Buying and Selling a Home Third Edition by Shelley O’Hara and Nancy D Warner 201 West 103rd Street Indianapolis, IN 46290 A Pearson Education Company Copyright © 2000 by Shelly O’Hara and Maris Bluestein with Pearson Education All rights reserved No part of this book shall be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission from the publisher No patent liability is assumed with respect to the use of the information contained herein Although every precaution has been taken in the preparation of this book, the publisher and authors assume no responsibility for errors or omissions Neither is any liability assumed for damages resulting from the use of information contained herein For information, address Alpha Books, 201 West 103rd Street, Indianapolis, IN 46290 THE COMPLETE IDIOT’S GUIDE TO and Design are registered trademarks of Pearson Education International Standard Book Number: 0-02-863960-X Library of Congress Catalog Card Number: Available upon request 02 01 00 Interpretation of the printing code: The rightmost number of the first series of numbers is the year of the book’s printing; the rightmost number of the second series of numbers is the number of the book’s printing For example, a printing code of 00-1 shows that the first printing occurred in 2000 Printed in the United States of America Note: This publication contains the opinions and ideas of its authors It is intended to provide helpful and informative material on the subject matter covered It is sold with the understanding that the authors and publisher are not engaged in rendering professional services in the book If the reader requires personal assistance or advice, a competent professional should be consulted The authors and publisher specifically disclaim any responsibility for any liability, loss, or risk, personal or otherwise, which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book Publisher Marie Butler-Knight Product Manager Phil Kitchel Managing Editor Cari Luna Senior Acquisitions Editor Renee Wilmeth Senior Production Editor Christy Wagner Copy Editor Fran Blauw Illustrator Jody Schaeffer Cover Designers Mike Freeland Kevin Spear Book Designers Scott Cook and Amy Adams of DesignLab Indexer Greg Pearson Layout/Proofreading Angela Calvert Mary Hunt Contents at a Glance Part 1: Getting Started The Dream of Owning a Home Discover the advantages and disadvantages of home ownership How Much Can You and Your Credit Afford? Find out how much home you qualify for and understand the role your credit plays 13 Understanding the Up-Front Costs of Buying a Home Yes, you have to make a down payment 29 Buying a Home with an Agent Discover who’s who and which kind of agent is for you 37 Selecting a Mortgage Lender You’re the customer Find a lender who will treat you like one 51 Part 2: Choosing the Home for You 63 Where You Want to Live Examine your lifestyle to determine your ideal home and neighborhood 65 Defining Your Dream Home Before you start shopping, think about what you need and what you want in your home 73 How to Find Your New Home Buyer’s market versus seller’s market, a sample MLS listing, and more! 85 Buying a Resale Home From bedrooms to kitchens to shower nozzles—try everything on for size 95 10 Buying Other Types of Homes Condos, co-ops, townhouses, patio homes, and zero lot line homes can have their advantages 105 11 Building a New Home Don’t like used homes? Find out how to get the most out of a new homebuilder 113 Part 3: Understanding Your Finance Options 12 Financing 101 This is your jumping-off point for understanding lending, mortgages, and your options 129 131 13 Fixed-Rate Mortgages If the interest rates are low or you will be in the home for a while, perhaps go fixed 143 14 Adjustable-Rate Mortgages If your credit’s not so good, rates are high, or you won’t be in the home long, perhaps go adjustable 149 15 Other Types of Financing If your circumstances warrant a different type of financing, there are many others to choose from 157 16 Applying for a Mortgage They don’t make you fill out all those forms for the fun of it, learn what they are for 167 Part 4: Getting the Best Deal 183 17 Making an Offer Like buying a used car, this process can be an elaborate game 185 18 Working the Deal Counteroffers are lobbed back and forth until you buy your home or someone cries “Uncle!” 