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BUYING A HOME

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First Time Home Buyers

The Tax Advantages of Home Ownership
Figuring Out How Much You Can Afford
What Type of Loan Should You Get
Finding Your Home
The Home Buying Process
What Happens After Your Offer is Accepted
What Happens at Closing

The Tax Advantages of Home Ownership

1. Home mortgage interest is deductible. This is any interest you pay on a loan for your home such as a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan.

2. State and local real estate taxes are deductible. This deduction also helps you own a home by reducing your total tax bill.

3. If you qualify for a Mortgage Credit Certificate (MCC), you can claim part of the interest you pay on your mortgage as a credit on your federal income taxes. And this will leave you with more money every month for house payments.

4. The new tax law makes owning a home even easier for first time home buyers! Now there is no penalty for the early withdrawal of IRA funds.

* First-time homebuyers can take out money from their Individual Retirement Accounts (IRAs) to pay up to $10,000 for housing expenses without incurring the 10% early withdrawal penalty. Under the law, first-time homebuyers do not have to be first-time homebuyers. People who have not owned a home for at least two years also may take advantage of the law.

Figuring Out How Much You Can Afford To Buy

1. Before you start looking for a home, it is extremely important to first do some homework to fine-tune your dreams and expectations!

2. First, review your budget and determine how much you want to pay each month. A lender will tell you, based on the sales price of the house, your downpayment, and the terms of the loan (how long the loan is for, e.g., 15 or 30 years), what your mortgage payment will be (this includes principal, Interest, taxes and insurance).

3. What you technically can afford may not be what you actually would like to pay!! This is why it is essential to think about how much money you want to spend each month on a home.

* As a general rule, your monthly housing cost should not exceed 28 percent of your gross monthly income. If you have outstanding debt that has greater than 3 months of payments left, for things like car loans, student loans or credit card balances, that monthly debt plus your monthly housing costs should not exceed 36% of your monthly gross income.

4. An Important Step In the Home Buying Process Is Having A Lender Prequalify or Preapprove You For A Loan. This involves Having The Lender Look At Your Income, Assets, Debt and Credit History To Determine The Amount Of House You Can Buy Based On the 28%/36% rule.

5. Prequalification is a quick assessment based on your credit, income, assets and debts. Preapproval is where the lender actually analyzes the numbers in detail and approves you for a loan. Once you are preapproved you can close on a house quickly.

Here is an Example. . .
Lori s gross income is $2,000 a month. She has applied for a mortgage loan for a house that would cost her $640 a month, including property taxes, mortgage insurance and hazard insurance. Lori s housing expense ratio is 32% (640 ?000). Therefore, Lori s housing expense ratio is acceptable and she probably will qualify for a loan if the rest of her application looks good.

What Type of Loan Should You Get

1. Today, there are so many different type of loans it would make your head spin. A conventional loan typically enables the buyer to borrow 80% of the purchase price or appraised value of the house, which ever is less. This means a 20% downpayment would be required.

2. If you put less than 20% down on a house, the lender also charges Private Mortgage Insurance. Ask your lender about this.

3. However, there are a number of loan options, e.g., FHA, that enable the buyer to put 3% or as little as 0% down. Also, today ? unlike the past ? home buyers can be gifted the downpayment as long as the money is in their bank account for at least two months prior to obtaining the loan. Additionally, any closing costs can be financed into the loan.

Finding Your Home

1. Once you decide to buy a home it is important to think about the type of features you need and those you want.

* How many bedrooms and bathrooms do you need?
* Do you want a garage?
* What neighborhoods would you like to live in?
* Do you want a fireplace?
* Do you want a larger lot or no lot at all?

2. These are extremely important questions to answer. This, combined with knowing your price range, will help your Realtor quickly find you the home that best meets your needs.

The Home Buying Process

1. Now the hunt begins. Once you begin looking be sure to balance emotion with fact. Your new home has to feel right and it has to work for you too. When you are serious about a house, inspect it thoroughly with your Realtor, this will help in determining what you want to offer for the property.

2. Once you find the right home, you should work with your Realtor to help you structure an offer.

* Decide how much you want to pay for the home you have chosen.

* Ask your Realtor to tell you how long the property has been on the market and how reasonable the asking price is.

* Decide the top amount you are willing to pay for the home (but do not tell anyone this figure to maintain your ability to negotiate).

* Determine if there is anything you want the sellers to fix or repair (that you can visibly see prior to an official inspection) and have your Realtor include it in the offer.

* Decide when you want to close on the property. (If you have already talked with a lender, you should know how quickly they can process your loan).

* Determine with your lender an appropriate downpayment for the price range of house you want and the type of loan you are using.

* Determine with your Realtor the amount of earnest money or deposit -- you will submit with the offer. If you buy the house, the earnest money is applied to the downpayment or closing costs. If your offer is not accepted, then the earnest money will be returned. However, if after your offer has been accepted, you back out of the contract, the seller has the right to keep the money. Between the point of having a contract, however, and closing, the earnest money is held in escrow by the brokerage firm that listed the property.

3. Once your Realtor has submitted your offer the seller will either accept or reject it. If the seller rejects your first offer, you may be presented with a counter offer. You do not have a contract until both parties have agreed to all terms and conditions and have signed and dated the offer. Once you have a contract your earnest money will be deposited into the Brokers trust account within 3 days.

What Happens After Your Offer is Accepted

After your offer is accepted, your Realtor should:

1. Recommend 1-3 lawyers the buyer can choose from to represent him/her at closing.

2. Set up an inspection of the property to determine if the house is in need of any structural and/or mechanical repairs. Once the inspection report is received, the Realtor should put in writing exactly what the buyer wants the seller to repair. The seller s agent then will work with the buyer s agent to determine exactly what will be done.

* The seller has three options for what can be done. (1) They can fix or repair what is identified. (2) They can provide for their repair (give the buyer money to make the repairs or reduce the purchase price of the house). (3) Finally, the seller has the option of not doing any repairs.

* If the seller chooses option #3 then the buyer has the option of buying the property in its "as is" condition or terminating the contract and getting the earnest money back.

3. Set up a termite inspection.

4. Make sure the buyer obtains insurance for the property and transfers the utilities to their name.

5. Make sure the buyer obtains a good faith estimate of closing costs from the lender.

6. Take a final walk through the property to ensure that all repairs have been made and that the house is in order. If there are any outstanding problems, they should be addressed prior to closing.

7. The lender is responsible for setting up an appraisal of the property ? not the Realtor.

What happens at Closing?

* Prior to the closing, your Realtor should obtain and review the HUD Settlement Statement prepared by the lawyer. The Realtor should have the lawyer make any corrections, if necessary.

* Your Realtor should tell the buyers exactly how much money they need to bring to closing. This money must be in the form of a certified check.

* At closing, the attorney will help the buyer review and sign the HUD settlement statement and the loan package.

* Once the paperwork is done, the deed can be recorded and the property is officially transferred to its new owner!!!!

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