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Before You Look at Your First House
Experienced home buyers know that one of the first-steps in beginning a successful search for a new house is taking a hard, objective look at finances. Determining how much money you can dedicate to the purchase of your new house affects almost every aspect of buying a new home - including how we write the offer, which mortgage programs you will qualify for, shopping for the best mortgage loan and which homes are truly in your price range. This is where you must work with and cooperate with your agent! If we don't know this vital information we certainly won't be able to strategize effectively to get what you want. It is vital to stay focused on this point and let your agent and lender guide you!
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Here are the questions that each home buyer should ask:
- How much cash is available for a down payment? The amount you have available for a down payment will affect what types of loans for which you can qualify. Learn more.
- Am I ready to write a check for the earnest money? Earnest money is a cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer.
- How much additional cash will be available to pay for closing costs? There are certain standard costs associated with closing the sale of a house. These fees are split between the buyer and the seller, as spelled out in the sales contract. Learn more.
- What is the maximum monthly mortgage payment that I can afford? Most lenders will use the 28/36 rule to determine the maximum mortgage payment you can afford. Trust me, the last thing they want to you to do is end up behind on your mortgage! So, if it vitally important to know two numbers. The first is to know what you actually qualify for in sales amount and then the associated payment. The second is knowing the payment you are comfortable with and then finding out what the sales price is that is associated with the payment! It is vitally important to talk these two numbers through with your lender and your real estate agent to get a full understanding and to help keep you focused in your search!
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The 28/36 Rule
No more than 28% of your gross income can be applied to your mortgage, real estate taxes and insurance. And no more than 36% of your gross income can be applied to your mortgage expenses plus your regular debt expenses (car payments, credit cards, other loans, etc.).
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