197 19 Choosing Insurance Protect yourself from the 11 common perils and more 205 20 Having the Home Inspected Make sure you don’t get trapped in a money pit 213 21 Handling the Closing: Buyer’s Perspective It’s like a big party Invite all your friends Bring all your money 223 Part 5: Selling Your Home 239 22 Deciding to Sell Your Home It’s more complicated than sticking a “For Sale” sign in your front yard 241 23 Selling Your Home Yourself Strategy, pricing, marketing, negotiating—you’ll work hard for that percent savings 249 24 Selling Your Home with an Agent An agent can help you in innumerable ways, but be sure to get a good one 259 25 Getting the Home Ready Clean and repair, but don’t go overboard on the remodeling 269 26 Pricing and Marketing the Home Discover common pitfalls in pricing and handy tips for marketing your home 281 27 Dealing with Purchase Offers Know your bottom line 289 28 Handling the Closing: Seller’s Perspective It’s that party again, but this time you get to keep the money 299 Appendixes A Glossary 311 B Resources 319 C Loan Payment Tables 323 Index 329 Contents Part 1: Getting Started The Dream of Owning a Home The Advantages of Owning a Home The Drawbacks of Owning a Home Facts About Buying a Home Who Is Who? What Happens When You Buy? 10 What Happens When You Sell? 10 How Much Can You and Your Credit Afford? 13 How Much You Make and How Much You Spend 13 What If You’re Self-Employed? 14 Keeping Track of Income 15 Keeping Track of Expenses 15 How Much Can You Borrow? 16 Understanding Lender Ratios 16 What’s Your Ratio? 17 Example Ratios 18 Prequalifying for a Loan 20 What Do You Need? 20 Advantages and Drawbacks 21 Getting Preapproved for a Loan 21 Checking Your Credit 22 Getting a Credit Report 22 What’s on Your Credit Report? 23 What’s a FICO Credit Score? 24 Are You a Risky Creditor? 25 Correcting a Mistake or Responding to Problems 25 Strengthening Your Credit 26 Dealing with a Bad Credit Report 26 Before All the Numbers Make You Dizzy 27 Understanding the Up-Front Costs of Buying a Home 29 Down Payments 29 How Much of a Down Payment Do You Need? 30 Where to Get the Down Payment 30 What If You Don’t Have Money for the Down Payment? 30 When Do You Fork over the Down Payment? 31 The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition Closing Costs 31 Lender Fees 32 Advance and Reserve Payments 33 Private Mortgage Insurance (PMI) 34 Other Fees 34 Adding Up All the Costs 35 Buying a Home with an Agent 37 Who Does What? 38 Agents 38 Brokers 38 Realtors 38 New-Home Agents 39 Who’s Working for Whom? 39 Using a Buyer’s Agent 39 Using a Selling Agent 40 Using a Discount Broker 43 How Agents Can Help 43 Offering Financial Help 43 Finding the Right House 44 Negotiating and Closing the Deal 45 Selecting a Good Agent 45 Finding an Agent 46 Putting an Agent to the Test 47 Getting Rid of an Agent 48 Working with “For Sale by Owner” Homes 48 Selecting a Mortgage Lender 51 Types of Lenders 51 Understanding the Secondary Market 53 Uncle Sam Helps Out 53 Portfolio and Jumbo Loans 53 Where to Find a Lender 54 Getting Help from Your Agent 55 Reviewing a Mortgage Advertisement 55 Looking for a Lender Online 56 Questions to Ask Lenders 58 Part 2: Choosing the Home for You Where You Want to Live 63 65 Decision Time 65 Finding the Right Community 66 Finding the Right Feel 67 viii Contents Finding the Right Neighborhood 68 Choosing Planned Communities 68 Location, Location, Location 70 Home to Stay, or Home to Resell? 70 Family Matters 70 What Is Your Job Situation? 70 What Are the Taxes? 71 What Are the Schools Like? 71 What About Emergencies? 72 What About Fun? 72 Defining Your Dream Home 73 Keep an Open Mind 73 Type and Style of Home 74 How Many Stories? 74 What Is It Made Of? 75 Age of the Home 75 The Home Itself 76 The Kitchen 76 Bedrooms 76 Bathrooms 77 The Family/Living/Great Rooms 77 Attics and Basements 77 Closets 78 Garages 78 The Exterior 79 Facing 79 Heating, Cooling, and More 80 Landscaping 80 Repairs 81 Know Your Must-Haves 81 How to Find Your New Home 85 What to Expect When Looking for a Home 85 Buyer’s Market vs Seller’s Market 86 Seasonal Sales 86 Finding a Home 87 Drive-Bys 87 Local Papers 87 MLS Listings 88 Word of Mouth 90 Auctions and Foreclosures 90 Online Listings 91 ix The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition amortization (loans), 132 anxious offer, 199 applying for loans, 167-172, 176-180 factors considered by lenders, 168-171 financial documentation, 171-172 getting denied, 180-182 Good Faith Estimates, 176-178 loan applicatons, 172 locking in interest rates, 176 tips for a smooth loan process, 178-180 Truth-in-Lending statements, 178 Appraisal Institute Web site, 169, 321 appraisals, 284 applying for loans, 169-170 as a contingency, 193 fees, 32 problems with (applying for loans), 181 APR (annual percentage rate), 178 ARMs (adjustable-rate mortgages), 56, 136, 140, 149-156 adjustment intervals, 152-154 advantages, 149-150 caps, 152-154 checklist for comparisons, 61 disadvantages, 150 indexes, 151, 154 interest rates, 153 330 margins, 151, 154 negative amortization, 153 one-way ARMs, 155 selecting, 153-155 teaser rates (initial rates), 151 worst-case scenario, 155-156 arrears, 32 ASHI (American Society of Home Inspectors), 214, 319 Web site, 214, 217 association fees, 18 assumable loans, 135 assumable mortgages, 158 assumptions, qualified assumptions, 135 attics, 77-78 attorneys fees, 34 hiring (selling your home), 250 