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Before You Look at Your First House
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 we write the offer, which mortgage programs you will qualify for, shopping for the best mortgage loan and which homes are truly in your price range.
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Here are some of 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. Learn more.
- 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.
- 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. Learn more.
- 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.
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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.). This of course is a general rule.
The Bottom Line
With the advent of the numerous new types and varieties of loans available your best bet is getting in touch with a professional experienced lender. Simple formulas are fine for a guideline, but a truly qualified local lender consultant can advise you of the strengths and weaknesses of various programs. Many say that the high number of foreclosure problems in Colorado are due to predatory lenders. That is why it is important to go with an expert. Don't Forget that no matter how talented or experienced a lender may be, your FICO scores have become incredibly important to which programs and opportunities that are available to you. The mortgage process is typically trying and emotionally draining, beware of false promises. Recently we have also found a problem with internet and out-of-state lenders can make all types of promises, but they frequently don't really know Colorado's laws, rules, and real estate contracts. This may also be a portion of the reason for high defaults on loans. The bottom line is still performance, so protect yourself. If your lender can not produce the results that they have promised within the time constraints of your Colorado real estate contract, your earnest money and new house may be in jeopardy of being lost without recourse. Talk to us about how best to protect yourself.
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