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1.1.1 Are condominiums risky to buy? While condos never had the kind of
appreciation experienced by single-family homes in the go-go 1980s,
most ultimately have not lost value, say some experts. And with high
prices in many urban markets and more single home buyers in the
market than ever before, the market for condos is strong. The condominium community has worked hard 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: 1.1.2 Are condos a good investment? Condominiums have held their value as an
investment despite economic downturns and problems with some
associations. In fact, condos have appreciated more in the past few
years than when they first came on the scene in the late 1970s and
early 1980s, experts say. Meanwhile, changing demographics are making condominiums more attractive investments for single home buyers, empty nesters and first-time buyers in expensive markets. 1.1.3 Are one-bedroom condominiums a good investment? One-bedroom condominiums historically have not been considered as good an investment as condos with two bedrooms or more. But in high-cost markets, such as Boston, Manhattan or the San Francisco Bay Area, one-bedroom condos have proven to be equally good investments. Helping that along are changing demographic trends. With more single home buyers in the market today than at any time in history, there is more demand for one-bedroom condos. 1.1.4 Do condos have to be made accessible to the disabled? The 1990 Americans with Disabilities Act does
not require strictly residential apartments and single-family homes
to be made accessible. But all new construction of public
accommodations or commercial projects (such as a government building
or a shopping mall) must be accessible. New multi-family
construction also falls into this category. 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. 1.1.5 How do I figure out the homeowners association? Learn everything you can about the homeowners
association before you buy into a development governed by one. The
association's financial, political and legal conditions are very
important to your investment and quality of life. 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. Find out all you can about the association's finances. Beyond reviewing the budget, talk to the association treasurer and find out if dues are expected to increase and if any special assessments are planned. Ask if special inspections have revealed problems with roofs or plumbing that may cause a dues hike or special assessment later on. 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. 1.1.6 How do you choose between condos and single-family homes? Using appreciation as a measure, condominiums
in some areas have been as profitable an investment as single-family
homes in the past five years. And in some markets, condos
appreciated even more, according to some experts. Also, the condominium community has worked hard 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. 1.1.7 Where do I get information on condo association laws? Resources: 1.1.8 Where do I get information on condos? The major interest group for condominium projects and other so-called common-interest developments is the nonprofit Community Associations Institute, 1630 Duke St., Alexandria, VA 22314; (703) 548-8600. Also, check the Internet where CAI operates an informative site as does CIDNetworks. 1.2.1 What about a buyer's agent? In many states, it's now common for an agent to represent the buyers exclusively in the transaction and be paid a commission by the sellers. More and more buyers are going a step further, hiring and paying for their own agent, referred to as buyers brokers. 1.2.2 Do you need an agent for a new home? Buyers concerned about costs should be aware
of the differences inherent in working with sales agents who are
employed by the developer, rather than traditional real estate
agents. Most developers hire a staff of sales agents to handle their
properties and will not pay an outside agent's commission. Experts say to beware of paying the average 6 percent commission an agent would charge someone buying a new home if all they are really doing is giving you a ride to meet the builder. People who need assistance in shopping for new homes may want to retain an attorney or hire a buyer's agent for a flat fee to review the paperwork and provide any necessary protection against overly aggressive sales agents, whom the developer has hired with one purpose in mind. Not using a real estate agent also can improve the buyer's chances when negotiating. Because the builder does not have to pay the commission, this affords the buyer an opportunity to request extra amenities -- up to what would have been paid for the agent -- when making the purchase. 1.2.3 How do I find a real estate agent? Getting a recommendation from a friend or work colleague is an excellent way to find a good agent, whether you are a buyer or a seller. Be sure to ask if they would use the agent again. You also can call the managers of reputable real estate firms and ask them for recommendations of agents who have worked in your neighborhood. A good agent typically works full-time and has several years of experience at minimum. If you are a buyer, you don't usually pay for your agent's services (in the form of a commission, or percentage of the sales price of the home). All agents in a transaction usually are paid by the seller from the sales proceeds. In many states, this means that your agent legally is acting as a subagent of the seller. But in some states, it's legal for an agent to represent the buyers exclusively in the transaction and be paid a commission by the sellers. You also can hire and pay for your own agent, known as buyer's brokers, whose legal obligation is exclusively to you. If you are a seller, you should interview at least three agents, all of whom should make a sales presentation including a comparative market analysis of local home prices in your area. The best choice isn't always the agent with the highest asking price for your home. Be sure to evaluate all aspects of the agent's marketing plan and how well you think you can work with the individual. 1.2.4 How much does my real estate agent need to know? Real estate agents would say that the more you
tell them, the better they can negotiate on your behalf. However,
the degree of trust you have with an agent may depend upon their
legal obligation. Some states require agents to disclose all
possible agency relationships before they enter into a residential
real estate transaction. Here is a summary of the three basic types: 1.3.1 Are fixers a good idea in bad areas? It depends. Distressed properties or
fixer-uppers can be found anywhere, even in wealthier neighborhoods.
Such properties are poorly maintained and have a lower market value
than other houses in the neighborhood. 1.3.2 Where are fixer-uppers found? You can find distressed properties or
fixer-uppers in most communities, even wealthier neighborhoods. A
distressed property is one that has been poorly maintained and has a
lower market value than other houses in the immediate area. 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 run-down 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. 1.4.1 Are foreclosures an option? A foreclosure property is a home that has been
repossessed by the lender because the owners failed to pay the
mortgage. Thousands of homes end up in foreclosure every year.
Economic conditions affect the number of foreclosures, too. Many
people lose their homes due to job loss, credit problems or
unexpected expenses. 1.4.2 What types of foreclosure are there? Judicial foreclosure action is a proceeding in
which a mortgagee, a trustee or another lien holder on property
requests a court-supervised sale of the property to cover the unpaid
balance of a delinquent debt. 1.4.3 How do you determine the value of a troubled property? Buyers considering a foreclosure property
should obtain as much information as possible from the lender,
including the range of bids expected. 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. 1.4.4 How do you get financing for a foreclosure? One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing for such a property. You generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier's checks. 1.4.5 How does a home go into foreclosure? When does foreclosure begin? Lenders will initiate foreclosure proceedings when homeowners become delinquent in their mortgage obligations, usually after three payments are missed. The lender will then notify the buyer in writing that he or she is in default. The lender can request a trustee's sale or a judicial foreclosure, in which the property is sold at public auction. A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property's sale. Unless the debt is satisfied, the lender will foreclose on the mortgage and usually proceed to set up a trustee sale. Some sales allow the successful bidder to take possession immediately. If the former owner refuses to vacate the premises, the court can issue an unlawful detainer that allows the sheriff to come out and evict them. Borrowers should do everything they can to avoid foreclosure, which is one of the most damaging events that can occur in an individual's credit history. 1.4.6 What about buying a foreclosure "as is"? Buying a foreclosure property can be risky, especially for the novice. Usually, you buy a foreclosure property as is, which means there is no warranty implied for the condition of the property (in other words, you can't go back to the seller for repairs). The condition of foreclosure properties is usually not known because an inspection of the interior of the house is not possible before the sale. In addition, there may be problems with the title, though that is something you can check out before the purchase. 1.4.7 What are problems buying foreclosures? Buying directly at a legal foreclosure sale is
risky and dangerous. It is strictly caveat emptor ("Let the
buyer beware"). 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. 1.4.8 What happens at a trustee sale? Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice. 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. 1.4.9 Where can you find foreclosures? In most states, a foreclosure notice must be
published in the legal notices section of a local newspaper where
the property is located or in the nearest city. Also, foreclosure
notices are usually posted on the property itself and somewhere in
the city where the sale is to take place. 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: 1.5.1 Are low-ball offers advisable? A low-ball offer is a term used to describe an
offer on a house that is substantially less than the asking price. 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. 1.5.2 Can you buy homes below market? While a typical buyer may look at five to 10
homes before making an offer, an investor who makes bargain buys
usually goes through many more. Most experts agree it takes a lot of
determination to find a real "bargain." There are a number
of ways to buy a bargain property: 1.5.3 Can you negotiate the price on new homes? It can be difficult to negotiate the sales
price with a developer because they may claim their prices are based
on fixed construction costs. But it doesn't hurt to try. 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. 1.5.4 Is a low offer a good idea? While your low offer in a normal market might
be rejected immediately, in a buyer's market a motivated seller will
either accept or make a counteroffer. 1.5.5 Is there a secret to good negotiating? What are some tips on negotiation? The more you know about a seller's motivation,
the stronger a negotiating position you are in. For example, seller
who must move quickly due to a job transfer may be amenable to a
lower price with a speedy escrow. Other so-called "motivated
sellers" include people going through a divorce or who have
already purchased another home. 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. There are several cardinal rules to negotiating effectively. One is do your homework, and learn as much about the seller or the buyer as you can. Another is to play your cards close to your vest and not reveal too much information to the other party or their agent. Don't let yourself get rushed into any decision, no matter how tempting it may be. Finally, if you have doubts about your negotiating skill, hire someone to help. 1.5.6 Should I include an inspection contingency in my offer? An "inspection contingency" protects
you as a buyer in a purchase offer by allowing you to cancel closing
on the deal if an inspector finds problems with the property. 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 appliances are to remain with the house. Then stipulate you have the right to personally inspect the home 24 hours before closing to make sure all is in order. 1.5.7 What about an all-cash offer? Although most home buyers could never buy a
property with all cash, anyone considering such a move (or who has
bought a lottery ticket lately) may be wondering how to approach
such a deal. At the same time, all-cash buyers should consider potential pitfalls of the transaction. Buyers who want to use the home as their primary residence lose out on many of the tax advantages available to homeowners with conventional loans, since the IRS allows home owners to deduct all mortgage interest on loans up to $1 million. If you can afford to pay cash but are concerned about price appreciation, you may be better off obtaining some financing. Also, look at other which investments are paying off and determine if spending cash on a home is worthwhile. 1.5.8 What are the standard contingencies? Most purchase offers include two standard
contingencies: a financing contingency, which makes the sale
dependent on the buyers' ability to obtain a loan commitment from a
lender, and an inspection contingency, which allows buyers to have
