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Why Do I Need a Real Estate Agent?
The U.S. Department of Housing and Urban Development recommends the use of a real estate agent. Real estate agents can help you narrow your housing options, help you negotiate the price and terms of your home purchase and assist you in locating financing and inspectors to insure that you are making the best decisions you can. Make sure the agent works for you so the agent will be working for your interests. Your agent can take your criteria for a home, including cost, neighborhood, schools, home size and amenities, and match it with the Multiple Listing Service (MLS), which lists all of the homes for sale in a particular area. If you’re purchasing government housing, such as a HUD home, you must have an agent.
Where Do I Find a Loan?
Ginnie Mae (a federal department that backs home loans) recommends that first-time homeowners consult with several lenders before applying formally for a loan. Every lender offers different interest rates and fees, and those can impact your monthly mortgage payment. By shopping with different lenders you can find the best possible deal. Consult different types of financial institutions, including mortgage brokers, credit unions, savings and loans, traditional banks and government lenders. Be cautious of online lending institutions as they may be limited in their knowledge of your area. Not all states are created equal.
Can I Afford a Mortgage?
Before beginning the purchase process, make sure you can afford the home. Most lenders adhere to standards set by Fannie Mae, which buys and sells mortgages on the secondary market. Lenders want to see that your total monthly housing payment is no more than 28 percent of your gross monthly income, and that your total monthly debt payments are no more than 36 percent of your total gross monthly income. Not every mortgage calculator is created equal, ask your real estate agent what things are considered when calculating payments for certain types of homes.
What Are the Up-Front Costs?
You are responsible for two upfront costs when you buy a home. First there is earnest money, which is a small deposit that lets the seller know you’re serious about buying the home. Earnest money can be anywhere from $500 to $2,000. The second is the down payment, which is a percentage of the cost of the home. Lenders have different requirements for down payments. Traditional lenders usually seek a down payment of at least 10 percent. Lenders backed by the government can seek less, if you qualify. FHA has a program where you are only required to make a 3 percent down payment.
How Do I Apply?
First-time homebuyers should be prepared to turn in a great deal of documentation when they apply for a mortgage loan. Ginnie Mae recommends that you gather all of these documents beforehand. You’ll need personal information, such as Social Security numbers and photo IDs. You must have proof you can afford the home, including bank statements for the past six months, a month’s worth of pay stubs and documentation of all other financial assets. You should also bring documentation on your current credit accounts, tax statements for the past two years and contact information for someone who will verify your employment.
How Does My Credit Score Fit In?
Your credit score has a big influence on whether you’ll be approved to buy your first home. According to the Home Buying Institute, a score of 640 will usually get you in the door with lenders. There are a few programs that will work with credit scores as low as 580.
What Happens at Closing?
Closing is when you sign all of the loan and ownership paperwork and take over the home. At closing you will be responsible for taking care of some costs, including title insurance and points to lower the interest rate on your mortgage, along with fees for loan origination, loan applications, appraisals, housing surveys and even your first month of homeowner’s insurance. These costs can be up to 8 percent of your purchase price.
Can you negotiate the price of a Foreclosure (bank owned home) or a Short Sale home?
Everything in real estate is negotiable. However, banks are more sophisticated about pricing than they were years ago. So those “Get a great deal on a foreclosure!” days aren’t what they used to be. Lowball offers generally don’t go very far. An experienced real estate agent can help you make and informed offer that is still a good deal.
What is a lease purchase?
This basically means you are leasing or renting a property until you can get financing in order to buy it at a future date. The future price of the property should be fixed at the time the lease-purchase is signed.
Usually there is an up-front payment of ‘good faith money” to show you are serious. The amount can vary. Sometimes the monthly payment is larger than normal and the excess is used to purchase the option. In some cases, the option money can be applied toward the down payment for the later purchase of the home.
Lease-options are usually done during a slow real estate market. During a hot market, the seller can simply sell the home in the regular manner.
What is seller financing?
Seller financing, also referred to as real estate contracts, is a type of home purchase where the seller acts as a bank. The buyer mays payments throught an escrow company to the seller. Seller financing can require that the seller takes more risk by holding the note on their property. In order to take this larger risk they require a larger down payment than banks (usually 15-20% of the purchase price). The seller will charge a higher interest rate than a bank (2-4%higher that the going rate). The buyer and seller will negotiate a ballon period. The balloon is a preset date where the buyer will have conventional financing completed by (Usually 3,5 or 7 years).