|
|
| www.1001TopWords.com |
|
|
How to Prequalify a Buyer When You Sell Your Home By Owner
Before we get to the math there are a few terms you should understand. The first is PITI which is nothing more than an abbreviation for "principal, interest, taxes and insurance. This figure represents the MONTHLY cost of the mortgage payment of principal and interest plus the monthly cost of property taxes and homeowners insurance. The second term is "RATIO". The ratio is a number that most banks use as an indicator of how much of a buyers monthly GROSS income they could afford to spend on PITI. Still with me? Most banks use a ratio of 28% without considering any other debts (credit cards, car payments etc.). This ratio is sometimes referred to as the "front end ratio". When you take into consideration other monthly debt, a ratio of 36-40% is considered acceptable. This is referred to as the "back end ratio". Now for the formulas: The front-end ratio is calculated simply by dividing PITI by the gross monthly income. Back end ratio is calculated by dividing PITI+DEBT by the gross monthly income. Let see the formula in action: Fred wants to buy your house. Fred earns $50,000.00 per year. We need to know Fred's gross MONTHLY income so we divide $50,000.00 by 12 and we get $4,166.66. If we know that Fred can safely afford 28% of this figure we multiply $4,166.66 X .28 to get $1,166.66. That's it! Now we know how much Fred can afford to pay per month for PITI. At this point we have half of the information we need to determine whether or not Fred can buy our house. Next we need to know just how much the PITI payment is going to be for our house. We need four pieces of information to determine PITI: 1) Sales Price (Our example is 100,000.00) From the sales price we subtract the down payment to determine how much Fred needs to borrow. This result brings us to another term you might run across. Loan to Value Ratio or LTV. Eg: Sale price $100,000 and down payment of 5% = LTV ration of 95%. Said another way, the loan is 95% of the value of the property.
2) Mortgage amount (principal + interest). The mortgage amount is generally the sales price less the down payment. There are three factors in determining how much the P&I (principal & interest) portion of the payment will be. You need to know 1) loan amount; 2) interest rate; 3) Term of the loan in years. With these three figures you can find a mortgage payment calculator just about anywhere on the internet to calculate the mortgage payment, but remember you still need to add in the monthly portion of annual property taxes and the monthly portion of hazard insurance (property insurance). For our example, with 5% down Fred would need to borrow $95,000.00. We will use an interest rate of 6% and a term of 30 years.
3) Annual taxes (Our example is $2,400.00)/12=$200.00 per month Divide the annual taxes by 12 to come up with the monthly portion of the property taxes.
4) Annual hazard insurance (Our example is $600.00)/12=$50.00 per month Divide the annual hazard insurance by 12 to come up with the monthly portion of the property insurance.
Now, let's put it all together. A mortgage of $95,000 at 6% for 30 years would produce a monthly P&I payment of $569.57 per month. This figure was produced by our payment calculator. Add in taxes of $200.00 per month and add in insurance of $50.00 per month and the PITI necessary to purchase our house equals $819.57.
Putting it all together From our calculations above we know that our buyer Fred can afford PITI up to $1,166.66 per month. We know that the PITI needed to purchase our house is $819.57. With this information we now know that Fred DOES qualify to purchase our house!
Of course, there are other requirements to qualify for a loan including a good credit rating and a job with at least two years consecutive employment. More about that is our next issue. Bruce Andrews has been in the real estate business for over 20 years. He has experience in real estate investing as well as practicing real estate as a broker for several years. He is currently President of Fifty States Realty, www.fiftystatesfsbo.com a national "for sale by owner" website.
