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General Homeownership Preparation Information

1. Homeownership FAQs
2. Are You Ready to Be a Homeowner?
3. Get Help… Find a Realtor®
4. Credit Facts
5. Pre-Qualify for Loans and Down Payment Assistance Programs
6. Search for Homes
7. Make an Offer
8. Get Homeowners Insurance
9. The Closing
10. Maintaining and Owning Your New Home

1. Homeownership FAQs

What percent of Palm Beach County residents own their homes?
According to the US Census Bureau 68.4% of Palm Beach County Residents owned their own home.

What's the median cost of a home in Palm Beach County?
For 2005 the median existing home price was $390,100.

What is the guideline in how much a household can afford in housing costs?
The standard criteria used to judge housing affordability is a household spending no more than 30% of its income on its housing costs. According to Housing and Urban Development, the 2005 Palm Beach County median household income is $62,100 for households with earnings. This translates into the median housing affordability cost to equal no more than $18,630 in yearly expenses or $1,553 a month.

What if I am unsure about making the leap from renting to homeownership?
Here is a financial comparison of renting versus owning. According to the National Association of Realtors® the cost of rental housing in the U.S. has increased an average of 3 percent per year. The 2005 HUD Fair Market Rent in Palm Beach County for a two-bedroom apartment is $898. That means that same two-bedroom apartment will cost more than $1170 a month in ten years. If you rent the same apartment for ten years, the total amount you would pay for rent will equal $123,500! That’s a significant amount to put towards the purchase of a home.

Why is rental housing an important part of the Palm Beach County Housing Opportunity Alliance?
An adequate supply of decent, affordable rental housing is crucial to nation's housing system and is one of the base rungs on the ladder to homeownership. Not only does rental housing accommodate the needs of those who do not desire to become homeowners, it houses those who aspire to homeownership, but aren't yet ready or financially able to purchase a home.

Is homeownership a good investment?
According to the National Association of Realtors® has estimated that home values rise, on average, 4.5% a year. Palm Beach County’s residential market has witnessed an unprecedented increase in home values. The median house price has risen 197%% over the past four years since 2001.

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2. Are You Ready to Be a Homeowner?

Knowledge and experience are the keys to successful real estate transactions.

A great source of this information is www.Realtor.com. It contains an enormous amount of valuable information and data – when combined with the expertise, experience and training of a Realtor® – can be the keys to becoming a homeowner.

Whether you are a first-time homebuyer or entering the marketplace as a repeat buyer, you need to ask yourself some questions:

• Why do I want to buy?
• Am I planning to move to a new community due to a lifestyle change?
• Is buying an option and not a requirement?
• What would I like in my next home that I do not have now?
• When do I need to purchase my home?

Whatever your answers are, the more you know about what you need, the more likely you are to effectively define your goals. Take some time to look at the questions above, answer them based on your needs, and then discuss them in detail when meeting with local REALTORS®. They can help you determine what is available in the current real estate marketplace that meets your needs.

The next question to ask is, “Do I have the money?” You may be surprised to learn about the many financing and down payment assistance programs available that will make the answer to this question, “yes”.

In addition to a down payment, purchasers also need cash for closing costs (the final costs associated with closing the loan). Several newly emerging loan programs not only allow the purchase of a home with no money down, but also underwrite closing costs.

However, those great loans with little or nothing down are not available to everyone. In order to qualify, you need good credit. For at least one year prior to purchasing a home, you should assure that every credit card bill, rent check, car payment and other debt is paid in full and on time.

To make the home-buying process easier and more understandable, you need to plan. The Alliance website, www.Realtor.com, and your Realtor®, can walk you through the planning process, so you'll be able to anticipate requests from lenders, lawyers and a host of other professionals.

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3. Get Help… Find a Realtor®
More than 2 million people in the United States have earned real estate licenses, but only those agents who become members of the National Association of Realtors® (NAR) are considered Realtors®. Currently, NAR has over 1 million brokers and salespeople as members – this is roughly half of all licensees in the United States. It is important to find out if your agent is a Realtor® because as a requirement of their membership to NAR, these professionals agree to abide by a strong Code of Ethics, plus they have access to extensive training opportunities and a wealth of community and industry information that will ultimately benefit you!