professionals inspect the property to their satisfaction. 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. 1.5.9 Who gets the furnishings when a home is sold? It depends. Fixtures, any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace) automatically stay with the house unless specified otherwise in the sales contract. But anything that is not nailed down is negotiable. This most often involves appliances that are not built in (washer, dryer, refrigerator, for example), although some sellers will be interested in negotiating for other items, such as a piano. One word of warning should go here. Some sellers may not realize that simple things they added to the house themselves are now part of the house and should go with a sale. They may think they are entitles to them and take them. Such things include lighting fixtures, curtain hanging hardware, special doorknobs. If there may be any question about what stays with the house, put it in the purchase and sales agreement. 1.6.1 What's a home inspection? 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. 1.6.2 Do I need a home inspection? For most people Yes. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix. A brand new home is another matter. You may want to sweeten up your offer on a newer home by not having a home inspection. 1.6.3 How do I find a home inspector? CLICK HERE FOR A LIST IN MASSACHUSETTS Your realty agent is one source. But keeping them independent from the agent may be a good idea. 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. 1.6.4 Should I hire a home inspector for a new home? Most experts recommend having a home
inspected, new or old. For new home, ask the builder to provide
copies of any inspection reports on the property, architectural
plans, surveys and pertinent construction documents for your
inspector to review. Your inspector should either be a professional
home inspector, an engineer, an architect or a contractor. Rates for the service vary greatly. Many inspectors charge about $300, but costs go up with the scope of the inspection. 1.7.1 Do I need an attorney when I buy a house? In some states, you do need an attorney to
complete a real estate transaction, but in others you do not. If you have any questions at all, it may be advisable to consult an attorney to avoid future legal hassles. In looking for an attorney, ask friends for recommendations or ask your real estate agent to recommend several. Call to inquire about fees and to check on their experience. In general, more experienced attorneys will cost more, but real estate fees as a rule are small relative to the cost of the property you are buying. 1.7.2 Do states offer help to first time home buyers? Most states have a housing finance agency, usually located in the state capital, which offers help for first-time home buyers. 1.7.3 Do we dig deep and buy a dream home or settle for a starter home? Choosing between a smaller house in an
affluent neighborhood, an older, bigger house in a more
working-class community or a brand-new home is not easy. If you're
in this situation, start by examining your priorities and asking the
following questions: As for the return on your investment, home-price appreciation is hard to predict. In the late 1980s, the more expensive move-up housing appreciated wildly. But during the recession that followed, smaller homes tended to hold their value better than more expensive ones. 1.7.4 How do I get the real scoop on homes I am looking at? 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: 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 or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods 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. 1.7.5 How do you choose between buying and renting? Home ownership offers tax benefits as well as
the freedom to make decisions about your home. An advantage of
renting is not worrying about maintenance and other financial
obligations associated with owning property. 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 Erik 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?" 1.7.6 How do you qualify as a first-time buyer? In general, lenders define a first-time home buyer as someone who has not owned any real estate -- whether a personal residence, vacation home or investment property -- during the past three years. Lenders verify an applicant's status by examining their income tax returns, checking to see that the individual did not take any deductions for mortgage interest or property taxes. 1.7.7 What about new versus previously owned? Although new homes typically have a higher
sales price than comparable existing homes, buyers are willing to
spend more up front with an understanding that part of what they are
paying for is assured low maintenance costs. A builder's warranty,
along with brand-new roof, appliances, furnace and other operating
systems that make major repairs unnecessary, work together to
counteract possible slower appreciation initially. 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. 1.7.8 What are considerations to buying a new home? Builders may have a target market in mind for
their new-home projects. Some may tout communities as glamorous to
upscale urban professionals seeking amenities such as a golf course,
hot tubs and tennis courts. Yet a playground and swimming pool might
be central to a project geared toward families while the next one
offers seniors a walking trail and an easy-to-care-for yard. 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. 1.7.9 What are some new-home cautions? When you buy a resale home, you can find out a lot more about the property and the neighborhood before you buy than when you buy a new home. Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit, entertainment activities, shopping centers, churches and schools. Find out how far it is to the nearest library, for example. 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. 1.7.10 What do you think of get-rich-quick real estate schemes? Most real estate experts say there is no such
thing as getting rich quick in real estate. But there are no end of
get-rich-quick programs presented to the public as alternative
methods of buying real estate. 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. 1.7.11 When is the best time to buy? Because many buyers prefer to move in the spring or summer, the market starts to heat up as early as February. Families with children are eager to buy so they can move during summer vacation, before the new school year begins. The market slows down in late summer before picking up again briefly in the fall. November and December have traditionally been slow months, although some astute buyers look for bargains during this period. 1.7.12 What is the return on new versus previously owned homes? Buying into a new-home community may seem
riskier than purchasing a house in an established neighborhood, but
any increase in home value depends upon the same factors: quality of
the neighborhood, growth in the local housing market and the state
of the overall economy. Here are some frequently cited reasons for
buying a house: 1.7.14 Where can I get a list of architects? If you need an architect, contact a local chapter of the American Institute of Architects or the national organization itself at 1735 New York Avenue, N.W.; Washington, DC 20006; (202) 626-7300. Also contact friends or colleagues who have recently worked with an architect for referrals. Take the time to interview several before choosing an architect. 1.7.15 Where can I get a list of home builders? For a list of home builders, contact the National Association of Home Builders at 201 15th St., N.W., Washington, DC 20005; (202) 822-0200, or your local Building Industry Association office. 1.7.17 Where do I get information about finding a real estate attorney? To find a real estate attorney, contact your local bar association, which may offer local referral services. You may also ask friends or your real estate agent for their recommendations. When you have several names, call each to find out about fees and their level of experience. 1.7.18 Where do I get information about housing discrimination? For information about housing discrimination,
call the U.S. Department of Justice at (202) 514-2000, 950
Pennsylvania Ave., NW DC 20530 or your local U.S. Department of
Housing and Urban Development office. 1.7.19 Where do I get information on filing consumer complaints? For information about filing consumer
complaints, look to these sources: 1.7.20 Where do I get information on home market stats and trends? A real estate agent is a good source for
finding out the status of the local housing market. So is your
statewide association of Realtors, most of which are continuously
compiling such statistics from local real estate boards. 1.7.21 Where do I get information on homes with historic value? For information about homes with historic value, contact the National Trust for Historic Preservation, Washington, D.C. at (202) 673-4000. 1.7.22 Where do I get information on manufactured housing? For information on manufactured housing,
request information from: 1.7.23 Where do I get information on REITs (Real Estate Investment Trusts)? Ask for information on real estate investment trusts, or REITs, from the National Association of Real Estate Investment Trusts, 1129 20th St., N.W., Washington, DC 20036; (202) 785-8717. 1.7.24 Why do I need a title report? As much as you as a buyer may want to believe
that the home you have found is perfect, a clear title report
ensures there are no liens placed against the prior owners or any
documents that will restrict your use of the property. 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 land. 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. 1.8 HUD U.S. Department of Housing and Urban Development 1.8.1 Can I get a HUD home for as little as $100 down? If you are strapped for cash and looking for a
bargain, you may be able to buy a foreclosure property acquired by
the U.S. Department of Housing and Urban Development for as little
as $100 down. 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 U.S. Department of Veterans 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 1-800-827-1000 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. 1.8.2 Do you have to buy HUD homes through a realty agent? You can only purchase a U.S. 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. 1.8.3 How do you find government-repossessed homes? Where can you find foreclosed HUD homes? The U.S. Department of Housing and Urban
Development acquires properties from lenders who foreclose on
mortgages insured by HUD. These properties are available for sale to
both homeowner-occupants and investors. Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 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. One caution. HUD homes are sold "as is," meaning limited repairs have been made made but no structural or mechanical warranties are implied. 1.8.4 Where do I learn about HUD foreclosures? One good source is their Web page http://www.hud.gov. 1.9.1 How do I project rents on a rental? If you are buying a rental income property and
applying for a loan to do so, the lender will require an area rent
survey by a certified appraiser. The amount a landlord can expect to
receive in monthly rent largely depends on what the property has
rented for in the past, the condition of the building, its location
and the current housing market. 1.9.2 How do lease options work and what are the benefits? A lease option is an arrangement with you and
a seller to exercise the option to buy a house after you have rented
it for a specific period. A portion of your rent would applied
toward the purchase if the option is exercised. This is referred to
as rent credit, which most institutional lenders will accept as part
of the down payment if rental payments exceed the market rent and if
a valid lease-purchase agreement is in effect, a copy of which must
be attached to the loan application. Read any lease-option arrangement 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 Services, 64 E. Concord St., Orlando, FL 32801 When a renter signs a lease with an option to
purchase a property for a specific price within a certain time
frame, that is called a lease option. In most lease-option
situations, a portion of the rent is applied to a future down
payment. 1.9.4 Where can I get information on writing leases? Landlords can turn to several good books for
legal and management advice. Some contain sample forms for the
tenant's move-in condition checklist, owner's notice of intent to
enter an occupied unit and warning notices, for example. 1.9.5 Where do I get information about being a landlord? If you are a landlord and have questions,
contact: 1.9.6 Where do I get information on lease options? Contact your real estate agent (some even
specialize in such transactions) or read up on lease options at the
public library. If you have a real estate attorney, ask if he or she
has any prepared information you can review. Most bookstores have a
fairly hefty real estate book section these days. Many current real
estate books have at least a section on lease options. 1.10 Vacation and Second Homes 1.10.1 Should I buy a vacation home? Today a vacation home can be purchased for
investment purposes as well as enjoyment. And yes, there are tax
benefits. Resources: 1.10.2 What do you think of a vacation home as an investment? You can buy a vacation home today for
investment purposes as well as enjoyment. And yes, there are tax
benefits. 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. 1.11.1 What is guaranteed replacement cost insurance? Guaranteed replacement insurance is a more comprehensive policy. It tends to cost more, but it promises to cover the complete costs -- less deductible -- of replacing a destroyed house. With these sorts of policies, limits on the policies are not as common, because complete coverage is more explicit. 1.11.2 What kind of home insurance should I get? A standard homeowners policy protects against
fire, lightning, wind, storms, hail, explosions, riots, aircraft
wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass,
falling objects, weight of snow or sleet, collapsing buildings,
freezing of plumbing fixtures, electrical damage and water damage
from plumbing, heating or air conditioning systems, according to the
Insurance Information Institute, a Washington, D.C.-based nonprofit
group for the insurance industry. 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. 1.12.1 Where do I get information on co-ops? For information on co-operative housing, contact the National Association of Housing Cooperatives, 1614 King St., Alexandria, VA 22314; (703) 549-5201.
