What To Do Before Starting Your Home Search

By
Real Estate Broker/Owner with Realty Empire Incorporated

 

If you're like many first-time homebuyers, chances are you've been spending your weekends driving around visiting open houses and shopping on the web. This is a great way to get a feel for what you want. The problem is,  what you want isn't always what you should get.

Before you start touring homes for sale, it's important to start off with a budget so you know how much you can afford to spend.

Knowing what mortgage payment you can handle will also help you narrow the field so you don't waste precious time touring homes that are out of your reach.

 

Where to begin

The key factor in figuring how much home you can afford is your debt-to-income ratio. This is the figure lenders use to determine how much mortgage debt you can handle, and thus the maximum loan amount you will be offered. The ratio is based on how much personal debt you are carrying in relation to how much you earn, and it's expressed as a percentage.

The ideal ratio

Mortgage lenders generally use a ratio of 36 percent as the guideline for how high your debt-to-income ratio should be. A ratio above 36 percent is seen as risky, and the lender will likely either deny the loan or charge a higher interest rate. Another good guideline is that no more than 29 percent of your gross monthly income goes towards housing expenses.

 Exceptions to the 36 percent rule

In regions with higher home prices, it may be hard to stay within the 36 percent guideline. There are lenders that allow a debt-to-income ratio as high as 45 percent. In addition, some mortgage programs, such as Federal Housing Authority mortgages and Veterans Administration mortgages, allow a ratio higher than 36 percent. But keep in mind that a higher ratio may increase your interest rate, so you may be better off in the long run with a less expensive home. It's also important to try to pay down as much debt as possible before you begin looking for a mortgage, as that can help lower your debt-to-income ratio.

How much can you afford?

   Follow this link to find out now!

Posted by

 

Stephanie Leon

Real Estate Broker
Realty Empire

6625 Miami Lakes Dr.
Miami Lakes, FL 33014

Contact me at:
786-664-7710
SLeon@RealtyEmpire.net

 

 

                        

  

 

All Rights Reserved. Copyright 2010-2018 Stephanie Leon Realty Empire 

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Tags:
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Rainer
155,657
Carla Dimond
CATARRA - Mountain View, CA
(Silicon Valley)

Here in the SF area it is really difficult to meet the 36% ratio, but I think it is a good idea to stay as close to that range as possible.

Aug 01, 2010 06:35 PM #1
Rainmaker
820,770
Juli Vosmik
Dominion Fine Properties - Scottsdale, AZ
Scottsdale/Cave Creek, AZ real estate 480-710-0739

Great blog - so many people put the old cart before the horse.  And, once we see the "bigger and better", we aren't quite so happy with the good.  Knowing our limits ahead of time can really help.  Thank you for the reminder.

Aug 01, 2010 06:35 PM #2
Rainer
94,815
Billi Evans
Murney Associates - Springfield, MO

I agree totally with Juli. It's very hard to go back. Imagine dating Brad Pitt and then Danny Devito?

Aug 01, 2010 07:18 PM #3
Rainmaker
270,036
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

Hi Stephanie,

I am always telling Realtors to prequal their clients before doing any leg work, and some don'tlisten and end up doing the work "por gusto" because their clients don't qualify.  The general rule is actually 43% of all debt.  But certain compensating factors such as higher credit, more down payment or lower LTV, a lot of money in the bank or in retirement accounts, and others can help get ratios up to 50% or a bit more. 

So the best thing to always do is to have a Mortgage Lender that works hard, is efficient, and can speak directly to their underwriter to make sure your client will qualify.  All of this BEFORE you spend one minute driving the client to properties or even doing MLS searches.

Hope this helps!

Phil Stevenson - Your Miami Mortgage Expert!

Aug 02, 2010 12:22 AM #4
Rainmaker
270,036
Phil Stevenson, CRMP
PS Mortgage Lending 305-791-4874 or 888-845-6630 - Miami, FL
"Mortgage Nerd" in Miami, Florida and Texas

Hi Stephanie,

I am always telling Realtors to prequal their clients before doing any leg work, and some don'tlisten and end up doing the work "por gusto" because their clients don't qualify.  The general rule is actually 43% of all debt.  But certain compensating factors such as higher credit, more down payment or lower LTV, a lot of money in the bank or in retirement accounts, and others can help get ratios up to 50% or a bit more. 

So the best thing to always do is to have a Mortgage Lender that works hard, is efficient, and can speak directly to their underwriter to make sure your client will qualify.  All of this BEFORE you spend one minute driving the client to properties or even doing MLS searches.

Hope this helps!

Phil Stevenson - Your Miami Mortgage Expert!

Aug 02, 2010 12:22 AM #5
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Stephanie Leon | Miami Lakes Realtor®

Turning For Sale Into SOLD!
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