Home Buyers Guide

Know What You Can Afford

Getting Pre-approved

Before you spend a lot of time shopping, it makes sense to find out how much home you can afford. By getting pre-approved for a loan, you know your budget and can make the most of your shopping time. But keep in mind that final approval of your loan amount is contingent on the appraised value of the home you want to purchase. If the home you want to buy is valued less than the price, you may not get your loan. Also, remember that just because you’re pre-approved for a certain amount doesn’t mean that is the amount you have to borrow. It is merely your upper limit.

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In addition to knowing your limit, sellers tend to take pre-approved buyers more seriously when it’s time to make an offer. They don’t have to worry that, if they accept your offer, you won’t be able to qualify for a loan.

Additional Expenses Associated with the Cost of the Loan
The monthly payment is not the only thing you need to consider when finding out how a mortgage will fit into your budget.

• Taxes – Although home ownership will probably provide you with some tax relief, you also need to plan for new taxes you will have to pay. You can save for your taxes using an escrow or with an interest-bearing savings account of your choice.
• Insurance – Premiums on homeowner’s insurance can be costly so contact your insurance agent prior to a home purchase to receive policy estimates.
• Closing Costs – In general, closing costs range from 1% to 4% of a home purchase price. A mortgage lender will be able to give you an itemization of many of these fees. Some of the sources of the costs involved in closing include:
• Lender’s appraisal, processing, and document preparation fees
• Title Insurance (Click here for more info regarding Title Insurance)
• Title company closing fee
• Real Estate transfer tax
• County recording fees

The Down Payment
Ideally, you’d like to have enough money for a Down Payment of 20%. If you put less than 20%, you’ll probably be required to purchase Private Mortgage Insurance (PMI), which protects the lender should you default on your loan. If you are required to obtain PMI, it will be an expense added to your monthly mortgage payment, or some lenders allow you to pay for PMI in one lump sum that you can finance with your loan.(Click here for more info regarding Private Mortgage Insurance.)

Next: Financing Your Home Purchase