Tips for Home Buyers: Know Your Money

In January, I did a series on tips to sellers (New Year’s Resolution: Sell My House!, Disclosing the bad and the ugly, Get out of the house!, Real Life Confessions from a Seller). Now, I think it’s time to focus on other side… the buyers. Since it’s a buyer’s market, much of the public’s attention is on the poor, pitiful sellers. However, buying a house is still a very stressful experience. According to the “Holmes-Raye” scale (scores events according to the stress they cause – the higher the number, the greater the stress), buying a house scores only 31 out of 100. While it’s more than Christmas (12 points), it’s below pregnancy (40 points), marriage (50 points), divorce (73 points), and death of a spouse (100 points).

My first tip to buyers is to get to know your money… become one with your piggy bank. If you don’t know how much you can afford, you have no business going to see any properties. To get started, fill out a house-buying budget worksheet. SmartMoney has a good one at “How Munch House Can You Afford?“. If you’re a first-time home buyer (or even a veteran), you might be a little shocked at how little house you can afford. Your mortgage-to-income ratio should be no more than 30% (i.e. if you make $5,000 a month, your mortgage payment should be no more than $1,500), per Buy-and-Sell-House-Fast.com.

Next, gather up all your prior year tax info and other financial docs and meet with a credible loan officer/investment adviser to help you determine the appropriate price range you should be looking. Rhonda Porter, CMPS and Licensed Loan Originator, recommends considering these options in finding a loan officer:

1) Referral from a family member, co-worker or friend who has just bought or refinanced their home.
2) Recommendation from their Realtor and, ask the Realtor why they prefer the lender over others.
3) Recommendation from their CPA or CFP for the lender they endorse.

As for what to ask your loan officer, go to Blown Mortgage for Morgan’s post “The 7 most important questions to ask your loan agent before starting the mortgage process“. I think the first question “How are you compensated?” is the most telling.

Remember, you don’t find the house you love and then make your budget work. You identify your budget and then find the house!

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