Home Buying Rights

If you are thinking for the first time about buying a home then you need to be aware that the Real Estate Settlement Procedures Act (RESPA) requires moneylenders and mortgage brokers to provide a HUD information booklet within three days of applying for your loan. RESPA helps protect consumers from unscrupulous practices during the home-buying and loan process and is a federally-binding law.

Purchasing a property is the biggest financial decision most of us make. To consider it carefully you would do well to obtain all the information you can to uncover the steps involved and the pamphlet called "Shopping for your Home Loan" will help you understand the various parts of the process. You may even be uncertain whether you are ready to buy a home, and this can help you look at the financial implications to aid your planning.

It covers in detail the sales agreement, GFE's (Good Faith Estimates) to compare available loans, the additional service providers you will need to consult, the charges and fees that will be levied and the statement that you will receive upon purchase.

This booklet will help you become familiar with:

  • interest rates
  • points
  • balloon payments
  • prepayment penalties
  • your loan after settlement
  • resolving loan servicing problems
  • steps to avoid foreclosure
  • home equity loans
  • refinancing your mortgage

You may need help to negotiate the various stages to home ownership, including making sense of the paperwork you will have to sign. There is a useful list of contact details and glossary of terms, sample documents and a do's and don'ts list in the HUD 49 page document.

Twelve Steps to Owning a Home

  1. Determine what you can afford
  2. Find a real estate agent
  3. Find a house and negotiate contract terms
  4. Shop for your loan - compare multiple GFE's
  5. Choose best loan for you
  6. Loan originator processes loan
  7. Have house inspected
  8. Shop for other service providers - title agent, attorney, escrow agent
  9. Loan is approved
  10. Get insurances and do final walk through
  11. Go to settlement
  12. Move in

In summary, you should consider the following:

  • Assess your current situation before making a purchase, including the risks involved, taxes, insurance and additional costs.
  • Commit to financial planning using income and expenses forms, and detail professionals to consult, including real estate brokers and an attorney.
  • You will need to sign sales agreements, understand negotiable terms, mortgage clauses and settlement costs, book house inspections, and deal with lender affiliates.
  • Mortgage brokers and lenders can help you with types of loan, government programs, mortgage rates, taxes and insurance.
  • It is good practice to use GFE's to compare multiple mortgages, loans and costs, and prepare all the details to fill in yourself. You must understand the details from the lender, and how to use escrow accounts.
  • There may be significant variations with new or resale purchases, as you will be negotiating with builders, and organising title services, mechanic 'liens', surveys and homeowners insurance.

With this information you will be able to make good comparisons of the services offered in your area, and identify the best loan for you. The HUD booklet also lists the charges which may vary at settlement, how to assess your points, and gives advice on which settlement services to use. There is a 'trade-off table' in the booklet to help you understand how your payments will change if you pay more settlement charges and receive a lower interest rate, or if you pay lower settlement charges and receive a higher interest rate.

The booklet also takes you through the process of settlement, including the HUD-1 Settlement Statement form in detail, servicing and escrow disclosure statements, and what happens if errors occur or if you need to make a complaint. Making your payments on time so that you do not default on your loan will enable you to avoid foreclosure, but if it happens there are steps you can take to help you keep your home. You may also want to remodel or improve aspects of your home requiring a home equity loan or refinancing.

To conclude, you should at no time experience any discrimination as a home loan applicant, but if you do the Fair Housing Act offers you protection and adjudication, or you can file a private legal action. If you are turned down for your loan, need to obtain your credit report or home appraisal, or contact any other professional bodies related to purchasing a home, the contacts list in the HUD booklet will give you a first point of contact. You can also find links to useful websites offering mortgage calculators and other online advice portals.