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FAQ on Mortgages
Contact us if you want more information Q: How do you find out the value of a troubled property? It also is important to examine the property. It you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition. It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through internet sites specializing in property records. Q: Why buy a house?
Q: What can I afford? It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate 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:
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. The 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 will I spend on maintenance expenses? Q: Where do I get information on housing market stats? For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, Mich.; (800) 755-6269 for information; the firm also maintains and Internet site. Finally, check with the U.S. Bureau of the Census in Washington, DC; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title Company also has published a pamphlet, “Who's Buying Homes in America,” write to: Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60661-3294. Q: What is the standard debt-to-income ratio? 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: How long do bankruptcies and foreclosures stay on a credit report? Some lenders will consider a borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If however, you went through bankruptcy because you overextended personal credit lines and lived beyond your needs, the lender probably will be less inclined to be flexible. Q: What is Fannie Mae's low-down program? Two new programs will help potential buyers overcome two of the most common obstacles to home ownership, low savings and a modest income. To address many first-time buyers' struggles to save the down payment, Fannie Mae developed Fannie 97. The program provides 97 percent financing on a fixed-rate mortgage with either 25 or 30-year loan term through Fannie Mae's Community Home Buyers Program. Fannie Mae's new Start-Up Mortgage will assist buyers with a 5 percent down payment who are at any income level. Yet applicants do not need as much income to qualify and less cash for closing than with traditional mortgages. Borrowers will receive a 30-year, fixed-rate mortgage with a first-year monthly payment that is lower than the standard fixed-rate loan. Freddie Mac, Fannie Mae's counterpart, also offers low-down payment loan programs. APPRAISALS & MARKET VALUE - Q & A Q: What is the difference between market value and appraised value? Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker. Q: How do you find out the value of a troubled property? It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition. It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through internet sites specializing in property records. Q: What are the standard ways of finding out what a house is valued at? Your real estate agent will be happy to provide a comparative market analysis, an informal estimate of value based on comparable sales in the neighborhood. You also can research “the comps” yourself by checking on recent sales in public records. Be sure that you are researching properties that are similar in size, construction and location. This information is not only available at your local recorder's or assessors office, but also through private companies and on the Internet. An appraisal, which generally cost $200 to $300 to perform, is a certified appraiser's opinion of the value of a home at any given time. Appraisers review numerous factors including recent comparable sales, location, square footage and construction quality. Q: What's a house worth? An appraisal is a certified appraiser's estimate amenities, energy efficiency, the quality of the value of a home at a given point in time. To make their determination, appraisers consider square footage, construction quality, design, floor plan, neighborhood and availability of transportation, shopping and schools. Appraisers also take lot size, topography, view and landscaping into account. A comparative market analysis is an informal estimate of market value, based on comparable sales in the neighborhood, performed by a real estate agent or broker. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder's or assessor's offices, through private companies or on the internet. Other resources include:
Q: What standards do appraisers use to estimate value? Q: What is the return on new versus previously owned homes? One survey by the National Association of Realtors shows that resale homes do have an edge over new homes. The trade group's figures show the median price of resale homes increased 3 percent between 1994 and 1995, compared to 0.8 percent of new homes in the same period. Q: What is the difference between list price, sales price and appraised value? The sales price is the amount of money you as a buyer would pay for a property. The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors. Q: Can I find out the value of my home through the Internet? Neither of these services produce official appraisals. They also don't factor in market nuances or other issues a certified appraiser or real estate professional might in assessing the value of your home. NEGOTIATING AND CLOSING A GOOD DEAL - Q & A Q: Is a low offer a good idea? Full-price offers or above are more likely to be accepted by the seller. By there are other considerations involved:
Q: What contingencies should be put in an offer? A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract. The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property. Q: How is the price set? A comparative market analysis provides the background data on which to base your list-price decision. Study the comparable sales material presented to you by the different agents you interviewed initially. If the analyses are more than two or three months old, have our agent update the report for you. If all agents agreed on a price range for your home, go with the consensus. Watch out for an agent whose opinion of values is considerably higher than the others. Q: Are low-ball offers advisable? While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected. You should always do your homework about comparable prices in the neighborhood before making any offer. It also pays to know something about the seller's motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons. Q: What are some tips on negotiation? 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 stacks up. Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all. Q: What repairs should the seller make? Q: What is the difference between list price, sales price and appraised value? The sales price is the amount of money you as a buyer would pay for a property. The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors. Q: What is the first step to buying a home? Q: Should I include an inspection contingency in my offer? As soon as the seller accepts a written offer, the document becomes a legally binding contract. The purchase contract can be written to include a contingency for any repairs found to be needed or related items the seller must take care of before closing. If these are not dealt with, and you have such a clause in your contract, you can delay or possibly cancel the closing. If it's not stated in the correct, you could face losing your deposit. There also may be costly legal implications stemming from backing out of a contract. You usually will have the right to choose the inspector (and be responsible for paying for the inspections). In addition to an overall inspection for structural soundness, you can request a satisfactory pest control inspection report, roof inspection report or contingency for no potential environmental hazards such as asbestos or radon gas. Contingency clauses should satisfy the concerns of both the buyer and seller. Buyers also can protect themselves by inserting additional necessary contingencies. Indicate which items like curtains and applications are to remain with the house. Then stipulate that you have the right to personally inspect the home 24 hours before closing to make sure all is in order. Q: Can you buy homes below market?
