Basic Things to Know When Buying a Home

The most important investment you will ever make is probably the purchase of a home. Finding the right home can be a long and arduous process, but there is no getting around that.

Know Your Wants And Needs

Before embarking on your journey of house hunting, you must know what you really want to find. Sit down with pen and paper and list all the features you care most about, such as:

– Location (in a particular city, school district or neighborhood)

– Size — how many bedrooms and bathrooms

– Parking — a 1-car garage or 2?

– Style — 2-story house or ranch style home?

– Heating — central heating and/or air conditioning?

Equally important, on a new sheet of paper list all the features you absolutely do not want in a house. For example:

– high-traffic area.

– high noise area (airport, train station or highway in close proximity)

– maintenance — major repairs needed

As you look at houses, keep both lists in mind. Your lists may change over time as you do more looking. You’ll want to add or remove features, or perhaps you’ll become willing to make compromises. Realize that you most likely will not find the “perfect” home. Experienced homebuyers will tell you, perfect homes are not found, they are made perfect through hard work.

Get Your Credit Report In Order

Prior to looking at properties, you must get your finances in order. This is the time to review your credit report and clean it up, if need be, to maximize your credit score. Many people do not realize how important it is to check your credit report periodically to make sure it is accurate. You should pay off any past due amounts, or negotiate a settlement price to close the debt. Get such agreements in writing, before paying any settlement. Keep all receipts for any settled items from your credit report since it may take months to get the debt actually removed. You can obtain a free credit report once a year from

Research Your Home-Buying Options

Decide what kind of property you are interested in. Do you want a HUD property, a foreclosure, real estate, or property for sale by owner?

A number of web sites list homes according to city, state, or price range. Visit these sites to see pictures of homes, many with virtual tours, and review the listing features.

Get Pre-Approved For A Loan

You’re ready now to find a lender and get yourself pre-approved for the loan. Being pre-approved offers a number of advantages. It will clarify the price range you can afford. Also, once you find the home you want, you can place an immediate offer. If you have to wait for pre-approval, someone could buy the house right out from under you. Feel free to contact me to obtain a pre-approval.

Find A Good Real Estate Agent

It is wise for a first time homebuyer to work closely with a real estate agent, no matter what type of property you’re looking for. A knowledgeable real estate agent will make your house-hunting much easier. A good real estate agent is usually a good negotiator, and will be able to help you with the complicated paperwork involved in placing an offer on a house or in closing a deal.

To select a real estate agent, you should check with your friends and neighbors for recommendations. Find an agent you feel comfortable with and who is knowledgeable about the area you hope to buy in.

These are just the basics of home buying. You will find many details you need to master as you move through the buying process, but having these basics under your belt will give you a head start.

Pre-Qualified vs. Pre-Approved When Buying a Home

These days, getting a letter or post card in the mail that says “Congratulations! You have been Pre-Approved or Pre-Qualified for a mortgage,” are as commonplace as the numerous credit card offers that we all receive, and they are worth the paper they are printed on.

Having a Pre-Approval from a lender or broker in your pocket, will greatly improve your chances of buying the house you want.

Here are some important facts about Pre-Approval for mortgage loans..

Apply before you buy

Although many people used to look at homes before applying for a mortgage loan, nowadays it is critical that you apply for a mortgage Pre-Approval first. This will allow you to know exactly how much you can afford to spend on a house, and find the property you want much more quickly and easily.

Pre-Approval vs. Pre-Qualification

There is a great deal of confusion between these two terms. To be Pre-Qualified simply means that based on your income and debt and the amount of cash you have for down payment and closing costs, assuming your credit meets the standards of the lender, you are qualified to apply for a mortgage loan at today’s interest rates. A Pre-Approval letter is different.

Obtaining a Pre-Approval letter

In order to obtain a Pre-Approval letter with most lenders or brokers, you fill out a mortgage application form listing your income and assets, and a credit report is run. Some lenders may ask for additional documentation, while others will issue a Pre-Approval subject to receipt of documentation to substantiate what has been filled out on the application. Once you receive your Pre-Approval letter, you can start shopping for your new home.

Looking at the right homes

If you have a Pre-Approval letter, you know exactly how much you can afford to spend on a property, and can narrow your search down to homes within this price bracket. This will help you to find a property to match your needs much more quickly, and make buying easier.

More negotiating power

If you have a Pre-Approval on your mortgage loan, you will be seen in the same way as a cash buyer. You already have the funds in place, so the seller is more likely to accept an offer immediately, even if it is below the price estimate. This is because they can be more certain that their house is sold, and can take it off the market pending the close of sale.

Quicker sale closing

One of the lengthiest parts of house buying and selling is the closing of the sale. If you have agreed to buy a house but do not have a mortgage in place, then it can take time to arrange the funds, and you might even find that you cannot get the funds you need. However, if you have a Pre-Approval, the funds are essentially guaranteed, and you can push through the transaction much more quickly. This will make buying a house much less stressful, and help you to get the home you really want.

What Size Mortgage Can I Afford?

When shopping for a house, it can be easy to fall in love with the home of your dreams. Be careful, however, that you are aware of how much house you can afford so your dream home isn’t crushed at the lender’s office.

Lenders often talk about qualifying ratios or debt ratios. These numbers can seem a bit mysterious, but a few simple formulas will give you an idea of what size mortgage loan you may be able to afford. Although this is helpful to determine a house budget, never rely on these numbers alone when planning a purchase. Consider obtaining a pre-approval for a loan from your broker or lender, so you know the exact amount you have to work with.

What size mortgage can I afford?

Grab a piece of paper and follow these steps to determine how much you can afford for a conventional mortgage. (Formulas for governmental or FHA mortgages will differ.)

1) Determine your monthly gross monthly income (before taxes).

2) Multiply this amount by 0.28. This is your maximum monthly housing expense. (Lenders allow 28% of monthly gross income for housing expenses. This is also known as the front end ratio.)

3) Now multiply your monthly gross income by 0.36. This is the allowance for your long-term monthly expenses. (Our company is a bit more flexible with that number, and may stretch it to 40 or 45% depending on the strength of the application). Many lenders allow that percentage of monthly income to go toward long term debt that can’t be paid off in 10 months.

4) Add up your monthly long-term obligations including child support, auto loans, credit cards minimum payments, and other payments that can’t be paid off in 10 months.

5) Subtract the total of those obligations from your long-term monthly expenses in step 3. This is your monthly housing expense. (This number is used for the back end ratio, or debt to income ratio, to make sure your total debt does not exceed 36% of your monthly income.)

6) Compare the maximum monthly housing expense from step 2 and your monthly housing expense from step 5 and take the smaller of the two. This is the amount you can afford each month for payment of principal, interest, taxes, and insurance – also called PITI.

The length of the mortgage and interest rates will affect the total dollar amount of the loan, so talking with a lender will give a big picture view of what you can afford. Getting pre-approved for a mortgage will take the guesswork out of deciding a price range for a potential house and reduce stress in the home-buying process.

Give me a call about any possible mortgage scenario or if you need a pre-approval, I will be happy to help.

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