A New Year, A New Home

Sun. January 16, 2005 12:00 AM
by Greg Jarvis

Well, it’s the new year, and you may be saying to yourself that it’s time to make the commitment to buy a home of your own or to get more serious with your partner and take the big step toward home ownership.

Experienced home buyers know that one of the first-steps in beginning a successful search for a new house is taking a hard, objective look at finances. Determining how much money you can dedicate to the purchase of your new house affects almost every aspect of buying a new home - including how the offer is written, which mortgage programs you will qualify for, shopping for the best mortgage loan and which homes are truly in your price range. You may even have to ask yourself if and what you are able to give up… be it those shopping trips to Prada, daily dinners out, or frequent vacations.

Here are the questions that each home buyer should ask:

How much cash is available for a down payment? The amount you have available for a down payment will affect what types of loans for which you can qualify.
Am I ready to write a check for the earnest money? Earnest money is a cash deposit made to a home seller to secure an offer to buy the property. This amount is often forfeited if the buyer decides to withdraw his offer. Even many real estate agents don’t know this, but the amount of earnest money put up (typically 5%) can usually be negotiated.
How much additional cash will be available to pay for closing costs? There are certain standard costs associated with closing the sale of a house. These fees are split between the buyer and the seller, as spelled out in the sales contract. These costs can sometimes be quite high, so plan ahead and stay off Michigan Avenue for a few paychecks.
What is the maximum monthly mortgage payment that I can afford? Most lenders will use the 28/36 rule to determine the maximum mortgage payment you can afford.

The 28/36 Rule

No more than 28% of your gross income can be applied to your mortgage, real estate taxes and insurance. And no more than 36% of your gross income can be applied to your mortgage expenses plus your regular debt expenses (car payments, credit cards, other loans, etc.).

Whatever your financial situation, there are often creative ways to purchase real estate. Don’t keep putting off the purchase of a home because you don’t have wads of cash in the bank. If your credit or your partner’s credit is good, that may be a big help.

So grab your coat, boots and realtor and start looking for your dream home.