Buying a home is a rewarding experience. You derive a great deal of personal satisfaction from owning a home. Homeownership allows you to build up your personal net worth over time. Moreover, continued increases in housing prices nationwide makes homeownership a relatively attractive investment.

In some cases, renting may be a more attractive option. For example, if you plan to move in a year or two, you are unlikely to recover the closing costs you pay when you buy a home. In addition, finding a home to buy generally takes more time than looking for an apartment to rent.

In addition to building up equity over time, owning a home offers significant tax breaks. The interest expense that you pay on up to $1 million in home mortgage debt ($500,000 if you are married and filing a separate return) is tax-deductible.

Your tax savings from the mortgage interest tax deduction are greatest in the early years of a mortgage loan. For example, on a 7%, 30-year fixed rate mortgage loan of $100,000, you pay $6,968 in interest the first year of the loan. If you are in the 25% income tax bracket, your tax savings are $1,742. In Year 16 of the loan, you pay $5,090 in interest, which saves you $1,273 in taxes. In Year 24 of the loan, you pay $2,926 in interest, which saves you $732 in taxes.

When you sell your home, you can exclude up to $500,000 in capital gains if you are married and filing a joint return. (The exclusion limit is $250,000 for other tax filers.) You will need to pass the IRS's ownership and use tests to show that the home has been your primary residence for at least two of the past five years. In addition to mortgage interest, you can also deduct your local property taxes on your income tax return.

As a homeowner, you can tap the equity in your home in the future with a home equity loan or line of credit. Interest expense that you pay on up to $100,000 in home equity debt is tax-deductible ($50,000 if you are married and filing a separate return).

Yet, renting does have some advantages. For one, renting doesn't require you to make a down payment, which can easily reach $25,000 or $50,000. A total monthly payment for rent is generally cheaper, too, when you include all the other costs of owing a home. In addition to paying off a loan with interest, homeowners routinely pay homeowner's insurance and property taxes. They may also be required to buy private mortgage insurance (PMI). Finally, homeowners face maintenance and home-improvement costs that renters avoid.

In general, renting has a lower financial burden, requiring smaller monthly outlays. With the extra cash that you save each month, you may be able to invest and earn a rate of return that compensates for missed opportunities of homeownership.

Renting may be a wiser course of action if you plan to relocate to another city soon or are in uncertain financial circumstances. For persons fresh out of school or newly divorced, renting may be the only realistic option.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a mortgage lender or financial adviser.

Next, we'll look at how to determine how much you can afford if you choose to buy a home.

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Home affordability

To determine how much of a home you can afford, you need to calculate your expected monthly payment.

Most of your payment will go toward loan principal and interest, also called your P+I. But your monthly payment is likely to include amounts for property taxes and homeowner's insurance. As a result of these extra payments, your monthly P+I payment is sometimes called your P+I+T+I payment.

If you plan on making a down payment of less than 20% of the home purchase price, you will also have to add an additional amount for private mortgage insurance (PMI). Lenders require PMI to insure against the higher risk of default that occurs at loan-to-value (LTV) ratios greater than 80%. (An LTV of 80% is equal to a down payment of 20%.)

After you calculate your monthly payment, you should calculate your housing and debt ratios. These ratios help you to get an idea of home affordability. Lenders rely on these ratios to help in their decisions to approve mortgage loans.

Your housing ratio is your total monthly payment divided by your monthly gross income. As a general rule, the ratio should not be more than 28%. For example, if your monthly P+I+T+I payment is $1,400, your monthly gross income should be at least $5,000.

Your debt ratio is the sum of your P+I+T+I and any other credit card or loan payments, divided by monthly gross income. Debt ratio will obviously be a higher percentage, since most people have other loans or credit card debt. As a general rule, your debt ratio should not be more than 36%. In this example, with monthly gross income of $5,000, your total loan payments (including the proposed mortgage loan payment) should not be more than $1,800.

Mortgage lenders regularly use these 28% and 36% ratios as guidelines. The ratios change over the course of the economic cycle. When the economy is strong, lenders tend to raise the ratios, making it easier obtain a loan. When the economy is weak, lenders tend to lower the ratios, making it harder to obtain a loan. A weaker economy leads to lower interest rates, which makes it somewhat easier to qualify.

You may wish to limit a home search to home prices that allows you to obtain a mortgage loan amount that is conforming. A conforming loan amount is within the annual limits set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that focus on investing in residential mortgages.

