- Work with only one REALTOR®. You will find that by working exclusively with one REALTOR®, the REALTOR® will be more willing to invest time and energy to your housing search.
- A pre-qualification letter from a mortgage officer may encourage the seller to take your offer seriously. This letter indicates that, given the preliminary financial information you have provided, you qualify for a loan of a given amount. A pre-approval letter is even better. This letter indicates that you have been officially approved for a loan, pending only an appraisal on the property you have chosen.
- A conservative estimate for closing costs and fees is 5% of the loan amount. For example, closing costs and fees on a mortgage of $100,000 are approximately $5,000. If you have $20,000 to put down, you can afford a home of about $115,000.
- Lenders limit the amount of your gross monthly income that may be dedicated to your monthly mortgage payment, also known as "PITI." PITI includes Principal, Interest, Taxes and Insurance. Typically, PITI cannot exceed 28% to 29% of your gross monthly income. Furthermore, PITI plus other long term debts cannot exceed 36% to 41 % of your gross monthly income.
- You need not pay off all of your long term debts before applying for a mortgage loan. If the lender's long term debt ratio is 36%, and the lender's housing expense ratio is 28%, then long term debts, such as car payments and credit card balances, can equal up to 8% (36% minus 28%) of your gross monthly income before negatively impacting the loan amount for which you qualify.
- The Loan to Value (LTV) ratio is the ratio of the mortgage loan to the contract price of the home. If your LTV ratio exceeds 80%, most mortgage companies require Private Mortgage Insurance (PMI). This PMI insures the lender against possible losses should you default on the loan.
- For a loan program with down payment requirements less than those required for a Conventional loan, consider a Federal Housing Administration (FHA) loan.
- New-home builders will often not negotiate on the base price of a home, because the base price will impact the appraisal value of subsequent homes the builder sells. But the builder often has room for negotiating the options and amenities that are included in the base price.
- A home sold without a REALTOR® may not be lower in price. Sellers taking on the difficult task of marketing their own home are usually trying to save the cost of the commission for themselves, not for a buyer.
- Pre-pay principal on a loan to reduce the total amount of interest due. If you wanted to pay off your loan in 15 years instead of 30, simply add one extra principal payment per month with your usual mortgage payment. This strategy can ultimately save you many thousands of dollars of interest over the life of the loan.
- Verbal agreements may not be clearly understood by all parties in a real estate transaction. Put everything in writing.
- Points paid for obtaining a mortgage on a principal residence are considered interest, and are therefore deductible. Even if the seller pays the points for the buyer, the buyer can deduct them as long as he/she has at least that much invested in down payment or other closing costs.
- Three housing costs are tax deductible in the year of purchase:
- Discount points (even if paid by the seller)
- Mortgage Interest
- Property Taxes
- Useful equations to help you calculate the adjusted basis and gain on the sale or purchase of a home:
Basis = purchase price + purchasing expenses
Adjusted Basis = basis + adjustments - deferred gain on sale of previous residence
Amount Realized = sales price - selling expenses
Adjusted Sales Price = amount realized - fix-up costs
Gain = amount realized - adjusted basis
- Rules of thumb: Percentage of purchase price needed to buy a home:
Conventional Loans: 8-10% (includes 5% down payment)
FHA Loans: 6-7% (includes 2.25% down payment)
VA Loans: 3-4% (no down payment required)
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