Office of Disability Concerns - Housing - Questions & Answers About Buying a new Home

Questions & Answers About Buying a new Home

1. HOW DO I KNOW IF I'M READY TO BUY A HOME?

Do I have a steady source of income? Have I been employed on a regular basis for the last 2-3 years? Is my current income reliable?

Do I have a good record of paying my bills?

Do I have few outstanding long-term debts, like car payments?

Do I have money saved for a down payment?

Do I have the ability to pay a mortgage every month, plus additional costs?

If you can answer "yes" to these questions, you are probably ready to buy your own home. If your answer is no, see Section on Rental Property in Chapter 2.

2. HOW DO I BEGIN THE PROCESS OF BUYING A HOME?

Start by thinking about your situation. Are you ready to buy a home? How much can you afford in a monthly mortgage payment (see Question 4 for help)? How much space do you need? What areas of town do you like? After you answer these questions, make a "To Do" list and start doing casual research. Talk to friends and family, drive through neighborhoods, and look in the "Homes" section of the newspaper.

3. HOW DOES PURCHASING A HOME COMPARE WITH RENTING?

The two don't really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may want additional repairs not required by the Landlord and Tenant Act.

Owning a home also may qualify you for tax breaks that assist you in dealing with your new financial responsibilities–like insurance, real estate taxes, and upkeep–which can be substantial. You may be like many people who enjoy the freedom, stability, and security of owning a home.

4. HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN AMOUNT THAT YOU CAN AFFORD?

The lender considers your debt-to-income ratio, which is a comparison of your gross (pre-tax) income to housing and non-housing expenses. Non-housing expenses include such long-term debts as car or student loan payments, alimony, or child support. According to the FHA, monthly mortgage payments should be no more than 29 percent of gross income, while the mortgage payment, combined with non-housing expenses, should total no more than 41percent of income. The lender also considers cash available for down payment and closing costs, credit history, etc. when determining your maximum loan amount.

5. HOW DO I SELECT THE RIGHT REAL ESTATE AGENT?

Start by asking family and friends if they can recommend an agent. Compile a list of several agents and talk to each before choosing one. Look for an agent who listens well and understands your needs, and whose judgment you trust. The ideal agent knows the local area well and has resources and contacts to help you in your search. Overall, you want to choose an agent that makes you feel comfortable and can provide all the knowledge and services you need. Keep in mind that no matter how friendly the agent is, they make their living by selling you a house. All negotiations should be kept on a professional level.

6. HOW CAN I DETERMINE MY HOUSING NEEDS BEFORE I BEGIN THE SEARCH?

What accessibility needs do I have or foresee having in the future? What are my access needs for getting in the home, in the bathrooms, living areas and bedrooms? What are the costs involved for your particular access needs that a typical home does not have? Is there access to public transportation if you need to use it for your primary transportation needs? Will you be close to your medical caregivers? (See Rental Section in Chapter 2, for other specific things to look for while making your selection.) Your home should fit the way you need to live, with spaces and features that appeal to the whole family. Before you begin looking at homes, make a list of your priorities - things like accessibility needs, location and size. Should the house be close to certain schools? Your job? To public transportation? How large should the house be? What type of lot do you prefer? What kinds of amenities are you looking for? Establish a set of minimum requirements and a “wish list." Minimum requirements are things that a house must have for you to consider it, while a "wish list" covers things that you'd like to have but aren't essential.

FINDING YOUR HOME

7. WHAT SHOULD I LOOK FOR WHEN DECIDING ON A COMMUNITY?

Select a community that will allow you to best live your daily life. Many people choose communities based on schools. Do you need easy access to shopping? If you require public transportation, check local transportation options. Is access to local facilities like libraries and museums important to you? Or do you prefer the peace and quiet of a rural community? Be aware that as a person with a disability, living in a rural area may make it very difficult to get needed services. When you find places that you like, talk to people that live there. They know the most about the area and will be your future neighbors. More than anything, you want a neighborhood where you feel comfortable.

8. WHAT SHOULD I DO IF I'M FEELING EXCLUDED FROM CERTAIN NEIGHBORHOODS?

Immediately contact the U.S. Department of Housing and Urban Development (HUD) if you ever feel excluded from a neighborhood or particular house. Also, contact HUD if you believe you are being discriminated against on the basis of race, color, religion, sex, nationality, familial status, or disability. HUD's Office of Fair Housing has a hotline for reporting incidents of discrimination: 1-800-669-9777 (and 1-800-927-9275 for the hearing impaired). You may contact the Oklahoma City HUD Office of Fair Housing and Equal Opportunity at 405-609-8435. You may also contact the Oklahoma Human Rights Commission at (405) 521-3441 and 1-888-456-2558, or the Tulsa Office at (918) 581-2733 and 1-888-456-2006.

