Financing

As far as I'm concerned, the very first thing a buyer should do is talk to some lenders. If you need to finance any part of the purchase you need to know how much you can borrow and how much your closing costs and prepaid items will be. If you don't know if you can get a loan, and for how much, how will you know what price range to look in?

Also, in today's market the norm is for the buyer to have the financing arranged prior to making an offer by getting pre-approved by a lender. The lender issues a letter stating the loan amount and under what other conditions they would be willing to grant a mortgage to a buyer. A pre-approved buyer looks much stronger to a seller and gives you a huge edge over other buyers who haven't taken this step.

Here is a way for you to quickly determine what loan you can qualify for. Of course, check with local lenders as requirements can vary from market to market.

First, determine your gross monthly income (GMI - income before any deductions or withholding), then apply the following 2 ratios:

1. GMI x 28% =__________ This is the maximum new monthly payment of principal, interest, taxes and insurance you can have

2. GMI x 36% =__________ . Then subtract long term debt. In general long term debt is any debt that has 8 months or more due on it.

Your new house payment including PITI (principal, interest, taxes, and insurance) and private mortgage insurance (if necessary) cannot exceed the lower of the 2 amounts above. Factor out the taxes and insurance, then look up the payment amount in a corresponding mortgage table to find the loan amount.

There are literally hundreds of financing programs and hundreds of lenders. Ask your agent for recommendations. And stick with reputable lenders! Getting the best interest rate in town does absolutely no good if you get to closing and the lender can't get the money from their investors to lend to you. Trust me: this does happen more than you might think!

Think reputable, not just interest rate.