WHY BUY RATHER THEN RENT?

For most people, buying a home is one of the most important decisions of their lives. The decision is not usually an easy one. Here are 10 good reasons why buying a home is one of the best investments you make.

1. IT WILL BE YOURS AND YOURS ALONE

The freedom of owning your own home can't begin to compare to the restrictions that renters experience. You can paint the walls the color you like. Hammer a nail where you want, All without hassle from a landlord.

2. LIFESTYLE

When you live in a neighborhood or building that is basically owner-occupied, your neighbors, like you, have invested alot of time, care and money in their property. They're willing to invest more of their time, money and efforts to improve their property and community, which in turn improves the value of your property!

3. EQUITY

Rental payments are gone once you have made them. But with each mortgage payment you are buying something tangible, building up equity. The longer you own your home, the larger your equity.

4. KEEP UP WITH INFLATION

A home is an investment that helps you keep up with inflation. Although not all homes appreciate at the same rate and some years are better than others, real estate has historically kept pace with and usually appreciated faster than the rate of inflation,

5. INCOME TAX BENEFITS

Under current law, all interest paid on a mortgage incurred in buying a home is deductible for tax purposes as long as the mortgage does not exceed $1 million. In the early years of your mortgage, most of your payment is interest. Remember, too, that real estate taxes are still deductible.

Later on should you decide to take advantage of the growing equity in your home by taking out a home equity loan, the interest on up to $100,000 of home equity indebtedness is tax deductible. And under current law, the proceeds of these loans can be used as the homeowner desires.

6. PAYBACK ON IMPROVEMENTS

A renter who makes any property improvements gets no financial benefits from them if he or she relocates. But as a home owner, you can realize some or all of the cost of improvements when you sell your home.

7. TRADE-UP VALUE

Even if your first home isn't your dream home, you will be working your way up to it when you buy any home. With appreciation and possibly some improvements, it may provide you with enough equity to make a down payment on your dream home later.

8. SECURITY FOR RETIREMENT

Unlike rent, which goes onforever, the mortgage on your home will be paid some day, providing you with "rent free" living for your retirement.

9. INVESTMENT PROPERTY

For some, second single family homes or condominiums are proving to be good income investments and tax shelters. You may be able to realize profits and tax benefits from renters who don't yet know the benefits of owning a home.

10. DO NOT LET THE MORTGAGE INTEREST RATE FOOL YOU

You will pay less in interest than the mortgage rate of your loan, because the interest you pay becomes tax-deductible.

There are several types of closing (or settlement ) costs and other up-front costs that will need to be paid at closing. Highlighted below are just some of those costs or expenses. However this list is not comprehensive and is not intended as such. Just as each house is unique so is each sale and the circumstances behind it and the costs that go along with it.

Buying a home involves time, energy, and, most of all, money. In addition to committing to mortgage payments for 15 to 30 years, buyers need quite a bit of money "up-front" to close the transaction.

Financial closing costs are paid by both the buyer and the seller. The seller will pay for certain expenses and the buyer will pay for others. One way to minimize closing expenses is to negotiate some of them as part of the offer or counter-offer. Some fees are set by law, and therefore are not negotiable. Others are set by the local real estate and financial markets and may be more flexible.

What Happens at Closing.

Much of the paperwork involved in closing (or settlement) is done by attorneys. Before closing on a house, the buyers should have a final inspection, or walk-through, to make sure any repairs that were agreed to have been made and that items which were to remain with the house (drapes, light fixtures) are still there.

At the closing, ownership officially is transferred from the seller to the buyer. It will involve the buyers, the buyers' attorney, the seller, and the sellers' attorney among others like a lender and so on. It is possible to have an attorney act on your behalf if you cannot attend the meeting. Closing can take as little time as an hour to sign all the forms and transfer ownership or it can take several hours, depending upon the terms of the contract and financing.

Settlement or closing can be done by a title or escrow firm to which all the materials and information along with the appropriate cashiers' checks have been forwarded. The firm will make the necessary disbursements.

Buyers may need to pay some fees even if they pay cash for the house and did not need to take out a mortgage.

Statutory Costs

• Transfer taxes are required by the State, the County and some localities to transfer the title and deed from the sellers to the buyers.
• Recording fees for the deed pay for the county clerk to record the deed and mortgage and change the property tax billing.
• Other state and local fees can include mortgage taxes levied by states as well as other local fees.
• Pro-rated taxes such as school taxes, municipal taxes may have to be split between the buyers and the sellers because they are due at different times of the year. Some lenders may require the buyers to set up an escrow account to cover these bills. If the lender does not require an escrow account, the buyers may want to set up a special account on their own to make sure they have money set aside for these important, and large, bills.

Third-party costs

• Third-party costs are expenses paid to others such as inspectors, attorneys, and/or insurance firms.
• Title search costs. The buyers' attorney will do or arrange for the title search to make sure there are no obstacles (liens, lawsuits) to owning the home. In some cases, the buyers may work with a title company to verify a clear title to the property.
• Homeowner's insurance. Most lenders require that the buyers prepay the first year's premium for homeowner's insurance (sometimes called hazard insurance) and bring proof of payment to the closing. This insures that their investment will be secured, even if the house is destroyed.
• Real estate agent's sales commission. The seller pays the commission to the real estate agent.