real estate attorneys, 204 auctions, 91 B back-end ratio (overall debt), 17-18 bad credit reports, dealing with, 26-27 balloon mortgages, 159 bankrate.com Web site, 8, 56, 244, 321 banks, commercial banks, 52 basements, 77 bathrooms, 77 bedrooms, 76 bidding war offer, 199 biweekly fixed-rate mortgages, 146 boards (condominium communities), 107 bond-backed mortgages, 163 brokers, 38 discount brokers, 43 mortgage brokers, 52 builder representatives, 115 builder’s warranty (new homes), 126 building equity, building new homes, 113-122, 125-128 advantages, 113-114 agents, working with, 115 avoiding problems, 127-128 custom homes, 115 disadvantages, 114 lots, selecting, 121 mortgage holdbacks, 125-126 plans, selecting, 120-121 reputable builders, selecting, 118-120 sales contracts, 121-122, 125-127 negotiating a better deal, 125 terms, 122 upgrades, 122 semi-custom homes, 116 subdivisions, selecting, 116-118 tract homes, 115-116 upgrades, 119, 122 warranties, 126-127 Index buydowns, 160 buyer’s agents, 39-40, 289 buyer’s market, 86 buyers, 10 buying condominiums, 106-107 making an offer, 109 selecting a community, 108-109 buying cooperatives (co-ops), 109-110 buying homes advantages, 3-5 closing, 223-231, 234-236 closing costs, 226-229 down payments, 225 escrow accounts, 228-229 exchanging money, 231 final walkthrough, 224-225 holding the title, 224 HUD-1 statement, 231, 234 moving in, 236 problems, handling, 234-235 signing documents, 230-231 what to expect at closings, 229-230 drawbacks, 5-7 helpful tips, 7-9 people to work with, 9-10 step-by-step process, 10 table of fees, 35-36 timing with sale of current home, 244-245 C calculators (online calculators), 56 Capital Pacific Mortgage, 319 caps (adjustable-rate mortgages), 152-154 carry backs, 30, 160 casualty insurance, 206 Chamber of Commerce com Web site, 67 checklists adjustable-rate mortgages (ARMs), comparing, 61 defining your dream home, 81-83 evaluating resale homes, 101-102 fixed-rate mortgage loans, comparing, 60 questions to ask agents, 261-262 cleaning (selling your home), 273-274 clear titles, 211 closets, 78 closing, 299-300 buyer’s perspective, 223-231, 234-236 closing costs, 226-229 down payments, 225 escrow accounts, 228-229 exchanging money, 231 final walkthrough, 224-225 holding the title, 224 HUD-1 statement, 231, 234 moving in, 236 problems, handling, 234-235 signing documents, 230-231 what to expect at closings, 229-230 costs, 31-35, 226-229 advance payments, 33-34 escrow accounts, 33 Good Faith Estimates, 176-178 lender fees, 32-33 miscellaneous fees, 34-35 private mortgage insurance (PMI), 34 reserve payments, 33-34 seller’s perspective, 257-258, 299-304, 307-309 buyer’s responsibilities, 300 collecting documents, 301 escrow agents, 301-302 fees, 304 HUD-1 statement, 304, 307 moving out, 309 problems, handling, 302-303 tax basis, figuring, 308-309 termite inspections, 300 title searches, 301 settlement sheets, 257 331 The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition closing agents, 301-302 clouds (titles), 211 clutter, eliminating (selling your home), 274-276 Co-Op Web site, 321 co-ops (cooperatives), 106 buying, 109-110 co-signers (loans), 163 commercial banks, 52 communities condominium communities, 108-109 finding the right community, 66-72 factors to consider, 70-72 neighborhoods, 68 planned communities, 69 gated communities, 69 moving to a new town, 65-66 planned communities, 68-69 condition of home at settlement, 194-195 condominiums, 105 advantages, 106 buying, 106-107 making an offer, 109 selecting a community, 108-109 community boards, 107 disadvantages, 107 conforming loans, 137 Consumer Credit Counseling Services, 26 contingencies, 192-193 selling your home, 293-294 332 contingency offers, 244 contracts, 185-186, 189 condition of home at settlement, 194-195 contingencies, 192-193 deposits (earnest money), 195 determining how much to offer, 189-190 kickouts, 193 listing contracts, 263, 266-267 personal property vs real property, 194 prorating, 195 terms, 191-192 time limits, setting, 193-194 writing an offer, 185-186 helpful tips, 186, 189 contracts (new homes), 121-122, 125-127 negotiating a better deal, 125 terms, 122 upgrades, 122 conventional loans, 135 cooling and heating considerations, 80 cooperatives (co-ops), 106 buying, 109-110 costs involved in selling homes, 245 counteroffers, 198-202 receiving, 200 responding to, 200-202 selling your home, 294-295 credit bureaus, 22-23 credit checks, 22-27 applying for loans, 169 credit reports, 23-24 fees, 32 FICO credit scores, 24 high credit risks, 25 strengthening your credit, 26 subprime borrowers, 25 credit reports, 23-24 applying for loans, 169 bad credit reports, dealing with, 26-27 correcting mistakes, 25-26 obtaining, 22-23 reading, 23-24 responding to problems, 25-26 credit unions, 52 custom homes, 115 CyberHomes Web site, 91, 321 D debt-to-income ratio, 16 deeds, 192 denied