Buying a home is an exciting adventure. It can also be a very time-consuming and costly experience if you’re not familiar with all aspects of the process, and don’t have all the best information and resources at hand.
One of our specialties is representing the best interests of our buyers throughout the home buying process. Unlike traditional real estate or mortgage companies, our knowledge and experience in both fields allow us to deliver consultative services that are unprecedented. This wealth of knowledge, proficiency, and one stop solution allows us to be at the center of our client’s financial well-being and planning.
Buying a home can be, and often time is, the largest investment a person will ever make in their lifetime. So whether you’re buying a starter home, your dream home, or an investment property, please take advantage of our vast experience and call us for a free consultation.
Knowing how much you can afford to pay is a crucial step in your search. Nailing down your budget early will make the overall process more focused and less stressful.
Here’s a good way to figure out how much you can afford:
The 28/36 Rule
The 28/36 rule is an established benchmark used by many lenders to determine how much credit to offer you. Here’s how it works:
Get preapproved for a mortgage. Your lender can approve you for a certain to loan amount prior to your home search. This gives you a solid number against which you can assess the affordability of the houses you visit.
The “28” refers to the notion that no more than 28 percent of your gross monthly household income should go toward housing costs, which include mortgage principal, interest, taxes and insurance.
To calculate, simply multiply your gross monthly income (amount before taxes) by .28. Use this amount as a guide for how much house you can afford.
Example: You earn an annual salary of $70,000. Divide 70,000 by 12, giving you a monthly gross income of $5,833. Multiply that by .28, and you’ll find you should spend no more than $1,633 each month on total housing costs.
The “36” part of the 28/36 rule refers to your overall debt, which shouldn’t exceed 36 percent of your income. This is important to consider because other high monthly debt loads – such as car and credit card payments – impact the amount you can afford to spend on housing.
For first-time home buyers, the tricky part is knowing how much to budget for taxes and insurance. An experienced real estate professional can assist you with this.
Here’s a general outline of what to expect during a home purchase, from the buyer’s perspective.
Buyers make a purchase offer.
We’ve found a home for you, looked over disclosure documents, reviewed comparable sales data, talked it over with us and submitted an offer. The sellers may accept your first offer, or they make a counteroffer. In fact, additional negotiations are common, and we will help you through this process.
The sellers accept.
Once everyone has agreed to the terms, the parties have reached what is known as mutual acceptance and enter into a purchase and sale agreement.
Buyers put up earnest money.
To solidify your intent to buy, you’ll place a deposit, or earnest money, on the property. The amount varies, but is generally at least 1 percent of the purchase price. You’ll write the check to the escrow company, not the seller. Note: This money counts toward your down payment later.
The earnest money deposit goes into an escrow account, where all funds will be held until closing, when they are then distributed to the right people (lender, mortgage broker, title insurer, real estate agents, etc.).
Buyers apply for a mortgage.
This step is streamlined if you’ve already been preapproved for a loan (which is a smart thing to do). If not, you’ll begin the loan application process now.
The lender inspects title history and orders a property appraisal.
The lender needs key information about the property before granting a loan. This is when potential problems can come to light. For example, the appraisal could show a lower value than the purchase price, or the lender could have trouble finding comparable homes. Also, the title search could turn up liens or other problems.
A home inspection takes place.
You’ll hire an inspector – we will suggest one– to check the home and point out potential minor and major problems that should be fixed before closing. At this point, you still have the option of backing out of the deal. Through CMC, you’ll submit a list of requested work, and the sellers have the option to complete the tasks, do some of them but not others, or reject the request. The sides will negotiate until reaching an agreement.
If the house passes inspection, appraisal and title search, and everything is good to go, then all contingencies can be removed, paving the way to a closing.
Closing time arrives.
Once contingencies are removed and financing is set, all parties sign the contract, the final walkthrough is completed, and the transaction closes.
When the final signatures are in place, it’s time to put down the pens, shake hands, exchange smiles and start packing for the move.