Get A Few Answers on Selling Your Home and Buying a Home

By
Real Estate Agent with Berkshire Hathaway HomeServices - NJ Properties
Q1:  Why buy a house?
A1:  Here are some frequently cited reasons for buying a house:

* You prefer to be an owner rather than to rent.                                                                                          *You need a tax break on your income taxes. The mortgage interest deduction can make home ownership very appealing.
* You are not counting on price appreciation in the short term.
* You can afford the monthly payments.
* You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees, attorney fees,  and closing costs that can amount to more than 10 percent of the sales price.
* You can handle the maintenance expenses and problems.
* You are not greatly concerned by dropping of home values.

Q2:  What home can I afford to buy?
A2:  Knowing 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 pre-qualify or pre-approve (as Weichert Realtors - Financial Services does) you for a loan.

The price you can afford to pay for a home will depend on 6 factors:

1. Gross Income
2. 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. Type of mortgage you select, and
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.

Q3:  What is the standard debt-to-income ratio?
A3:  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.

Q4:  How much will I spend on home maintenance expenses?
A4:  Experts generally agree that you can plan on annually spending 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years.

Q5:  Where do I get information on housing market statistics?
A5:  A real estate agent like me is a good source for finding out the status of the local housing market from their MLS system. So is your statewide association of REALTORS®, most of which are continuously compiling such statistics from local real estate boards.

Comments (2)

Joshua Zargari
MJ Decorators Workshop LI staging and home decorating - Lynbrook, NY
MJ Decorators Workshop

Great post!

Aug 06, 2010 12:45 PM
Mark Woodward
Floor Coverings International - Randolph, NJ
We bring the flooring store to your door

Jean, this is great information.  Thanks for sharing! 

Aug 17, 2010 01:53 AM