Questions Home Buyers Ask
Some 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 maybe leaving themselves unrepresented. Looking to find an Agent? You can compare backgrounds, experience and more.
How do I know if I am getting a good deal on a mortgage?
In a word: Compare. There is a good deal of variation in the mortgage market, not only from week to week, but from lender to lender. Many newspapers list current mortgage rates for your local area in their Real Estate sections, often on Saturday or Sunday. Check them. We have also made arrangements with Lending Tree Mortgage Loans where you can submit a simple (and secure) application online. For more information, spend some time and visit Lending Tree Mortgage Loans
What First Time Buyer Programs are available?
There are literally hundreds of different programs available, 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.
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.
How much should I offer for a house? There is no simple answer to that question, since each property stands on its own. A particular house may be overpriced (you should make an offer BELOW the listing price), “on-the-money” (you should make an offer at or just below the listing price) or under priced (you should grab it before someone else does!) For more information, see the section devoted to setting a value on a home.
What about foreclosures? Can you save a huge amount of money here? Save money, usually. A huge amount of money, occasionally. In many cases, though, these will be homes that need work, so see our article devoted to buying fixer-uppers. For foreclosure listings, check Realty Trac: your destination for housing foreclosures which has a free trial period with access to their database.
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.
What is an appraisal? Will I need one? An appraisal is an opinion of value of the home you want to purchase. Viritually every lender will require some sort of appraisal before the loan is approved. See more information in the article dealing with appraisals.
Do you have questions about mortgages? See our Frequently Asked Mortgage Questions section.
Many questions from visitors to this site have been answered in our monthly newsletter. You can sign up for this free newsletter here as well as see archived articles from the last few years