Buyer’s Mistakes

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Pre-qualified but not pre-approved – There is a big difference between the two. Pre-qualifying means that you have spoken to a lender about your financial situation and they have given you an estimate of what you can afford. Pre-approval states that you have already been through about 90% of the loan process; the lender has already verified your income, employment, debt and credit. (Usually, all that you need to complete the process is a purchase contract and property appraisal.) Pre-approval will give you a peace of mind knowing exactly what you can afford. This way, you won’t fall in love with a home that is out of your price range. It will also make the seller’s feel better about your offer since you are pre-approved, not pre-qualified.

Incurring Debt – If you are serious about purchasing a home, it is important not to increase your monthly debt. When you apply for a loan the lenders will use certain ratios to determine what you can afford. The ratios that they use are listed below:

FHA – 29% front end & 41% back end
CONV- 28% front end & 36% back end

What do the above figures mean to you? The front end percentage is the maximum amount that you can afford for a monthly payment, this includes principle, interest, taxes and property insurance. Also known as PITI. The back end is what your total debt cannot exceed. This includes the projected monthly payment, credit cards, car payments, school loans, etc, that you make on a monthly basis. Here is an example using the FHA ratios:

If you earn $60,000 a year the maximum monthly payment you can afford is $1,450.00 (29%) and your total monthly payments cannot exceed $2050.00 (41%). The difference between the two ratios is: $600.00. This means that you cannot have more than $600.00 per month being paid out to service other debt such as; credit cards, car payments, student loans, etc.

Now let’s say that your monthly debt is $200 more than the difference shown above (600+200=$800.00). The maximum monthly PITI payment you could afford will be reduced from: $1450.00 to $1250.00 so that you fit the ratios. I hope you understand how this could potentially affect you.

If you are considering buying a car, wait until you purchase a home first. Taking on a car payment before buying a home will reduce how much house you can afford.

Changing job professions – It is ok to have switched jobs in the same field. Going from a position as an IT (Information Technology) worker to a similar position with another company is fine, where lenders are concerned. However, going from an IT position to a restaurant manager is not the same. Lenders usually require that you have worked in the same profession for at least 3 consecutive years.

Very low offers – Submitting a low offer on property and asking the seller to pay all closing cost might upset the seller and ruin any chance of purchasing a home. This might not matter if you’re just looking for an investment property. A low offer may also be acceptable if it is a buyer’s market – you might find a great deal. If it is a seller’s market, however, you might not get a second chance to submit realistic offer.

If you plan to live in the home and need to offer a lower price, list the items that need attention in order to justify your offer. Make sure that you aren’t being too picky. Needing to replace the furnace, roof or driveway is understandable. Asking the seller to replace outlet covers, blinds and a new bathroom sink might be too much.