A home is, for most of us, the biggest expenditure we will ever make. How do you figure out how much home you can afford?
New websites for homebuyers make it easy to make these calculations, once you know the key numbers to plug in. The biggest number is your gross annual income. Once you have that figured out, you will need to figure your monthly debt. Be sure to include all forms of debt like credit cards, car payments, school loans, etc. The third number you will need is the amount you can make on a down payment. If you have these three numbers, you can just plug them into a calculator, like this one from Zillow. There are quite a few such calculators available on the web. For a slightly more complex formula that includes your credit score and the zip code you’re interested in, go to Nerd Wallet.
Debt To Income Ratio
The main thing that you want to find out from these calculators is your DTI, or debt to income ratio. If you used Zillow’s calculator to figure out how much you can afford to spend on a home, you can then go to their DTI calculator and figure your overall debt to income ratio. A good DTI is considered to be 36% or lower. According to the 36% Rule, you should never let your DTI exceed 36%. In order to be considered for a Qualified Mortgage, 43% is the highest DTI that you can have. It’s important to have a Qualified Mortgage because they have better protections for borrowers, such as a limit on fees.
Another nifty tool you can play with on the Zillow site, Nerd Wallet, or other sites is a mortgage calculator. This tool can show you different interest rates for different time periods, like a 15 year mortgage versus a 30 year mortgage. Playing around with different numbers will give you a sense of how you would need to budget and what the overall cost would be for different mortgages.
Once you have a sense of how much you can spend on a home, then you will need to consider what the housing market is like in the area you want to buy. More on that to come . . .
Sources: https://www.zillow.com/home-buying-guide/can-i-afford-a-house/, https://smartasset.com/credit-cards/what-is-a-good-debt-to-income-ratio
In our last post we explored some of the pros of buying new construction. In this post we’ll look at the downside of buying new construction, and the pros of buying existing construction.
Buying new construction usually limits you in terms of location. New construction typically takes the form of sprawling suburban neighborhoods or urban high-rises. Suburban neighborhoods may be spacious, but they’re also typically farther from a town center, adding to a daily commute.
Existing construction often has better landscaping surrounding the home, including large trees that provide shade in the summer, block the winter wind, and also muffle the sounds of traffic. It’s possible to transplant trees onto a new lot, but it takes years for the landscaping to mature.
New constructions often have cookie-cutter exteriors in order to appeal to the largest number of people possible. Expect to pay extra to customize a new construction to stand out on the block.
This isn’t an issue if you are purchasing a pre-existing new construction, but if you’re building a new home, the wait time is significant. On average, building a new home takes five or six months.
Construction costs can be high and depending on your selections, you may pay more to build a new house as opposed to buying a house on the market.
One of the decisions you will need to make in choosing a new home is whether you want to look at pre-owned homes or new construction, either custom-built or pre-existing new construction.
It’s a matter of personal taste. Some people prefer a shiny new home that hasn’t been lived in before, while others prefer a home touched by the patina of time. There are pros and cons to purchasing a newly constructed home. Let’s explore some of the pros.
Modern Floor Plan
If you opt for custom construction, you can build your dream home with the floor plan tailored to your wants and needs. Even if you buy a pre-made new construction, you will benefit from a modern floor plan. Most new constructions feature kitchens that open up to a living room so you can cook and still be part of the action happening elsewhere in the house. In addition, new constructions typically have larger rooms and more sunlight than older houses.
Even if the house isn’t custom built, there can still be an opportunity to add custom finishes. You will just need to be in communication with the builder prior to the completion of the house. This will add on to the cost of the house, but can also be a good compromise between the expense of a custom built home and the cookie cutter quality of a non-custom build.
Newer homes feature appliances, insulation, and windows that are more energy efficient. Lower heating and cooling expenses mean a lower utility bill for owners.
New homes include “smart” technology that can allow you to automate different systems and features of the home, including alarm systems, speakers, cable, and internet.
Healthier Indoor Air
New constructions are typically made from materials that are low or zero VOC (volatile organic compound), meaning they output fewer toxic chemicals into the air.
A new home costs less to maintain, and makes monthly payments more predictable because repairs will likely be unnecessary. Warranties can provide protection for your new home for years, eliminating any up front repair costs.
