Buyer's Guide

Deciding to buy a home can be one of the biggest decisions you’ll ever make.  Like any of life’s big choices, you’ll want to be sure the time is right for you.

Most prospective homeowners start with affordability.  Do you have the financial means to save enough for a down payment, the closing costs associated with buying a house, and sustain the ongoing costs of owning a home?

Most first home buyers start by comparing the costs of owning a home vs. renting.  In addition to a mortgage payment, home ownership costs also include many other factors such as ongoing municipal taxes, home insurance, maintenance and upkeep, furnishings, day-to-day items, among others.  In most cases, renters don’t have to worry about these ownership-related costs.

These home ownership costs and financial responsibilities should be considered when you are deciding whether you should continue to rent or purchase your first home.

Once you decide that buying a house is the right choice for you, make sure that you can afford to buy.

When Lenders look at your Mortgage Application, they will calculate your debt-to-income ratio (DTI).  This is your monthly debt payments divided by your Gross Income.  Lenders will look at these numbers to see how much additional debt you can manage.

Example: If your Monthly Debt is $2,500, and your Monthly Income is $5,000, your DTI (Debt-to-Income) ratio is 2,500 / 5,000 = 0.50 = 50%

The 29/41 Rule:  It is a common rule of thumb to keep your Housing Expense Ratio and your Debt-to-Income Ratio within these numbers.

Housing Expense Ratio: This will be found by calculating your monthly mortgage payment (Principal + Interest + Property Taxes + Insurance: Homeowners and Mortgage + Homeowners Association Fees: if applicable) divided by your Gross Monthly Income.  You ideally want this number to be under 29%

Example:  If your Mortgage Payment is $1,500, and your Monthly Income is $6,000, your Housing Expense Ratio is 1,500 / 6,000 = 0.25 = 25%

Debt to Income (DTI):  This is your TOTAL DTI after all of your other monthly debts are added to your Mortgage Payment (Car Payments, Student Loans, Credit Card payments, etc.), divided by your Gross Monthly Income.  Ideally, you want this number to be under 41%

Example:  If your Mortgage payment is $1,500, and you have an additional $500 in monthly debt, and your Monthly Income is $6,000, your DTI is $1,500 + $500 ($2,000) divided by $6,000.  Calculation = 2,000 / 6,000 0.33 = 33%

These examples were only meant to give you an idea of what a lender will be looking at when reviewing your application.  The best thing to do is contact a Mortgage Company to help you know what you can afford and what type of loan will work best for you.

We work closely with many Lending Companies. Please contact us if you would like any recommendations.

Most lenders will require a down payment.  The down payment will mitigate the loss a lender will suffer in the event that a borrower defaults on their mortgage.

There are many types of loans and many different options for homebuyers. The type of loan you qualify for may determine how much of a Down Payment you will have to pay to get the loan. Increasing the amount of your down payment may help to lower your interest rates and help you qualify for a larger loan.

Your Mortgage Lender will be able to assist you with finding the right type of loan and understanding the different down payment options available.

Closing Costs:  You will also have to save money for closing costs.  There are many things that will determine how much you will have to pay towards your closing costs, but it is good to expect the costs to be somewhere between 2%-5% of the total cost of the home value.  If your home is worth $300,000, prepare to pay between $6,000 – $15,000

These costs will come from things such as Appraisal Fees, Application Fees, Title Insurance, Home Inspections, Escrow Fees, Mortgage Origination Fees, etc.

There are No Fees due to your Real Estate Broker; those are all paid for by the Seller.

Your lender will help you decide what type of Mortgage is right for you.

Please let us know if we can help you find a Mortgage Broker to help you find your best Loan Option.

When you are ready to start looking at houses, you want to have been preapproved for a loan.  When you apply, your lender will give you a preapproval letter that states how much you are prequalified for.  This will also help you when making an offer on a house.

Your agent will look out for your best interests by finding homes that meet your criteria, getting you showings, helping you write offers, and negotiating. As a buyer, you can work with a real estate agent for free.  The seller will pay the buyer’s real estate agent’s commission.