Why should you use a Realtor®?
At first it might seem that by checking local picture books or online sites you could quickly find the right home at the right price. But no two properties are exactly alike – even two identical models on the same street have their differences. A Realtor® can show you what to look for when researching homes, to make sure there are no problems – and to point out any features that one home has over another.

And just as homes differ, so do contract terms, financing options, inspection requirements, closing costs, etc. In this maze of forms, financing, inspections, marketing, pricing and negotiating, it makes sense to work with professionals who know how to complete your transaction accurately. Those professionals are the local REALTORS® who serve your area.

How do you choose a Realtor®?
The best place to find Realtors® in your area is through Florida Living Network. This is the consumer website provided by the National Association of Realtors®, and it offers an extensive listing of community professionals as well as available properties.

Other ways to find a Realtor® include open houses, local advertising, the Internet, referrals from neighbors and suggestions from lenders, attorneys, financial planners and CPAs. The experiences and recommendations of past clients can be invaluable.

In many cases, buyers will interview several Realtors® before selecting one the professional they will work with. These interviews represent a good opportunity to consider such issues as training, experience, representation and professional certifications.

What should you expect when working with a Realtor®?
Once you decide on a Realtor®, you will want to establish a proper business relationship. Some Realtors® represent sellers while others represent buyers – depending on your situation, find out how they will represent you specifically. Your Realtor® will explain the all the services available, describe how he or she typically works with other real estate agents, and should provide you with complete agency disclosures (the ins and outs of your relationship with the agent - as required in by the State of Florida).

Your Realtor® should also provide you with information detailing current market conditions, financing options and negotiating issues that might apply to a given situation. Remember: Because market conditions can change and the strategies that apply in one negotiation may be inappropriate in another, this information should not be set in stone. During your time in the marketplace, your Realtor® will keep you updated on each step in the transaction process.

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4. Credit Facts

What is a “credit score”?
A credit score, also known as the FICO score, is a number that is generated using a computer program designed to analyze credit data and measure a borrower's default risk, or inability to pay back a loan based on their past financial behavior and current financial situation, and many other variables. Credit scoring uses data collected from any leading credit repository like Equifax, TransUnion or Experian.

According to Fair, Isaac and Co. Inc., the FICO score reviews the following items in computing a score:

• Payment patterns on various accounts, such as credit cards, retail accounts, installment loans, mortgage loans
• Number of existing credit cards
• Open or active accounts, their type, the length of time credit has been available, and credit levels
• Current indebtedness level and its relation to available credit
• Number of recent inquires or attempts to get new credit.
• Credit performance, including the number and severity of late payments

How can I clean up my credit?
If you have any doubts about your borrowing ability, try some of the following tips from NAR’s REALTOR® Magazine before starting to look at homes. If practiced over time, these things can help to improve your credit score:

• Don't let stores run credit checks for new accounts (lenders who see several recent credit checks are often concerned that borrowers may take on additional debt soon after the mortgage is signed)
• Don't open new credit cards or increase credit limits
• Do pay all credit card bills on time
• Do review your credit report for errors
• Do close unused credit card accounts, but maintain one of your oldest cards to illustrate a lengthy credit history
• Don't co-sign any loans

What should I do if my credit is rejected?
If you have attempted to get credit but were unsuccessful, here are some things that may have contributed and what you can do about it, reprinted with permission from Chicago Tribune writer Marilyn Kennedy Melia’s article, "Been Denied a Mortgage? Take Steps to Find Out Why":

• Get the explanation for the rejection in writing. The federal Equal Credit Opportunity Act provides a form for lenders to use to explain to borrowers why they were rejected.
• Know your credit score. Consumers are scored on a 900-point scale. Fannie Mae recommends lenders investigate borrowers with scores between 620 and 660 more thoroughly to see what caused the low rating. If a score is below 620, consumers may have to come up with larger down payments or borrow at higher rates. Once a year, Floridians can request a copy of their credit score at https://www.annualcreditreport.com/cra/index.jsp.
• Try another lender. Lending practices vary from one institution to another; one lender may have a special program that fits your buyers' profile.
• Consider bias. If buyers are in a protected class under the Fair Housing Act, they may be able to appeal if they can demonstrate discrimination. Lenders also are prohibited from rejecting a loan application because of the neighborhood in which the property is located. This practice is called “red-lining”.
• File a complaint. If a lender's explanation seems unsatisfactory, borrowers can file a complaint with the Federal Deposit Insurance Corporation (FDIC) or the U.S. Department of Housing and Urban Development (HUD) or the local Palm Beach County Office of Equal Opportunity.

