COMMON QUESTIONS FROM BUYERS
- What price home can I afford?
- How do I find out about the condition of the home I'm considering?
- How low of a price can I consider offering?
- How and what do I negotiate?
- What about my down payment, should I put more or less down, if we can afford it?
Question 1: What price home can I afford?
Lenders will analyze your income in relation to your projected cost of the home and outstanding debts. The ratio of your income to projected cost of the home (Gross Debt Service Ratio or GDSR), in addition, the ratio of your income to projected cost of the home plus all outstanding debt service costs (Total Debt Service Ratio or TDSR), will determine the size of loan you can borrow.
Gross Debt Service Ratio is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your loan, property taxes and hazard insurance, in relation to your income.
Total Debt Service Ratio on the other hand includes all costs of the home plus all other debt obligations in its relation to income. The range of acceptable GDSR and TDSR ratios varies among financial institutions and, in general, your GDSR and TDSR should not exceed 35% and 42 %, respectively.
Question 2: How do I find out about the condition of the home I'm considering?
Hire an accredited home inspector to inspect the home. While home sellers are required to indicate any significant defects or malfunctions existing in the home's major system, an accredited home inspector will inspect and report to you the condition of the home on a number of key areas such as: interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.
Question 3: How low of a price can I consider offering?
In general, a very low offer in a normal market might be rejected immediately. In a strong buyer's market, the below-market offer will usually either be accepted or generate a counteroffer. In a strong seller's market, offers are often higher than full price. There are other considerations involved:
1. Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, such an offer, even at full price, may not be as attractive as an offer without that condition.
2. Is the offer made on the house "as is," or does the buyer want the seller to make some repairs before the agreed upon sale completion date or make a price concession instead?
3. Is the offer all cash or mortgage pre-approved, meaning the buyer has waived the financing condition?
Question 4: How and what do I negotiate?
Different sellers price houses very differently. Some deliberately overprice, others ask for pretty close to what they hope to get and a few (maybe the cleverest) underprice their houses in the hope that potential buyers will compete and overbid. While any offer can be presented to the seller, a low-ball offer often sours a prospective sale and discourages the seller from negotiating at all. Also, before making an offer, investigate how much comparable homes have recently sold for in the area.
Question 5: What about my down payment, should I put more or less down, if we can afford it?
This is entirely up to the financial circumstances of the buyers. It may be more prudent to make a larger down payment and thereby reduce the amount of debt that must be financed. Once a buyer puts 20% or more as a down payment on their desired home, the financial institutions will waive the requirement for mortgage loan insurance.
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