PDF HOME BUYER'S HANDBOOK - Lori Swanson
HOME BUYER'S HANDBOOK
From the Office of the
Minnesota Attorney General
helping people afford their lives and live with dignity and respect ag.state.mn.us
This brochure is intended to be used as a source for general information and is not provided as legal advice. The Home Buyer's Handbook is written and published by the Minnesota Attorney General's Office. This document is available in alternative formats to individuals with disabilities by calling (651) 296-3353 (Twin Cities Calling Area), (800) 657-3787 (Outside the Twin Cities), or through the Minnesota Relay Service at (800) 627-3529. The Minnesota Attorney General's Office values diversity and is an equal opportunity employer.
Office of Minnesota Attorney General Keith Ellison 445 Minnesota Street, Suite 1400, St. Paul, MN 55101
(651) 296-3353 (Twin Cities Calling Area) (800) 657-3787 (Outside the Twin Cities)
(800) 627-3529 (Minnesota Relay) ag.state.mn.us
OFFICE OF THE MINNESOTA ATTORNEY GENERAL
Table of Contents
Thinking about Buying a Home?............................................................. 3
Can You Afford a House?........................................................................................................................................... 3 Pre-Qualify for a Loan................................................................................................................................................. 4 What's Your Price Range?.......................................................................................................................................... 5 Figure Out What You Can Afford................................................................................................................................ 7 What Do Lenders Want from You?............................................................................................................................. 8 What Is Underwriting?.............................................................................................................................................. 10
Where Do You Want to Live?................................................................... 11
What Do You Want in a House?............................................................................................................................... 12 Needs and Wants Checklist..................................................................................................................................... 15
The Cast of Characters.............................................................................16
Discrimination and Fair Lending.............................................................................................................................. 18
Looking at Homes......................................................................................19
Visit Open Houses.................................................................................................................................................... 19 Multiple Listing Service (MLS)................................................................................................................................. 19 For Sale by Owner Publications............................................................................................................................... 19 Shopping the Classifieds.......................................................................................................................................... 20
The Perfect Place...................................................................................... 20
The Home Inspection............................................................................................................................................... 20 Making an Offer........................................................................................................................................................ 22 Understanding the Purchase Agreement................................................................................................................ 23 Arbitration.................................................................................................................................................................. 23
Financing Your Home.............................................................................. 24
Where Do You Find a Lender?.................................................................................................................................. 25 Resources for Low-Income Buyers.......................................................................................................................... 27 Will You Need Mortgage Insurance?....................................................................................................................... 28 How Can You Get the Lowest Loan Rate Possible?................................................................................................ 29 The Property Appraisal............................................................................................................................................. 31 Understanding Your Loan Payment......................................................................................................................... 31 Beware of Abusive and Predatory Lending............................................................................................................. 32
HOME BUYER'S HANDBOOK
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Closing on Your Home............................................................................. 33
How to Avoid the Closing Blues............................................................................................................................... 33 What is Homesteading?........................................................................................................................................... 34 What Insurance Do You Need to Buy?..................................................................................................................... 34 Closing Checklist...................................................................................................................................................... 37
Know Your Rights..................................................................................... 38
Equal Credit Opportunity Act.................................................................................................................................... 38 Minnesota Human Rights Act.................................................................................................................................. 38 Real Estate Settlement Procedures Act (RESPA)................................................................................................... 39 Loan Transfers.......................................................................................................................................................... 39 Closing Disclosure.................................................................................................................................................... 39 Fair Credit Reporting Act.......................................................................................................................................... 39
Resources....................................................................................................41
Real Estate Agency Disclosures.............................................................................................................................. 41 Inspection Checklist................................................................................................................................................. 43 Sample Buyer's Contingency.................................................................................................................................... 44 Explanation of Closing Costs................................................................................................................................... 45 Closing Cost Comparison Worksheet..................................................................................................................... 47 A Home Buyer's Schedule........................................................................................................................................ 50 Glossary of Terms..................................................................................................................................................... 52 Referral Guide............................................................................................................................................................ 55
2
OFFICE OF THE MINNESOTA ATTORNEY GENERAL
Thinking about Buying a Home?
Buying a home can be one of the most rewarding experiences of a lifetime-- and one of the most stressful. After all, a home mortgage loan is the largest contract most of us will ever sign. Add to that the unfamiliar terminology and the endless stacks of legal documents, and it's not surprising that many people are confused by the whole experience.
But buying a home doesn't need to be a headache. In fact, with a little preparation and the right attitude, it can even be fun.
Can You Afford a House?
Perhaps you know people who bought homes and now complain about being "house poor." That's because they underestimated what they needed for home payments, maintenance, and other expenses. While some people don't mind making sacrifices to own a home, you don't have to be unpleasantly surprised later if you take the time now to figure out what you can comfortably afford. We've provided some formulas and worksheets in this chapter to help you.
In general, experts say you can afford a home that costs about 2.5 times your yearly income. Income can include salary, dividends, Social Security benefits, public assistance payments, child support, and alimony. To accurately estimate what you can afford with your income, you'll need to answer the following four questions:
1. How much can you afford to spend for monthly home loan payments?
2. How much money do you need each month to meet other obligations? (Consider utilities, home maintenance, medical bills, groceries, entertainment, and all other expenses.)
3. How much cash have you saved for a down payment and other costs? (You usually need a minimum of 3.5 percent of the purchase price in cash or down payment assistance. If you're a U.S. veteran, then you may be eligible for a Veterans Administration (VA) Loan with no down payment.)
4. How much will you need for home closing costs? (These are the costs involved in transferring ownership. Usually they should be no more than two to four percent of the total amount of your loan.)
Terms to Know:
Long-Term Debt: Anything you owe and are paying back on a schedule of ten or more months. Long-term debt usually includes your mortgage loan payment, car and student loans, credit card payments, child support, and alimony.
Gross Income: Your total income before taxes are taken out. Besides wages, this can include income such as alimony, child support, and public assistance.
PITI: Principal, Interest, Taxes, and Insurance--all of which make up your monthly payment.
HOME BUYER'S HANDBOOK
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