Can you afford to buy a home?
Negotiating winning deals
House tour checklist
Can you afford to buy a home?
You're ready for homeownership, but are your finances? Find out if your financial situation is stable enough to purchase a home.
Only fools rush in, and that’s certainly true when it comes to buying your first home. Take this quiz to help determine whether you’re in good enough financial shape to take on a mortgage.
After each question, we’ve provided an explanation that will help you understand why each factor is important to consider before you commit to buying a home.
1. How much of your target purchase price have you saved for a down payment?
a) Less than 5%
b) Between 10% and 20%
c) 20% or more
A 20 percent down payment can help you get a better mortgage rate and terms, avoid having to pay for private mortgage insurance (PMI) and protect you against a drop in property values. On a $300,000 home, you’d need $60,000 to meet this goal. If you’re able to save $30,000 (10 percent of the house’s value) you may still obtain a mortgage, although you will likely have to pay for PMI. You will also need a little extra in your mortgage budget to cover all of the related closing costs. These will be listed in the Good Faith Estimate of costs that your lender is required to give you within three days of your loan application.
2. What percentage of your pre-tax income will you need to pay to cover mortgage, property taxes and homeowner’s insurance on a home in your target price range?
a) 35% or more
b) Between 28% and 35%
c) Less than 28%
When you apply for a mortgage, lenders will look at your debt-to-income ratio to ensure you won’t be stretching your paycheck too far. In general, no more than 28 percent of your pre-tax income should go toward your mortgage, property taxes and homeowner’s insurance. If you put 20 percent down on a $220,000 home, your mortgage will be $176,000, which would cost approximately $1,000 a month to carry. Add taxes and insurance and you’re looking at a payment of approximately $1,500 a month. An annual income of $65,000 would just allow you to cover that monthly payment within the 28 percent limit.
3. What is your employment status?
a) I recently started a new career
b) I am self-employed or work on commission
c) I’ve been on salary at the same company for several years
Lenders like to see at least two years of employment stability, so if you’ve just embarked on a new career, it may not be the best time to buy a first home. Those who are self-employed or work on commission can obtain a mortgage, although they may find it more difficult if they cannot document their income.
4. What other debts do you have?
a) I have a substantial amount of debt (such as a car loan, student loan and large credit card balance
b) I have a small amount of debt (such as a small car loan and a credit card balance that I usually pay off every month)
c) I am virtually debt-free
Lenders may be reluctant to approve you for a mortgage if you’re already carrying a lot of debt. The rule of thumb is that no more than 36 percent of your pre-tax income should go to paying off debt, including the 28 percent maximum for mortgage, taxes and insurance. In other words, if your household income is $65,000 and your monthly housing expenses are $1,500, your other debt payments should not total more than $450 a month.
5. What is your credit score?
a) Below 620
b) Between 620 and 720
c) Over 720
The interest rate you obtain on your mortgage will be closely tied to your credit score. And a low credit score may affect your ability to get a loan. A score over 720 should get you a favorable rate.
Adding up your score:
Give yourself zero points for every question that you answered with an A, one point for every B and two points if you chose C.
8 to 10: Congratulations! You’re well-positioned to become a homeowner. You’re in good financial shape and are well prepared to start shopping for a loan. Click here to apply for a mortgage with SC Telco today!
6 to 7: You may be able to purchase a modest house, however, you may find it a struggle to meet your mortgage payments. It may be wise to save more for a down payment and / or raise your credit score. Within a year or two you should be well on your way to your first home.
5 or less: Your financial situation needs to improve before you buy a house. Spending the next few years improving your credit, paying off debt, building your savings and establishing a stable employment record will bring you much closer to achieving your dream of owning a home.
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In today's market, home buyers can negotiate winning deals
In most areas, it's no longer a seller's market. Use this to negotiate a home purchase contract that gives you what you want.
A traditional buyer’s market, in which the supply of for-sale homes exceeds the demand to buy those homes, can be a great opportunity to negotiate not only the price of the home you want to buy, but also the terms of your purchase agreement. Financing, inspections, closing costs and other deal points might be yours for the asking in this type of market.
Purchase may depend on financing
Some of the purchase-offer terms you might want to negotiate with the seller concern the financing you need to buy his or her home. Examples include:
Walk away if inspection isn’t right
One of the benefits of shopping for a home in a buyer’s market is having time to think about your purchase and make sure that you are buying a home that meets your needs. Inspections are an important part of that process.
