How Much Do You Want To Spend?
Your comfort zone when it comes to purchasing property is critical. Some of us want to take advantage of today's incredibly low interest rates and want the largest loan a lender will make. Others are from the old school and want to be conservative with a large cash down payment and goal to pay off the loan. When evaluating a borrower's loan qualifications, lenders consider: Gross Income; Down Payment Cash Available; Outstanding Debt; Type of Mortgage Selected; Current Interest Rates; Credit Score and History.
Lenders determine how much they will lend using a Debt to Income Ratio. This is calculated using the projected Total Monthly Expenses divided by the Total Monthly Income. Included in the DEBT is the PITI - Principal, Interest, Property Tax, Insurance for the purchase. Homeowner's Association Dues would be included in the expenses, as well.
What Is The Standard Debt-to-Income Ratio?
A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total. The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income. Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.
What Can I Afford?
Knowing what you can afford is the first rule of property investing. It depends on how much income and how much debt you have. It pays to check with several lenders before you start searching for property. Most lenders will be happy to roughly prequalify you for a loan. The price you can afford to pay for property will depend on six factors:
1. Gross income
2. Down payment cash plus funds for closing costs and required cash reserves
3. Outstanding debts
4. Credit history
5. Type of mortgage
6. Current interest rates
Another number lenders use to evaluate how much they will loan is the Housing expense-to-income ratio. It is determined by calculating the projected monthly housing expense - PITI. If there are monthly homeowners association dues and/or private mortgage insurance, they will be added to the PITI. This ratio should fall between 28 to 33 percent. Some lenders will go higher under certain circumstances. The total debt-to-income ratio should be in the 34 to 38 percent range.
Anticipated Maintenance Expenses?
You should plan to spend approximately 1 percent of the purchase price on maintenance. Newer property will usually cost less to maintain. It also depends on how well a property has been maintained over the years. Beach property has a higher maintenance requirement.
When Is The Best Time To Buy?
Here are some frequently cited reasons for buying real estate:
* 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 can afford the monthly payments.
* 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 percent of the sales price.
* You prefer to be an owner rather than a renter.
* You can handle the maintenance expenses and headaches.
* You are not greatly concerned by dips in home values.
Where Do I Get Information On Housing Market Statistics?
The Real Estate Team is a good source for finding out the status of the local housing market. They are familiar with statistics from the statewide association of Realtors which is 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, the U.S. Bureau of the Census in Washington, D.C.; (301) 763-2422. The census bureau also maintains a site on the Internet.
How Is The Value Of Real Estate Determined?
Experienced Real Estate Professionals & Appraisers can determine the value of a property. They will review market trends including Active, Pending & Sold properties. The Real Estate Team provides this complimentary service called A Broker's Price Opinion.