For 2002, the conforming loan amount for Fannie Mae- and Freddie Mac-sponsored loans is $300,700. For Alaska and Hawaii, the limit is $451,050. A conforming loan allows you to avoid private mortgage insurance if you make a down payment of at least 20% on the home purchase price.

If your mortgage loan is comforming, you will likely have an easier time finding a lender than if the loan is non-comforming. (A non-conforming loan is called a "jumbo" loan.) As a general rule, interest rates on conforming loans are lower than on non-conforming loans.

How much of a home you can afford also depends on the amount of down payment you have saved. If you don't have one saved, consider these alternatives:

Federal government mortgage-financing programs. The U.S. Dept. of Housing and Urban Development (HUD) and Dept. of Veterans Affairs (VA) run loan programs for first-time homeowners and veterans of the armed forces. These programs require little or no down payment.
Obtain private mortgage insurance. Private mortgage insurance, discussed above, allows you to make a down payment of as little as 5% of the home purchase price.
Borrow against the value of your investments. Some financial institutions offer mortgages that are backed by the value of your investments. With these programs, your investment portfolio serves as the collateral for your mortgage.
Borrow from your employer-sponsored retirement plan. Most employers allow you to borrow against the value of your 401(k) plan. (The IRS does not allow you to borrow from an IRA, however.) Remember that if you leave your job, you'll likely have to pay back the full amount of the loan immediately.
Withdraw funds from an individual retirement account. While the IRS does not allow you to borrow from an IRA, it does allow penalty-free withdrawals of up to $10,000 for first-time homebuyers. However, you will owe income taxes on the amount of the withdrawal.
State government housing programs. Most states have programs to help residents buy their first homes.

In addition to a down payment, you should expect to pay closing costs on your home loan.

How much you pay in closing costs depends on how many points you pay on your loan. One point is equal to 1% of the loan amount. As a general rule, closing costs typically range from 3 to 6 percent of the home purchase price. In addition to loan points, other major categories of closing costs include:

Fees to process your loan application, review your loan documents and fund the loan.
Payments to fund an escrow account. Escrow funds are used to pay your homeowner's insurance and property taxes. As a general rule, you replenish an escrow account once or twice a year.
Fees for legal and appraisal services, credit review, and title search and insurance. You will also have moving expenses if you buy a home in a different city. If you move to another region of the country, you may also face a change in the cost of living.

If you're moving to a new city to take a job, your new employer may reimburse you for these expenses. If not, you can deduct them from your taxes. You'll need to complete IRS Form 3903: "Moving Expenses."

(Note: This document is in Portable Document Format (PDF). If you do not have a PDF reader installed on your computer, you can download a version of Acrobat Reader for free at Adobe Systems' Web site.)

To compare the cost of living between cities, you may wish to visit the Web site of ACCRA, a non-profit organization that provides cost-of-living index for more than 350 U.S. cities.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a mortage lender or financial adviser.

Next, we'll look at obtaining a pre-approval on a home mortgage loan.

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Obtaining a pre-approval

A lender's pre-approval is a commitment to fund your mortgage loan for a fixed period of time. A pre-approval may include an interest rate lock. To obtain a pre-approval, a lender evaluates your credit history, and calculates your housing and debt ratios. You should expect to verify your income, length of employment and source of down payment.

A pre-approval legitimizes you as a serious buyer. It also gives you additional negotiating leverage to negotiate a sale price, especially if the seller cannot find other pre-approved buyers.

When seeking a pre-approval, it's important to not misrepresent the facts on your application. If a lender learns later that you've misrepresented or omitted information on your application, your pre-approval may be rescinded.

As part of the pre-approval process, a lender obtains your credit report. You should be familiar with the contents of your credit reports from all three major credit bureaus:

Equifax Experian Trans Union

(800) 685-1111 (800) 658-1111 (800) 888-4213

www.equifax.com www.experian.com www.transunion.com

If a lender denies you a pre-approval, you should investigate immediately. Without one, your chances of obtaining a mortgage loan are jeopardized. If a lender bases the decision, in part, on information in your credit report, you have the right to receive a free copy of the report.