|
|
|
|
RELATED ARTICLES
Purchasing International Real Estate Interested in investing somewhere other than your back yard? How to Price Your Property? A house properly priced is half sold. But there are plenty of ways to price it improperly.. * You can't go by what you paid for the place. Perhaps you bought two years ago when local prices were skyrocketing, and things have cooled off since. Perhaps houses like yours can now be bought for less, and if you hold out for what you paid, you'll just waste your time.. On the other hand, perhaps prices in your area have taken off, and you'd short-change yourself if you just tried to "get my money out" (but you'd have a fast sale.). * You can't go by how much you've spent on improvements. A given street will support only a given price range. If you've invested so much that yours would be the most expensive house on the street, the buying public is not likely to reimburse you.. * You can't go by your tax assessment figure. Even in communities that aim at full-value assessments, the figures are almost never in line with what buyers are currently ready to pay.. So how do you price your house?. By putting yourself in a buyer's shoes.. What else is for sale in the area? How does it compare with your house? How long has it been on the market? What has sold recently, and how much did the buying public value it at? What has failed to sell in the past year?. Any good broker can furnish the data you need, often in the form of a chart known as a CMA, Comparative Market Analysis. . And once you have it, again think like a buyer. What price would it take for you to look at a list and say to an agent "Take me to see that one"?. Find Out If There Are Sexual Predators Nearby Before You Buy A Home or Property! When looking for a new home or property, buyers ask many questions. Typical questions might be about the history of the property, property tax amounts, the school system, proximity to medical facilities, shopping malls, etc. Of course these details are important but fall short of getting all the information necessary to make an informed purchase. Investing In Real Estate Investors With the never-ending changes in our Real Estate Markets real estate professionals are starting to pay attention to the sound of new commission streams of income. Some realtors have either shied away or ran-away from such terms as "Cap Rate," & "Cash-on-Cash Returns." Terms that only the 'smart' and 'numbers-oriented people use to determine if a Real Estate purchase is a "Good Deal", or not. A majority of the realtor brethren attended real estate school because they are excited and passionate about the promise of selling real estate and making a fantastic living. That being said "Times are a Changing." Even if you live in a Hot Market where residential real estate sells in 2-3 days there is an old approach to real estate that is growing faster by the day?..Residential Real Estate Investors. Real Estate Investing - So You Want to be a Landlord! Is landlording the way to go if you are starting into real estate investing today? Ten Steps for Becoming a Successful Real Estate Investor The secret to success in real estate investment is finding bargain properties that you can "flip" quickly for a profit. Here are a few ideas for becoming a successful investor: Be Patient Screening Tenants Rental real estate is a solid way to make money. I'm particularly fond of residential properties, because people have to live somewhere. But it's not for the faint of heart. Golf and Waterfront Living: Live, Play, Relax With today's planned lifestyle communities, golf and boating enthusiasts have an opportunity to purchase the home of their dreams just a chip shot away from the green or stone's throw from the marina. In addition to an ideal home setting, golf and waterfront community residents enjoy an active and diversified lifestyle experience complete with first-class golf courses, marinas, beaches, spas, clubhouses, recreation areas, fine dining and countless other amenities. Out of the 10,000 master planned communities across the United States, over 2,500 are built around golf courses and pristine waterfront property. Making sense of all the options can be mind boggling. If you are thinking about relocating to one of these golf and waterfront communities, it is imperative to be able to distinguish one community from the next and more importantly, know what to look for before you buy. In the past, golf and waterfront master planned communities catered to distinct segments of the housing market, namely middle to upper income empty nesters and retirees. Things have changed. Today, golf course and waterfront developments are designed to accommodate budgets of all levels and generally fall into one of two categories: multi-generational and age restricted. The construction of multi-generational communities represents a recent trend in planned community home building. The underlying idea is to attract a diverse population of families including retirees and young professionals of varying income levels and backgrounds in order to establish a robust and vibrant community. After decades of building age restricted communities, builders and developers have recognized that the traditional elements of planned community living such as security, on-site amenities and low maintenance housing appeal to home buyers of all ages. Most new communities are multi-generational developments. Vistancia situated in the beautiful Sonoran desert outside of Peoria, Arizona is a recently opened golf community attracting individuals and families of all ages. Since home sales began in March 2004, almost 500 families have moved into this scenic development with 1,700 total acres of open space and a 900-acre mountain preserve. Conversely, age restricted planned communities are developed for the +55 home owner with amenities and facilities for today's discerning empty nester and retiree. Typically, the age restriction requires one household resident to be at least 55 in order to qualify for home ownership. Over the last decade, an evolution has occurred with the age restricted community model of yesteryear making way for contemporary activity based developments complete with lavish amenities and world-class recreation areas, not to mention the conventional facilities required by the +55 demographic. The undisputed leader in age restricted master planned community development is Del Webb. Since the 1960s, Del Webb has constructed numerous age restricted golf and waterfront communities across the United States. Del Webb's Sun City developments are arguably the most recognizable line of age restricted communities stretching from coast to coast with Sun City Hilton Head in North Carolina and Sun City Lincoln Hill in California. The most important criterion in selecting a traditional home is location and the same is true when deciding on a golf and waterfront community. The old adage "location, location, location" aside, one has to consider whether the new property will serve as a primary residence, second home getaway or retirement abode. The final location decision is generally based on three primary factors: home use, surrounding area and local weather. For most of us working folk, our primary residence is located within an hour or so of a major metropolitan center. Don't fret, there are