Home Buying Basics

Home Buying Basics

The American homebuyer
If you're like most folks, count on taking about eight weeks to find the right house. Before starting your search, consider what's most important to you:

Quality of neighborhood?
Length of commute to work?
Quality of local schools?
Access to family and friends?
Access to shopping, public transportation, parks?

Once you're clear on where you want to live, you're ready for the next steps.

Ask yourself how much house you can afford?
Paying off interest and principal on a very large debt is a serious commitment. Before you take on a mortgage, figure out how much house you can afford. This may mean taking a hard look at your spending habits. The last thing you want is to be house poor and not have enough money left after making your mortgage payment to have an occasional dinner out. Experts say you can afford a home that costs about 2 1/2 times your yearly income, including salary, dividends, Social Security benefits, public assistance payments, and even alimony. Answer these questions:

How much do I need each month to meet expenses?
How much cash do I have for a down payment and closing costs (which can range from 3 to 25 percent of the total loan)?

NOTE: If you're a veteran of the Armed Forces, you'll likely be able to buy without a down payment.

Pre-qualify for a loan!
Before exploring the housing market, check out your credit rating. Your financial status will determine the size of loan you'll get, which, in turn, will dictate the price range of the houses you can afford. Lenders usually assess your work and credit histories, debt profile, and living expenses before deciding what size loan they think you can handle.

Get help from a real estate agent!
Most homebuyers use real estate agents because these experts can guide you through the maze of houses available in your area to those in your price range. To find an agent who's right for you, read up on our Best Agent or click on our Find An Agent resource.

Important: After you've found your home, the agent may offer to help you obtain a mortgage loan or recommend that you deal with a particular lender, title company, attorney, or settlement/closing agent. You are not required to accept these offers or follow these recommendations. Compare the costs and services offered by other providers with those recommended by your agent.

Make the offer and cut the deal
Let's say you found a house you love and you're ready to make an offer. Here are some points to consider: There are asking prices and selling prices. Sellers usually come in slightly higher with the price because they anticipate that you'll bargain them down. Your offer needn't be made on the seller's terms, but be careful: if the house is getting lots of traffic, you may want to offer full price before it slips away. When you make the offer, get an agreement from the seller on when you will move in and what appliances and personal property will be sold with the house. Here are some critical ingredients that'll be part of your transaction:

Title refers to the legal ownership of the new home. The seller is required to provide title free and clear of all claims by others against the property. In some states, attorneys examine the title and provide a title opinion. The attorney's fee may include the title insurance premium. In other states, a title insurance company or title agent provides the title insurance.
Mortgage Clause is the agreement of sale that provides that your deposit will be refunded if you are unable to get a mortgage loan (which should not be a problem if you pre-qualified).
Pests – Your lender will require a certificate from a qualified inspector stating that the home is free from termites and from damage by those and other pests. If there's damage, it's the seller who must repair it.
Home Inspection is your responsibility and the biggest favor you can do for yourself before you close on the deal. A licensed home inspector is the only person you should trust to give your home a complete physical! The report will tell you what needs repair or serious attention. There's always something a little out of whack in older homes, but you don't want to end up needing a new heating or cooling system or having to re-pipe the gas line right after you move in. Needed repairs are part of the negotiation with the seller
Settlement Agent/Escrow Agent are the folks who will do the paperwork that locks in your deal. Your "earnest money" (usually one to several thousand dollars, depending on your agreement with the seller) is put into an escrow or settlement account until your loan is approved and all paperwork given the green light. The escrow process keeps the seller from dealing with someone who offers more money than you did. Who bears the costs for this process is part of the negotiation between seller and buyer, usually with the help of an agent.
The Loan and Lender you choose will not only influence your settlement costs but also the monthly cost of your mortgage loan. There are many types of lenders and loans. For more information, click on What kind of loan should I get. Find out if you are eligible for a loan insured through the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs or similar programs operated by cities or states. These programs usually require a smaller down payment or none at all.
Owner's Policy will protect you from claims of ownership or liens by others against your new home. When a claim does occur, it can devastate an uninsured owner. An owner's policy is usually much less expensive if you buy it at the same time, and from the same insurer, as the lender's policy.

Important: The lender or the seller may not require that you purchase title insurance from any particular title company as a condition of the sale. In most cases you can shop for a different company that meets the lender's standards.

For your protection
A lender who won't deal with you because you sport a diamond stud in your nose or are somehow "different" is asking for trouble. It's against the law to discriminate against credit applicants on the basis of race, color, religion, national origin, sex, marital status or age. Nor are lenders allowed to discriminate against applicants whose income is from any public assistance program or who have exercised any right under any federal consumer credit protection law. To help government agencies monitor compliance, your lender or mortgage broker must request certain information regarding your race, sex, marital status and age when taking your loan application.

Now, go find your home!

For more information buy

Smart Guide to Buying a Home by Alfred Glossbrenner and Emily Grossbrenner