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Buying a Home
If the time has come to fulfill the own-your-own-home section of the
American Dream, you have three basic types
of homes to choose from:
- Single family homes. Free-standing houses that
occupy a parcel of land that the homeowner also owns.
- Condominiums. Owners hold title to one
unit in an apartment building or town house complex.
- Cooperatives. A kind of corporation that
owns property in an apartment building and whose shareholders receive
proprietary leases on one unit.
To Buy or Not to Buy
The Pros:
- Security - you won't have to
move
- You can renovate, decorate,
personalize
- Accumulate equity
- Value of property can rise
- Substantial tax advantages
- Pride of ownership
The Cons:
- Large cash down payment
required
- Large monthly payments
- Ties up capital
- Property can decrease in
value
- You are responsible for
maintenance, repairs, taxes, legal liability
- More difficult to move
What Can You Afford?
Many factors combine to determine how much you can afford - i.e. how much you
can borrow - to pay for a home but some rules of thumb apply. Although many
other deals are available, you'll need to come up with a down payment of 20
percent of the purchase price to get the best mortgage rates and avoid paying
mortgage insurance premiums. A 20 percent down payment for a $168,300 home -
the mean U.S. sales price of existing single-family homes in 1999 - is
$33,660. You'll also need to come up with an application fee, loan
origination fees, and closing
costs, which range of from 3-6 percent or the purchase price
($5,049-$10,098 in this example) to complete the transaction.
Mortgage lenders use two formulas to determine if you're likely to meet
your monthly payments. With regard to the amount of monthly payments, the
rule of thumb is that you should pay no more than 30 percent of your gross
income. If your gross income is $3,500 a month, the mortgage payment should not
exceed $1,050. Also your total debt ratio should be below 40 percent - that
is, the mortgage payment plus all the rest of your debt (school loans, car,
other debts) should be under $1,400.
Finding Your Home
The home buying
process usually begins with a real estate
broker. Brokers know the inventory in your target neighborhoods and, if
they're good at what they do, they'll soon know you. But brokers are legally
- and in reality - agents of the sellers, who pay them a commission that
usually runs from 5-7 percent of the purchase price. Property sold without
agents are known as FSBOs, for For Sale By Owner.
Once You've Found Your Home
Negotiating
the sale
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Make an offer. Present written document stating how much
you're willing to pay and any contingencies on sale. Include a check for
$100-$500 to indicate sincerity and set a time limit to consider offer.
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Seller accepts, rejects, makes counteroffer. Negotiations
continue until agreement is reached or deal is terminated.
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Execute binder. Binder locks in agreed-upon price and is accompanied
by earnest money deposit - of up to 10 percent of the asking price. Binders
include provisions that purchase contract for sale must be signed within
specified period.
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Sign purchase contract. Contract documents details of sale,
including contingencies that buyer obtains financing, house passes termite
and other types of inspection, home repairs are made.
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What's a Mortgage?
A mortgage is simply a loan from a financial institution to buy property that
is used as collateral for the loan. The three main elements of a mortgage
are:
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Amount. How much you owe: If you place a 20 percent down
payment on the hypothetical $168,300 home, the amount of your mortgage is
$134,640.
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Interest rate. The rate is determined by current market
conditions, competition
among lenders, your credit-worthiness.
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Term. How long you have to pay off the loan, most commonly 15 or 30
years.
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Mortgages
fall into two general categories: fixed rate mortgages in which you repay the
lender in equal monthly installments of principal and interest over the
entire length of the loan; or adjustable rate mortgages ("ARMs")
which initially have lower rates than fixed-rate loans but which fluctuate up
or down on a regular schedule according to an index designated by your
lender.
Do I Need a Lawyer?
Whether or not you need a
lawyer to help you buy your home depends on the situation. If you're not
using a broker or have concerns about surveys, titles, closing documents,
a good real
estate lawyer can be a big help.
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Community: Buying a
Home
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Real Estate Law - Post
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Subject:
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Can
I legally break a lease agreement?
By
Donnie Schaefer, May 11, 05:32 A.M. EST
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Tax
Free Exchange
By
David Laube, April 22, 11:39 P.M. EST
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Re:
Tax Free Exchange
By
winston snell, May 08, 12:12 P.M. EST
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Is
it illegal to kick a person out of a non-rental property, on a verbal
month-to-month lease...
By
Christopher Klang, April 05, 06:26 P.M. EST
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Re:
Is it illegal to kick a person out of a non-rental property, on a verbal
month-to-month lease...
By
william K, April 12, 01:47 A.M. EST
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roommates
moved out from 1-year lease after 3 months...now landlord suing me for rent
By
Nicki Mathis, April 04, 05:24 P.M. EST
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Re:
roommates moved out from 1-year lease after 3 months...now landlord suing
me for rent
By
william K, April 12, 01:52 A.M. EST
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Partition
Lawsuit
By
Alison Reynolds, April 02, 01:17 P.M. EST
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Re:
Partition Lawsuit
By
william K, April 12, 01:54 A.M. EST
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Is
the builder responsible for repairs?
By
Karen Ladd, March 29, 12:22 P.M. EST
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.gif)
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Median Sales Price
of Existing Single-Family Homes:
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1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
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$133,300
128,400
121,800
115,800
110,500
107,200
103,100
99,700
97,100
92,000
89,500
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Source: National Association of
Realtors. Last Updated on 03/21/2000 by NAHB Economics Department
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