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5. Pre-Qualify for Loans and Down Payment Assistance Programs

Few people can buy a home for cash. According to the National Association of Realtors® (NAR), the average first-time homebuyer in 2004 only had a 3% down payment – well bellow the industry standard of 10%. That means virtually all first time buyers required a loan.

The real issue with real estate financing is not with getting a loan (virtually anyone willing to pay lofty interest rates can find a mortgage). Instead, the issue is to find the loan that's right for you – the mortgage with the lowest cost and best terms. Realtors® routinely suggest that consumers start the mortgage process well before bidding on a home. Many lenders (the sources of money) and programs, for example, are available through websites and recommendations from local Realtors®. By meeting with lenders – either online or face-to-face – and looking at loan options, you will find which programs best meet your needs and how much you can afford.

Realtors® also recommend pre-approvals for another reason: Purchase forms often require buyers to apply for financing within a given time period, in many cases, 7 to 10 days. By meeting with loan officers in advance and identifying mortgage programs, it won't be necessary to quickly find a lender, check credit, and rush into a financing decision that may not be the best option.

What is pre-approval?
"Pre-approval" means you have met with a loan officer, your credit files have been reviewed and the loan officer believes you can readily qualify for a given loan amount with one or more specific mortgage programs. Based on this information, the lender will provide a pre-approval letter, which shows your borrowing power. You can visit as many lenders as you like and get several pre-approvals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports.

Although it’s not a final loan commitment, the pre-approval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained.

What paperwork and information will a lender need from me?
Having the necessary information ready for the lender will make the mortgage application process go faster. Following is a checklist from the National Association of Realtors® "Real Estate Update" from May 2001.

• Social Security numbers
• Divorce papers
• Green cards for resident aliens
• Employment verifications
• Two most recent paycheck stubs
• Tax returns for the last two years
• Three most recent bank statements

Assets Verification Paperwork:

• Saving accounts (balances, account numbers, and institutions)
• Credit union (balances, account numbers, and institutions)
• Mutual funds (balances, account numbers, and institutions)
• IRAs or 401(k)s (balances, account numbers, and institutions)
• Equity in current home
• Cash flows from rental properties
• Pensions or annuities
• Alimony
• Life insurance—the face amount and cash value

Debt Paperwork

• Mortgage and home equity loans
• Monthly bills
• Credit card balances
• Student loans
• Car loans
• Alimony and child support payments

TIP: If you have a car loan with only a few payments remaining, lenders may not count the balance toward your outstanding debt.

What are the different types of mortgages?
Here is an overview of the terms and options you will hear when choosing the mortgage, and the pros and cons to determine which is right for you:

• Conventional 30-Year, Fixed-Rate Mortgages – Good for buyers who want the security of a fixed principal and interest payment and plan to stay in a home long-term. However, a higher overall interest than 15-year loans. May need to refinance if rates fall significantly.

• Conventional 15-Year, Fixed-Rate Mortgages – Appeals to buyers who can afford higher payments and want to build equity quickly and pay less interest across a loan's life. Payments remain the same over the life of the loan. However, payments that are 25 percent to 30 percent higher can be a burden if income changes.

• Bi-Weekly Mortgages – Good for buyers who want to reduce the time needed to pay off a loan. By paying half the monthly payments every two weeks, the approach produces 13 monthly payments, rather than 12, per year. However, there is little flexibility if income changes or emergencies arise.

• Adjustable-Rate Mortgages – Low interest in the first year. Good for those who know their income will rise over the coming years or those who are moving in a couple years and aren't concerned with a rate hike. Allows borrowers to qualify for a higher loan amount. However, monthly payments can increase significantly if rates rise, although most adjustables have some form of interest-rate cap.