2.1.1 Are commissions negotiable? By law, real estate commissions are negotiable. The pricing of real estate service varies by level of service and consumer needs. Most agents charge between between 4 and 6 percent for full service and not all offer the option of paying a fee for an individual service. 2.1.2 How do I find a real estate agent? Getting a recommendation from a friend or work colleague is an excellent way to find a good agent, whether you are a buyer or a seller. Be sure to ask if they would use the agent again. You also can call the managers of reputable real estate firms and ask them for recommendations of agents who have worked in your neighborhood. A good agent typically works full-time and has several years of experience at minimum. If you are a buyer, you don't usually pay for your agent's services (in the form of a commission, or percentage of the sales price of the home). All agents in a transaction usually are paid by the seller from the sales proceeds. In many states, this means that your agent legally is acting as a subagent of the seller. But in some states, it's legal for an agent to represent the buyers exclusively in the transaction and be paid a commission by the sellers. You also can hire and pay for your own agent, known as buyer's brokers, whose legal obligation is exclusively to you. If you are a seller, you should interview at least three agents, all of whom should make a sales presentation including a comparative market analysis of local home prices in your area. The best choice isn't always the agent with the highest asking price for your home. Be sure to evaluate all aspects of the agent's marketing plan and how well you think you can work with the individual. 2.1.3 How many people sell their homes themselves? Most home sellers -- about 4 in 5 -- use real estate agents to list and sell their homes. Of the other 20 percent, some sell FSBO, also known as For Sale By Owner. Other owners, however, sell without marketing their homes. Property transfers between family members account for some of the direct home sales. Also, tenants are often offered the opportunity to buy the property they are renting before the landlord lists it for sale. 2.1.4 How much does my real estate agent need to know? Real estate agents would say that the more you
tell them, the better they can negotiate on your behalf. However,
the degree of trust you have with an agent may depend upon their
legal obligation. Some states require agents to disclose all
possible agency relationships before they enter into a residential
real estate transaction. Here is a summary of the three basic types: 2.2.1 Can a home seller sell a home for less than its mortgage? Yes, in some case you can sell your home for
less than what you still owe on the mortgage. But it is complicated
and depends on the lender. This situation is known as a "short
sale." Sometimes a lender will be willing to split the
difference between the sale price and loan amount, which still must
be paid. If the loan was a low-down-payment mortgage with private mortgage insurance, then the lender also must involve the mortgage insurance company that insured the low-down loan. 2.2.2 Can I find out the value of my home through the Internet? You can get some idea of your home's value by
searching the Internet. A number of Web sites and services crunch
the numbers from historic public records of home sales to produce
the statistics. Some services offer an actual estimate of value
based on acceptable software appraisal standards. They also depend
on historic home sales records to calculate the estimate. A home ultimately is worth what someone will
pay for it. Everything else is an estimate of value. To determine a
property's value, most people turn to either an appraisal or a
comparative market analysis. A comparative market analysis is a real estate broker's or agent's informal estimate of a home's market value, based on sales of comparable homes in a neighborhood. Most agents will give you a comparative market analysis for free in the hopes of winning your business. If all agents agree on a price range for your home, go with the consensus. Watch out for an agent whose opinion of value is considerably higher than the others. 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 or assessor offices, through private real estate information companies or on the Internet. 2.2.4 How can I improve the value of my property? The biggest factor outside of a homeowner’s
control is market conditions. But other issues -- including the
condition of the property, specific home improvements and
neighborhood stability and safety -- can influence property values. Specific home improvements can increase the value above the cost of the improvements. According to Remodeling magazine, which publishes an annual "Cost vs. Value" remodeling report, a remodeled bathroom returns 81 percent to the owner, a bathroom addition, 89 percent and a master bedroom suite, 82 percent. Remember, quality pays. Well-planned and well-executed remodeling jobs are a good investment while bad work seldom enhances value or livability. The safety and security of a neighborhood can affect property values, too. If you live in a high-crime area, an organized community watch program not only will lower the crime rate but give home values a boost, too. 2.2.5 How do I prepare the house for sale? First and foremost, put it in the best
condition possible, especially if you are in a market with few
buyers and lots of homes for sale. That means taking care of any
major repairs that could deter a buyer (such as replacing any broken
windows or replacing a leaky roof) if you can afford it. Next, work
on your home's curb appeal. Make sure your landscape is pristine.
Mow the grass, clean up any debris and weed the garden beds. Plant a
few annual flowers near the entrance or in pots to be placed by the
door. Other quick fixes that don't cost a lot of money but can help
you get top dollar for your home: 2.2.6 How does someone sell a slow mover? Even in a down market, real estate experts say
that price and condition are the two most important factors in
selling a home. Secondly, you need to make sure that the home is getting the exposure it deserves through open houses, broker open houses, advertising, good signage, and listings on the local multiple listing service (MLS) and on the Internet. Another option is to pull your house off the market and wait for the market to improve. Finally, if you who have no equity in the house, and are forced to sell because of a divorce or financial considerations, you could discuss a short sale or a deed-in-lieu-of- foreclosure with your lender. A short sale is when the seller finds a buyer for a price that is below the mortgage amount and negotiates the difference with the lender. In a deed-in-lieu-of-foreclosure situation, the lender agrees to take the house back without instituting foreclosure proceedings. The latter are radical options. Your simplest, and in many cases most effective, option is to lower the price. 2.2.7 What are the standard ways of finding out how much a home is worth? A comparative market analysis and an appraisal
are the standard methods for determining a home's value. An appraisal, which generally costs $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. 2.2.8 What are the two most important factors when selling a home? Price and condition are the two most important
factors in selling a home, even in a down market. The first step is
to price your home correctly. Use comparative sales information from
your agent, or pay for a professional appraiser (usually $200 to
$300), to objectively evaluate your home's worth. Second, go through
the house and repair any obvious cosmetic defects that could deter a
buyer. If this isn't happening, take it up with your agent or agent's broker. If you are still not satisfied you are getting the service you need, you may have to switch agents. 2.2.9 What is the difference between list price, sales price, appraised value and assessed value? The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area. The sales price is the amount of money you as a buyer would pay for a property. The sales price is the amount a property actually sells for. It may be the same as the listing price, or higher or lower, depending on how accurately the property was originally priced and on market conditions. If you are a seller, you may need to adjust the listing price if there have been no offers within the first few months of the property's listing period. 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. Assessed value is number the city or town comes up with to figure how much in taxes to charge a property owner. It has nothing at all to do with the actual or market value of the property. Towns use wildly varying forumlae to come up with the figure. 2.2.10 What is the difference between market value and appraised value? The appraised value of a house is a certified
appraiser's opinion of the worth of a home at a given point in time.
