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10 Steps to Prepare for Homeownership

     1.  Decide how much home you can afford. Generally, you can afford a home equal in value to between two and three times your
         gross income.
         For more help, use Fannie Mae's online mortgage calculators at
     2.  Develop a wish list of what you’d like your home to have. Then prioritize the features on your list.
     3.  Select three or four neighborhoods you'd like to live in. Consider items such as schools, recreational facilities, area expansion
         plans, and safety.
     4.  Determine if you have enough saved to cover your downpayment and closing costs. Closing costs, including taxes, attorney's fee,
         and transfer fees average between 2 percent and 7 percent of the home price.
     5.  Get your credit in order. Obtain a copy of your credit report.
     6.  Determine how large a mortgage you can qualify for. Also explore different loans options and decide what's best for you.
     7.  Organize all the documentation a lender will need to preapprove you for a loan.
     8.  Do research to determine if you qualify for any special mortgage or downpayment-assistance programs.
     9.  Calculate the costs of homeownership, including property taxes, insurance, maintenance, and association fees, if applicable.
     10. Find an experienced REALTOR® who can help you through the process.

Other Homeownership articles on the National Association of Realtors site:

7 Reasons to Own Your Own Home
10 Things to Take the Trauma Out of Homebuying

What Your Home Inspection Should Cover

         Siding: Look for dents or buckling
         Foundations: Look for cracks or water seepage
         Exterior Brick: Look for cracked bricks or mortar pulling away from bricks
         Insulation: Look for condition, adequate rating for climate
         Doors and Windows: Look for loose or tight fits, condition of locks, condition of weatherstripping
         Roof: Look for age, conditions of flashing, pooling water, buckled shingles, or loose gutters and downspouts
         Ceilings, walls, and moldings: Look for loose pieces, drywall that is pulling away
         Porch/Deck: Loose railings or step, rot
         Electrical: Look for condition of fuse box/circuit breakers, number of outlets in each room
         Plumbing: Look for poor water pressure, banging pipes, rust spots or corrosion that indicate leaks, sufficient insulation
         Water Heater: Look for age, size adequate for house, speed of recovery, energy rating
         Furnace/Air Conditioning: Look for age, energy rating; Furnaces are rated by annual fuel utilization efficiency; the higher the
          rating, the lower your fuel costs. However, other factors such as payback period and other operating costs, such as electricity to
          operate motors.
         Garage: Look for exterior in good repair; condition of floor–cracks, stains, etc.; condition of door mechanism
         Basement: Look for water leakage, musty smell
         Attic: Look for adequate ventilation, water leaks from roof
         Septic Tanks (if applicable): Adequate absorption field capacity for the percolation rate in your area and the size of your family
         Driveways/Sidewalks: Look for cracks, heaving pavement, crumbling near edges, stains

SRA provides town-by-town information on home inspection and other criteria in our Municipal Information section.

5 Property Tax Questions You Need to Ask
     1.    What is the assessed value of the property? Note that assessed value is generally less than market value. Ask to see a recent
           copy of the seller’s tax bill to help you determine this information.
     2.    How often are properties reassessed and when was the last reassessment done? Generally taxes jump most significantly when a
           property is reassessed.
     3.    Will the sale of the property trigger a tax increase? Often the assessed value of the property may increase based on the amount
           you pay for the property. And in some areas, such as California, taxes may be frozen until resale.
     4.    Is the amount of taxes paid comparable to other properties in the area? If not, it might be possible to appeal the tax assessment
           and lower the rate?
     5.    Does the current tax bill reflect any special exemptions that you might not qualify for? For example, many tax districts offer
           reductions to those 65 or over.

Read more about the Property Assessment Appeals Process.

10 Questions to Ask Your Lender

Be sure you find a loan that fits your needs with these comprehensive questions.

     1.  What are the most popular mortgage loans you offer?
     2.  Which type of mortgage plan do you think would be best for us? Why?
     3.  Are your rates, terms, fees, and closing costs negotiable?
     4.  Will I have to buy private mortgage insurance? If so how much will it cost and how long will it be required? NOTE: Private
         mortgage insurance usually is required if you make less than a 20 percent downpayment, but most lenders will let you discontinue
         the policy when you've acquired a certain amount of equity by paying down the loan.
     5.  Who will service the loan? Your bank or another company?
     6.  What escrow requirements do you have?
     7.  How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if
         they drop during this period?
     8.  How long will the loan approval process take?
     9.  How long will it take to close the loan?
     10. Are there any charges or penalties for prepaying the loan?

