Questions Home Buyers Ask

How much house should I buy? How much can I afford?
What type of loan programs and interest rates are available?
How much will my closing costs be?
How much should I offer for a house?
Should I spend the money to have a home inspection?
What is an appraisal? Will I need one?

How much house should I buy? How much can I afford?

The answer to this has a lot to do with your income and the amount of your debt load. As a rough rule of thumb, most home buyers purchase houses that cost between 1 1/2 and 2 1/2 times their annual income. There is, however, a degree of variation due to the individual market prices of the area in which you are interested. In some areas, there may not be houses available within that range, so you may need to spend a bit more. In general, however, your monthly mortgage payment cannot exceed approximately 28%-29% of your gross monthly income. Your total debt payments (car payments, credit card payments, etc. plus the monthly mortgage amount) cannot exceed approximately 36%-40% of your gross monthly income. These ratios will depend on the type of mortgage for which you are applying. 

What type of loan programs and interest rates are available?

There are numerous loan programs available, fixed and adjustable mortgages, and many more depending on your location, and the mortgage source that you use. The interest rates may change daily.  The requirements and benefits may vary from program to program. 

How much will my closing costs be?

The amount of closing costs will depend on the purchase price and what items are customary for buyers and sellers to pay for in your area.  Usually the closing costs are between 1-2% of the purchase price, excluding the brokerage fees customarily paid by seller.  In addition, the amount of buyer's closing costs will also depend on the amount of points buyer will be paying on their mortgage loan, since points are paid for up-front at closing. (A point is 1% of the mortgage loan amount).

How much should I offer for a house?

There is no simple answer to this question, since each property is unique,  different and stands on its own. A particular house may be "overpriced" (you may consider an offer below the listing price), "on-the-money" (you should make an offer at or just below the listing price) or "under priced" (you should grab it before someone else does, which means pay the asking price or even above.)  In a hot market, there may be multiple offers on several properties, which usually means these homes are being sold for well over the asking price.

Should I spend the money to have a home inspection?

Absolutely! The apx. $400to $800 (depending on the size of the home) that a professional home inspection costs could be the best money you ever spend on your new purchase. Not only does the home inspection seek out any defects (and give you some peace of mind), the home inspector will often give you tips on maintaining and repairing the house.  Also, it's highly recommended that you have additional inspections done on the property during your due diligence and contingency period in escrow, such as geology, septic, roof, pool, mold inspections, etc.  

What is an appraisal? Will I need one?

An appraisal is a professional opinion of value by a certified appraiser of the home you want to purchase. It is generally based on comparable sales in of similar home sizes, condition, amenities, etc, in the neighborhood.  The appraisal can range in price from $500-$1,000 depending on the size of the home.  Virtually every lender will require an appraisal or two before your loan is approved and funded. If you are doing an "All cash" purchase the appraisal is not required, however it would be a good idea to have one done anyway.

Welcome To Malibu!