House Buying Questions
Q:
What can I afford to buy?
A:
What you can afford is the first thing you should determine, and
that depends on how much income and how much debt you have. In general,
lenders don't want borrowers to spend more than 28 percent of their
gross income per month on a mortgage payment or more than 36 percent on
debts.
You should check with several lenders before you
start searching for a home. Most will be happy to approximate what you
can afford and prequalify you for a loan.
The price you can afford to pay for a home
will depend on six factors:
-
Gross income.
-
The amount of cash you have readily available
for the down payment, closing costs, and cash reserves required by
the lender.
-
Your outstanding debts.
-
Your credit history.
-
The kind of mortgage that you select.
-
Current interest rates.
Another number lenders use to evaluate how much you
can afford is the housing expense-to-income ratio. It is determined by
calculating your projected monthly housing expense, which consists of
the principal and interest payment on your new home loan, property taxes
and hazard insurance (or PITI as it is known). If you have to pay
monthly homeowners association dues and/or private mortgage insurance,
this also will be added to your PITI.
This ratio should fall between 28 to 33 percent,
although some lenders will go higher under certain circumstances. Your
total debt-to-income ratio should be in the 34 to 38 percent range.
Q:
How much money do I need?
A:
Several factors including type of loan, purchase price involved
in down payment, closing costs, home inspection, earnest money.
Q:
What is earnest money?
A:
Earnest money is a deposit to show the seller in good faith that
you are serious about buying their home.
The money is refunded to you at closing to be applied towards
your down payment. (Minimum
1% of the purchase price)
Q:
What is the standard debt-to-income ratio?
A:
A standard ratio used by lenders limits the mortgage payment to
28 percent of the borrower's gross income and the mortgage payment,
combined with all other debts, to 36 percent of the total.
The fact that some loan applicants are accustomed
to spending 40 percent of their monthly income on rent -- and still
promptly make the payment each time -- has prompted some lenders to
broaden their acceptable mortgage payment amount when considered as a
percentage of the applicant's income.
Other real estate experts tell borrowers facing
rejection to compensate for negative factors by saving up a larger down
payment. Mortgage loans requiring little or no outside documentation
often can be obtained with down payments of 25 percent or more of the
purchase price.
Q:
What's a home inspection?
A:
A home inspection is when a paid professional inspector --
often a contractor or an engineer -- inspects the home, searching for
defects or other problems that might plague the owner later on. They
usually represent the buyer and or paid by the buyer. The inspection
usually takes place after a purchase contract between buyer and seller
has been signed.
Q:
How do I find a home inspector?
A:
Your realty agent is one source. Inspectors are listed in the
yellow pages. You can ask for referrals from friends. Ask for their
credentials, such as contractor's license or engineering certificate.
Also, check out their references.
Q:
What are closing costs?
A:
Closing costs are the fees for services, taxes or special
interest charges that surround the purchase of a home. These costs
include attorney fees, document preparation, survey, lender fees, prepaid
interest, homeowner's insurance, and property taxes. Unless, these
charges are rolled into the loan, they must be paid when the home is
closed.
Q:
Who pays for closing costs?
A:
This is negotiable. Several
factors are taken into consideration:
-
Purchase price of the home.
-
The type of loan involved.
-
Down payment on a home.
Q:
How do I get started on buying a home?
A:
Contact Keith & Mary Williams for a free, no-obligation
consultation and buyer's packet.
Q:
What home-buying costs are deductible?
A:
Any points you or the seller pay for your home loan
are deductible for that year. Property taxes and interest are deductible
every year. Check with your
tax preparer for other deductions.
Q:
How do property taxes work?
A:
Property taxes are what most homeowners in the United States pay
for the privilege of owning a piece of real estate, which on average, is
1.5
percent of the property's current market value. These annual local
assessments by county or local authorities help pay for public services
and are calculated using a variety of formulas.
Q:
Are property taxes deductible?
A:
Property taxes on all real estate, including those
levied by state and local governments and school districts, are fully
deductible against current income taxes.
Q:
How do I find out if the seller is being honest about the
condition of their home?
A:
Home inspections, seller disclosure requirements and the agent's
experience will help. Disclosure laws vary by state, but in some states,
the law requires the seller to complete a real estate transfer
disclosure statement. Here is a summary of the things you could expect
to see in a disclosure form:
-
In the kitchen: a range, oven, microwave,
dishwasher, garbage disposal, trash compactor.
-
Safety features such as burglar and fire
alarms, smoke detectors, sprinklers, security gate, window screens
and intercom.
-
The presence of a TV antenna or satellite dish,
carport or garage, automatic garage door opener, rain gutters, sump
pump.
-
Amenities such as a pool or spa, patio or deck,
built-in barbeque and fireplaces.
-
Type of heating, condition of electrical
wiring, gas supply, and presence of any external power source, such
as solar panels.
-
The type of water heater, water supply,
sewer system, or septic tank also should be disclosed.
Sellers also are required to indicate any
significant defects or malfunctions existing in the home's major
systems. A checklist specifies interior and exterior walls, ceilings,
roof, insulation, windows, fences, driveway, sidewalks, floors, doors,
foundation, as well as the electrical and plumbing systems.
The form also asks sellers to note the presence of
environmental hazards, walls, or fences shared with adjoining landowners,
any encroachments or easements, room additions or repairs made without
the necessary permits or not in compliance with building codes, zoning
violations, citations against the property and lawsuits against the
seller affecting the property.
Also look for, or ask about settling, sliding,
soil problems, flooding, or drainage problems and any major damage
resulting from earthquakes, floods, or landslides.
It's important to note that the simple idea of
disclosing defects has broadened significantly in recent years. Many
jurisdictions have their own mandated disclosure forms as do many
brokers and agents. Also, the home inspection and home warranty
industries have grown significantly to accommodate increased demand from
cautious buyers. Be sure to ask questions about anything that remains
unclear or does not seem to be properly addressed by the forms provided
to you.
Q:
Can you give me some tips on negotiation?
A:
The more you know about a seller's motivation, the stronger a
negotiating position you are in. For example, a seller who must move
quickly due to a job transfer may be more agreeable to a lower price.
Other people more motivated to sell include people going through a
divorce or who have already purchased another home.
Remember, that the listing price is what the seller
would like to receive but is not necessarily what they will settle for.
Before making an offer, check the recent sales prices of comparable
homes in the neighborhood to see how the seller's asking price compares.
Keep in mind that if your offer is too low, that
the seller may be insulted, therefore rejecting your offer.
