- Why should I
buy, instead of rent?
- Answer: A home
is an investment. When you rent, you write your monthly check and that money is
gone forever. But when you own your home, you can deduct the cost of your
mortgage loan interest from your federal income taxes, and usually from your
state taxes. This will save you a lot each year, because the interest you pay
will make up most of your monthly payment for most of the years of your
mortgage. You can also deduct the property taxes you pay as a homeowner. In
addition, the value of your home may go up over the years. Finally, you’ll enjoy
having something that’s all yours – a home where your own personal style will
tell the world who you are.
- What are
“HUD homes,” and are they a good deal?
HUD homes can be a very good deal. When someone with a HUD insured mortgage
can’t meet the payments, the lender forecloses on the home; HUD pays the lender
what is owed; and HUD takes ownership of the home. Then we sell it at market
value as quickly as possible. Read all about buying a HUD home. Check our
listings of HUD homes and homes
being sold by other federal agencies.
- Can I become
a homebuyer even if I have I’ve had bad credit, and don’t have much for a
You may be a good candidate for one of the federal mortgage programs. Start by contacting one
of the HUD-funded housing
counseling agencies that can help you sort through your options. Also,
contact your local government to see if there are any local homebuying programs that might work for
you. Look in the blue pages of your phone directory for your local office of
housing and community development or, if you can’t find it, contact your mayor’s
office or your county executive’s office.
- Are there
special homeownership grants or programs for single parents?
There is help available. Start by becoming familiar with the homebuying process
and pick a good real estate broker. Although as a single parent, you won’t have
the benefit of two incomes on which to qualify for a loan, consider getting
pre-qualified, so that when you find a house you like in your price range you
won’t have the delay of trying to get qualified. Contact one of the HUD-funded
housing counseling agencies in
your area to talk through other options for help that might be available to you.
Research buying a HUD home, as they can be very good deals. Also, contact your
local government to see if there are any local
homebuying programs that could help you. Look in the blue pages of your
phone directory for your local office of housing and community development or,
if you can’t find it, contact your mayor’s office or your county executive’s
- Should I use
a real estate broker? How do I find one?
Using a real estate broker is a very good idea. All the details involved in home
buying, particularly the financial ones, can be mind-boggling. A good real
estate professional can guide you through the entire process and make the
experience much easier. A real estate broker will be well-acquainted with all
the important things you’ll want to know about a neighborhood you may be
considering…the quality of schools, the number of children in the area, the
safety of the neighborhood, traffic volume, and more. He or she will help you figure
the price range you can afford and search the classified ads and multiple
listing services for homes you’ll want to see. With immediate access to homes as
soon as they’re put on the market, the broker can save you hours of wasted
driving-around time. When it’s time to make an offer on a home, the broker can
point out ways to structure your deal to save you money. He or she will explain
the advantages and disadvantages of different types of mortgages, guide you
through the paperwork, and be there to hold your hand and answer last-minute
questions when you sign the final papers at closing. And you don’t have to pay
the broker anything! The payment comes from the home seller – not from the
buyer. By the way, if you want to buy a HUD home, you will be
required to use a real estate broker to submit your bid. To find a broker who
sells HUD homes, check your local yellow pages or the classified section of your
- How much
money will I have to come up with to buy a home?
Well, that depends on a number of factors, including the cost of the house and
the type of mortgage you get. In general, you need to come up with enough money
to cover three costs: earnest money – the deposit you make on the
home when you submit your offer, to prove to the seller that you are serious
about wanting to buy the house; the down payment, a percentage of
the cost of the home that you must pay when you go to settlement; and
closing costs, the costs associated with processing the paperwork
to buy a house. When you make an offer on a home, your real estate broker will
put your earnest money into an escrow account. If the offer is accepted, your
earnest money will be applied to the down payment or closing costs. If your
offer is not accepted, your money will be returned to you. The amount of your
earnest money varies. If you buy a HUD home, for example, your deposit generally
will range from $500 – $2,000. The more money you can put into your down payment, the lower
your mortgage payments will be. Some types of loans require 10-20% of the
purchase price. That’s why many first-time homebuyers turn to HUD’s FHA for
help. FHA loans require only
3% down – and sometimes less.
Closing costs – which you will pay at settlement – average 3-4% of the
price of your home. These costs cover various fees your lender charges and other
processing expenses. When you apply for your loan, your lender will give you an
estimate of the closing costs, so you won’t be caught by surprise. If you buy a HUD home, HUD may pay many
of your closing costs.
- How do I know
if I can get a loan?
Use our simple mortgage
calculators to see how much mortgage you could pay – that’s a good start. If
the amount you can afford is significantly less than the cost of homes that
interest you, then you might want to wait awhile longer. But before you give up,
why don’t you contact a real estate broker or a HUD-funded housing counseling agency? They
will help you evaluate your loan potential. A broker will know what kinds of
mortgages the lenders are offering and can help you choose a lender with a
program that might be right for you. Another good idea is to get pre-qualified
for a loan. That means you go to a lender and apply for a mortgage before you
actually start looking for a home. Then you’ll know exactly how much you can
afford to spend, and it will speed the process once you do find the home of your
- How do I find
You can finance a home with a loan from a bank, a savings and loan, a credit
union, a private mortgage company, or various state government lenders. Shopping for a loan is like
shopping for any other large purchase: you can save money if you take some time
to look around for the best prices. Different lenders can offer quite different
interest rates and loan fees; and as you know, a lower interest rate can make a
big difference in how much home you can afford. Talk with several lenders before
you decide. Most lenders need 3-6 weeks for the whole loan approval process.
