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Home Buying Power: How Much House Can You Buy?
It is very important that you establish your price range very early in the process. You will save a lot of time and aggravation.
In my practice as a real estate agent, I meet with countless “buyers-to-be” that want to start looking for houses which – at the time – they could not afford.
Naturally the time you may spend looking for houses out of your financial reach is a missed window of opportunity to look for the ones that you could perfectly buy.
All the while you are increasing the risk that somebody else will come along and buy that great house that could have been your first preference.
On the other hand, it is important to keep in mind that house prices have a pretty reasonable logic when it comes to price. Nobody wakes up in the morning and say “I will sale this house for ‘X’ amount of dollars.”
Houses in same neighborhood will tend to follow prices of similar houses in the area.
It is a fact of life that builders put more square footage and some extra touches to make sure they justify the higher price.
Whatever features that the comp and the subject property might differ it can be adjusted accordingly to reflect why they are called “comparables” or “comps”
There are several factors a good measure of your home buying power will come from the comps you will get from the area you are buying. Please here to check my page “Home Comps” to learn more.
Buyer’s Wish List
I always like to start with my buyers’ wish list.
Depending how much house you need, it can have a directly effect on your house buying power.
TYPE OF PROPERTY
I like to start with the type of property that might suit your needs better.
A detached home offers more privacy e more independence on how you will run the exterior of your home.
A subdivision setting may have all sorts of restrictions where as a house that is not in a subdivision will offer the most freedom.
Condos and Town Homes definitely will have more restrictive “by laws” that will need to pay attention more closely.
Be very realist with your needs. Some people will be well served with a one bedroom and one bath condo.
Others may need a five bedrooms and four-bathroom home with a large yard.
Some people want the privacy of having their own swimming pool… Others would be happy that they would live in a condo where they do not need to tender for that pool
Please remember that a property is a “living thing” it needs to be cared for through the years – either you do it yourself or your have to pay for someone else to do it.
In a condominium setting you most likely will have it done for you. Payment is mandatory but the HOA fees will cover the expenses of all outside the unit maintenance.
Location makes your home buying power to stretch… or shrink…
Please be flexible about location: sometimes just a few mile off of one location to the next, you can buy a better property and/or pay less.
If you have plenty of money and other financial resource I salute you. Even so I would like for to be wise with your money – unless there is a specific reason for you to buy in one given location – like the school district …or your are running for office! : - ) You should keep an open mind about location.
All of those who are in the majority and are really watching where their money goes – let me point especially the first time home buyers definitely should keep your location options open.
It can make your (home) dream come true sooner and possibly with a larger place and/or with more features.
Home Loan Application
Home loan application will give you the most accurate picture of your home buying power.
If you are buying your home for cash, you already know how much money you have on hand and, therefore, you know your “home buying power!”
However for those that will finance their home purchase, you need to make “home loan application” - please see my page on this subject with a wealth of info.
One of the recommendations I give on that page is that you apply for a loan with multiple places although you will sign with just one.
In any case, your loan approval will depend on your “credit records” and “credit scores.” Please take a reading on these two pages for an array of useful info.
If approved – and I will consider that it will – you will receive a “pre-approval letter” where the lender tells you …and the seller, what amount they will finance you.
And that is how you will know how much how can you buy or, what I call, the home buying power.
And that might be the main component.
But we are not finished yet!
To this scenario you also have to incorporate the "down payment."
Down payment And Other Components Of Home Buying Power
Down payment can be in the form of cash on hand and/or a DPA and/or a Grant.
It is important to keep in mind that once a lender has established the limit that they feel confident you can afford to buy, they will not be stretch.
That is your home buying power that is that for the time being.
I would like for you to understand that they will not go above that value. They will not go above and beyond it even by $100!
As I have pointed out on my page “Home Loan Application”, you should apply simultaneously with more than one lender. They will vary so slightly and, nowadays, I would doubt if the amount they will offer to finance you will be that significantly much more.
So here are some ways that can make your home buying power:
Down Payment You will need to have a percentage of the purchase price to put down.
If you and the property you are trying to buy will qualify for an FHA backed loan, you can buy it with a down payment of as little as 3.5% of the purchase price.
Please be aware that you will be required to pay mortgage insurance (MI) until such time that you have paid 20% of the purchase price or 20% of loan to value (LTV) whichever is greater at the time you come to it.
Down Payment Assistance (DPA)
“Down Payment Assistance” can give a head start to your home buying power.
Many counties, cities and estates will have such program that as the name suggests, will help you to pay – some or all – your down payment.
It may depend what governments and entities are trying to accomplish in offering such assistance. It may be they are giving incentives for people to move to a certain area. Other times it may be that they want to attract certain “uniformed professionals,” like police officers.
It pays to investigate, especially if this is your first time home buying.
These programs are established annually and sometime they run out of money quickly. So be on the look out and apply early.
Home grants also can give your home buying power a big boost too.
Grants can come in different forms and have different sorts of requirements. They will have many similarities with the DPAs above
In any case, the beauty of it is that both DPAs and grants can be combined with your cash down payment.
In some cases the DPA will cover all of the 3.5% down payment that you would be required by a FHA loan.
Other then that I don’t think I need to go much further to incentive you to start asking question where can you go to find some DPA and/or Grants that you can qualify for
Georgia Dream Grants
Georgia Dream is one of the programs available in Georgia – it can be found and utilized statewide.
If you live in Georgia here a couple of sites that will get you started.
If you live in other parts of the country, just view this as examples of what kind of info you should be looking for. Your home buying power can be greatly empowered.
Certifying of your Buying power is but one of the ten most important steps that will lead you to a successful purchase of your new home!
Please follow these links to learn more about the other nine steps:
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JC Fagundes, Associate Broker
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