1. Understand How Lenders Qualify Loans. Do the math ahead of time, and calculate all the costs associated with buying a home — such as property taxes, homeowner association fees, homeowner insurance, utilities, maintenance and re- pairs, and the costs of closing a loan. Most lenders use some variation of
the 28/36 Rule. This means that principal, interest, taxes and insurance (PITI) cannot exceed 28 percent of the borrower’s gross monthly income, and PITI — plus all outstanding consumer debt (such as car loans and credit card payments) — can- not exceed 36 percent of gross income. But remember, your budget also includes childcare, groceries, gas and health insur- ance — typically things that don’t count against your fi nancial obligations from a lender’s point of view.
A home’s value is infl u- enced by location and its surrounding homes
Under the 28/36 Rule, a two-income couple earning $60,000 annually — or $5,000 gross a month — would qualify for around a $1,400 monthly PITI payment ($5,000 x .28 percent) assuming they had no other debt, and a $1,200 monthly payment if they had $600 of monthly consumer debt payments ($5,000 x .36 percent = $1,800 minus $600 = $1,200). If you are unable to afford a home
within these guidelines, continue saving to increase your down payment while repay- ing consumer debts. Also inquire about loan programs for fi rst-time buyers that may decrease your down payment.
2. Follow the “Rule of Three.” For ev- ery required service provider — whether a realtor, mortgage lender, home inspector,
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property insurance company or attorney — compare at least three competing fi rms. Seek referrals from friends, family and coworkers who already have gone through the home-buying process. Use the Internet to shop around and compare services.
3. Remember the Cost of Insurance. Purchase liability limits of at least $300,000 ($500,000 is preferred) on homeowner insurance, and secure adequate coverage to rebuild your home in the event of a loss. A property and casualty insurance agent can assist you with these decisions.
4. If Buying a Fixer-Upper, Make Sensible Improvements. If your fi rst house won’t be your last house (and it probably won’t be), make improvements that provide reasonable return. Some renovations — such as adding
a bathroom, remodeling a kitchen or landscaping — can increase appraisal values signifi cantly, compared to adding a game room or a pool. Beware, however, of over-improving a house. A general rule is that you cannot expect a house to sell for more than 20 percent above the neigh- borhood average. The value of a home is infl uenced greatly by its geographic loca- tion and the value of comparable homes that surround it.
5. Anticipate Future Expenses. Pre- pare yourself for when you need to re- place a roof, furnace or major household appliance. Many of these expenses arise with little warning, so have an emergency fund in place. Also, if you plan on having another child, you will have increased childcare costs.
Remember: Before buying your fi rst home, be sure to consider the future.
Ready for your dream house? Ask yourself ten questions fi rst:
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