Buyer Tips Getting Started | How much house can you afford?
Why you should work with a Realtor? | Choosing a Realtor
Before you start looking for a home you should ask yourself a few questions. Where do I want to live? Do I want to be close to schools, shopping, or work? What kind of house do I like (need)? Is there a particular style of home I want? How many bedrooms and bathrooms do I want? Do I want a yard? Have I consulted a REALTOR or mortgage lender to be preapproved for a mortgage amount and monthly payment that fits into my budget?
Here are a few tips to help you get organized:
Pull a credit report on yourself and make sure the information is accurate. If you find any errors take steps to correct them immediately.
Browse through real estate advertisements in the newspaper and homes magazines. This will give you a good feel for the types of homes that are on the market and the price range.
In many communities, REALTORS may have websites or interactive phone systems that will allow you to find out information about current listings.
Visit open houses on the weekend. It doesn't cost anything to look, and looking at a few different homes might give you some ideas for things you'd like in a house but haven't considered.
Start saving money - you'll need to have cash on hand for a down payment and closing costs.
Don't incur any additional debt. Pay down your credit cards; and don't apply for any new ones. Don't make any major purchases on credit; buy the furniture or car later.
Contact a REALTOR. Your REALTOR can help you determine how much you can afford, and will provide you with information on homes that may interest you. Your REALTOR will also help you complete all of the necessary forms when it comes time to make an offer.
Simply put, you can afford a house that costs as much as the largest monthly mortgage, for which your are preapproved. A quick way to estimate the size of mortgage for which you qualify is to take your gross monthly income (that's before taxes and other deductions) and multiply it by .28. This works out to just over 25% of your gross income.
Mortgage companies use something called qualifying ratios to determine how much they will lend you. Most mortgage companies use either a 28/36 ratio or a 25/33 ratio. The first number in each pair is the percentage of your gross income that the lender would consider acceptable as a monthly mortgage payment (i.e. if you make $3,000 per month, 28% of that is $840 per month).
The second number in each pair is used when all debt payments are considered, not just the mortgage (i.e. If you make $3,000 per month, but also have a $250 a month car payment, 36% of $3,000 is $1,080, minus the $250 car payment equals $830).
As you can see, in this example the numbers work out to be almost the same. Obviously, if you have more debt you would qualify for less.
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Working with a professional REALTOR to buy your home is a good idea for several reasons:
- A REALTOR will analyze your financial situation, and help you determine a price range that fits within your budget.
- A REALTOR is familiar with the process of buying a home and can explain the process to you.
- A REALTOR can easily access information on all of the properties listed for sale by REALTORS in your area.
- A REALTOR can set up appointments for you to see homes that interest you.
- A REALTOR will help you complete all the necessary paperwork, when it comes time to make an offer.
- A REALTOR will help you arrange financing for your new home.
- A REALTOR will be there at closing, to answer your questions and make sure everything runs smoothly.
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Searching for your dream home can be a time consuming experience. Working with a professional REALTOR will make the process much more efficient. Since most people spend a fair amount of time with their REALTOR, it's important to choose a REALTOR that makes you feel comfortable, and one who responds positively to your needs.
The following questions will help you decide if a particular REALTOR is right for you:
- Do they return your phone calls?
- Do they ask you questions to determine what you want or need in a house?
- Do they perform a financial analysis to help you determine what price range fits your budget?
- Do they explain things clearly?
- Do they suggest financing alternatives?
- Do they seem knowledgable about the community?
- Do you feel comfortable spending time with them?
If the answer to most of these questions is "Yes", you've found yourself a great REALTOR. If you find yourself answering "no" to many of these questions, or to any individual questions that are important to you, you should keep looking until you find a REALTOR that you feel comfortable with.
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