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Q. When I start
visiting homes, what should I be looking for the first time through?
A. The house you ultimately
choose to call home will play a major role in your family’s
life. A home can be an excellent investment, but more importantly,
it should fit the way you really live, with spaces and features
that appeal to everyone in the family.
At each home, pay close attention to these important considerations:
Is there enough room for you now and in the near future?
Is the home’s floor plan right for your family?
Is there enough storage space?
Will you have to replace the appliances?
Is the yard the size that you want?
Are there enough bathrooms?
Will your present furniture work in this home?
Q. Is an older home
as good a value as a new home?
A. It’s a matter of
personal preference. Both new and older homes offer distinct advantages,
depending upon your unique taste and lifestyle. New homes generally
have more space in the rooms where today’s families do their
living, like a family room or activity area. They’re usually
easier to maintain, too. However, many homes built years ago offer
more total space for the money, as well as larger yards. Some people
are charmed by the elegance of an older home, but shy away because
they’re concerned about potential maintenance costs. Consider
a home warranty to get the peace of mind you deserve. A home warranty
plan protects you against unexpected repairs on many home systems
and appliances for a full year or more after you move in.
Q. Do I need to
bring anything along when I’m looking at homes?
A. Bring your own notebook
and pen for note-taking and a flashlight for seeing enclosed areas.
Be prepared to “snoop around” a little. After all, you
want to know as much as possible about the home you buy. Sellers
understand that because their home is on the market, it will be
looked over pretty thoroughly. Ask how to get the Home Buyer’s
Book as a reference guide when looking at homes. The pages in the
back of the book allow you to make notes on specific homes, which
will make it easier to remember the details about each home. If
you need to go back to a home for another look, Steve
will be happy to schedule an appointment. Be sure to ask any questions
you have about the home, even if you feel you’re being nosy.
You have a right to know. It’s important to know that the
seller will supply the buyer with a Residential Property Disclosure,
which will disclose any defects known by the seller. A copy of this
form is found in the back of this book.
Q. How many homes
should I look at before I buy?
A. There is no set number
of homes you should look at before you decide to make an offer on
one. That’s why providing Steve with as many details
as possible up front is so helpful. Your next home may be waiting
for you on your first visit. Even if it isn’t, the house-hunting
process will help you get a feel for the homes in the community
and narrow your choices to a few homes that are worth a second look.
Q. What should I
think about when I’m deciding which community I want to live
in?
A. Good city services, nice
parks and playground facilities, good schools, convenient shopping
and transportation, track record of sound development, and good
planning-these are just a few considerations that are important
to many people when they choose a community in which to live.
As for individual neighborhoods, there is no better source of information
than Steve! Steve knows the people and communities
they serve. Chances are, they can help you find a neighborhood that
really fits your family’s needs.
Q. Where can I get
information about local schools?
A. Again, Steve
is perhaps your best source. They know where the local schools are
and can provide you with valuable information about school districts,
including test scores, extracurricular activities, bus service and
more. If you’re relocating, Steve may even be
able to put you in touch with teachers and principals when you visit
an area.
Q. How can I find
out what homes are selling for in a given neighborhood?
A. The best and easiest way
for you to get this information is to ask Steve. If
you’re interested in a particular home, Steve
may be able to provide you with a list of comparables-sale prices
of homes in your area that are roughly the same size and age as
the home you’re considering. There will certainly be some
difference between the homes. The house next door may have an extra
bedroom, or the one down the block may be older than the one you’re
looking at. However, it's a good way to evaluate the seller’s
asking price.
Q. I’d like
to have a professional look at the home. What does a home inspector
do?
A. For your own safety, and
to make sure you’re getting your money’s worth in the
home you choose, using a professional home inspector is highly recommended.
A home inspector will check a home’s plumbing, heating and
cooling, electrical systems, and look for structural problems, such
as a damp or leaky basement.
