Dear
Marie: As a young couple,
we want to own our own house. I wonder if we can afford it. Assuming
we can afford to buy, how do we decide where
and what house to buy?
Entering into this first MAJOR financial decision--one
of the largest you'll ever make--is an awesome experience. You have already
started
the process with your discussions about
the price. The three other things to consider are the location, the inside and
the outside of the house.
The number one determining factor is usually PRICE.
This includes the money you have on hand right now to pay closing costs
and the down
pay-ment, and also the
monthly costs after you have bought the house. The wisest
thing you can do is to get yourselves prequalified by a lending institution. This will a)
tell you what price range you should consider, and b) enable you to act
quickly to sew up a deal on your dream home.
Before you talk with an agent, make a budget. Decide
how much of your monthly income you feel comfortable spending on your
housing. This
amount should include
enough to repay the mortgage loan (principal and interest) and taxes and insurance.
Your utility bills will increase since a house is bigger than an apartment.
The amount you can borrow is determined largely by your
income and debts. Generally, lenders will allow up to 28 percent of your
gross monthly
income as long as you
are not overly burdened with other debts (car payments, child support, high credit
card balances, etc.). A real estate agent or a loan officer can help determine
your maximum loan.
Banks and mortgage companies can also discuss with you
the various financing options and requirements for FHA, VA and conventional
loans. Unless
you are a veteran,
you will probably need a sizable down payment, 3% to 5% for FHA and 10% or more
for conventional loans.
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Keep
in mind that you may not borrow the down payment; it must come from
savings. It cannot come from your parents unless they sign a "gift
letter" saying that it will not have to be repaid.
A real estate agent can help you determine
required closing costs. These will include the appraisal cost, loan
origination fees, title insurance and pre—paid
items such as hazard insurance and property taxes. Like the down payment, the
pre-paids can't be borrowed. But sometimes the sellers will help you buy their
house by paying some
of the closing costs.
Now the LOCATION: consider how long you want commute
to work, where your friends live, proximity to schools, and the overall
appearance of various subdivisions. Remember that part of the pleasure
of owning your own home is feeling good every evening when you turn into
your neighborhood.
The OUTSIDE includes the building and the yard,
so decide how much yard work you want. What style of house is important
- brick, frame, one or two story, ranch, colonial, etc.?
Finally, the INSIDE. This is where you and your wife
will need to negotiate: What don't you like about your present apartment
or house? What aspects do you like? What features would you like to have,
and which ones are essential? Can you see yourself "fixing—up" a
house in order to save money and using your own imagination and decorating
skills?
By now you'll have a full notebook. Try to remember
that rarely will one property have everything you want. By starting with
a written list, you will have a solid basis to help make a final decision.
Find a real estate agent with whom you feel comfortable, share your lists
and get ready to start looking.
Marie
S. Spodek, DREI, GRI is a highly regarded real estate
educator and author. Her seminars have been attended by thousands throughout
the U.S. |