Frequently asked questions
How much house should I buy? How much can I afford?
The answer to this has a lot to do with your income and the amount of your debt load. As a rough rule of thumb, most home buyers purchase houses that cost between 1 1/2 and 2 1/2 times their annual income. For example, a home buyer earning $40,000 per year would buy houses costing between $60,000 and $100,000. There is, however, a degree of variation due to the individual market prices of the area in which you are interested. In some areas, there may not be houses available within that range, so you may need to spend a bit more. In general, however, your monthly mortgage payment cannot exceed approximately 28%-29% of your gross monthly income. Your total debt payments (car payments, credit card payments, etc. plus the monthly mortgage amount) cannot exceed approximately 36%-40% of your gross monthly income. These ratios will depend on the type of mortgage for which you are applying. For more information on mortgages and to begin the application process, see the section devoted to finding a mortgage.
Do I really need to use an Agent to buy a house?
No. Should you use an Agent to buy a house? Probably, for two reasons. First, in virtually all situations, the buyer does not pay a commission, so the services of an Agent working for you are paid for by the seller. See important information on buying a house on your own or with an agent. Second, without an Agent, you may be missing valuable representation of your interests. See the Agency page for more information. Many visitors to this Web Site skip the information on the Agency page and may be leaving themselves unrepresented. Looking to find an Agent? Click here to choose an Agent in your area. You can compare backgrounds, experience and more.
How do I know if I am getting a good deal on a mortgage?
How can you know if you're getting the best mortgage loan if you only deal with one lender? I saw a statistic recently that said nearly half of all home buyers end up choosing the first mortgage lender they talk to. This is a flawed strategy.
In the United States, we are not as negotiation-minded as people in other countries. We are used to walking into a store and paying a certain price for something without haggling. In most other countries, the price tag is merely a starting point. I believe this is partly why people choose the first mortgage lender they talk to. It's just easier than calling three or four different lenders.
But if you want to know if you're getting a good mortgage loan based on your qualifications, you have to get more than one offer. It's the only way to get a reference point for comparison. And remember, just because the lender presents you with an offer doesn't mean you're obligated to take it. Even if they give you a Good Faith Estimate and quote you an interest rate, you can still shop around.
It's a good idea to talk to different types of lenders too:
If you've been presented with an offer from a local mortgage broker, you can request one through one of your state banks as well. Or try one of your local community banks.
Do you have an existing relationship with a bank, perhaps for checking and savings? Ask them if they have mortgage lending options.
What about credit unions? Are you a member of the credit union in your area? They might provide home loans as well.
It's all about comparison. When you look at a single mortgage offer in isolation, you have no idea if that's the best deal available. I recommend that you get offers from at least three different lending sources before making a final decision. This is the only way to know if you're getting a good mortgage loan from the lender.
What First Time Buyer Programs are available?
There are literally hundreds of different programs available for low to moderate income people, depending on your location (city, state, or province) and the mortgage source that you use. The requirements and benefits vary greatly from program to program. Consult your Agent or your local housing authority for more information.
The following is a link to California's first time home buyers program for downpayment assistance: https://www.calhfa.ca.gov/homebuyer/programs/myhome.htm.
Should I spend the money to have a home inspection?
Absolutely. The $200 to $500 that a professional home inspection costs could be the best money you ever spend on your house. Not only does the home inspection seek out any defects (and gives you some peace of mind), the home inspector will often give you tips on maintaining and repairing your house. See the section on Home Inspections for tips on what to look for and how to choose a home inspector.first method, this means that the buyer is unable to sell or refinance the house. Once all payments have been made, the seller would sign a deed transferring title to the buyer.
How much will my closing costs be?
The amount of closing costs will depend on what items are customary for buyers and sellers to pay for in your area. Traditions vary greatly from one area of the country to another. In some areas, for example, the buyer pays for title insurance. In other areas, it is the responsibility of the seller. In still other areas, the cost is split between buyer and seller. Your Agent can give you specific information on the items that are customarily paid for by buyers in your area. In addition, the amount of closing costs will depend on the amount of points you will be paying with your mortgage loan, since these are generally paid for up-front. (A point is 1% of your mortgage loan amount). For a discussion on points, see the guest column Should I Pay Points? by Randy Johnson, author of the best selling book in the country about mortgages: How To Save Thousands of Dollars on Your Home Mortgage.