Tips for buying a house (part 2 of 5)
How much house can you afford?
Lending institutions have a “rule of thumb” that they go by when telling you how much house you can afford. Of course your credit score affects this, but it is a larger factor in what kind of interest rate you get. Talk to which ever lender you choose, and have them pre-approve you for a loan. This will do several things for you. First, it lets you know how much money the bank is willing to let you borrow for a house. Second, it will make you a more appealing buyer to any seller as they know you can borrow enough money to buy their house. Third, it will tell you what your monthly payments will be. This is one of the most important issues when you are doing your research. It will allow you to do a test run to see if you can afford those payments. For several months, put the amount of your mortgage payment into your bank account. If you are already renting, subtract your rent amount from your prospective mortgage and put the excess into your account. For example, if you are paying $500 in rent, and your prospective mortgage is $1200, you would place $700 into your bank account. If the house you are wanting to buy is also larger than what you currently have, you may want to put a few extra hundred in there as well for additional utility costs. This will really tell you if you can afford to spend as much on your house as what the bank says you can. Reality may say that a $900 mortgage is all you can afford, even though the bank says you can pay $1200. By doing this, you will also be putting money into your bank account which can be used to increase your down payment, pay for miscellaneous expenses incurred after you purchase your home (they can add up quickly), or can be a start to a child’s college fund. The important thing is that you have been able to successfully “pay” your mortgage and know you are comfortable with those payments before you make a big commitment.
Restrictions
With most properties there are some sort of restrictions. Some are restricting what kind of property you can build on a piece of land. For example, you can’t put a hotel onto a residential lot. For the average property purchase, this will not be a big deal as you will be buying a piece of land with a house already on it, and plan to live there. Home Owners Associations (HOA) often place additional restrictions on properties (known as Covenants, Conditions & Restrictions) in order to keep the community looking nice and to keep things orderly. Before you purchase a property make sure you read the CC&R’s carefully. Many of the CC&R’s strictly regulate what can be done with your property after you buy it. They can be from what kind and how many plants you have, weed control, where your trash cans can be placed, where and when you can park (even in your OWN driveway), and a whole list of other things. If you violate any of these CC&R’s, the HOA can fine you. Even if you don’t pay them, they will tag the bill with interest onto your deed such that when you sell your home they have to be paid prior to you selling your home. I caution you to make sure you will be able to live the lifestyle you are wanting at the home you are looking to buy and can live with any restrictions that are on the property.