How Much House Can I Afford?
House hunting begins at home. It requires planning. The first step toward buying a house is to Contact Us. We can determine the strategy that’s right for your unique situation. Before you grab the road maps or GPS and decide to hit the streets to look at houses, you need to know exactly what you’re looking for in a home. Specifically, you need to know the amount of money you can afford to spend on a home. This is where arranging the financing for your home purchase becomes important. The real estate market is such today that no sellers will accept an offer for their property without the required financing (and sometimes financial) information. If you don’t know a loan officer that you want to work with, you can find one in the yellow pages. Better yet, we can recommend a few who routinely finance purchases for our clients. You can find them in our Business Directory.
In addition to the financing, we will need to discuss the Agency Disclosure forms. One of them is Understanding Whom Real Estate Agents Represent. It is used when you are an “unrepresented party.” That is someone who has not signed an Exclusive Right to Represent the Buyer/Tenant Agreement. That document outlines your responsibilities as a buyer and our responsibilities as your Licensed Real Estate Agent. Without this agreement in place, our agents cannot discuss certain things about properties due to the confidentiality that is required in real estate transactions. This is because until we have the signed agreement, we actually work as a “sub agent” representing the seller of the property. Legally, we are not allowed to show homes without that agreement in place.
In today’s market, the availability of the Internet and E-Mail have made it possible for us to do quite a bit of work before we ever walk into a house. The other big part of the process at this point is starting to arrange the financing. This is the beginning of the process called the “pre-qualification.” You can contact any qualified loan officer that you feel comfortable with and then provide us with a copy of the pre-qualification letter. Under the Ethics Rules outlined by the Maryland Real Estate Commission, any information that you provide to us must be kept confidential (unless you expressly authorize us to release it to a third party, such as a loan officer).
Knowing the price range you can afford will bring your house-hunting into focus. Before you even consider going out to look for a house to buy, you need to know how much house you can afford to buy. There’s no sense in you looking at a $300,000 home if you will only be able to pay $200,000. In addition, there’s no sense in wasting our time driving around looking at houses if you will not be able to arrange financing due to credit problems, such as late payments, bankruptcies and foreclosures. Just because some of these issues may be there, though, should not discourage you from going ahead with a pre-qualification. There are an incredible number of loan programs available, and one might be just right for you.
Some lenders will, for a small “up-front” fee, send out all required verification and will pre-approve you for a mortgage. Other lenders, like the ones that we work with, will do this free of charge. This gives you the opportunity to negotiate as a cash buyer. As a buyer, you have the right to choose whichever mortgage lender that you prefer.
The amount of house you can afford to buy depends on two things: how much you can afford for the monthly housing payment (the principle and interest on the mortgage loan, hazard insurance that will protect the home against fire and other hazards, property taxes , and how much you can invest in the down payment. These four costs are often abbreviated “P.I.T.I.” For some buyers and lenders, monthly housing costs may also include other items like the homeowners association dues, condominium fees, and mortgage insurance.