Your first step when
looking to buy a house
is to figure out your
price range. To get
a general idea of how
big a mortgage you may
qualify for, multiply
your annual
gross income by
2.5
For example, say you
have a household income
of $50,000 a year, then
you might be able to
qualify for a $125,000
home loan.
What
about you?
About how big a mortgage could
you get with your present
income?
Note-
The 2.5
rule only gives you a general
idea of how large a home loan
you can afford. It doesn't take
into account other information
- such as other debts) that
will affect the size of your
mortgage.
Write
your answers in your
Home Buying Checklist
Let's
go a little deeper and
see how banks decide how
big a mortgage they will
offer you. Banks have
two tricks to determine
how big a mortgage you
may qualify for:
1 - House
Expense Ratio
and
2 - Debt
Income Ratio
Both
of these methods take
into account your monthly
income, current debts,
and other mandatory costs
when calculating the amount
of mortgage that a
bank might loan you.
Do
you remember what a ratio is?
To learn more about ratios,
click
here
Calculating
your Mortgage using House Expense
Ratio.
1.
The
basic rule of the House Expense
Ratio is that you can't spend
more than 28% of your Gross Monthly
Income on paying for your mortgage:
2.
Think
about how much money you earn
every month. This is called your
Gross Monthly Income (GMI).
3.
Your
GMI =
Hourly
Wage x
Number
of hours you work /week
x
52
weeks/year
12
months/year
This
is Mary's gross monthly
income (GMI).
Remember,
Mary works 30
hours a week
at the toystore where she
makes $8
an hour. She
also has a small business
on the side and makes $200/month
on that.
GMI =
$8/hour
x
30
hour/week
x
52
weeks/year
_________________________________________________
12
months/year
=$1040/month + $200/month
=$1240/month
4.
To
get the amount of mortgage you
can afford, apply the House Expense
Ratio Rule by multiplying 28%
or (.28) and your GMI.
Calculating
your Mortgage using Debt
Income Ratio.
1.
The
basic rule of the Debt Income
Ratio method is that your total
debts (including loans, credit
card bills, child support, etc)
cannot account for more than 36%
of your total income. After all,
you have to eat and clothe yourself,
right?
2.
Where
My Money Goes?
3.
Calculate
your Gross Monthly Income (GMI)
as we did above:
Your
GMI =
Hourly
Wage
x
Number
of hours you work /week
x
52
weeks/year
12
months/year
Calculating
Mary's Mortgage
using the Debt Income
Ratio Rule
Monthly
Mortgage (and any other
housing fees) Mary can
afford
=
(GMI x 36%)
-
all other monthly
debts
=
($1240/month x 0.36)
-
all other monthly
debts
=
$446.40/month - $50/month
=
$396.40/month
For
more examples of mortgages based on
your annual income, click on the icon.
The
House
Expense Ratio
and the Debt
Income Ratio
rules can vary from
bank to bank.
Every
mortgage application
is always
handled on an individual
basis. There are many
affordable programs
that you may qualify
for depending on your
financial situation.
For
example, a conventional
FHA loan has a more
relaxed requirement.
For them your monthly
housing expenses + your
debt cannot exceed 41%
of your GMI.
You
may also qualify for
the Habitat
for Humanity home
building and mortgage
program.
This
organization builds
and rehabilitates homes
with the help of you--the
future homeowner.
Habitat for Humanity
offers mortgages
with
no down payment, 0%
interest, 20 or 30 year
to families who qualify
for their program.
Family partners, in
turn, agree to help
build the home (by providing
250 to 600 hours of
work) and to attend
certain classes. To
learn more about this
program, visit their
website
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VI.
Finding the Perfect Home
You've
figured out how much you can
afford and are ready to take
the plunge and buy a home.
But wait… Aren't you
missing something? Your home!
There
are 4 basic steps to good
house hunting:
Setting
Priorities: Deciding what's
important to you
Searching for a Home
Making
an Offer
Closing
the Deal
Follow
the footsteps to get started on your own
search.
Setting
Priorities:
Deciding
what's important to
you.
Think
about exactly what you need in
a home. Use this worksheet to
help clarify what you are looking
for in a new home:
Blocks from the grocery store
Blocks to other stores
Write
your answers in your
Home Buying Checklist
Search
for a Home
You
have your wish list.
You know the style of
home you want. What's
next? Finding the house
of your dreams!
The following list will
provide you with the
most common places where
people search for their
homes.
News
Papers/Magazines -
Want to see what an
ad looks like
So,
what should you ask about
and look for once you've house
of your dreams?
Here
are some examples of what
you should look for
and
questions
you may want to ask
the seller before making an
offer on the house.
Things
to look for:
Condition
of the property
- If the building has problems
on the outside, it may have
problems inside the home.
Condition
of houses around the area
- Nearby homes that look run-down
may affect your quality of
life and resale value in the
future.