Usually, you call an inspector immediately after you’ve made
an offer on a home. However, before you sign any written offer,
make sure it includes an inspection clause or other language which
says that your purchase obligation is contingent on the findings
of a professional home inspector. Your home cannot “pass”
or “fail” an inspection, and your inspector will not
tell you whether he or she thinks the home is worth the money you
are offering. The inspector’s job is to make you aware of
repairs that are recommended or necessary. A seller may be willing
to renegotiate a price to accommodate needed repairs, or you may
decide that the home will take too much work and money. A professional
inspection will help you make a clear-headed decision. In addition
to the overall inspection, you may wish to have separate tests conducted
to check for termites or the presence of radon gas. Talk to Steve
for information about these tests and companies in the area
that perform them. In choosing a home inspector, consider one that
has been certified as a qualified and experienced member by a trade
association. Steve may refer you to several inspectors.
Inspections should provide
you with comfort
and a satisfaction that you have made the right choice.
IT IS NOT INTENDED TO BE A“LAUNDRY LIST” OF
MINOR
REPAIRS FOR SELLERSTO COMPLETE.
Q. Should I be present
during the inspection?
A. Yes! It’s not required,
but it is very much to your advantage. You’ll be able to clearly
understand the inspection report and know exactly which areas need
attention. Plus, you can get answers to many questions, tips for
maintenance, and a lot of general information that will help you
when you move into your new home. Most importantly, you’ll
see the home through the eyes of an objective, third party.
Q. Do I need to
talk to my insurance agent?
A. Yes, and the sooner, the
better. Most insurance professionals have a lot of experience in
working with homeowners and can offer useful tips about home ownership,
particularly regarding home safety and keeping your premiums low.
Once you’ve found a home, work together to develop a homeowner’s
policy that meets your individual needs. You’ll need to supply
your pre-paid policy to your mortgage lender prior to closing.
Q. What’s
“earnest money,” and how much do I need?
A. When you sign an offer
to purchase, Steve will ask you for earnest money. This
is money that shows you are serious about wanting to buy. Usually,
you will be asked to write a check for 1% to 5% of the sale price.
This money will be held in a special escrow account. If your offer
is accepted, your earnest money will be included as part of your
down payment. If your offer is not accepted, you’ll get back
all of your earnest money. But keep in mind that if you back out,
once the offer is accepted, you could forfeit the full amount.
Q. Is there any
way I can protect myself against emergency repair bills in my new
home?
A. Yes. Home warranties offer
you protection against many potential, costly problems not covered
by your homeowner's insurance. They’ve become increasingly
popular in recent years and for good reason: the coverage can save
you thousands in the event of a major mechanical breakdown, at a
time when your cash reserves have been depleted by your down payment
and moving expenses. Ask Steve if the home warranty
is offered when looking at homes. Remember, if it is not offered,
feel free to ask for it when writing the offer to purchase. A home
warranty will give you the peace of mind necessary to feel comfortable
in your new home. In most cases, the warranty plan will cover appliances,
hot water heater, air conditioning units, electrical systems, garage
door openers, plumbing systems, heating systems, faucets, ceiling
fans, and water softeners. Check with Steve regarding
the specifics of a home warranty plan!
Q. How do I determine
the amount of my initial offer?
A. There is really no rules
to use in calculating a realistic offer. Naturally, the buyer wants
the best value and the seller wants the best price. Negotiations
can be influenced by many factors, such as a seller who may be changing
jobs and wants to sell quickly, or a buyer who really wants a specific
home. After you’ve looked at the home’s features and
asked questions, checked comparables, and talked about it with Steve,
you should have a good idea of what the home’s value
is in the current market. Consider what you can afford and make
an offer that you consider to be fair. Most buyers and sellers negotiate
on price, with both sides “giving” a little until both
agree. When the price is agreed upon, the paperwork will be initialed
by both parties. At that point, you typically will begin the process
of arranging for an inspection and applying for a mortgage.
Q. If I’m
moving a considerable distance, is there any way I can gather information
before I start traveling?
