Lender Talks Thru Buyer Example

Hi, I'm Ingrid Friel with Better Homes and Gardens All Seasons. I'm here with my friend Dan Eveland with TCF home loans. I am pretending to be an actual first-time buyer and Dan is going to talk through a scenario that we came up with. It might be close to your situation. We'll talk percentages a little bit too. So, hi Dan I am here to buy a house or would like to talk to you about buying a house and I just don't know if I'm going to start looking at listings how much house I should look at. You know what price point I should start looking at so what do you need to know for me? Great question, budgeting is is definitely important when starting to search for a home. And definitely something you want to do before you actually get out and actually go into some open houses. Or speak with the realtor about what price point you want to search for. I am a planner so let's start planning. Right what do I have to do here all right so let's just hypothetically say you make $70,000. A good rule of thumb 25 percent of your gross annual incomes of 70,000. Not what your net pay is on your paycheck but for qualifying will use your gross income so $70K will take 25% of that. It’s about $1,450 a month. Okay so that is you know in the ballpark of what you want to maybe keep your mortgage payment. You can obviously go slightly higher than that you could go lower it really comes down to your goals at the end of the day. Of what other expenses you might have or goals you want. If you want to travel and so forth. So 25%. I've kind of heard the math out there about take your income and multiply it by something. Is that something I want to do? Or do this 25%? I like to go off of a monthly payment. You can certainly multiply your income by three or four to come up with maybe a price point of what you'd like to purchase. But at the end of the day for qualifying and what's really going to affect you a monthly basis is gonna be that monthly payment. So that’s what I like to stick to. It's what really is gonna be comfortable when it comes to making that. So if we know the $70,000 and we know the monthly mortgage expense, does this tell me what purchase price of home I should buy? It does start to break that down. You know it depends too on... do I need mortgage insurance? This is going to include a lot of times you're homeowners insurance and your property taxes. Am I buying a townhome? Maybe I have an association payment. It’s not going to be included with this. So if your maximum payment needs to be $1,450 well maybe the price point needs to be lower. If you need to add certain things in like mortgage insurance and Association payments. Well there are a couple things you are going to fill in for me. So I need down payment money. All right. A minimum it's going to be about three percent. There are definitely options out there for our example sake we'll do three percent okay. Three percent of the purchase price for example. Be $250,000 which is
gonna be $7,500 okay I'm looking for a house this approximately 250,000. Okay and I've heard a lot about closing costs how do I know how much my closing costs are gonna be? You know they're going to be different than every property. Escrows are going to be slightly
different insurance and taxes are going to be a variable. A good rule of thumb to stick to may be about 3%. So another $7,500 okay. So 3% again and 7,500 okay for closing
costs and that's going to include setting up your escrow accounts for your property taxes and insurance paying the first year's annual premium for insurance. So that number is going to include that along with any possible discount points of what you're gonna do to buy an interest rate down. That’s great. So I would add these two numbers
together to estimate having some cash on hand for closing? Yes! So these two amounts are going to be what you would need in cash for the closing. There are some things that you can do to help lower that.

So it's a case-by-case basis. But those are good numbers to think
about. Okay. Well thanks Dan!

Dan Eveland with TCF home loans here today. And
I'm Ingrid Friel with Better Homes and
Gardens All Seasons. THANKS FOR WATCHING.

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