First Time Home Buyers
Purchasing a Home in Houston / Are You Ready?
How do you decide if you are ready to buy a new home? There really are only four areas that need to be addressed. If you answer in the affirmative to any of these questions, it is a good indication that you are ready to buy a home.
First, how is your employment record? Lenders are looking for consistency and stability. Usually, most lenders want to see a stable work record of at least two to three years. While it is a good idea to have been at the same place for two years, lenders favorably approve moving from job to job if that move is the result of a promotion or better pay. Another thing lenders look at is if there are any gaps in your work history. Sometimes there may be circumstances such as military discharge, school graduation, illness, or layoffs that cause work gaps. As long as these gaps can be explained, lenders will be appeased.
Next, how is your credit? Your credit report or history usually can give lenders a clear indication of your repayment history and how you deal with your bills. Your credit report is obtained from credit card companies, banks that have lent you money, department stores and gas companies that have issued you a credit card. Lenders are particularly looking to see if you pay your bills on time and if you are faithful to the credit obligations that you agreed upon when you applied for and began using your credit cards. Being late with a payment or going over your credit limit once or twice will not hurt your chance at a mortgage loan if these incidents can be explained and do not indicate a pattern of credit abuse.
Another question which is probably the most important is how are your saving habits? Almost all homebuyers are seeking a mortgage loan. Most lenders will not cover the full amount of the loan and insist on the applicant contributing some part of the total price. A standard down payment usually consists of five percent of the total cost of the home. A $200,000 home will require a down payment of at least $10,000. Some lenders require only three percent of the cost of the home as a down payment but usually it is five. Additional costs that you will incur right away will be closing costs. Closing costs mainly are legal fees that that deal with the transference of property to your name. This includes legally registering your land title and your property deed. Closing costs usually run between three and six percent of the total cost of the home. Accumulating sufficient funds to cover these expenses is probably one of the hardest aspects of purchasing a home.
Finally, decide how much you can afford monthly for the house of your choice. Usually the amount of your monthly mortgage payment is limited to twenty eight percent of your gross monthly income while the monthly amount of total debt is thirty six percent. Staying within these two figures should insure an affordable monthly mortgage payment.
If you were not able to answer all of these questions favorably, now may not be the right time for you to purchase a home, or you might consider buying a home that you can more easily afford instead of what you desire. It is all right to lower your sights just a little bit for your starter home. Chances are you will be able to afford your ideal home shortly or at the very least be able to start an informed savings plan knowing exactly what lenders look for. On-Line Real Estate Solutions can put you in touch with one of our personal financial planners to assist in beginning your journey to that new home. If this all seems impossible right now, continue to rent until you meet these criteria:
Here is some additional information for buying a home
Sales Price. For most home purchasers, the sales price is the most important term. Recognize that other non-monetary terms of the agreement are also important.
Title. "Title" refers to the legal ownership of your new home. The seller should provide title, free and clear of all claims by others against your new home. Claims by others against your new home are sometimes known as "liens" or "encumbrances." You may negotiate who will pay for the title search which will tell you whether the title is "clear."
Mortgage Clause. The agreement of sale should provide that your deposit will be refunded if the sale has to be canceled because you are unable to get a mortgage loan. For example, your agreement of sale could allow the purchase to be canceled if you cannot obtain mortgage financing at an interest rate at or below a rate you specify in the agreement.
Pests. Your lender will require a certificate from a qualified inspector stating that the home is free from termites and other pests and pest damage. You may want to reserve the right to cancel the agreement or seek immediate treatment and repairs by the seller if pest damage is found.
Home Inspection. It is a good idea to have the home inspected. An inspection should determine the condition of the plumbing, heating, cooling and electrical systems. The structure should also be examined to assure it is sound and to determine the condition of the roof, siding, windows and doors. The lot should be graded away from the house so that water does not drain toward the house and into the basement.
Most buyers prefer to pay for these inspections so that the inspector is working for them, not the seller. You may wish to include in your agreement of sale the right to cancel, if you are not satisfied with the inspection results. In that case, you may want to re-negotiate for a lower sale price or require the seller to make repairs.
Lead-Based Paint Hazards in Housing Built Before 1978. If you buy a home built before 1978, you have certain rights concerning lead-based paint and lead poisoning hazards. The seller or sales agent must give you the EPA pamphlet "Protect Your Family From Lead in Your Home" or other EPA-approved lead hazard information. The seller or sales agent must tell you what the seller actually knows about the home's lead-based paint or lead-based paint hazards and give you any relevant records or reports.
You have at least ten (10) days to do an inspection or risk assessment for lead-based paint or lead-based paint hazards. However, to have the right to cancel the sale based on the results of an inspection or risk assessment, you will need to negotiate this condition with the seller.
Finally, the seller must attach a disclosure form to the agreement of sale which will include a Lead Warning Statement. You, the seller, and the sales agent will sign an acknowledgment that these notification requirements have been satisfied.
Other Environmental Concerns. Your city or state may have laws requiring buyers or sellers to test for environmental hazards such as leaking underground oil tanks, the presence of radon or asbestos, lead water pipes, and other such hazards, and to take the steps to clean-up any such hazards. You may negotiate who will pay for the costs of any required testing and/or clean-up.
Sharing of Expenses. You need to agree with the seller about how expenses related to the property such as taxes, water and sewer charges, condominium fees, and utility bills, are to be divided on the date of settlement. Unless you agree otherwise, you should only be responsible for the portion of these expenses owed after the date of sale.
Settlement Agent/Escrow Agent. Depending on local practices, you may have an option to select the settlement agent or escrow agent or company. For states where an escrow agent or company will handle the settlement, the buyer, seller and lender will provide instructions.
Settlement Costs. You can negotiate which settlement costs you will pay and which will be paid by the seller.
At settlement it is usually necessary to make an adjustment between buyer seller are shown in Sections J and K of the HUD-1 Settlement Statement. In the example given above, the taxes, which are payable annually, had not yet been paid when the settlement occurs on July 1. The borrower will have to pay a whole year's taxes on the following December 1. However, the seller lived in the house for the first six months of the year. Thus, one half of the year's taxes are to be paid by the seller. Accordingly, lines 211 and 511 on the HUD-1 Settlement Statement would read as follows:
211. County taxes 1/1/97 to 6/30/97 $600.00 • 511. County taxes 1/1/97 to 6/30/97 $600.00
The borrower is given credit for this amount at the settlement and the seller will pay this amount or count it as a deduction from sums payable to the seller.
Similar adjustments are made for homeowner association dues, special assessments, and fuel and other utilities, although the billing periods for these may not always be on an annual basis. Be sure you work out these cost sharing arrangements or "prorations" with the seller before the settlement. You may wish to notify utility companies of the change in ownership and ask for a special reading on the day of settlement, with the bill for pre-settlement charges to be mailed to the seller at his or her new address or to the settlement agent. This will eliminate much confusion that can result if you are billed for utilities used when the seller owned the property.
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