9. HOW CAN I FIND OUT ABOUT LOCAL SCHOOLS?

You can get information about school systems by contacting the city or county school board or the local schools. Your real estate agent may also be knowledgeable about schools in the area.

10. HOW CAN I FIND OUT ABOUT COMMUNITY RESOURCES?

Contact the local chamber of commerce or talk to your real estate agent about welcome kits, maps, and other information. You may also want to visit the local library.

11. WHAT SHOULD I LOOK FOR WHEN BEING SHOWN A HOME?

In addition to comparing the home to your minimum requirements, access needs requirements and wish lists, consider the following:

Is there enough room for both the present and the future needs?

Are there enough bedrooms and bathrooms?

Is the house structurally sound?

Do the mechanical systems and appliances work?

Is the yard big enough or too big?

Do you like the floor plan?

Will your furniture fit in the space? Is there enough storage space? (Bring a tape measure to better answer these questions.)

Does anything need to be repaired or replaced? Will the seller repair or replace the items?

Imagine the house in good weather and bad, and in each season. Will you be happy with it year-round?

Take your time and think carefully about each house you see. See Checklist for Inspecting and Buying a Home after this section. Ask your real estate agent to point out the pros and cons of each home from a professional standpoint. If you are not hearing any cons, question if your agent is more interested in making a sale than in protecting you as a buyer.

12. WHAT QUESTIONS SHOULD I ASK WHEN LOOKING AT HOMES?

Many of your questions should focus on potential problems and maintenance issues. Does anything need to be replaced? What things require ongoing maintenance (e.g., paint, roof, Heating Ventilation, Air Conditioning (HVAC), appliances, carpet)? Also ask about the house and neighborhood, focusing on quality of life issues. Be sure the seller's or real estate agent's answers are clear and complete. Ask questions until you understand all of the information they've given. Making a list of questions ahead of time will help you organize your thoughts and arrange all of the information you receive.

YOU'VE FOUND IT

13. WHAT DOES A HOME INSPECTOR DO, AND HOW DOES AN INSPECTION FIGURE IN THE PURCHASE OF A HOME?

An inspector checks the safety of your potential new home. Home Inspectors focus especially on the structure, construction, and mechanical systems of the house and will make you aware of only repairs that are needed.

Generally, an inspector checks (and gives prices for repairs on): the electrical system, plumbing and waste disposal, the water heater, insulation and ventilation, the HVAC system, water source and quality, the potential presence of pests, the foundation, doors, windows, ceilings, walls, floors, and roof. Be sure to hire a home inspector that is qualified and experienced. Inspectors are not liable for missed items.

You will want to include an inspection clause in the offer when negotiating for a home. An inspection clause gives you an “out" on buying the house if serious problems are found, or gives you the ability to renegotiate the purchase price if repairs are needed. An inspection clause can also specify that the seller must fix the problem(s) before you purchase the house.

14. DO I NEED TO BE THERE FOR THE INSPECTION?

It's not required, but it's a good idea. Following the inspection, the home inspector will be able to answer questions about the report and any problem areas.

15. ARE OTHER TYPES OF INSPECTIONS REQUIRED?

If your home inspector discovers a serious problem a more specific inspection may be recommended. It's a good idea to consider having your home inspected for the presence of a variety of health-related risks like radon gas, asbestos, mold, or possible problems with the water or waste disposal system.

16. HOW CAN I PROTECT MY FAMILY FROM LEAD IN THE HOME?

If the house you're considering was built before 1978 and you have children under the age of seven, you will want to have an inspection for lead-based paint. It's important to know that lead flakes from paint can be present in both the home and in the soil surrounding the house. A house built prior to 1978 must include a disclosure clause.

17. DO I REALLY NEED HOMEOWNER'S INSURANCE?

If you are financing, yes. A paid homeowner's insurance policy (or a paid receipt for one) is required at closing, so arrangements will have to be made prior to that day. If you are buying a home without financing, insurance is not necessary but is advisable.

18. IS THE HOME LOCATED IN A FLOOD PLAIN?

Your real estate agent or lender can help you answer this question. If you live in a flood plain, the lender will require that you have flood insurance before lending any money to you. But if you live near a flood plain, you may choose whether or not to get flood insurance coverage for your home.