Lenders require appraisals as part of the loan application process;
fees range from $200 to $300. 2.2.11 What repairs should the seller make? If you want to get top dollar for your
property, you probably need to make all minor repairs and selected
major repairs before going on the market. Nearly all purchase
contracts include an inspection clause, a buyer contingency that
allows a buyer to back out if numerous defects are found or
negotiate their repair. 2.2.12 What standards do appraisers use to estimate value? Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value. For detailed information on appraisal standards, contact the Appraisal Institute at 875 N. Michigan Ave., Suite 2400, Chicago, IL 60611-1980; (312) 335-4458. 2.2.13 Will a neighbor problem reduce the value of my property? While it may not reduce the actual value, a
cluttered landscape next door can detract from the positive aspects
of your home. Review your local laws, which should be on file at the
public library, county law library or City Hall. It also may be worthwhile to check into local zoning ordinances. An operator of a home-based business usually is required to obtain a variance or permanent zoning change in residential areas. In addition, if a neighbor's repair work produces loud noises, he may be breaking local noise-control ordinances, which are enforced by the police department. Before bringing in the authorities, you may want to make a copy of the pertinent ordinance and give it to your neighbor to give them a chance to correct the problem. Resources: 2.3.1 Do I have to consider contingencies? If you are a seller in a seller's market, in which there is more demand than supply, you probably won't have to entertain too many contingencies. But if you are selling in a buyer's market, when buyers are few, prepare to be very flexible. Granting contingencies also depends upon what kind of price you want to get and on the condition of your property, most experts agree. Remember, contingencies are written into the contract and are negotiable during the negotiation phase only. 2.3.2 Do sellers have to disclose the terms of other offers? Sellers are not legally obligated to disclose the terms of other offers to prospective buyers. 2.3.3 Is there a secret to good negotiating? There are several cardinal rules to negotiating effectively. One is do your homework, and learn as much about the seller or the buyer as you can. Another is to play your cards close to your vest and not reveal too much information to the other party or their agent. Don't let yourself get rushed into any decision, no matter how tempting it may be. Finally, if you have doubts about your negotiating skill, hire someone to help. 2.3.4 What contingencies should be put in an offer? Most offers include two standard
contingencies: a financing contingency, which makes the sale
dependent on the buyers' ability to obtain a loan commitment from a
lender, and an inspection contingency, which allows buyers to have
professionals inspect the property to their satisfaction. 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. 2.4.1 What is the best time to sell your house? There is no "best" time to sell per
se. Selling a house depends on supply, demand and other economic
factors. But the time of year in which you choose to sell can make a
difference both in the amount of time it takes to sell your home and
in the ultimate selling price. With the onset of summer, the market slows. July is often the slowest month for real estate sales due to a strong spring market putting possible upward pressure on interest rates. Also, many prospective home buyers and their agents take vacations during mid-summer. Following the summer slowdown, real estate sales activity tends to pick up for a second, although less vigorous, fall market, which usually lasts into November when the market slows again as buyers and sellers turn their attention to the holidays. If this makes you wonder if you should take your home off the market for the holidays, consider the advice of veteran agents: You are always more likely to sell your house if it is available to show to prospective buyers continuously. 2.4.2 Whose obligation is it to disclose pertinent information about a property? In most states, it is the seller, but
obligations to disclose information about a property vary. This might include: homeowners association dues; whether or not work done on the house meets local building codes and permits 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.
If you are a buyer, and you or the seller pays points, they are deductible for the year in which they are paid only. You also can deduct any points you pay when you refinance your home, but you must do so ratably over the life of the loan. Consult your tax or financial advisor. 3.1.2 Are property taxes deductible? Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes. 3.1.3 Are seller-paid points deductible? As of Jan. 1, 1991, homeowners have been able to deduct points paid by the seller. This deduction previously was reserved only for points actually paid by the buyer. 3.1.4 Are taxes on second homes deductible? Mortgage interest and property taxes are deductible on a second home if you itemize. Check with your accountant or tax adviser for specifics. 3.1.5 Are the costs of a natural disaster deductible? Damage, destruction or loss of property from
fires, floods, earthquakes and other disasters are deductible from
both state and federal income taxes. In such a case, the IRS only
allows a deduction less than or equal to the fair-market value of
the property before the disaster. 3.1.6 Are there any special tax breaks for historic rehab? Qualified rehabilitated buildings and
certified historic structures currently enjoy a 20 percent
investment tax credit for qualified rehabilitation expenses. A
historic structure is one listed in the National Register of
Historic Places or so designated by an appropriate state or local
historic district also certified by the government. Resources: 3.1.7 Are there tax credits for first-time home buyers? Many city and county governments offer
Mortgage Credit Certificate programs, which allow first-time home
buyers to take advantage of a special federal income tax write-off,
which makes qualifying for a mortgage loan easier. Here is a list of four general requirements to
keep in mind: 3.1.8 Can I deduct the loss I suffered when I sold my home? The Internal Revenue Service currently does not allow deductions for losses on the sale of your own home. In fact there's no way to use a loss on the sale of your principal residence to your advantage on your income tax return. 3.1.9 Can you deduct the cost of home improvements? What you spend on permanent home improvements,
such as new windows, can be added into your home's cost basis, or
amount of money invested in a home, which reduces capital gains when
it comes time to sell. Capital gains are determined by the
difference in price from the time a home is purchased and the time
it is sold, minus the cost of any permanent improvements. Still, it is worthwhile to save all receipts for permanent home improvements just in case. They also can be useful documentation when it comes to marketing your home when you sell. 3.1.10 Explain the home mortgage deduction . . The mortgage interest deduction entitles you
to completely deduct the interest on your home loan for the year in
which you paid it. Mortgage interest is not a dollar-for-dollar tax
cut; it reduces taxable income. You must itemize deductions in order
to do this, which means your total deductions must exceed the IRS's
standard deduction. 3.1.11 How do I reach the IRS? To reach the Internal Revenue Service, call (800) TAX-1040. You can also go to their web site at http://www.irs.gov/ . 3.1.12 How do I save on taxes? Here are some ways to save money on taxes: Resources: 3.1.13 How do property taxes work? Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, on average 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. 3.1.14 What are the rules on capital gains when inheriting a house? When children inherit a home, the Internal
Revenue Service determines their basis in the property on the date
of the owner's death. The cost basis is not the amount the owner
originally paid for the house, but the property's fair-market value
on the date of the parent's death. Other tax consequences include estate taxes. However, the estate must total $675,000 or more for tax year 2000 before tax issues become a concern. The IRS allow residents to pass on property, cash and other assets worth up to a total of $675,000 for tax year 2000 before charging the heirs any taxes. This figure will rise each year for the next several years. Regarding the transfer of ownership, quit-claim deeds often are used between family members in situations such as this when an heir is buying out the other. All parties must be agreeable to dropping a name from the title. For more information, consult the IRS's Publication 448, "Federal Estate and Gift Taxes." Order by calling 1-800-TAX-FORM. 3.1.15 What home-buying costs are deductible? Any points you or the seller pay to purchase
your home loan are deductible for that year. Property taxes and
interest are deductible every year. 3.1.16 What tax benefits are there to homeowners? Homeowners benefit from several generous tax
advantages. The most important benefit is the mortgage interest
deduction. People may deduct interest paid on mortgage loans
totaling up to $1 million used to buy, build or improve a principal
residence plus a second home. The IRS calls such loans acquisition
debt. Any points paid on a refinance mortgage, a loan to purchase a second home or a mortgage on income property must be spread over the life of the loan, according to Edith Lank and Miriam S. Geisman, authors of "Your Home as a Tax Shelter," Dearborn Financial Publishing, Chicago; 1993. Note that when obtaining a new mortgage, the borrower usually is asked to pay interest from the closing date until the first of the next month. Check whether that charge is included in the year-end report. Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income, say Lank and Geisman. "A homeowner cannot deduct maintenance expenses, nor can he take depreciation deductions on his personal residence," states the "Realty Bluebook," 30th Ed., Dearborn Financial Publishing, Chicago; 1993. Some moving expenses are deductible for people who changed jobs and relocated as a result. The IRS requires that the new employment be located at least 50 miles away, among other considerations, said Analisa Collins-Sears, a public affairs officer with the IRS' Bay Area office. Resources: * "Tax Information for First-Time Homeowners," a free guide published by the Internal Revenue Service. Order by calling 1-800-TAX-FORM. 3.1.17 Where can I learn more about appealing my property taxes? Contact your local tax assessor's office to see what procedures to follow to appeal your property tax assessment. You may be able to appeal your assessment informally. Mostly likely, however, you will have to go through a formal tax-appeal processes, which begin with an appeal filed with the appropriate assessment appeals board. 3.1.18 Where do I get information on IRS publications? The Internal Revenue Service publishes a
number of real estate publications. They are listed by number: 3.2.1 Can a condo association ban nudity? Could you sunbathe in the nude on your own
balcony? Not necessarily. In a condominium development, a balcony is
not considered private property but common property assigned to your
exclusive use - but a common area nonetheless. 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 reasonable, say legal experts. Incidentally, there are places where nudity is tolerated but again, only out of public view. 3.2.2 Can a condo association ban pets? A homeowners association can both enact and
enforce such pet restrictions. As the following case illustrates, it
important to read a development's covenants, conditions and
restrictions (CC&Rs) before you buy into it. Pet restrictions
sometimes appear there. Also, if you have talked to other owners,
you will know whether or not there is tolerance for pets. Nahrstedt filed suit after the board assessed fines of $500 a month against her. The California Supreme Court ruled in favor of the association. A homeowners association's board of directors
can restrict smoking if it applies to indoor common spaces such as
hallways or recreation rooms. Outdoor spaces are a different story,
say legal experts. Any restriction would probably hinge on local
laws (i.e. if a city banned smoking outdoors, a homeowners
association probably could restrict smoking in its outdoor spaces). 3.2.4 How are fees and assessments figured in a homeowners association? Homeowners association fees are considered
personal living expenses and are not tax-deductible. If, however, an
association has a special assessment to make one or more capital
improvements, condo owners may be able to add the expense to their
cost basis. Cost basis is a term for the money an owner spends for
permanent improvements throughout their time in the home and is used
to reduce eventual capital gains taxes when the property is sold.
For example, if the association puts a new roof on a building, the
expense could be considered part of a condo owner's cost basis only
if they lived directly underneath it. Overall improvements to common
areas, such as the installation of a swimming pool, need to be
considered on a case-by-case basis but most can be included in the
cost basis of any owner who can show their home directly benefits
from the work.
