How to Buy Your First Home
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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.
Published: Sourcebooks on
ISBN: 9781402233982
List price: $14.95
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How to Buy

Your First Home

How to Buy

Your First Home

by Diana Brodman Summers

Attorney at Law

Second Edition

Copyright © 2003, 2005 by Diana Brodman Summers Cover and internal design © 2003, 2005 by Sourcebooks, Inc. ®

All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means including information storage and retrieval systems—except in the case of brief quotations embodied in critical articles or reviews—without permission in writing from its publisher, Sourcebooks, Inc. ® Purchasers of the book are granted a license to use the forms contained herein for their own personal use. No claim of copyright is made in any government form reproduced herein.

Second Edition: 2005

Third Printing: March, 2006

Published by: Sphinx ® Publishing, An Imprint of Sourcebooks, Inc. ®

Naperville Office

P.O. Box 4410

Naperville, Illinois 60567-4410


Fax: 630-961-2168

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

From a Declaration of Principles Jointly Adopted by a Committee of the

American Bar Association and a Committee of Publishers and Associations

This product is not a substitute for legal advice.

Disclaimer required by Texas statutes.

Library of Congress Cataloging-in-Publication Data

Summers, Diana Brodman.

How to buy your first home / by Diana Brodman Summers.-- 2nd ed.

p. cm.

Includes index.

ISBN 978-1-4022-3398-2

1. House buying--United States. 2. Residential real estate--Purchasing--United States. 3. Mortgage loans--United States. I. Title.

HD259.S86 2005

643'.12'0973--dc22 2005027282

Printed and bound in the United States of America.

SB — 10 9 8 7 6 5 4 3


I want to thank Sourcebooks for the opportunity to pass on my years of experience at real estate to others. The real estate market has been a lifelong hobby for me. There is nothing more intriguing for me than reading real estate ads for those expensive castles or following the tales of preservationists and rehabbers.

I also want to thank my husband, Jim, who has shown an infinite amount of patience with my passion for real estate. He willingly passes me the real estate section from the Sunday paper and tags along when I just have to see the latest open house. Even on our honeymoon, Jim agreed to go through an open house with me, despite the fact that we were 2,000 miles away from home.




Top 20 Questions of First-Time Home Buyers


Chapter 1: Buying versus Renting


First Time Home Buyers

Financial Reasons


Tax Advantages

Passing to Heirs

An Investment

Buying vs. Renting

True Cost of Home Ownership

Intangible Reasons


Privacy and Work Schedules



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


Chapter 5: Deciding Which House Features are Important

The Building, Itself



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)


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


Section 4: FINANCES

Chapter 8: Explanation of Mortgage Basics



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


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 Together


Friends and Relatives

Retirement Savings

Local Government Assistance

Zero Down Payment

Low Interest Mortgages

Renting with an Option to Buy



Chapter 11: VA Guaranteed Home Loans


VA Appraisal

The Loan





Chapter 12: The Legal Side of Real Estate

Do I Need an Attorney

Title Searches and Surveys

How to Hold Title

Joint Tenancy

Tenancy by the Entireties

Tenancy in Common

Chapter 13: The Offer

The Contract

What is in a Real Estate Contract

Components of a Real Estate Contract


Things to Remember in Negotiations

Earnest Money


Chapter 14: Appraisers, Inspectors, and Homeowners Insurance



The Inspection



Home Insurance

Flood Insurance

Mortgage Insurance

Title Insurance

Chapter 15: The Closing

The Walk Through

What Really Happens at a Closing

Closing Documents

What to Bring to the Closing

Closing Costs


Section 6: THE FUTURE

Chapter 16: Enjoying Your Home

Responsible Home Ownership

Keeping Utility Expenses Down

Correspondence from the Mortgage Company

Congratulations—You Get a Tax Benefit

Reducing Your Mortgage Debt

Chapter 17: Foreclosure and How to Avoid It

Preventing Foreclosure

When You Can’t Pay the Mortgage

Federal Housing Authority (FHA), Fannie Mae, and Freddie Mac

Staying Positive


Appendix A: Internet Sites by Subject

Appendix B: Worksheets

Appendix C: Sample Letters

Appendix D: State Offices of Real Estate Regulation

Appendix E: HUD-1 Settlement Statement

Appendix F: HUD Offices

Appendix G: VA Guaranteed Loan

Appendix H: VA Regional Offices


About the Author


I was very pleased to be asked to help others take that important step to buy their first home. I have bought and sold nine or ten homes. Some houses were bought just to fix up and resell at a profit, and others were my dream house of the moment. I have stayed in my dream houses for as short as three months to the current nineteen years. To everyone who buys this book I hope you will benefit from my experiences and mistakes without the pain of going through them yourself.

