How do I pay for my new house?
Loans for homes are called mortgage loans. They are one kind of credit. Mortgage loans are secured loans. The property (that is, the house and the land it is built on) becomes the collateral needed to secure the loan.
As a general rule, a mortgage loan is taken out for a long period of time, typically 15 to 30 years. The homeowner borrows a specific amount of money for this time period. The amount borrowed is known as the principal. The period of years for which the loan is made is known as the term of the loan. The principal is paid back over the term of the loan at a particular rate of interest. The length of the term influences the amount of monthly payments. These payments shouldn't be more than 20 to 25 percent of your income.
Through most of the years of payment, a high percentage of the monthly payment goes to pay the interest rather than the principal amount of the loan. Truth in Lending laws require that borrowers be informed of these figures prior to taking the loan.
In the past, most mortgage loans were at fixed interest rates; that is, the monthly payments were the same over the term of the loan. Recent years have been less stable economically. Lenders have found this kind of mortgage lending unprofitable. They have created new types of mortgages with adjustable and variable interest rates. This variety of mortgages makes home loan shopping more complex.
Back to top
How do I get a loan?
Most home loans come from banks and savings and loan associations.
Several federal government aid programs assist buyers in getting loans. The Federal Housing Administration (FHA) and Veterans Administration (VA) both insure home loans. This insurance encourages banks to lend to people whose loans they might not otherwise approve. FHA and VA loans allow lower down payments and usually have lower interest rates. VA loans are only available to veterans of the armed forces.
The Georgia Dream Homeownership Program, administered by the Georgia Department of Community Affairs offers low-interest mortgage loans for eligible low and moderate-income borrowers. However, there are geographical and income restrictions. In addition, persons convicted of certain illegal drug activities are not eligible to participate in the program.
Back to top
What home purchase scams should I be aware of?
If you are considering buying a home, watch out for traps that are designed to steal your hard-earned money and leave you and your family on the street! Beware of lease-purchase options, contracts for deed, seller financing, and similar deals, because they almost never work.
- Lease-purchase options: You sign a lease that includes an option to purchase the home if you can get financing during the option period (often 1 year). You usually make a large down payment (which may or may not be credited toward the purchase price) and pay more in monthly rent (a portion of the rent may or may not also be credited toward the purchase price).
- Typical result? Either you can’t afford the lease payments that have drastically increased based on fine print in the lease; or you aren’t able to qualify for financing; or the home doesn’t appraise high enough to qualify for the loan amount you need (even after applying the credit from the down payment and rent payments). When you cannot pay the lease payments, or you pay but can’t get a good loan to exercise the option to purchase, the seller will evict you and your family, keep the house, your down payment, and excess rent payments, and then turn around and prey on the next unsuspecting person. You lose the home AND your money!
- Contracts for deed: The seller provides financing and you think you own your home with a mortgage. However, the contract says you won’t get title in your name until after you’ve paid the entire loan balance (often over a 30-year period). Typically, the contract requires you to make home repairs, pay the property taxes, and pay homeowner’s insurance during the 30-year period when you do not actually own the home.
- Typical result? You spend money fixing up the home and pay the property taxes and insurance. If you miss a single payment, the contract says the seller can evict you like a tenant, take back the house with all the repairs and improvements you made, and keep all the money you’ve paid on the contract. Because of your work, the seller has a more valuable house to sell to the next unsuspecting person. You lose the home AND your money!
- Seller financing (with or without a wraparound mortgage): The seller provides the mortgage, but the seller doesn’t comply with lending laws that apply to banks, credit unions, and other mortgage lenders. Seller financing often has inflated prices, high interest rates, and other bad terms. Sometimes the seller already has another mortgage on the property that also has to be paid to avoid foreclosure.
- Typical result? Bad terms make the payments hard to afford, and almost impossible to refinance. Even if you are making your mortgage payments on time, if the seller stops paying their original or “wrapped” mortgage, you could be at risk of foreclosure and not even know it. You lose the home AND your money!
Back to top
How do I check the title for the property I am buying?
A title is one's right to ownership of a particular piece of real property. The title examination is critical for the homebuyer. It is important to know that the seller is the sole and rightful owner of the property and that there are no problems with the title. A title examination is time consuming and, many times, complicated. It is risky to do it yourself. It is wise to hire an expert, preferably a real estate attorney or title insurance company, to do it.
In Georgia, the search covers 50 years. The searcher looks to see that no one else besides the seller has any claim or right to the property.
The searcher also looks to see that there are no defects in the seller's title. A defect in the title might be taxes owed on the property. Another defect might be the right of other people to use part of the property as a driveway. In other words, a title defect concerns anything that might interfere with the purchaser's use and enjoyment of the property.
Back to top
What should I know about closing a sale?
Federal law requires that the buyers be notified of the closing costs at least 24 hours before the closing. These costs may include fees for the loan application, property appraisal, title search, attorney's fees, and title insurance. (Title insurance protects the buyer against any claim overlooked in the search.)
Generally, you must be prepared to pay these fees and the agreed-upon down payment on the house. The lender pays the remainder of the cost of the house. The seller will pay the real estate agent's fee and title transfer. At the closing, the documents are signed that complete the sale.
What other documents should I be aware of?
The document that represents the passing of ownership from the seller to the purchaser is the deed. The deed states that for a particular sum of money, the seller grants (or conveys) to the purchaser the property described. Once the deed is signed by the seller and handed to the purchaser, the purchaser becomes the owner of the property.
When the purchaser finances the property with a mortgage, another document is required. This document is known in Georgia as a deed to secure debt. This deed establishes the new buyer's property as collateral for the loan. The deed to secure debt is executed (or signed) by the purchaser and given to the lender.
After the sale is closed, the signed documents must be recorded at the local courthouse. By recording each real property sale, land records can be safely and centrally maintained.
Back to top
What happens if I can't repay the loan?
If a mortgage loan is not repaid as agreed, the mortgage lender may obtain the collateral and sell it to satisfy the debt. This process is known as foreclosure.
The house may be sold at a public sale.
Note that property can also be seized and sold at public sale by a county government to meet unpaid property tax debts. Those who fail to pay the tax assessed on their house must also be notified before the sale.
Back to top