Buyer's Tips

Are You Ready to Buy?

Now it is time for you to look deep into your heart (and bank account) and decide if you are ready to buy a home. Finding your motivation and specifying your wants and needs is a good beginning, but there are other things to consider before taking the leap into home ownership.

What's your financial situation?

What's your debt load? Credit cards, utilities, car payments, childcare and groceries are factors to consider. Don't forget the money for a broken air conditioning unit will be coming out of your pocket. Will you be able to handle unforeseen emergencies, monthly bills and a mortgage payment? As a rule of thumb, no more than 28 percent of your gross monthly income should be used for housing payments.

How's your credit history? Delinquent credit card and bank payments, past bankruptcies or a student loan that's unpaid can severely affect your ability to get a mortgage loan. For a small fee you can obtain a credit report on yourself and clear up any misunderstandings before applying for a loan.

Credit Reporting:
Experian 1-888-397-3742
Equifax 1-800-997-2493 
Trans Union 1-216-779-2378

What's your employment history?

If you have been working continuously for the past two years, a lender should consider this to be steady employment. This does not mean that to be approved for a mortgage loan you need to have worked at the same place for two years; in fact, job changes can be favorable, especially for an increase in pay. However, if your work history has not been continuous for the last two years, as long as you have a reasonable explanation for any breaks in employment, you still may qualify for a loan.

Have you saved money for a down payment and closing costs?

In addition to the amount of money you will have to borrow for your home, the lender will require you to invest, in cash, around five to twenty percent of the purchase price toward the loan. If you are looking at a $100,000 home, a ten percent down payment would be $10,000.

Closing costs are additional expenses incurred throughout the buying process that must be paid for in cash, like attorney and inspection fees, escrow charges and document fees. Closing costs are typically five percent of the purchase price of your home, so add another $5,000 to your $100,000 home.

How Much Home Can You Afford?

How much you can borrow will depend on your income, down payment, job stability, existing debts, credit references and payment history. Lenders usually use the following two qualifying guidelines to decide how much of a loan you can manage:

• Your monthly housing expenses - mortgage payment, property taxes, insurance, etc. These expenses should be no more than 28 percent of your monthly gross income.

• Your monthly living expenses and any long-term debts - utilities, car and school loan, child support, health and car insurance, etc. These expenses should be no more than 36 percent of your monthly gross income.

Getting Pre-Qualified

Once your financial matters are in order and you’ve examined your credit record, pay a visit to a lender - mortgage company, savings and loan, bank or credit union. They can translate your results into an amount you can manage and determine the types of mortgages suitable to your needs.

This pre-qualifying meeting should be free of charge, and you are not obligated to use the lender who leads the meeting. When you are ready to negotiate a loan, talk with several lenders. Bring tax returns, salary stubs and other financial data to the meeting, along with your calculated net worth and monthly cash flow assessments.

If you receive pre-qualification or pre-approval from a reputable lender, your negotiating position is strengthened. It shows agents and sellers you are serious about buying a home.