A home can be the most important thing in a person’s life. It represents stability and safety. It holds our dreams and hopes for the future. Even when friends desert us, and family passes to their just reward, we still have our home to provide us with a sanctuary from the problems of life. People grow attached to their homes; the structure becomes their roots, the mental picture that your mind shows you when someone says the word home.

My parents, like many of yours, bought only one home in their lifetime. That home became the center of every important family activity, even after all the children left to find homes of their own. This was the place we all returned to at holidays, in crises, and when we wanted to become a kid again. This universal feeling is why to this day buying a home is called The American Dream.

Once you have made that decision to go with The American Dream, the hardest thing is the waiting to make it come true for you. There is nothing worse than really wanting to own your own home, but thinking that right now you can’t even afford to look. For those who are frustrated because home ownership seems years in the future, there are activities that you can start doing today to prepare for this biggest purchase of your life. In fact, the more time you have to prepare for a home purchase the more likely that the purchase will go smoothly, and you will get the exact home you want.

The three top things you need to get your own home are:

• patience;

• Internet access; and,

• a willingness to work hard to make your dream come true.

Notice that a lot of money is NOT on this list. While money is part of any purchase, it is more important that you have the patience and willingness to research for the right home to meet your budget. In this case, the more information you have, the easier it will be to select a home that you can afford. Remember that you can always sell the house you bought on a budget when your salary increases.

The latest edition of this book has expanded almost every chapter to include the most up-to-date information. We have included information on buying a condominium and building a home. In addition, we have provided step-by-step procedures to help the first home buyer clear up credit errors, information for buying a home with a partner, a Frequently Asked Questions (FAQ) section, and lots more.


The purpose of this book is to provide the first-time home buyer with a few tools to make that experience less traumatic. These tools include an overview of the fundamentals of purchasing a home, generic worksheets to use in finding the right home, and Internet websites where the reader can get more extensive information. It would be an impossible task for one book to list all available information on home buying for every part of the country. Therefore, this book is designed to present a general overview of the buying process and acquaint the first-time home buyer with the fundamentals of the purchasing process.


This book is divided into five sections that correspond to the stages a person goes through in finding the right home. Each section has chapters on individual topics. At the end of the book is a Glossary with definitions of real estate terms, Worksheets to help you along the way, and Appendices of useful information.

You may want to start with a quick overview of the Glossary. (I’ll bet that you will be surprised with the number of real estate terms you already know.) Then read the entire book, including those sections that are beyond your stage in a house search. Write in the margins, underline important items, highlight—make this book your own. When you come across a chapter that references a worksheet, make several copies of the worksheet located at the back of the book. Change the terms on the worksheet to fit your needs. Once you have read through the book, use it as a reference tool for your dream house search—now, and later.

Real Estate Laws

In order to use this book, you need to know a few things about real estate law. The primary thing is that laws vary. Laws and regulations on real estate can be different from state to state, county to county, and even city to city. For example, a long-time, well-known law regarding how real estate agents operate in California, may be the exact opposite in Illinois or Texas.

Even cities and towns have their own real estate regulations. In some states, a transfer tax fee is charged by both the state and the city where a home is sold. Some cities require water certificates, the prepayment of an estimated water bill, or other water and sewer fees as part of the real estate transaction. (In the area that I live, there are state, county, and city laws that govern all real estate transactions and fees that need to be paid to all three entities.)

If you are concerned with the effects of local or state laws on your estate transaction, do some additional research on the Internet. Local realtors who have their own websites can be a source for local laws, as is your state’s and county’s website.

This book explains the fundamentals of buying a first home in a generic manner. Because real estate laws and regulations differ by location, your state, county, or city may have a specific law that completely disagrees with the book. However the fundamentals of buying that first home remain the same in every part of the country.


Nothing in this book implies or should be construed as creating an

attorney-client relationship between the reader and the author,

Sourcebooks, or any agents thereof.

