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