| Q: |
How do you find out the value of a
troubled property? |
| A: |
Buyers considering a
foreclosure property should obtain as much information as possible from
the lender about the range of bids being sought.
It also is important to examine the property. If you
are unable to get into a foreclosure property, check with surrounding
neighbors about the property's condition.
It also is possible to do your own cost comparison
through researching comparable properties recorded at local county
recorder's and assessor's offices, or through Internet sites
specializing in property records.
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| Q: |
Why buy a house? |
| A: |
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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| Q: |
What can I afford? |
| A: |
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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| Q: |
How much will I spend on maintenance
expenses? |
| A: |
Experts generally agree
that you can plan on annually spend 1 percent of the purchase price of
your house on repairing gutters, caulking windows, sealing your driveway
and the myriad other maintenance chores that come with the privilege of
homeownership. Newer homes will cost less to maintain than older homes.
It also depends on how well the house has been maintained over the
years. |
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| Q: |
Where do I get information on housing
market stats? |
| A: |
A real estate agent is a
good source for finding out the status of the local housing market. So
is your statewide association of Realtors, most of which are
continuously compiling such statistics from local real estate boards.
For overall housing statistics, U.S. Housing Markets
regularly publishes quarterly reports on home building and home buying.
Your local builders association probably gets this report. If not, the
housing research firm is located in Canton, Mich.; call (800) 755-6269
for information; the firm also maintains an Internet site. Finally,
check with the U.S. Bureau of the Census in Washington, D.C.; (301)
495-4700. The census bureau also maintains a site on the Internet. The
Chicago Title company also has published a pamphlet, "Who's Buying
Homes in America." Write Chicago Title and Trust Family of Title
Insurers, 171 North Clark St., Chicago, IL 60601-3294.
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| Q: |
What is the standard debt-to-income
ratio? |
| A: |
A standard ratio used by
lenders limits the mortgage payment to 28 percent of the borrower's
gross income and the mortgage payment, combined with all other debts, to
36 percent of the total.
The fact that some loan applicants are accustomed to
spending 40 percent of their monthly income on rent -- and still
promptly make the payment each time -- has prompted some lenders to
broaden their acceptable mortgage payment amount when considered as a
percentage of the applicant's income.
Other real estate experts tell borrowers facing
rejection to compensate for negative factors by saving up a larger down
payment. Mortgage loans requiring little or no outside documentation
often can be obtained with down payments of 25 percent or more of the
purchase price.
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| Q: |
How long do bankruptcies and
foreclosures stay on a credit report? |
| A: |
Bankruptcies and
foreclosures can remain on a credit report for seven to 10 years.
Some lenders will consider an borrower earlier if they
have reestablished good credit. The circumstances surrounding the
bankruptcy can also influence a lender's decision. For example, if you
went through a bankruptcy because your employer had financial
difficulties, a lender may be more sympathetic. If, however, you went
through bankruptcy because you overextended personal credit lines and
lived beyond your means, the lender probably will be less inclined to be
flexible.
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| Q: |
What is Fannie Mae's low-down program? |
| A: |
Fannie Mae is expanding
the availability of low-down-payment loans in an effort to help more
people nationwide qualify for a mortgage.
Two new programs will help potential buyers overcome
two of the most common obstacles to home ownership, low savings and a
modest income.
To address many first-time buyers' struggles to save
the down payment, Fannie Mae developed Fannie 97. The program provides
97 percent financing on a fixed-rate mortgage with either a 25- or
30-year loan term through Fannie Mae's Community Home Buyers Program.
Fannie Mae's new Start-Up Mortgage will assist buyers
with a 5 percent down payment who are at any income level. Yet
applicants do not need as much income to qualify and less cash for
closing than with traditional mortgages. Borrowers will receive a
30-year, fixed-rate mortgage with a first-year monthly payment that is
lower than the standard fixed-rate loan.
Freddie Mac, Fannie Mae's counterpart, also offers
low-down-payment loan programs.
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