Used with permission from Real Estate Checklists & Systems (

5 Things to Understand about Homeowners Insurance

     1.    Look for exclusions to coverage. For example, most insurance policies do not cover flood or earthquake damage as a standard
           item. These coverages must be bought separately.
     2.    Look for dollar limitations on claims. Even if you are covered for a risk, there may a limit on how much the insurer will pay. For
           example, many policies limit the amount paid for stolen jewelry unless items are insured separately.
     3.    Understand replacement cost. If your home is destroyed you'll receive money to replace it only to the maximum of your
           coverage, so be sure your insurance is sufficient. This means that if your home is insured for $150,000 and it costs $180,000 to
           replace it, you'll only receive $150,000.
     4.    Understand actual cash value. If you choose not to replace your home when it's destroyed, you'll receive replacement cost, less
           depreciation. This is called actual cash value.
     5.    Understand liability. Generally your homeowners insurance covers you for accidents that happen to other people on your
           property, including medical care, court costs, and awards by the court. However, there is usually an upper limit to the amount of
           coverage provided. Be sure that it's sufficient if you have significant assets.

5 Things to Understand about Title Insurance

     1.    It protects your ownership right to your home both from fraudulent claims against your ownership and from mistakes made in
           earlier sales, such as mistake in the spelling of a person's name or an inaccurate description of the property.
     2.    It's a one-time cost usually based on the price of the property.
     3.    It's usually paid for by the buyer.
     4.    There are both lender title policies, which protect the lender, and owner title policies, which protect you. The lender will probably
           require a lender policy.
     5.    Discounts on premiums are sometimes available if the home has been bought within only a few years since not as much work is
           required to check the title. Ask the title company if this discount is available.

Common Closing Costs for Buyers

The lender must disclose a good faith estimate of all settlement costs. A check to cover your closing costs will probably have to be a
cashier's check. The title company or other entity conducting the closing will tell you the required amount for:

          Downpayment
          Loan origination fees
          Points, or loan discount fees, you pay to receive a lower interest rate
          Appraisal fee
          Credit report
          Private mortgage insurance premium
          Insurance escrow for homeowners insurance, if being paid as part of the mortgage
          Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as
           they are paid with the mortgage, then pay the insurance or taxes for you.
          Deed recording fees
          Title insurance policy premiums
          Survey
          Inspection fees—building inspection, termites, etc.
          Notary fees
          Prorations for your share of costs, such as utility bills and property taxes

A Note About Prorations: Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services
used by the sellers before they moved. Proration is a way for the sellers to pay you back or for you to pay them for bills they may have paid
in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy
the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would
owe for the first five days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the
days of his or her ownership.

Other Closing Process articles on the National Association of Realtors site:

What Not to Overlook on a Final Walk-through
What to Keep from Your Closing

                                                                                                                Selling a Home
5 Things to Do Before You Sell

     1.    Get estimates from a reliable repairperson on items that need to be replaced soon, such as a roof or worn carpeting, for example.
           In this way, buyers will have a better sense of how much these needed repairs will affect their costs.
     2.    Have a termite inspection to prove to buyers that the property is not infested.
     3.    Get a pre-sale home inspection so you'll be able to make repairs before buyers become concerned and cancel a contract.
     4.    Gather together warranties and guarantees on the furnace, appliances, and other items that will remain with the house.
     5.    Fill out a disclosure form provided by your sales associate. Take the time to be sure that you don't forget problems, however
           minor, that might create liability for you after the sale

Understanding Capital Gains in Real Estate

When you sell a stock, you owe taxes on your gain—the difference between what you paid for the stock and what you sold it for. The same is
true with selling a home (or a second home), but there are some special considerations.

How to Calculate Gain

In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. To calculate this:

     1.    Take the purchase price of the home: This is the sale price, not the amount of money you actually contributed at closing.
     2.    Add Adjustment:
                o Cost of the purchase—including transfer fees, attorney fees, inspections, but not points you paid on your mortgage.
                o Cost of sale—including inspections, attorney's fee, real estate commission, and money you spent to fix up your home
                      just prior to sale.
                o Cost of improvements—including room additions, deck, etc. Note here that improvements do not include repairing or
                      replacing something already there, such as putting on a new roof or buying a new furnace.
     3.    The total of this is the adjusted cost basis of your home.
     4.    Subtract this adjusted cost basis from the amount you sell your home for. This is your capital gain.

A Special Real Estate Exemption for Capital Gains
Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home is exempt from taxation if you meet the
following criteria:

          You have lived in the home as your principal residence for two out of the last five years.
          You have not sold or exchanged another home during the two years preceding the sale.