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Mortgage lenders & brokers

There are hundreds of mortgage lenders on the Web that will pre-qualify and pre-approve you for a mortgage loan. Major categories of mortgage lenders include:

Savings & loans. Also called thrift institutions, savings and loan associations (S&Ls) are the largest traditional lenders of residential home mortgages.
A government cleanup of bad loans at S&Ls that ended in the 1990s left behind the stronger S&Ls. These institutions remain a major source of funding for home mortgage loans. S&Ls are often called savings banks in the eastern U.S.
Commercial banks. Commercial banks offer attractive loan terms, particularly if they evaluate their entire banking relationship with you. Some commercial banks have their own real estate departments and will service your mortgage loan.
Other commercial banks sell their mortgages to Fannie Mae and Freddie Mac, two major government-sponsored enterprises that specialize in buying residential mortgages from lenders.
Mortgage bankers. Mortgage bankers borrow money from banks or pools of investors, underwrite the loans, and sell them to investors for a profit. They often receive a fee from these investors for servicing your mortgage. Mortgage servicing includes collecting monthly payments, sending out loan statements, and collecting on late payments. For more information, see the Web site of the Mortgage Bankers Association of America (MBAA).

Mortgage brokers. Mortgage brokers circulate, or "shop," a loan application among lenders to find the most attractive terms for the borrower. In exchange, a lender pays the broker a fee.

Homeowners. You may find that the current homeowner is willing to offer financing in exchange for selling the home sooner. This means that the seller becomes your lender. A common means of financing is for the seller to accept a mortgage note. A mortgage note requires you to make monthly payments to the seller instead of a bank or other lender.

Credit unions. Since credit unions are owned by their members, they are called cooperative financial institutions. Since they are nonprofit institutions, credit unions may offer attractive mortgage loan rates to their members. Like commercial mortgage lenders, credit unions sell their loans to Fannie Mae and Freddie Mac to maintain access to new sources of funds. The National Credit Union Administration (NCUA) regulates the credit union industry.

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Types of mortgage loans

Major types of mortgage loans include:

Fixed-rate loans. Because they offer a monthly payment that is known and does not change, fixed-rate mortgage loans remain the most popular type.
Most fixed-rate mortgages are for loan terms of 15 or 30-years. A 30-year loan has lower payments but a slightly higher interest rate. For all of 2001, the average mortgage rate on a 30-year fixed-rate loan was 6.97%, according to data from Freddie Mac. For 15-year mortgages, the average rate was 6.50%.
To pay off a fixed-rate loan sooner, check with your lender to make sure you can make prepayments. You should be allowed to make these anytime and for any amount, and at no penalty.
Historical data for 30- and 15-year fixed-rate mortgages (source: Freddie Mac):
30-year fixed-rate mortgage rates, 1971-present. 15-year fixed-rate mortgage rates, 1991-present.

Adjustable-rate loans. After an initial term, the interest rate on an adjustable-rate mortgage (ARM) loan is re-set periodically. This is to keep the rate in line with current market interest rates. For example, a 3/1 ARM loan offers a fixed rate for the first three years, adjusting once a year thereafter. A 5/1 ARM loan offers a fixed rate for the first five years, adjusting yearly thereafter. The lender sets the interest rate by adding a margin to an index rate. Common indexes include:
- Cost of Funds Index. The Eleventh District of the Federal Home Loan Bank Board, which covers California, Nevada and Arizona, publishes the Cost of Funds Index. For more information on the index, visit the Web site of the Federal Home Loan Bank of San Francisco.
- Treasury bill yields. The yield on the 1-year T-bill, adjusted for a constant-maturity security, is widely used.
1-year ARM rate history, 1984-present.
Most ARM loans have a periodic rate cap and lifetime cap to limit the amount the interest rate can increase each adjustment period and over the term of the loan, respectively.
If you have a payment cap in your loan agreement, you may face negative amortization of your loan. This has the effect of increasing the amount you owe.

Convertible mortgage loans. These are ARM loans that allow you to convert to a fixed-rate loan at or before a specified time. The conversion privilege lets you start off with a low variable rate, then lock in when fixed rates drop low enough.

Balloon mortgage loans. These are loans that often have interest-only payments. In this case, you don't amortize any loan principal and the entire loan amount is due at the end of the loan term. A balloon mortgage allows you to minimize your monthly payments until you refinance the loan. Another advantage is that a larger share of your payment may be eligible for the mortgage interest tax deduction.

