HOME OWNERSHIP
Home ownership is possibly one of the most important decisions you will ever make. With each mortgage payment, you are developing long term credit and building equity in property that you own. Not only do you acquire this equity, but it can be passed on to future generations as well. There is also a certain pride in home ownership. The feeling of permanence, sense of place, and connection to the community is enhanced when you own your own home. While home ownership has many positive aspects, it also comes with many new responsibilities that people who have previously rented are not accustomed to. In addition to your mortgage payment, you will also be responsible for taxes, insurance, regularly scheduled maintenance, and any unexpected repairs. It is very important that you plan and budget for all of these new responsibilities and always remember to put aside a little extra for the unexpected.
This chapter is designed to help you with your home buying decisions.
SELECTING AN EXISTING HOUSE There are many ways to go about finding your dream home and many sources of information. Homes that are for sale are listed in the newspaper, special advertising publications by REALTORS, the REALTORS Multiple Listing Service, and on the Internet.
Homes in some neighborhoods sell very quickly, and may actually sell before they have been advertised. It pays to be familiar with neighborhoods you are interested in and constantly keep watch for properties entering the market. Sometimes homes are "For Sale By Owner" with no formal advertising or marketing at all.
Its also wise to research the values of homes being sold in various neighborhoods, so that when it's your turn you can be a wise shopper. Information on real estate transactions is available from the Pinellas County Property Appraiser's Office on the Internet at http://pao.co.pinellas.fl.us
As with any important purchase, the more knowledge you have beforehand, the better off you will be when you make your purchase.
The following Inspection Checklist may be useful, whether you are purchasing an existing home or a new home. Every house if different, so make sure you examine it closely before you buy it. It is often a wise investment to have the inspection performed by an independent home inspector. A home inspector can give you an impartial opinion and they should furnish you with a narrative report outlining all the areas listed below and any problems that need to be addressed.
INSPECTION CHECKLIST • Roofing : What is the age of the roof? Look for worn, curling or cracked shingles. If the roof is in poor condition, examine the wood sheathing from the attic to see if it shows evidence of water damage. Look for evidence of water damage on ceilings.
• Paint: Is it cracked, peeling or faded? Older homes could contain lead-based paint, which can be hazardous to young children. If the house was built before 1978 a lead-based paint disclosure statement must be provided.
• Electrical System: Are there sufficient outlets? Do they appear to be in good condition? Is there a separate outlet for each major appliance? There should be no exposed wiring. If anything looks suspicious consider having it checked by an electrician.
• Floors: Are they level, solid? If the floor is on a concrete slab, the slab should not have large visible cracks that suggest settling problems.
• Drainage : Look for water damage along the foundation. Are there any low spots or does the yard slope toward the house?
• Exposed Wood : Check for evidence of termite infestation or dry rot.
• Windows: All should be operable and have properly fitting screens in good repair. Check for cracks in glass. Are they weather-tight? Jalousie windows can let more air in or out than other types of windows and therefore your heating and cooling costs may be higher.
• Heating & Cooling : Check both systems regardless of the season. Be sure you understand the controls and that everything appears to be in good condition. If you are planning to have central heating and air conditioning added, consider where the vents, ducts and air handler will be located - is there room, or will this be an expensive "special" job. Air conditioning vents are larger than those on older heating systems, so do not assume you can just add cooling to an existing system.
• Plumbing: Turn on several faucets. There should be plenty of pressure. Flush toilets to be sure they work properly and look under sinks to make sure there is no evidence of leaks or water damage. Locate the main water control valve which stops the flow of water into the house. Every family member should know where this is in the event of an emergency.
• Water Heater: How old is it? The average life is about 15-20 years for an electric heater
• Appliances: Try each appliance to be sure it is in working order.
• Energy Efficiency : Inspect the attic for adequate insulation and determine the energy efficiency rating for all of the major appliances.
THE REAL ESTATE CONTRACT
Contracts are legal documents that define the obligations and responsibilities of the parties to the contract. In the case of a real estate contract, these parties are the buyer and the seller. It is important that you understand the terms and conditions of the contract before agreeing to it and signing it. When entering into a contract for the purchase of a house it is important to make sure that the contract contains all the provisions necessary to reach a successful closing.
The following tips may be helpful:
Make certain that all verbal agreements made during negotiations are written into the contract
The contract should specify the maximum number of days the buyer has to obtain a mortgage commitment. The contract should state that if a mortgage commitment cannot be obtained after a good faith effort, then the deposit must be returned to the buyer.
The contract should list which appliances and other items are to be included in the sale; for example, washers, dryers, refrigerator, draperies, window air conditioners, etc. Sometimes sellers intend to remove items that you might not expect, such as chandeliers, utility sheds, or special vanities. The buyer should ask the seller what items will be removed from the home prior to making an offer to purchase.
It is always a good idea to have the house inspected by a qualified inspector prior to purchase. If you intend to have the sale subject to the buyer's satisfaction with the report of a qualified inspector, then you must state this in the contract. You may also state in the contract that if the inspector finds deficiencies, the buyer may cancel the sale or re-negotiate with the seller. Request a walk-through inspection prior to closing to verify that all electrical, mechanical and plumbing equipment is in good working order and that all deficiencies have been corrected.