loans, 180-182 Department of Housing and Urban Development (HUD), 55 deposits (earnest money), 195 disclosure, 213, 276-277, 280 seller disclosure forms, 277, 280 discount brokers, 43 discount points, 133 discrimination, 68, 182 Index document preparation fees, 32 down payments, 29-31, 225 earnest money, 31 figuring, 30 loan-to-value (LTV), 30 selecting loans, 139 strategies for getting money, 30-31 dual agencies, 40 E earnest money, 31, 195 easement, 211 encroachments, 211 Equifax, 23, 319 equity, 4-5 building equity, sweat equity, 31 escrow accounts, 33, 228-229 escrow agents, 301-302 escrow companies, 250 closings, 257-258 settlement sheets, 257 escrow fees, 34 escrow officers, evaluating resale homes, 96-102 checklist, 101-102 does it meet your needs, 97-99 emotional appeal, 96-97 neighborhood, 100-101 structural considerations, 99-100 exclusive agency agreement (listing contracts), 266 exclusive right to sell agreement (listing contracts), 266 expenses, calculating, 15-16 Experian, 23, 320 exteriors facing, 79-80 factors to consider, 79 heating and cooling considerations, 80 landscaping, 80-81 repairs, 81 F FC Tucker Company Web site, 46, 261 facing, 79-80 fact sheets, preparing (selling your home), 253-254 family rooms, 77 Fannie Mae (Federal National Mortgage Association), 53, 137, 320 Homepath.com Web site, 56 Web site, 53, 137 Fannie Mae Guide to Homeownership, 75 Federal Home Loan Mortgage Corporation (Freddie Mac), 53, 137 Web site, 53, 320 Federal Housing Administration, 320 fees, 32-35 attorney fees, 34 escrow fees, 34 flood certification fees, 35 lender fees, 32-33 table of fees, 35-36 FHA (Federal Housing Authority) loans, 135 FICO credit scores, 24 final walkthrough, 224-225 financial help (agent benefits), 43-44 financing, 131-140 See also loans; mortgages 80-10-10 loans, 159 80-15-5 loans, 159 adjustable-rate mortgages See ARMs applying for loans, 167-172, 176-180 factors considered by lenders, 168-171 financial documentation, 171-172 getting denied, 180-182 Good Faith Estimates, 176-178 loan applications, 172 locking in interest rates, 176 tips for a smooth loan process, 178-180 Truth-in-Lending statements, 178 assumable loans, 135 assumable mortgages, 158 balloon mortgages, 159 333 The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition bond-backed mortgages, 163 buydowns, 160 carry backs, 30, 160 co-signers, 163 as a contingency, 192 conventional loans, 135 cooperatives (co-ops), 110 FHA (Federal Housing Authority) loans, 135 fixed-rate mortgages See fixed-rate mortgages government-backed loans, 135 graduated payment plans, 163 helping buyers with financing (selling your home), 255-256 land contracts, 160-161 lease agreements, 162 lenders, 131-134 amortization, 132 interest rates, 132 points, 133 terms, 134 low-interest loans, 163 mortgage holdbacks, 125-126 mortgage insurance, 137-138 municipal mortgages, 163 no-interest loans, 163 refinancing, 163-164 selecting the right type, 138-140 seller financing, 296-297 shared-equity mortgages, 163 334 subprime mortgages, 164 two-step mortgages, 161-162 VA loans, 157-158 finding agents, 46-48 agent-comfort test, 47-48 to sell your home, 261-263 ASHI-affiliated inspectors, 217 good communities, 66-72 factors to consider, 70-72 neighborhoods, 68 planned communities, 68-69 homes, 85-92 auctions, 91 buyer’s market, 86 driving by, 87 foreclosures, 90-91 MLS listings, 88-90 newspapers, 87-88 online listings, 91-92 seasonal sales, 86-87 seller’s market, 86 word of mouth, 90 lenders, 54 online lenders, 56-58 fixed-rate mortgages, 56, 134-136, 140 15-year fixed-rate mortgages, 146-147 30-year fixed-rate mortgages, 146-147 advantages, 143-144 checklist for comparisons, 60 disadvantages, 144 interest rates, 145 points, 145 prepaying, 147-148 terms, 145-147 float the rate (loans), 58 flood certification fees, 35 floor plans, selecting for new homes, 120-121 “For Sale by Owner” signs, 252 foreclosures, 5, 90-91 four Cs (qualifying for loans), 170-171 Freddie Mac (Federal Home Loan Mortgage Corporation), 53, 137 Web site, 53, 320 front-end ratio (housing expense), 17 FSBO (for sale by owner) homes, 48-49 FSBO.com Web site, 321 G garages, 78 gated communities, 69 Ginnie Mae (Government National Mortgage Association), 53 contact information, 320 Good Faith Estimates, 176-178 government agencies, 53 government-backed loans, 135 Index graduated payment plans, 163 gross income, 14-15 H hazard insurance, 206 heating and cooling considerations, 80 high credit risks, 25 HO-1 policies (insurance), 206-207 holding the title, 224 home equity, 4-5 building equity, sweat equity, 31 home inspection fees, 227 HomeBuilder.com Web site, 92, 322 Homebuyer’s Fair Web site, 242, 256, 322 HomeOwner’s Finance Center Web site, 322 homeowners insurance, 205-210 casualty insurance, 206 comparing policies, 210 determining amount of coverage needed, 207-208 helpful tips, 208-209 HO-1 policy, 206-207 