3.3 Miscellaneous Ownership details 3.3.1 Can a co-owner force someone off a shared deed? In some states, a co-owner often can force the
sale of a shared property by filing a so-called partition action. In
such a situation, if the severance is granted, the property would be
sold and the owners would split the proceeds proportionate to their
interest in the property. 3.3.2 How do you increase the value of your property? The biggest factor that can affect property
value -- market conditions -- are outside of your control. But other
factors -- including the condition of the property, certain home
improvements and neighborhood stability and safety -- are not. If you live in a high-crime area, an organized community watch program not only will lower the crime rate but can enhance property values, too. It also helps to live in an area where other homeowners are upgrading their homes, which can help pull up your property value, too. The bottom line is to measure the cost of any improvements you want to make against the overall values in your neighborhood. If you over improve for the neighborhood, you may not necessarily recover your costs or boost your property value significantly. 3.3.3 How much will I spend on maintenance expenses? Experts generally agree that you can plan on annually spend 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of home ownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years. 3.3.4 Should I add on or buy a bigger home? Before making a choice between adding on to an
existing home or buying a larger one, consider these questions: Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value. For more information, check out "The Do-able Renewable Home," a free booklet available from the American Association of Retired Persons, Fulfillment Department, 601 E St., N.W., Washington, DC 20049; (202) 434-2277. 3.3.5 What are some guidelines to follow when trying to find a contractor? While hiring contractors recommended by
friends is usually a safe route, never hire a construction
professional without first checking him or her out. If your state
has a licensing board for contractors, call to find out if there are
any outstanding complaints against that license holder. Also, call
your local Better Business Bureau to see if there are any complaints
on file. If they pass the insurance hurdle, next check some of their references. A good contractor will be happy to provide as many as you want. 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. 3.3.6 What are some resources for info on home improvements? If you're getting ready to embark on a home
improvement project involving contracting help, "Ready, Set,
Build: A Consumer's Guide to Home Improvement Planning
Contracts" lays out a road map for selecting the right
contractor, obtaining competitive bids up to what to include in a
contract. There also is information on consumer rights, liens and
financing. Resources: 3.3.7 What kind of return is there on remodeling jobs? Remodeling magazine produces an annual
"Cost vs. Value Report'' that answers just that question. The
most important point to remember is that remodeling a home not only
improves its livability for you but its curb appeal with a potential
buyer down the road. 3.3.8 Where do I get information on remodeling? Try these sources: 3.4.1 How do building codes work? Building codes are established by local
authorities to set out minimum public-safety standards for building
design, construction, quality, use and occupancy, location and
maintenance. There are specialized codes for plumbing, electrical
and fire, which usually involve separate inspections and inspectors. Building codes also cover most remodeling projects. If you are buying a house that has been significantly remodeled, ask for proof of the permits involved before you purchase to avoid future liability for fines. Resources:
4. Mortgages, Loans & Credit 4.1.1 Are 40-year mortgages a good idea? Smaller monthly payments are the primary advantage of adding 10 years to the traditional 30-year mortgage, but real estate experts say the shorter-term loan usually is more beneficial for the home buyer. The drawback becomes apparent simply by calculating the cost of additional interest payments, which can total thousands for a few dollars difference in mortgage payments. 4.1.2 What about a 15-year v. 30 year loan? The difference in payments and overall savings
between a 15-year fixed-rate loan and a 30-year fixed-rate loan
depends on the interest rate and the loan amount. Using a $100,000
loan and 7.25% interest rate as an example, monthly payments on the
15-year note would be $912.86. Monthly payments on a $100,000 loan
at 7.25% fixed for 30 years would be $682.18. However, calculating the overall savings of the 15-year note over the 30-year note depends on several individual circumstances, such as the borrower's changing income status. 4.1.3 Are interest rates negotiable? Some lenders are willing to negotiate on both
the loan rate and the number of points but this isn't typical among
established lenders who set their rates like large corporations set
the prices on their goods. Nevertheless, it pays to shop around for
loan rates and know the market before you go in to talk to a lender.
You should always look at the combination of interest rate and
points and get the best deal possible. When shopping for rates, look for published rates in local newspapers or check the growing number of Internet sites that publish such information. 4.1.4 Do all loans require impound accounts? If you are taking out a FHA or VA loan, the lender can require an impound account to pay real estate taxes and hazard insurance premiums, as with a standard loan. Most conventional loans do not require an impound account. 4.1.5 Do I have to disclose a parent's gift? Having generous parents is nothing to hide. An
estimated one-third of first-time buyers purchase their home with a
loan or a money gift from their parents. Resources: 4.1.6 How do you choose between fixed and adjustable rates? There is risk involved in selecting an
adjustable rate mortgage, or ARMs, because rates may go up. On the
other hand, a fixed-rate loan offers good protection against rising
interest rates but the borrower is stuck with the initial rate if
interest rates drop. Whether to opt for a fixed or adjustable rate mortgage is a matter of personal choice. The first route offers stable payments; the second offers lower initial payments. Another consideration is the length of time a buyer plans to own the home. If you're planning on moving within three or four years, an ARM makes sense even if rates do nothing but rise during that period of time. 4.1.7 How do you find out if a loan is assumable? Look to the loan agreement to determine if it
is assumable by someone else. Then talk to the lender about specific
requirements based on the value of the home. 4.1.8 Is equity sharing a good idea? Equity sharing is not as popular in a slowly
appreciating real estate market as in a rapidly appreciating one
(when equity investors are easy to find). Loan underwriting standards are more complicated in TIC deals because lenders have more than one party's financial situation to assess. But many standard loan programs do apply. 4.1.9 Should I put more or less down, if we can afford it? Putting down as little as possible allows
buyers to take full advantage of the tax benefits of home ownership,
many experts say. Mortgage interest and property taxes are fully
deductible from state and federal income taxes. Buyers using a small
down payment also have a reserve for making unexpected improvements. 4.1.10 What about splitting my mortgage in two and paying bi-weekly? Some people set on paying off their home loan
early and reducing interest charges opt for a biweekly mortgage.
Monthly payments are divided in half, payable every two weeks. 4.1.11 What are the benefits of pre-paying the mortgage? By making additional payments that go toward
the principal balance, you can save thousands of dollars and shave
years off the length of your loan. The total savings potential also depends on how long you want to stay in the house. Borrowers who plan to move in the near future should not expect to realize as significant a savings as people who pay ahead of schedule until they own the home free and clear. Check with your lender, who should be able to provide specific answers as to how such a prepayment plan will shorten the life of the loan and what kind of interest savings can be expected. 4.1.12 What are the risks of "b" and "c" loans? The major risk is the cost of the loan.
Desperate home buyers who are not selective when seeking an
"A-," "B," "C" or "D" loan
may find themselves locked into long-term loans with outrageous fees
and interest rates. "Watch out how costly they are," said
Jon Riccardi, a mortgage broker with MPR Financial in Albany, Calif.