You might want to negotiate permission to hire a home inspector to evaluate the condition of the home or to hire other experts to look for structural problems or wood-destroying pests (e.g., termites), mold, radon, lead-based paint or other potential hazards. You also might want the right to not purchase the home if you aren’t satisfied with the findings of those inspections. You can also ask the seller to purchase a home warranty that would cover certain problems with the home that could surface after you purchase it.
Close on your schedule
A buyer’s market also might enable you to make your purchase dependent upon the sale of your current home and on specified terms that are acceptable to you. This type of contingency is often difficult to negotiate in a seller’s market because sellers are less willing to wait for the buyer’s home to be sold when buyers are plentiful.
You also might want to negotiate a walk-through shortly before the deal closes, the closing date and the time when you will take possession of the home. The closing date can be crucial if your purchase of the home depends on the sale of your current home. Payment of closing costs might be a point of negotiation as well.
A win-win is the perfect deal
Don’t be shy about asking for other contingencies, terms or concessions that you need or want to facilitate your purchase of the home. If you ask for what you want, you may get everything on your list and then some, but if you don’t ask, you might not get some very important protections that you need to complete the transaction.
Negotiation is a powerful way to buy a home on favorable terms, but don’t forget that the seller can nix the deal if he or she believes your demands are unreasonable. That’s why it’s a good idea to discuss your needs, wants and negotiation strategies with your real estate agent before you make an offer to purchase a home.
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House tour checklist
Take this handy checklist with you when you tour a home for sale, and you'll leave with a complete picture of the home you're considering.
One of the fun parts of shopping for a home is attending open houses and visiting homes for sale. But it’s easy to get distracted as you make your tour -- by the seller’s furniture, the quirky decorating or the talkative real estate agent.
At most open houses, you will receive a handout that lists all of the basics, such as the number of bedrooms and bathrooms, whether the home has central air conditioning, the lot size, and the like. This should save you from having to write down this kind of detail. Instead, focus on the quality of what you see by checking which of the following items apply:
Bedrooms
Are rooms sufficiently large?
Closet space is ample
Flooring is:
Carpet
Hardwood
Other: ___________
Bathrooms
Check that faucets show no signs of leaks
Fixtures have no stains
No sign of mold or mildew on the tiles or caulking
Fan and/or window in every bathroom
Kitchen
Is there:
An eating area or breakfast nook
Ample countertop and cupboard space
Island counter
Double sink
Dishwasher
Up-to-date appliances
Tile flooring
Other flooring: ________
All rooms
Check if the walls are painted plaster or drywall, wood panelling, or wallpapered
Are the walls reasonably soundproof
No signs of water damage
Baseboards, door frames and crown moldings are good quality
Gas or wood-burning fireplace in working order
Stairs don’t creak
Hardwood under the carpeting
Basement
Enough head room
Walls and floors are finished
Sump pump (may indicate flooding problems)
Garage and driveway
Is there garage access from inside house?
Does the garage door opener work?
Garage is large enough to accommodate your vehicle
Concrete flooring isn’t cracked
No cracks or sunken spots in the driveway
Roof
Is the roof covered with, shingles, shakes, or other
Flashing, soffits and fascia are in good condition
The roof is: _____years old
Siding
Note the type of exterior siding, common exteriors are: brick, brick veneer, vinyl, aluminum, wood
Other: ____________
No visible cracks in the mortar
Doors and windows
Open and close freely
Doorbell works
There is an alarm system
All locks and latches work
Do the windows appear well-insulated?
Check for water stains or signs of condensation
Caulking around windows is not cracked
Walkways, patio, deck
Patio stones are stable
Wood on the deck is in good repair
Patio or deck receives full sun
Is privacy adequate for your needs?
Eaves and downspouts
All eaves and downspouts are in good repair
Water is being directed away from foundation
Foundation
Is the ground is sloped away from house?
Concrete has no visible cracks
Garden and landscaping
Yard is suitable for children and/or pets
Is the lawn and garden well-maintained?
Check the condition of fences
Is there a swimming pool
Heating and cooling
Check if the home is heated by: gas, oil, hot water, electricity
Is it well insulated with safe materials
Furnace or heating system is: ____ years old
Air conditioning system is: ____ years old
Plumbing and water service
Does the house use: municipal water or well water
Does the water need to be filtered or otherwise treated
Adequate water pressure
Is there a septic system or public sewage
Is the hot-water heater owned or rented?
Electrical
Wiring is up-to-date
Wired for: ____ amps
Ample outlets
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