Home Buyer’s Guide Part 3: Before the Search

Welcome to our Home Buyer’s Guide series! Whether you are looking for your first home, your tenth, or you are not even ready to buy yet, this guide is intended to serve as your go-to resource for every step of the process! It is the LORE Team’s goal to make home buying an enjoyable and easy experience. This series will be broken up into multiple parts over the next few weeks, so stay tuned so that you do not miss any important information!

Before the Search

You have officially decided to buy a house. Congratulations! Before we can begin, there are two main things to consider: what you can afford and what you want. Setting up a consultation with your real estate agent will cover all of this!

Pre-Qualification and Pre-Approval

Many buyers apply for a loan and obtain approval before they find the home they want to buy. Why? Pre-qualifying will help you in the following ways:
  1. Generally, interest rates are locked in for a set period of time. You will know in advance exactly what your payments will be on offers you choose to make.
  2. You won’t waste time considering homes you cannot afford.
Pre-approval will help you in the following ways:
  1. A seller may choose to make concessions if they know that your financing is secured. You are like a cash buyer, and this may make your offer more competitive.
  2. You can select the best loan package without being under pressure.

How Much Home Can You Afford?

There are three key factors to consider:
  1. The down payment
  2. Your ability to qualify for a mortgage
  3. The closing costs associated with your transaction.

Down Payment Requirements

Most loans today require a down payment of between 3.5% and 5.0% depending on the type and terms of the loan. If you are able to come up with a 20-25% down payment, you may be eligible to take advantage of special fast-track programs and possibly eliminate mortgage insurance.

Closing Costs

You will be required to pay fees for loan processing and other closing costs. These fees must be paid in full at the final settlement unless you are able to include them in your financing. Typically, total-closing costs will range between 2-5% of your mortgage loan.

Qualifying for the Mortgage

Most lenders require that your monthly payment range between 25-28% of your gross monthly income. Your mortgage payment to the lender includes the following items: The principal on the loan (P) The interest on the loan (I) Property taxes (T), The homeowner’s insurance (I). Your total monthly PITI and all debts (from installments to revolving charge accounts) should range between 33-38% of your gross monthly income. These key factors determine your ability to secure a home loan: Credit Report, Assets, Income, and Property Value.

The Right Type of Home

“If you don’t know where you’re going… you’ll probably end up somewhere else.” Taken from a book title, this quote conveys a very simple message – To achieve an objective – create a plan! If you plan to buy a home soon, you will need to know “where you are going”. For a most enjoyable home-buying experience, first build a road map to your new home, a list of priorities that will lead you to your objective – a new home! The first priority is time frame. Think of the date by which you would like to move into your new home. Keep in mind that it may take 30-90 days (or more) to locate the right home, secure financing, and complete the home-buying process. The next priority is to develop a detailed description of the home you hope to find. Write down on a piece of paper the features you would like your future home to have. Try to distinguish between “need to have” features and “nice to have” features. Be specific. Include architectural style, number of bedrooms and baths, location, lot size, and other special requirements. Your preferences, along with other information you share during the initial consultation, will enable your agent to narrow the home search. They will take this information and enter your requirements into the Multiple Listing Service (MLS) system. They will also use their personal market knowledge to come up with a list of those homes that best meet your needs and wants. Remember, a capable agent will be able to:
  • Discuss the benefits and drawbacks of each home in relation to your specific needs.
  • Keep you informed on a regular basis.
  • Check the MLS database and with other brokers regularly for new listings.
  • Prepare a list of all homes that best meet your needs and wants.
  • Keep you up to date on changing financial conditions that may affect the housing marketing.
  • Be available to answer your questions or offer assistance regarding your home purchase.
  • Discuss market trends and values relative to properties that may be of interest to you.
Stay tuned next week where we will go into detail on the home search process! If you are in the market for a home in Central Florida, the Love Orlando Real Estate team is here to help you every step of the way. Our team has years of experience in the field and area as well as tons of knowledge about home construction. Reach out to us today, and we will be in touch as soon as possible!