Before You Look at Your First House
Experienced home buyers know that one of the first-steps in beginning a successful search for a new house is taking a hard, objective look at finances. Determining how much money you can dedicate to the purchase of your new house affects almost every aspect of buying a new home - including how we write the offer, which mortgage programs you will qualify for, shopping for the best mortgage loan and which homes are truly in your price range.
Here are the questions that each home buyer should ask:
- How much cash is available for a down payment? The amount you have available for a down payment will affect what types of loans for which you can qualify. Learn more.
- Am I ready to write a check for the earnest money? Earnest money is a deposit made with an offer on a home to indicate to the seller the buyers' sincerity to buy the property. This amount is often forfeited if the buyer decides to withdraw the offer for just changing his/her mind. There are however, contingencies written into the offer to protect both parties in the event that the buyers' mortgage is not approved, the inspection is not as expected, etc.
- How much additional cash will be available to pay for closing costs? There are certain standard costs associated with closing the sale of a home. Some fees are the responsibility of the buyer and some are the responsibility of the seller however these can be negotiated out in the sales contract to dictate who pays for what. Learn more.
- What is the maximum monthly mortgage payment that I can afford? Most lenders will use the 28/36 rule to determine the maximum mortgage payment you can afford. This is a great question for your lender as there are several things that affect your payment. The principal, interest, homeowner's insurance, and property taxes make up your payment in most cases. Generally insurance and taxes are are included and are paid into your escrow account. When the invoice for your homeowners insurance and your property taxes are received, they can be mailed to your lender so that they can be paid for out of your escrow account.
The 28/36 Rule
No more than 28% of your gross income can be applied to your mortgage, real estate taxes and insurance. And no more than 36% of your gross income can be applied to your mortgage expenses plus your regular debt expenses (car payments, credit cards, other loans, etc.).