Buyer Resources - Articles

Buying Your Home - What You Can Afford

How much does my real estate agent need to know?
Real estate agents would say that the more you tell them, the better they can negotiate on your behalf. However, the degree of trust you have with an agent may depend upon their legal obligation. Agents working for buyers have three possible choices: They can represent the buyer exclusively, called single agency, or represent the seller exclusively, called sub- agency, or represent both the buyer and seller in a dual-agency situation.    B.C. requires agents to disclose all possible agency relationships before they enter into a residential real estate transaction. Here is a summary of the three basic types:
* In a traditional relationship, real estate agents and brokers have a fiduciary relationship to the seller. Be aware that the seller pays the commission of both brokers, not just the one who lists and shows the property, but also to the sub- broker, who brings the ready, willing and able buyer to the table.
* Dual agency exists if two agents working for the same broker represent the buyer and seller in a transaction. A potential conflict of interest is created if the listing agent has advance knowledge of another buyer's offer. Therefore, the law states that a dual agent shall not disclose to the buyer that the seller will accept less than the list price, or disclose to the seller that the buyer will pay more than the offer price, without express written permission.
* A buyer also can hire his or her own agent who will represent the buyer's interests exclusively. A buyer's agent usually must be paid out of the buyer's own pocket but the buyer can trust them with financial information, knowing it will not be transmitted to the other broker and ultimately to the seller.

How much will I spend on maintenance expenses?
Experts generally agree that you can plan on annually spend 1 percent of the purchase price of your house on repairing gutters, caulking windows, sealing your driveway and the myriad other maintenance chores that come with the privilege of homeownership. Newer homes will cost less to maintain than older homes. It also depends on how well the house has been maintained over the years.

What is the standard debt-to-income ratio?
The standard ratio used by lenders limits the mortgage payment to 35-39% of the borrower's gross income and the mortgage payment, combined with all other debts, to 39-44% of the total. These amounts depend on your personal credit history, which your lender will verify. If you find yourself falling outside these guidelines you may have to save a larger down payment.  Your personal credit score may also affect the amount you can borrow as a mortgage. 

What can I afford?
Knowing what you can afford is the first rule of home buying. That figure depends on how much income and how much debt you have. Its prudent to check with several lenders BEFORE you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan. Often you can easily start the process online. The price you can afford to pay for a home will depend on six factors:
1. gross income
2. the amount of cash you have available for the down payment, closing costs and cash reserves required by the lender
3. your outstanding debt
4. your credit history
5. the type of mortgage you select
6. current interest rates

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new mortgage , property taxes and utility costs. If you have to pay monthly strata fees and/or private mortgage insurance, this also will be added to the calculation. A pre-qualification letter from your lender might give you an advantage over another buyer should you be in competition for a home.

When is the best time to buy?
 
* You can afford the monthly payments.
* You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
* You prefer to be an owner rather than a renter.
* You can handle the maintenance expenses. 
* You are not greatly concerned by dips in home values or conversely, you're interested in the home's appreciation in a rising market.

Where do I get information on housing market stats?
A real estate agent is a good source for finding out the status of the local housing market. I'm continuously compiling sold statistics from my local real estate board and values of comparable properties and can provide you with the latest assessments.    


How long do bankruptcies and foreclosures stay on a credit report?
Bankruptcies and foreclosures can remain on a credit report for seven years. Some lenders will consider an borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender's decision. For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

How do you determine the value of a foreclosure?
Buyers considering a foreclosure property should obtain as much information as possible from the lender, including the range of bids expected. It also is important to examine the property. If you are unable to get into a foreclosure property, check with surrounding neighbors about the property's condition. It also is possible to do your own cost comparison through researching comparable properties with my help.

Gunny Tennese
Gunny Tennese
REALTOR®