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- How much house can I afford to buy?
- What are the items to consider in qualifying to buy a home?
- What are the various sources for down payment?
- What should you do when putting your house up for sale?
- What is involved with setting a listing price for the home?
- What is market value?
- What is the fair market value?
- What is a lockbox?
- What financing plans should the seller consider?
- What is a point?
How much house can I afford to buy?
How much house you can afford to buy depends on two things: how much you can afford for the monthly housing payment, and how much you can invest in the down payment. Monthly payments include principal and interest on the mortgage loan, and property taxes and insurance against fire and other hazards. These four costs are often abbreviated "P.I.T.I.". For some buyers and lenders, monthly housing costs may also include homeowner's association dues, condominium fees, and mortgage insurance.
What are the items to consider in qualifying to buy a home?
In today's
market, an "affordable" home is not so much determined by sales
price as it is by the financing which translates that price into a monthly
payment. A house hunter's first step is to set a housing budget, then go shopping
for the house (price) and payments (P.I.T.I.) that fit that budget.
Even though there are many ways to qualify to buy a home, make sure the monthly
payment makes sense for you. How large a payment you qualify for will depend
upon a variety of factors. These factors include credit history, size of down
payment, and length of employment. Everyone's circumstances are different.
What are the various sources for down payment?
The obvious source of money for your down payment is either your savings or the proceeds from the sale of a home you already own. Some of the other sources include home equity loan, shared equity/profit-sharing, life insurance, stocks and bonds, and company profit sharing or savings plan.
Home
Equity Loan - Parents often have considerable equity built up in their
own homes-and many are tapping that asset through home equity loans to make
a gift to the children. Ask your tax advisor for current information. Often
lenders will require a "gift letter" to verify that parents don't
expect repayment.
Shared Equity/Profit-Sharing - In return for providing a part
of the down payment, the parents (or another investor) share in the "profit"
or net equity of the house when the homeowners eventually sell it.
Life Insurance - If you have built up a cash value on your life
insurance policy over the years, you may be able to borrow from your insurance
company up to the amount of this accumulated cash value. Often, they will
even ask a more favorable interest rate than would be asked for other types
of loans.
Stocks and Bonds - If you feel the market doesn't favor selling
your stocks or bonds now, you may be able to secure a bank loan using your
portfolio as security.
Company Profit Sharing or Savings Plan - Look into the possibility
of withdrawing what you have in your profit sharing or savings plan account
or borrowing against it, if your company has these programs.
What should you do when putting your house up for sale?
The first
step toward putting your house up for sale is to meet with a real estate professional
at your home. This is called the "listing appointment". At the listing
appointment, the real estate professional will want to inspect the house and
yard to become familiar with its special features.
You have probably enjoyed living in your home and have been pleased with its
many unique features. Your real estate professional will want to tell prospective
buyers about the special features of your home and neighborhood. Be ready
to be specific about schools, day-care, nearby public transportation, and
other desirable community features, as well as home features not readily apparent.
Prospective buyers will be "comparison shopping" and keenly aware
of subtle differences in houses for sale in the area. Be sure to tell your
listing broker why yours is special.
What is involved with setting a listing price for the home?
After
conferring with the real estate professional about market conditions and comparable
nearby sales and listings, the home seller will set the listing or "asking"
price for the house.
Market
value is, "what a ready, willing and able buyer will pay, at a price
a seller will accept." Buyers are very sophisticated. They've already
been shopping, and when they see your home, they'll be comparing features
and financing.
As a general rule, "a house priced more than 5% over market value discourages
offers." Buyers who can afford the price can get "more house"
for their money elsewhere. Buyers who cannot afford the price simply won't
look. This is why, in the real estate industry, it is often said that, "a
house priced right is half sold."
What is the fair market value?
A fair market value is determined by comparing the property with similar properties in the area, which have recently sold and (in some cases) with similar properties currently on the market. Experience in the industry has proven a market analysis approach is more accurate than the replacement cost method.
A lockbox is a universal metal container for your house key that is hung on the front door and can only be opened by licensed real estate professionals. It provides access when the owner is away, thus assuring full exposure to prospective buyers.
What financing plans should the seller consider?
No sale can be completed without appropriate financing. Generally, it is to the home seller's advantage to appeal to the greatest number of homebuyers by accepting the greatest range of financing plans. The real estate professional will explain the basic differences between VA (Veterans Administration), FHA (Federal Housing Administration) and conventional financing.
A point
is one percent of the amount of the buyer's mortgage loan. For example, if
a loan is $100,000, one point is $1,000. Lenders charge points to increase
the yield on their loans. On all loans, the homebuyer and home seller may
share the charges by mutual agreement.
