Deciding how much house you can afford
Lenders are careful, but they make qualification decisions based on averages and formulas. They won’t understand the nuances of your lifestyle and spending patterns quite as well as you do. So, leave a little room for the unexpected – for all the new opportunities your home will give you to spend money, from furnishings, to landscaping, to repairs.
Historically, banks use a ratio called 28/36 to decide how much borrowers could borrow. An approved housing payment couldn’t be more than 28 percent of the buyer’s gross monthly income, and his or her total debt load, including car payments, student loans, and credit card payments, couldn’t be more than 36 percent. (In Canada lenders apply similar formulas to determine how much a buyer can afford. The Gross Debt Service ratio, or GDS, is not to exceed 32 percent of the buyer’s gross monthly income, and the Total Debt Service ratio, or TDS, is not to exceed 40 percent of the buyer’s total debt load.) As home prices have risen, some lenders have responded by stretching these ratios to as high as 50 percent. No matter how expensive your market though, we urge you to think carefully before stretching your budget quite so much.
Deciding how much you can afford should involve some careful attention to how your financial profile will change in the upcoming years. In the long run, your own peace of mind and security will matter most.
Creating your home wish list
- Age: Do you prefer historic properties, or newer ones?
- Style: Do you have a special preference for ranches, bungalows, or another style of construction?
- Bedrooms: How many?
- Bathrooms: How many? Are they updated?
- Living and Dining Areas: A traditional, formal layout, or a more open, contemporary plan?
- Stories: How many?
- Square feet: How much space?
- Ceilings: How high?
- Kitchen: How big? Recently updated? Open to other living areas?
- Storage: Big closets, a shed, an extra-large garage?
- Parking: A garage or carport? Room for how many cars?
- Extras: Attic or basement?
- Play/exercise room
- Security system
- Sprinkler system
- In-law suite
- Hot tub
- Wooded lot
- Patio, deck, or porch
- Laundry room
Location, location, location
- Urban, suburban or rural
- Commute time
- School districts
- Desirable neighborhoods
- Proximity to the airport
- Proximity to restaurants and retail
- Access to major highways and thoroughfares
- Access to public transportation
- Health care facilities
- Parks and recreation
Length of time you plan to live in the home (Your agent should be knowledgeable about growth trends and projections that could affect your investment.)
Opting for new home construction
Selecting a builder
The builder representative and your real estate agent
It’s all about timing
A word about paying up
How can a real estate agent help me?
Seven main roles of your real estate agent
A Buyer’s Real Estate Agent:
- Educates you about your market.
- Analyzes your wants and needs.
- Guides you to homes that fit your criteria.
- Coordinates the work of other needed professionals.
- Negotiates on your behalf.
- Checks and double-checks paperwork and deadlines.
- Solves any problems that may arise.
Eight important questions to ask your agent
- Why did you become a real estate agent?
- Why should I work with you?
- What do you do better than other real estate agents?
- What process will you use to help me find the right home for my particular wants and needs?
- What are the most common things that go wrong in a transaction and how would you handle them?
- What are some mistakes that you think people make when buying their first home?
- What other professionals do you suggest we work with and what are their credentials?
Can you provide me with references or testimonials from past clients?
The Clawson Network
We understand that buying or selling a home is more than just a transaction: it’s a life-changing experience. We understand that buying or selling a home is more than just a transaction: it’s a life-changing experience.