How to Buy a Home
It begins with Preparation When thinking about buying a home the first mistake many home buyers make is run out or go online and start looking at houses. To minimize mistakes and maximize your time, you must resist the urge to start looking for houses. Instead you need to be prepared before looking at your first house. Your success is contingent how well (or poorly) prepared a home buyer is prior to making the purchase. This preparation does not need to take a great deal of time, and most of it can be done from the comfort of your home, but it is important to spend some time getting ready before running off to look at specific homes. In this article, which is the third of the series, we will discuss evaluating your budget which will be the determining factor how many Needs and Wants you can afford. Know your Budget for buying a home.
Ok it is reality check time. You've determined your reason and what you need and want in a dream home. Now it is time to determine how much you can comfortably afford. In order to do this you must determine a budget. A budget is simply how much money you have coming in and much money is going out of your bank account. If you don't have a budget setup then it is imperative to start one. When owning a home you need to become fiscally responsible.
Home buyers, lenders, and the government collectively played a role in the housing meltdown we currently are in. Home buyers bought homes with loans they could not afford long term. Lenders greatly reduced their strict lending guidelines and practices. And the government put pressure on lenders to offer risky loans so more home buyers could qualify to buy a home they could not afford. Most notably were the Zero down, Adjustable Rate Mortgages (ARMs), and Home Equity Loans (HELOC) type loans. Since numerous people could easily qualify for loans, buyers and money flooded the market place. The law of Supply and Demand kicked in big time and housing prices soared to record highs at a rapid pace which over time was not sustainable. Well as we all know the housing bubble burst virtually over night. Several reasons contributed to the bubble burst; ARMs adjusted, property taxes increased, gas prices increased, the economy went into a recession causing layoffs, and housing values dropped. All these factors contributed to the overall cascading collapse of the housing market. Two reasons why you need to understand the history and lessons learned from the housing market collapse. First we all need to get back to sound fiscal responsibility. Home buyers need to purchase only homes which they can comfortably afford. In addition, lenders have returned to their strict, but responsible, lending guidelines and practices. The Government has backed off their pressure on lenders for their political selfish reasons. Collectively we can't afford to continue the mistakes of the past. Second, this is a tremendous time to buy a home because prices are below market value. You need to position yourself to take advantage this tremendous buyer market. Because someone's misfortune is your opportunity to purchase a home under market value.
Here are the steps to position yourself to live in a home you can comfortably afford. Step 1: Determine a tool to help you create and track your budget. A computer and budget tracking software is the recommended approach. Using software enables you to reduce the time and your resistance to track your budget. Many banks and credit card companies provide a way to download all your transactions into your budget tracking software thus greatly reducing your time. Quicken or Microsoft Money are popular budget tracking software which costs around $50. Another approach is to use a spreadsheet. This approach will require more time but anything on computer is more efficient then pen and paper. And the last method is using pen and paper. This is method is more time consuming but it is better than no approach at all! Step 2: Once you determine a tool to track your budget, you need to identify your Gross Income. This is the total amount of money you have coming into your wallet or bank account each month. There are various ways to receive income so think of all of your inflows of money. One note, lenders may not count an inflow of money when qualifying you for a loan. For example they may not count money from a family member a qualifiable source of income. Step 3: The next step may take some thought. You need to identify your Gross Expenses. Two types of expenses are to be identified. Reoccurring expenses are those which you pay on a consistent basis. Rent, utilities, food, entertainment, or car insurance are examples of recurring expenses. Non reoccurring expenses are those which you do not pay on a consistent basis. Examples are gifts given, vacations, hobbies, education, or tolls. The key to this step is identify ALL your expenses. Step 4: Determine the timing of the expenses. Some expenses may occur monthly like rent. Others may occur weekly like food and entertainment. Some will occur quarterly like car insurance. Some will occur yearly like Holiday gift giving. The timing of these expenses are important in order to identify certain months that have higher payouts than others. This will help you to plan for those months or times of additional expenses. Step 5: Identify your Net Profit or Net Loss. If you setup your software correctly it will calculate this for you. If not then you need to Subtract the Gross Expenses from Gross Income. (Gross Income - Gross Expenses). If this number is positive then you have a Net Profit (extra money leftover). If this number is negative then you have Net Loss. If you have a net loss then this is the time you need to have a serious talk with yourself and spouse. In order to purchase a home you need to eliminate or reduce expenses or increase your income so you have a Gross Profit.
Step 6: It is time for the first gut check. You may be feeling uneasy or uncomfortable which is natural if you have a net loss or very little net profit. Now is the time to review your reason to buy a house. If your reason is strong enough then you will need to make sacrifices at this stage. If your reason is weak or superficial then most likely you will not make the sacrifices necessary and discontinue with the home buying process. If you decide to stop the process, you avoided a major mistake in your life! If your reason is strong enough then you have two choices. You can reduce or eliminate expenses or increase your income by getting another job. Either way you are objectively making decisions instead of making an emotional bad decision which can potentially devastate you financially and emotionally. Most people will sacrifice unnecessary expenses instead of their valuable time by getting a second job. Step 7: You've identified your current budget, now you need to estimate a Future or Home-owner budget as if you had purchased a house. There are home-ownership expenses which must be factored into a budget before determining how much you can afford. First remove current expenses that you will not pay if you buy a home. Rent is a good example of an expense you eliminate. Second you need to add or modify future expenses. Examples of new expenses are mortgage, home insurance, property taxes, and home maintenance. The older the house the more likely you will have to repair or replace items in the home. You won't know exactly how much to budget because you don't know the condition of the house, but you do need to factor some amount. Ensure you adjust this amount when you know the condition of the house you purchase. Examples of expenses to modify are utilities and gas. Depending on your rent situation your rent may or may not include utilities. A good example is power expense. Typically your power bill will be higher if moving from an apartment to a house. A house is usually bigger and requires more to keep it cool or hot. Also depending if you move closer or further to work you may have to travel more or less. So keep these expense adjustments in mind when determining your home ownership budget.
