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9 Steps To Buying A Home

 

Thinking about buying a home? We have information that can help! Got questions? Talk to one of ourhousing counselors!

 

1. Figure out how much you can afford
What you can afford depends on your income, credit rating, current monthly expenses, downpayment and the interest rate.

2. Know your rights
3. Shop for a loan
4. Learn about homebuying programs
5. Shop for a home
6. Make an offer
7. Get a home inspection
8. Shop for homeowners insurance
9. Sign papers
You're finally ready to go to "settlement" or "closing." Be sure to read everything before you sign!

 

First Time Homebuyers

 

1. 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.
   
   
2. What are "HUD homes," and are they a good deal?
   • Answer: 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 ofHUD homes and homes being sold by other federal agencies.
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3. Can I become a homebuyer even if I have I've had bad credit, and don't have much for a down-payment?
   • Answer: You may be a good candidate for one of the federal mortgage programs. Start by contacting one of the HUD-fundedhousing counseling agencies that can help you sort through your options. Also, contact your local government to see if there are anylocal 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. 
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4. Are there special homeownership grants or programs for single parents?
   • Answer: 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 anylocal 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 office. 
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5. Should I use a real estate broker? How do I find one?
   • Answer: 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 local newspaper.
6. How much money will I have to come up with to buy a home?
   • Answer: 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. 

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7. How do I know if I can get a loan?
   • Answer: 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 dreams. 
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8. How do I find a lender?
   • Answer: 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. 
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9. In addition to the mortgage payment, what other costs do I need to consider?
   • Answer: 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. 
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10. So what will my mortgage cover?
    • Answer: 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. 
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11. What do I need to take with me when I apply for a mortgage?
    • Answer: 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 information. 
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12. I know there are lots of types of mortgages - how do I know which one is best for me?
    • Answer: 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 theDepartment 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 mortgage.
    
    
13. When I find the home I want, how much should I offer?
    • Answer: 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. 
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14. What if my offer is rejected?
    • Answer: 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! 
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15. So what will happen at closing?
    • Answer: 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. 
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16. More information?
    • Answer: See our 100 questions and answers about buying a home.

Frequently Asked Questions

 

What is a HUD Home?  A HUD Home is a property with an FHA insured mortgage that has gone into default. The lender acquires the property, submits FHA insurance claim, and then conveys ownership to the U.S. Department of Housing and Urban Development (HUD). HUD will then sell the home through their Asset Manager (AM), BLB Resources. A HUD Home can be a single family residence (SFR), townhouse, condominium, mobile home or multiple family attached home up to 4 units.

 

Who can buy a HUD Home?  HUD Homes may be purchased by any individual, company, HUD-approved non-profit organization, or government entity that can secure financing or pay cash for the property. Interested buyers must submit bids through a HUD-registered real estate agent.

There are two main types of HUD Home purchasers: Owner Occupants and Investors. An owner occupant buyer is a person who will live in the property as their primary residence for at least one year and has not purchased another HUD Home as an Owner Occupant within the past two years. Investor buyers are people who purchase the property as an investment or as a second home, or who do not qualify as an Owner Occupant.

 

How can I buy a HUD Home?   If the buyer is financing the purchase of a HUD Home, HUD first requires the buyer to be pre-approved for a mortgage in an amount sufficient to purchase the property.  If the buyer is paying cash, the buyer must provide verification of funds.  Once the buyer has obtained a pre-approval or verification of funds, the buyer should find a HUD Registered Agent, who can help the buyer find an appropriate property and submit a bid on it.  All buyers must submit their bids online through a registered real estate agent.

In typical real estate transactions, the buyer finds the home they like and their real estate agent presents their offer to the seller, who may counter the offer.  The buyer and seller may negotiate until mutually agreeable terms are reached or until they reject the terms and move on.  When purchasing a HUD Home, there are no negotiations between the buyer and seller.  HUD Homes are sold by a sealed bidding process, where all interested buyers submit their best offer online and usually the highest netting bid (after all costs are paid) wins the sale.

HUD Homes are initially offered for owner occupant purchasers.  Following the owner occupant priority period, unsold properties are available for all buyers, including investors.  Bids can be submitted any day of the week, including weekends and holidays, and are opened for review the next business day following the bid deadline.

 

What is the Exclusive Listing Period for HUD Homes?  When a HUD Home is first listed for sale, priority is given to owner occupants, non-profit organizations and government entities. The duration of this Exclusive Listing Period will vary depending on the property's FHA insurability.

If the property is being sold as Insured (IN) or Insured with Escrow (IE), the Exclusive Listing Period is 30 days for owner-occupant buyers, non-profit organizations, and government entities. Bids received during the first 10 days are considered to be received simultaneously, and the initial bid review is on the 11th day of the Exclusive Listing Period. If there is no winning bid, bids continue to be reviewed on a daily basis until the 30-day period ends.

If the property is Uninsured (UI) or Uninsured 203(k) eligible (UK), the Exclusive Listing Period is 5 days for owner-occupant buyers, non-profit organizations, and government entities. Bids received during these 5 days are considered as though they are received simultaneously, and are not opened until the 6th day of the Exclusive Listing Period.

 

When can investors submit bids?  After the Exclusive Listing Period has expired, unsold properties enter the Extended Listing Period. These properties are available for all purchasers, including investors, on a daily basis until an acceptable bid is submitted. Bids are opened and reviewed the following business day.

