What can I afford?
Knowing what you can afford is the first rule of home-buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28% of their gross monthly income on a mortgage payment - or more than 36% on their debts. It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and to prequalify you for a loan. The price you can afford to pay for a home will depend on six factors:
1. Gross income
2. Amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. Your outstanding debts
4. Your credit history
5. Type of mortgage you select
6. Current interest rates
Another figure lenders use to evaluate how much you can afford is the expense-to-income ratio. This is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI. This ratio should fall between 28 to 33% of your gross income - although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38% range.
How much will I spend on maintenance expenses?
Experts generally agree that you can plan on spending 1% of the purchase price of your house each year on repairing gutters, caulking windows, sealing your driveway and myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained by previous owners over the years.
What are some tips on negotiation?
The more you know about a seller's motivation, the stronger negotiating position you have. For example, a seller who must move quickly due to a job transfer may be open to a lower price with a speedy escrow. Other so-called "motivated sellers" include people going through a divorce or who have already purchased another home. Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see if the seller's asking price is line with similar sales in the area.
Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also offend the seller and discourage them from negotiating at all.
Am I ready to purchase my own home?
Here are some frequently cited reasons for buying a house:
* You prefer to be an owner rather than a renter.
* You can afford the monthly payments.
* You can handle the maintenance expenses and headaches.
* You need a tax break. The mortgage interest deduction can make home ownership very appealing.
* You are not counting on price appreciation in the short term.
* You are not greatly concerned by dips in home values.
* You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10% of the sales price.
What do all of those real estate acronyms in the ads mean?
If you find yourself stumbling over weird acronyms in a real estate listing, don't be alarmed. There is method to the madness of this shorthand (which is mostly adopted by sellers to save money in advertising charges). Here are some abbreviations and the meaning of each, taken from a recent newspaper classified section:
* assum. fin. -- assumable financing
* dk -- deck
* gar -- garage (garden is usually abbreviated "gard")
* expansion pot'l -- There is potential to expand on the lot, or possibly vertical potential for a top floor or room addition. Verify actual potential by checking local zoning restrictions prior to purchase.
* FDR -- formal dining room
* frplc, fplc, FP -- fireplace
* grmet kit -- gourmet kitchen
* HDW, HWF, Hdwd -- hardwood floors
* hi ceils -- high ceilings
* In-law potential -- potential for a separate apartment. Sometimes, local zoning codes restrict rentals of such units so be sure the conversion is legal first.
* lsd pkg. -- leased parking area, may come with an additional cost
* lo dues -- find out just how low these homeowner's dues are, and in comparison to what?
* nr bst schls -- near the best schools
* pvt -- private
* pwdr rm -- powder room, or half-bath
* upr- upper floor
* vw, vu, vws, vus -- view(s)
* Wow! -- better check this one out.
Resources:* "Real Estate's Ambiguous Language You Oughtta Understand," Glennon H. Neubauer, Ethos Group Publishing, Diamond Bar, CA; 1993.
Where do I get information on housing market stats?
A real estate agent is a good source for finding out the status of the local housing market. So is your statewide association of Realtors, most of which are continuously compiling such statistics from local real estate boards.
For overall housing statistics, U.S. Housing Markets regularly publishes quarterly reports on home building and home buying. The housing research firm is located in Canton, Mich.; call (800) 755-6269 for information; the firm also maintains an Internet site.
Finally, check with the U.S. Bureau of the Census in Washington, D.C.; (301) 763-2422. The census bureau also maintains a site on the Internet.
The Chicago Title company also has published a pamphlet, "Who's Buying Homes in America." Write Chicago Title and Trust Family of Title Insurers, 171 North Clark St., Chicago, IL 60601-3294.
How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for 7 to 10 years. Some lenders will consider an
borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a
lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender
may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and
lived beyond your means, the lender probably will be less inclined to be flexible.