payments, 210 personal liability insurance, 206 sample policy, 208 searching the Web for information, 209 types of coverage, 206-207 homeowners warranty (HOW), 126 homeowners.com Web site, 56 Homepath.com Web site, 56 homes building, 113-122, 125-128 advantages, 113-114 agents, working with, 115 avoiding problems, 127-128 custom homes, 115 disadvantages, 114 lots, selecting, 121 mortgage holdbacks, 125-126 plans, selecting, 120-121 reputable builders, selecting, 118-120 sales contracts, 121-122, 125-127 semi-custom homes, 116 subdivisions, selecting, 116-118 tract homes, 115-116 upgrades, 119, 122 warranties, 126-127 condominiums, 105 advantages, 106 buying, 106-109 community boards, 107 disadvantages, 107 making an offer, 109 selecting a community, 108-109 cooperatives (co-ops), 106 finding, 85-92 auctions, 91 buyer’s market, 86 driving by, 87 foreclosures, 90-91 MLS listings, 88-90 newspapers, 87-88 online listings, 91-92 seasonal sales, 86-87 seller’s market, 86 word of mouth, 90 FSBO (for sale by owner) homes, 48-49 patio homes, 106 resale homes See resale homes selecting, 73-83 age of the home, 75-76 attics, 77-78 basements, 77 bathrooms, 77 bedrooms, 76 closets, 78 exterior considerations, 79 facing, 79-80 garages, 78 heating and cooling considerations, 80 kitchens, 76 landscaping, 80-81 list of must-haves, 81-83 living rooms, 77 repairs, 81 type and style, 74-75 townhouses, 105 zero lot line homes, 106 HomeScout Web site, 322 335 The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition House Ads On-Line Web site, 322 housing expense ratio (front-end), 17 calculating, 17 HOW (homeowners warranty), 126 HSH Associates, 320 HUD (Department of Housing and Urban Development), 55, 321 HUD-1 statement, 231, 234, 304, 307 I implied warranty (new homes), 126 incentives, offering (selling your home), 284-285 income, 13-15 indexes (adjustable-rate mortgages), 151, 154 initial rates (adjustable-rate mortgages), 151 inspections, 214-219 American Society of Home Inspectors (ASHI), 214 as a contingency, 193 finding ASHI-affiliated inspectors online, 217 handling problems, 219 home inspection fees, 227 inspection reports, reading, 217-218 repair work inspections professional inspections, 272 self-inspections, 270-272 336 scheduling, 214 termite inspections, 300 things inspectors don’t check, 216-217 things inspectors should check, 215-216 insurance, 205-212 homeowners insurance, 205-210 casualty insurance, 206 comparing policies, 210 determining amount of coverage needed, 207-208 helpful tips, 208-209 HO-1 policy, 206-207 payments, 210 personal liability insurance, 206 sample policy, 208 searching the Web for information, 209 types of coverage, 206-207 mortgage insurance, 137-138, 205 title insurance, 206, 210-212 lender’s policy, 211 owner’s policy, 211 title searches, 210-211 Insure.com Web site, 210 interest payments, 32 prepaid interest, 227 rates, 8, 132 adjustable-rate mortgages (ARMs), 153 fixed-rate mortgages, 145 locking in (applying for loans), 176 researching on the Internet, 244 selecting loan type, 140 spread, 132 interiors, 76-78 International Real Estate Directory Web site, 322 Internet marketing your house online, 253 researching interest rates, 244 searching for insurance information, 209 IRS Web site, 307 J-K joint tenancy, 224 jumbo loans, 54, 137 Keystroke Financial Network Web site, 322 kickouts, 193 kitchens, 76 L land contracts, 160-161 landscaping, 80-81 layaway payments, 160-161 lease agreements, 162 lender fees, 32-33 lender ratios, 16-19 debt-to-income ratio, 16 example ratios, 19 Index housing expense ratio (front-end), 17 overall debt ratio (backend), 17-18 lender’s policy (title insurance), 211 lenders, 9, 131-132 adjustable-rate mortgages (ARMs), comparing, 61 agent referrals, 55 amortization, 132 finding, 54 online, 56-58 fixed-rate mortgage loans, comparing, 60 four Cs (qualifying for loans), 170-171 government agencies, 53 interest rates, 132 jumbo loans, 54 points, 133 portfolio loans, 53 questions to ask, 58-60 secondary markets, 53 terms, 134 types, 51, 53 liens, 91 lifetime caps (adjustablerate mortgages), 152 listing agents, 38 listing contracts, 263, 266-267 listing presentations (agents), 262 listing price, setting, 281-284 appraisals, 284 comparing similar homes, 282-283 market variables, 284 pitfalls to avoid, 281-282 listing sites (finding homes), 91-92 living rooms, 77 loan applications, 172 fees, 32 loan officers, 9, 168 loan origination fees, 32, 226 Loan Payment Tables, 323 loan processors, 168 loan-to-value (LTV), 30 loans, 131-132 See also financing; mortgages 80-10-10 loans, 159 80-15-5 loans, 159 adjustable-rate mortgages See ARMs amortization, 132 applying for, 167-172, 176-180 factors considered by lenders, 168-171 financial documentation, 171-172 getting denied, 180-182 Good Faith Estimates, 176-178 loan applications, 172 locking in interest rates, 176 tips for a smooth loan