|
|
| |
 |
|
| |
Milestone Realty provides you with relevant information on budgeting, financing and choosing the best possible home for you and your family. |
|
| |
Articles from RealEstate.com
Want to Buy a Home? Use Our Tips to Get Your Finances Ready
It's never too early to start planning when you want to buy a home. These seven steps will put you on track.
1. Decide on your price range
Calculate how much you can afford. For example, if you can afford a maximum monthly payment of $1,000, you will be looking at a total loan amount of about $167,000 (assuming a 30-year fixed rate at 6 percent). And, remember, owners have different monthly bills than renters. Along with the mortgage payment, you’ll have to pay homeowner’s insurance, utilities and property tax. If you are realistic about your limits, you can focus on the right price range.
2. Look at your current budget
Have a look at your income and both long- and short-term expenses. Include any expected changes. Will that new job mean a rise in pay? Are you planning an expensive wedding or making a big purchase, such as a car? A careful plan will show where you have flexibility in your cash flow.
3. Open a savings account
Keep a separate home-savings account and don’t dip into it. This is the time to cut back on your expenses as much as you can in order to save for the down payment. So, curtail dining out and delay the purchase of new furniture. Save tax refunds, cash gifts or bonus checks. Give yourself a financial goal and a fixed time to reach it, say six months or a year, and then assess your situation.
4. Check out down-payment assistance
Although it’s nice to have a 20 percent down payment, it’s not necessary. Many lenders offer low down-payment products. Start investigating.
5. Get pre-approved for a mortgage
If you know how much you can borrow, you won’t have to make an offer conditional on financing -- and your offer will be more appealing to sellers. A lender will base the pre-approved figure on your income, credit and debts.
6. Don’t forget the extras
Aside from the down payment and the first mortgage payment, there are fees that may surprise a new homeowner. Closing costs can range anywhere from 2 to 6 percent of your mortgage amount. Plus, a home inspection may cost several hundred dollars. You may also have to hire a moving van or even stay in a hotel for a few days. Plan to save enough money to cover all of these expenses.
7. Your REALTOR can help
Look for a REALTOR with whom you are comfortable. After all, you will be spending quite a bit of time together. A REALTOR® will discuss the available homes in the neighborhood you are interested in and provide information on recent selling prices of comparable homes.
Top 10 Home Buying Mistakes
Buying a house is the largest investment most people ever make; yet all too often it's a decision made in haste without adequate preparation
Use our list of common house-buying mistakes to avoid costly regrets.
1. Doing it alone. Buying a house is a complex transaction. Even if you don’t use an agent, you’ll need a complete, dependable team: lender, lawyer, inspector, insurer, as well as referrals and advice from friends and family. Enlist the help of these individuals early in the buying process.
2. Buying at first sight. You may be in love with the place, but does it fit your family’s needs and budget? Make a list of your needs and wants and make sure the house fits your requirements. Check out the neighborhood and the community before you buy by visiting at different times of the day and week to learn about noise and traffic patterns. Even if you don’t have kids, check out the local schools to make sure your resale value will be good.
3. Not getting pre-qualified and pre-approved. Being pre-qualified gives you a general idea of how much you can afford to borrow. Being pre-approved means a lender has verified your information and credit rating and agreed to provide you with a specific amount of money. You are in a better position to go house hunting knowing exactly how much you can afford and that you have financing.
4. Overbuying. You may qualify to borrow more, but can you afford to? Analyze your monthly costs: debt, food, transportation, entertainment, and savings. As a general rule, your total monthly debts, including your mortgage, should not exceed 36 percent of your income before taxes. Be sure to budget enough to cover closing costs (often two to five percent of the home’s purchase price), plus moving, redecorating and maintenance. Allow for increases in ongoing expenses such as utilities and taxes.
5. Misplacing your trust. No matter how much you like the agent, sellers, inspector, or the guy down the block who vouches for them, remember this is a business transaction. Your decision is binding. Do your own research and know your support team’s roles and responsibilities.
6. Relying on oral agreements. Get it right and get it in writing. Written agreements almost always trump oral ones when it comes to contracts. If the offer says the lawnmower is negotiable, but the agent says it’s included, get it in writing.
7. Skipping the fine print. You need to understand what you’re signing before you pick up a pen. Ask for documents in advance, make time to read them and ask questions. Get copies of your mortgage papers a few days ahead of closing.
8. Forgetting or betting on resale. Avoid buying a home that costs 50 percent more than neighboring homes and think before buying the most expensive home on the block. Your neighbors’ lower home values will weaken yours. Remember, markets change. If you buy intending to flip your investment and the market falls and you have to sell, your selling price may not be enough to even cover your mortgage.
9. Making an unconditional offer. Protect yourself with at least two of these contingencies in your offer:
• Mortgage financing -- You’re pre-approved, but is the house? Before a bank will lend you money, it will want a formal appraisal of the property to confirm that there is sufficient equity in it to warrant the loan. If the house appraises lower than the sales price, the loan may be declined.
• Inspection -- never buy an existing or new home without a thorough home inspection. Walk through the home with the inspector to learn more about the house and any concerns he or she may have.
• Insurance -- confirm you can get adequate coverage. In some areas, it’s difficult to get hazard insurance.
10. Having buyer’s remorse. No place is perfect. There will always be surprises. Don’t let a few initial blips spoil the whole ride. And don’t miss a great house waiting for the perfect one!
How Much Can You Afford?
Shopping for a home but not sure how much you can spend? Here's how to figure out your price range.
Qualification ratios are set by the lender that state your housing expense to income, and housing expense plus other debts to income, cannot exceed a specified number. Many lenders use a 28% housing expense to income and a 36% housing expense plus debts to income. Other ratios may be how much you put down on a home. It is important to remember that these ratios may vary from lender to lender and each application is handled on an individual basis.
Housing Expenses
Your montly housing costs include the mortgage principle, interest, taxes and insurance often abreviated PITI.
• Generally speaking, to qualify for conventional loans, housing expenses should not exceed 26% to 28% of your gross monthly income.
• For FHA loans, the ratio is 29% of gross monthly income.
Example
Annual
Income |
|
Gross Monthly
Income |
Maximum Conventional Loan
Housing Expense |
Monthly Housing
Payments |
$30,000 |
÷12 |
$2,500 |
X28% |
$700 |
Long-Term Debt
Any expenses that extend 11 months or more into the future, such as car loans, are termed long-term debt.
• For conventional loans, total monthly costs, including PITI and all other long-term debt, should equal no greater than 33% to 36% of your gross monthly income.
• For FHA the ratio is 41%.
Budgeting for Your Home
When budgeting to buy a home, it is important to allow enough money for additional expenses such as:
• maintenance
• utilities
• homeowner’s insurance
• property insurance
|
|
|