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Shopping online for rates

When shopping for mortgage loan rates online, consider the following steps:

Look for trends in the direction of interest rates. Mortgage rates change by only a few basis points each day. But over several days or longer, these changes quickly add up to half a percentage point or more.
Interest rates move in sync with the economic cycle. When the economy is strong, rates tend to rise as potential homebuyers flock to lenders. When the economy is weak, rates tend to drop as lenders compete for fewer lenders.
Here are some historical interest rate data from Freddie Mac and the Federal Home Loan Bank Board's San Francisco district office:
- 30-year fixed-rate mortgage, 1971-present
- 15-year fixed-rate mortgage, 1991-present
- 1-year adjustable-rate mortgage, 1984-present.
- 11th District Cost of Funds Index, 1969-present.
Understand that a trade-off exists between interest rates and points. Most borrowers pay at least one point when they close on a mortgage loan. One point is equal to 1% of the loan amount. Lenders are usually willing to let you "buy down" the interest rate if you pay more points upfront.

Consider paying for an interest rate lock. Mortgage lenders generally offer a loan rate that is good for 30 days. This is called an interest rate lock. If you don't close within the 30 days, your rate may change to reflect the lender's change in its cost of funds. If you think rates may rise, you may want to hedge by negotiating a longer rate-lock period, even if you have to pay a fee. On the other hand, if you think rates are headed lower, a rate lock would work to your disadvantage.

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Searching for a home

Searching for a home has at least two general approaches. First, you can calculate how much you can afford, then shop for homes in that price range. Your income, size of down payment and any equity you have in your current home are the major determinants of how much home you can afford.

You may wish to limit your search to home prices that, together with your down payment, allow you to obtain a conforming loan. A conforming loan means that the loan amount is within the annual limits set by Fannie Mae and Freddie Mac, two government-sponsored enterprises that focus on investing in residential mortgages.

For 2005, the conforming loan limit for Fannie Mae- and Freddie Mac-sponsored loans is $359,650. For Alaska and Hawaii, the limit is $539,475. For example, if you make a 20% down payment on a $360,000 home in California in 2005, you would borrow $288,000, which is within the limit.

If your mortgage loan is conforming, you will likely have an easier time finding a lender than if the loan is non-conforming. (A non-conforming loan is called a "jumbo" loan.) Generally, the interest rate on a conforming-loan mortgage is cheaper than on a non-conforming mortgage.

Once you've pre-qualified yourself for a home that costs between, say, $125,000 and $150,000, you then limit your search to homes in that range.

A second approach is to search desirable neighborhoods or streets, find a home that is advertised for sale, and then calculate its affordability. You may be able to negotiate a lower sale price.

A checklist of a home's desirable or essential attributes helps you to shop. Some of these attributes can be clearly measured, such as the size of the living area and number of bedrooms. However, many attributes are qualitative, which require you to interpret what is important for that attribute. Here's a sample home checklist:

Quality of structure and foundation

Size of living area

Size of lot and yard areas

Quality and type of flooring

Grading of lot and soil quality

Number of bedrooms/bathrooms

Quality and age of fixtures

Quality and age of fixtures

Ventilation and lighting

Quality and age of insulation

A checklist of important neighborhood attributes is also helpful:

Property values (average sale price)

Zoning ordinances

Crime rate and crime-reduction efforts

Proximity and quality of schools

Proximity and quality of services

Commute distance and time

If you can't find a home yourself, alternative resources include:

Home-listing or relocation services. These can easily be found using a Web search engine like Yahoo! or Microsoft Explorer. Home-listing services are also called multiple-listing services (MLS).
Real estate agents or brokers. The Web or your local phone directory can help you find an agent or broker, who will help you access a multiple-listing service. Real estate agents licensed with the National Association of Realtors are called realtors.
Personal references. Your co-workers, friends, or acquaintances are a potential source of leads to home listings in neighborhoods that you aren't able to visit easily.
Newspapers. Homeowners selling on their own use the local newspaper to advertise. Buyers often place an ad for a desired home if their search is fruitless.

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Negotiating a lower price

To help you negotiate a fair sale price for a home, it's best to get an appraisal and inspection report. Even if you agree directly with the home seller on a sale price, you may want these items to safeguard the value of your new investment.

To hire a professional inspector, contact the American Society of Home Inspectors (ASHI), National Association of Home Inspectors (NAHI), or National Association of Property Inspectors (NAPI). A certified inspector checks a home for:

Structural components. This includes the foundation, floors, walls, columns, ceilings and roof.
Home exterior. This includes doors, windows, chimneys, decks, balconies, steps, drainage and driveway.
Plumbing. This includes pipes, sinks, drains, and bathroom fixtures.
Electrical system. This includes wiring and grounding equipment, amperage and voltage ratings, circuit breaker and lighting fixtures.
Heating and cooling systems. This includes boilers, thermostats, heat pumps, insulation, air conditioning, central controls, fans, ducts and filters.

