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

 
You can find out by asking yourself some questions:
 
* Do I have a steady source of income (usually a job)?
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.
 
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 be at the mercy of
the landlord for housing.
 
Owning a home has many benefits. When you make a mortgage
payment, you are building equity. And that's an
investment. Owning a home also qualifies 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. But
given the freedom, stability, and security of owning your
own home, they are worth it.
 
4. HOW DOES THE LENDER DECIDE THE MAXIMUM LOAN AMOUNT THAT
I 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% of gross income, while
the mortgage payment, combined with non-housing expenses,
should total no more than 41% 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.
 
6. HOW CAN I DETERMINE MY HOUSING NEEDS BEFORE I BEGIN THE
SEARCH?
 
Your home should fit the way you 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 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.
 
QUICK CALCULATION EXERCISE
 
Gross Annual Gross Monthly 29 Available for
Income Income Housing
$15,000 $1,250 $363
$20,000 $1,667 $483
$25.000 $2,083 $604
$30,000 $2,500 $725
$35,000 $2,917 $846
$40,000 $3,333 $967
$45,000 $3,750 $1,088
$50,000 $4,167 $1,208
 
PART II. 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 want access to shopping and public
transportation? Is access to local facilities like
libraries and museums important to you? Or do you prefer
the peace and quiet of a rural community? 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).
 
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 for promotional
literature or talk to your real estate agent about welcome
kits, maps, and other information. You may also want to
visit the local library. It can be an excellent source for
information on local events and resources, and the
librarians will probably be able to answer many of the
questions you have.
 
11. HOW CAN I FIND OUT HOW MUCH HOMES ARE SELLING FOR IN
CERTAIN COMMUNITIES AND NEIGHBORHOODS?
 
Your real estate agent can give you a ballpark figure by
showing you comparable listings. If you are working with a
REALTOR, they may have access to comparable sales
maintained on a database.
 
12. HOW CAN I FIND INFORMATION ON THE PROPERTY TAX
LIABILITY?
 
The total amount of the previous year's property taxes is
usually included in the listing information. If it's not,
ask the seller for a tax receipt or contact the local
assessor's office. Tax rates can change from year to year,
so these figures maybe approximate.
 
13. WHAT OTHER TAX ISSUES SHOULD I TAKE INTO
CONSIDERATION?
 
Keep in mind that your mortgage interest and real estate
taxes will be deductible. A qualified real estate
professional can give you more details on other tax
benefits and liabilities.
 
14. IS AN OLDER HOME A BETTER VALUE THAN A NEW ONE?
 
There isn't a definitive answer to this question. You
should look at each home for its individual
characteristics. Generally, older homes may be in more
established neighborhoods, offer more ambiance, and have
lower property tax rates. People who buy older homes,
however, shouldn't mind maintaining their home and making
some repairs. Newer homes tend to use more modern
architecture and systems, are usually easier to maintain,
and may be more energy-efficient. People who buy new homes
often don't want to worry initially about upkeep and
repairs.
 
15. WHAT SHOULD I LOOK FOR WHEN WALKING THROUGH A HOME?
 
In addition to comparing the home to your minimum
requirement and wish lists, use the HUD Home Scorecard and
consider the following: Is there enough room for both the
present and the future? Are there enough bedrooms and
bathrooms? Is the house structurally sound? Do the
mechanical systems and appliances work? Is the yard big
enough? 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.)
 
* Is there enough room for both the present and the
future? * Are there enough bedrooms and bathrooms?
* Is the house structurally sound?
* Do the mechanical systems and appliances work?
* Is the yard big enough?
* 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 qusetions)
* 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. Ask your real estate agent to point out the pros and
cons of each home from a professional standpoint. Using
the HUD Home Scorecard to keep track of the homes you see
is a great way to keep organized. (Refer to the HUD Home
Scorecard on tbe following two pages.)
 
16. 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, 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. The HUD Home
Scorecard can help you develop your question list.
 
17. HOW CAN I KEEP TRACK OF ALL THE HOMES I SEE?
 
If possible, take photographs of each house: the outside,
the major rooms, the yard, and extra features that you
like or ones you see as potential problems. And don't
hesitate to return for a second look. Use the HUD
Scorecard to organize your photos and notes for each
house.
 
18. HOW MANY HOMES SHOULD I CONSIDER BEFORE CHOOSING ONE?
 
There isn't a set number of houses you should see before
you decide. Visit as many as it takes to find the one you
want. On average, homebuyers see 15 houses before choosing
one. Just be sure to communicate often with your real
estate agent about everything you're looking for. It will
help avoid wasting your time.
 
PART III. YOU'VE FOUND IT
 
19. WHAT DOES A HOME INSPECTOR DO AND HOW DOES AN
INSPECTION FIGURE INTO 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 any repairs that are needed.
 
The inspector does not evaluate whether or not you're
getting good value for your money. 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.
 
It's a good idea to have an inspection before you sign a
written offer since, once the deal is closed, you've
bought the house "as is." Or, you may 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.
 
20. 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. This is
also an opportunity to hear an objective opinion on the
home you'd like to purchase and it is a good time to ask
general maintenance questions.
 
21. ARE OTHER TYPES OF INSPECTIONS REQUIRED?
 
If your home inspector discovers a serious problem,
another 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, or possible problems with the water or
waste disposal system.
 
22. 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. The
problem can be fixed temporarily by repairing damaged
paint surfaces or planting grass over effected soil.
Hiring a lead abatement contractor to remove paint chips
and seal damaged areas will fix the problem permanently.
 
23. ARE POWER LINES A HEALTH HAZARD?
 
There are no definitive research findings that indicate
exposure to power Iines results in greater instances of
disease or illness.
 
24. DO I NEED A LAWYER TO BUY A HOME?
 
Laws vary by state. Some states require a lawyer to assist
in several aspects of the home buying process while other
states do not, as long as a qualified real estate
professional is involved. Even if your state doesn't
require one, you may want to hire a lawyer to help with
the complex paperwork and legal contracts. A lawyer can
review contracts, make you aware of special
considerations, and assist you with the closing process.
Your real estate agent may be able to recommend a lawyer.
If not, shop around. Find out what services are provided
for what fee, and whether the attorney is experienced at
representing homebuyers.
 