Section One:

Frequently Asked


Top 20 Questions of

First-Time Home Buyers

1. What are the responsibilities of home ownership?

The main responsibility is paying the mortgage payment on time. Home ownership also requires that you maintain the outside of your home and the landscaping around it in order to maintain the value of your home and your neighborhood. You will also be responsible to repair things that break in your home. Some of those things can be very expensive, like a furnace. Then there are those monthly utility bills for water, electricity, and gas (or oil).

Not all home ownership responsibilities come with a price tag. As a home owner, you will also be responsible for those intangible things like aiding in keeping your neighborhood safe, voting on local referendums, and being a good neighbor to those around you. (see Chapter 16.)

2. Can a person with bad credit buy a home?

Yes. Start by obtaining a credit report to see just how bad your credit is. The next step is to correct any errors. Then, try to pay off any judgements against you. You should also start repairing your credit. The good news is that even those with bad credit or prior bankruptcies may be able to qualify for a mortgage. This mortgage may be at a higher interest rate or may include other expenses, but these mortgages can be found. (see Chapter 2.)

3. Can a person who has worked at the same job for less than two years buy a home?

Yes. The length of time you have worked at one job may not be very important. The lender looks at your credit history and history of employment. Even those who have had several jobs can qualify for a mortgage depending on their current employment and their credit history. (see Chapters 2 and 3.)

4. Can a single mother buy a home?

Anyone who can financially afford a mortgage can purchase a home. Mortgage lenders are required by law to not discriminate by refusing to offer a mortgage to a qualified potential buyer on the basis of sex, race, marital status, and other items. (see Chapters 2 and 8.)

5. How can I avoid buying a house that turns out to be lemon?

The best protection for a buyer is to get an inspection report from a professional house inspector. This report should list the home’s defects and problems. (see Chapter 14.) As for the neighborhood, you should follow the plan in Chapter 4 to determine if the neighborhood will increase in value.

6. How much money do I need to buy a home?

That depends on the price of the house, the amount of the down payment, the interest rate on the mortgage, taxes on the home, and insurance costs. There are also closing costs that can be from 3%–4% of the home’s price. (see Chapter 8.)

7. What is the normal down payment required to buy a home?

Previously, a buyer needed at least a 20% down payment to buy a home. However, there are many mortgages that require less of a down payment. In addition, there are many federal mortgage programs available to assist you. (see Chapters 8 and 9.)

8. How can I find a mortgage lender?

It is common for your real estate agent to suggest lenders in your community that may have mortgages that fit your situation. You may also want to consider financial institutions where you have checking or savings accounts, your credit union, or places where your parents or other family members have their mortgage. You can also find lenders on the Internet. (see Chapter 8.)

9. What are the most important questions to ask about a mortgage?

What type of mortgage is this? What is the interest rate? Can I lock-in the interest rate? Is there a fee to lock-in this rate? How long will the lock last? How much will my points be? What are my closing costs? What is my monthly mortgage payment? (see Chapter 8.)

10. What are points?

Points are costs paid to the lender in order to get mortgage financing. One point is usually one percent of the mortgage loan. (see Chapter 8.)

11. Why do I want to lock-in a mortgage interest rate?

In an economy where interest rates are rising, you want to get as low of an interest rate as possible. Once you get a low rate, ask the lender to guarantee that you can get that rate for a period of time—that is a lock-in. (see Chapter 8.)

12. What is a prepayment penalty?

Some mortgages will charge a fee if you pay the mortgage off before the end date. Since we are a society that moves around a lot, get a mortgage that does not charge you for paying off the mortgage before the 30-year or 15-year term ends. (see Chapter 16.)

13. How long does it usually take to process a mortgage loan application?

This depends on lots of things. The lender will need to get the property appraised. There needs to be a title search to determine if the title is free of liens. Your credit history will also be reviewed, again. Of course, if the lender is in a busy period that may also slow down the process, and that will depend on the area of the country. It is probably safe to allow at least 45 to 60 days for the process to be completed. Try to get dates from your loan officer, your real estate agent, or your attorney. (see Chapters 8, 9, and 10.)

14. Is it true that a person should try to pay off their mortgage as quickly as possible?

Many financial experts point out that this is not true. Credit cards and loans have a higher interest rate than the mortgage. These should be paid off before you attack that mortgage loan. Also, having a mortgage makes good tax sense as the mortgage interest is tax deductible. (see Chapter 16.)

15. What