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Frequently Asked Questions |
You Have Damaged Credit - Can You Buy A Home?
Of course! You'll be glad to learn that you actually can buy a home with damaged credit. In fact, it's quite common. To do so often requires a flexible seller who is willing to help finance part of your purchase price. You see, there are a lot of lenders who specialize in financing homes for folks with credit problems. To reduce their risk, they may simply reduce the amount they loan. This means the buyer must have a big down payment or the seller must be willing to finance the difference on a second mortgage. Getting you a loan is generally not a problem, however finding a flexible seller who doesn't need all their cash immediately, may be more difficult. |
Is Your Debt Ratio Too High?
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Just How Much Home Can You Afford?
You may be surprised to learn how much of a home you can afford. Generally accepted standards say that your new house payment added to all your other monthly payments, should not exceed about 40% of your gross (that's before income tax) for you and your spouse. Keep in mind, that does not include items like insurance, clothing, food, utilities, entertainment, etc. You should add only those items with fixed payments such as cars, furniture, credit cards, mortgage, student loans, etc. If an item doesn't show on your credit report, it probably won't count against you as a debt. |
Question: What are the advantages of owning a home?
Answer: There are many. Among the most appealing: you own it, which gives you, instead of a landlord, control of your living space. Other benefits stem from potential tax savings and the build up of equity as your property likely appreciates in price over time. Equity can be used to help put children through college, purchase a second home, or make home improvements. The mortgage interest paid on a home loan is tax deductible, as is the local property tax. If you get a fixed-rate home mortgage loan, you also can invest more wisely knowing your monthly mortgage payment, unlike rent, will not change substantially. |
Question: What is the first step to buying a home?
Answer: Make sure you are ready - psychologically and financially. Ask yourself the following questions: Do I have steady income? Is my debt lower than my total income? Do I have enough money to pay for the down payment and closing costs? Am I working hard enough to improve bad credit? A house needs constant care and attention. Also ask yourself if your budget will allow for unexpected repairs and upkeep. Once you can honestly answer "yes" to these questions, you are several steps ahead of the game and that much closer to becoming a homeowner. |
Question: How do you decide whether to add on to an existing home or purchase a new one?
Answer: There are a few things to consider, including cost, individual needs, and what will add value down the road. Also important: your emotional attachment to the existing home. As designer and builder Philip S. Wenz, the author of Adding to a House: Planning, Design & Construction, notes, an addition is much cheaper than building a new home and can offer a "new" home without the heartache of moving. Other considerations:
. Can you finance the home improvement with your own cash or will you need a loan?
. How much equity is in the property? A fair amount will make it that much easier to get a loan for home improvements.
. Is it feasible to expand the current space for an addition?
. What is permissible under local zoning and building laws? Despite your deep yearning for a new sunroom or garage, you will need to know if your town or city will allow such improvements.
. Are there affordable properties for sale that would satisfy your changing housing needs? Explore your options.
Make sure your decision is one you can live with - either under the same roof or under a different one. |
Question: Is it best to save for the ultimate dream home or begin with a less expensive starter home?
Answer: It can take a long time to save for that perfect dream home. Meanwhile, the market has been flooded with some of the most favorable mortgage interest rates in years. Low rates make housing more affordable, which is why so many buyers have jumped on the home buying bandwagon. Home-price appreciation has also been strong, making very solid gains in communities across the country. In fact, home prices are expected to increase 2.5 percent to 3 percent annually over the next five years. If you purchase a starter home today, you can potentially begin to build value that can lead to the purchase of a larger, or more desirable, trade-up home in the future. |
Question: Is it possible to buy a home below market price?
Answer: Certainly, but do not hold your breath. It takes a lot of determination and time to find a real bargain. But if you are adamant, here are some likely targets to pursue:
. foreclosed property
. a fixer-upper
. hard-to-sell new homes in a housing development
. tenant-in-common partnerships.
With the latter, you may be able to buy a partial interest in this form of title to property owned by two or more individuals because the partners often sell at a discount. However, bargains are easier to come by in a soft real estate market, when the economy is in a recession, and when homeowners, and builders and sponsors of condominium conversions, are desperate to move unsold units. |
Defining What You Want
Start by creating a prioritized list of features you want in your next home and the reasons why. Use it as your search guide, but remember that depending on your funding, you will probably need to make some compromises. In addition, talk to your real estate professional about where you want to live. Location is a huge part of any move. We are trained to help our clients narrow down their choices by sharing market trends and local information like neighborhood statistics. |
Question: How much can I afford?
Answer: The general rule of thumb is that you can buy a home that costs about two-and-one-half times your annual salary. A good real estate agent or lender can determine how much you can afford and estimate the maximum monthly payment based on the loan amount, taxes, insurance and other expenses. This includes your income, debt and expenses and credit can affect what you can afford. |
Question: What contingencies should appear in the offer?
Answer: When you look to purchase a home, anticipate potential problems. But protect against them so that if something does go wrong, you can cancel the contract without penalty. This is what contingencies allow you to do. They should be included in any offer you present to buy a home.
Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on your ability to obtain a loan commitment from a lender, and an inspection contingency, which allows you to have a professional inspect the property.
Without contingencies, a buyer could forfeit his deposit under certain circumstances if he backs out of a deal.
The purchase contract also should include the seller's responsibilities, such as passing clear title, maintaining the property in its present condition until closing, and making any agreed-upon repairs. |
Question: What are some negotiating tips?
Answer: Know the seller's motivation to sell. This will enhance your negotiating position. Sellers who must move quickly due to a job transfer, divorce, or contract on another home, are more inclined to accept a lower price to speed the process along.
Remember, too, that the listing, or asking, price is what the seller would like to receive for the home. It is not necessarily what the seller will settle for. So know value. Before you make an offer, check recent sales and listing prices of comparable neighborhood homes and compare them to the seller's asking price. Other tips:
. Be flexible. Never say, "take it or leave it." That can sour negotiations and ruin the deal.
. Never show your hand or reveal your next step.
. Each time you increase your offering price ask for something in return, such as repairs, appliances, even lawn furniture.
. If you plan to pay cash or have a tentative commitment for a loan, use your strong financial position as a negotiating tool.
. Don't let emotions such as pride, fear, love, and anger get in the way of negotiating the best deal. Leave irrational feelings at home. |
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