FAQ
How much house should I buy? How much can I afford?
The answer to this has a lot to do with your income and the amount of your debt load. As a rough rule of thumb, most home buyers purchase houses that cost between 1 1/2 and 2 1/2 times their annual income. For example, a home buyer earning $40,000 per year would buy houses costing between $60,000 and $100,000. There is, however, a degree of variation due to the individual market prices of the area in which you are interested. In some areas, there may not be houses available within that range, so you may need to spend a bit more. In general, however, your monthly mortgage payment cannot exceed approximately 28%-29% of your gross monthly income. Your total debt payments (car payments, credit card payments, etc. plus the monthly mortgage amount) cannot exceed approximately 36%-40% of your gross monthly income. These ratios will depend on the type of mortgage for which you are applying.
Do I really need to use an Agent to buy a house?
Since the commission for the sale of a house is almost always paid for by the seller, buyers are able to get assistance and information from Real Estate Agents, usually at no cost to them. It is for this reason that the vast majority of home buyers employ the services of an Agent for their purchase. In addition, since most houses are listed by Real Estate Agencies, it gives them the maximum number of available properties to consider. Without an Agent, you may be missing valuable representation of your interests. (See Information About Brokerage Services)
How much will my closing costs be?
The amount of closing costs will depend on what items are customary for buyers and sellers to pay for in your area. Traditions vary greatly from one area of the country to another. In some areas, for example, the buyer pays for title insurance. In other areas, it is the responsibility of the seller. Your agent can give you specific information on the items that are customarily paid for by buyers in your area. In addition, the amount of closing costs will depend on the amount of points you will be paying with your mortgage loan. Your loan officer will give you a Good Faith Estimates when you find a property.
This will cover charges charged by the Mortgage Company, Title Company, etc.
How much should I offer for a house?
There is no simple answer to that question, since each property stands on its own. A particular house may be overpriced (you should make an offer BELOW the listing price), “on-the-money” (you should make an offer at or just below the listing price) or under priced (you should grab it before someone else does!)
Your Realtor will give you comparable sales information so you know what the market value of homes are selling for in the area.
What First Time Buyer Programs are available?
There are literally hundreds of different programs available, depending on your location (city, state,) and the mortgage source that you use. The requirements and benefits vary greatly from program to program. Consult your mortgage lender or your local housing authority for more information.
Should I spend the money to have a home inspection?
Inspection costs could be the best money you ever spend on your house. Not only does the home inspection seek out any defects (and gives you some peace of mind), the home inspector will often give you tips on maintaining and repairing your house.
What is an appraisal?
Will I need one? An appraisal is an opinion of value of the home you want to purchase. Virtually every lender will require some sort of appraisal before the loan is approved.
Can I use my IRA retirement funds for a down payment on a house?
For most first time buyers, you can use the funds in these retirement accounts without penalty.
According to the IRS, If both husband and wife are first-time home buyers, they each can withdraw up to $10,000 for qualified acquisition costs penalty-free for a first home.
What is a Home Warranty?
A home warranty is a service contract, normally for one year, which helps protect home owners against the cost of unexpected covered repairs or replacement on their major systems and appliances that break down due to normal wear and tear. Coverage is for systems and appliances in good working order at the start of the contract.
What factors affect my credit score?
Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:
1. Your payment history. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.
2. Do you owe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it’s a good thing if you have a good proportion of balances to total credit limits.
3. The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer’s oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.
4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.
5. The types of credit you use. Generally, it’s desirable to have more than one type of credit — installment loans, credit cards, and a mortgage, for example.