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Buying Your Home

How to Buy

Negotiating & Closing a Good Deal
[part 1][part 2][part 3][part 4][part 6]

1. When is the best time to buy?
2. What can I afford?
3. What is a low down payment?
4. Should I put more or less down, if we can afford it?
5. What are the rules for mortgage credit certificates?
6. How do I prepare the house for sale?
7. Are there alternatives to low-down-payment loans?
8. Where do I get information about housing discrimination?
9. Where do I get information on consumer credit laws?
10. Where do I get information on who regulates lenders?

1. When is the best time to buy?

   Here are some frequently cited reasons for buying a house:

   • You need a tax break. The mortgage interest deduction can make home ownership very appealing.
   • You are not counting on price appreciation in the short term.
   • You can afford the monthly payments.
   • You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
   • You prefer to be an owner rather than a renter.
   • You can handle the maintenance expenses and headaches.
   • You are not greatly concerned by dips in home values.

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2. What can I afford?

   Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts.

   It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan.

   The price you can afford to pay for a home will depend on six factors:

   1. gross income
   2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
   3. your outstanding debts
   4. your credit history
   5. the type of mortgage you select
   6. current interest rates

   Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.

   This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.

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3. What is a low down payment?

   A low down payment is anything less than the standard 20 percent. Many people borrow with less than 20 percent down by obtaining private mortgage insurance, or PMI. There also are numerous programs to help first-time buyers with little or no down payment, including FHA, VA and Fannie Mae's Community Home Buyers Program.

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4. Should I put more or less down, if we can afford it?

   Putting down as little as possible allows buyers to take full advantage of the tax benefits of home ownership, many experts say. Mortgage interest and property taxes are fully deductible from state and federal income taxes. Buyers using a small down payment also have a reserve for making unexpected improvements.

   Other real estate experts, however, advise that it is more prudent to make a larger down payment and thereby reduce the amount of debt that must be financed.

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5. What are the rules for mortgage credit certificates?

   To qualify for a mortgage credit certificate, both your income and the purchase price of the home must fall within established city guidelines. These guidelines vary by city but generally only permit people who earn an average income or slightly higher than average income.

   A limited number of cities have authorized the MCC program. Contact your municipal housing department for more information.

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6. How do I prepare the house for sale?

   Making your home look as nice as possible may seem obvious. Apparently, it's not, because many sellers don't do much beyond vacuuming the living room rug and maybe cleaning the ring off the bathtub, says George Devine, in "For Sale by Owner," Nolo Press, Berkeley, Calif.; 1993. Short of spending a lot of money, Devine offers several steps people can take to make their home show better:

   • Sweep the sidewalk, mow the lawn, prune the bushes, weed the garden and clean debris from the yard.
   • Clean the windows and make sure the paint is not chipped or flaking.
   • Be sure that the doorbell works.
   • Clean and make attractive all rooms, furnishings, floors, walls and ceilings. It's especially important that the bathroom and kitchen are spotless.
   • Organize closets.
   • Make sure the basic appliances and fixtures work. Get rid of leaky faucets and frayed cords.
   • Ensure that the house smells good: from an apple pie or cookies baking, for example. Hide the kitty litter.
   • Put vases of fresh flowers throughout the house.
   • Pleasant background music is a nice touch.

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7. Are there alternatives to low-down-payment loans?

   There are a variety of alternative financing arrangements such as equity sharing, employer housing assistance, seller-financing and lease options that may reduce the size of the down payment.

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8. Where do I get information about housing discrimination?

   For information about housing discrimination, call the U.S. Department of Justice at (202) 514-2000, 950 Pennsylvania Ave., NW DC 20530 or your local U.S. Department of Housing and Urban Development office.

   For detailed information, the booklet, "Your Loan is Denied, Defending Yourself Against Mortgage Lending Discrimination," is available from the Center for Investigative Reporting, 500 Howard Street, Suite 206, San Francisco, CA 94105-3008 or call (415) 543-1200.

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9. Where do I get information on consumer credit laws?

   For information on consumer credit laws, contact the National Foundation for Consumer Credit, 8701 Georgia Ave., Suite 507, Silver Springs, MD 20910; call (301) 589-5600.

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10. Where do I get information on who regulates lenders?

    The following regulatory bodies oversee lenders:

    • Comptroller of the Currency, Compliance Division, Washington, D.C., (800) 613-6743.
    • Office of Thrift Supervision, Consumer Affairs, Washington, D.C., (202) 906-6237.
    • Federal Deposit Insurance Corp., Consumer Affairs, Washington, D.C., (800) 934-3342.

    Your state departments of real estate or commerce also may regulate the lenders in your area.

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Century 21 Teramana-Westling, Inc. 4120 Sunset Blvd. Steubenville, OH 740-264-0300	All materials © CENTURY 21 Teramana-Westling, Inc. Last modified Saturday, June 14, 2008