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How to Buy Your First Home
Cover of How to Buy Your First Home
How to Buy Your First Home
Borrow

Take the fear out of buying your first home

For many, the process of buying a home for the first time can seem intimidating and overwhelming. How to Buy Your First Home is your resource for information on the subject. This book guides you through the entire process, including:

Preliminaries—Renting versus buying, determining what you can afford, deciding where to live

Searching for Your Home—What to look for in a home, hiring a realtor

Finances—Mortgage basics, government agencies, home loans for veterans

The Buying Process—Weighing your mortgage options, hiring an attorney, making an offer, inspecting and appraising your home

The Future—Caring for your home and increasing the value of your investment

Included within the text are Attorney Tip boxes that highlight important facts. Click on This boxes will guide you to helpful websites for additional information about calculating costs, locating homes in your area and more.

Extensive appendices include a glossary of important terms, contact information for state offices of real estate regulation and sample worksheets to help you as you make your decisions.

Written by an experienced attorney, How to Buy Your First Home is the resource that will take the mystery out of buying a home.

Take the fear out of buying your first home

For many, the process of buying a home for the first time can seem intimidating and overwhelming. How to Buy Your First Home is your resource for information on the subject. This book guides you through the entire process, including:

Preliminaries—Renting versus buying, determining what you can afford, deciding where to live

Searching for Your Home—What to look for in a home, hiring a realtor

Finances—Mortgage basics, government agencies, home loans for veterans

The Buying Process—Weighing your mortgage options, hiring an attorney, making an offer, inspecting and appraising your home

The Future—Caring for your home and increasing the value of your investment

Included within the text are Attorney Tip boxes that highlight important facts. Click on This boxes will guide you to helpful websites for additional information about calculating costs, locating homes in your area and more.

Extensive appendices include a glossary of important terms, contact information for state offices of real estate regulation and sample worksheets to help you as you make your decisions.

Written by an experienced attorney, How to Buy Your First Home is the resource that will take the mystery out of buying a home.

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Excerpts-
  • From the book Every lender has a formula to tell how much a person can afford in mortgage payments. Formulas are good because they can give a definitive number. However, most formulas do not factor in a person’s lifestyle (what is important to that person), future financial down-turns, or what each person feels comfortable paying for housing.

    COMMON DEBT-TO-INCOME RATIOS
    Mortgage lenders loan money based on a set of criteria. That criteria rates the property, the neighborhood, the building, and the borrower. This chapter will explore the common criteria used to rate the borrower and how you can use that information to make decisions before you ask for a mortgage.

    Housing-to-Income Ratio
    Lenders usually use a two-part ratio calculation that sets the boundaries of what you can pay for a home. This is currently expressed as the 28/36 formula (but the exact numbers may change by the time you read this).

    The first part, the front-end ratio or the housing-to-income ratio, is the total mortgage payment divided by your gross monthly income. The percentage result should be somewhere in the 28% to 33% range. Right now 28% is currently used by the majority of lenders. Depending on your credit history, amount of debts, and amount of potential future income, your lender may change the front end percentage.

    The total mortgage payment or housing costs includes: monthly loan payment, real estate taxes, home owners insurance, mortgage insurance (if any), and association fees (if any).

    Gross monthly income is what you receive each month from every source. This income total is before taxes or any deductions (such as deductions for your 401(k) program) are taken out.

    Debt-to-Income Ratio
    The second part, back-end ratio or total debts ratio is the percentage of your gross income that can go towards all of your monthly debt. In the 28/36 formula, a person should not pay more than 36% of his or her monthly gross income for all debts.

    Again, gross monthly income is what you receive each month from every source. This income total is before taxes or any deductions (such as deductions for your 401(k) program) are taken out.

    Monthly debt includes payments on credit card debts, loans, alimony, child support, plus housing costs, but does not include household expenses like utilities, food, clothing, and the like.

    Monthly housing costs are mortgage payment, real estate taxes, home insurance, mortgage insurance, and association fees.

    HOW TO USE THESE RATIOS
    So, you are probably looking at these ratios and saying “How does that affect me? All I want to do is to get a mortgage without the hassle of dealing with math equations.” Not only do I understand, I feel exactly the same. These ratios were created and are routinely used by lenders, you know, those people who enjoy working with numbers. For the rest of us, these ratios can give us an approximation of what we can afford in a mortgage and for our total debt.

    While we can use the ratios like the lenders (as guidelines and generalities to determine if someone qualifies for a mortgage loan), there are two important pieces of information on ratios. First—the ratios can vary by lender, by type of mortgage, and by what the economy is doing. Second—lenders do not only use these numbers. Other factors such as your credit history, the size of your down payment, the cost of the home, the appraised value of the home, and other facts about you and the property go into the decision to issue a mortgage.
About the Author-
  • Diana Brodman Summers received her J.D. from DePaul University College of Law and her undergraduate degree from Roosevelt University. She is an arbitrator for both the Cook and DuPage County mandatory arbitration programs and was recently appointed to the Liquor Commission for the City of Downers Grove. Ms. Summers is an active member of the Association of Trial Lawyers of America, the American Bar Association, the DuPage County Bar Association, and the Illinois State Bar Association.