19. WHAT OTHER ISSUES SHOULD I CONSIDER BEFORE I BUY MY HOME?

Always check to see if the house is in a low-lying area, in a high-risk area for natural disasters (like earthquakes, hurricanes, tornadoes, etc.), or in a hazardous materials area. Be sure the house meets building codes. Also consider local zoning laws, which could affect remodeling or making an addition in the future. Your real estate agent should be able to help you with these questions.

20. HOW DO I DETERMINE THE INITIAL OFFER?

Unless you have a buyer's agent, remember that the agent works for the seller. Make a point of asking him or her to keep your discussions and information confidential. Listen to your real estate agent's advice, but follow your own instincts on deciding a fair price. Calculating your offer should involve several factors: what homes sell for in the area, the home's condition, how long it's been on the market, financing terms, and the seller's situation. By the time you're ready to make an offer, you should have a good idea of what the home is worth and what you can afford. And, be prepared for give-and-take negotiation, which is very common when buying a home. The buyer and seller may often go back and forth until they can agree on a price.

21. WHAT IS EARNEST MONEY? HOW MUCH SHOULD I SET ASIDE?

Earnest money is money put down to demonstrate your seriousness about buying a home. It must be substantial enough to demonstrate good faith and is usually between 1-5 percent of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.

22. WHAT ARE "HOME WARRANTIES", AND SHOULD I CONSIDER THEM?

Home warranties offer you protection for a specific period of time (e.g., one year) against potentially costly problems, like unexpected repairs on appliances or home systems, which are not covered by homeowner's insurance. Warranties are becoming more popular but may not be available with the home you are considering.

GENERAL FINANCING QUESTIONS: THE BASICS

23. WHAT IS A MORTGAGE?

Generally speaking, a mortgage is a loan obtained to purchase real estate. The "mortgage" itself is a lien (a legal claim) on the home or property that secures the promise to pay the debt. All mortgages have two features in common: principal and interest.

24. ARE THERE SPECIAL MORTGAGES FOR FIRST-TIME HOMEBUYERS?

Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past. For additional information see CHAPTER 3 – FINANCIAL AID AND HOUSING ASSISTANCE PROGRAMS.

25. WHAT STEPS NEED TO BE TAKEN TO SECURE A LOAN?

The first step in securing a loan is to complete a loan application. To do so, you'll need the following information.

Pay stubs for the past 2-3 months
W-2 forms for the past 2 years
Information on long-term debts
Recent bank statements
Tax returns for the past 2 years
Proof of any other income (this may include proof of SSI and SSDI assistance from the Social Security Office).
Address and description of the property you wish to buy
Sales contract

During the application process, the lender will order a report on your credit history and a professional appraisal of the property you want to purchase. The application process may take up to six weeks.

26. WHAT IS RESPA?

RESPA stands for Real Estate Settlement Procedures Act. It requires lenders to disclose information to potential customers throughout the mortgage process; doing so protects borrowers from abuses by lending institutions. RESPA mandates that lenders fully inform borrowers about all closing costs, lender servicing and escrow account practices, and business relationships between closing service providers and other parties to the transaction.

For more information on RESPA, or call 1-800-569-4287 for a local counseling referral.

27. BESIDES RESPA, DOES THE LENDER HAVE ANY ADDITIONAL RESPONSIBILITIES?

Lenders are not allowed to discriminate in any way against potential borrowers. If you believe a lender is refusing to provide his or her services to you on the basis of race, color, nationality, religion, sex, familial status, or disability, contact HUD's Office of Fair Housing at 1-800-669-9777 (or 1-800-927-9275 for the hearing impaired). You may also contact the Oklahoma Human Rights Commission at (405) 521-3441 and 1-888-456-2558, or the Tulsa Office at (918) 581-2733 and 1-888-456-2006.

28. WHAT RESPONSIBILITIES DO I HAVE DURING THE LENDING PROCESS?

To ensure you won't fall victim to loan fraud, be sure to follow all of these steps as you apply for a loan:
Be sure to read and understand everything before you sign
Refuse to sign any blank documents
Do not buy property for someone else
Do not overstate your income
Do not overstate how long you have been employed
Do not overstate your assets
Accurately report your debts
Do not change your income tax returns for any reason. Tell the whole truth about gifts. Do not list fake co-borrowers on your loan application.
Be truthful about your credit problems, past and present.
Be honest about your intention to occupy the house
Do not provide false supporting documents.

CLOSING

HOW CAN HUD AND THE FHA HELP ME BECOME A HOMEOWNER?