25. DO I REALLY NEED HOMEOWNER'S INSURANCE?
 
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. Plus, involving
the insurance agent early in the home buying process can
save you money. Insurance agents are a great resource for
information on home safety and they can give tips on how
to keep insurance premiums low.
 
26. WHAT STEPS COULD I TAKE TO LOWER MY HOMEOWNER'S
INSURANCE COSTS?
 
Be sure to shop around among several insurance companies.
Also, consider the cost of insurance when you look at
homes. Newer homes and homes constructed with materials
like brick tend to have lower premiums. Think about
avoiding areas prone to natural disasters, like flooding.
Choose a home with a fire hydrant or a fire department
nearby.
 
Other ways to lower insurance costs include insuring your
home and car(s) with the same company, increasing home
security, and seeking group coverage through alumni or
business associations. Insurance costs are always lowered
by raising your deductibles, but this exposes you to a
higher out-of-pocket cost if you have to file a claim.
 
27. IS THE HOME LOCATED IN A FLOODPLAIN?
 
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. Work with an insurance agent to construct a
policy that fits your needs.
 
28. 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.
 
29. HOW DO I MAKE AN OFFER?
 
Your real estate agent will assist you in making an offer,
which will include the following information:
 
* Complete legal description of the property
* Amount of earnest money
* Down payment and financing details
* Proposed move-in date
* Price you are offering
* Proposed closing date
* Length of time the offer is valid
* Details of the deal
 
Remember that a sale commitment depends on negotiating a
satisfactory contract with the seller, not just making an
offer.
 
30. 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.
 
31. 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% 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
must forfeit the entire amount.
 
32. 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 because they offer
protection during the time immediately following the
purchase of a home, a time when many people find
themselves cash-strapped.
 
PART IV. GENERAL FINANCING QUESTIONS: THE BASICS
 
33. 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.
 
34. WHAT IS A LOAN-TO-VALUE (LTV) RATIO? HOW DOES IT
DETERMINE THE SIZE OF THE LOAN?
 
The LTV ratio is the amount of money you borrow compared
with the price or appraised value of the home you are
purchasing. Each loan has a specific LTV limit. For
example: with a 95% LTV loan on a home priced at $50,000,
you could borrow up to $47,500 (95% of $50,000), and would
have to pay $2,500 as a down payment. The LTV ratio
reflects the amount of equity borrowers have in their
homes. The higher the LTV ratio, the less cash homebuyers
are required to pay out of their own funds. So, to protect
lenders against potential loss in case of default, higher
LTV loans (80% or more) usually require a mortgage
insurance policy.
 
35. WHAT TYPES OF LOANS ARE AVAILABLE AND WHAT ARE THE
ADVANTAGES OF EACH? Fixed Rate Mortgages: Payments remain
the same for the life of the loan
 
Types
 
* 15-year
* 30-year
 
Advantages
 
* Predictable
* Housing cost remains unaffected by interest rate
changes and inflation
 
Adjustable Rate Mortgages (ARMS): Payments increase or
decrease on a regular schedule with changes in interest
rates; increases subject to limits Types
 
* Balloon Mortgage- Offers very low rates for an
initial period of time (usually 5, 7, or 10 years);
when time has elapsed, the balance is due or
refinanced (though not automatically)
 
* Two-Step Mortgage- Interest rate adjusts only once
and remains the same for the life of the loan
* ARMS linked to a specific index or margin
 
Advantages
 
* Generally offer lower initial interest rates
* Monthly payments can be lower
* May allow borrower to qualify for a larger loan
amount
 
36. WHEN DO ARMS MAKE SENSE?
 
An ARM may make sense if you are confident that your
income will increase steadily over the years or if you
anticipate a move in the near future and aren't concerned
about potential increases in interest rates.
 
37. WHAT ARE THE ADVANTAGES OF 15 - AND 30-YEAR LOAN
TERMS?
 
30-Year:
 
* In the first 23 years of the loan, more interest is
paid off than principal, meaning larger tax
deductions.
* As inflation and costs of living increase, mortgage
payments become a smaller part of overall expenses.
 
15-year:
 
* Loan is usually made at a lower interest rate.
* Equity is built faster because early payments pay
more principal.
 
38. CAN I PAY OFF MY LOAN AHEAD OF SCHEDULE?
 
Yes. By sending in extra money each month or making an
extra payment at the end of the year, you can accelerate
the process of paying off the loan. When you send extra
money, be sure to indicate that the excess payment is to
be applied to the principal. Most lenders allow loan
prepayment, though you may have to pay a prepayment
penalty to do so. Ask your lender for details.
 
39. 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. Lenders may now be able to help borrowers who don't
have a lot of money saved for the down payment and closing
costs, have no or a poor credit history, have quite a bit
of long-term debt, or have experienced income
irregularities.
 
40. HOW LARGE OF A DOWN PAYMENT DO I NEED?
 
There are mortgage options now available that only require
a down payment of 5% or less of the purchase price. But
the larger the down payment, the less you have to borrow,
and the more equity you'll have. Mortgages with less than
a 20% down payment generally require a mortgage insurance
policy to secure the loan. When considering the size of
your down payment, consider that you'll also need money
for closing costs, moving expenses, and possibly -repairs
and decorating.
 
41. WHAT IS INCLUDED IN A MONTHLY MORTGAGE PAYMENT?
 
The monthly mortgage payment mainly pays off principal and
interest. But most lenders also include local real estate
taxes, homeowner's insurance, and mortgage insurance (if
applicable).
 
42. WHAT FACTORS AFFECT MORTGAGE PAYMENTS?
 
The amount of the down payment, the size of the mortgage
loan, the interest rate, the repayment term and payment
schedule will all affect the size of your mortgage
payment.
 
