TEN COMMANDMENTS OF HOMEOWNERSHIP

ARRANGE TO PREQUALIFY FOR A LOAN

Complete this process with a Lender before you choose your home. At the end of the Lender’s review, along with our suggestions, you’ll know what you can afford.

During this process, the typical Lender completes a simple math problem and looks at how much money you earn compared to how much you spend, on a monthly basis. Through this evaluation, the Lender determines how close you come to having ideal spending habits.

Specifically, the ideal person spends approximately 28% of his gross monthly (or before taxes) income on housing costs (which include payments for the mortgage, property taxes and homeowner and mortgage insurance). In addition, an ideal person spends 36% of his gross monthly income on housing costs and other major debt (like car and student loans or charge cards).

Today, however, most people have too much debt and fail to come close to those ideals. As a result, Lenders have become flexible with loan programs that don’t require such strict guidelines. You’ll hear about them, and will be tempted to use them, but consider our suggestions first.

Common Sense Review

In the mortgage business, flexible isn’t always better. In fact, getting a mortgage through a process that completely ignores the rules above could be dangerous. Use a little common sense. Even if the Lender is willing to ignore the test above, ask the Lender to tell you how close your spending habits come to the “ideals” noted above.

In addition, since utility costs are increasing at a rapid rate, look at the average monthly costs you’ll pay for gas and electricity. Although these are not rolled into the test above, you can’t overlook them. The house is useless without them.

FIND A HOUSE WITH A BUDGET YOU CAN AFFORD

Once you’ve been pre-approved, look for your dream house. You know what you can afford, now go for it. If you use a broker, s/he will help you locate houses within your price range.

However, the price range isn’t the only thing that must be a good fit. Depending upon your needs, make sure that the house and its location work for you. Note that while this commandment covers superficial things about the house, your review isn’t really over until you look inside, as suggested in the third commandment below. In the meantime, ask yourself these questions:

House              Does it have “curb appeal” or look inviting?

Does it compare favorably to other houses in its price range?

Is it large enough to accommodate your family’s needs?

Neighborhood Are there amenities (that you need) in the neighborhood?

Are local schools and municipal services up to your standards?

Are taxes reasonable, given the services you receive?

Are houses selling in the neighborhood?

To fully evaluate the condition of a home, you must crawl into its crevices to determine whether it has any plumbing, heating or roofing skeletons. If you can't complete the crawl and do the evaluation, call in the professionals. Running faucets and turning on the air conditioning and heating units just aren’t enough.

Most cities require an inspection, but also order a private one. The two reports will uncover the house’s defects (including roof and basement leaks or other problems affecting its heating, electrical or plumbing systems). Present the information from the inspections to the seller and negotiate a lower purchase price. If the seller won’t negotiate, bypass the property or expect to spend money when you move in (that is, money that you may not have factored into your budget).

FOURTH

 Don’t sign the purchase agreement (PA) until you’ve hired an attorney or experienced buyer’s broker to review it

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