• Multi-Year Fixed, With Balloon – Lower closing costs than fixed mortgages; and lower payments. However, you need to refinance at end of fixed-rate period, no matter what interest rates are.

• FHA and VA – Lower down payment requirements than conventional loans and are often easier to qualify for, for those with low incomes. However, these require additional inspections and insurance. VA loans are limited to veterans.

• Interest Only Loan – As the names indicates, this type of loan payment only includes interest and does not include any repayment of principal. This usually means monthly payment is lower, but so long as the purchaser only pays the interest, the loan balance will remain unchanged.

What questions should I ask myself before deciding on a mortgage?

• How long will you own the property? The shorter the time, the lower points and other closing costs should be.
• Is there a type of payment schedule that makes you feel more comfortable? Most people prefer a fixed rate because they can predict future costs more easily.
• Does it matter to you who services the loan? It may be more convenient for you to borrow from a local institution you know, keeping in mind that loans can always be sold.
• Do you want to escrow money for insurance or taxes or do you want the lender to do it? In some cases, you don't have a choice, but whether you want to have an imposed savings plan for taxes and insurance or pay it all in one lump sum may depend on your personality and sources of income.
• Do you want a lender you know, or are you willing to try someone new?

What if I do not have the funds for a down payment?
There are many programs throughout Palm Beach County that will provide first-time home buyers assistance if you meet certain income and home purchase price criteria. Please note that some programs define “first-time” homebuyer as an individual who may have owned property in the past but has recently gone through a divorce or has not owned a house in a certain timeframe. For a list of programs throughout the County go to our Homebuyer Assistance Program Guide.

Please note that there is extra paperwork and an additional approval process associated with these types of programs. Be prepared for a delay in the home buying process from a few weeks to a few months. Many of these programs also require an additional inspection. But the time and effort associated with obtaining down payment assistance is well worth it, if it means the difference between becoming a homeowner or not.

What is Predatory Lending?
There's no easy definition of what constitutes predatory lending. In some cases, sub-prime loans (loans made at a high interest rate because of a borrower's poor credit) are justified. In other instances, sub-prime lending may grow out of abusive lending practices. Some clues that a buyer may be a victim of predatory lending include unnecessary services connected to the loan that have no benefit to the consumer; mischaracterization of the loan's terms and conditions; deceptive disclosures of balloon payments; or excessive prepayment penalties. If any of these actions occur during the mortgage application process, suggest that the buyers look elsewhere for a loan.

What are some of the typical challenges associated with the lending process?

• Being pre-qualified for a loan is different that being pre-approved. Pre-qualified does not mean you are guaranteed to receive that amount. The lender still has the right, after reviewing financial records to deny the loan or reduce the amount.
• Many times first-time buyers underestimate the amount of money needed to close the transactions. There are many costs associated with closing that must be pre-paid such as certain taxes and insurance.
• Sometimes borrowers can slow down the mortgage approval process due to difficult collecting all the needed documents to apply for a loan. Make sure all that paperwork is pulled together before speaking with a lender.
• Interest rates change daily – make sure you get a lock-in sheet that confirms the promised rate in writing.

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6. Search for Homes

The housing market is complicated because the stock of homes for sale is always in flux. If it were possible to have a complete list of every home for sale at this very moment in a given community, such a list would become obsolete within seconds as new homes become available, and as properties now for sale are put under contract.

In effect, buyers are looking at a moving target in a marketplace that is never static. Because of this, it is important to know as much as possible about the choices in your preferred markets, and you can do that by working closely with your Realtor®.

What are you looking for?
A home is more than just a collection of bedrooms and bathrooms. You may be looking at several properties - each with four bedrooms, three baths, and the same price – but each represent radically different designs, commuting distances, lot sizes, tax costs, interior dimensions, exterior finishes and more. It's important to list the features and benefits you want so you can evaluate each home you see based on your needs. Consider such things as pricing, location, size, amenities (extras such as a pool or extra-large kitchen) and design (one floor or two, colonial or modern, etc.).