Step 8: Identify your home ownership budget Net Profit or Net Loss . If you setup your software correctly it will calculate this for you. If not then you need to Subtract the Gross Expenses from Gross Income. (Gross Income - Gross Expenses). If this number is positive then you have a Net Profit (extra money leftover). If this number is negative then you have Net Loss. If you have a net loss then this is the time you need to have a serious talk with yourself and spouse. In order to purchase a home you need to have a comfortable Gross Profit.
Step 9: It is time for the second gut check. You may be really feeling uneasy or uncomfortable once you realize it may cost more to own a home than you realized. Now is the time to seriously review your reason to buy a house. If your reason is still strong enough then you will need to make sacrifices at this stage. If your reason is weak or superficial then most likely you will not make the sacrifices necessary and discontinue the process until a later time. If you discover you don't have a comfortable net profit in your budget and your reason is strong enough then you have four options to consider. 1) Reduce or eliminate expenses 2) Increase your income by getting another job. 3) Buy a smaller home with less "Wants". Some of your needs may turn into wants and your wants may be re-prioritized. 4) Some combination of the first three options. Either way you are objectively making decisions instead of making an emotional bad decision which can potentially devastate you financially and emotionally.
Step 10: Talk to a trusted person who is a home owner to discuss if your home-ownership expenses are accurate. Especially new home buyers will want to talk with an experienced home owner. You will gain valuable insights of pitfalls to avoid and opportunities to take advantage of.
Step 11: Develop your plan to comfortably afford a home. If you need to eliminate or reduce expenses do it now. If you eliminated unnecessary expenses and need to work a second job do it now. You need to do a test run of working additional hours and cutting expenses. You may find it is too hard or not worth the time that you are not with your family or friends. You truly need to discover if your Reason to buy a home is actually stronger than the sacrifices you are making. If the sacrifices are too hard to overcome and sustain then you just avoided a major mistake in your life. A mistake not easily or quickly corrected.
Step 12: The time you implement your plan in Step 11 you will need to build up a cash reserve for a down payment. Because lenders returned to stricter guidelines and practices, lenders require at least 20% down payment. If your credit score is not excellent, a higher down payment may be you only option.
Determining your budget can be tedious, time consuming, and discouraging but it is the most critical step. Taking the time and not taking short cuts to create a realistic budget will determine how much you can comfortably afford. Executing your plan to achieve your home-ownership budget will help you discover if your Reason to own a home is stronger than your Sacrifices. It is better to execute your plan first thus avoiding a major mistake which will be difficult to reverse. Also executing the plan will enable you, with discipline, build a cash reserve for a down payment. This stage of the home buying process can be lengthy depending on your current budget situation. Some folks can quickly complete this stage while others will take longer and manage the temptation to buy before financially ready. Completing your due diligence and patience in this stage will payoff tremendously down the road, even if you decide home ownership is not for you and your spouse. The home owners we help in foreclosure all say they wish they would have been more fiscally responsible instead of getting caught up in the emotion of buying a home more than they could afford.
The goal is to find a home which includes all your needs and as many of your wants which remain within your budget. We just covered the budget, next we'll discuss other financial considerations of this puzzle.
Your Real Estate Resource
http://www.buyhomesuperfast.com/
If you are an existing home owner or future home buyer, take advantage of this tremendous Buyers market we are currently in. When you add up the below market prices, historically low interest rates, and the new federal government tax credit there has never been a better time to own a home or upgrade your current home. Think about it!
Your Real Estate Resource is a professional Orlando Florida home buying company that buys houses at a discount and passes this discount on to our home buyers. Interested living or investing in Orlando Florida? Contact us houses for sale,because despite what the media says, this is the best time to be in real estate. Please visit our website at We Sell Houses or call 407-574-8775 to complete our buyer questionnaire to help us better find your dream home. We Sell Houses in and around these surrounding locations of Orlando Florida Altamonte Springs | Apopka | Avalon Park | Bay Lake | Belle Isle | Edgewood | Lake Buena Vista | Maitland | Ocoee | Orlando | Winter Garden | | Waterford Lakes | Winter Park | Eatonville | Oakland | Windermere | Azalea Park | Bay Hill | Bithlo | Christmas | Citrus Ridge‡ | Conway | Doctor Phillips | Fairview Shores | Goldenrod‡ | Gotha | Holden Heights | Hunters Creek | Lake Butler | Lake Hart | Lockhart | Meadow Woods | Oak Ridge | Orlo Vista | Paradise Heights | Pine Castle | Pine Hills | Sky Lake | South Apopka | Southchase | Taft | Tangelo Park | Tangerine | Tildenville | Union Park | Wedgefield | Williamsburg | Zellwood | Plymouth | Reedy Creek Improvement District‡ | University Park | Vineland | Altamonte Springs | Casselberry | Lake Mary | Longwood | Oviedo | Sanford | Winter Springs | Chuluota | Fern Park | Forest City | Geneva | Goldenrod | Heathrow | Midway | Wekiwa Springs | Kissimmee | St. Cloud | Campbell | Celebration | Citrus Ridge‡ | Lake Buenaventura | Poinciana | Ashton | Bull Creek | Deer Park | Harmony | Holopaw | Kenansville | Intercession City | Lake Marian Highlands | Narcoosee | Reedy Creek Improvement District | Yeehaw Junction | 