43. HOW DOES THE INTEREST RATE FACTOR IN SECURING A
MORTGAGE LOAN?
 
A lower interest rate allows you to borrow more money than
a high rate with the same monthly payment. Interest rates
can fluctuate as you shop for a loan, so ask lenders if
they offer a rate "lock-in" which guarantees a specific
interest rate for a certain period of time. Remember that
a lender must disclose the Annual Percentage Rate (APR) of
a loan to you. The APR a mortgage loan by expressing it in
terms of a yearly interest rate. It is higher than the
interest rate because it also includes the cost of points,
mortgage and other fees included in the loan.
 
44. HAPPENS IF INTEREST RATES DECREASE AND I HAVE A FIXED
RATE LOAN?
 
If interest rates drop significantly, you may want to
investigate refinancing. Most experts agree that if you
plan to be in your house for at Ieast 18 months and you
can get a rate 2% less than your current one, refinancing
is smart. Refinancing may, however, involve paying many of
the same fees paid at the original closing, plus
origination and application fees.
 
45. ARE DISCOUNT POINTS?
 
Discount points allow you to lower your interest rate.
They are essentially prepaid interest, with each point
equaling 1% of the total loan amount. Generally, for each
point paid on a 30-year mortgage, the interest rate is
reduced by 1/8 (or.125) of a percentage point. When
shopping for loans, ask lenders for an interest rate with
0 points and then see how much the rate decreases with
each point paid. Discount points are smart if you plan to
stay in a home for some time since they can lower the
monthly loan payment. Points are tax deductible when you
purchase a home and you may be able to negotiate for the
seller to pay for some of them.
 
46. WHAT IS AN ESCROW ACCOUNT? DO I NEED ONE?
 
Established by your lender, an escrow account is a place
to set aside a portion of your monthly mortgage payment to
cover annual charges for homeowner's insurance, mortgage
insurance (if applicable), and property taxes. Escrow
accounts are a good idea because they assure money will
always be available for these payments. If you use an
escrow account to pay property taxes or homeowner's
insurance, make sure you are not penalized for late
payments since it is the lender's responsibility to make
those payments.
 
PART V. FIRST STEPS
 
47. 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
* 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 typically takes between 1-6 weeks.
 
48. HOW DO I CHOOSE THE RIGHT LENDER FOR ME?
 
Choose your lender carefully. Look for financial stability
and a reputation for customer satisfaction. Be sure to
choose a company that gives helpful advice and that makes
you feel comfortable. A lender that has the authority to
approve and process your loan locally is preferable, since
it will be easier for you to monitor the status of your
application and ask questions. Plus, it's beneficial when
the lender knows home values and conditions in the local
area. Do research and ask family, friends, and your real
estate agent for recommendations.
 
49. HOW ARE PRE-QUALIFYING AND PRE-APPROVAL DIFFERENT?
 
Pre-qualification is an informal way to see how much you
may be able to borrow. You can be "pre-qualified" over the
phone with no paperwork by telling a lender your income,
your long-term debts, and how large a down payment you can
afford. Without any obligation, this helps you arrive at a
ballpark figure of the amount you may have available to
spend on a house.
 
Pre-approval is a lender's actual commitment to lend to
you. It involves assembling the financial records
mentioned in Question 47 (without the property description
and sales contract) and going through a preliminary
approval process. Pre-approval gives you a definite idea
of what you can afford and shows sellers that you are
serious about buying.
 
50. HOW CAN I FIND OUT INFORMATION ABOUT MY CREDIT
HISTORY?
 
There are three major credit reporting companies: Equifax,
Experian, and Trans Union. Obtaining your credit report is
as easy as calling and requesting one. Once you receive
the report, it's important to verify its accuracy.
Double-check the "high credit limit", "total loan," and
"past due" columns. It's a good idea to get copies from
all three companies to assure there are no mistakes since
any of the three could be providing a report to your
lender. Fees, ranging from $5-$20, are usually charged to
issue credit reports but some states permit citizens to
acquire a free one. Contact the reporting companies at the
numbers listed for more information.
 
CREDIT REPORTING COMPANIES
 
COMPANY NAME PHONE NUMBER
Experian 1-800-682-7654
Equifax 1-800-685-1111
Trans Union 1-800-916-8800
 
51. WHAT IF I FIND A MISTAKE IN MY CREDIT HISTORY?
 
Simple mistakes are easily corrected by writing to the
reporting company, pointing out the error, and providing
proof of the mistake. You can also request to have your
own comments added to explain problems. For example, if
you made a payment late due to illness, explain that for
the record. Lenders are usually understanding about
legitimate problems.
 
52. WHAT IS A CREDIT BUREAU SCORE AND HOW DO LENDERS USE
THEM?
 
A credit bureau score is a number, based upon your credit
history that represents the possibility that you will be
unable to repay a loan. Lenders use it to determine your
ability to qualify for a mortgage loan. The better the
score, the better your chances are of getting a loan. Ask
your lender for details.
 
53. HOW CAN I IMPROVE MY SCORE?
 
There are no easy ways to improve your credit score, but
you can work to keep it acceptable by maintaining a good
credit history. This means paying your bills on time and
not overextending yourself by buying more than you can
afford.
 
PART VI. FINDING THE RIGHT LOAN FOR YOU
 
54. HOW DO I CHOOSE THE BEST LOAN PROGRAM FOR ME?
 
Your personal situation will determine the best kind of
loan for you. By asking yourself a few questions, you can
help narrow your search among the many options available
and discover which loan suits you best.
 
* Do you expect your finances to changeover the next
few years?
* Are you planning to live in this home for a long
period of time?
* Are you comfortable with the idea of a changing
mortgage payment amount?
* Do you wish to be free of mortgage debt as your
children approach college age or as you prepare for
retirement?
 
Your lender can help you use your answers to questions
such as these to decide which loan best fits your needs.
 
55. WHAT IS THE BEST WAY TO COMPARE LOAN TERMS BETWEEN
LENDERS?
 
First, devise a checklist for the information from each
lending institution. You should include the company's name
and basic information, the type of mortgage, minimum down
payment required, interest rate and points, closing costs,
loan processing time, and whether prepayment is allowed.
 
Speak with companies by phone or in person. Be sure to
call every lender on the list the same day, as interest
rates can fluctuate daily. In addition to doing your own
research, your real estate agent may have access to a
database of lender and mortgage options. Though your agent
may primarily be affiliated with a particular lending
institution, he or she may also be able to suggest a
variety of different lender options to you.
 
