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Buyer Information How much house you can afford depends on two things. How much you can afford for the monthly payments and, how much you can invest in the down payment. Monthly payments include principal and interest on the mortgage loan, and property taxes and insurance against fire and other hazards. These four costs are often abbreviated "P.I.T.I." for some buyers and lenders monthly housing costs may also include homeowner association dues, condominium fees and mortgage insurance. Qualifying for a loan. In today's market an affordable home is not so much determined by sales price as it is by the financing which translates that price into a monthly payment. A house hunter's first step is to set a housing budget, then go shopping for the house price and payments (P.I.T.) that fit that budget. Even though there are many ways to qualify to buy a home, make sure the monthly payment makes sense for you. A current rule of thumb is that the monthly payment should not be more than 25-33% of gross monthly income. Restrictions will apply for smaller down payments. Two Lender Formulas Most lenders will require that loan applications meet both guidelines before approving a mortgage loan. The first formula compares income to housing costs without including long term debts, the second includes all debts. 28% Formula Total Monthly Housing Costs P.I.T. Gross Monthly Income = 28% or Less 36% Formula P.I.T.I. + All Monthly Debts Gross Monthly Income = 36% or Less A variety of other formulas exist. VA and some lenders use a single ratio based on mortgage payment and all debts, which allows easier qualifying for a more expensive home for a borrower with little debt. To figure your housing budget, simply multiply your gross monthly income (before taxes) by 28% and 36%. For example, a family with a monthly income of $3,500 might qualify for a mortgage on a house that produces payments between $980 and $1,260. For specific figures, ask a sales agent for assistance. House Hunting - Choosing The Right Home A very important hint to keep in mind when it comes to buying the right home is: "The best time to think about selling your home is when you're buying it." In other words, what appeals to you as a buyer today will probably also appeal (or what turns you off will be a turn off) to buyers tomorrow. A careful house hunter will benefit years from now when it's time to sell to an equally value-conscious buyer. Build your buyer's savvy by reading classifieds and homes-for-sale magazines, and also visiting open houses. Home Inspections: Make sure that your dream home isn't going to be a money pit. Identifying the Right County & City Is the present area that you are considering urban, suburban, semi-rural or rural? Is the population density low, medium or high? Is the population increasing, decreasing, or stable? What natural features are the most significant? Woods? Hills? Flat Lands? Rivers? Ocean shore? Man-made lakes? Streams and Ponds? How do you commute to work? Do you walk? Drive? Car-Pool? Taxi? Bus? Train? How far must you travel and how long does it take morning and evening? Do you use available public transportation for local trips or to visit close-by communities? Can someone reach your home on public transportation? Where do you do your shopping? Central commercial districts? Shopping Centers/Malls? Supermarket shopping clusters? Community shops or home delivery? Imagine a list of typical shops in one week... how many miles and how much time would visiting the entire list require? Do you want greater convenience? What types of schools does your family attend? From grade school to graduate school, and from day care needs to special vocational training, what facilities will you require in the next few years? Are there any special needs or plans? Although it's extremely difficult to compare quality of education, especially when the most important ingredient is the relationship between teacher and student. Some statistical information to consider? Average class size at grade level. Comparative standardized test scores. Percentage of high school graduates that attend college. What does the area offer for recreation and entertainment? Music? Movies and live stage? Sports arenas? Museums? Nightlife? What types of indoor and outdoor sports facilities are available? Are there public parks, private country clubs, athletic clubs, and fraternal groups? Do any of your hobbies require facilities? Neighborhood Questions How do the neighbors earn their living? Professional, managerial, skilled, part-time workers? Are they mostly one or two wage-earner households? Where would you rank their income level? Upper brackets, upper middle, middle. Lower middle, low income? Do the neighbor's interests make them homogeneous or varied group? Do neighbors socialize regularly, or hold block parties, picnics, holiday parties, organize sports events or teams? What are the ways they have met their neighbors? Walking a dog, commuting, PTA, cocktail parties, little league, gardening? Do homeowners or renters make up the majority? Types of dwellings: high rise or low rises apartments, condominiums, multi- family dwellings, single-family structures, or mobile homes. How much do the neighbors care for their lawns and gardens? Are the houses maintained "like new," adequately or poorly? Are cars parked mostly in garages, driveways, in the street? How old are the houses? More than 30 years old? 15 - 30 years old? New? How far apart are the houses? Are property upgrades common? Swimming pools, tennis courts, fences, patios, extensive landscaping? For convenience, how does the neighborhood rate? Can you walk to shopping or is a car necessary? List your five most frequent destinations. Are they clustered in one stop-and-shop location? Two stops? How far away is your place of worship? How much time is required for fire, ambulance, and police emergency services? How do children routinely reach their schools, play areas, friends, homes? By walking, bicycle, bus, or do parents drive them? Is public transportation available for commuting or shopping? What are the disadvantages of the neighborhood? Freeway, railroad or airplane noise? Factory pollution, heavy traffic, exposure to heavy storms, possible flooding? Are there Home Owners' Association restrictions? . |
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