Financing and Mortgage Options

What price range does my monthly income allow me to buy in?
The very first thing to consider before a buyer starts to look for a home is what they are qualified to buy, or how much of a payment the buyer feels comfortable making each month. The buyer may qualify for a payment that is considerably larger than they feel comfortable making. A professional Realtor® can pre-qualify buyers quickly and easily or the Realtor will refer you to a reputable lender for pre-qualification and credit approved (credit approval is another way of saying pre-approval contingent on the home appraisal). With this first step taken a buyer can feel confident that he/she is not wasting his/her valuable time looking in the wrong price range.

How much house you can afford depends on two things: how much you can afford for the monthly house payment and how much you can invest in the down payment. Monthly payments include the principal and interest on the mortgage loan, property taxes and insurance against fire and other hazards. These four costs are often abbreviated "P.I.T.I." (For some buyers and lenders monthly housing costs may also include homeowner association dues, condominium fees and private mortgage insurance.)

The key items are the size of the down payment and the amount of the mortgage. The down payment might be zero such as VA-backed mortgages. Or a buyer may invest 20 to 25 percent of the purchase with a conventional loan and not be required to buy mortgage insurance. A Lake Realty Ohio Sales Associate can be very helpful to you in determining just how much house you can afford.

Even though there are many ways to qualify to buy a home, make sure the monthly payment makes sense for you. A current rule of thumb is that the monthly payment should not be more than 25-33% of your gross monthly income.
You'll want to note the differences between being pre-qualified and pre-approved.

Pre-Qualification:
• Based on preliminary information regarding your income, debts and assets
• Information is usually provided verbally by the buyer(s)
• In-file credit report may or may not be reviewed
• Once a purchase agreement is executed, the buyer must complete a loan application
• No fee

Pre-Approval:
• Buyer provides documentation of income, debts and assets
• Loan application is completed
• Information is verified and loan is approved by an underwriter
• No need to complete application once purchase agreement is executed (it's already done)
• Buyer makes a deposit on closing costs
• Buyer's loan is approved, subject only to home's appraisal

A purchase agreement should always be accompanied by a pre-approval letter from the lending institution of the buyers choice.