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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 I
write the offer, which mortgage programs you will qualify for, and which homes are truly in your price range.
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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 cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer without a legitimate cause or seller failure to perform .
- How much additional cash will be available to pay for closing costs? There are certain standard costs associated with closing the sale of a house. These fees are split between the buyer and the seller, as spelled out in the sales contract. Learn more.
- What is the maximum monthly mortgage payment that I can afford? Most lenders will use the standard qualifying ratio (debt to income ratio) to determine the maximum mortgage payment you can afford.
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The standard qualifying ratio (28/36)
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.)
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