56. ARE THERE ANY COSTS OR FEES ASSOCIATED WITH THE LOAN
ORIGINATION PROCESS?
 
Yes. When you turn in your application, you'll be required
to pay a loan application fee to cover the costs of
underwriting the loan. This fee pays for the home
appraisal, a copy of your credit report, and any
additional charges that may be necessary. The application
fee is generally non-refundable.
57. WHAT IS RESPA?
 
RESPA stands for Real Estate Settlement Procedures Act. It
requires lenders to disclose information to potential
customers throughout the mortgage process. By doing so, it
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, visit the web page at
http:/www.hud.gov/fhq/res/respa-hm.htmI or call
1-800-217-6970 for a local counseling referral.
 
58. WHAT IS A GOOD FAITH ESTIMATE, AND HOW DOES IT HELP
ME?
 
It's an estimate that lists all fees paid before closing,
all closing costs, and any escrow costs you will encounter
when purchasing a home. The lender must supply it within
three days of your application so that you can make
accurate judgments when shopping for a loan.
 
59. 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).
60. 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 I about your credit problems, past and
present.
* Be honest about your intention to occupy the house.
* Do not provide false supporting documents.
 
PART VII. CLOSING
61. WHAT HAPPENS AFTER I HAVE APPLIED FOR A LOAN?
 
It usually takes a lender between 1-6 weeks to complete
the evaluation of your application. It's not unusual for
the lender to ask for more information once the
application has been submitted. The sooner you can provide
the information, the faster your application will be
processed. Once all the information has been verified, the
lender will call you to let you know the outcome of your
application. If the loan is approved, a closing date is
set up and the lender will review the closing process with
you. And after closing, you'll be able to move into your
new home.
 
62. WHAT SHOULD I LOOK OUT FOR DURING THE FINAL
WALK-THROUGH?
 
This will likely be the first opportunity to examine the
house without furniture, giving you a clear view of
everything. Check the walls and ceilings carefully, as
well as any work the seller agreed to do in response to
the inspection. Any problems discovered previously that
you find uncorrected should be brought up prior to
closing. It is the seller's responsibility to fix them.
 
63. WHAT MAKE UP CLOSING COSTS?
 
There may be closing costs customary or unique to a
certain locality, but closing costs are usually made up of
the following:
 
* Attorney's or escrow fees (yours and your lender's if
applicable)
* Property taxes (to cover tax period to date)
* Interest (paid from date of closing to 30 days before
first monthly payment)
* Loan origination fee (covers lender's administrative
costs)
* Recording fees
* Survey fee
* First premium of mortgage insurance (if applicable)
* Title insurance (yours and your lender's)
* Loan discount points
* First payment to escrow account for future real
estate taxes and insurance
* Paid receipt for homeowner's insurance policy (and
fire and flood insurance if applicable)
* Any documentation preparation fees
64. WHAT CAN I EXPECT TO HAPPEN ON CLOSING DAY?
 
You'll present your paid homeowner's insurance policy or a
binder and receipt showing that the premium has been paid.
The closing agent will then list the money you owe the
seller (remainder of down payment, prepaid taxes, etc.)
and then the money the seller owes you (unpaid taxes and
prepaid rent, if applicable). The seller will provide
proofs of any inspection, warranties, etc.
 
Once you're sure you understand all the documentation,
you'll sign the mortgage, agreeing that if you don't make
payments the lender is entitled to sell your property and
apply the sale price against the amount you owe plus
expenses. You'll also sign a mortgage note, promising to
repay the loan. The seller will give you the title to the
house in the form of a signed deed.
 
You'll pay the lender's agent all closing costs and, in
turn, he or she will provide you with a settlement
statement of all the items for which you have paid. The
deed and mortgage will then be recorded in the state
Registry of Deeds, and you will be a homeowner.
 
65. WHAT DO I GET AT CLOSING?
 
* Settlement Statement, HUD-1 Form (itemizes services
provided and the fees charged; it is filled out by
the closing agent and must be given to you at or
before closing)
* Truth-in-Lending Statement
* Mortgage Note
* Mortgage or Deed of Trust
* Binding Sales Contract (prepared by the seller; your
lawyer should review it)
* Keys to your new home
 
PART VIII. CAN HUD AND THE FHA HELP ME BECOME A HOMEOWNER?
66. WHAT IS THE U.S. DEPARTMENT OF HOUING 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 U.S. 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.
 
67. 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.
 
68. 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.
 
69. 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.
70. HOW IS THE FHA FUNDED?
 
Lender claims paid by the FHA mortgage insurance program
are drawn from the Mutual Mortgage Insurance fund. This
fund is made up of premiums paid by FHA-insured loan
borrowers. No tax dollars are used to fund the program.
 
71. WHO CAN QUALIFY FOR FHA LOANS?
 
Anyone who meets the credit requirements, can afford the
mortgage payments and cash investment, and who plans to
use the mortgaged property as a primary residence may
apply for an FHA-insured loan.
 
72. WHAT IS THE FHA LOAN LIMIT?
 
FHA loan limits vary throughout the country, from $115,200
in low-cost areas to $208,800 in highcost areas. The loan
maximums for multi-unit homes are higher than those for
single units and also vary by area.
 
Because these maximums are linked to the conforming loan
limit and average area home prices, FHA loan limits are
periodically subject to change. Ask your lender for
details and confirmation of current limits.
 
73. WHAT ARE THE STEPS INVOLVED IN THE FHA LOAN PROCESS?
 
With the exception of a few additional forms, the FHA loan
application process is similar to that of a conventional
loan (see Question 47). With new automation measures, FHA
loans may be originated more quickly than before. And, if
you don't prefer a face-to-face meeting, you can apply for
an FHA loan via mail, telephone, the Internet, or video
conference.
74. HOW MUCH INCOME DO I NEED TO HAVE TO QUALIFY FOR AN
FHA LOAN?
 
There is no minimum income requirement. But you must prove
steady income for at least three years, and demonstrate
that you've consistently paid your bills on time.
 
75. 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.
 