"Some of the quotes are a little difficult to quote." In cases where negative information on a credit report may be due to disappear in the next few years, or a borrower expects their income to increase significantly, non-conforming loans without excessive prepayment penalties can be excellent. The borrower can obtain a conventional loan as soon as they qualify, yet enjoy the benefits of home ownership and establish equity in the meantime. Many home buyers engaged in this process look at these less desirable loans as a penalty while others are grateful for a second chance. Yet no one should be so anxious that they sign for a loan with questionable terms. "The goal of these loans is to pay them off quickly," Riccardi said. "What I've seen is, people don't investigate these loans enough and when they try to get out of it, realize what they got into." Resource: "How to Shop For a Mortgage," a brochure available from the Mortgage Bankers Association of America, 1125 15th St., N.W., Washington, DC 20005. 4.1.13 What do I do if I get turned down for a loan? Increasing numbers of loan applicants are
finding ways to buy their own home despite past credit problems, a
lack of a credit history or debt-to-income ratios that fall outside
of traditionally acceptable ranges. If someone is willing to make a gift of funds
in order for you to purchase a home, lenders will ask for a gift
letter stating that no repayment of the "gift" is
expected. The amount of the gift and the date funds were transferred
should be spelled out in the letter, along with the donor's name,
address, telephone number and relationship to the borrower. Gifts -- with the proper documentation -- can be from relatives, friends, an employer, church, municipality, or nonprofit organization. Lenders often have stricter restrictions on gifts from friends and relatives other than parents. Also, if you put less than 20 percent down, some lenders may require that a portion of the down payment be your own cash, not a gift. If you want to use a gift as part of your down payment, check with individual lenders to learn the restrictions of specific private or government-insured mortgage programs. 4.1.15 What is an impound account? An impound account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month. The Annual Percentage Rate (APR) is the
relative cost of credit as determined in accordance with Regulation
Z of the Board of Governors of the Federal Reserve System for
implementing the federal Truth-in-Lending Act, according to Charles
O. Stapleton III, Thomas Moran and Martha R. Williams, authors of
"Real Estate Principles," 3rd Ed., Dearborn Financial
Publishing, Chicago; 1994. 4.1.17 What is the standard debt-to-income ratio? 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. 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. 4.1.18 When is the best time to refinance? It depends on how long you plan to hold on to
your house and if you have to pay anything to refinance. In
addition, it also depends on how far along you are in paying off
your current mortgage. Many lenders will allow you to roll the costs of the refinancing into the new note and still reduce the amount of the monthly payment. Also, there are no-cost refinancing deals available. In any case, it pays to consult your lender or financial advisor, or run the numbers yourself, before you refinance. 4.1.19 Where are interest rates headed? At any one time, no one knows for sure where rates are headed. Beyond public policies put in place by the Federal Reserve Board, there are no laws that govern mortgage rates. Historically, usury laws were used to prevent lenders from charging sky-high interest rates when lending money. But in some states where there are usury laws, banks, thrifts and a number of other financial institutions are exempt from the law. Today, interest rates are governed solely by the financial markets and by Federal Reserve Board action, neither of which can be predicted with absolute certainty. 4.1.20 Where can I get a list of mortgage brokers? For information on mortgage brokers, contact the National Association of Mortgage Brokers at (703) 610-9009 4.1.21 Where do I get information on correcting loan payments? The following auditing services can do a
thorough review of residential mortgages for lender calculation
errors:
4.1.22 Where do I get information on finding the best loan? For information on how to find the best home
loan for you, check out this booklet: 4.1.23 Where do I get information on mortgages? For information on mortgages, check out the
following sources for information: 4.1.24 Where do I get information on refinancing? For information on refinancing, the following
booklet may be helpful: 4.1.25 Where do I get information on who regulates lenders? The following regulatory bodies oversee
lenders: 4.2.1 Federal Housing Authority Loans (F.H.A.) 4.2.1.1 Are FHA loans assumable? Lenders will only permit those loans that have a "subject to transfer" clause to be taken over through a formal assumption process. Look to your loan agreement for specific terms. In addition, you should candidly discuss any risks with your lender, and possibly consult an attorney before signing the final agreement. 4.2.1.2 Do FHA loans require impound accounts? Yes, according to the "Realty Bluebook," 30th Ed., Dearborn Financial Publishing, Chicago; 1993: "Under FHA financing it is the lender's responsibility to ascertain that property taxes and hazard insurance premiums are paid when due. Lenders, therefore, will insist that the monthly payments include proportionate amounts for taxes and insurance." The U.S. Department of Housing and Urban Development offers a variety of loan insurance programs through the Federal Housing Administration which require approximately 3 to 5 percent cash down. There are no income requirements to qualify for a FHA mortgage. Other advantages are that FHA loans do not contain prepayment penalties and in some cases they are assumable by qualified purchasers. FHA loan limits vary, depending on the county where the property is located. FHA loans are originated and serviced by private lenders. FHA does not lend money. The mortgage is made by a bank, savings and loan, mortgage company or other FHA-approved lender. In addition, FHA does not set the rates and points. The lender determines these, so it is best to shop around by calling several FHA-approved lenders. For more information, contact lenders who
offer FHA loans or a regional HUD office. 4.2.1.4 What are rates for FHA and VA loans? There are no set interest rates for FHA and VA loans. The FHA stopped regulating rates in 1983 and the VA followed suit soon after. Shop around for the best rate. 4.2.1.5 Which lenders offer FHA loans? Lenders who handle Federal Housing Administration loans typically advertise in the Yellow Pages under "real estate loans" and in the real estate sections of newspapers. FHA also supplies limited lists of approved lenders. For general qualifications and program details, see the FHA brochure, "How to Qualify for an FHA Loan." To order, write the U.S. Department of Housing and Urban Development, Printing Branch, Room B-100, 451 7th St., Washington, DC 20410; (800) 767-7468. 4.2.2 Low Cost, No Cost & Low Down Loans 4.2.2.1 Are there alternatives to low-down-payment loans? There are a variety of alternative financing arrangements such as equity sharing, employer housing assistance, seller-financing and lease options that may reduce the size of the down payment. 4.2.2.2 Are there low-down-payment home loans? A host of private lenders offer
low-down-payment loans. In addition, there are government programs
to help cash-strapped buyers. Fannie Mae's Community Home Buyers program allows people to buy with just 3 percent down. For details, contact lenders who offer government-insured loans. In addition to calling lenders for information, contact Fannie Mae directly at (800) 832-2345. 4.2.2.3 Are there no-down payment home loans? Though some real estate experts advise against it, home buyers interested in buying a house with nothing down can do so. Occasionally, a builder will offer no-down-payment loans to induce sales in an otherwise slow-moving project. Desperate sellers will also promise to finance the down payment to get out from under a property. A veteran can buy a house with nothing down through a VA home loan, as can members of some pension funds. 4.2.2.4 How do some of these low-down programs work? Most of the private and government low-down
loan programs have special requirements. These rules range from
requiring borrowers to be first-time home buyers to limits on family
income. Many private low-down loan programs insist borrowers have good credit and also that they obtain private mortgage insurance, which is a small monthly insurance payment that insures the lender against default. Some of the city and county programs are available only in targeted neighborhoods where local leaders are trying to spark reinvestment or increase the home ownership rate. Resources: 4.2.2.5 How do you get a low-interest rate loan? Price discounts and interest rate buy downs
are common incentives offered by new-home builders trying to
overcome slow sales. State agencies often offer lower rate loans. But to qualify, borrowers usually must be a first-time home buyer and meet income limits based on the median income level of their county. 4.2.2.6 Is there such a thing as a no-cost or no-fee loan? Not really. While some lenders occasionally
promote "no-cost" loans, banking regulators have cracked
down on these misrepresentations. Advertised "no-fee"
loans may actually cost the borrower more over the long term because
these costs are often rolled into the new note through higher
interest or more principal. 4.2.2.7 What about nothing down? Though some real estate experts advise against it, home buyers interested in buying a house with nothing down can do so. But it's not easy finding these loans and in some cases they can be risky. Occasionally, a builder will offer no-down loans to induce sales in an otherwise slow-moving project. Desperate sellers also may agree to finance the full purchase price to get out from under a property. The Department of Veterans Affairs, or VA, loan program is one program that allows buyers to qualify for a no-down loan. 4.2.2.8 What about these ads for no-cost loans? In many states, real estate regulatory
agencies are cracking down on such advertising. The very term,
"no-cost" loan, is misleading because borrowers are
actually paying a higher interest rate in exchange for not having to
pay fees or closing costs up front when the loan is secured. 4.2.2.9 What is a low down payment? A low down payment is anything less than the standard 20 percent. Many people borrow with less than 20 percent down by obtaining private mortgage insurance, or PMI. There also are numerous programs to help first-time buyers with little or no down payment, including FHA, VA and Fannie Mae's Community Home Buyers Program. 4.2.2.10 Who do I call for a low-down-payment loan? Here are several popular programs available to
home buyers, along with the appropriate telephone numbers for more
information: 4.2.3.1 Are there government programs for rehab? The U.S. Department of Housing and Urban
Development's Section 203 (K) rehabilitation loan program is
designed to facilitate major structural rehabilitation of houses
with one to four units that are more than one year old. Condominiums
are not eligible. 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 finance the construction costs. For a list of participating lenders, call HUD at (202) 708-2720. If you are a veteran, loans from the U.S. Department of Veterans Affairs also can be used to buy a home, build a home, improve a home or to refinance an existing loan. VA loans frequently offer lower interest rates than ordinarily available with other kinds of loans. To qualify for a loan, the first step is to apply for a Certificate of Eligibility. Another program is the Federal Housing Administration's Title 1 FHA loan program. Resources: 4.2.3.2 Are there programs for fixer-uppers? You can find distressed properties or
fixer-uppers in most communities, even wealthier neighborhoods. A
distressed property is one that has been poorly maintained and has a
lower market value than other houses in the immediate area. 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 run-down 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. 4.2.4 Negative Amortization Loans 4.2.4.1 Can I convert a negative-amortization loan to a regular loan? Loan terms vary and each agreement needs to be
reviewed carefully. Talk to your lender about specific situations. Adjustable rate mortgages with payment caps and negative amortization are usually re-amortized at some point so that the remaining loan balance can be fully paid off during the term of the loan. This could necessitate a substantial increase in the monthly payment. Most ARMs have a limit on the amount of negative amortization allowed, usually 110 to 125 percent of the original loan amount. If the loan balance exceeds this amount, the borrower has to start paying off the excess. Negative amortization can be avoided by paying the additional interest owed monthly. ARMs that don't have payment caps usually don't have negative amortization. 4.2.5.1 Can someone who is unemployed get a loan? Generally, lenders will not make loans to
unemployed persons because someone without an income would seemingly
have no way of making monthly mortgage payments. Borrowers should check directly with lenders when seeking a no-doc loan. If specific lenders do not offer them, ask for a referral. 4.2.5.2 What are no-doc loans? "No-doc" loans are mortgages for
which lenders require very little loan documentation as long as the
borrower puts down a sizable down payment, generally 25 percent or
more. Resources: 4.2.6 Veteran's Administration (VA Loans) 4.2.6.1 Can National Guard vets, and other reservists, get VA loans? The Veteran's Benefits Improvements Act of 1994 gives men and women who have completed six years in the Army, Air Force, Marine Corps or Coast Guard Reserves or the Army National Guard or Air National Guard eligibility for VA home loans, including no-down payment programs. If you are a reservist or a National Guard veteran, you can receive VA home loan benefits, but you will pay higher funding fee, up to 2.75 percent of the loan amount. If you make a down payment, the fee can be incorporated into the loan amount. 4.2.6.2 How does someone qualify for VA loans? After issuing a certificate of eligibility to
a veteran, the U.S. Department of Veterans Affairs guarantees the
loan to the lender up to a certain amount. VA loans frequently offer
lower interest rates than ordinarily available with other kinds of
loans. The Veteran's Benefits Improvements Act of 1994 gives men and
women who have completed six years in the Army, Air Force, Marine
Corps or Coast Guard Reserves or the Army National Guard or Air
National Guard eligibility for VA home loans, including no-down
payment programs. 4.2.6.3 What are rates for FHA and VA loans? There are no set interest rates for FHA and VA loans. The FHA stopped regulating rates in 1983 and the VA followed suit soon after. Shop around for the best rate. Veterans Administration loans, which are
available to veterans, reservists and military personnel, are
attractive because the buyer is not required to make a down payment.
