Are You Buying a Home?
 How Much Home Do
You Qualify For?
Income. Debt. Down Payment.
Closing Costs. Two Years Income Tax
Returns. Assets. Liabilities. IRAs.
You want WHAT? Just what can I
afford?
Buying a home in today’s marketplace
is 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.
Where 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. Your
lender can perform a simple verbal
prequalification in about twenty
minutes and a full-fledged
prequalification 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
can also give you an edge when
competing with other offers on a
home that you find. If a seller is
deciding between two offers—-yours
who has been qualified and another
unqualified offer, they are much
more likely to pick yours.
Pre-qualification will also give 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.
The Down Payment
Whereas a current homeowner can 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 in the past, although
putting a large amount of money down
definitely makes it easier to
qualify for a mortgage and to get
the lowest interest rates available.
With the various programs that are
available today, you can put as
little as 3 percent down on a home.
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 33 to 38% of your
monthly gross income.
Specifically, most lenders will
consider 4 key factors to determine
your ability to qualify for a home
loan:
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 95%) of
this value.
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 percent and 6
percent of the mortgage loan,
depending on the loan and
lender. You will be provided
with a "Good Faith Estimate" of
closing costs so you can know
what to expect.
- "Points", which are one-time
charges equal to one percent of
your loan amount, may be
required by your lender at
closing.
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Ingrid Willsey,
REALTOR®/Broker
Ingrid Willsey and Associates
Direct: 858.337.8742
Email:
Ingrid@RealEstateinDelMarCA.com
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