Whether a new construction is an urban condo or a sprawling suburban mansion, many new constructions come with attractive amenities. Urban amenities can include parking, a pool, and security staff, while suburban locations may come with parks, pools, and other community spaces.
Buying new construction can give you more time to work on the move. For a single family home, new construction typically takes about 5 months, while condos take about 6 months. This means you don’t have to rush into buying your new home.
Reach out to me if you would like examples of new construction communities in the area, building lots, and/or builders I recommend.
When it comes to choosing a new home, it’s important to define your must-haves. These are items on your wishlist that are non-negotiable. It’s important to separate your list of must-haves from the things that you want, but which may be negotiable. There are a number of different aspects of a home to consider when coming up with your list of must-haves. Here are the most important.
First you need to determine what price range you can afford. Then you will be able to be realistic when looking at potential homes. The size of your down payment, your monthly payment, and your annual income will all affect how affordable your mortgage is.
Type of Homes
Homes come in a variety of types and it’s important to consider what type is right for you. Detached, single-family homes generally offer the most privacy and freedom. However, you will be solely responsible for all repairs and up-keep. Townhomes, and condominiums are other options in housing. They offer less privacy but can be more affordable. In a townhome, you will be sharing walls with other people. In the case of a condominium, you will own the unit you live in and have a stake in the whole building as well. There are pros and cons with each option.
Sometimes, your first house is a great stepping stone to build equity or to build your investment portfolio. If you have questions about what type of home you can afford in today's market, contact me here.
The neighborhood that surrounds your home is just as important as the home itself. It will become your community. Getting to know the neighborhood that a potential home is located in is an important step. The state of the neighborhood and how it may change in the future will affect the future value of your home. Spend some time hanging out in the neighborhood and consider how important the following aspects of a neighborhood are:
For those who have or are planning to have children, the local schools are an important part of the equation. Even if you do not have or plan to have children, good schools can be a sign of a thriving neighborhood and can make it easier to sell your house in the future.
Some aspects of a school to research and consider are:
Other aspects of the home
Some other aspects of a home to consider in determining what you really want are:
Determining your must-haves for a home in the following areas will help you narrow down your search and ensure that your dream home is also a practical home that meets your needs.
What’s the antidote to buying cheap, plastic goods produced in countries with questionable human rights records that you know will end up in a landfill someday? Buy locally sourced, sustainably produced and durable products that can last for generations. Where do you find such mythical-sounding items? Check out the Alexander Brothers’ wares.
The Alexander Brothers are a company of four brothers working out of Timberville, providing Harrisonburgers and other Virginians with affordable, beautifully handcrafted, durable and sustainable goods. Trained in traditional craftsman’s trades, including blacksmithing, woodworking, and leather crafting, from a young age, the Alexander Brothers spent years honing their skills, which they view as art forms. One brother apprenticed at the Frontier Culture Museum as a blacksmith.
Items available for sale on their website, Facebook, and Instagram include kitchen ware, such as knives, cutting boards, bottle openers, and pizza cutters and leather goods such as journals, wallets, and tote bags. One of their newest items is the 8 inch chef’s knife. The knives’’ wooden handles are hand crafted from wood collected from trees during the brothers’ backpacking trips in West Virginia and Virginia. The wood used is specifically chosen for the presence of burls, which are abscesses or growths on a tree that produce a striking circular pattern in the wood’s grain. The wood is kiln dried, stabilized with an epoxy resin and slabs are created from it. The blades of the knives are forged from 15N20 steel. The knives are so popular that they’re almost sold out. The brothers are planning to produce a new trout and game knife hopefully in time for Christmas.
This blog’s authors were gifted by brother Shea Alexander with their award winning bottle opener. The bottle opener is produced with either walnut or maple wood and hand-forged iron. It’s small enough to fit on a keychain but has the heft of something substantial. Beautiful and rugged, the iron is subtly faceted and contains the company’s boldly classic logo. In Virginia Living’s forthcoming November issue, the bottle opener is receiving a Best in Virginia award.
