House Buying Tips

Part One Of Five

Find Out What You Can Afford /Calculate Monthly Payments

You may be thinking that an article on house buying tips is a bit premature if you're coming out of bankruptcy, still struggling with debt, or trying to repair your bad credit.

It's really not too soon to start thinking about buying a house, if a house is what you want. I mentioned somewhere else on this site that I bought a house a few days after being discharged from bankruptcy. It's not always possible of course.

Here's an excerpt from a letter I received from a woman who went through a homebuyers program, which included government grants. (You can read more on my page Home Buying Grants)

" I chipped away at a horrible credit record and within 2 years had bought a house (6.375% at a major bank - I'm inordinately proud of that one!), and then a new car."

You have to hand it to this lady, it shows what can be done if you set your mind to it. She mentioned that she wished she had come across a website like this one a few years ago, complete with house buying tips and fixing your bad credit.

Down Payment

Let's start by assuming you have some money set aside for a down payment. How much? Now that's a tough question, one that doesn't have an exact answer, but somewhere between 5 and 20% of the house price.

I wouldn't get too hung up, or discouraged, by having little or nothing for a down payment though. Houses are bought every day with no down payment, but it's too involved to get into here.

You may want to check out books by Robert Allen, one of which is "Nothing Down." I have read a couple of his books, and recommend them. He's highly regarded in the field of real estate and building wealth.

Affordability

Your monthly payments shouldn't be more than 25 to 30% of your gross monthly income.

Calculations

To calculate what you can afford to pay monthly:

• Take monthly income before taxes, divide by four.
• Subtract your monthly debt payments
• The result is roughly what you can afford to pay monthly

To find out what house price you can afford:

• Multiply the above total by 12
• Divide that number by the interest rate of the loan
• The result is approximately the house price you can afford.

Pre-qualification

Getting pre-qualified for a loan is an excellent idea. Knowing that there's a lender who will loan you the money helps in narrowing your house search, and will relieve any anxiety you may have had.

Don't forget about closing costs, which will be somewhere between 2 and 7% of the selling price.