76. 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.
77. WHAT IS THE DEBT-TO-INCOME RATIO FOR FHA LOANS?
 
The FHA allows you to use 29% of you income towards
housing costs and 41% towards housing expenses and other
long-tem debt. With a conventional loan, this qualifying
ratio allows only 28% toward housing and 36% towards
housing and other debt.
 
78. CAN I EXCEED THE RATIO?
 
You may qualify to exceed if you have:
 
* A large down payment
* A demonstrated ability to pay more toward you housing
expenses
* Substantial cash reserves
* Net worth enough to repay the mortgage regardless of
income
* Evidence of acceptable credit history or limited
credit use
* Less-than-maximum mortgage terms
* Funds provided by an organization
* A decrease in monthly housing expenses
 
79. HOW LARGE A DOWN PAYMENT DO I NEED WITH AN FHA LOAN?
 
You must have a down payment of at least 3% of the
purchase price of the home. Most affordable loan programs
offered by private lenders require between a 3% - 5% down
payment, with a minimum of 3% coming directly from the
borrower's own funds.
 
80. WHAT CAN I USE TO PAY THE DOWN PAYMENT AND CLOSING
COSTS OF AN FHA LOAN?
 
Besides your own funds, you may use cash gifts or money
from a private savings club. If you can do certain repairs
and improvements yourself, your labor may be used as part
of a down payment (called "sweat equity"). If you are
doing a lease purchase, paying extra rent to the seller
may also be considered the same as accumulating cash.
 
81. HOW DOES MY CREDIT HISTORY IMPACT MY ABILITY TO
QUALIFY?
 
The FHA is generally more flexible than conventional
lenders in its qualifying guidelines. In fact, the FHA
allows you to re-establish credit if:
 
* two years have passed since a bankruptcy has been
discharged
* all judgments have been paid
* any outstanding tax liens have been satisfied or
appropriate arrangements have been made to establish
a repayment plan with the IRS or state Department of
Revenue
* three years have passed since a foreclosure or a
deed-in-lieu has been resolved
 
82. CAN I QUALIFY FOR AN FHA LOAN WITHOUT A CREDIT
HISTORY?
 
Yes. If you prefer to pay debts in cash or are too young
to have established credit, there are other ways to prove
your eligibility. Talk to your lender for details.
83. WHAT TYPES OF CLOSING COSTS ARE ASSOCIATED WITH
FHA-INSURED LOANS?
 
Except for the addition of an FHA mortgage insurance
premium, FHA closing costs are similar to those of a
conventional loan outlined in Question 63. The FHA
requires a single, up-front mortgage insurance premium
equal to 2.25% of the mortgage to be paid at closing (or
1.75% if you complete the HELP program- see Question 91).
This initial premium may be partially refunded if the loan
is paid in full during the first seven years of the loan
term. After closing, you will then be responsible for an
annual premium - paid monthly - if your mortgage is over
15 years or if you have a 15-year loan with an LTV greater
than 90%.
 
84. CAN I ROLL CLOSING COSTS INTO MY FHA LOAN?
 
No. Though you can't roll closing costs into your FHA
loan, you may be able to use the amount you pay for them
to help satisfy the down payment requirement. Ask your
lender for details.
 
85. ARE FHA LOANS ASSUMABLE?
 
Yes. You can assume an existing FHA-Insured loan, or, if
you are the one deciding to sell, allow a buyer to assume
yours. Assuming a loan can be very beneficial, since the
process is stream lined and less expensive compared to
that for a new loan. Also, assuming a loan can often
result in a lower interest rate. The application process
consists basically of a credit check and no property
appraisal is required. And you must demonstrate that you
have enough income to support the mortgage loan. In this
way, qualifying to assume a loan is similar to the
qualification requirements for a new one.
 
86. WHAT SHOULD I DO IF I CAN'T MAKE A PAYMENT ON MY 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.
87. 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: 1-800-877-8339) 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 you to 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 may be 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 set by
Fannie or Freddie 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.
 
PART IX. MORTGAGE INSURANCE
88. 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%.
 
89. 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.
 
90. 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% of the purchase price of the
home. The FHA offers several loan programs that may meet
your needs. Ask your lender for details.
 
91. 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 like you begin the homebuying
process. It covers such topics as budgeting, finding a
home, getting a loan, and home maintenance. In most cases,
completion of this program may entitle you to a reduction
in the initial FHA mortgage insurance premium from 2.25%
to 1.75% of the purchase price of your new home.
92. WHAT IS PMI?
 
PMI stands for Private Mortgage insurance or Insurer.
These are privately-owned companies that provide mortgage
insurance. They offer both standard and special affordable
programs for borrowers. These companies provide guidelines
to lenders that detail the types of loans they will
insure. Lenders use these guidelines to determine borrower
eligibility. PMI's usually have stricter qualifying ratios
and larger down payment requirements than the FHA, but
their premiums are often lower and they insure loans that
exceed the FHA limit.
 
PART X. FHA PRODUCTS
 
93. 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.
 
94. 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.
95. 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 EEMs 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;
condos are not.
* The improvements financed may be 5% of property value
or $4,000, whichever is greater. The total must fall
within the FHA loan limit.
 
96. WHAT IS THE FHA BRIDAL REGISTRY PROGRAM?
 
Just as you might register at a department store for
wedding gifts, the Bridal Registry program allows couples
to register with a lender and open up an interest-bearing
account. Family and friends can deposit wedding gifts of
cash into this account. These gifts can then be applied
toward a down payment on a home. Ask your lender for
details.
 
97. 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.
98. 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.
 
99. HOW CAN I OBTAIN AN FHA-INSURED LOAN?
 
Contact any 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 at http://www.hud.gov or
call a HUD-approved counseling agency at 1-800-569-4287 or
TDD: 1-800-877-8339.
 
100. HOW CAN I CONTACT HUD?
 
Visit the web site at http://www.hud.gov or look in the
phone book "blue pages" for a listing of the HUD office
near you.
 
