Perhaps the most important step in buying
a home is defining what you want. Your goals might seem
obvious — maybe your growing family needs a larger home —
but do not stop there. Sit down with the entire family
and spend time talking about your dream home.
Balancing Needs And Wants
Start by thinking about your present home and making a list
of which features you would like repeated in your new home. At
this point, nothing is too obvious or too trivial to include. The
work sheet titled Checklist For Your Home Search.
Envision your new home and try to build it in your mind.
Where would you like to locate it? Does it have more bedrooms
than your present home? Do you want a fireplace or perhaps
a study? Would you prefer a gas or electric stove?
Take the list you have created and divide it into "needs" and
"wants." The needs list will narrow your search by focusing on
those homes meeting your most important criteria. Your wants
list will help you choose among the remaining possibilities.
As you discover more about the housing market, you may have
to rethink your two lists. If housing is scarce in your desired
location, you probably will need to pare down your wants list,
unless you are willing and able to maximize your dollar investment,
whether through cash or a mortgage. If it is a buyer’s market,
you can widen your wants list and be more selective.
What Can You Afford?
Setting a price range in advance will help you find the right
home. You can avoid the disappointment of looking at
homes that are unaffordable. Since it is likely you will finance
the purchase of your home, the amount of mortgage loan for
which you can qualify will determine your upper price limit.
Lenders base mortgage loan decisions on a number of factors.
These include your income, level of debt, credit history and
the amount of down payment you will be making.
A down payment is money you agree to pay, usually in a
cashier’s check, at the time of purchase. Your down payment
will probably affect your price range because the loan amount
is based on the purchase price minus the down payment, if any.
Conventional Loans:
- Usually require a minimum 0-5 percent of the
sales price as a down payment
- Not guaranteed or insured by the federal government
Federal Housing Administration (FHA) Loans:
- Government-backed loans insured by the FHA
- Generally require down payments of as little as 3-5 percent
of the sales price
- Available in all 50 states
- Loan amounts vary regionally and are higher in Alaska and Hawaii
than in the rest of the country
- Maximum loan amounts and guidelines change periodically
Veterans Affairs (VA) Loans:
- Available to military veterans
- Guaranteed by the Department of Veterans Affairs
- Offer up to 100 percent financing
- Loan amounts generally are higher than from FHA
- Maximum loan amounts and guidelines change periodically
Lenders consider several variables when qualifying you for
a mortgage loan:
- On conventional loans, your new mortgage payment generally
should not exceed 28 percent of your gross monthly income.
- All monthly debt obligations, including your mortgage payment,
should not exceed approximately 36 percent of your combined
gross monthly income.
- Some new buyers with good credit, adequate assets and an
above-average down payment can qualify for a mortgage loan
with higher debt ratios.
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Selling A Home
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