Claire Rainville's Blog
In real estate terminology, you may hear about various ratios and where you need to fall within the ratio to qualify for the home you want. A ratio simply expresses a relationship between two values: they compare two things, so a student/teacher ratio might be shown as 18:1, or one teacher for every 18 students. Different ratios apply to residential home buyers, investors, sellers, and lenders, but here are a few that might apply to you.
Loan-to-value or LTV
A comparison between the amount of a mortgage loan and either the home’s purchase price (for new buyers) or its appraised value (in a refinance) is its loan-to-value ratio. Lower LTVs typically qualify a buyer or homeowner a lower interest rate because there is less risk of default to the lender. So, a conforming mortgage with 20 percent down often garners a lower rate than an FHA loan with only five percent down.
Higher LTVs place more risk on the lender so if the market drops, the home could be “upside-down” or worth less than the amount of the mortgage.
Debt-to-income ratio or DTI
More important to home buyers is the debt-to-income ratio. Also called a debt-service ratio, it expresses how much money the borrower makes monthly compared to the monthly ongoing debt payments and obligations. A lender uses this figure to determine how high a mortgage payment you can handle. The first number is your income (gross) from your job, plus any other income that can be counted such as child support or a trust disbursement that you can use to make your mortgage payment plus taxes and insurance, and if applicable, association dues.
The second number uses the same calculation as the first plus any long-term debt such as a vehicle or school loan and consumer debt. This amount is the percentage of your income used to pay housing and long-term debt. So, a ratio of 30:37 (also written 30/37) means you spend 30 percent of all your income on housing with no more than seven percent obligated to debt service. That leaves you with 63 percent of your income for food, auto insurance, medical bills, clothing, and other expenses. Qualifying ratios adjust over time, but the Federal Housing Administration lists the qualifying ratio and the formula to determine it to qualify for an FHA loan.
Your DTI comes from your personal debts and income, and the LTV comes from a specific home's value, but the price-to-income ratio expresses the affordability of housing in a given locale. Most often, it is the ratio of the median home price to the median household disposable income. This ratio helps you determine if the home you want to buy is overpriced (it will be hard to sell) or under-priced (super good deal) for its geographical location. Lenders use this ratio as one additional factor in determining risk for that specific home.
To learn where your ratios fall and to determine if an area is right for your household budget, let your local real estate professional guide you.
Buying or selling a house is one of the most significant financial transactions because in most cases, it involves spending a considerable amount of money. Getting the best possible deal is important to make sure that you are getting value for your money and not overspending unnecessarily.
To negotiate a better arrangement when purchasing a house, you need a good strategy, and you must know how to motivate and negotiate with all the parties involved in the transaction. Here are some tips that will place you in the right position to negotiate favorable terms:
Research the market
It is impossible to know the worth of property without carrying out appropriate market research. It is essential that you inspect similar properties in that vicinity and compare them. Also, you should be familiar with the selling price of similar properties in the past few months and know the trends of the property market in your area.
Dealing with the seller's real estate agents
You should be apprised of the fact the seller's real agents work for a seller and not for you. An agent's job is to get the best deal for the seller; therefore, they might employ a tricky tactic to make you pay more. Do not be pressured to offer more than what you are comfortable with and don't disclose too much information as regards your emotional attachment to the property and your budget.
Make use of a buyer’s agent
A buyer's agent is in the best position to find you the right property. Not only that, they will represent you all through the negotiation deal. A buyer's agent will help you examine different properties and negotiate on your behalf. Another advantage of using a buyer's agent is that you will have access to locations that are not in the market. You can find these off-the-market properties through the agent's industry network.
Research the property
To evaluate the value and know how much to offer for a property, you must take a closer look at the features as well as the downsides of the property. Also, you must know why the property is on sale.
Do not exceed your budget
The initial thing you need to do before you start looking for a house to buy work hand in hand with an accountant and a financial to work out your budget. Speaking with a mortgage broker is also a good idea as it will help you know how much you can borrow. Try to adhere strictly to your budget irrespective of the pressure faced.
While buying a home is an exciting time, many buyers actually regret their home purchase. One of the biggest regrets that people have is the size of the house they purchased. People either pick a home that’s too large or too small. It may be hard to imagine that you can make a mistake on the size of the home that your purchase. You go into the home buying process knowing how many bedrooms you need and what type of home you might like. Once you begin living in the house, you could find a different story. You may not have enough space for all of your family’s belongings. On the flip side, you could find the amount of space in your home as overwhelming.
Buying a home isn’t like buying most other things. You can’t easily return it, and there’s quite a bit of an upfront investment that must be made in order to make the purchase. It’s not simple to make a change if you buy the wrong house. The wrong purchase could set you back in making a move for years to come.
The best thing to do when shopping for a home is not only to see the home in its current state but what type of potential the house has. Can you add on to the home? Would you be able to make use of all the space the home has? Is there enough storage in the house? Are there ways to quickly add storage? These are a lot of things to consider when shopping for a home but they’re all important questions. Once you move into the home, other than doing a complete overhaul, you may be out of options to improve it without looking for these areas. Of course, the ideal situation is to find a home that already has everything you’re looking for in it.
Don’t Buy Until You’re Ready
Another mistake that people make is they try to go from renting to owning before they’re ready. Living in an apartment or rental allows for a bunch of advantages that owning a home may not afford you. Owning a home takes commitment, and some people just aren’t ready. Just because it’s widely known knowledge that buying a home is a smart financial decision, doesn’t mean it’s always the best decision for you. You may not be able to afford a house that’s the right size for your family. You may not even know what the right size home will be for you. When these questions remain, you could end up buying a property that’s the wrong size. Don’t worry if you need to take a few more years to save up for a house. On the contrary, don’t worry if you don’t think buying a home is the right decision for you at all.
When you’re ready to buy a house, it would be easy to just pick a house and sign the papers, right? Too bad it doesn’t work anything like that! Besides getting your finances in order, there are plenty of things that you should do ahead of time to get yourself ready to buy a home. Choosing a relator should be high on that list of priorities.
Do Your Research
There’s plenty of ways for you to search for a home before you even start in order to decide what you might like before you even set out with a realtor. Once you start working with a realtor, they’ll be able to set up alerts for you to get via e-mail where you’ll be able to see new properties that have just been listed and price changes to previously listed properties.
Let Your Realtor Do Their Job
Realtors are experts in homes. It is in their job description! Your realtor will do the research on prices and property details. An important aspect of the housing search is finding the price of similar homes in the area. This is key to making your offer. Your real estate agent has all of the information that you need.
Hang Out With Your Realtor During The House Hunt
When we say that you’ll have a close relationship with your realtor during the home search process, we mean it. Coordinate with your realtor to go to open houses. Your agent will either accompany you to the open house or make appointments for private showings of properties. Even if you have to bring your child and a carseat, your agent will be more than happy to accommodate you!
Mention Properties You See When You’re Out And About
The realtor has your criteria of what you’re looking for in a home. However, if you’re out and see a home for sale that intrigues you, write down the address and contact your agent about it. They can either arrange a private showing of the property or advise you otherwise. Many times, a property may be out of your price range or have strange circumstances. However, occasionally, agents and computer software miss things! It’s always good to be on the lookout and seek more information.
Don’t Hesitate To Really Look Around A Property
Although you may feel that you’re being a bit invasive by opening drawers, closets and doors in a home, it’s very important to! You need to see how you can make the best use of the storage space within the home for yourself. You’ll also want to make sure there’s no significant damage or hidden features that you’re missing out on.
Most importantly, remember that your realtor will be your ally throughout the house hunting process. You want to make the best use of the great resource that your realtor is!