GLOSSARY
 
203(b): FHA program which provides mortgage insurance to
protect lenders from default; used to finance the purchase
of new or existing one- to four family housing;
characterized by low down payment, flexible qualifying
guidelines, limited fees, and a limit on maximum loan
amount of taxation
 
203(k): this FHA mortgage insurance program enables
homebuyers to finance both the purchase of a house and the
cost of its rehabilitation through a single mortgage loan
 
 
A
 
Amenity: a feature of the home or property that serves as
a benefit to the buyer but that is not necessary to its
use; may be natural (like location, woods, water) or
man-made (like a swimming pool or garden)
 
Amortization: repayment of a mortgage loan through monthly
installments of principal and interest; the monthly
payment amount is based on a schedule that will allow you
to own your home at the end of a specific time period (for
example, 15 or 30 years)
 
Annual Percentage Rate (APR): calculated by using a
standard formula, the APR shows the cost of a loan;
expressed as a yearly interest rate, it includes the
interest, points, mortgage insurance, and other fees
associated with the loan
 
Application: the first step in the official loan approval
process; this form is used to record important information
about the potential borrower necessary to the underwriting
process
 
Appraisal: a document that gives an estimate of a
property's fair market value; an appraisal is generally
required by a lender before loan approval to ensure that
the mortgage loan amount is not more than the value of the
property
 
Appraiser: a qualified individual who uses his or her
experience and knowledge to prepare the appraisal estimate
 
ARM: Adjustable Rate Mortgage; a mortgage loan subject to
changes in interest rates; when rates change, ARM monthly
payments increase or decrease at intervals determined by
the lender; the change in monthly payment amount, however,
is usually subject to cap
 
Assessor: a government official who is responsible for
determining the value of a property for the purpose of
taxation
 
Assumable mortgage: a mortgage that can be transferred
from a seller to a buyer; once the loan is assumed by the
buyer, the seller is no longer responsible for repaying
it; there may be a fee and / or credit package involved in
the transfer of an assumable mortgage.
 
 
B
 
Balloon Mortgage: a mortgage that typically offers low
rates for an initial period of time (usually 5, 7, or lO)
years; after that time period elapses, the balance is due
or is refinanced by the borrower
 
Bankruptcy: a federal law whereby a person's assets are
turned over to a trustee and used to pay off outstanding
debts; this usually occurs when someone owes more than
they have the ability to repay
 
Borrower: a person who has been approved to receive a loan
and is then obligated to repay it and any additional fees
according to the loan terms
 
Bridal Registry: a program supported by the FHA that
allows couples to open ("register" for) a bridal registry
account into which family and friends can deposit gifts of
cash; the funds in this account may then be used for a
down payment on a house
 
Building code: based on agreed upon safety standards
within a specific area, a building code is a regulation
that determines the design, construction, and materials
used in building
 
Budget: a detailed record of all income earned and spent
during a specific period of time
 
 
C
 
Cap:a limit, such as that placed on an adjustable rate
mortgage, on how much a monthly payment or interest rate
can increase or decrease
 
Cash reserves: a cash amount sometimes required to be held
in reserve in addition to the down payment and closing
costs; the amount is determined by the lender
 
Certificate of title: a document provided by a qualified
source (such as a title company) that shows the property
legally belongs to the current owner; before the title is
transferred at closing, it should be clear and free of all
liens or other claims
 
Closing: also known as settlement, this is the time at
which the property is formally sold and transferred from
the seller to the buyer; it is at this time that the
borrower takes on the loan obligation, pays all closing
costs, and receives title from the seller
 
Closing costs: customary costs above and beyond the sale
price of the property that must be paid to cover the vary
by geographic location and are typically detailed to the
borrower after submission of a loan application
 
Commission: an amount, usually a percentage of the
property sales price, that is collected by a real estate
professional as a fee for negotiating the transaction
 
Condominium: a form of ownership in which individuals
purchase and own a unit of housing in a multi-unit
complex; the owner also shares financial responsibility
for common areas
 
Conventional loan: a private sector loan, one that is not
guaranteed or insured by the U.S. government
 
Cooperative (Co-op): residents purchase stock in a
cooperative corporation that owns a structure; each
stockholder is then entitled to live in a specific unit of
the structure and is responsible for paying a portion of
the loan
 
Credit history: history of an individual's debt payment;
lenders use this information to gauge a potential
borrower's ability to repay a loan
 
Credit report: a record that lists all post and present
debts and the timeliness of their repayment; it documents
an individual's credit history
 
Credit bureau score: number representing the of
possibility a borrower may default; it is based upon
credit history and is used to determine ability to qualify
for a mortgage loan transfer of ownership at closing;
these costs generally
D
 
Debt-to-income ratio: a comparison of gross income to
housing and non-housing expenses; with the FHA, the
monthly mortgage payment should be no more than 29% of
monthly gross income (before taxes) and the mortgage
payment combined with non-housing debts should not exceed
41% of income
 
Deed: the document that transfers ownership of a property
 
Deed-in-lieu: to avoid foreclosure ("in lieu" of
foreclosure), a deed is given to the lender to fulfill the
obligation to repay the debt; this process doesn't allow
the borrower to remain in the house but helps avoid the
costs, time, and effort associated with foreclosure
 
Default: the inability to pay monthly mortgage payments in
a timely manner or to otherwise meet the mortgage terms
 
Delinquency: failure of a borrower to make timely mortgage
payments under a loan agreement
 
Discount point: normally paid at closing and generally
calculated to be equivalent to 1% of the total loan
amount, discount points are paid to reduce the interest
rate on a loan
 
Down payment: the portion of a home's purchase price that
is paid in cash and is not part of the mortgage loan
 
 
E
 
Earnest money: money put down by a potential buyer to show
that he or she is serious about purchasing the home; it
becomes part of the down payment if the offer is accepted,
is returned if the offer is rejected, or is forfeited if
the buyer pulls out of the deal
 
EEM: Energy Efficient Mortgage; an FHA program that helps
homebuyers save money on utility bills by enabling them to
finance the cost of adding energy- efficiency features to
a new or existing home as part the home purchase
 
Equity: an owner's financial interest in a property;
calculated by subtracting the amount still owed on the
mortgage loan(s) from the fair market value of the
property
 
Escrow account: a with separate account into which the
lender puts a portion of each monthly mortgage payment; an
escrow account provides the funds needed for such expenses
as property taxes, homeowner's insurance, mortgage
insurance, etc.
 
