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Buying Advise

How Much Can I Afford?

Once you know what you're looking for, the next step is figuring out what type of home you can afford. A review of your income, savings, monthly expenses, and debt will be necessary.

Early on in the process, you'll want to get pre-qualified for a mortgage loan, which helps determine how much you can afford. It enables you to move swiftly when you find the right home, especially when there are other interested buyers. It also indicates to the seller that you are serious and can afford to buy the property. A pre-approval is a simple calculation done by a mortgage lender that tells you the amount you'll be able to finance through a loan and what your monthly payment will be. When you find a home to buy, a pre-approval also reassures the seller that you have the financial means to purchase the home.

Knowing what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. It pays to check with several lenders before you start searching for a home.

The price you can afford to pay for a home will depend on several factors, such as:

  • gross income
  • the funds you have available for the down payment, closing costs and cash reserves required by the lender
  • your debt
  • your credit history
  • the type of mortgage you select
  • current interest rates

Another figure lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment, property tax payments and insurance premiums on your new home loan (also known as PITI). Each buyer is unique and a mortgage professional can help you find out just what you can afford. Your income and your debts will typically play the biggest roles in determining your price range. It's simple to make an estimate, just run the numbers for yourself using our  Affordability Calculator and Mortgage Calculators.

 

What if You Already Have a Home?

 

Buying a new home and selling an existing home at the same time has it's own set of challenges. But with planning, you can ensure everything goes smoothly.

Before putting your house on the market or committing to buying a new one, take a look at the prices of houses in the areas where you'll be both selling and buying. You'll need a realistic idea of sales prices for similar houses so you can assess both your buying and selling position.

What if you're unable to perfectly time the sale of one house with the purchase of another? You may own no houses for a time, in which case you'll need money in the bank and a temporary place to live. Or, you may own two houses at once. That's why it's important to have a back-up plan. Here are some options to consider:

  • Research short-term rental and storage options (family, friends, storage facilities, containers).
  • Bridge financing is a short-term loan for the down payment on a new home backed by the equity in your old house.

Buying a Second Home

Buying a second home isn't that different from buying a first home. Affording it usually depends on your ability to qualify for a mortgage on the second home. Benefits include a getaway for the family on vacations or holidays, a future retirement home, renters making your mortgage payments for you, or an investment.

Many people see buying a second home as an investment opportunity. You'll need to identify sources for your down payment, since you're not selling your current house and using the proceeds, and you'll need to expect a larger monthly obligation for housing expenses.

Keep in mind that if you declare it as a rental, your mortgage might be slightly higher. Work with your lender to create a customized loan program with the best combination of rate, points, and closing costs for your needs.

How Much?

Find out what other homes have sold for in the area and how much money you might have to put into repairs or renovations. These considerations should be factored in with how much you're comfortable spending.

Also, it helps to know the features that help or hurt resale. In some areas, a swimming pool actually detracts from a home's value and makes it harder to sell. In neighborhoods with two-car, attached garages, a single-car or detached garage may affect the home sale and future value.

In addition to sale prices for other homes, there are several ways you can determine a good amount to offer:

  • The condition of the house. Is the home in move-in condition, in need of paint and other cosmetic improvements, or a fixer-upper that needs some real work?
  • The market. If you are in a buyer's market - where there are more homes for sale than there are people to buy them - prices are probably stable or falling. If you are in a seller's market - where there are more buyers looking for homes than there are homes for sale - prices are probably moving upward.
  • Your ceiling. If you've gotten a credit pre-approval, you know how much you can borrow for your home purchase. Of course, you may not be comfortable paying as much as you've been approved to borrow, so think carefully about your financial situation before making an offer.

Next, decide how much you are willing to pay for a home. Remember, the advertised price of a house is just a starting point - it may take quite a bit of negotiating to arrive at a final cost.

 

Buying A Home With Cash

Though most buyers don't buy a home with all cash, anyone considering such a move may be wondering how. Because all cash buyers sidestep the time-consuming loan qualification process, the deal can close very quickly. The primary advantage of buying a home with all cash is completely avoiding mortgage interest. Buyers also save money that would be spent on loan origination fees, required appraisal, some closing costs and various other charges imposed by the lender.

At the same time, all-cash buyers should consider potential pitfalls of the transaction. Buyers who want to use the home as their primary residence lose out on the tax advantages available to homeowners with conventional loans.

If you can afford to pay cash but are concerned about price appreciation, you may be better off obtaining some financing. Also, look at other investments that are paying off and determine if spending cash on a home is your best investment option.

Inspection

Home inspection is a major step in the buying process. century21.com offers helpful information on potential problems that can be discovered during this period.

Insurance

Homeowners insurance protects you against natural disasters and catastrophic events. Find more related information at century21.com

Timeline and Paperwork

In the home buying process, the closing meeting is where ownership of the home is officially transferred to you. Know what to expect when you close on your new home.

Moving In

Planning to move to your new home? Our home moving checklist can help you make moving less stressful and more successful.


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CENTURY 21 Park Road

Wyomissing, PA   -  610.378.0471