OK, for you Brainiacs out there, the math is simple. Generally speaking, monthly payments should be 25 to 33 percent of your monthly gross income. To figure it out: Take your monthly income before taxes, including all sources, and divide it by four. Subtract from this figure the total amount you pay per month in debts (loans, charge accounts and the like). The result is the lower end of what you can reasonably afford to pay on a monthly basis. After deducting monthly homeowners insurance (say, $70 per month) and property tax payments ($100), you'll see approximately what you can afford for your monthly loan payment. To calculate the higher end, divide by three instead of four.
To find out what this means in terms of house pricing, multiply your final total above by 12 (months) and then divide that number by the average interest rate on loans today—say, 6.5 percent. The result is the approximate market you'll be focusing on.
Hello! Don't Forget the Extra Costs! Yes, They Do Exists!
Along with the purchase price you'll need extra funds for closing costs, inspection and future expenses. Once you've signed the last remaining papers after agreeing on terms and price, the cost will normally be 2 to 7 percent more than the agreed-upon selling price. If you calculate that from the mid range, say at 4 percent, a $200,000 house will cost $208,000 to purchase. Remember to keep in mind annual property taxes and repairs (emergency and otherwise)
If you are a First Time-Buyer – you may just be getting your feet wet with your first major investment. Your dream crib may be a few houses into the future. It's not necessary to break the bank, because the last thing you want, is to have your home, but then to be “house-poor.” That's no fun. Buy within your means, and as time moves on, you move up!
Let's Go House Hunting!
OK, most of the hard stuff is out of the way, in other words, “What can I afford?” So, time to have fun and find you a home! Are you searching for a townhouse, condo, single family detached home or maybe if you're lucky and had a massive, unexpected inheritance – a mansion horse property? It is better to work with a Realtor, who is working in the capacity of a Buyer's Agent. That Realtor will represent you and YOU, ONLY during a transaction when you find a property you wish to put an offer on.
The Realtor representing the Seller is the Listing Agent, and he or she has the Seller's Interest above you, the Buyer. Yes, the Listing Agent can also handle your purchase transaction, but you are without full representation, and the Listing Agent will be acting in the capacity of what is known as Dual Agency.
Dual Agency is legal, but both parties must sign off on it and the Purchaser must realize he/she is not fully represented in the transaction and is therefore considered a Customer. For full representation, it is advisable to have a Buyer's Agent on your side to level the playing field. An excellent Realtor will educate you about what to look for, has a strong team of other experts such as lenders, inspectors and vendors who will work on your behalf, and that Realtor will represent YOUR interest and YOUR interest ONLY during negotiations and at closing.
House Hunting Time for Sure!
When you're shopping for a home, Open Houses are the best way to go. Attend as many as you can, and get a feel for the different neighborhoods. Talk to the neighbors and find out what it is they enjoy about their community, ask what any down sides are? If you attend an Open House without your Realtor, please remember to sign his/her name on the Showing Agent's roster. This ensures the Showing/Listing Agent knows you have an established relationship, and that you are “not up for grabs.” Loyalty to your Realtor is crucial, especially if a comfortable relationship has been established.
Check out the neighborhoods you are interested in and visit homes above and below your price range. This gives you an idea of what is happening in the market, and you'll learn more about what to look for and expect as you shop around. In the beginning, it is all one, huge learning experience.
Finally, perhaps when you least expect it, and it can even be the house that has none of your aforementioned criteria, it SPEAKS TO YOU! You have found it and it has found you! In just a matter of weeks, and sometimes days, the keys will be dropped into your hands, and lo and behold…YOU…ARE A HOMEOWNER!
Lark Logan, Realtor, ePro, Licensed in the Commonwealth of Virginia Long & Foster Realtors, Inc. - Village of Midlothian Sales: 1100 Jefferson Green Circle, Midlothian, VA 23113 Office/Page: 804-794-9650...E-mail: Lark@LarkLogan.com