process, 178-180 Truth-in-Lending statements, 178 assumable loans, 135 buydowns, 160 carry backs, 30, 160 closing accounts, 33-34 closing costs, 31-35 escrow accounts, 33 lender fees, 32-33 miscellaneous fees, 34-35 private mortgage insurance (PMI), 34 co-signers, 163 conforming loans, 137 conventional loans, 135 credit checks, 22-27 correcting mistakes, 25-26 credit reports, 22-27 FICO credit scores, 24 high credit risks, 25 responding to problems, 25-26 strengthening your credit, 26 subprime borrowers, 25 down payments, 29-31 expenses, calculating, 15-16 FHA (Federal Housing Authority) loans, 135 figuring how much you can borrow, 16, 27 fixed-rate mortgages See fixed-rate mortgages float the rate, 58 government-backed loans, 135 income, calculating, 13-15 interest rates, 132 jumbo loans, 54 337 The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition land contracts, 160-161 lender fees, 32-33 lender ratios, 16-19 debt-to-income ratio, 16 example ratios, 19 housing expense ratio (front-end), 17 overall debt ratio (back-end), 17-18 lenders adjustable-rate mortgages (ARMs), comparing, 61 agent referrals, 55 finding, 54-58 fixed-rate mortgage loans, comparing, 60 government agencies, 53 jumbo loans, 54 portfolio loans, 53 questions to ask, 58-60 secondary markets, 53 types, 51-53 low-interest loans, 163 mortgage advertisements, 55-56 negative amortization, 59 no-interest loans, 163 nonconforming loans, 137 points, 133 portfolio loans, 53 preapproval, 21-22 prequalifying, 20-21 refinancing, 144 selecting, 138-140 338 spread, 132 terms, 134 underwriting, 52 VA loans, 157-158 location finding the right community, 66-72 factors to consider, 70-72 neighborhoods, 68 planned communities, 68-69 moving to a new town, 65-66 locking in interest rates (applying for loans), 58, 176 lots, selecting for new homes, 121 low-interest loans, 163 lowball offer, 198 LTV (loan-to-value), 30 M making an offer (condominiums), 109 margins (adjustable-rate mortgages), 151, 154 marketing your home, 252-254 MIP (mortgage insurance premium), 34, 137, 205 MLS (Multiple Listing System), 44, 88, 90, 260 monthly gross income, 14-15 monthly payments calculating with spreadsheet applications, 133 selecting loans, 139 mortgage advertisements, 55-56 mortgage bankers, 52 mortgage brokers, 9, 52 mortgage companies, 54 mortgage holdbacks, 125-126 mortgage insurance, 137-138, 205 mortgage insurance premium (MIP), 34, 137 Mortgage Market Information Services Web site, 56, 322 Mortgage Qualification Calculator (Homebuyer’s Fair Web site), 256 mortgage.com Web site, 22 mortgages See also financing; loans adjustable-rate mortgages (ARMS), 56, 136, 140, 149-156 adjustment intervals, 152-154 advantages, 149-150 caps, 152-154 checklist for comparisons, 61 disadvantages, 150 indexes, 151, 154 interest rates, 153 margins, 151, 154 negative amortization, 153 one-way ARMs, 155 selecting, 153-155 teaser rates (initial rates), 151 worst-case scenario, 155-156 Index applying for, 167-172, 176-180 factors considered by lenders, 168-171 financial documentation, 171-172 getting denied, 180-182 Good Faith Estimates, 176-178 loan applications, 172 locking in interest rates, 176 tips for a smooth loan process, 178-180 Truth-in-Lending statements, 178 assumable mortgages, 158 balloon mortgages, 159 bond-backed mortgages, 163 fixed-rate mortgages, 56, 136, 140 15-year fixed-rate mortgages, 146-147 30-year fixed-rate mortgages, 146-147 advantages, 143-144 checklist for comparisons, 60 disadvantages, 144 interest rates, 145 points, 145 prepaying, 147-148 terms, 145-147 graduated payment plans, 163 monthly mortgage payments, calculating with spreadsheet applications, 133 municipal mortgages, 163 negative amortization, 59 prepaying, 147-148 purchase money mortgages, 160 shared-equity mortgages, 163 subprime mortgages, 164 two-step mortgages, 161-162 moving, 236 finding the right community, 66-72 factors to consider, 70-72 neighborhoods, 68 planned communities, 68-69 to a new town, 65-66 moving out (selling your home), 309 Multiple Listing System (MLS), 44, 88, 90, 260 municipal mortgages, 163 N National Association of Housing Cooperatives, 320 National Cooperative Bank, 320 National Lead Information Center, 277 nationwide listing sites (finding homes), 91-92 negative amortization, 59, 153 negotiable offer, 199 negotiating an offer agents, 45 better deals on new homes, 125 selling your home, 256-257 neighborhoods evaluating, 100-101 finding the right neighborhood, 68 net income, 14 net proceeds (selling your home), 285-286 Net Proceeds Statement, 262-263, 285-286 new-home agents, 39 new-home consultants, NewHome Search Web site, 322 newspapers (finding homes), 87-88 no-interest loans, 163 nonconforming loans, 137 O offers, 185-186, 189-198 anxious offer, 199 bidding war offer, 199 condition of home at settlement, 194-195 contingencies, 192-193 counteroffers, 198-202 receiving, 200 responding