 

What is the Lottery period?  Certain property eligibilities allow Good Neighbor Next Door participants, HUD registered non-profit organizations, and government entities to bid on the property prior to becoming available to Owner Occupant bids. These properties, which are usually located in HUD designated revitalization areas, or are in areas determined to be uninsurable, are available in the Lottery period for 7 days prior to being listed in the Exclusive Listing Period.

 

How can I find a HUD Home?  HUD Homes are featured on HUDHomestore.com (click here to search for available properties).  They are also featured in the local MLS.

 

Can I submit more than one bid for different properties?  If an Owner Occupant submits multiple bids for different properties, BLB Resources will select and award the bid in the best interest of HUD. Investors may bid on and purchase multiple properties, provided they can obtain adequate financing or pay cash.

 

How can I finance the purchase of a HUD Home?  The buyer may pay cash, obtain FHA financing from a HUD approved lender or secure conventional financing.  Please contact a mortgage company of your choice for information on common mortgage programs, qualifying guidelines and how to obtain a mortgage appropriate for you.

 

What is FHA Financing?  HUD Homes may always be purchased using cash, conventional, or other special financing. However, FHA offers financing options that are tailored to HUD Homes. There are many variables that are taken into consideration when the disposition of a property is created. The condition of the property as reflected in the FHA-approved appraisal and the Property Condition Report (PCR) weigh heavily in determining its insurability. Once the disposition of the property has been established, the property is initially listed at the as-is appraised value and will reflect the financing acronym that is appropriate. It is vital that real estate agents have a clear understanding of the FHA financing types, and the corresponding acronyms.

 

 

Will HUD pay for any closing costs and the selling agent's commission?  HUD will pay up to 3% of the purchase price in closing costs that are considered to be reasonable and customary in the jurisdiction where the property is located. Closing costs should be entered on Line 5 of the Sales Contract. HUD will pay the lesser of the amount requested on either Line 5, or the actual closing costs. Any funds remaining after the allowable closing costs have been paid will not be credited to the buyer at closing. Review the Forfeiture and Extension Policy addendum to the sales contract package for the list of closing costs that will be paid by HUD.

HUD also allows, and will pay, up to 3% of the purchase price for the selling agent's commission, which should be entered on Line 6a of the Sales Contract. Line 6b denotes the Local Listing Broker's commission, which is 3% of the purchase price. Selling and Listing Brokers are eligible to receive a $1,250 commission on select HUD Homes; these properties are identified on www.HUDHomestore.com and in the MLS listing. The submitted bid is the final determination of the selling agent commission amount, and may not be modified after bid acceptance under any circumstances.

Note that higher closing costs and commissions will reduce the net to HUD, and may affect the competitive bidding ratio. Only the selling agent may choose to reduce his/her commission; the LLB commission may not be reduced.

HUD does not pay any closing costs or commissions on Good Neighbor Next Door (GNND) properties. Please note that even though GNND participants are required to utilize a real estate agent to submit their bids, HUD will not pay the selling agent commission; however, if FHA financing is used, the purchaser may add closing costs and commissions to their loan. Please also note that HUD does not pay closing costs or commissions on Dollar Homes or properties sold during the Lottery Period to non-profit organizations or government entities.

 

When can I get a home inspection done?  All HUD Homes are sold "As Is." HUD does not make any repairs to the property. Therefore, it is important that the buyer do a visual inspection prior to submitting a bid. The buyer is also encouraged to have a professional home inspection performed with the utilities activated after the contract has been accepted and signed by HUD. The buyer has a 15 day period after contract acceptance to activate utilities and complete the home inspection, which must be coordinated with the Field Service Manager (FSM) assigned to the property. Please contact the assigned FSM directly with any questions regarding the utility activation process. Contact information for the assigned FSM may be found on the "Agent Info" tab of the Property Details on HUDHomestore.com.

 

Avoding Foreclosure

 

Federal Housing Administration "FHA"

 

The Federal Housing Administration, generally known as "FHA", is the largest government insurer of mortgages in the world.  A part of the United States Department of Housing and Urban Development (HUD), FHA provides mortgage insurance on single-family, multifamily, manufactured homes and hospital loans made by FHA-approved lenders throughout the United States and its territories.  While borrowers must meet certain requirements established by FHA to qualify for the insurance, lenders bear less risk because FHA will pay the lender if a homeowner defaults on his or her loan.  FHA has insured over 37 million home mortgages and 47,205 multifamily project mortgages since 1934.  Currently, FHA has 5.2 million insured single-family mortgages and 13,000 insured multifamily projects in its portfolio.  Clearly, FHA provides a huge economic boost to the country in the form of home and community development, particularly in today's challenging financial climate.

 

For information regarding the following, click here:

• Avoid Foreclosure, click here

 

Whether you're in foreclosure now or worried about it in the future, we have information that can help.

 

Get Help Now!

• Talk to a foreclosure avoidance counselor
• Talk to your lender
• Find state and local foreclosure resources
• Contact HOPE NOW

 

Keep Your Home

• Are you at risk of foreclosure?
• Tips for Avoiding Foreclosure
• Foreclosure scams

 

Refinance Options

• Making Home Affordable Program
• Learn about HOPE for Homeowners
• Who to call when a lender won't work with you

 

If You Can't Keep Your Home

• Redemption period - your last chance to save your home
• Local renting resources
• Rental assistance
• Relocation resources
• U.S. Postal Service Movers Guide