In addition to their online venues, Alexander Brothers products can be found locally at Lineage in Downtown Harrisonburg and Randy’s Hardware, which has locations in Bridgewater, Timberville, and Mt. Jackson. Their products can also be found at Lost River Trading Post in West Virginia. More local opportunities to shop Alexander Brothers wares can be had this Saturday at Shenandoah Autumn Fest, at Spring Creek Roller Mills, Showalter’s Harvest Fest, and the Timberville Christmas Village. Supplies are limited, so don’t miss out on the opportunity to purchase some very special holiday gifts!
If you are looking for a new home, there are many real estate professionals out there who will want to work with you. How do you select the right real estate agent to be on your team?
Real Estate Agent, Realtor, or Broker?
First, let’s clarify some of the terminology around real estate professionals, which can be confusing. A real estate agent is someone who acts as a guide or counselor in the process of buying or selling property. Real estate agents are required to have a license in the U.S. and are trained to handle the legal aspect of buying and selling property, including homes. Some agents specialize in either buying or selling, while other agents assist with both transactions.
A broker is also licensed and must have been a real estate agent prior to becoming a broker.
Legally, a real estate agent must be managed by a broker, who takes legal responsibility for the agent’s actions. A broker may manage a firm of real estate agents, work as a sole proprietor, or work under another broker.
A Realtor is a real estate agent or broker who is part of the National Association of Realtors, or NAR. NAR members pay dues and are held to a certain standard of ethics.
Although all real estate agents must be licensed to ensure a certain level of expertise, that doesn’t mean all agents are right for you. It’s important to find an agent who is the right fit for your situation.
A real estate agent will be guiding you through what may be the most significant financial transaction of your life. Some important qualities to look for in an agent are responsiveness,
knowledge of the local area and market, expertise and negotiation skills.
Referrals are a good source of information on whether a potential real estate agent has these qualities. It’s a good idea to ask people you know about real estate agents they’ve worked with in the past. Another resource is the Better Business Bureau ratings.
Looking at a potential agent’s listings is also a valuable way to see if they are a good fit for you. If most of their listings are different in location or type from what you are looking for, the chances are they aren’t the right agent for you.
Questions to Ask
It’s very important to meet an agent in person before you decide on whether you want to work with them. You can get a better sense of your compatibility with an agent in person.
The National Association of Exclusive Buyer Agents has compiled a list of questions to ask a potential real estate agent.
I'm happy to answer these questions or any others you may have. Let's grab coffee or meet up at my office. Feel free to email me here or call or text me at 540 246-9067.
The short answer is that it takes on average about 4.5 months to buy a home. However, different aspects of buying a home happen at different times. Here’s a handy timeline for buying a home.
At 6 months or more . . .
At 4-5 months . . .
At 2-3 months . . .
At 1-2 months . . .
At under a month . . .
Buying a new home doesn’t have to be complicated. Here are 10 Simple Steps to follow to buy your first home.
1. Credit Score
Find out your credit score before you start talking to lenders, find out your credit score and get a free report from
Annualcreditreport.com. Credit scores range from 350 to 850. The higher your credit rating is, the lower the interest rate on your mortgage will be. Several factors determine your credit score:
A good credit score is considered to be 720 or higher, but you can usually get an FHA loan if your credit is at least 580.
Calculate what you can afford to spend. Try online tools like Nerd Wallet. You also need to consider how much you want to spend. You may not want to make a large monthly payment, even if you are approved for a large mortgage. To get a sense of what you can afford in your area, start attending open houses and doing research online for houses that are on the market.
3. Contact a REALTOR®
Find the right real estate agent. Your real estate agent will be your guide, counselor, and confidant through this sometimes challenging process. It's important to choose a REALTOR® who will look out for your best interest and has high ethical standards. Researching the agent's firm, reading their reviews, and interviewing agents are all good steps before agreeing to work with someone long term.
4. Get Pre-Approved
Get pre-approved for a loan before you fall in love with a home, you want to know that you’ll actually be able to buy it. Find a lender first and get pre-approved for a loan before you start house-shopping. I highly recommend you use a local lender because they have more accountability than online lenders you can't see face to face.
In pre-approval, a lender obtains your credit information and then decides how much money they would be willing to lend you. They will give you an official letter stating this. It’s smart to do this because if you end up in a bidding war, this may give you an advantage because the seller will see you’ve already been approved for a loan.
Getting pre-approved does not mean you have to ultimately get a loan from the lender who approves you. You are still free to look at different lenders and compare them.
