The Ten Steps to the Home Buying Process - Step Four - Apply for Financing - The Four Basic Questions You Want Answered - Austin Real Estate Author Kenn Renner

Most home buyers have four basic questions they want answered when they meet with a lender.

1. Do I qualify for a home loan?
2. How much can I qualify for?
3. How much will my monthly payment be?
4. How much will it cost to buy a home?

How much do I qualify for?

You will want to know the maximum amount you qualify for. This will be based on your income-to-debt ratios. Although you don’t have to buy a home at your maximum qualifying power it is nice to know your limit. Lenders use a percentage of your gross income and your monthly debts to determine your “income to debt ratios.” The total home payment plus your other monthly debts will be added together and then divided into your gross monthly income. This will determine your income-to-debt ratio. Most lenders will not allow your income-to-debt ratio to exceed 42% to 50% depending on credit score. Knowing your maximum qualifying home payment will let you know the maximum home price you can shop for.

How much will my payment be?

Your total payment will be made up of principle, interest, taxes, and insurance (P.I.T.I.). If you are putting less than 20% down, you will most likely pay mortgage insurance (M.I.P. or P.M.I.). Interest rates fluctuate up and down daily. Rate fluctuations are usually small ones but at times can become volatile. However, a quick hike in interest rates will affect your potential payment and your qualifying power. So you will want your lender to keep you informed about rates during your buying process. Property taxes are based on a percentage of the assessed value of the home. This varies from home to home so you will be getting an estimate from your lender until you find a particular property. Homeowner’s insurance ranges between $40 to $90 per month depending on coverage and who you choose as your insurance company. M.I.P and P.M.I are based on a percentage of the loan amount and your lender will provide you with the current rates. Your total P.I.T.I. + MI will be around .7% to 1% per month of the loan amount borrowed at the current interest rates at the time this book was written.

How much will it cost to buy a home?

The cost to purchase a home will include your closing costs, pre-paid expenses, and your down payment (which is really not a cost but becomes part of your “equity”). Closing costs are one-time charges associated with obtaining the home loan. Pre-paid expenses are funds collected up front to establish an escrow account for taxes and insurance and to pay your homeowner’s insurance premium for the first year up front (thus “pre-paid”). Your housing costs run about 2-3% of the sales price and your pre-paids are 1-2% of the sales price. The minimum down payment ranges from 0-3.5% of the sales price. Depending on the loan program, your total up front cost is between 3%-8.5% of the sales price. If you can negotiate with the seller to pay some or all of your closing costs, you can cut the cost of getting into a home in half. If you qualify for zero down and have the seller pay closing costs and pre-paids, you can actually buy a home “zero total move-in.”

SECRET REVEALED: You can still purchase a home with as little as 0-3.5% - total move-in.

As Excerpted From "Home Buying Secrets Revealed" By Kenn Renner, Copyright 2010 "All Rights Reserved" www.BuyHomeBuyingSecrets.Com - 512-423-5626 - www.BuyAustin.Com