The maximum loan amount the U.S. Department of Veterans Affairs will
insure varies by region. There is no restriction on the purchase
price as long as you have the cash to make up the difference between
the loan amount and the purchase price. 4.2.6.5 What if a VA loan is foreclosed on? VA loan holders who suffer a foreclosure must repay the full debt before the federal agency will insure another loan. People with concerns about a specific loans should contact their lender or the VA directly at (800) 827-1000. 4.2.6.6 Where do I get information on VA loans? For information on VA loans, call the U.S.
Department of Veterans Affairs directly at (800) 827-1000. Also
refer to: 4.2.6.7 Who can get a VA loan? Millions of veterans and service personnel are
eligible to participate in the U.S. Department of Veterans
Affairs’ Home Loan Guarantee Program, which in most cases requires
no down payment. VA loans can be used to buy a home, build a home,
improve a home or to refinance an existing loan. 4.2.7 Builder and Seller Financing 4.2.7.1 Do builders give financing? Builders often include financing programs to help move more buyers into a project early on. If it's a buyer's market in your area, you can be sure that developers will offer incentives such as low-down-payment financing. 4.2.7.2 How are the rates set for seller financing? The interest rate on an owner-carried loan is
negotiable. Ask your agent to check with a lender or mortgage broker
to determine the current rate on institutional first (or second)
loans. 4.2.7.3 What are the benefits of seller financing? Seller financing offers tax breaks for sellers
and alternative financing for buyers who can't qualify for
conventional loans. You should run a full credit check on the borrower, require hazard insurance on the property and include a due-on-sale clause. There also are financing, disclosure and repayment-term requirements that need to be met. It is wise to consult a lawyer when putting together this kind of transaction. 4.2.7.4 What is seller financing? Seller financing is when a seller helps to
finance a real estate transaction by taking back a second note or
even financing the entire purchase if the seller owns the home free
and clear. Usually sellers do this when a buyer has difficulty
qualifying for a conventional loan or meeting the purchase price. The necessary paperwork is prepared by the title or escrow company after the terms are worked out between the buyer and seller. If you are a seller considering such an arrangement, it is critical to thoroughly evaluate the creditworthiness of the buyer first. Fear of default makes many sellers reluctant to take back a second. But seller financing can bring a higher price plus complete the sale sooner in some situations. For more information, contact the Internal Revenue Service for a copy of its Publication 537, "Installment Sales." Order by calling (800) TAX-FORM. 4.2.8 Adjustable Rate Loans (ARMs) 4.2.8.1 How do adjustable-rate loans change? Adjustable-rate mortgages go up and down with
interest rates, based on several esoteric money market indexes which
cause the cost of funds for lenders to vary. Several popular indexes
include Treasury Securities, Cost of Funds, Certificates of Deposit,
and Libor (London inter-bank offering rate). Most big city
newspapers publish ARM index rates. Resources: * For more information, consult the "Consumer Handbook on Adjustable-Rate Mortgages," available from the Federal Reserve Bank of San Francisco Public Information Department, P.O. Box 7702, San Francisco, CA 92120; (415) 974-2163. 4.2.8.2 How do I monitor my ARM loan? Consumer Loan Advocates publishes a book with form letters and worksheets to help people who want to check mortgage payments or adjustments on their own. It costs $19.95 plus $4 shipping and handling. For a copy, write or call Consumer Loan Advocates, 655 Rockland Road, Lake Bluff, IL 60044; (847) 615-0024. 4.2.8.3 Tell me more about ARMs? Adjustable-rate mortgages "are tied to an
index which is a measure of the lender's cost of borrowing money. As
the index rises, so will the interest rate on the adjustable
loan," according to Dian Hymer, author of "Buying and
Selling a Home, A Complete Guide," Chronicle Books, San
Francisco; 1994. v Common indexes include Treasury Securities (T-
Bills), Certificates of Deposit (CDs), and Libor (London inter- bank
offering rate). Most metropolitan newspapers publish current ARM
index rates. 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. 4.2.8.4 What are the most popular ARM indices? Among the most common indexes are the Cost of Funds (COFI), Treasury Securities (T-Bills), Certificates of Deposit (CDs), and Libor (London inter- bank offering rate). Most metropolitan newspapers publish current ARM index rates. 4.2.8.5 What is negative amortization? Negative amortization occurs when the monthly
payments on a loan are insufficient to pay the interest accruing on
the principal balance. The unpaid interest is added to the remaining
principal due. Adjustable rate mortgages with payment caps and negative amortization are usually re-amortized at some point so that the remaining loan balance can be fully paid off during the term of the loan. This could necessitate a substantial increase in the monthly payment. Most ARMs have a limit on the amount of negative amortization allowed, usually 110 to 125 percent of the original loan amount. If the loan balance exceeds this amount, the borrower has to start paying off the excess. 4.2.8.6 When is a negative-amortization loan a good idea? Experts don't agree on this question. Negative
amortization is less likely to occur in rapidly appreciating
markets. In markets where prices are stable or dropping, it is
possible to end up with a loan balance that is higher than the
market value of your home. Negative amortization can be avoided by paying the additional interest owed monthly. ARMs that don't have payment caps usually don't have negative amortization. 4.2.8.7 Where can I get adjustable-rate loan info? For adjustable-rate loan information, consult your local lender or the Consumer Handbook on Adjustable-Rate Mortgages, published by the Federal Reserve Bank of San Francisco. Write to the Public Information Department; P.O. Box 7702; San Francisco, CA 94120 or call (415) 974-2163. 4.2.9.1 What is a reverse mortgage loan? A reverse mortgage is a special type of loan
available only to older homeowners with full or nearly full equity
in their homes. Such owners can borrow against the equity they have
built up over the years, but no repayment is necessary until the
borrower sells the property or moves elsewhere. If the borrower dies
before the property is sold, the estate repays the loan (plus any
interest that has accrued. 4.2.10.1 What is a wrap-around loan? "This method of seller financing is risky
if the underlying first loan has a "due on sale" clause
because the loan might be called due when the first lender becomes
aware that the property has transferred title," says Dian Hymer,
author of "Buying and Selling a Home, A Complete Guide,"
Chronicle Books, 1994. "Most sellers prefer to have a due-on-sale provision included in the note, but this can be a negotiable item. Buyers who are concerned that they might be forced to sell during a period of high interest rates can request that the note be assumable by a future buyer, and sellers might find this provision agreeable as long as they have the right to approve the future buyer's credit report and financial statement," Hymer writes. 4.3 Fannie Mae, Freddie Mac and the secondary markets 4.3.1 Are there Fannie Mae programs for inner cities? Home buyers in urban neighborhoods can take
advantage of the secondary mortgage market institution's Fannie
Neighbors Program. Fannie Neighbors has no income limit for residents who are purchasing a home within designated central cities (if not the largest city in a metropolitan area, cities must have populations of 250,000 or more.) Borrowers must attend a seminar on home ownership and the home buying process. For a list of participating lenders, call Fannie Mae at (800) 732-6643. 4.3.2 How can Fannie Mae help a home buyer? Fannie Mae's Community Home Buyers Program
allows first-time buyers with little cash to obtain 95 percent
financing. Participants may put down as little as 3 percent of their
own money, with the remainder permitted in the form of a gift from
family members, a government program or nonprofit agency. Mortgage
insurance is required on all loans above 80 percent loan-to-value
ratio when borrowers do not use their own funds for at least 5
percent down. People who are borrowing in either of these programs must attend a seminar on home ownership and the home buying process. For a list of participating lenders, call Fannie Mae at (800) 732-6643. 4.3.3 What is Fannie Mae's low-down program? Fannie Mae is expanding the availability of
low-down-payment loans in an effort to help more people nationwide
qualify for a mortgage. 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 a 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. 4.3.4 What is the Community Home Buyers program? The Community Home Buyers loan program is
sponsored by the Federal National Mortgage Association, commonly
referred to as Fannie Mae, and administered through participating
direct lenders. It is not geared only for first-time home buyers, unlike many of the other low-down -payment programs on the market. This loan program allows for 97 percent financing. The borrower may put down as little as 3 percent of his or her own money, with the remaining 2 percent coming in the form of a family gift or loan from a government or nonprofit agency. For more information, call Fannie Mae at (800)732-6643. 4.3.5 Where do I get information on the secondary market? Two major secondary-market sources are Fannie Mae, 1-800-732-6643, and Freddie Mac, 1-800-FREDDIE. Fannie Mae is a congressionally chartered secondary-mortgage market company that buys loans from private lenders. Because the firm is so big and has been involved in purchasing packages of loans from lenders for 25 years, it has enormous influence on the mortgage market. For more information, call Fannie Mae at (800) 732-6643. 4.4.1 Can I protect my home from creditors? Your state may provide you with special
protection from creditors through the filing of a homestead
exemption, which exempts some or all of the value of the owner's
equity in the homestead from claims of unsecured creditors. 4.4.2 Can I refinance after bankruptcy? Refinancing may be prudent but could be difficult after a bankruptcy. If you're considering bankruptcy, you may want to go to your current lender first and explain the situation. If you have been current on your payments, the lender may be accommodating and refinance your loan, easing your financial situation. 4.4.3 How bad is a previous foreclosure on credit? A property foreclosure is one of the most damaging events in a borrower's credit history. In terms of the effect on credit history, a deed in lieu of foreclosure or a short sale is not as adverse an event as is a forced foreclosure. 4.4.4 How do I find out what my credit report says? For a copy of your own credit report, call one of the three main national credit reporting agencies: Equifax, (800) 685-1111; Experian, (800) 392-1122 or Trans Union, (312) 408-1050. 4.4.5 How do you clear up bad credit? There is no fast and easy way to repair
damaged credit that took months or years to occur. The law allows
negative information to appear on an individual's credit record from
