FAQ's for Home Buyers

Listed below are questions frequently asked by new home buyers, with some basic answers for each question.

• How Do I Know If I Am Eligible 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.
• How Do I Start 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? 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, look in the "Homes" section of the newspaper, or consult with your local Real Estate professional.
• 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.
• How Can I Determine My Housing Needs?

  • 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.
• 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.
• What Is The Purpose Of An Appraisal?

  • Your lender will require you to get an appraisal of the house you want to buy, to make sure it's worth the money that you're borrowing. You may select your own appraiser, or you may ask your real estate broker to help you take care of that.
    An appraiser is a professional person who can tell you about what your home is worth. The appraiser will come to your house and list the number and size of the rooms and any extras, such as a fireplace, porch, pool and garage. The appraiser will compare your home and property to other homes that have sold recently with similar features. The appraiser then estimates that your home might sell for approximately the same amount of money as similar homes. This is called an "appraisal."
  • An appraisal is an estimate of what amount of money your home may sell for. It is very different from a home inspection which will warn you against anything in the new home that should be fixed. A home inspection must be conducted by a qualified home inspector.
• What Is A Home Inspection And Do I Need One?

  • 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 , the water heater, insulation and Ventilation, the HVAC system, water source and quality, 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.
• What Makes 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 cost)
    • Recording fees
    • Survey fee
    • First premium of mortgage insurance (if applicable)
    • Title Insurance (yours and 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
• 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.
• How Does The Interest Rate Factor In Securing A 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 shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.
• 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 may forfeit the entire amount.
• 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.
    • 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 about your credit problems, past and present.
    • Be honest about your intention to occupy the house.
    • Do not provide false supporting documents.
• 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.
• What Are Home Warranties?

  • 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.
• 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%.
    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.
• 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 tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those payments.
• What 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.
• How an Evaporative Cooler Works

  • Nature's most efficient means of cooling is through the evaporation of water. A simple example is the cooling you feel when stepping out of a swimming pool- the water evaporates quickly from your body, taking heat with it. Our coolers do essentially the same thing by drawing hot air through wet pads using a fan or blower. As water evaporates from the pads, it takes heat from the air with it, resulting in up to 30 degree cooler air being discharged from the cooler.
  • Cooling Temperatures
    • An evaporative cooler will nearly always deliver air cooler than 80 degrees F.
      In addition, the constant air movement created by an evaporative cooler lowers the temperature perceived by room occupants - called the "effective temperature" - by an additional 4 to 6 degrees below "evaporative cooled temperatures.”
    • Finally, an evaporative cooler works best in the hottest time of the day. This is because relative humidity drops quickly as temperature increases. For example, a morning relative humidity of 60 percent at 75 degrees will drop to only 31 percent when the afternoon temperature reaches 95 degrees.
  • Energy Savings
    • An evaporative cooler consumes only one-fourth of the electrical energy required to operate a refrigerated air conditioning unit. This means you can save up to 75% of your cooling costs on your electric bill!
    • In fact, a typical whole-house evaporative cooler from Adobe Air requires two small electric motors totaling between 1/2 and 3/4 horsepower. A comparable refrigeration unit requires three electric motors with a combined horsepower of 3 1/2.
  • Other Benefits
    • With evaporative cooling, a complete air change occurs every one-to-three minutes. This offers a great advantage over traditional refrigerated air conditioning, which employs a complicated "closed" system that constantly recirculates the same stale air.
    • Constant cool air movement pushes heat out -- along with stale air, smoke, odors and pollution.
    • Evaporative cooling helps maintain natural humidity levels, so wood furniture and fabric fibers do not dry out prematurely.
  • Tip Provided By Morrison Supply Company.
• What Are The Most Common Causes Of False Alarms For Home Security Systems?

  • Improper Arming/Entry: 51%
  • Improper Arming/Exit: 39%
  • Pets: 20%
  • Window/Door Left Ajar: 18%
  • Subscriber Error: 4%
  • Equipment Malfunction: 2%
  • Other: 4%
  • Source: Security Sales & Integration, 2004

Source: www.hud.gov