Get Financially Prepared – Ahead Of Time!
It is unfortunate that many people go about the Martin County home finding process backwards. They go through the entire process of searching, evaluating, and writing an offer on their home, WITHOUT being financially prepared.
The unfortunate part is that it usually costs them money. Big money!
Completing these few things up front before searching will save you a lot of money, time, and hassles:
- First, find a MOTIVATED lender.
- A lender that wants to take your loan.
- A lender that represents many different products
- A lender that can offer you many options for making your loan the most affordable.
As your REALTOR® I can refer reputable motivated lenders to you.
- The second thing you want to do is GET PRE-QUALIFIEDwith a lender. Better yet, try to get PRE-APPROVED.
- Why? Because the first question any home seller will ask when an offer is presented is “Is your buyer approved for a mortgage?” The seller doesn’t want the deal to fall through because you couldn’t get financing. When they accept your offer, their home comes OFF the active market. If you fall through, it costs them time and money.
- Increased negotiating power on price and terms when you are financially qualified. When you have money behind you, the seller knows you’re serious. A serious buyer ALWAYS has more influence to negotiate. It is in your favor to get pre-qualified or pre-approved.
How Much Home Can You Afford?
There are two guidelines bankers and mortgage lenders use to determine how much loan you can afford:
- The first guideline is the Payment To Income Ratio. This guideline compares your income, or your total household income, to the amount of mortgage payment you’re considering.
- To calculate the “payment” part of the formula, the lender will take the mortgage payment (principal + interest) and add to it property taxes and insurance. Hence the term “PITI” (principal, interest, taxes, and insurance).
- Usually lenders will loan up to a payment amount of 28% of your total household income.
- The second guideline is the Debt To Income Ratio. Debt refers to ALL the major monthly payments other than your mortgage payment (PITI). To arrive at this amount, the lender will consider…
- Your car payment(s).
- Your credit card debt and payment(s).
- Any IRS liens or payments due.
- Any other payments and debts you have (boat, second home, etc.)
Then, they’ll compare your total debt to your ability to make current payments with your new home loan added into the equation. Each mortgage company sets different limits on your Debt To Income ratio, which is why it’s critically important to find a MOTIVATED LENDER.
As your Realtor®, I will refer you to motivated, reliable financing sources and options to greatly simplify the buying process.