Q: Can you negotiate the price on new homes? Experts say builders are more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain. Q: Who gets the furnishings when a home is sold? Q: What do you think of get-rich-quick real estate schemes.? Some are reputable while others depend on your financial circumstances to work. A handful of them are simply scams. Many get-rich-on-real-estate programs offer advice on how to buy government foreclosure properties and participate in other government programs. Most of this information can be obtained by calling the government offices involved directly. Anyone interested in real estate investments would be wise to explore a variety of sources. Most investors view real estate as a long-term investment. Deals that sound too good to be true often are. Q: What is the best time to buy? The market slows down in late summer before picking up again briefly in the fall. November and December have traditional been slow months. CONDOMINUMS & TOWNHOMES - Q & A Q: How do you choose between condos and single-family homes? While single-family homes have been the preferred investment by home buyers, changing demographics are helping make condos more popular, especially among single home buyers, empty nesters and first-time buyers in high-priced markets. Also, the condominium community has worked had in the last few years to overcome image problems brought on by homeowners association and developer disputes as well as all too frequent construction-defect litigation. Q: Are condominiums risky to buy? As with any home purchase, you should do your homework about the neighborhood or development before you buy. In the case of condominiums, it is important to read the past six months of homeowners association minutes to see how effective the board is and to learn about any possibly detracting issues (such as protracted litigation with the developer). The condominium community has worked had in the last few years to overcome image problems brought on by disputes and lawsuits. Associations are becoming more sophisticated about property management and taking steps to prevent legal problems and disputes. Other resources:
Q: Do condos have to be made accessible to the disabled? In all states, the Federal Fair Housing Act provides protection against discrimination for people with physical or mental disabilities. Discrimination includes the refusal to make reasonable modifications to buildings that aren't accessible to the disabled. Two educational brochures, “Housing Rights” and “Discrimination is Against the Law,” are available through the Department of Fair Employment and Housing by calling (800) 884-1684. Q: Can condos ban smoking? Typical covenants, codes and restrictions (CC&Rs), which govern condo associations, give the board authority to make and enforce reasonable rules for the use of common property. But that would not apply to interior spaces owned by smokers themselves. Resources:
Q: Can a condo association ban nudity? Covenants, codes and restrictions (CC&Rs) usually spell out what activities can and cannot be conducted on common property. Some associations prevent people from barbecuing on their balconies or hanging large plants from the railings. However, the larger issue of regulating personal conduct is not so clear-cut. It literally depends on what side of the fence you've on. If the sunbather can be seen from a public vantage point - not by someone who must climb a tree or peer through binoculars - then the rule probably would be considered reasonably, say legal experts Incidentally, there are places where nudity is tolerated but again, only out of public view. Q: Are condos a good investment? While there are lots of reports about homeowners' association disputes and construction-defect problems, the industry has worked hard to turn its image around. Elected volunteers who serve on association boards are better trained at handling complex budget and legal issues, for example, while many boards go to great lengths to avoid the kind of protracted and expensive litigation that has hurt resale value in the past. Meanwhile, changing demographics are making condominiums more attractive investments for single homebuyers, empty nesters and first-time buyers in expensive markets. Q: Where do I get information on condo association laws?