A. Yes, Steve
is proud to be associated with several good relocation programs.
Whether you’re moving across town, across the nation, to Mexico,
Canada, or the United Kingdom, we can help. We understand your needs,
concerns, fears, anxieties, and joys, but most of all, we know how
to get you and your family from here to there with minimal stress
and inconvenience. Today’s Multiple Listing Services, which
include up to 90% more of the homes listed in any given community,
have made it relatively easy for buyers to access detailed information
on homes for sale practically anywhere in the country.
Relocation Tip: If your move is work-related,
many expenses may be tax-deductible.
Q. How much of a
down payment will I need to buy a home?
A. Many loan programs offer
from 100% financing with no down payment to 20% down. Contact us
and we can put you in touch with a lender that can educate you on
your options.
Q. How does a lender
determine the maximum mortgage I can afford?
A. The primary areas lenders
examine in determining the size of mortgage you can handle include
your monthly income, non-housing expenses, cash available for down
payment, moving expenses, and closing costs. There are a number
of different ways lenders interpret these variables to estimate
your mortgage capacity. The most popular method is detailed here.
Most lenders feel a family should spend no more than 28% of its
gross monthly income on housing costs, including the mortgage, insurance,
and real estate taxes. Also, these housing costs, plus your long-term
debts (car loans, student loans, etc.), shouldn’t exceed 36%
of your income. If your down payment is 10% or lower, most lenders
will tighten these restrictions even further. Some lenders may also
include home maintenance costs and utility payments in their calculations.
Q. What are the
steps involved in the loan process?
A. The information your lender
needs is not much different than what is needed when you apply for
a major credit card: Name and address of your employer, bank account
numbers, and balances. The lender will also need other financial
information, such as installment payments, auto loans, charge cards,
and department store accounts. The location and description of the
property are also required. Your lender will verify this information
with your present and past employers, order a routine credit report
on your current and past accounts, and order a professional appraisal
of the property you’re wanting to purchase. Allow yourself
two to four weeks to complete the application process. Once all
the verifications have been completed, your lender will underwrite
and approve the loan. Overall, the time from the date of application
to the date of move-in is generally four to five weeks for conventional
loans and five to seven weeks for FHA and VA loans.
Q. Are there any
mortgages especially designed for first-time buyers?
A. Today, first-time buyers
enjoy a number of mortgage options that make purchasing a home more
affordable by minimizing down payments and keeping monthly payments
as low as possible during the early years of the loan. Most ARMs
(Adjustable Rate Mortgages) feature an interest rate that is often
below market for the first year, and may only rise gradually after
that. VA and FHA-insured loans call for an extremely low down payment
(0-5% of the purchase price), and often offer a below market interest
rate. Similarly favorable terms can also be arranged with the help
of private mortgage insurance. Finally, first-timers who can find
a cooperative seller or third-party investor can look into such
nontraditional financing methods as a lease/buy arrangement.
Q. What is a mortgage,
and what are the benefits of different kinds of mortgages?
A. Simply put, a mortgage
is a loan that a home buyer obtains directly from a lender to purchase
real estate. The mortgage is a lien on the property that secures
a promissory note (promise to repay the debt) that states the terms
of the loan, including the interest rate and the number of payments.
The most popular mortgages available to home buyers today can be
divided into two general categories: Those which offer fixed rates
and monthly payments, and those where one or both of those factors
are adjustable. Fixed rate/fixed payment loans are more traditional
and remain the most popular home financing method; currently accounting
for about two-thirds of all residential mortgages. Their advantages
are well-known: You always know what your monthly principal and
interest payment will be, so your basic housing cost will remain
unaffected by interest rate changes until the mortgage is paid off.
Mortgages that entail flexible rates and/or payments have grown
in popularity during periods of high interest rates and/or rapidly
rising home prices. Many, including the popular ARMs (Adjustable
Rate Mortgages), offer lower-than-market initial interest rates
that allow buyers a measure of affordability unavailable in fixed-rate
loans. The tradeoff may be higher interest and higher monthly payments
later on.
