Seriously, How Much Can I Afford?

Most people, especially first time home buyers, have no idea what they can actually afford when they start looking at homes to buy. They may not even know where to start. Unfortunately many people start looking at properties under what they can afford - selling themselves short or ones they can't afford and would lead them to literally be "living beyond their means". They absolutely need to know what they can afford prior to looking. By doing some research and some performing some simple arithmetic on their own prior to jumping into any lender's office, they will find themselves feeling savvy and at ease when speaking to a lender or broker.

Doing the Math

The ratio you need to figure out is your debt-to-income ratio. This is the ratio between how much you owe each month on personal debt and how much you earn. This ratio shows lenders the percentage of debt you are carrying in relation to how much money you make. It helps to show just how much additional debt you will be able to handle.

In order to make the calculation, add up your fixed monthly expenses such as your car payments, minimum credit card payments*, monthly spousal or child support, and student loans. You don't need to calculate utilities, groceries and things of that sort. Add your expected housing payments (your mortgage payments plus, for example, private mortgage insurance (PMI), homeowner’s insurance and property taxes) and divide the total by your gross monthly income.

*Your minimum credit card payment is not your total balance every month. It is your required minimum payment -- usually between two and three percent of the outstanding balance.


What's the Bottom Line?

It all comes down to how much income and how much debt you have. A common rule when shopping for a mortgage is that your debt-to-income ratio should be no higher than 36 to 38 percent - this includes your mortgage payment and your monthly debt. Anything above this could lead to you being denied credit or charged a higher interest rate on your loan.

The price you can afford to pay for a home will depends on a few things:

1. Your 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 credit history - make sure your credit has been cleaned up if necessary and your FICO score is in good shape
4. The type of mortgage you select
5. Current interest rates - which currently are great!


The most important thing you need to remember is to be sure you are comfortable with the amount of debt you are accumulating. Keep in mind, the lower your debt-to-income ratio the better, so pay down as much debt as you can before starting the mortgage process.


Please remember, this information may vary from lender to lender and each office may have their own exceptions or way of performing business. It is good to interview a few lenders before making the big jump. Stay tuned for another BLOG in the near future that may help you in your search for that perfect loan agent!

Tips to get the highest $$ for your house!

They say we are in a buyer's market right now...true for the majority of the nation. However, pockets actually do exist here and there where we just continue on with a prevailing seller's market...i.e. San Carlos, CA. But whether we are in a buyer's or seller's market, when a seller decides to list their home on the market, they want to get the top dollar for it. In order to do that, there are some simple and economical steps that you can take!

1 - You absolutely have to make a good first impression.

• Make your grass greener.
• Paint your front door if need be.
• Plant cute colorful plants all along the pathway to the front door which always makes people feel at home :)
• Fix your broken doorbell and shine your door knocker.
• Clean all your outside light fixtures of those creepy cobwebs.
• Sweep and polish.
• Fill any cracks in the stairs or concrete that you can. (You don't need people tripping on their way into your house!)
• Clean the windows.
• Touch up paint where needed - inside and out.
• Trim any bushes or shrubs that may block window views and light. (Light is very important to most people).
• Replace any dark drapery with light and airy curtains to bring in all light possible and put light colored slipcovers on dark couches and chairs. (Bright and cheery homes make people happy).

2 - Remove Clutter - LESS IS MORE

• Wipe those counter tops clean in the kitchen - store small appliances like your blender and toaster in cabinets and hide all electric cords.
• Wipe those counter tops clean in the bathroom - no hairspray, q-tip jars, brushes...you get the point.
• Remove all personal items such as family photos
• Remove your children's artwork from the walls and refrigerator (I know this is a tough one!)
• Attempt to have all your closet floors cleared out.
• Put some of your clothes into storage.
• Toss ugly plants that you are attempting to nurse back to health.

3 - Freshen all around

• Replace damaged burners or other appliances in your kitchen.
• Re-grout tile where needed throughout the house.
• Swap out outdated kitchen cabinet knobs, paint the cabinets if needed or replace them.
• Wax those floors.
• Get rid of old carpet if there is hardwood underneath - especially if it is in good condition.
• Fluff your bathroom towels.
• Hide your toilet brush cleaner...no one wants to see that!
• Buy a new bar of soap - no one wants to see an old out-of-shape bar.
• Spray a bit of lavender in the bathroom for a real fresh feeling.
• Fluff your bedspreads and throw extra pillows on your bed for that extra B&B feel.
• Bake cookies or have a nice vanilla or cinnamon candle burning in the kitchen for that extra "there's no place like home" feeling.
• Remove all ashtrays and smoke outside.
• Keep your garbage area clean and keep it outside to avoid any unwanted odors.
• Open some windows before buyers visit.
• Buy fresh cut flowers and place throughout the house...color adds so much.
• Add a few extra throw pillows to the couch and chairs to add some color.

Also, if you have pets, you may consider having them go on a "vacation" with friends or family for a while. Then you can eliminate the kitty box, smelly dog or cat food, and random dog chews that are not real appealing. By not having these guys at home you also have the peace of mind that they won't be let out of the house when someone comes to view it and having to make endless post-its asking to "Please don't let Fido out...he is friendly but doesn't like strangers", and that they won't scare anyone off! I have experienced both of these situations while showing homes...not fun!

Follow these tips and you will be be more likely to bring in the top dollar! Not to mention, you will also be the best B&B in the neighborhood! Your house will look so great you may have a hard time leaving!

Why wait...buy now!

Buying a home in today's market may be challenging, particularly for those who have credit problems or little saved in the bank to put towards a down payment. But there are many factors impacting the current housing market in San Mateo County that makes buying a home today a viable option. Here are 4 reasons for not waiting and buying a home today:

1. Interest rates on long term fixed loans are at a recent all time low with 30 year fixed rate mortgages falling below 6% per annum. With lower interest rates and adjusted prices overall in the resale market the affordable gap has narrowed, making your monthly payments lower and more affordable.

2. No one can put a price on the value of home ownership, it varies. In Northern California the median sales price for a single-family home has been consistently rising for several decades. In summary, housing remains a rock solid, long-term financial investment. While the current market has experienced a slow down in sales activity and pricing, historically data suggests home prices will continue to appreciate over time. The projected median home price for a single-family home in California is $553,000. By comparison, the median price in 2000 was $241,350, in 1990 the median price was $199,370 and in 1980 the median price was $99,550.

(Source: The California Association of Realtors)

3. The length of time a home remains on the market before it is sold has increased roughly 2 to 3 weeks from a year ago. With properties taking longer to sell and with more inventory to choose from, Buyers are in a grand position to seek out the best opportunities.

4. The multi-offer frenzy that dominated the market during the last housing boom has subsided and there is less pressure to make a decision on the greatest purchase of your life not to mention guessing how many offers you will be up against.