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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.
Q:
Why
buy a house?
A:
Here
are some frequently cited reasons for buying a house:
n You need a tax break.
The mortgage interest deduction can make home ownership
very appealing.
n You are not counting
on price appreciation in the short term.
n You can afford the
monthly payments.
n 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.
n You prefer to be an
owner rather than a renter.
n You can handle the
maintenance expenses and headaches.
n You are not greatly
concerned by dips in home values.
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.
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.
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.
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.
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.
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.
Copyright
1999 Inman News Features
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