A home inspection is a vital part of purchasing a home,
and most lenders require one before completing the contract. As a buyer,
a home inspection gives you a clearer picture of the condition of the
property in question. For all things found inadequate from the home inspection,
get an estimate and use it as a negotiating tool when discussing a purchase
offer. Problems found in home can include:
- Settlement- the normal shifting of the house's
structure over time which causes: leaky roofs and basements, cracks
in walls, and doors and windows to become out of line.
- Faulty electric wiring- especially in older
home, the wiring may become worn which can lead to electrical fires. Also,
some modern appliances are not compatible with older electrical systems.
- Termites- termites can be eating away out the
home's foundation without any visible evidence; therefore, it is important
to take this important precautionary measure.
- Appliances- water heaters as well as stoves,
refrigerators, air conditioning units, and etc. are essential components
of a home and are expensive to fix.
The marketability of a title is determined by a title
search, which examines the history of the title as it has changed hands
throughout the last 50 years if necessary. The title search's main function
is to provide evidence that the seller has rightful ownership to transfer
over to a prospective buyer. If the seller did not have a clear title
and you bought the property, then you run the risk of someone challenging
your ownership down the road.
Title searches can be done by attorneys or title companies,
who specialize in the field. If the title search comes back as clear,
it is wise to take out title insurance as another precautionary
measure to protect your interest.
After the title has been searched, the seller's lawyer
will draw up the deed. A deed is a formal document that transfers the
property from the seller to the buyer on the closing day. There are three
types of deeds that may be assigned:
General Warranty Deed- This deed guarantees that
the title is clear, and that the seller will defend you against all claims
involving the title. However, the warranty clause of the seller protecting
you in a claim is only as good the seller's financial capacity.
Warranty Deed- In this deed the seller assumes
responsibility only for claims during the seller's time of ownership.
Quitclaim Deed- This deed only acknowledges the
seller's interests in the property, but does not assure title to the property.
A title search is a major component of protection with this deed due to
the uncertainty of the seller's right to the title.
Applying for a Mortgage
One of the most critical steps in buying a home is obtaining
the proper financing. There are many sources of mortgage loans, and you
should begin investigating them while you are looking for your home. It
may be helpful to meet with several mortgage lenders and prearrange for
a mortgage loan. By pre-qualifying, you will know ahead of time the maximum
mortgage loan amount you will be able to receive. Pre-qualification also
provides estimates of the required down payment and closing costs for
different types of mortgages. It also identifies, in advance of purchase,
problems including credit errors or incorrect personal information that
can cause your loan to be denied.
When you apply for your loan the lender will usually request
- proof of income( pay stubs or W-2 forms)
- debt balances( credit cards, car and school loans)
- financial assets statements( banking, investment)
Typically, lenders use the 28/36% ratio when determining
your loan qualification. The 28% ratio represents the maximum monthly
mortgage payment you can afford as a percentage of your gross income.
For example if your gross monthly income is $2,500, then the 28% ratio
dictates a maximum mortgage payment of $700. The 36% represents the maximum
total monthly debt lenders will allow you to carry as a percentage of
your monthly gross income. For example using the numbers in our previous
example, your total debt obligations should not exceed $900, which includes
the $700 mortgage payment.
Under the Equal Credit Opportunity Act, lenders may not
discriminate against an applicant for a mortgage loan on the basis of
race, color, religion, national origin, sex, marital status or age, provided
you meet the legal requirements for entering into a legal binding agreement.
Nor can credit be denied because you receive public assistance.
Before closing on your home, you should be given an opportunity
to review the closing statement and have your questions answered. This
statement reconciles the borrower's and the seller's cost and shows how
much the borrower owes and how much the seller receives from the transaction.
Make sure you review the statement carefully to verify its accuracy and
consistency with the contract.