A real estate agent represents you and helps you understand all of the necessary steps while buying a house.  Your agent will help you find the types of houses you are looking for and prepare all of the contracts, schedule the home inspections, and negotiate for your best interests.

Now you are ready to start actively looking at houses!  Working with your agent, you should browse listings and find properties to tour in person.  It is always good to have a list of details that you want in a home.  Priorities could include things such as the number of bedrooms, the square footage, the size of the yard, the area, different school districts, and any other things you would want in your house. 

Communicate your priorities with your agent, working together is the best way to find exactly what you are looking for.  Your agent will also be able to create custom searches to make sure you find the new listings with your custom search details as soon as possible.

Once you find a home that you like that fits your needs and budget, it’s time to make an offer.  Having your Preapproval Letter and your Agent ready to create your Offer Contract will make things easy for you at this point.

Your Offer is a Contract to purchase, assuming everything goes as planned with the inspections and the appraisals.  Most offers will include an Earnest Money Deposit.  An Earnest Money Deposit is a small amount of money, typically 1 – 2% of the purchase price.  Your Earnest Money Deposit goes toward your down payment and closing costs if you buy the home.  If you agree to the home sale and later cancel, you typically lose your deposit.

You will not lose your Earnest Money if unknown issues with the house arise during inspections that cannot be corrected by the seller.  Working with a quality Real Estate Agent and having Proper Contracts in place will also protect you from losing your Earnest Money whenever possible.

Lenders may not require you to get a home inspection, but you should still get inspections.  Even if you are purchasing a newly constructed home, an inspection is never a bad idea.  If you are looking at new homes, having an agent can still be very beneficial for you.

Your real estate agent will usually schedule all of the home inspections. You are always able to have anything inspected that you would like to have looked at.

When you get your inspection results back, go over them carefully. Good inspectors will be very thorough, and there will be a lot to review.  Working with your agent, you will be able to negotiate with the seller to either fix any of the issues or offer concessions against the original offer.   If you and the seller can agree on the terms for the repairs/concessions, you can move on to the Home Appraisal.

If you cannot come to an agreement with the seller and they are unwilling to make repairs, you can terminate the contract and get your Earnest Money back, assuming you had an Inspection Contingency Clause properly prepared and submitted with your original offer by your Agent.  It is always good to have the inspections done, but you will still be responsible for paying for them even if you do not purchase the house.

Lenders will require appraisals; they will not lend out more money than the home is worth.  If the appraised value comes back lower than your offer, the lender might not agree to give you the financing.  If the appraisal comes back under your offer, you can request the seller to lower the price, or you can pay the difference at closing, or you can request an appraisal reconsideration.

If your agent also included an appraisal contingency in the offer, you could back out of the purchase without losing your earnest money.  Having a house appraised below the offer is not common, but it does happen.  A qualified agent may be able to notice things early on that an appraiser would, but only an appraiser will know for sure.

Commonly, the home will appraise for above or at your offer of the house, and you can do your final walkthrough after any requested repairs have been made to the house.

Always do a final walkthrough, even if you didn’t have any repairs done after the inspection period.  This inspection allows you to check and make sure that the seller has completed the repairs, and everything is in order.  Make sure the owner hasn’t left any belongings and double-check everything is still in good working order.

If everything looks good, the only thing left is the closing.

Three days before closing, your lender is required to give you your Closing Disclosure, which tells you what you need to pay at closing and summarizes your loan details.  Make sure you don’t notice any discrepancies from your loan estimate.  You will most likely have questions, and you can also discuss with your agent before you meet at closing.

After you have reviewed your Closing Disclosure and it’s time to meet, bring your ID, a copy of the Closing Disclosure, and Proof of Funds for your closing costs.

You will sign a settlement statement, which lists all costs related to the home sale.  This is when you pay your down payment and closing costs.  You will also sign the mortgage note, which states that you promise to repay the loan. Finally, you’ll sign the mortgage or deed of trust to secure the mortgage note.

And, now you’re a Homeowner.