Contact me for recommended lenders:
5. Start Looking at Homes
Start the shopping process. Talk to your agent and identify your must-haves and your wants. Also nail down your price range and the neighborhoods you want to look in. Your realtor will assist you with finding houses online and touring them. You may be surprised by the opportunities that you find!
To get custom alerts of houses that meet your criteria, fill out this simple form!
6. Make an Offer
Make an offer on the home. This is often the part that makes people nervous. Don’t worry! Working with a great agent will ensure that you make the best possible offer on your dream home. Your agent will be able to advise you whether your offer should be at the asking price or perhaps above or below, depending on the local market. Your agent will also help you with details such as whether there are any contingencies to your offer, or if you will want a home inspection. Once you make an offer, you may get a “yes”, a “no”, or a counter offer. Rely on your agent to guide you through this process.
7. Use a Licensed Inspector
Do a home inspection. If you decided you want a home inspection as part of your offer, this is the next step. I recommend you be present for the inspection if at all possible. A home inspector will thoroughly examine the home and provide a report about the house. The report can be useful as it will often have more information about your house than you need for the negotiation process.
When negotiating repairs, the contract calls us to focus on material defects and not updates or maintenance items. This often comes up when exploring heating and cooling systems (HVAC). If the HVAC is older than it's statistical life but working properly, replacing it would be an upgrade/update as it is not a material defect (not working properly).
The home inspection is also an opportunity for you to spend time in your new home envisioning what you want it to look like. Enjoy this exciting time!
Contact me for my recommended inspectors:
8. Insurance and Utilities
Unless you are already a homeowner, you will need to find an insurance agent and purchase homeowner’s insurance. This will be required by your lender. If you owned a home to begin with, just tell your insurance agent you’re buying a new home and they will make a new policy for you. Homeownership is necessary to protect your investment even if you don’t have a mortgage.
It’s also important that you contact your utility companies to set up services so they begin the day of settlement. You’ll want to move into a new home with climate control and running water!
9. Close on the House
Closing day is a very exciting day! There will be a lot of paper signing, but don’t let it wear you out. You’re almost done!
You will need to bring a photo ID to settlement and the funds you need to close on the house. If you plan on wiring money, beware of Wire Fraud. More information here...
10. Move Into Your New Home!
Yay! You’re finally done! Get the keys from the former owner and move in. The move in day will vary based on your contract, so it may be on the same day that you sign the closing papers, or it may be a few days later. Either way, you are now officially a homeowner and can start this exciting new chapter in your life. Congratulations!
How do you know if you’re ready to buy a home? There are several major factors to consider.
Does it make sense for you to buy rather than rent?
Can you afford to buy a home?
Do you have the skills necessary to maintain a home?
Are you ready to commit to a home?
First, you must decide if it makes financial sense for you to buy a home rather than rent one.You can calculate the “breakeven horizon” of a potential home. The breakeven horizon is the amount of time it will take before paying off a home equals paying rent. If you think that you’re likely to move before you reach the breakeven horizon of a potential home, it may make more sense to rent.
Second, you must find out if you can afford to buy a home. There are several expenses to consider in home ownership. First is the down payment, or the lump sum that you pay upon buying a home. To get a good mortgage rate, it is often necessary to pay up to 20% of the total cost of the home as a down payment. However, it is also possible to find loans that will fully finance the total cost as a down payment. Next is the mortgage payment, the monthly payment you make to gain equity in your home. The mortgage payment usually includes a payment towards the price of the house, the interest on the loan, and homeowner’s insurance and property taxes. It can be very helpful to talk to a local mortgage adviser. Don't hesitate t reach out for recommendations!
Third, consider if you have the skills to maintain a home. Can you make simple home repairs yourself or will you need to constantly rely on hiring an expert to make simple repairs? This can break the bank! For a handy list of new homeowner skills, click here.
Fourth, ask yourself if you’re ready to make the kind of commitment that home ownership requires. Once you make the financial investment in a home, you will also want to make an investment of time into maintaining your home, including yard work, maintenance, and weather proofing. There are also many decisions to make, from choosing the right neighborhood to decorating your home. You must feel confident in your decisions and ready to settle in one place for a while.
Finally, it can be helpful to talk to an agent about if it makes sense for you to make this move. Feel free to call, text, or email me.