House Hunting Tips
How do you find the perfect home for you? How do you know it's the right one? And how do you determine how much you should spend? Here's some advice.
Finding the Perfect Home for You
How Much Home Can You Afford?
Finding the Perfect Home for You
You probably know where you want to live. House, condo or co-op. In town, the suburbs, or down a quiet country road. Now what you need is an organized way of finding the right home.
 Determine what you want.
Open and print this Home Checklist. Then fill it out to get a clear idea of what you're looking for in a home.
When you've completed the form, give a copy of it to your real estate agent.
 Visit homes with your agent.
Be vocal about what you like and don't like about each house. That will help your agent learn your likes and dislikes. Use your completed Home Checklist when you visit a house to see how it meets your wishes and needs. Use the list to help decide between homes you're interested in. Be careful not to sacrifice anything you consider "essential." If a short commute is important to you, buying a home that adds 30 minutes might not be your dream home.
 When you find a home that meets your needs and "feels" right to you, consider making an offer.
In the end, only you can decide whether a home is right for you. And it probably won't be a matter of it simply having all or most of your essentials. For many people, finding the right home is as much an emotional decision as it is a rational one. You're attracted to a particular home not just because it meets all your criteria, but because it appeals to you. It fits. A home that's right for all the rational reasons but for some reason feels wrong to you, is one to avoid. Likewise, avoid the house that appeals strongly to you, but lacks many of your essentials. The perfect home will be the house that satisfies both the right and left sides of your brain.
 BACK TO TOP
How Much Home Can You Afford?
One rule of thumb says you can afford a single-family house that costs up to two and one-half times your annual gross income (the amount you make before taxes are deducted).
This rule gives you only a general idea of how large a home loan you can afford. It doesn't take into account all the information (such as other debts you have) that will affect the size of home loan payments you can afford.
Your buying power depends on:
|
 |
Your monthly income |
|
|
Your current debts |
|
|
How much you have for the down payment |
|
|
How much you have for closing costs |
|
|
Your credit record |
Your Down Payment
First-time home buyer? You'll be happy to know it's easier than ever to get a home without a substantial down payment. You don't necessarily need 20% down.
How much money should you put down? Consider other expenses you'll be facing in the near future. Think about your moving expenses, home decorating costs, and upcoming "big ticket" purchases (such as a refrigerator, clothes washer and dryer for your new home). You probably don't want to move into a new home with your savings depleted.
Money for a down payment can come from a variety of sources. Your checking and savings accounts, mutual funds, stocks and bonds, the cash value of your life insurance policy, and gifts from parents or other relatives may all be suitable sources, depending on the loan program you choose.
Your Closing Costs
In addition to the down payment, you will also need to consider the closing costs. These include lender-related costs, third-party fees, and pre-paid costs. Try our Closing Cost Estimator to get a feel for the amount you might need.
How Much a Financial Institution Will Lend You
In addition to having funds for a down payment and closing costs, the other major factor to consider is how much you can borrow. When you apply for a home loan, the lender will consider both your recent earnings and your existing debts in determining the amount for which you qualify.
Lenders generally use the following two qualifying guidelines to determine what loan amount you are eligible for:
|
|
The housing expense ratio Monthly expenses (including home loan payments, property taxes, insurance, and condominium, co-op or homeowner's association fees, if applicable) should total no more than 28% of your monthly gross (before-tax) income. |
|
|
Debt-to-income ratio Monthly housing expenses plus other long-term debts should total no more than 36% of your monthly gross income. |
Basically, these guidelines suggest a household spend no more than about one-fourth of its income (28%) on housing and no more than about one-third of its income (36%) on total indebtedness (housing plus other debts). Follow those guidelines and you should be able to manage your home loan payments fairly comfortably.
Just the same, the ratios above are just guidelines. Your payment history, the size of your down payment, and your earning potential may allow more flexibility in the loan amount.
Try our "How Much Can I Afford" Calculator
This calculator lets you plug in your financial information and then calculates how much home you can likely afford using today's interest rates.
BACK TO TOP
|
Equal Housing Lender. © 2008 Countrywide Bank, FSB. Member FDIC. Trade/service marks are the property of Countrywide Financial Corporation, Countrywide Bank, FSB, or their respective affiliates and/or subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved.