes. Look for water spots on walls and ceilings – you don’t want to find out after you’ve bought the house that the roof is leaking.
Don’t be pushed into making a selection. Make your decision only when you’ve seen enough to pick the best one.
You’ve finally found the home of your dreams. You’re ready to put your money where your mouth is – but wait – before you sign on the dotted line, before you spend the money your lender has provided and before you start thinking about interior and exterior design, find out a few things first. Those things may help you negotiate a better, lower price than what the owner is asking.
Find out the selling prices of similar properties to use as a guideline to set your sales price. These comparable properties should:
• Have sold no more than six months earlier
• Be around the same age and condition
• Have close to the same number of bathrooms, bedrooms, and square footage
• Be in a similar location and on a similar lot
If you still don’t feel comfortable setting a price, consider having a professional appraisal done. Appraisers look at what the home is worth today and how the neighborhood may affect future property value. They provide a realistic figure for the true market value of the property
Once you, your real estate agent and the owner have come to an agreement on the sale price of the house – Put it in Writing.
Don’t reveal your strategy and don’t make oral offers. You know you want this house, but don’t hand over your money until you are sure the seller is legally capable of conveying a good title and meeting other conditions. Yet the seller doesn’t want to surrender the deed until you’ve paid for the property.
VA loans have most of the advantages of FHA loans, and then some, but they also have eligibility restrictions. They are available only to veterans of the armed services, those currently in the service and their spouses. VA loans are typically half a percent or more below market rates, and they can be obtained with no money down.
Finding the perfect home
You are now ready and armed with your pre-qualification or pre-approval to find the home of your dreams. Your journey has brought you this far and now your real estate agent will provide you with as many homes as you care to see.
However, do you know what kind of home you are looking for? Do you know what neighborhood in which you wish to live? What kind of schools will your children be attending? Is shopping important to you or are you looking for that home on the golf course or near the water? Would you be comfortable in a condominium, a townhouse or even a pre-fabricated home? All these questions and more regarding amenities and specific features will be among those your real estate agent will ask. She will be much more capable of finding the right home for you if she knows as much about your requirements, needs and desires as possible.
To help your real estate agent with this process, make three lists – a need list, a do-not-want list and a dream list. Factor in your current housing needs, likes, dislikes and possible future changes in your life and lifestyle, such as more children, less children, parents moving in or out and other major life changing factors.
Your needs list may include:
• Number of bedrooms
• Number of bathrooms
• Bath in the master bedroom
• Separate dining room
• Garage
• Basement
• While your do-not-want list may include:
• Small bathrooms
• No counter space
• No windows in kitchen/bathroom
• Tiny yard
• Insufficient closet space
• No garage
• For your dream list, write down all of the features you would love to have in your home, which may include:
• Fireplace
• Swimming pool with Jacuzzi
• Greenhouse
• Breakfast nook
• Two stories
• Skylights
In 1937, under an act of Congress, the Federal Housing Administration was established to provide American families with a unique opportunity to become homeowners. Formerly, a homebuyer’s options were limited only to short term loans ranging from one to five years in term. Borrowers had to put as much as 40 to 50 percent down on the property and pay off the entire loan balance by the end of the term. FHA revolutionized the mortgage industry at the time by offering the 30-year mortgage and made the possibility of home ownership available to Americans nationwide. Throughout the years, a variety of programs have spawned from this revolution to make that American dream of home ownership easier, more affordable and attainable to Americans.
There are several notable FHA home loan programs available:
• Standard fixed rate (FHA 203b)
• FHA adjustable rate mortgage (FHA 251)
• FHA 2-1 buydown (FHA 203b, FHA 251)
• Energy Efficient Mortgages Program
Payment Problems
Should one fail to pay, FHA insures mortgage loans made by approved lending institutions. The FHA insures a variety of mortgages, including FRMs, ARMs, GEMs and GPMs. Down payments are low – 5 percent or less. The FHA doesn’t set the interest rate on loans it insures, so you’ll need to shop around for the best rate.
The FHA limits the amount it will insure to whichever is less: 95 percent of the local average home price or 75 percent of the loan limit set by the Federal Home Loan Mortgage Corporation, a large buyer and reseller of mortgages.
Each lender is different, so be sure to choose one that will work with you and your specific circumstances. Shop for lenders offering the best deals. Check with several mortgage companies and use one or more reporting services. If there isn’t a reporting service covering your area, begin the search at your own bank or savings and loan or through any of the following sources:
Independent Mortgage Companies:
Make just over half of all home mortgages, including most VA-guaranteed and FHA-insured loans.
Savings Institutions:
Savings and loan associations and savings banks originate close to a quarter of home mortgages. Most are conventional loans – those not guaranteed by the VA or FmHA, or insured by the FHA.
Commercial Banks:
Active in residential lending. Banks also are a major supplier of loans for mobile-home buyers.
Mortgage Brokers:
Act as intermediaries. A broker keeps tabs on the mortgage market through ties to local, regional and national lenders, and can refer a prospective borrower to a mortgage banker, savings institution or a commercial bank. Brokers don’t lend money and can’t approve loans.
Credit Unions:
Make close to one-third of all first-mortgage loans, but you must be a member.
Public Agencies:
State and local finance agencies make below-market-rate financing available to eligible low- and moderate-income first-time buyers through the sale of tax-exempt bonds.
Employers and Unions:
Don’t overlook your employer as a source of assistance. An employer may subsidize the interest or even act as a lender. Unions are another possibility. The AFL-CIO offers what it calls “Union Privilege.” Unions that sign on can make first-time home loans available to eligible members for as little as three percent down.
Choosing the Right Mortgage
The next step in your journey is choosing the right type of mortgage for your individual financial needs. While there are some people who can and do pay cash for a new home, most are like you, and this is where your lender’s skills and knowledge will take effect.
