Get pre-qualified with a lender
Most home buyers will need a loan in order to purchase a home. It is very smart to meet with one or more lenders before beginning your home search. This will help you know how much you can afford. Don’t forget about your budget. It isn’t always smart to plan on how much you can afford compared to how much you want to pay. These can be two very different numbers.
For a quick calculation of what you may be able to afford, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $80,000, you might be able to qualify for a $200,000 home. This is just a rough estimate - the actual number will vary based on factors like your debt and credit history.
Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.
Lenders recommend that your monthly mortgage payment should be less than or equal to about a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.
You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.
There are several benefits of being pre-qualified. One is the peace of mind you’ll have when looking for a home. The last thing you want is to lose a home you really like because you haven’t gotten your finances in order. There is also a benefit in sending a letter of pre-qualification with an offer. This lets a seller know that you are serious and that you can afford the home. When you actually get to this step, have the pre-qualification letter state the amount you are qualified for as the amount of the offer, not a higher amount as this could give away your negotiating position.
Do You Qualify For a Special Lending Program?
Many lenders offer special programs for people in certain professions. There are specific programs for teachers, police officers and fire fighters and other professions. Ask your lender if you may qualify depending on your own profession or your spouse’s.
Starting to Search
Make a wish list of everything you want in a home. Think about things like
1 story or 2
What kind of yard
House, condominium, patio home or townhome
Age of the house – new?
Features we NEED
Bedrooms
Bathrooms
Garage spaces
Study or office
Already landscaped
Fenced yard for kids or pets
Square feet
Things we want
Fireplace
Pool
Wet bar
Hot tub
Brick or stone exterior
Tile roof or composition shingle
Wood floors
Granite counters
View
How about Distance to
Schools
Shopping
Restaurants
Highway access
Place of work
Churches
Parks
Golf
Lake
Once you put together a list of needs and wants, you can provide your REALTOR® with that information. He can then perform a detailed search for homes that might work for you.
Schools
If you have kids, this will be important. If you do not have kids, this may be an important factor for resale value. There are several good resources to help locate good schools. Look at school district boundaries to determine which schools serve which neighborhoods. You can also look at specific school performance reports .
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