to, 200-202 deposits, 195 determining how much to offer, 189-190 339 The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition having an offer accepted, 202-203 kickouts, 193 lowball offer, 198 negotiable offer, 199 personal property vs real property, 194 prorating, 195 selling your home accepting offers, 295 agents, dealing with, 289 contingencies, 293-294 counteroffers, 294-295 evaluating offers, 290, 293-294 purchase agreements, 290 what to if you don’t get any offers, 295-296 strategies, 198-199 terms of the sale, 191-192 time limits, setting, 193-194 withdrawing an offer, 203 writing, 185-186 helpful tips, 186, 189 one-way ARMs (adjustablerate mortgages), 155 online calculators, 56 online listings (finding homes), 91-92 open agreement (listing contracts), 266 open houses, 46, 255, 288 open listings, 250 340 overall debt ratio (backend), 17-18 owner’s policy (title insurance), 211 ownership (holding the title), 224 owning a home advantages, 3-5 drawbacks, 5-7 helpful tips, 7-9 P paid outside of closing (POC), 307 patio homes, 106 payment caps (adjustablerate mortgages), 152 periodic caps (adjustablerate mortgages), 152 personal liability insurance, 206 personal property, 194 PITI (principal, interest, taxes, and insurance), 71 planned communities, 68-69 planned unit developments (PUDs), 117 plans, selecting for new homes, 120-121 PMI (private mortgage insurance), 34, 137-138 POC (paid outside of closing), 307 points, 133, 226, 304 discount points, 133 fixed-rate mortgages, 145 lender fees, 32 portfolio loans, 53 preapproval for loans, 21-22 prepaid interest, 227 prepaying mortgages, 147-148 prequalifying for loans, 20-21 price setting (selling your home), 251 pricing homes (listing price), 281-284 appraisals, 284 comparing similar homes, 282-283 market variables, 284 pitfalls to avoid, 281-282 principal brokers, 38 principal, interest, taxes, and insurance (PITI), 71 private mortgage insurance (PMI), 34, 137-138 processing fees, 227 property protections (insurance), 206 proprietary lease (cooperatives), 109 prorations, 195, 228, 304 Prudential Web site, 46, 322 PUDs (planned unit developments), 117 purchase agreements, 290 purchase contracts, 185-186, 189 condition of home at settlement, 194-195 contingencies, 192-193 deposits, 195 Index determining how much to offer, 189-190 kickouts, 193 personal property vs real property, 194 prorating, 195 terms, 191-192 time limits, setting, 193-194 writing an offer, 185-186 helpful tips, 186, 189 purchase money mortgages, 160 Q qualified assumptions, 135, 158 questions to ask lenders, 58-60 quit claim deed, 211 R rate caps (adjustable-rate mortgages), 152 real estate agents, 9, 38 agent-comfort test, 47-48 benefits of using an agent, 43-45 buyer’s agent, 39-40 financial help, 43-44 finding, 46-48 finding a house, 44-45 listing agents, 38 negotiating deals, 45 new-home agents, 39 selling agents, 38-40, 43 voiding contracts with, 48 real estate attorneys, 204 real estate brokers, 38 discount brokers, 43 mortgage brokers, 52 real property, 194 REALTOR.COM Web site, 92 Realtors, 9, 38 refinancing, 144, 163-164 remodeling (selling your home), 273 rental agreements, 293 repairs, 81, 269-273 deciding what repairs to make, 272-273 professional inspections, 272 self-inspections, 270-272 replacement value, 207-208 resale homes, 95 evaluating, 96-102 checklist, 101-102 does it meet your needs, 97-99 emotional appeal, 96-97 neighborhood, 100-101 structural considerations, 99-100 touring, 95-96 RESPA HUD-1 statement, 231, 234, 304, 307 Rural Housing Service, 321 S S&Ls (savings and loans), 52 Salary Calculator (Homebuyer’s Fair Web site), 242 sale seasons, 86-87 sales associates, sales contracts, 185-186, 189 condition of home at settlement, 194-195 contingencies, 192-193 deposits, 195 determining how much to offer, 189-190 kickouts, 193 personal property vs real property, 194 prorating, 195 terms, 191-192 time limits, setting, 193-194 writing an offer, 185-186 helpful tips, 186, 189 sales contracts (new homes), 121-122, 125-127 negotiating a better deal, 125 terms, 122 upgrades, 122 savings and loans (S&Ls), 52 scheduling inspections, 214 schools, 71 searching the Web for insurance information, 209 seasonal sales, 86-87 341 The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition secondary markets, 53 SEER (Seasonal Energy Efficiency Ratio), 80 selecting a home, 73-83 age of the home, 75-76 exterior considerations, 79-81 interior considerations, 76-78 list of must-haves, 81-83 type and style, 74-75 self-employed income, 14-15 seller carry backs, 160 seller disclosure, 213, 276-277, 280 seller disclosure forms, 277, 280 seller financing, 296-297 seller take backs, 160 seller’s market, 86 sellers, selling agents, 38-40, 43 selling your home by yourself advertisements, 252-253 attorneys, hiring, 250 closing, 257-258 dealing with agents, 249-250 escrow companies, 250, 257-258 fact