Shopping for Your Home - HUD

So you’ve decided to buy a home.
This will be one of the most exciting events of your life and will probably be the most
expensive and important purchase that you will ever make.
Hi, my name is Teresa Payne and I am with the Department of Housing and Urban Development.
As part of HUD’s commitment to help consumers navigate the home buying process, we put together
three short videos that will cover what you should expect and what you should be aware
of when buying a home.
These videos will address– “shopping for your home”, “shopping for your loan”
and closing the deal.
Knowing what to expect will help you make informed decisions throughout the process,
and will make this a very rewarding experience for you.
Today, we will focus on shopping for your home. After all, you are not just buying a
house, you are making a home.
To make you more aware of important aspects of the process and what to expect - we will
discuss:
your financial situation;
working with a real estate agent; and
what happens once you find the house you want to buy.
There are two very important questions you need to answer before you begin – first
how much can you afford to spend on a home and how much of a mortgage payment can you
afford each month.
Let’s spend some time discussing your finances and credit.
First, your finances.
Be realistic about your expenses.
Don’t let anyone pressure you into buying any home, let alone one that you cannot afford.
Seriously consider talking with a housing counseling agency. 
Housing counselors provide assistance to home buyers and home owners on issues such as home
buying, fair housing, credit issues, and foreclosure prevention. 
This could be very helpful, especially for first time home buyers. You can find counselors
near you at HUD’s web site, www.hud.gov/respa.
A mortgage lender or a licensed mortgage broker can also work with you to figure out how much
of a house you can afford.
You should consider the following:
Do you have a steady flow of income?
Do you have savings for a down payment?
Do you have other debt?
How is your credit?
Having a clear understanding of your financial situation will help you figure out how much
you can afford in a monthly payment.
Let’s talk about your monthly mortgage payment.
When determining a monthly mortgage payment that you can afford, you should take into
account your current monthly expenses, costs that may impact your monthly mortgage payment
and expenses that are related to the new home.
Your current monthly expenses may include expenses that you pay for now and will continue
to be responsible for after you buy a home like a car payment, student loans and credit
card bills.
How much do you have for a down payment - money you will put down towards the purchase
of a home?
If your down payment is less thaN 20% of the sales price, you will probably have to pay
for mortgage insurance that will increase your monthly mortgage payment.
When you buy a home, you will be responsible for paying property taxes and home owner’s
insurance.
These items can be paid as part of your monthly mortgage payment.
Homeowners Association Fees are fees that you may have to pay if you buy a home in a
planned development.
You should also take into account expenses that come with buying your home, such as
Repairing or replacing broken appliances or more expensive repairs such as replacing your
furnace or roof.
You will also have to factor in regular maintenance expenses such as cleaning out the gutters
and basic upkeep.
If you purchase a condominium, you will be required to pay an additional monthly condo
fee.
And don’t forget that you will have other expenses such as utilities, phone, cable,
and possibly internet service.
Another Important Consideration is Your Credit
Get a copy of your credit report and review it to make sure it is accurate. Lenders will
rely on your credit report and credit score to determine whether to make you a loan and
on what terms.
The law allows every person a free credit report each year and permits consumers to
dispute inaccurate information within their credit report. You can get your free credit
report at www.annualcreditreport.com
You can also get a copy of your credit score for a fee.
Your cost of borrowing money will be affected by your credit score and your credit score
is based on your credit report – so make sure it’s accurate!
So we've talked about your financial situation, you've reviewed your credit score and you're
moving right along.
A real estate agent can help you with the next step. Finding your new home.
A real estate agent can help you to search for houses matched to your needs, show you
those houses and tell you about the communities and schools in the area.
The internet is also an important resource to shop for homes and to access information
about schools, transportation and other important information.
The right real estate agent can be a great source of information and can do a lot to
help you through the wholehome-buying process.
Ask friends and family to recommend a qualified real estate agent.
You may want to interview agents before selecting one whose experience, personality, knowledge
of the community and skills you feel comfortable with.
You should be aware that real estate agents can act in different capacities or agencies.
A buyer's agent is hired by a buyer to represent the buyers’ best interest throughout the
transaction. Buyers can pay directly through a negotiated fee, through the seller or by
a commission split with the seller’s agent.
A seller's agent is hired by and represents the best interests of the seller. This relationship
usually is created by a listing contract.
A single agent can also represent both the buyer and seller through what is known as
a “dual agency.” You found the home you want, now what happens?
Your real estate agent will assist in preparing a purchase contract based on the terms you
are willing to offer.
All terms in the purchase contract are negotiable.
There is no contract until the buyer and seller agree to each and every term.
So, what are some of the major terms in the purchase contract?
Sales price is one of the most important items in the purchase contract.
Contingencies -- Contingencies are conditions that if not met may permit you to cancel the
contract.
There are several types of contingencies, such as obtaining financing, home or radon
inspections and other terms you identify.
One of the most important contingencies is for financing. If you have a financing contingency
in your contact, you may be able to get your deposit back if you cannot get a mortgage
at or below a certain interest rate or through a specific loan program.
Other important terms in the contract include the move in date as well as which appliances
and personal property will be sold with the home.
You may want to hire an attorney to review the contract before you sign it. Some buyers
include attorney review as a contingency to the contract.
You will need to reach an agreement with the seller about how expenses related to the property
such as property taxes, water, sewer charges, condominium fees and utility bills will be
divided.
You will most likely have to provide an “earnest money deposit” - which is money you will
give to your real estate agent to hold in an account when you make the offer.
This deposit will show that you are serious about buying the home, and it will become
part of your down payment if your offer is accepted.
If the seller rejects your offer, the earnest money deposit may be returned to you.
If you decide not to go through with the deal, after a contract has been signed by you and
the seller and all contingencies have been met, you may forfeit the earnest money deposit.
Let’s assume now that the seller accepts your offer - what happens now?
First, you should always have a home inspection.
Hopefully you included a provision in your contract that gives you the right to cancel,
re-negotiate the sales price or require the seller to make repairs if you are not satisfied
with the results of the inspection. 
Many buyers elect to pay for this inspection so that the inspector is working for them,
not the seller.
Second, even if your lender does not require additional inspections, you may want to have
a pest inspection, a lead inspection or other environmental tests such as radon or asbestos.
These inspections will insure that your home is free of termites, pests and pest damage,
lead-based paint hazards and other environmental concerns. 
Financing - The next step in the home buying process is shopping for your loan.
This is a critically important part of buying your home so take a few minutes to watch the
video “Shopping for your loan” which is available on our website at www.hud.gov/respa
or through your local real estate agent.
We hope this video was useful to help you understand some of the major considerations
in shopping for a home.
Please access our website at www.HUD.gov for other useful homebuying information.