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Home > Consumer Focus Archive > Home Buying Basics
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Home Buying Basics |
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Home Buying Basics
 Have you finally decided you’d like to take the leap and become a homeowner? Although it may seem overwhelming at first, buying a home is a process you’ll negotiate successfully as long as you know the steps to take and are informed about the choices you face along the way.
Posted: May 2, 2007
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How much house can you afford?
 The single most important part of buying a house is figuring out how much you can realistically afford to pay. You’ll have to take a good look at your budget, debts, credit reports, and credit score. Once you have a good picture of your financial status, start saving as much money as you can for a down payment, closing costs and other extra expenses that come along with buying a house. Extra expenses could include paying for a home inspection (around $300 - $500 depending on where you live) or hiring a moving company after the sale is final. Depending on the condition of your finances - if you have a lot of debt, errors on your credit report, or a low credit score - getting ready financially could take six to 12 months or more, so get started now! If your FICO credit score falls below 620 lenders see you as a risky borrower. This might mean you can only qualify for a subprime mortgage (one with a higher interest rate). It might be worth your time to take a year and work on building a better credit report before taking on the responsibility of a mortgage. Also, if you qualify for a lower interest rate you could save thousands of dollars over the life of the loan. Be wary of companies that offer to “repair” your credit for a fee.
Generally speaking though, if your finances are in decent shape, you could look for a home priced at two to three times your gross yearly salary. And while using online mortgage calculators can give you a rough idea of how large of a mortgage you might qualify for, talking to a lender or mortgage broker will give you a more accurate figure.
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 Down Payments & Financing
Are you holding back because you haven’t saved the traditional 20% down payment? That doesn’t have to stop you in today’s market. Many lenders will grant loans to qualified buyers with as little as 3 to 5 percent down if you buy mortgage insurance. The Federal Housing Administration also offers attractive financing options with low down payments for qualifying first-time home buyers, and if you’re a qualifying veteran, you have special loan options through the U.S. Department of Veterans Affairs.
You should always comparison shop among different lenders – banks, mortgage companies, credit unions, mortgage brokers, etc. – when looking for a mortgage that meets your needs. You’ll want to compare costs, consider the terms, and negotiate for the best deal. One convenient way to compare lenders and their offerings is to mortgage shop online. Many of the sites also have mortgage calculators and other useful tips and hints on finding the right mortgage, as well as home buying in general. The U.S. Department of Housing and Urban Development (HUD) also offers special loan programs for individuals interested in purchasing “fixer-uppers” and financing energy-efficient home improvements. You might also qualify for special financing programs based on the state you live in or if you’re a teacher, police officer or firefighter, Native American, or even a hurricane evacuee. If you’re not sure if any of these apply to you or just want more information contact a HUD Housing Counselor near you.
When you’re considering the type of mortgage you might like to have, pay special attention to riskier interest-only and payment option adjustable rate mortgages. A lender might offer you one of these products so you can afford a home that is more expensive than one you might otherwise qualify for. But remember that, even though a mortgage with an initial low monthly “teaser” payment may seem like a good idea when you’re dreaming about that steam shower and gourmet kitchen, choosing a mortgage that’s out of your price range can have serious consequences, including losing your home if you can’t meet the escalating monthly payments.
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 Find an Agent
You will probably save time and money by working with a good real estate agent. They have insider knowledge of the real estate market and access to the Multiple Listing Service (MLS) as well as listings not yet on the market. As with any professional service, it is best to ask friends and family who have recently purchased homes for referrals. Another way to find an agent is to visit open houses and speak with the agents, or drive through the neighborhoods you like and look at the sale signs showing which firms or agents have homes for sale.
Or, you might want to consider working with a buyer agent. In the past, most real estate agents represented only the interests of the seller. However, now you have the option to choose a special buyer agent who will represent only you, the buyer. Your buyer agent can offer helpful services, such as negotiating a smaller deposit or having closing costs paid by the seller. To officially establish that they will represent you, the buyer, you should enter into a buyer agent contract. Make sure you read the buyer agency agreement carefully before signing the contract. Choosing to use a buyer agent usually does not effect who pays that agent’s real estate commission. Unless your buyer agent states otherwise, the seller will still pay them, even though they are under contract to work only for you, the buyer.
When you interview an agent you will want to know how long they have been at their firm and in the real estate business overall, whether they are full or part-time, and if they are a REALTOR® (a REALTOR® is a members of the National Association of Realtors). Try to find someone who is accessible, knowledgeable, honest, sensitive to your needs and easy to get along with. Remember that this is likely the largest purchase of your life (so far) and you will need the best service and advice available to help you make a good decision.
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 The Fun Part - House Hunting
Would you rather have a brand new home built just for you, an existing home, a manufactured home or a “fixer-upper”? Determine the geographic area(s) where you think you want to live, and then visit open houses to get an idea of what you like and don’t like. You should look over each property with an eye to what best suits your family and lifestyle. Some of the factors to consider include: your commute to work; the schools; crime rates; proximity to noise and pollution sources; and the life stage of the neighborhood (e.g. newer homes with children vs. homes with mainly retirees). Use caution when deciding to buy one of the first homes built in a new subdivision or development – you never know if the builder will go out of business before completing the project.
To help you decide what features you want in a new home make a wish list. Once you start looking at homes fill out a home-shopping checklist for each one you visit to help you remember all the details later when it’s time to make a decision. You might also find it helpful to bring along a camera to take photos of the homes you really like - so you can compare them later on. |
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 Closing the Deal
Now that you’ve chosen the house you want to call your own it’s time to make an offer. Your agent will be able to help with this. You’ll also want to make sure to get a home inspection from an inspector who is a member of the National Association of Certified Home Inspectors or the American Society of Home Inspectors and shop for a homeowner’s insurance policy that meets your needs.
When you arrive at the settlement table be sure you read EVERYTHING before you sign. Your lender or real estate agent should offer to show you a copy of the HUD-1 Settlement Statement before you arrive at the closing table - so you can ask any questions before hand. If they don’t, you’ll want to request a copy. The HUD-1 outlines all the settlement and closing costs and identifies which ones you, the buyer, have to pay and which ones the seller has to pay. If you have questions or concerns about settlement costs BE SURE TO ASK! Once you’ve signed your name for what seems like the 100th time you’ll call yourself an official home owner! |
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