North Fork Real Estate Blogger: When to Buy a Home

Are You Ready to Buy? Part 1

As Realtors, we are often asked how do you know when you are ready to invest in real estate? There are a few things that you need to do before you begin the search for your dream home. Let’s take a look at the financial side first.

1.     Do a full accounting of your monthly bills. Before setting a budget for your home purchase, you must get real about your monthly expenditures. Most banks only want borrowers to spend 28 percent of their monthly income on mortgage, property taxes and home owners insurance combined.

2.     What additional expenses, aside from the mortgage, will you incur when you purchase a home? If you buy a home that is larger than the one you live in now, your heating and utility expenses will go up. Will your commute to work, daycare, gym, etc. be longer or shorter than where you currently live?

3.     Gather your last two year’s tax returns, recent pay stubs and W2 forms. It’s time to sit down with a lending professional, either from a bank or mortgage company. This is where you will find out what you are qualified to borrow toward your home purchase. You will need a pre-qualification letter from your lender before you can go out and look at homes. Once you know your qualified loan amount, you can decide if the monthly payment on that amount is something you feel comfortable paying.

4.     Is your credit in good shape? Your current score and history are an important component in your financial profile. You should avoid large purchases, i.e. new car, until you have completed the home buying process.

5.   Do you have enough for the down payment and closing costs?    Once you know how much you can borrow, you can figure out how much of a down payment you will need. For a traditional loan, you will need 20 percent of the total purchase price. Closing costs vary depending on purchase price and the area in which you are buying. Your mortgage rep. and attorney can give you a rough estimate.

Once you have completed the 5 steps, you are ready to hire a Realtor. Next week, Part 2 will focus on choosing the right Realtor for you.

 — Erin Kaelin, North Fork Real Estate Inc.