Q: Where do I get information on condos? Q: Are one-bedroom condominiums a good investment? Q: How do I figure out the homeowners association? When run properly, homeowners associations maintain the common grounds and keep civility in the complex. If you follow the rules, the association should not intrude on your privacy or cost you too much in association dues. Poorly managed associations can drag down property values and make living there difficult for residents. Start by studying the association's covenants, codes and restrictions, or CC&Rs, and find out if you can live by them. For example, if the rules prohibit loud music after a certain hour and you like to play your CDs late at night, this may not be the place for you. Don't move in thinking you can get away with violating the rules or change them later, because you may find yourself in turmoil with determined neighbors firmly in control of the association board. Call and meet with the association president. If you are the type of person who despises intrusions into your private life and the president seems more interested in gossip about the residents than maintaining the property, this may not be the right condo complex for you. Speak with residents to get their views on the association's finances, its property manager, how it operates and any politics. Associations are volunteer organizations with elected boards, like a mini-government, so politics can enter the picture and spoil a good thing. Lastly, take some time to understand how homeowners associations are organized and how they conduct business. Like all real estate investments, the more you know the better off you are. WHOM TO CONTACT (HOW TO BUY) - Q & A Q: What standards do appraisers use to estimate value? Q: Where do I get information about housing discrimination? For detailed information, the booklet, “Your Loan is Denied, Defending Yourself Against Mortgage Lending Discrimination,” is available from the Center for Investigative Reporting, 500 Howard Street, Suite 206, San Francisco, CA 94105-3008; (415) 543-1200. Q: Where do I get information about closing costs? Q: Where do I get information on housing market stats? For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located in Canton, MI call (800) 755-6269 for information; the firm also maintains an Internet site. Finally, check with the U.S. Bureau of the Census in Washington, DC (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title Company also has published a pamphlet, “Who's Buying Homes in America.” Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294. Q: How do I reach the IRS? Q: Where do I get information on lease options? Q: Where do I get information about finding a real estate attorney? Q: Where do I get information on home market stats and trends? For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located at 4200 Koppernick Road #40, Canton, MI 48187; call (800) 755-6269 for information; the firm also maintains an Internet site. Also check with the U.S. Bureau of the Census in Washington, DC; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title Company also has published a pamphlet, “Who's Buying Homes in America.” Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294. Q: How do I find a home inspector? Q: Where can I get a list of home builders? Q: Where do I get information on filing consumer complaints?
Q: Where do I get information on co-ops? Q: Where do I get information on housing market stats? For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. Your local builders association probably gets this report. If not, the housing research firm is located at 4200 Koppernick Road #40, Canton, MI 48187; call (800) 755-6269 for information. The firm also maintains an Internet site. Also, check with the U.S. Bureau of the Census in Washington, DC; (301) 495-4700. The census bureau also maintains a site on the Internet. The Chicago Title Company also has published a pamphlet, “Who's Buying Homes in America.” Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294. Q: Where do I get information on manufactured housing?
Q: How can I save on closing costs?
Q: Where do I get information about closing costs. Q: What are the closing costs? Q: Who pays the closing costs? Q: Who do I need a title report? A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you. When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is “fee simple” or “fee” which is the highest type of interest an owner can have in hand. Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report. You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase. A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning. FINDING THE RIGHT HOME - Q & AQ: How do you choose between buying and renting? There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially. Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation. “For some people, owning a home is a great feeling,” writes Mitchell A. Levy in his book, “Home Ownership: The American Myth,” Myth Breakers Press, Cupertino, Calif.; 1993. “It does, however, have a price. Besides the maintenance headache, the amount of after-tax money paid to the lender is usually greater than the amount of money otherwise paid in rent,” Levy concludes. As for evaluating the risk associated with home ownership, David T. Schumacher and Eric Page Bucy write in their book “The Buy & Hold Real Estate Strategy,” John Wiley & Sons, New York; 1992, that "good property located in growth areas should be regarded as an investment as opposed to a speculation or gamble.” The authors recommend that prospective buyers spend a few months investigating a community. Many people make the mistake of buying in the wrong area. “Just because certain properties are high-priced doesn't necessarily mean they have some inherent advantage,” the authors write. “One property may cost more than another today, but will it still be worth more down the line?” Q: What are the pros and cons of adding on or buying new?
Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value. According to Remodeling magazine's annual “Cost vs. Value Report,” remodeling a home not only improves its livability but its curb appeal with potential buyers. The highest paybacks come from updating kitchens and baths and, most recently, adding on a home office according to the survey. Q: What do all of those real estate acronyms in the ads mean?
Resources:
Q: Do we dig deep and buy a dream home or settle for a starter home?
As for the return on your investment, home-price appreciation is hard to predict. In the late 1980's, the more expensive move-up housing appreciated widely. But during the recession that followed, smaller homes tended to hold their value better than more expensive ones. Q: How do I get the real scoop on homes I am looking at?
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, foundations, as well as the electrical and plumbing systems. Also look for, or ask about, settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, flood or landslides. People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions. 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. FIXER-UPPERS - Q & AQ: Where are fixer-uppers found? Ascertaining whether the property you are interested in is a wise investment takes some work. You need to figure what the average house in a given area sells for, as well as what the most desirable houses in that area are like and what they cost. Some experts suggest that buyers who take this route try to find a “cosmetic fixer” that can be completely refurbished with paint, wallpaper, new floor and window coverings, landscaping and new appliances. You should avoid rundown houses that need major structural repairs. A house price that looks too good to be true probably is. A smart buyer will find out why before buying it. The basic strategy for a fixer is to find the least desirable house in the most desirable neighborhood, and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's rehab budget. Q: Are there programs for fixer-uppers? A 203(K) loan is usually done as a combination loan to purchase a “fixer-upper” property “as is” and rehabilitate it, or to refinance a temporary loan to buy the property and do the rehabilitation. It can also be done as a rehabilitation-only loan. Investors must put 15 percent down while owner-occupants are required to come up with only 3 to 5 percent. HUD requires that a minimum of $5,000 be spent on improvements. Q: What kind of return is there on remodeling jobs? Most recently, the highest remodeling paybacks have come from updating kitchen and baths, home-office additions, and extra amenities in older homes. While home offices are a relatively new remodeling trend, for example, you could expect to recoup 58 percent of the cost of adding a home office, according to the survey. Q: Are there gov't programs for rehab? Plans and specifications for the proposed work must be submitted for architectural review and cost estimation. Mortgage proceeds are advanced periodically during the rehabilitation period to refinance the construction costs. For a list of participating lenders, call HUD at (202) 798-2720. If you are a veteran, loans from the US Department of VA Affairs also can be used to bay a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates that are ordinarily not available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility. Resources:
Q: What are some resources for info on home improvements? The book is available for $9.95 through Consumer Press and Women's Publications, Inc., Dept SR01, 13326 Southwest 28th St., Fort Lauderdale, FL 33330-1102; (954) 370-9153. Resources:
Q: Are there any special tax breaks for historic rehab? The tax code does not allow deductions for the demolition or significant alteration of a historic structure. Resources:
Q: What are some guidelines to follow when trying to find a contractor? If you are satisfied with the answers you find there, interview the contractor candidates. Ask what kind of workers' compensation insurance they carry and get policy and insurance company phone numbers so you can verity the information. If they are not covered, you could be liable for any work-related injury incurred during the project. Also be sure that the contractor has an umbrella general liability policy. Finally, don't let yourself be rushed into making a decision no matter how competitive the market may seem. Also, never pay a deposit to a contractor at the first meeting. You may end up losing your money. Q: Are fixers a good idea in bad areas? Many experts recommend that buyers find the least desirable house in the best neighborhood and then decide if the expenses needed to bring the value of that property up to its full potential market value are within one's budget. Most experts say inexperienced buyers should avoid run-down houses that need major structural repairs and instead look for properties that only require cosmetic fixes. FORECLOSURES - Q & AQ: Are foreclosures and option? It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgements are cleared or at least disclosed. Q: What are problems buying foreclosures? The process has many disadvantages. There is no financing; you need cash and lots of it. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title. The property's condition is not well known and an interior inspection of the property may not be possible before the sale, says Wiedemer. In addition, only estate (probate) and foreclosure sales are exempt from some states' disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it. Q: What types of foreclosure are there? Nonjudicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgement, which makes some title insurance companies reluctant to issue a policy. Q: What happens at a trustee sale? In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed. Q: How do you get financing for a foreclosure? Q: How do you find government-repossessed homes? You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price. Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 5 to20 percent. One caution. HUD homes are sold “as is,” meaning limited repairs have been made but no structural or mechanical warranties are implied. Q: Can I get a HUD home for as little as $100 down? With HUD foreclosure, down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from 5 to 20 percent. But when the property is FHA-insured, the down payment can go much lower. Each offer must be accompanied by an “earnest money” deposit equal to 5 percent of the bid price, not to exceed $2,000 but not less than $500. The US Department of VA Affairs also offers foreclosure properties which can be purchased directly from the VA often well below market value and with a down payment amount as low as 2 percent for owner-occupants. Investors may be required to pay up to 10 percent of the purchase price as a down payment. This is because the VA guarantees home loans and often ends up owning the property if the veteran defaults. If you are interested in purchasing a VA foreclosure, call (800)-827-1000 to request a current listing. About 100 new properties are listed every two weeks. You should be aware that foreclosure properties are sold “as is,” meaning limited repairs have been made but no structural or mechanical warranties are implied. Q: Where can you find foreclosures? When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price as the loan amount. Despite these seemingly straightforward rules, buying foreclosures is not easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition. Resources:
Q: Where can you find foreclosed HUD homes? You can only buy HUD-owned properties through a licensed real estate broker, whose commission will be paid by HUD. Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range 5 to 20 percent. When the property is FHA-insured, the down payment can go much lower. Each accepted offer must be accompanied by an “earnest money” deposit equal to 5 percent of the bid price not to exceed $2,000, but not less than $500. You should be aware that HUD homes are sold “as is” meaning limited repairs have been made but no structural or mechanical warranties are implied. Q: Do you have to buy HUD homes through a realty agent? A: You can only purchase a US Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price. Q: What about buying a foreclosure “as is”? In addition, there may be problems with the title, though that is something you can check out before the purchase. Q: Where do I learn about HUD foreclosures? Q: How do I find a home inspector? The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is no automatic; proven field experience and technical knowledge of structures and their various systems and appliances are a prerequisite. One can usually find an inspector by looking in the phone book or by inquiring at a real estate office or sometimes at an area Realtor association. Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection. Q: What's home inspection? Q: Do I need a home inspection? Q: What kind of home insurance should I get? Such policies are “all-risk” policies, which cover everything except earthquakes, floods, war and nuclear accidents. A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business. Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000 square-foot home, for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000. For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a “replacement-cost endorsement” on personal property. Some experts recommend an inflation rider which increases coverage as the home increases in value. INTEREST RATES - Q & AQ: Tell me more about ARMs? The interest rate and payment adjustments may or may not be scheduled to change at the same time. For example, the interest rate on some plans changes more frequently than the monthly payment, which may result in negative amortization. “This means that the additional interest will be added to the principal balance of the loan and may accrue additional interest itself,” Hymer says. If the monthly payments on an ARM are increasing, generally this is because the index is rising or it is a negative amortization ARM. People with adjustable-rate mortgages wanting to know how their payments are calculated might contact their lender or review the language in their loan agreement. LEASE OPTIONS - Q & AQ: What is a lease option? Lease options are most popular among buyer who don't have enough funds for a down payment and closing costs. Q: Where do I get information on lease options? Q: How do lease options work and what are the benefits? For sellers, lease options give them several advantages, especially in a slow market. These include a monthly rent higher than market rent, top-market value for the property and tax-free use of the option consideration until the option expires or is exercised. Also, the renter is more likely to treat the property like an owner, tax-free use of option consideration until the option expires or is exercised. Lease options should be read carefully for details on transferring the option and other important concerns. For more information, get a copy of “How Lease Options Benefit Realty Buyers, Sellers, Agents and Investors,” available for $4 from Tribune Media Service, 64 E. Concord St., Orlando, FL 32801. MAKING AN OFFER - Q & AQ: Is a low offer a good idea? Full-price offers or above are more likely to be accepted by the seller. But there are other considerations involved:
Q: What contingencies should be put in an offer? A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract. The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing, and making any agreed-upon repairs to the property. Q: Whose obligation is it to disclose pertinent information about a property? Under the strictest laws, the seller and the seller's broker, if there is one, are required to disclose all facts materially affecting the value or desirability of the property which are known or accessible only to him. Items sellers often disclose include: homeowners' association dues; whether or not work done on the house meets local building codes and permit requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property and any restrictions on the use of the property, such as zoning ordinances or association rules. It is wise to check your state's disclosure rules prior to a home purchase. Q: How do you find out the value of a troubled property? It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition. It also is possible to do your own cost comparison through researching comparable properties recorded at local county recorder's and assessor's offices, or through internet sites specializing in property records. Q: Are low-ball offers advisable? While any offer can be presented, a low-ball offer can sour a prospective sale and discourage the seller from negotiating at all. Unless the house is very overpriced, the offer will probably be rejected. You should always do your homework about comparable prices in the neighborhood before making any offer. It also pays to know something about the seller's motivation. A lower price with a speedy escrow, for example, may motivate a seller who must move, has another house under contract or must sell quickly for other reasons. Q: What is the difference between list and sales prices? Q: Can you buy homes below market?
