Buyer Resources - Articles

Buying Your Home - What You Can Afford

How much does my real estate agent need to know?

Everything. Your realtor can help you best with transparency. A well versed Realtor  can give an inexperienced or first time buyer the best representation when the Realtor knows what cards they are holding.

Your Realtor know which cards to hold and which cards to show.

Know what you want. A condo, a house or a townhouse? 

Do you have cash in the bank if there is a gap between appraisal price and sellers asking price? If there's a multiple offer situation do you have cash reserves to increase your offer if it's over the Pre Approval amount from your bank?

Although a buyer has cash reserves, it doesn't mean the house is worth it to the buyer. Have an awareness of when to fold. Move on to the next property. Hopefully the market will lean towards having the inventory.

Fun scenario: A buyer is Pre-Approved by their lender for a $350,000.00 mortgage, the buyer, a savvy shopper and conservative buyer, is ready to make an offer on a $250,000.00 house. The Realtor will need to send the Pre Approval letter with the offer, the mortgage loan officer at the local bank sends an approval letter for $242,500. The exact dollar the buyer will be sending an offer for. The Mortgage loan officers philosophy is if you show the entire approval amount of the buyer, the seller will counter for full asking price.

Respectfully, let's keep our expertise in our respective areas of what we do for a living.

The value of a property is determined by what a buyer will pay to acquire.

A buyer could have $5,000,000.00 in the bank but a property that is worth $242,000.00 to a buyer is still only going to get $242,000.00 from a buyer unless they agree to a higher price.

If the market is competitive, the seller could go into contract with another buyer while buyer A goes back to their lender to change the pre-approval letter to reflect ability to buy because they want to increase their offer.

A smart seller will not go into contract and lose time by taking the house of the market with that buyer that can't show ability or strength to make the purchase. 

Let your realtor handle the negotiations and your lender handle the lending.

City of Miami and Dade County Partner with First Time Home Buyers

Homebuyers in Miami-Dade County now have a chance to own a home of their own at below-market mortgage rates. If you're a homebuyer looking for a manageable mortgage, this new program may make it possible for you to buy the home you want right now.

What is the standard debt-to-income ratio?
A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total. The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent -- and still promptly make the payment each time -- has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income. Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.

What can I afford?
Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don't want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts. It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan. The price you can afford to pay for a home will depend on six factors:
1. gross income
2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. your outstanding debts
4. your credit history
5. the type of mortgage you select
6. current interest rates

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI. This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.

When is the best time to buy?

At 18. The legal age to sign a property deed and record it with a county. 

Real estate is an investment. Paying rent to a landlord for x amount of months times x amount of years, goes directly to someone else's investment that is gaining equity or appreciating in value.

Going to college? Buy a nearby condo. Your mortgage will be less than rent. It will belong to you. You can rent it out upon graduation and turn it into an income asset.

Usually properties in college towns don't have huge spikes in value but what they DO offer is a stable value. Meaning you buy a condo by campus, your income will increase once you join the working world. The mortgage gets paid off quickly because of your quality education that gives you a leading edge in a high earning career choice, and you have constant tenants generating a rental income.

Where do I get information on housing market stats?

The most reliable source... is the Board of Realtors in whichever county you are in.

What is Fannie Mae's low-down program?

Fannie Mae is expanding the availability of low-down-payment loans in an effort to help more people nationwide qualify for a mortgage. Two new programs will help potential buyers overcome two of the most common obstacles to home ownership, low savings and a modest income. To address many first-time buyers' struggles to save the down payment, Fannie Mae developed Fannie 97. The program provides 97 percent financing on a fixed-rate mortgage with either a 25- or 30-year loan term through Fannie Mae's Community Home Buyers Program. Fannie Mae's new Start-Up Mortgage will assist buyers with a 5 percent down payment who are at any income level. Yet applicants do not need as much income to qualify and less cash for closing than with traditional mortgages. Borrowers will receive a 30-year, fixed-rate mortgage with a first-year monthly payment that is lower than the standard fixed-rate loan. Freddie Mac, Fannie Mae's counterpart, also offers low-down-payment loan programs.

How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven to 10 years. Some lenders will consider an borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

Naomi Preston
Naomi Preston
882 NE 79th St Miami FL 33138