Q. What are the
different types of lenders, and how do I choose the right one for
me?
A. Before someone lends you
the money to purchase your home, they’ll want to know a lot
about you. And you’re entitled to know as much as you can
about them, too. It’s important, because getting a mortgage
is not just a one-time signing of documents, a handshake and a check.
You will be depending on your lender to fund the loan as promised,
on time, and over the life of the loan, as well as keeping good
payment records, paying your taxes and insurance (if included in
your monthly payment) and many other continuing services. Look for
a lender that has the authority to approve and process your loan
locally. It’s easier to obtain information on the status of
your loan and discuss conditions directly with the person who will
approve your loan, rather than some faraway loan committee. It’s
important that your lender knows home values and conditions in your
local area. While biggest doesn’t always mean best, financial
stability, reputation, qualifying procedures, and unique programs
benefit the home buyer.
Q. What are “Points”?
A. In real estate, the term
“point” refers to 1% of the total mortgage loan amount.
Buyers often pay lenders this supplemental fee, calculated in points,
to get a better interest rate on a particular mortgage. For instance,
a lender may offer you a choice of two 30-year mortgages: the first
at 10% with no points, and the second at 9 1/2% with an additional
three points. If the loan is for $100,000, those three points will
cost you an extra $3,000 up front, but you’ll get a payback
of significantly lower monthly payments ($840.85 vs. $877.57) for
the lifetime of the loan. Many lenders will advise you to pay the
points for the better rate if you can afford it, especially if you
plan on keeping the home for more than a few years. Like interest,
the money you pay for points may be tax-deductible, and the investment
may pay for itself through savings generated by lower monthly payments.
We suggest you call your tax preparer.
Q. What is APR,
and how is it calculated?
A. The annual percentage
rate is a calculated rate of interest for a loan over its projected
life. This rate includes the interest, all points (which are considered
prepaid interest), mortgage insurance, and other charges associated
with making the loan that the lender collects from the borrower.
The APR is calculated by a standard formula that all lenders use.
This enables the borrower to comparison shop between lenders and/or
loan products.
Q. What is a good
faith estimate?
A. Your lender or loan agent
must provide you with a good-faith estimate within three days of
your application. This is the information you need to make a fair
and accurate judgment when shopping for a loan. Your estimate is
a written document that shows all the costs that can be estimated
in advance by the lender. You need this information so there are
no surprises on the day you close your sale with the lender. You
will be expected to pay closing costs. You should review all costs,
know which are non-refundable in the event your loan is not approved,
and be prepared to pay outstanding fees at closing. You may also
want to compare these costs to those charged by other lenders when
shopping for your home plan.
Q. What does my
monthly mortgage payment include? And What does PI and PITI stand
for?
A. The bulk of your monthly
mortgage payment goes toward paying off the principal and interest
of your loan. (You may hear lenders refer to this as “PI”,
for Principal and Interest). In addition, most lenders require that
you pay a sufficient amount to cover your local real estate tax,
plus your homeowner’s or hazard insurance. (You may hear this
“total” payment referred to as “PITI”, or
Principal, Interest, Taxes, and Insurance.) This amount is placed
in an escrow account, from which your lender then pays your tax
and insurance bills as they come due. When shopping for a loan,
it is important to ask the lender if the monthly payment you are
being quoted is PI or PITI.
Q. What are the
respective advantages of 15-year and 30-year terms?
A. The 30-year fixed mortgage
remains the standard mortgage, with an array of valuable benefits
designed especially for buyers who expect to stay in their homes
for a long time. Because the borrower pays more interest than principal
for the first 23 years, the tax deduction is substantial. As you’d
expect, a 15-year mortgage means higher monthly payments than an
equivalent 30-year loan…but not as much higher as you may
think. At the same rate of interest, payments on the 15-year mortgage
are roughly 20-25% higher than a loan that takes twice as long to
pay off. And one of the benefits of choosing a 15-year mortgage
is that you can generally get a lower interest rate for an otherwise
similar loan. Another advantage is faster equity build-up, because
a larger portion of your early payments are going to pay off the
principal. This makes the 15-year mortgage an ideal alternative
for couples approaching retirement or anyone else interested in
owning their home free and clear as quickly as possible.