Your real estate broker will be familiar with lenders in the area and what
they’re offering. Or you can look in your local newspaper’s real estate section
– most papers list interest rates being offered by local lenders. You can find
FHA-approved lenders in the Yellow Pages of
your phone book. HUD does not make loans directly – you must use a HUD-approved
lender if you’re interested in an FHA loan.
- In addition
to the mortgage payment, what other costs do I need to consider?
Well, of course you’ll have your monthly utilities. If your utilities have been
covered in your rent, this may be new for you. Your real estate broker will be
able to help you get information from the seller on how much utilities normally
cost. In addition, you might have homeowner association or condo association
dues. You’ll definitely have property taxes, and you also may have city or
county taxes. Taxes normally are rolled into your mortgage payment. Again, your
broker will be able to help you anticipate these costs.
- So what will
my mortgage cover?
Most loans have 4 parts: principal: the repayment of the amount you actually
borrowed; interest: payment to the lender for the money you’ve borrowed;
homeowners insurance: a monthly amount to insure the property against loss from
fire, smoke, theft, and other hazards required by most lenders; and property
taxes: the annual city/county taxes assessed on your property, divided by the
number of mortgage payments you make in a year. Most loans are for 30 years,
although 15 year loans are available, too. During the life of the loan, you’ll
pay far more in interest than you will in principal – sometimes two or three
times more! Because of the way loans are structured, in the first years you’ll
be paying mostly interest in your monthly payments. In the final years, you’ll
be paying mostly principal.
- What do I
need to take with me when I apply for a mortgage?
Good question! If you have everything with you when you visit your lender,
you’ll save a good deal of time. You should have: 1) social security numbers for
both your and your spouse, if both of you are applying for the loan; 2) copies
of your checking and savings account statements for the past 6 months; 3)
evidence of any other assets like bonds or stocks; 4) a recent paycheck stub
detailing your earnings; 5) a list of all credit card accounts and the
approximate monthly amounts owed on each; 6) a list of account numbers and
balances due on outstanding loans, such as car loans; 7) copies of your last 2
years’ income tax statements; and 8) the name and address of someone who can
verify your employment. Depending on your lender, you may be asked for other
- I know there
are lots of types of mortgages – how do I know which one is best for me?
You’re right – there are many types of mortgages, and the more you know about
them before you start, the better. Most people use a fixed-rate mortgage. In a
fixed rate mortgage, your interest rate stays the same for the term of the
mortgage, which normally is 30 years. The advantage of a fixed-rate mortgage is
that you always know exactly how much your mortgage payment will be, and you can
plan for it. Another kind of mortgage is an Adjustable Rate Mortgage (ARM). With
this kind of mortgage, your interest rate and monthly payments usually start
lower than a fixed rate mortgage. But your rate and payment can change either up
or down, as often as once or twice a year. The adjustment is tied to a financial
index, such as the U.S. Treasury Securities index. The advantage of an ARM is
that you may be able to afford a more expensive home because your initial
interest rate will be lower. There are several government mortgage
programs,including the Veteran’s
Administration’s programs and the Department of Agriculture’s
programs. Most people have heard of FHA mortgages. FHA doesn’t actually make
loans. Instead, it insures loans so that if buyers default for some reason, the
lenders will get their money. This encourages lenders to give mortgages to
people who might not otherwise qualify for a loan. Talk to your real estate
broker about the various kinds of loans, before you begin shopping for a
- When I find
the home I want, how much should I offer?
Again, your real estate broker can help you here. But there are several things
you should consider: 1) is the asking price in line with prices of similar homes
in the area? 2) Is the home in good condition or will you have to spend a
substantial amount of money making it the way you want it? You probably want to
get a professional home
inspection before you make your offer. Your real estate broker can help you
arrange one. 3) How long has the home been on the market? If it’s been for sale
for awhile, the seller may be more eager to accept a lower offer. 4) How much
mortgage will be required? Make sure you really can afford whatever offer you
make. 5) How much do you really want the home? The closer you are to the asking
price, the more likely your offer will be accepted. In some cases, you may even
want to offer more than the asking price, if you know you are competing with
others for the house.
- What if my
offer is rejected?
They often are! But don’t let that stop you. Now you begin negotiating. Your
broker will help you. You may have to offer more money, but you may ask the
seller to cover some or all of your closing costs or to make repairs that
wouldn’t normally be expected. Often, negotiations on a price go back and forth
several times before a deal is made. Just remember – don’t get so caught up in
negotiations that you lose sight of what you really want and can afford!
- So what will
happen at closing?
Basically, you’ll sit at a table with your broker, the broker for the seller,
probably the seller, and a closing agent. The closing agent will have a stack of
papers for you and the seller to sign. While he or she will give you a basic
explanation of each paper, you may want to take the time to read each one and/or
consult with your agent to make sure you know exactly what you’re signing. After
all, this is a large amount of money you’re committing to pay for a lot of
years! Before you go to closing, your lender is required to give you a booklet
explaining the closing costs, a “good faith estimate” of how much cash you’ll
have to supply at closing, and a list of documents you’ll need at closing. If
you don’t get those items, be sure to call your lender BEFORE you go to closing.
Be sure to read our booklet on settlement costs. It will help you
understand your rights in the process. Don’t hesitate to ask questions.