sheets, preparing, 253-254 helping buyers with financing, 255-256 marketing your home, 252-254 negotiating an offer, 256-257 342 open houses, 255 setting the price, 251 showing your home, 254-255 when to consider using an agent, 258 closing, 299-304, 307-309 buyer’s responsibilities, 300 collecting documents, 301 escrow agents, 301-302 fees, 304 HUD-1 statement, 304, 307 moving out, 309 problems, handling, 302-303 tax basis, figuring, 308-309 termite inspections, 300 title searches, 301 costs involved, 245 disclosure, 276-277, 280 seller disclosure forms, 277, 280 incentives, offering, 284-285 listing price, 281-284 appraisals, 284 comparing similar homes, 282-283 market variables, 284 pitfalls to avoid, 281-282 net proceeds, 285-286 offers accepting, 295 agents, dealing with, 289 contingencies, 293-294 counteroffers, 294-295 evaluating, 290, 293-294 purchase agreements, 290 what to if you don’t get any offers, 295-296 overview of what to expect, 246-247 preparations cleaning up, 273-274 clutter, eliminating, 274-276 maintenance/upkeep information, collecting, 276 remodeling, 273 repair work, 269-273 reasons for selling, 242-243 seller financing, 296-297 step-by-step process, 10-11 timing the sale, 243-245 with purchase of new home, 244-245 with an agent, 259-263, 266-267 advantages, 260-261 finding an agent, 261-263 listing contracts, 263, 266-267 open houses, 288 showing your home, 286-287 semi-custom homes, 116 setting prices (selling your home), 251 Index settlement sheets, 257 settlement See closing shared-equity mortgages, 163 showing your home, 254-255, 286-287 open houses, 255, 288 signs, 252 sole ownership, 224 spread (interest), 132 spreadsheet applications, calculating monthly mortgage payments, 133 State Farm Insurance Web site, 209, 322 strengthening your credit, 26 styles of homes, 74-75 subagents, 289 subdivisions, selecting (building new homes), 116-118 subprime borrowers, 25 subprime mortgages, 164 sweat equity, 31 T tax basis (selling your home), 308-309 tax prorations, 228, 304 taxes, 71 teaser rates (adjustable-rate mortgages), 151 tenancy by the entirety, 224 tenancy in common, 224 termite inspections, 300 terms, 134 contracts, 191-192 fixed-rate mortgages, 145-147 The Hartford Web site, 209, 321 This Old House, 81 time limits, setting (contracts), 193-194 timing the sale of your home, 243-245 title insurance, 206, 210-212 lender’s policy, 211 owner’s policy, 211 title searches, 210-211, 301 titles, 192 touring resale homes, 95-96 townhouses, 105 tract homes, 115-116 Trans Union, 23, 321 Truth-in-Lending statements, 178 two-step mortgages, 161-162 U-V U.S Department of Housing and Urban Development (HUD), 55, 321 underwriters, 52, 168 factors considered for loans, 168-171 upgrades (new homes), 119, 122 VA (Veterans’ Administration) loans, 157-158, 321-322 Web site, 158, 322 W-X-Y-Z warranties (new homes), 126-127 Web sites American Builders Network, 321 American Society of Appraisers, 319 American Society of Home Inspectors (ASHI), 214 Appraisal Institute, 169, 321 bankrate.com, 8, 56, 244, 321 Chamber of Commerce.com, 67 Co-Op home page, 321 CyberHomes, 91, 321 Equifax, 319 FC Tucker Company, 46, 261 Fannie Mae (Federal National Mortgage Association), 53, 137, 320 Federal Housing Administration (FHA), 320 Freddie Mac (Federal National Mortgage Association), 53, 320 FSBO.com, 321 Ginnie Mae (Government National Mortgage Association), 53, 320 HomeBuilder.com, 92, 322 Homebuyer’s Fair, 242, 256, 322 HomeOwner’s Finance Center, 322 343 The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition homeowners.com, 56 Homepath.com, 56 HomeScout, 322 House Ads On-Line, 322 HSH Associates, 320 HUD (U.S Department of Housing and Urban Development), 321 Insure.com, 210 International Real Estate Directory, 322 IRS, 307 Keystroke Financial Network, 322 Mortgage Market Information Services, 56, 322 mortgage.com, 22 National Association of Housing Cooperatives, 320 National Cooperative Bank, 320 nationwide listing sites, 91-92 NewHome Search, 322 Prudential, 46, 322 real estate listing sites, 253 REALTOR.COM, 92 Rural Housing Service, 321 State Farm Insurance, 209, 322 The Hartford, 209, 321 Trans Union, 321 Veterans’ Administration (VA), 158, 322 344 withdrawing an offer, 203 word of mouth (finding homes), 90 zero lot line homes, 106 ... mind that not all homes appreciate in value.) The financial and rational advantages are great, but probably the best advantages of owning a home are the control and autonomy that ownership affords... Surette, and Todd Tarbutton for their suggestions and comments Special Thanks to the Technical Reviewer The Complete Idiot’s Guide to Buying and Selling a Home, Third Edition, was reviewed by an expert... on the market; it may take another person six months One person may feel an adjustable mortgage is the only way to finance Another person may say it’s insane to gamble like that and insist on a