Things You Need To Know When Buying A Home
October 13th, 2007 Categories: Buying
The Basic Process Of Buying A Home
Well the first one seems to obvious but it starts here. The decision to buy a home.
There are many reasons to buy a home, the two most common.
Investment (read Homeownership As A Savings Plan).
Security Knowing you have a place that is yours and can be passed down.
Once you have made a decision to buy a home, usually (especially first time buyers) people start looking at houses and start dreaming. Which is OK as long as you don’t get your expectations higher than your ability. It is difficult to have seen homes and visualized yourself living there and then have to scale it down. That is why it is so important to get to the money part first.
There are two ways to buy Real Estate, One with Cash, two other peoples Cash or the bank. So if you do not have a couple hundred thousand stashed under the mattress then you need to talk to other people Da bank.
Banks, Mortgage Brokers, Credit Unions… when getting qualified as a buyer (Da banks call you a borrower) they look at a few things. All there digging, prodding, turn your head and cough is to determine the likelihood of you paying them back. Let’s look at some of the things they look at. Da bank qualifies two things in a home purchase, the borrower and the property.
First the borrower
1. Credit-How well do you pay your obligations
a. Typically it Is based on credit bureau rating system known as a FICO Score Except FHA. They like to see at least a 620, 690 is real good 720 and above is great.
2. Income
a. Employment-Where do you work and What do you do
b. Quantity-How much do you make
c. Quality-What’s the likelihood you will make the same amount again. How long have you been at your job?
3. Debt To Income Ratio (DTI)
a. How much will your house payment be Divided by your income (front end ratio)
b. How much, do you have any other debts, combined with a house payment Divided by your income. House+Car+Student Loan+Credit Cards (back end ratio)
4. Loan to Value Ratio (LTV)- How much money do you have
a. $20,000 of your cash on a $200,000 home= 10% down your LTV is 90%
b. The more you have the less questions they ask. If you are borrowing 100% or less than five percent, they start asking a lot of questions. Any Down Payment needs to be verified that it is your money and it is not owed.
All the information needs to be documented. The Two Most Recent Tax Returns, Bank Statements, Pay Stubs, Verification of Employment VOE, The down payment is not borrowed Verification of Deposit VOD, Verification of Rent VOR. If you have been renting from a private owner, you may need to produce twelve canceled checks or some other proof.
Look for qualifying the property
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[...] The Bank Qualifying The PropertyAs I mentioned in Things You Need To Know When Buying A Home the Bank qualifies the borrower AND the property. [...]
Good post. It’s very important for future homebuyers to get a rough idea of what they should be able to afford. Many people are afraid to talk to salespeople (e.g. lenders and realtors), so the information you offer here is essential for them to make preliminary, informed decisions, before they hit Realtor dot come to browse for their dream home.
Your blog is terriffic, FYI, I’m very impressed (jealous!).
Wow Alex,
Coming from a fellow Realtor and blogger, that is a high compliment. I am having fun. The real estate Tomato helped too.
Interesting article. Gave me a bit to think about…