An inspection report may exclude condition of paint, wallpaper, carpeting, household appliances and draperies. These are generally replaced by the buyer, whose tastes are likely different. You may also want a special inspection for pests, or for soil and drainage. Inspections generally cost between $250 and $500.

An appraisal is almost always required when you buy a home. But if you disagree with the appraisal value, you can always order your own appraisal. You can find an appraiser through such organizations as the National Association of Master Appraisers (NAMA). Appraisals generally cost between $250 and $500.

Negotiating a sale price usually starts with you making an initial offer on the home. The initial offer is usually less than the seller's listing price. The seller can accept, reject or ignore your initial offer. He can also make a counter-offer. A counter-offer is a concession to lower the price to meet your offer at least part-way.

After the first counter-offer, the buyer and seller may go through a series of counter-offers to arrive at a sale price (if agreeing at all). This means the spread, or gap, between listing price and initial offer gets narrower. Armed with your own appraisal and inspection report, you can make an informed offer and more effectively negotiate a final sale price.

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Closing on your new home

The sales contract defines the basic terms and conditions of your agreement to buy a home. It includes the sale price, property description, deposit amounts, mortgage financing and any contingencies that might rescind the contract.

Practices vary from state to state, but counter-offers that are subsequent to the contract's stated sale price are usually appended to the contract.

The sales contract also includes the terms for the loan closing, or settlement. Table 1 is a checklist of some of the major items that should be included in the contract. Table 2 is a checklist of major closing costs.

The Real Estate Settlement Procedures Act (RESPA) governs the loan application and closing process. RESPA ensures that homebuyers receive timely notification of closing and other costs. These disclosures begin when the homebuyer applies for a loan and continue after closing.

Table 1: Major items in sales contract

Sale price

Property address and description

Amount of initial deposit

Terms of mortgage financing

Details for loan closing

Transfer and recording of deed

List of fixtures remaining in home

Repairs required of the seller

Disclosure of easements

Details of sales commission

Details of escrow transaction

Pro rata share of real estate taxes

Table 2: Major closing costs

Amount of first loan payment

Loan underwriting fees

Amounts for insurance premiums

Amount for escrow reserves

Fees for legal services

Fees for escrow services

Fees for title-related services

Fees for recording services

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Improving your home's value

For many of us, our home is our largest asset. It pays to maintain and improve its value. If your home value increases, so does your home equity. In addition to increasing your personal net worth and giving you the means to trade-up, you can borrow from your greater equity using a home equity loan or line of credit.

In addition to improving the benefits that you receive, remodeling can improve your home value. Those that tend to be most valuable include additions to living space or improvements to bedrooms, bathrooms and kitchens.

Maintaining and improving your home value is sometimes easier if you use licensed contractors. These include roofers, carpenters, electricians and plumbers. If you use a licensed contractor, try to obtain more than one proposal, or bid, for the project. At minimum, a proposal should be in writing and include:

Contractor general information, including license number.

Details of renovation project, including description of parts.

Project dates and phases-of-completion when funding is required.

Proof of liability and related insurance coverage, including worker's compensation.

Proof of all necessary permits to complete project.

A written warranty of project completion, including a refund for unused materials.

Promise to clean up work site at project's completion.

Provision that allows you to approve any modifications to the original proposal.

Payment schedule for funding each phase of the project.

You can also protect your home value with a home warranty, which covers major home defects for up to 10 years. Many builders of new homes participate in the Home Owners Warranty program. If your home is not new, hire an inspector to help you get a policy that protects your home value.

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Bi-weekly mortgage loans

A bi-weekly mortgage saves you thousands of dollars in interest expense over the loan term. You amortize your loan faster, shortening the time it takes before you own your home outright.

Instead of monthly payments, bi-weekly mortgages require a loan payment every two weeks. For example, you might pay $500 every two weeks instead of $1,000 a month. As a result, you make 26 payments in a year. If your bi-weekly payment equals half your monthly payment, this is equivalent to making 13 monthly payments.

You aren't limited to making bi-weekly payments that equal half the amount of a monthly payment. Most lenders offering bi-weekly mortgages will negotiate the size of the payment.