7 to 10 years. Now, many states have specific time frames if you
challenge a credit blemish. If the credit report is correct, take care of any outstanding delinquent obligations first. Resources: * "Rebuild Your Credit: Law Form Kit," Nolo Press, Berkeley, Calif.; 1993. 4.4.6 How long do bankruptcies and foreclosures stay on a credit report? Bankruptcies and foreclosures can remain on a
credit report for seven to 10 years. 4.4.7 What can I do if I have bad credit? While some people have rebounded from a
foreclosure to buy another home within several years, credit
problems stemming from a foreclosure can continue much longer for
others. Resources: 4.4.8 What do I do about bad credit? Credit problems are the main reason would-be
home buyers are denied a loan. The first step to clearing up your
credit is to get a copy of your credit report to make sure that the
negative credit information is indeed accurate. For a copy of your
report, contact one of the three major credit reporting agencies:
Experian at (800) 392-1122, Equifax at (800) 685-1111 and Trans
Union at (312) 408-1050. If your credit report is correct, take care of any outstanding delinquent obligations first. Lenders usually won't consider any borrower who has had a delinquent payment in the past year. 4.4.9 What exactly is bad credit? There are numerous types of credit report
problems that would cause a lender to reject your application for a
loan. If you feel that your credit report is wrong, experts say it's best to take it up with the organization or company claiming you owe them money. But if you've been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payments were an aberration. You can order a copy of your own credit report by calling the three major credit reporting agencies: Experian at (800) 392-1122, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. 4.4.10 What if there is a credit reporting mistake on my report? There is no fast and easy way to repair
damaged credit that took months or years to occur. The law allows
negative information to appear on an individual's credit record from
seven to 10 years. The bureaus should provide instructions on how to read the report and how to dispute any inaccuracies it contains. If your credit report is correct, take care of any outstanding delinquent obligations first. Lenders usually won't consider any borrower who has had a delinquent payment in the past year. 4.4.11 What options are there after Chapter 11? A previous bankruptcy can remain in a credit
file for seven to 10 years. Many lenders also will take into account the circumstances surrounding a bankruptcy. For example, they may look more favorably upon you as a borrower if your bankruptcy was due to financial reverses you suffered due to your employer's own financial difficulties. On the other hand, if you declared bankruptcy because you overextended your personal credit lines and lived beyond your means, a lender probably won't be as forgiving. If you are in the latter category, you may want to contact a mortgage broker who may qualify them for a "b" or "c ," loan, which usually comes at a higher interest rate. Resources: 4.4.12 Where do I get a copy of my credit report? For a copy of your own credit report, call one of the three main national credit reporting agencies: Equifax, (800) 685-1111; Experian, (800) 392-1122 or Trans Union, (312) 408-1050. The bureaus also should provide instructions on how to read their report and dispute any inaccuracies it contains. 4.4.13 Where do I get information on consumer credit laws? For information on consumer credit laws, contact the National Foundation for Consumer Credit, 8701 Georgia Ave., Suite 507, Silver Springs, MD 20910; call (301) 589-5600. 4.4.14 Will bad credit prevent someone from getting a home? There are numerous types of credit report
problems (which may or may not be your fault) that would cause a
lender to reject your application for a loan. If you feel that your credit report is wrong, experts say it's best to take it up with the organization or company claiming you owe them money. But if you've been late paying your bills, regroup by paying in full and on time for six months to a year to prove to the lender that the late payments were an aberration. You can order a copy of your own credit report by calling the three major credit reporting agencies: Experian at (800) 392-1122, Equifax at (800) 685-1111 and Trans Union at (312) 408-1050. 4.5.1 Do you advise a lock-in on a home loan? Locking in a mortgage rate with a lender is
one way to ensure that same rate still will be available when you
need it. A lock-in given at the time of application is useful because it may take the lender several weeks or longer to prepare a loan application (though automated loan practices are cutting this time dramatically). However, some lenders require borrowers to pay lock-in fees to assure particular rates and terms. Be sure to check that the rates and points are guaranteed and that your lock-in period is long enough. If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and points. Lenders may have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application. Resources: 4.5.2 How do you lock in an interest rate? Locking in a mortgage rate with a lender is
one way to ensure that same rate still will be available when you
need it. A lock-in given at the time of application is useful because it may take the lender several weeks or longer to prepare a loan application (though automated loan practices are cutting this time dramatically). However, some lenders require borrowers to pay lock-in fees to assure particular rates and terms. Be sure to check that the rates and points are guaranteed and that your lock-in period is long enough. If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and points. Lenders may have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application. Resources: 4.5.3 What is the value of a mortgage lock-in? Locking in a mortgage rate with a lender is
one way to ensure that same rate still will be available when you
need it. A lock-in given at the time of application is useful because it may take the lender several weeks or longer to prepare a loan application (though automated loan practices are cutting this time dramatically). However, some lenders require borrowers to pay lock-in fees to assure particular rates and terms. Be sure to check that the rates and points are guaranteed and that your lock-in period is long enough. If your lock-in expires, most lenders will offer the loan based on the prevailing interest rate and points. Lenders may have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application. Resources: 4.5.4 Where do I get information on lock-ins? For information on lock-in mortgage rates,
check out this brochure: 4.6.1 How can I save on closing costs? Studies show that the closing costs, which can
average 2 to 3 percent of a total home purchase price, are often
more costly than many buyers expect. But there are some ways to
save: 4.6.2 What are closing costs? Where do I get information about closing costs? For more on closing costs, ask for the "Consumer’s Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120 or call (415) 974-2163. 4.6.3 Who pays the closing costs? Closing costs are either paid by the home seller or home buyer. It often depends on local custom and what the buyer or seller negotiates. 4.7 Private Mortgage Insurance (PMI) In some states, the loans have to be at least two years old, and the borrower can not have made any late payments in the last year in order to drop private mortgage insurance. In addition, the loan-to-value ratio must be less than 75 percent. Some state disclosure laws require lenders to notify borrowers after the close of escrow whether the borrower has the right to cancel private mortgage insurance. Under the new federal law - The Homeowners Protection Act - lenders must drop PMI if the loan closed after July 29, 1999 AND the loan-to-value ratio reaches 78 percent of the home's original value. 4.7.2 Is PMI always required on low-down home loans? A growing number of private lenders are loosening up their requirements for low-down-payment loans. But private mortgage insurance, or PMI, usually is required on loans with less than a 20 percent down payment. The Homeowners Protection Act states PMI must be dropped on any loan originated after July 29, 1999 IF it has a 78 percent loan-to-value ratio. PMI costs vary from one mortgage insurance firm to another, but premiums usually run about 0.50 percent of the loan amount for the first year of the loan. Most PMI premiums are a bit lower for subsequent years. The first year's mortgage insurance premium is usually paid in advance at the closing. Private mortgage insurance, or PMI, insures
the lender against a default. It is required when the borrower is
making a cash down payment of less than 20 percent of the purchase
price. Lenders generally turn to a list of companies with whom they regularly work when lining up private mortgage insurance. In most cases, PMI can be dropped after the loan to value ration drops below 80 percent. The Homeowners Protection Act requires PMI to be dropped when the loan-to-value ratio reaches 78 percent of the home's original value AND the loan closed after July 29, 1999. For other loans, find out from your lender what procedure to follow to have PMI removed when your equity reaches 20 percent. For homeowners who have improved their properties and believe that their equity has increased as a result of these improvements, refinancing the property at a loan-to-value ratio of 80 percent or less is another possible way of eliminating PMI payments. 4.7.5 Where do I get information on PMI? Look for tips in "A Mortgage Insurance Guidebook," or "How to Buy a Home with a Low Down Payment," published by the Mortgage Insurance Companies of America, 805 15th St., N.W., Suite 1110, Washington, DC 20005; call (202) 393-5566 to order. 4.8 Pre-Qualifying Pre-Approval Know what you can afford is the first rule of
home buying, 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. The price you can afford to pay for a home will depend on six factors: 1. gross income 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. 4.8.2 What is the first step when looking for a home loan? Most experts recommend that you should get pre-qualified for a loan first. By being pre-qualified, you will know exactly how much house you can afford. Almost all mortgage lenders now pre-qualify and pre-approve customers, and many of them can even do it on the Internet. You also can do your own affordability calculations; most recent consumer books on home buying include steps to doing so, as do various real estate Internet sites. 4.9 Mortgage Credit Certificates 4.9.1 What are the rules for mortgage credit certificates? To qualify for a mortgage credit certificate,
both your income and the purchase price of the home must fall within
established city guidelines. These guidelines vary by city but
generally only permit people who earn an average income or slightly
higher than average income. 4.9.2 What is the Mortgage Credit Certificate program? The Mortgage Credit Certificate program allows
first-time home buyers to take advantage of a special federal income
tax credit. This program allows buyers credit in qualifying for the
tax advantage they'll receive after they purchase the home. To see if your community has an MCC program, call your local housing or redevelopment agency. You also may inquire with your real estate broker or the local association of Realtors.
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