29. WHAT IS THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT?

Also known as HUD, the U.S. Department of Housing and Urban Development was established in 1965 to develop national policies and programs to address housing needs in the United States. One of HUD's primary missions is to create a suitable living environment for all Americans by developing and improving the country's communities and enforcing fair housing laws.

30. HOW DOES HUD HELP HOMEBUYERS AND HOMEOWNERS?

HUD helps people by administering a variety of programs that develop and support affordable housing. Specifically, HUD plays a large role in homeownership by making loans available for lower- and moderate-income families through its FHA mortgage insurance program and its HUD Homes program. HUD owns homes in many communities throughout the U.S. and offers them for sale at attractive prices and economical terms. HUD also seeks to protect consumers through education, fair housing laws, and housing rehabilitation initiatives.

31. WHAT IS THE FHA?

Now an agency within HUD, the Federal Housing Administration was established in 1934 to advance opportunities for Americans to own homes. By providing private lenders with mortgage insurance, the FHA gives them the security they need to lend to first-time buyers who might not be able to qualify for conventional loans. The FHA has helped more than 26 million Americans buy a home.

32. HOW CAN THE FHA ASSIST ME IN BUYING A HOME?

The FHA works to make homeownership a possibility for more Americans. With the FHA, you don't need perfect credit or a high-paying job to qualify for a loan. The FHA also makes loans more accessible by requiring smaller down payments than conventional loans. In fact, an FHA down payment could be as little as a few months rent. And your monthly payments may not be much more than rent.

33. WHAT QUALIFIES AS AN INCOME SOURCE FOR THE FHA?

Seasonal pay, child support, retirement pension payments, unemployment compensation, VA benefits, military pay, Social Security income, alimony, and rent paid by family all qualify as income sources. Part-time pay, overtime, and bonus pay also count as long as they are steady. Special savings plans, such as those set up by a church or community association, qualify too. Income type is not as important as income steadiness with the FHA.

34. CAN I CARRY DEBT AND STILL QUALIFY FOR FHA LOANS?

Yes. Short-term debt doesn't count as long as it can be paid off within 10 months. And some regular expenses, like child care costs, are not considered debt. Talk to your lender or real estate agent about meeting the FHA debt-to-income ratio.

35. WHAT IS THE DEBT-TO-INCOME RATIO FOR FHA LOANS?

The FHA allows you to use 29 percent of your income towards housing costs and 41percent towards housing expenses and other long-term debt. With a conventional loan, this qualifying ratio allows only 28 percent toward housing and 36 percent towards housing and other debt.

36. WHAT SHOULD I DO IF I CAN'T MAKE A PAYMENT ON THE LOAN?

Call or write to your lender as soon as possible. Clearly explain the situation and be prepared to provide him or her with financial information.

37. ARE THERE ANY OPTIONS IF I FALL BEHIND ON MY LOAN PAYMENTS?

Yes. Talk to your lender or a HUD-approved counseling agency for details. Listed below are a few options that may help you get back on track.

For FHA loans:

Keep living in your home to qualify for assistance.

Contact a HUD-approved housing counseling agency (1-800-569-4287 or TDD: 1-800-483-2209) and cooperate with the counselor/lender trying to help you.

HUD has a number of special loss mitigation programs available to help you:

- Special Forbearance: Your lender will arrange for a revised repayment plan which may include temporary reduction or suspension of payments; you can qualify by having an involuntary reduction in your income or increase in living expenses.
- Mortgage Modification: Allows refinance debt and/or extend the term of the mortgage loan which may reduce your monthly payments; you can qualify if you have recovered from financial problems, but net income is less than before.
- Partial Claim: Your lender maybe able to help you obtain an interest-free loan from HUD to bring your mortgage current.
- Pre-foreclosure Sale: Allows you to sell your property and pay off your mortgage loan, to avoid foreclosure.
- Deed–In–Lieu of Foreclosure: Lets you voluntarily "give back" your property to the lender; it won't save your house but will help you avoid the costs, time, and effort of the foreclosure process.

If you are having difficulty with an uncooperative lender or feel your loan servicer is not providing you with the most effective loss mitigation options, call the FHA Loss Mitigation Center at 1-888-297-8685 for additional help.

For Conventional Loans:

Talk to your lender about specific loss mitigation options. Work directly with him or her to request a "workout packet." A secondary lender, like Fannie Mae or Freddie Mac, may have purchased your loan. Your lender can follow the appropriate guidelines to determine the best option for your situation.