Also note that as of 2003, you also may qualify for this exemption if you meet what the IRS calls "unforeseen circumstances," such as job
loss, divorce, or family medical emergency.

Remodeling that Pays

Upgrading your home is always appealing, but which enhancements really get you a good return for your money when it's time to sell? The
2003 Cost vs. Value Report by Remodeling magazine and REALTOR® Magazine has the answer.

To see the complete article, visit

  Estimated % return       2003 2002 Variance
Bathroom Remodel
Midrange                  89.3% 87.5%      1.8%
Upscale                    92.6    91.0      1.6
Bathroom Addition
Midrange                   95.0    94.2      0.8
Upscale                    84.3    81.4      2.9
Major Kitchen Remodel
Midrange                   74.9    66.6      8.3
Upscale                    79.6    79.8     -0.2
Master Suite
Midrange                   76.4    75.1      1.3
Upscale                    76.9    76.8      0.1
Family Room
Midrange                   80.6    79.5      1.1
Midrange                   104.2   N/A      N/A
Basement Remodel
Midrange                   79.3    78.7      0.6
Siding Replacement
Midrange                   98.1    79.1     19.0
Window Replacement
Midrange                   84.8    73.8     11.0
Upscale                    87.0    77.0     10.0
Attic Bedroom
Midrange                   92.8    N/A      N/A

Web Resources for Consumers

Credit Union Consumer Facts — —
Provides an easy way to assess energy use and get quick tips on saving energy.

Environmental Protection Agency —
A one-stop shop for advice on testing for and mitigating pollutants, from lead paint to radon to mold.

Federal Citizen Information Center —
Offers a list of consumer articles about home sales, financing, and maintenance.
Ginnie Mae —
Provides advice to buyers on affordability and homeownership, including calculators.

U.S. Department of Housing and Urban Affairs —
Offers advice to buyers on finance, fair housing, and more.

                                                             Realty Transfer Tax

Background: A real estate transfer tax is a state and local tax assessed on real property when ownership of the property is exchanged
between parties. All types of real property, including residential, commercial, and agricultural, are subject to the transfer tax. Although the tax
is generally levied on the value of the property, it is assessed only on the sales transaction instead of on an annual basis like the general
property tax. Transfer taxes may be assessed on either the buyer or the seller, but both are usually jointly and severely liable for the tax.

In many states, the realty transfer tax is used to fund programs designed to preserve open space in residential or commercial areas and to
fund housing programs for low-incomes residents. Pennsylvania currently imposes a 1% tax, with an additional tax levied by school districts
and municipalities. Generally speaking, the local transfer tax equals an additional 1%. For more information, read PAR's Fact Sheet: Stop
Taxing the American Dream.

Recent Developments:
In June of 2007, the Pennsylvania General Assembly considered options to fund the Commonwealth's ailing mass transit systems. One
prospective option would have increased the statewide realty transfer tax (RTT) from 1.0% to 1.9%, with the additional 0.9% dedicated to
mass transit funding. Another option would have given county governments the authority to increase the local RTT and dedicate the
additional percentage to mass transit. The final bill did not include a local option to increase the realty transfer tax. Thank you to all the
REALTORS® who used the PAR Legislative Action Center to send a letter to your legislator.

PAR and Suburban REALTORS Alliance believe that the RTT makes housing less affordable for everyone, from first-time homebuyers
struggling to put together a down payment to senior citizens having to give up a portion of their equity to taxes when they downsize to a
smaller home. In addition, we believe that RTT is poor public policy, especially when used as a tool to fund mass transit. Quite simply, there
is no relationship between mass transit and real estate transactions. Homebuyers and sellers should not have to carry the burden of funding
mass transit.

Suburban REALTORS Alliance Position: The Alliance is opposed to increases in the current transfer tax for the following reasons:

Realtors® applaud appraisal clarification as good first step

National Association of Realtors® President Charles McMillan praised the Federal Housing Finance Agency for
instructing Fannie Mae and Freddie Mac to take action to clarify confusion over the new Home Valuation Code of
Conduct for home appraisers implemented this past May. An NAR survey found 76 percent of REALTOR members,
representing both buyers and sellers, had experienced an increase in appraisal time since the new HVCC rules were
enacted. Similarly, 71 percent of Realtors® noted an increase in the use of appraisers who were not from the local
area. These factors often adversely affected the sale or the sales process, which occasionally resulted in the loss of a
sale or a homeowner’s inability to refinance into today’s lower rates.. NAR has asked Congress and the FHFA to
immediately implement an 18-month moratorium on the new HVCC rules to further address unintended
consequences of this new rule. Click here to learn more.

Source:; 7/23/09

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