Belize Real Estate Links 
| Belize Real Estate Links | |
| |
|
Real Estate Information |
|
|
|
How to Prequalify a Buyer When You Sell Your Home By Owner
One questions many "for sale by owner" sellers ask is "how can I determine if a potential buyer can afford to buy my house?" In the real estate industry this is referred to as "pre-qualifying" a buyer. You might think this is a complex process but in reality it is actually quite simple and only involves a little math. 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.
MORE RESOURCES:
Google News |
|
|
|
RELATED ARTICLES
Selling Your Home - Alone or with a Broker? How do you decide whether to sell your home (or land, farm, ranch, etc.) on your own or use a real estate broker? There are pluses and minuses to each approach. 3 Tips to Help You Sell Your Timeshare - For More The values of timeshares are constantly changing. There are numerous timeshare-selling companies arriving every day. Selling Investment Houses: Props & Profits New Marketing and Design Psychology ideas help you stage homes for sale to motivate buyers and generate top dollar. Instead of leaving investment houses vacant, my husband and I add a few props to increase our profits. Real Estate Research By Talking Real estate research might start with a look at the U.S. An Overview of Easements Title insurance is generally associated with insuring a purchaser's or lender's interest in a particular piece of real estate. The right to use an easement is often considered less important than unencumbered title of the insured parcel. FSBO Novel Preface PrefaceWe are For Sale By Owners, "FSBOs." We spend our time trying to sell ourselves and others on what we are doing or what we want to believe. Creative Real Estate Investing With a job that paid $3.40 an hour, I saved $5,000. Five Ps of Selling Houses 1. Planning:Know Your Target BuyersThink about your neighborhood and the buyers purchasing homes near your property. 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. How To Negotiate A Higher Price For Your House Negotiation is where many FSBO home sellers really have problems. The wrong attitude or a slip of the tongue could cost you thousands. Easing Your Way Into Homeownership: A Guide To Low Down Payment Mortgage Programs There's no question about it: Buying a first home is a big financial commitment. In most cases, a home is the largest single purchase an individual or family will make in a lifetime. Buying and Selling Real Estate: Negotiating to Win-Win You don't get what you deserve - you get what you negotiate for.If you've spent some time on homekeys. Real Estate Investing By The Numbers Just like most things real estate investing can be broken down into easy to learn step.Step One - Learn the basics:Ownership of real estate is evidenced by a valid deed. The Best Way To Get Real Estate Listings The Real Estate Industry is HUGE and is a golden opportunity for real estate agents. National average home sales exceed $200,000. Why is Now the Time to Buy in Turkey? Turkey is a paradise of sun, sea, mountains, and lakes that offers the vacationer a complete change from the stress and routine of everyday life. From April to October, most places in Turkey have an ideal climate that is perfect for relaxing on sandy beaches or enjoying the tranquility of mountains and lakes. How to Buy Your Own Home Buying Your First HomeBuying Your Own Home isn't nearly as complicated as some folks make it out to be. Your first step should probably be to contact a Mortgage Broker (check out the on-line Mortgage Companies on my Site -- they're a great way to quickly find out how much you qualify for, and they often have better rates than the standard Banks. Selling Houses: The Basics of Design Psychology I'm often asked about the basics of Design Psychology, which offers innovative interior and exterior design ideas for increasing profit and shortening market time. In reply, I begin by saying that Design Psychology's strategies go well beyond normal cleaning, painting, and repair. Writing on the Wall - Are REITs a Better Investment for You? When I was a young child I had many annoying tendencies. My mother explained to me that the most annoying was my need to write on the walls of every room. Where To Start In Looking For A Central Illinois Realtor Central Illinois is an excellent location for families and businesses. Property values and local economies are growing constantly and the wide range of available properties is impressive. Is 100% Annual Return On Investments Possible With Low Risk Land Investments? In last week's article, we discussed how substantial profits could be made by investing where baby boomers may want to relocate or buy a second home. This seemed to confuse readers since they were thinking that our web site is about preconstruction and preconstruction to them means buying condos?? In this article, I hope to broaden your horizons considerably.
|
| home | site map | Colorado Log Homes | Homes for Sale in Denver Metro |
| © 2006 |