    Ms. Summers has taught seminars for lawyers through several bar associations and has written articles on computerizing law offices. She volunteers with other Illinois State Bar Association attorneys in accordance with the local Judge Advocate General’s office to provide low-cost legal service for returning members of the military. She currently maintains a law practice in Lisle, Illinois, a suburb of Chicago.
Table of Contents-
  • Introduction

    Section 1: FREQUENTLY ASKED QUESTIONS

    Top 20 Questions of First-Time Home Buyers

    Section 2: PRELIMINARIES

    Chapter 1: Buying versus Renting
    Words
    First Time Home Buyers
    Financial Reasons
    Equity
    Tax Advantages
    Passing to Heirs
    An Investment
    Buying vs. Renting
    True Cost of Home Ownership
    Intangible Reasons
    Status
    Privacy and Work Schedules
    Community
    Conclusion

    Chapter 2: Qualifying Yourself for a Mortgage
    Your Credit History
    Credit Reports
    Free Credit Reports
    Credit Scores
    Improving Your Credit Score
    Credit Report Errors
    Repairing Your Credit Report
    Correcting Credit Report Errors
    Credit Counseling

    Chapter 3: Calculating What You Can Afford
    Common Debt-to-Income Ratios
    Housing-to-Income Ratio
    Debt-to-Income Ratio
    How to Use These Ratios
    From Monthly Payment to Total Mortgage
    Cost of Living Increases
    Your Lifestyle

    Chapter 4: Qualifying the Neighborhood
    How to Research a Neighborhood
    On the Internet
    Field Trips
    In the Library
    From Your Couch
    How to Select a Location
    The Food Shopping Test
    Other Cost of Living Amounts
    Public Improvement Plans
    Old vs. New

    Section 3: SEARCHING FOR YOUR HOME

    Chapter 5: Deciding Which House Features are Important
    The Building, Itself
    Features
    Essentials
    Handy-Man’s Special or Fixer-Upper
    We are All Getting Older
    Condominiums and Townhomes
    Building from the Ground-Up
    Building Your House
    Buying in a Builder’s Development
    Advantages/Disadvantages of Building

    Chapter 6: Working with Real Estate Agents and Brokers
    Real Estate Professionals
    The Real Estate Profession
    Problems with Real Estate Agents
    Changing Agents
    Whose Interest is Protected by the Real Estate Agent
    How Real Estate Agents get Paid
    Multiple Listing Services (MLS)
    Comparables
    Viewing a House Up for Sale
    Notes and Checklists
    Home Warranty
    Home Inspection
    What Not to Say to Real Estate Agents and Sellers
    Games Played to Make the Sale
    Inflating the Worth of the House
    Another Offer
    When Do You Legitimately Need to Act Fast

    Chapter 7: Handling the Emotional Side of a Home Purchase
    Emotions in House Hunting
    Under a Deadline
    House is Beautifully Decorated
    It is a Real Steal
    Using the Seller’s Emotions
    Buyer’s Remorse
    When Buyer’s Remorse is Legitimate
    Legal Consequences of Allowing Buyer’s Remorse to Run Amuck

    Section 4: FINANCES

    Chapter 8: Explanation of Mortgage Basics
    Prequalifying
    Preapproval
    Mortgage Lender Types
    Portfolio Lenders
    Mortgage Bankers
    Direct Lenders
    Mortgage Brokers
    What Does This Mean for You
    Mortgage Types
    Adjustable Rate Mortgage (ARM)
    Assumable Mortgages
    Balloon Mortgages
    Buy-Down Mortgage
    Convertible ARM
    Deferred Interest Mortgage
    Faith Financing
    Fixed-Rate Mortgage
    Subprime Mortgage
    Wraparound Mortgage
    Zero Down Mortgage
    Necessary Documents to Apply for a Mortgage
    Internet Mortgages
    Your Mortgage is Approved, Now Lock-In That Rate
    Your Mortgage is Not Approved
    Points

    Chapter 9: Government Agencies and the
    Secondary Mortgage Market
    Housing and Urban Development Agency (HUD)
    Federal Housing Administration (FHA)
    Ginnie Mae
    Fannie Mae
    Freddie Mac
    Government Agencies and the First-Time Home Buyer
    Secondary Mortgage Market

    Chapter 10: Additional Sources of Money
    Living...
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How to Buy Your First Home
Diana Brodman Summers
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