Next, consider your priorities. If you can't get a home at your price with all the features you want, then what features are most important? For instance, would you trade fewer bedrooms for a larger kitchen? A longer commute for a bigger lot and lower cost? And finally, consider your needs in several years. If you'll need a larger home, maybe now is the time to buy a bigger house rather than moving or expanding in the future. If you expect your income to increase, perhaps you should consider a more expensive home financed with a loan program where monthly payments increase in the future.

Where should you look?
All neighborhoods and communities have a special nature that gives them identity and value. One community may be well-known for historic homes while another offers suburban living and easy access to downtown office areas. Realtor.com features more than 1.4 million homes online and is the largest source for property information online or off. You can look at homes, contact listing brokers, and also find brokers who offer buyer representation services.

How do you find a house?
Some buyers like to search Realtor.com by looking at listings on the basis of location or price; others prefer to have a Realtor® suggest properties; while many buyers prefer both approaches. Regardless of your choice, it's important to target your search by using basic measures such as general location and affordability. Then maintain a file with information on each of the homes you like. Print out listing pages from Realtor.com and make notes for each one – what you like, questions, REALTOR® contact data, etc. This will help you identify what you truly want, and give your Realtor® insight into finding your perfect home.

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7. Make an Offer

You sometimes hear that the amount of your offer should be x percent below the seller's asking price or y percent less than you're really willing to pay. In practice, the offer depends on the basic laws of supply and demand: If many buyers are competing for homes, then sellers will likely get full-price offers and sometimes even more. If demand is weak, then offers below the asking price may be in order.

In a typical situation, you will complete an offer that the Realtor® will present to the owner and the owner's representative. The owner, in turn, may accept the offer, reject it or make a counter-offer. Because counter-offers are common (any change in an offer can be considered a "counter-offer"), it's important for buyers to remain in close contact with their Realtor® during the negotiation process so that any proposed changes can be quickly reviewed.

Once your offer is accepted, a number of inspections are required to review the property’s condition to get anything fixed or repaired before you actually take ownership. They include checks for termites, surveys to determine boundaries, appraisals to determine value for lenders, title reviews and structural inspections. Structural inspections are particularly important. During these examinations, an inspector comes to the property to determine if there are material physical defects and whether expensive repairs and replacements are likely to be required in the next few years. Such inspections for a single-family home often require two or three hours, and buyers should attend. This is an opportunity to examine the property's mechanics and structure, ask questions and learn far more about the property than is possible with an informal walk-through.

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8. Get Homeowners Insurance

No one would drive a car without insurance, so it figures that no homeowner should be without homeowners insurance. The essential idea behind real estate insurance is to protect owners in the event of catastrophe. If something goes wrong, insurance can be the bargain of a lifetime. Homeowners' insurance provides fire, theft and liability coverage. Homeowners' policies are required by lenders and often cover a surprising number of items, including in some cases such property as wedding rings, furniture and home office equipment. There are various forms of insurance associated with home ownership, including these major types:

• Title Insurance – Purchased with a one-time fee at closing, title insurance protects owners in the event that title to the property is found to be invalid. Coverage includes "lenders" policies, which protect buyers up to the mortgage value of the property, and "owners" coverage, which protects owners up to the purchase price. In other words, "owners" coverage protects both the mortgage amount and the value of the down payment.

• Flood Insurance – Generally required in high-risk flood-prone areas, this insurance is issued by the federal government and provides as much as $250,000 in coverage for a single-family home plus $100,000 for contents. Your Realtor® can explain which locations require such coverage.

• Home Warranties – When designed for new construction, home warranties are bought from third parties by home builders and are generally designed to provide several forms of protection: workmanship for the first year, mechanical problems such as plumbing and wiring for the first two years, and structural defects for up to 10 years. Home warranties for existing homes are typically one-year service agreements purchased by sellers. In the event of a covered defect or breakdown, the warranty firm will step in and make the repair or cover its cost.