Fannie Mae does not deal directly with the borrower. They work with the lender to determine the loss mitigation program that best fits your needs.

Freddie Mac, like Fannie Mae, will usually only work with the loan servicer. However, if you encounter problems with your lender during the loss mitigation process, you can call customer service for help at 1-800-FREDDIE (1-800-373-3343).

In any loss mitigation situation, it is important to remember a few helpful hints:

Explore every reasonable alternative to avoid losing your home, but beware of scams. For example, watch out for:

Equity skimming: a buyer offers to repay the mortgage or sell the property if you sign over the deed and move out.

Phony counseling agencies: offer counseling for a fee when it is often given at no charge.

Don't sign anything you don't understand.

MORTGAGE INSURANCE

38. WHAT IS MORTGAGE INSURANCE?

Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20 percent.

39. HOW DOES MORTGAGE INSURANCE WORK? IS IT LIKE HOME OR AUTO INSURANCE?

Like home or auto insurance, mortgage insurance requires payment of a premium, is for protection against loss, and is used in the event of an emergency. If a borrower can't repay an insured mortgage loan as agreed, the lender may foreclose on the property and file a claim with the mortgage insurer for some or most of the total losses.

40. DO I NEED MORTGAGE INSURANCE? HOW DO I GET IT?

You need mortgage insurance only if you plan to make a down payment of less than 20 percent of the purchase price of the home. The FHA offers several loan programs that may meet your needs. Ask your lender for details.

41. HOW CAN I RECEIVE A DISCOUNT ON THE FHA INITIAL MORTGAGE INSURANCE PREMIUM?

Ask your real estate agent or lender for information on the HELP program from the FHA. HELP (Homebuyer Education Learning Program) is structured to help people begin the home buying process. It covers such topics as budgeting, finding a home, getting a loan, and home maintenance. Completion of this program may entitle you to a reduction in the initial FHA mortgage insurance premium from 2.25 percent to 1.75 percent of the purchase price of your new home.

FHA PRODUCTS

42. WHAT IS A 203(b) LOAN?

This is the most commonly used FHA program. It offers a low down payment, flexible qualifying guidelines, limited lender's fees, and a maximum loan amount.

43. WHAT IS A 203(k) LOAN?

This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage. A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic guidelines for 203(k) loans are as follows:

The home must be at least one year old.
The cost of rehabilitation must be at least $5,000, but the total property value, including the cost of repairs, must fall within the FHA maximum mortgage limit.
The 203(k) loan must follow many of the 203(b) eligibility requirements.
Talk to your lender about specific improvement, energy efficiency, and structural guidelines.

More information on FHA Products may be found in Chapter 3.

44. WHAT IS AN ENERGY EFFICIENT MORTGAGE (EEM)?

The Energy Efficient Mortgage allows a homebuyer to save future money on utility bills. This is done by financing the cost of adding energy-efficiency features to a new or existing home as part of an FHA-insured home purchase. The EEM can be used with both 203(b) and 203(k) loans. Basic guidelines for EEM’s are as follows:

The cost of improvements must be determined by a Home Energy Rating System or by an energy consultant. This cost must be less than the anticipated savings from the improvements.

One and two unit new or existing homes are eligible; condominiums are not.

The improvements financed may be 5 percent of property value or $4,000, whichever is greater. The total must fall within the FHA loan limit.

45. WHAT IS A TITLE I LOAN?

Given by a lender and insured by the FHA, a Title I loan is used to make non-luxury renovations and repairs to a home. It offers a manageable interest rate and repayment schedule. Loans are limited to between $5,000 and $20,000. If the loan amount is under $7,500, no lien is required against your home. Ask your lender for details.

46. WHAT OTHER LOAN PRODUCTS OR PROGRAMS DOES THE FHA OFFER?

The FHA also insures loans for the purchase or rehabilitation of manufactured housing, condominiums, and cooperatives. It also has special programs for urban areas, disaster victims, and members of the armed forces. Insurance for ARMS is also available from the FHA.

47. HOW CAN I OBTAIN AN FHA-INSURED LOAN?

Contact an FHA-approved lender such as a participating mortgage company, bank, savings and loan association, or thrift. For more information on the FHA and how you can obtain an FHA loan, visit the HUD web site listed below.

http://www.hud.gov/ or call a HUD-approved counseling agency at 1-800-569-4287 or TDD: 1-800-877-8339.

(Adapted from 100 Q & A About Buying A New Home furnished by the U.S. Department of Housing and Urban Development.)