Pre-qualifying before house hunting puts you ahead of the game. Your research into how much home you can afford has provided you with the knowledge of already knowing the standard of mortgages for which you qualify. Quite simply, you are shopping for a loan from a mortgage lender.
First, review the major kinds of mortgages you may encounter. The following list contains the mortgages you are most likely to see. Again, ask questions; your lender will be happy to explain each type of loan arrangement and satisfy all your concerns.
Fixed-Rate Mortgage (FRM)
This is the standard mortgage model. It is the oldest and most easily understood the type of mortgage. Its primary attraction is that the interest rate and the amount of payment remain fixed for the life of the loan, typically either 15 or 30 years. However, if rates fall, the holder cannot benefit from the new, lower rate except by refinancing.
Adjustable-Rate Mortgage (ARM)
With this kind of mortgage, the interest rate you pay rises and falls along with other rates charged throughout the economy. Therefore, you, the borrower, assume the risk of rising rates, and you stand to benefit should rates fall. An essential question to ask about an ARM is whether there are limits on how much your rate can be raised, both at each review and over the whole term of the loan. Without limits, known as “caps,” you’ll have no way to predict how much your rate (and thus your monthly payments) might change.
Convertible Option
FRM and ARM represent the primary options available to homebuyers today. The convertible mortgage represents something of a compromise between the two. It is designed for those who want the advantages of the ARM, but also want to limit the risk of rising rates.Under this arrangement, the buyer starts out with an ARM, but has the option of converting to an FRM at specified points during the loan term. You may want to ask the lender these questions: When can you convert? How often can you consider the option? Are there any up-front fees involved? Will you have to pay more for an ARM with the conversion feature than for an ARM without it? Are there additional fees due if and when you decide to convert? Find out the lender’s conversion rate. Graduated Payment Mortgage (GPM)A fixed-rate GPM starts out with low payments, usually below that of a fixed-rate and possibly that of an ARM, but rise gradually (usually over five to ten years), then level off for the remaining years of the loan.
Growing-Equity Mortgage (GEM)
This option is designed for borrowers who want to pay off their mortgage as soon as possible. Therefore, the interest rate remains fixed, but the amount of the monthly payment increases according to a prearranged schedule, with the higher payments going to reduce the principal balance. This mortgage can be appealing to someone who is expecting regular income growth and wants to build equity quickly.
Fifteen-Year Mortgage
Like the GEM, the fifteen-year mortgage enables borrowers to repay their loan more quickly, which means they build equity faster and pay less interest over the life of the mortgage.
Biweekly Mortgage
Another option for people who want to repay their loans sooner is the biweekly mortgage. Instead of making a single mortgage payment each month, borrowers who choose this option make two equal payments monthly
Federal Housing Administration Insured Loans (FHA)
FHA, also known as the Federal Housing Administration, operates under the control of the Department of Housing and Urban Development (HUD) and has the primary responsibility for administering the government home loan insurance program. This program allows buyers who might otherwise not qualify for a home loan to obtain one because the risk is removed from the lender by FHA.
Once you’ve assessed your spending qualifications, you will need to find a real estate professional. As with any major journey, you need a capable, competent guide, one who clearly is able to lead you through the steps that ultimately will bring you to your final destination – your new home.
Choose an agent with whom you feel comfortable. One who is responsive to your needs and the needs of your family, one who complements your personality, and one who is prepared to be with you throughout each step of the home-buying process.
A few simple guidelines for finding the ‘right’ agent are:
• If you already know the neighborhood in which you would like to live, find an agent within that community.
• Seek an experienced agent with a known reputation – look at credentials, track records and awards received.
• Seek someone who is a member of the Board of Realtors®.
• Find someone who is continuing their education – a Certified Residential Specialist (CRS), Certified Residential Broker (CRB), a graduate of the Realtors Institute (GRI) or an Accredited Buyer’s Representative (ABR) – this shows the realtor is interested in the business long-term and is willing to invest in their career.
• Seek referrals from your family and/or friends.
• Interview, at least, three agents before you make your final decision.
There are two “sides” to every sale. The seller’s side is represented by the listing agent. The buyer’s side is represented by the selling agent. The selling agent also is referred to as the buyer’s agent. Usually, real estate commissions are paid by the seller. For this reason, the selling agent, although representing the buyer, has certain duties to the seller. If you, as the homebuyer, want to have a real estate agent represent only your interests, you will need to hire and pay commission to your own real estate agent.
These real estate agents are generally referred to as buyer’s agents. If you call on a single classified advertisement in a newspaper, an ad in a home selling magazines or a listing on the Internet, you most likely are calling the listing agent.
Lenders usually use the following two qualifying guidelines to decide how much of a loan you can manage:
• Your monthly housing expenses – mortgage payment, property taxes, insurance, etc. These expenses should total no more than 28 percent of your monthly gross income
• Your monthly living expenses and any long-term debts – utilities, car and school loan, child support, health and car insurance, etc. These expenses should be no more than 36 percent of your monthly gross income.
Knowing your credit status and how credit agencies rate your credit also may be a deciding factor, especially when you begin talking to lenders. There are three main credit-reporting agencies that will, for a small fee, send you the most current credit report on file.
Experian 1-888-EXPERIAN (397-3742)
Equifax 1-800-997-2493
Trans Union 1-216-779-2378
Don’t forget! By law, you can monitor your report free of charge at www.annualcreditreport.com.
Before you begin the search for your dream home, decide how much you can comfortably spend. Mortgage lenders most often will take into consideration all of the following:
• The size of your down payment
• Your job stability
• Existing debts
• Credit references
• Payment history