House
location
- A house in a corner may
be have more space, but it
may also be exposed to more
foot traffic (a possible safety
issue) and noise.
Questions
to Ask:
How
long has the house been on
the market? If the house has
been on the market a long
time (8 months or more) there
may be problems with the house
or neighborhood that you need
to know.
How
old are the mechanical systems
- such as heating units (furnace),
plumbing, elevators (in apartment
buildings). Consider the cost
of replacing these systems
if you decide to make an offer.
Does
the house require major repairs?
Major repairs, such as a new
roof, or replacement of windows
can be very costly. You may
want to consider these costs
before making an offer.
It's
a good idea to get pre-approved
for a mortgage while
you are searching for
a home-not after you've
found the house of your
dreams. Getting pre-approved
for a mortgage will
help you avoid delays.
For
Fannie Mae approved
lenders with excellent
mortgage options including
FHA loans, click
here
Closing
the Deal
You
found the house of your dreams
and made an offer.
They
accepted!!
You
have your mortgage.
So, what's next -
Closing
the Deal.
On
closing day, the seller will
officially sign the house
over to you.To avoid last
minute surprises, here a few
things you may want to do
before that wonderful day
arrives
Schedule
a final walk-through the
house. Check that everything
is the way you agreed in
the contract. For example,
if the seller agreed to
fix the floors, make sure
that they were fixed.
Bring
Your Checkbook.
UP
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VII.
Ways
To Get Funds For The Down Payment
Sometimes
it can be hard to put
together enough cash for a
down payment.
Here
are some ways to obtain
the
extra cash you will
need for a down payment.
Look
into leasing options: Some sellers
will let you rent the house now
and buy it after you save enough
for the down payment (like leasing
a car)
Change
your withholding taxes; your net-income
will increase, giving you more funds
to put toward a down payment.
Look
into foreclosure properties that
require little or no down payment.
Take
your lunch to work and use the extra
savings for your down payment.
Pay
off all your debts so that you aren't
losing money on high interest rates.
Look
into any of the programs listed
below…
If
you can't get the down
payment using these methods
don't despair…
...
here are some programs
that might be able to
help you:
Mortage
Assitant Programs
First
Home Club First Home Club is a program for
first-time homebuyers that provides
assistance for down payment and closing
costs. If you qualify, the program
will grant you $3 in matching funds
for each dollar you save. In other
words, for every $1 you save, the
First Home Club will contribute $3
to your down payment or closing costs.
You will need to follow a systematic
savings plan and participate in an
approved homeownership-counseling
program. For more information about
this exciting program visit their
website,click
here
NHS NHS
is a non-profit organization that
provides loans for the down payment
or closing costs fees through a program
called C.A.S.H. There are certain
requirements and limitations. To find
out if you qualify visit NHS,click
here
Habitat
For Humanity This
organization builds and rehabilitates
homes with the help of you--the future
homeowner. Instead of providing you
with the money needed for a down payment,
you work with a Habitat crew and help
to build your own home. For more information
on this exciting opportunity visit
their website,click
here
Employer
Assisted Housing Programs If
you have a job, your employer might
participate in this program and you
could benefit. Ask your employer about
the program. If they don't participate,
give your manager information from
this website so they can join the
program,click
here
Grant
Programs
Nehemiah
Program This is a non-profit organization
will help you pay 1-6% of the final
price of your home that if you qualify.
For more information, click
here
*For a list of participating properties,click
here
The
Neighborhood Gold Assistance Program They are a non-profit organization
that can provide you with a grant
for the down payment. They do require
that you work with a mortgage lender
that allows gift funds. For more information
please,click
here
The
American Dream Fund Program This program is expected to start
July 2003 and will be sponsored by
HUD (the U.S. federal housing agency).
It will provide families with grants
for down payment and closing costs.
For more information,click
here
UP
TO LIST OF BIG IDEAS
VIII.
Home Buying Tips
Use
the timeline below to begin
planning for your own home.
Be
sure to read the tips for
each step of the way.
Deciding
When To Buy
Don't
buy the first house - Shop Around!
Get
a feel for the surrounding area
by exploring the neighborhood
and talking to residents.
Shop
for homeowner's insurance as
soon as the seller accepts your
offer.
When
house hunting, bring a camera
and take pictures!
Get
a Professional Home Inspection
done on the property.
Don't
forget to ask for A Good-Faith
Estimate. A written
estimate of the closing costs
which the bank must provide
you within three days of submitting
your mortgage application.
Lock-In
Your Rate: If
interest rates are low, you
may ask your bank to lock-in
to at rate. Just make sure the
lock-in period includes the
day you close on the house and
that it does not incur extra
charges.
Close
The Deal
Read
All Documents Before Signing!
Do
A Final Walk Thru of the house
BEFORE your closing.
Money
Center 
Buying
a Home
This
is Mary's gross monthly
income (GMI). 
