Can I Really Buy
A Home Today?
Despite all evidence to the contrary, THIS IS A GREAT TIME TO BUY A HOME!!! Property values are way down and continuing to drop every day! Lenders are desperate to "STOP THE BLEEDING" by getting rid of foreclosed properties that are piling up in their inventories!!! Rates are the lowest they have been in years! And yes, there is money out there to buy!!!Income. Debt. Down Payment. Closing Costs. Two Years Income Tax Returns. Tri-Merge Credit Report. Assets. Liabilities. IRAs. DTI. PMI. You want WHAT? I just want to know what can I afford?
Buying a home in today's marketplace may seem a bit intimidating. And your new home purchase is likely to be one of the most important decisions you've ever had to make. Usually it's one of the single most valuable assets you'll own. And there's no better time to buy than RIGHT NOW!!
Where Do I to Start?
Before you invest hundreds of hours searching--and to avoid any heartbreak if you find yourself unable to qualify for your dream home--sit down with a lender. A lender or a good mortgage broker can perform a simple verbal pre-qualfication in about twenty minutes and a full-fledged pre-qualfication in about 5 days.
Pre-qualification not only allows you to focus your search in the correct price range, saving a lot of wasted time and frustration, but it also can give you an edge when competing with other offers on a home that you find. If a seller is deciding between two offers -your offer, from a Buyer who has been lender-qualified to buy, and another offer , from an unqualified Buyer - they are much more likely to pick yours. Pre-qualification also gives you leverage when negotiating with a seller in a non-competitive atmosphere; it essentially makes you a cash buyer.
The amount of home that you qualify for will be determined by three key factors:
- your down payment;
- your ability to qualify for a mortgage; and
- closing costs.
Whereas a current homeowner may be able to rely on equity from their home sale, a first time homebuyer is limited to the money they can save. The days of having to put 20 percent down on a home are fast becoming the norm once again, and there is no doubt that putting a large amount of money down definitely makes it easier to qualify for a mortgage and to get the lowest interest rates available. But there still are great programs out there that allow you to put 3-5 percent down on a home. And don't forget the 1st-time homebuyer tax credit of $8,000 that is available to anyone buying a principal residence that hasn't owned a home in the past three years!!
Qualifying for the Mortgage
There are two basic guidelines that lenders use to determine what size mortgage you are eligible for:
- Your monthly mortgage payment of principal, interest, taxes and insurance (PITI) should not exceed 25 to 28% of your monthly gross income.
- Your monthly housing cost (PITI) plus other long-term debt should not exceed 31 to 35% of your monthly gross income.
- Income -- This first element can include not only your gross monthly income and secondary income (commissions, bonuses) but also your history of employment, stability of income, education, even potential for future earnings.
- Credit History -- This encompasses your history of debt repayment, total outstanding debt, highest balance, and your highest monthly debt balance.
- Assets -- Your assets consist of cash on hand, savings and checking accounts, CDs, stocks, bonds or any other type of liquid asset.
- Property -- The home you are planning to purchase will be appraised to determine the market value. The estimated value must be sufficient to secure the loan. Lenders will loan you no more than a certain percentage (usually no more than 95%) of this value.
And here's the great news...with property values plummeting and so many foreclosed homes on the market, you really can qualify for and afford your dream home! Imagine buying a home valued at $500,000 for $175,000 - or a $200,000 for $75,000!! Deals are out there - you just have to be willing to find them!!!
Closing Costs
Keep in mind that in addition to your down payment, you will also be responsible for paying fees for the loan and closing costs. These will be required at the time of closing unless you qualify and choose to have these included in your financing.
- Closing Costs generally will range between 2% - 6% of the mortgage loan, depending on the loan and lender. You will be provided with a "Good Faith Estimate" of closing costs before you close, so you'll know what to expect.
- "Points", which are one-time charges equal to one percent of your loan amount, also may be required by your lender at closing.
- Your closing agent will charge a fee at the close of the sale.