Request an inspection for termites and other wood destroying organisms if this is not a part of the pre-printed contract form. Typically, the inspection report should show that the property is free from active infestation or, if not, the seller must pay for treatment prior to closing. The report may reveal damage from a prior infestation and the contract should state what is to occur if old damage is detected. If any structural damage is found it should be corrected. Often lenders will not close the loan unless this has been done or funds have been held in escrow to assure that it will be done in a reasonable amount of time.
The contract should establish a date by which the closing must occur. Unfortunately, it is sometimes difficult to predict how long it will take to complete all loan processing and other requirements associated with the sale; nevertheless, both the buyer and the seller will want some protection in this regard. Try to be as realistic as possible and allow some time for unforeseen delays. Although the seller may push for a quick closing, try to allow approximately six weeks if possible.
The contract should specify the exact interest rate, or a maximum rate, other important terms of the mortgage, and the amount of any down payment assistance required, if any.
If you are uncomfortable reading legal documents, it might by wise to have an attorney or someone familiar with contracts review the agreement on your behalf. APPLYING FOR A LOAN
A mortgage is the biggest financial commitment most people will ever make. With so much at stake, it is important that you choose the best loan for your situation.
Generally speaking, a lender will not approve loans if the monthly payments for principal, interest, real estate taxes and insurance exceed approximately 28 to 33 percent of the applicant's gross monthly income. Additionally, when payments for other liabilities are added to these housing costs, the total obligations may not exceed approximately 36 to 41 percent of the applicant's gross monthly income. These guidelines are fairly typical, but there is a great deal of variation in the specific loans offered today. Therefore it is a good idea to shop for a loan in order to find the most suitable product to fit your needs.
Knowing approximately how much money you are qualified to borrow can save you time and prevent disappointment when you are looking at houses. Most lenders will pre-qualify you for a loan before you begin to shop for a home, which is very helpful. Pre-qualification, however, is not a commitment to make a loan, but merely a preview of your ability to borrow based upon verbal information that you provide. The lender can also give you an estimation of the amount of cash you will need for a down payment and closing costs, depending upon the type of mortgage you will be seeking. Existing debts, a large or small down payment, and other factors can add or detract from the amount you can afford to pay for a house.
During the initial interview the prospective borrower and a representative of the lender sit down to discuss the potential loan. The following items should be brought to the initial interview:
Purchase contract for the house, if you have one; Certificate of Eligibility from the VA if applying for a VA loan; bank account numbers and the address of your bank; credit card bills for the past several billing periods; pay stubs, W2 forms or other proof of employment and salary; and if you are self employed, you should be able to present balance sheets, tax returns and other information about your business.
After the loan application is completed, the lender will verify the information you provide about your credit and legal history, income, assets and liabilities.
Home buyers are expected to have enough money available to make the down payment (usually from 3 to 20 percent of the purchase price of the house) and to pay their share of the closing costs (3 to 6 percent of the loan amount). This amount should be figured into your home buying budget. The down payment and closing costs are usually drawn from your total assets. Loans with down payments less than 20 percent typically require mortgage insurance to minimize the lender's risk.
Before extending credit, lenders will examine the risk of not getting the money back. There are four crucial aspects of your credit history that lenders look at when considering a mortgage loan:
• History of past credit: size and terms of past loans;
• Type of credit: real estate, auto, personal or other installment loans obtained in the past;
• Attitude toward credit: active accounts paid on time, and recent bankruptcy or judgement; and
• Lapses in employment or debt repayment: How many unexplained lapses are there, and for how long?
This information will help lenders develop a fair idea of just how you will handle your responsibilities once you have signed the contract for repaying the loan. However, lenders must abide by the law in reviewing and extending credit.
The Fair Credit Reporting Act was designed to ensure fair and accurate consumer credit reporting. This act stipulates that lenders must certify the purpose for which the information is being used, and to use it for no other purpose.
The Equal Credit Opportunity Act prohibits discrimination in lending based on race, color, national origin, sex, marital status, age (provided the applicant is of legal age to contract) and the fact that all or part of the applicant's income comes from a public assistance program.
Lenders are also prohibited by law from asking questions concerning the applicant's spouse unless:
The spouse will also be liable for the contract; the spouse's income will be used to qualify; or the applicant will use child support, alimony or separate maintenance payments from a spouse or former spouse to qualify.
Although questions about future parenting plans are prohibited, the lender may ask ages and number of children presently in the applicant's family.
Mortgage lenders also appraise the real estate being purchased to make sure that there is sufficient value in the property to support the loan. Deficiencies noted by an appraiser are required to be corrected before the loan is granted. The three main points the appraiser looks at are:
• Physical security of the property: age, structural soundness, landscaping;
• Location: condition of surrounding houses, access to transportation, commercial development nearby; and
• Local government's plans for the area: whether zoning and land uses will affect the property in the years to come.
If the lender decides not to approve the loan, the lender has 30 days from the acceptance of the completed application to notify the prospective buyer. This notification must include the reasons for the rejection.
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