Finance and Lender Charges

• Origination or application fees. These are fees for processing the mortgage application and may be a flat fee or a percentage of the mortgage.
• Credit report. If the buyers are making a small down payment most lenders will require a credit report.
• Points. A point is equal to 1% of the amount borrowed. Points can be payable when the loan is approved (before closing) or at closing. Points can be shared with the seller and may be negotiated in the purchase offer. Some lenders will let the buyers finance points, adding this cost to the mortgage, which will increase the buyers interest costs.
• Lender's attorney's fees. Lenders may have their attorney draw up documents, check to see that the title is clear, and represent them at the closing.
• Document preparation fees. The buyers may be charged for the preparation of the amazing amount and array of paperwork that it takes to process the transaction.
• Preparation of amortization schedule. Some lenders will prepare a detailed amortization schedule for the full term of the mortgage. They are more likely to do this for fixed mortgages than for adjustable mortgages.
• Land survey. Most lenders will require that the property be surveyed to make sure that no one has encroached on it and to verify the buildings and improvements to the property.
• Appraisals. Lenders want to be sure the property is worth at least as much as the mortgage. Professional property appraisers will compare the value of the house to that of similar properties in the neighborhood or community.
• Lender's mortgage insurance. Depending upon the down payment, many lenders will require that the buyers purchase private mortgage insurance (PMI) for the amount of the loan. This way, if there is a default on the loan, the lender will recover his money. These insurance premiums will continue until the principal payments plus down payment equal the appropriate percentage of the selling price, but they may continue for the life of the loan. The premiums are added to any amount that the buyers must escrow for taxes and homeowner's insurance.
• Lender's title insurance. Even though there is a title search for any obstacle (liens, lawsuits), many lenders require insurance so that should a problem arise, they can recover their mortgage investment. This is a one-time insurance premium, usually paid at closing; it is insurance for the lender only, not for the buyers as a purchaser.
• Release fees. If the seller has worked with a contractor who has put a lien on the house and who expects to be paid from the proceeds of the sale of the house, there may be some fees to release the lien. Although the seller usually pays these fees, they could be negotiated in the purchase offer.
• Inspections required by lender. (termite, water tests, etc.) If the buyers apply for an FHA or VA mortgage, the lender will require a termite inspection. In many rural areas, lenders will require a water test to make sure the well and water system will maintain an adequate supply of water to the house (this is usually a test for quantity, not a test for water quality).
• Prepaid interest. The first regular mortgage payment is usually due about 6 to 8 weeks after closing. Interest costs, however, start with the closing. The lender will calculate how much interest is owed for the fraction of the month in which the closing takes place. In some cases this is due at closing.
• Escrow account. Lenders will often require that the buyers set up an escrow account into which they will make monthly payments for taxes, homeowner's insurance, and PMI (mortgage insurance, if required). The amount placed in this escrow account at closing depends on when property taxes are due and the timing of the settlement transaction. The lender should be able to give the buyers a close approximation of these costs at the time they apply for their mortgage loan.

Up-Front Expenses

• The major portion of up-front expenses is the deposit, binder, or earnest money that the buyers make at the time of the purchase offer and the remaining cash down payment they make at closing.
• Inspections. (structural, radon tests, etc.) In addition to inspections required by the lender, the buyers may make the purchase offer contingent on satisfactory completion of some other inspections. The buyers and the sellers will need to negotiate these fees.
• Owner's title insurance. The buyers may want to purchase title insurance for themselves so that if problems arise, they are not left owing a mortgage on a property that they no longer own. A thorough title search is often assurance enough of a clear title.
• Appraisal fees. The buyers may want to hire their own appraiser, either before they sign a purchase offer or after seeing the results of the lender's appraisal.
• Money to the seller. The buyers may need to pay for personal property items in the house that they want. Such items may include appliances, light fixtures, drapes, lawn furniture, and fuel oil and propane left in tanks.

RESPA

The Real Estate Settlement Procedures Act (RESPA) contains information on the settlement or closing costs that both the Buyers and Sellers are likely to face. Within 3 days of the time the buyers apply for the mortgage, the buyers' lender is required to provide the buyers with a "good faith estimate of settlement costs," based on his or her understanding of the buyers purchase contract. This estimate should give the buyers a good idea of how much cash will be needed at closing.

An information booklet entitled "Settlement Costs and You" written by the U.S. Department of Housing and Urban Development, which discusses how to negotiate a sales contract, how to work with various professionals (attorneys, real estate agents, lenders), and your rights and responsibilities should be given to the buyers by the buyers' lender. It also shows an example of the uniform settlement statement that will be used at the closing.

Truth in Lending

Mortgage lenders are required to give buyers a truth in lending (TIL) statement containing information on the annual percentage rate, the finance charge, the amount financed, and the total payments required. For adjustable rate loans, the "total payments" figure is estimated as a "worst case" scenario. The figure represents the payments that the buyers would make if their loan adjusted upward to the maximum rate allowed by annual and lifetime caps and then stayed there for the duration of the loan.

The TIL statement may also contain information on security interest, late charges, prepayment provisions, and whether the mortgage is assumable. If the buyers have an adjustable rate loan, it may outline the limits on the adjustments (annual and lifetime caps) and give an example of what the next year's payment might be, depending on interest rates.