Q: Who gets the furnishings when a home is sold? Q: What are some tips on negotiation? 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 stacks up. Q: What are standard contingencies? A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract. The purchase contract must include the seller's responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property. Q: What is the difference between list price, sales price and appraised value? The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors. NEW HOMES & VACATION HOMES - Q & AQ: Can you negotiate the price on new homes? Expert says builders are more likely to be flexible on price at the very beginning and the very end of a development project. Early on, most developers want to move people in quickly so the project picks up momentum. Later, developers may be more inclined to accept lower offers when only a few units remain. If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) or lot location. Experts say a developer will rarely pass up a deal over a couple hundred dollars worth of carpeting, for example. Q: Should I buy a vacation home? Some people buy a vacation home with the idea of turning it into a permanent retirement home down the road, which puts them ahead on their payments. Another benefit is that the interest and property taxes are tax deductible, which helps to offset the cost of paying for a second home. A vacation home also can be depreciated if you live in it less that 14 days per year. Resources:
Q: What do you think of a vacation home as an investment? Some real estate experts predict that vacation homes will appreciate in value due to rising demand from the aging Baby Boom generation. You also can depreciate the property if you live in the house less than 14 days a year. You also need to consider whether you can afford to carry two mortgages, pay for the extra utilities and maintenance costs, and how this investment fits into your total personal finance picture. Q: Do builders give financing? Q: Where can I get a list of homebuilders? Q: Should I hire a home inspector for a new home? If you hire a professional inspector, look for one who belongs to one of the home inspection trade organizations. The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge about structures and their various systems and appliances are a prerequisite. Rates for the service vary greatly. Many inspectors charge about $400, but costs go up with the scope of the inspection. Q: What are some new-home cautions? Local zoning ordinances also should be reviewed. A rather remote area can turn into a fast-food chain haven within a couple of years. Try to ensure that the neighborhood, if not strictly residential, will not begin sprawling out of control. Q: What about new versus previously owned? Data from the US Census Bureau's 1991 American Housing Survey suggest that operating costs per house are lowest for brand-new homes, slightly higher for relatively new existing homes but lower on the average for older existing homes. Measured per square foot of living space, however, operating costs are consistently higher for progressively older existing homes. Utility costs are the largest component of operating costs. Energy consumption per square foot depends on size of the home, insulation, window quality, air leakage and efficiency of the furnace. Operating costs also include expenditures for both routine maintenance and major repairs. Q: What are considerations to buying a new home? Do not be tempted to move into a “glamorous” community where you might be able to afford the house but not the lifestyle. In addition, similar-looking new houses often come complete with restrictions imposed by the developer on house color, landscaping, renovations and anything else a homeowner possibly could do to make their house deviate room the preferred look. Marketing experts try to appeal to buyer's tastes by their promoting images for their developments. Don't buy into it. Form your own opinions and only buy a home where you feel comfortable. After all, you're going to have to live there. Q: What is the return on new versus previously owned homes? Q: Who gets the furnishings when a home is sold? Q: How do property taxes work? Q: Are property taxes deductible? Q: How is a home's value determined? An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location,, square footage and construction quality. This service varies in cost depending on the price of the home. On average, an appraisal costs about $300 for a $250,000 house. A comparative market analysis is an informal estimate of market value performed by a real estate agent based on similar sales and property attributes. Most agents offer free analyses in the hope of winning your business. You also can get a comparable sales report for a fee from private companies that specialize in real estate data. You also can find comparable sales information available on various real estate Internet sites. Q: Are taxes on second homes deductible? Q: What is an impound accountant? Q: Do all loans require impound accounts?
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