 
F
 
Fair Housing Act: a law that prohibits discrimination in
all facets of the homebuying process on the basis of race,
color, national origin, religion, sex, familial status, or
disability
 
Fair market value: the hypothetical price that a willing
buyer and seller will agree upon when they are acting
freely, carefully, and with complete knowledge of the
situation
 
Fannie Mae: Federal National Mortgage Association (FNMA);
a federally-chartered enterprise owned by private
stockholders that purchases residential mortgages and
converts them into securities for sale an to investors; by
purchasing mortgages, Fannie Mae supplies funds that
lenders may loan to potentiaI homebuyers
 
FHA: Federal Housing Administration; established in 1934
to advance homeownership opportunities for all Americans;
assists homebuyers by providing mortgage insurance to
lenders to cover most losses that may occur when a
borrower defaults; this encourages lenders to make loans
to borrowers who might not qualify for conventional
mortgages
 
Fixed-rate mortgage: a mortgage with payments that remain
the same throughout the life of the loan because the
interest rate and other terms are fixed and do not change
 
Flood Insurance: insurance that protects homeowners
against losses from a flood; if a home is located in a
flood plain, the lender will require flood insurance
before approving a loan
 
Foreclosure: a legal process in which mortgaged property
is sold to pay the loan of the defaulting borrower
 
Freddie Mac: Federal Home Loan Mortgage Corporation
(FHLM); a federally-chartered corporation that purchases
residential mortgages, securitizes them, and sells them to
investors; this provides lenders with funds for new
homebuyers
 
 
G
 
Ginnie Mae: Government National Mortgage Association
(GNMA); a government-owned corporation overseen by the
U.S. Department of Housing and Urban Development, Ginnie
Mae pools FHA-insured and VA-guaranteed loans to back
securities for private investment; as with Fannie Mae and
Freddie Mac, the investment income provides funding that
may then be lent to eligible borrowers by lenders
 
Good faith estimate: an estimate of all closing fees
including pre-paid and escrow items as well as lender
charges; must be given to the borrower within three of the
situation days after submission of a loan application
 
 
H
 
HELP: Homebuyer Education Learning Program; an educational
program from the FHA that counsels people about the
homebuying process; HELP covers topics like budgeting,
finding a home, getting a loan, and home maintenance; in
most cases, completion of the program may entitle the
homebuyer to a reduced initial FHA mortgage insurance
premium-from 2.25% to 1.75% of the home purchase price
 
Home inspection: an examination of the structure and
mechanical systems to determine a home's safety; makes the
potential homebuyer aware of any repairs that may be
needed
 
Home warranty: offers protection for mechanical systems
and attached appliances against unexpected repairs not
covered by home owners insurance; coverage extends over a
specific time period and does not cover home's structure
 
Homeowner's insurance: an insurance policy that combines
protection against damage to a dwelling and its contents
with protection against claims of negligence or
inappropriate action that results in someone's injury or
property damage
 
Housing counseling agency: provides counseling and
assistance to individuals on a variety of issues,
including loan default, fair housing, and homebuying
 
HUD: the U.S. Department of Housing and Urban Development;
established in 1965, HUD works to create a decent home and
suitable living environment for all Americans; it does
this by addressing housing needs, improving and developing
American communities, and enforcing fair housing laws
 
HUD-1 Statement: also known as the 'settlement sheet," it
Itemizes all closing costs; must be given to the borrower
at or before closing
 
HVAC: Heating, Ventilation and Air Conditioning; a home's
heating and cooling system
 
 
I
 
Index: a measurement used by lenders to determine changes
to the interest rate charged on an adjustable rate
mortgage
 
Inflation: the number of dollars in circulation exceeds
the amount of goods and services available for purchase;
inflation results in a decrease in the dollar's value
 
Interest: a fee charged for the use of money
 
Interest rate: the amount of interest charged on a monthly
loan payment; usually expressed as a percentage
 
Insurance: protection against a specific loss over a
period of time that is secured by the payment of a
regularly scheduled premium
 
 
J
 
Judgment: a legal decision; when requiring debt repayment,
a judgment may include a property lien that secures the
creditor's claim by providing a collateral source
 
 
L
 
Lease purchase: assists low-to moderate-income homebuyers
in purchasing a home by allowing them to lease a home with
an option to buy; the rent payment is made up of the
monthly rental payment plus an additional amount that is
credited to an account for use as a down payment
 
Lien: a legal claim against property that must be
satisfied when the property is sold
 
Loan: money borrowed that is usually repaid with interest
 
Loan fraud: purposely giving incorrect information on a
loan application in order to better qualify for a loan;
may result in civil liability or criminal penalties
 
Loan-to-value (LTV) ratio: a percentage calculated by
dividing the amount borrowed by the price or appraised
value of the home to be purchased; the higher the LTV, the
less cash a borrower is required to pay as down payment
 
Lock-in: since interest rates can change frequently, many
lenders offer an interest rate lock-in that guarantees a
specific interest rate if the loan is closed within a
specific time
 
Loss mitigation: a process to avoid foreclosure; the
lender tries to help a borrower who has been unable to
make loan payments and is in danger of defaulting on his
or her loan
 
 
M
 
Margin: an amount the lender adds to an index to determine
the interest rate on an adjustable rate mortgage
 
Mortgage: a lien on the property that secures the promise
to repay a loan
 
Mortgage banker: a company that originates loans and
resells them to secondary mortgage lenders likeFannie Mae
or Freddie Mac
 
Mortgage broker: a firm that originates and processes
loans for a number of lenders
 
Mortgage insurance: a policy that protects lenders against
some or most of the losses that can occur when a borrower
defaults on a mortgage loan; mortgage insurance is
required primarily for borrowers with a down payment of
less than 20% of the home's purchase price
 
Mortgage insurance premium (MIP): a monthly payment -
usually part of the mortgage payment &endash; paid by a borrower
for mortgage insurance
 
Mortgage Modification: a loss mitigation option that
allows a borrower to refinance and/or extend the term of
the mortgage loan and thus reduce the monthly payments
 