• Windstorm Insurance - Windstorm coverage pays for damage to property that results from a windstorm, for example a hurricane. Direct damage to the property is included, also personal property and living expenses if the home becomes uninhabitable, can also be included. Due to the proximity of coastal areas in Palm Beach County, windstorm insurance is common. Unfortunately, many private insurers do not offer this type of policy so the Florida government has created Citizens Insurance as the insurer of last resort. Please note that there is a special deductible for hurricanes and recent legislation will provide more consumer choices for the deductible amount.

Insurance policies and warranties have limitations and individual programs have different levels of coverage, deductibles and costs. The time to obtain insurance and warranty coverage is at closing, so speak with your Realtor® or insurance broker prior to closing. Be sure to ask about limitations, costs, deductibles and "endorsements" (additional forms of coverage that may be available).

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9. The Closing

The closing process is increasingly computerized and automated. In many cases, buyers and sellers don't need to attend a specific event; signed paperwork can be sent to the closing agent via overnight delivery.

In practice, closings bring together a variety of parties who are part of the "transaction" process. For example, while the history of property ownership has been checked, it's possible that the records contain errors, unrecorded claims or flaws in the review itself, thus title insurance is necessary. At closing, transfer taxes must be paid and other claims must also be settled (including closing costs, legal fees and adjustments). In most transactions, the closing agent also completes the paperwork needed to record the loan.

What To Expect

Settlement is a brief process where all of the necessary paperwork needed to complete the transaction is signed. Closing is typically held in an office setting, sometimes with both buyer and seller at the same table, sometimes with each party completing their papers separately. Whatever the case, the result is that title to the property is transferred from seller to buyer. The buyer receives the keys and the seller receives payment for the home. From the amount credited to the seller, the closing agent subtracts money to pay off the existing mortgage and other transaction costs. Deeds, loan papers, and other documents are prepared, signed and filed with local property record offices.

What You Need To Do

One of the best parts of settlement is that buyers and sellers need to do very little.

Before closing, buyers typically have a final opportunity to walk through the property to assure that its condition has not materially changed since the sale agreement was signed. At closing itself, all papers have been prepared by closing agents, title companies, lenders and lawyers. This paperwork reflects the sale agreement and allows all parties to the transaction to verify their interests. For instance, buyers get the title to the property, lenders have their loans recorded in the public records and state governments collect their transfer taxes.

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10. Maintaining and Owning Your New Home

You've done it. You've looked at properties, made an offer, obtained financing and gone to closing. The home is yours! Is there any more to the home-buying process? Whether you're a first-time buyer or a repeat buyer, there are several more steps you'll want to take:

• Those papers you received at settlement are extremely valuable, so hold on to them! In the short-term they can help establish tax deductions for the year in which the property was purchased. In the future, such papers will be important for tax purposes when the property is sold, and in some cases, for calculating estate taxes.

• Also at closing, determine the status of the utilities required by the home, items such as water, sewage, gas, electric and oil service. You want utility bills to be paid in full by owners as of closing and you also want services transferred to your name for billing. Usually such transfers can be done without turning off utilities. Your Realtor® can provide contact numbers and related information.

• About two weeks after closing, contact the Palm Beach County Property Appraisers office to confirm that your deed has been officially recorded and apply for homestead. Homestead pulls the first $25,000 of your property’s assessed value from the tax rolls. There are additional homesteads available to certain seniors, disabled individuals widows or widowers. Contact the Property Appraisers office for details.

• Move In! It is generally understood that sellers will leave homes "broom clean" when moving out. This expression does not mean "vacuumed" or "spotless." Broom clean makes sense because it means the house is ready to be painted and cleaned just how you want it.

• Protect your new asset. Make a photo or video record of your home and possessions for insurance purposes and keep the records in a safety deposit box. Your insurance provider can recommend what to photograph and how to secure it.

• Maintain fire, theft and liability insurance. As the value of your property increases such coverage should also rise. Again, speak with your insurance professional for details.

Now, enjoy your home! Owning real estate involves contracts, loans, and taxes, but ultimately what's most important is that homeownership should be a wonderful experience. Enjoy!

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Adapted from Realtor.org and other resources found at:

Homestore.com

National Association of Realtors® Website

U.S. Department of Housing and Urban Development (HUD)

HUD USER Policy Development and Research Information Service