Q. Do adjustable
rate mortgages offer any protection against rising rates?
A. Yes. ARMs and other variable
rate payment plans offer lower-than-market interest rates initially.
However, because they are tied to the interest rate of U.S. Treasury
Bills or other indexes, interest rates later in the loan term may
rise. Many such loans offer built-in safeguards designed to minimize
the effect of any rapid escalation in interest rates. One such safeguard
is the rate cap. Many ARMs include provisions for the maximum amount
your rate can rise, both annually and over the life of the loan.
For example, if your initial rate is 8%, the loan may include 1%
annual and 5% lifetime caps. This means that even if rates rise
dramatically, you’ll pay no more than 9% next year, 10% the
following year, and so on, until a maximum rate of 13% is reached.
ARMs may also allow your rate to decrease when the index it is tied
to goes down. As you might expect, decreases are usually capped
as well. A second protective device included in some ARMs is the
payment cap. Under this provision, your monthly payments may rise
by only a set dollar amount. The potential disadvantage of this
type of cap is that it can slow or even reverse your equity build-up.
If rates rise dramatically, you could actually wind up owing more
principal at the end of the year than you did at the beginning.
Of course, ARM holders can also consider refinancing to a fixed
rate loan after a few years. Some ARMs even include a provision
for converting to a fixed rate after a set period of time.
Q. How can I find
out what my property tax bill will be?
A. Normally, the total amount
of the previous year’s property taxes is included on the listing
information sheet for the home you’re interested in. Remember,
tax rates change from year to year, so the previous year’s
bill should be considered simply as a “ballpark” figure
of what you would pay. For a more precise projection, call the local
assessor’s office for assistance, or simply ask Steve
.
Q. What can I do
if I have a fixed rate loan, and interest rates go down?
A. When interest rates drop
significantly, the homeowner should investigate the financial advantages
of refinancing. Essentially, this means taking out a new loan to
pay off your existing loan. Refinancing may require paying many
of the same fees paid at the original closing, plus origination
fees. Most mortgage experts agree that if you can get a rate 2%
less than your existing loan, and you plan on staying in your home
for at least 18 months, refinancing is a good investment.
Q. What is the difference
between pre-qualifying and pre-approval?
A. Pre-qualifying for a mortgage
up to a certain amount is an increasingly popular practice among
buyers who don’t worry about going through the approval process
after they’ve found the home they want. It’s a verbal
exchange in which the lender tells you in advance approximately
how much money you are able to borrow, based upon the information
you provide the lender on your debt and income. Pre-approval goes
a step further than pre-qualifying. It is an actual commitment to
lend, provided that, when the borrower is ready to buy, he or she
still meets all the qualifying conditions that were met at the time
of conditional approval. WE strongly recommend it!
Q. Can I pay off
my loan early?
A. If you can afford it,
and are interested in the considerable advantages of having more
equity and/or owning your home free and clear at the earliest possible
date, the answer in most cases is yes. The FHA, VA, and even some
states do not allow lenders to charge penalties for paying mortgages
early or refinancing. In fact, many lenders now include space on
monthly statements for borrowers to itemize any additional principal
payment they wish to include with their regular payment. If you’re
unsure about the rules governing prepayment, review your mortgage
agreement.
Want to pay off your loan early?
Save extra every month. With the interest you earn on savings you
may be able to
make an extra payment at the end of the year.
Pay an extra twelfth of your P&I payment monthly. Or just send
whatever extra you can every month.
Whichever method you choose, be sure to clearly indicate that the
excess payment is to be applied to principal.
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