A bi-weekly mortgage does not have the same term as a 15-year mortgage loan. From the table below, you can see that your loan term is still well above 15 years.

The chart shows the monthly P+I payments for a $100,000 fixed-rate loan for 30 years. If you make bi-weekly payments of $316 on a 6.5% loan, you see that you pay off the loan in about 24.2 years. This is almost six years sooner than if you were to make monthly payments for 30 years. The bi-weekly payments would save about $29,100 in interest over the loan term.

$100,000
(30-year fixed rate) 6.5% 7.0% 7.5% 8.0%

Monthly
payment $632 $665 $699 $734

Repayment
period (years) 30 30 30 30

Bi-weekly
payments $316 $333 $350 $367

Modified
repayment
period (years) 24.2 23.7 23.2 22.8

Interest
savings $29,100 $34,200 $40,240 $46,240

Note: months are calculated as a decimal value. Interest savings are approximate and equal the difference in total payments for principal and interest.

The table shows that your interest savings grow as the loan rate increases. The repayment period also gets shorter as the loan rate increases.

You don't have to use a bi-weekly mortgage to make extra loan payments. You can make them whenever, and for however much, you wish, provided your lender does not charge a prepayment penalty.

Using a bi-weekly mortgage or making extra payments has an opportunity cost. Because you pay less interest, the amount of your mortgage interest tax deduction is smaller. And you'll have to give up any interest that you might earn on the extra amount of payments you need.

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Selling your home

When you sell your home, you can use a real estate agent or you can seek to sell it yourself. If you sell it on your own, it is called a FSBO -- For Sale By Owner -- transaction.

A FSBO transaction involves more of your personal time. You will have to show the home to prospective buyers and handle the entire marketing effort. A FSBO usually requires more than merely sprucing up your home and putting a "For Sale" sign in the front yard. If you decide to sell on your own, consider doing the following:

Order an appraisal of your home's market value. You can find an appraiser through such organizations as the National Association of Master Appraisers (NAMA). An appraisal generally costs between $250 and $500.
Circulate an ad flyer with a photo and description of your home's attributes, address and phone number.
Advertise in your local paper. A home that is being sold as a FSBO attracts buyers hoping for a lower price that comes with cutting out the real estate commission. Potential buyers will reason that, since you're saving as much as 6% of the home sale price by selling your home yourself, you're likely to be willing to negotiate a lower sale price.

Hard work, patience and previous experience selling your own home may pay off. Other attributes certainly help, such as whether your home is located in a desirable neighborhood.

If you use a real estate agent or broker, your home usually gets listed in a multiple listing service. An MLS listing helps to advertise your home to a wide audience. Agents also use an informal network of agents to pass along listings by word of mouth. (Note: You may have heard real estate agents referred to as "realtors." "Realtor®" is a trademark-protected name and may only be used by agents that are licensed members of the National Association of Realtors).

A real estate agent provides many valuable services, including: Recommends a sale price that is based on comparable sales. Comparable-sales data are published in the newspaper and elsewhere, but a real estate agent is generally able to compile it quicker.

Locates and pre-qualifies potential borrowers and introduces them to mortgage brokers and lenders.
Handles all stages of negotiations between buyer and seller.
Introduces you to appraisers or inspectors.
Steers you through the loan-closing process.

To find an agent, consider asking friends, family members or acquaintances for referrals. An agent should demonstrate a knowledge of the local real estate market and have an established record of selling homes. The agent should be able to tell you how long they have sold real estate, what credentials they have and whether they work full- or part-time.

Once you select an agent, have them prepare a listing agreement. A listing agreement is usually good for three to six months. You may want to include a provision in the agreement that lets you cancel the agreement if you feel little effort has been made in selling your home.

Some agents may ask for an exclusive listing to sell your home, which means that only they can show your home. You should evaluate such a request carefully. Naturally, an exclusive listing gives an agent an added financial incentive to sell. But an exclusive listing denies other agents the chance to sell your home at the same time.

An open listing is the opposite of an exclusive listing. An open listing adds your home to the multiple listing service and provides the most exposure to potential buyers. Ask your agent to explain other alternatives for listing your home. In general, the wider the exposure to all homebuyers, the better off you are.

Once you have found a buyer, you will prepare a sales contract. Depending on the state that you live in, drafting a sales contract may require a lawyer. Agents often help with this stage of the selling process by ensuring that all important terms and conditions are included in the contract.

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SOURCE: Mortgage.com

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