hundreds of golf and waterfront communities centrally located within driving distance from most major metropolitan areas. If by chance you live near Dallas, you have several options to choose from including Stonebridge Ranch in north Dallas and Black Horse Ranch which is only 25 minutes from downtown. Washington D.C. commuters are also in luck with conveniently located golf and waterfront communities in Virginia, Maryland and Delaware. Belmont Country Club, a Toll Brothers property, is a mere 40 minutes from Washington D.C. in Ashburn, Virginia. These examples represent only a fraction of the actual number of suburban golf and waterfront developments. The location decision is a bit more complicated and not as clear cut when one considers purchasing a second home retreat or retirement residence. In this situation, other factors come in to play such as the activity and cultural richness of the immediate area and of course, local weather. If you are looking for a second home, would you like to be nestled in the woods away from the hustle and bustle of the city, located in a more suburban area or some in between? Climate is also an integral factor to take into consideration when purchasing a home particularly if you are feeling abused by recent harsh winters. This may clearly point to a direction that takes you out of your home state or even to another part of the country. Conversely, the summer's never ending heat may drive you to consider the cooler climates up north. Fortunately, there are 2,500 golf and waterfront communities spread out across the United States from Minnesota to Texas and California to Massachusetts. What is clear in the case of retirement homes is that good local health care and transportation facilities are a must. For most retirees, living over 60 miles away from the closest hospital or airport is just not an option. In the end, it comes down to striking a balance between modern necessities and the beauty of the great outdoors. Once you have settled on a geographic location, the next area to focus on is amenities. These can vary greatly from one golf and waterfront development to the next. Typically, these expanded 'goodies' fall into two categories: conveniences and lifestyle enhancements. Conveniences include such things as security services, home maintenance, gardening services, concierge service, on-site retail and office space, cable television and high-speed internet. Lifestyle enhancements relate to recreation activities and rest and relaxation befitting an enhanced life of leisure. One can find a mix of facilities at planned communities which support numerous activities like tennis, hunting, boating, skiing, and hiking. To balance the rigors of recreation, planned communities provide residents with rest and relaxation amenities such as spas, clubhouses, wilderness preserves, pools, beaches and fine dining. With real estate opportunities for every budget, isn't it about time you looked into moving to a golf and waterfront community that offers unbelievable vistas, year round activities, low maintenance living and first-class amenities? Real Estate Investing - Maximum Leveraging of Your Money At this moment, you have access to some amount of money, from the extremes of only pocket change to the reserves of Bill Gates or Warren Buffet. Important Information For Condo Buyers Here is a step by step guide for buyers looking to buy a condo in any area. These are important tactics to make a solid and accurate judgement on the property you're looking to purchase. High Profit Real Estate Investing--Make a Good Deal Every Time! Knowing what a Good Deal is ? Is the Key to Success inReal Estate. New Homes in Ridgefield Location: Real Estate Wealth Protection Through Short Sales Is a sharp correction in store for the real estate market? Real Estate Investments Real estate investments come through a variety of different options. However, whether it is a vacation property, a first home, an early retirement house, or a rental property that you find appealing, real estate investments are all the rage, and are quickly becoming one of the safest investments available, especially in our less-than-perfect economy. Commercial Income Property Financing: Part 1 of 3 Welcome to this first portion of a three-part series about income property. In this first segment we will be discussing financing options for commercial income properties as well as the upside (and downside) of owning this type of property. Why A Final Inspection Is Necessary In the sales contract, the sellers of your new home agreed to leave all the light fixtures, custom blinds, and refrigerator. When you walk in the home on moving day, to your surprise, all of those things are gone. In addition, the locks on the back door are broken; there is a huge stain on the living room carpet, and the garage opener doesn't work. Juggling The Day With A Deal Doing deals with sellers is why you went into lease purchasing. Again, using organization and time management is very important here. An Ideal Way to Purchase Your New Home without Strict Banking Regulations You've searched high and low around town looking for thatspecial home for you and your family. Everyone agrees that"this is the one"! Your down payment for the home is largeenough, but you know your credit is terrible, or worse,practically non-existent. Mechanics Lien on Your House In many places you can buy a house and a contractor can put a lien on it within 90 days of construction or delivery of materials. For example if a contractor fails to pay a subcontractor he/she can place a lien against your real estate. Home Equity Loans ? Beware of Appraisal Fraud A new report by the independent Demos group has revealed what may not be a surprise to many people ? corruption is rampant in the home appraisal industry. The bust in the dot-com market of some five years ago has left would-be lenders with a surplus of cash to lend. This has led to a huge boom in both mortgage and home equity loan lending. That's not a bad thing; a record 69% of Americans now own their own homes. Owning a home is easier than ever; in 2004 the average down payment was a record low of only three percent.So if everyone is buying a home, and loans are easier to obtain than ever, what is the problem? The problem is that nearly 55% of the appraisers polled in the survey said that they had been pressured by lenders to deliver appraisals that met a "target" value. The appraisers said that failure to meet the "target" value resulted in either their not being paid, or not being hired again. Since most appraisers want to keep working, they have had a tendency to meet the target value, even if it means that they have overestimated the value of the property. This drives prices artificially higher and leaves many homeowners with mortgages that may be worth more than the homes they were meant to finance. This problem becomes acute should the owner need to sell the home, only to discover that it isn't worth as much as he or she owes on it. The worst-case scenario to result from this would be a burst in the current real estate "bubble" and a nationwide collapse in home values, leading to massive foreclosures. This probably will not happen, but there are several things prospective borrowers can do to avoid being caught in the appraisal trap:
|
| © Athifea Distribution LLC - 2013 |