 
O
 
Offer: indication by a potential buyer of a willingness to
purchase a home at a specific price; generally put forth
in writing
 
Origination: the process of preparing, submitting, and
evaluating a loan application; generally includes a credit
check, verification of employment, and a property
appraisal
 
Origination Fee: the charge for originating a loan; is
usually calculated in the form of points and paid at
closing
 
 
P
 
Partial Claim: a loss mitigation option offered by the FHA
that allows a borrower, with help from a lender, to get an
interest-free loan from HUD to bring their mortgage
payments up to date
 
PITI: Principal, Interest, Taxes and Insurance -the four
elements of a monthly mortgage payment; payments of
principal and interest go directly towards repaying the
loan while the portion that covers taxes and insurance
(homeowner's and mortgage, if applicable) goes into an
escrow account to cover the fees when they are due
 
PMI: Private Mortgage Insurance; privately-owned companies
that offer standard and special affordable mortgage
insurance programs for qualified borrowers
 
Pre-approve: lender commits to lend to a potential
borrower; commitment remains as long as the borrower still
meets the qualification requirements at the time of
purchase
 
Pre-foreclosure sale: allows a defaulting borrower to sell
the mortgaged property to satisfy the loan and avoid
foreclosure
 
Pre-qualify: a lender informally determines the maximum
amount an individual is eligible to borrow
 
Premium: an amount paid on a regular schedule by a
policyholder that maintains insurance coverage
 
Prepayment: payment of the mortgage loan before the
scheduled due date; may be subject to a prepayment penalty
 
Principal: the amount borrowed from a lender; doesn't
include interest or additional fees
 
 
R
 
Radon: a radioactive gas found in some homes that, if
occurring in strong enough concentrations, can cause
health problems
 
Real estate agent: an individual who is licensed to
negotiate and arrange real estate sales; works for a real
estate broker
 
REALTOR: a real estate agent or broker who is a member of
the NATIONAL ASSOCIATION OF REALTORSand its local and
state associations
 
Refinancing: paying off one loan by obtaining another;
refinancing is generally done to secure better loan terms
(like a lower interest rate) costs of rehabilitation and
home purchase into one
 
Rehabilitation mortgage: a mortgage that covers the costs
of rehabilitating (repairing or improving) a property;
some rehabilitation mortgages- like FHA's 203(k) - allow a
borrower to roll the mortgage loan
 
RESPA: Real Estate Settlement Procedures Act; a law
protecting consumers from abuses during the residential
real estate purchase and loan process by requiring lenders
to disclose all settlement costs, practices, and
relationships
 
 
S
 
Settlement: another name for closing
 
Special Forbearance: a loss mitigation option where the
lender arranges a revised repayment plan for the borrower
that may include a temporary reduction or suspension of
monthly loan payments
 
Subordinate: to place in a rank of lesser importance or to
make one claim secondary to another
 
Survey: a property diagram that indicates legal
boundaries, easements, encroachments, rights of way,
improvement locations, etc.
 
Sweat equity: using labor to build or improve a property
as part of the down payment
 
 
T
 
Title I: an FHA-insured loan that allows a borrower to
make non-luxury improvements (like renovations or repairs)
to their home; Title I loans less than $7,500 don't
require a property lien
 
Title insurance: insurance that protects the lender
against any claims that arise from arguments about
ownership of the property; also available for homebuyers
 
Title search: a check of public records to be sure that
the seller is the recognized owner of the real estate and
that there are no unsettled liens or other claims against
the property
 
Truth-in-Lending: a federal low obligating a lender to
give full written disclosure of all fees, terms, and
conditions associated with the loan
 
Two-step mortgage: a type of adjustable rate mortgage that
has one interest rate for a predetermined initial period
and then adjusts to another rate that lasts for the term
of the loan
U
 
Underwriting: the process of analyzing a loan application
to determine the amount of risk involved in making the
loan; it includes a review of the potential borrower's
credit history and a judgment of the property value
 
 
V
 
VA: Department of Veterans Affairs: a federal agency which
guarantees loans made to veterans; similar to mortgage
insurance, a loan guarantee protects lenders against loss
that may result from a borrower default
 
 
 
HUD HOME SCORECARD
 
Basic information
 
Home address
_______________________________________________________
 
General description
___________________________________________________
 
 
Asking price Taxes
__________________________ ________________________________
Total sq. footage
______________________ Lot size ________________________
Age No.of Bed/Bath
_________________________________ _____________________
 
Interior
Rooms Size Features
 
Living Room
 
Kitchen
 
Dining Room
 
Master Bedroom
 
Bedroom 2
 
Addt'l Bedrooms
 
Bathroom(s)
 
Closets
 
Basement/Attic
 
Laundry Area
 
Storage
 
Other
 
Condition & Comments
 
Appliances
Stove/Oven
_____________________________________________________________
Refrigerator
_________________________________________________________
Dishwasher
_________________________________________________________
Garbage disposal
_____________________________________________________
Other
______________________________________________________________
 
HVAC
 
Heat type
Forced air, heat pump, baseboard, radiators, etc.
_______________________________
System age/condition
_____________________________________________________
Heat source
___________________________________________________________
Electric, gas, oil
________________________________________________________
Air Conditioning
Type:________________________________________
 
Exterior
 
Condition
Surface (Wood, Stucco, Brick, Siding, etc.)
____________________________________
Comments
______________________________________________________________
Gutters
________________________________________________________________
 
Yard
Comments
______________________________________________________________
NaturaI features
__________________________________________________________
Landscaping
____________________________________________________________
 
Additional Features
Porch, Deck, Patio, etc.
____________________________________________________
Garage/Carport
__________________________________________________________
 
Neighborhood
Location/Community
_________________________________________________________________
Close to:
Work
__________________________________________________________________
Schools or Daycare
_______________________________________________________
Other
__________________________________________________________________
 
Water source (City or Well) _________________________
 
Sewer or Septic________________________________________
 
Trash pickup____________________________
 
Emergency services
Police station
___________________________________________________________
Fire station
_____________________________________________________________
Hospital


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