First Time Homebuyer Series - Part 2: Loan Prequalification

In Part 1 of our First Time Home Buyer Series, we talked about tracking your spending, saving for a down payment, and making a budget. In this installment, we will look at the next step, Loan Prequalification.

What is loan prequalification?

In the simplest terms, loan prequalification is the process in which you get pre-approved for a specific loan for a specific amount. This process is done with a lender like our lending partner Mark Daker at Fidelity Bank. You can find lenders in lots of places - your bank, credit union, and online to name a few. Personally, I think it is important to work with someone who has an expert knowledge of lending and who will take the time to understand your personal situation. A variety of loan products exist, and it is important to find the one that best fits your housing goals. Also, you aren't locked into using the lender who prequalifies you, so unless you have a really unique situation, I wouldn't suggest getting multiple prequalifications.

The lender will ask you a variety of questions about your financial situation. Always be truthful and forthright in this process even if you think that something in your financial picture will be harmful. You don't want to and can't hide this information as you go through the loan process. By telling the lender up front, it allows you to make any changes or make preparations to get over these hurdles.

Once the lender collects your information, they will be able to tell you what loans will work for you and what price house corresponds to the monthly payment you targeted in your personal budget. We will use this price to start your house hunt. It is also common for buyers to be approved for more than what they really want to spend on a monthly basis. Just because you are preapproved doesn't mean you have to spend it Stick to your budget!

Why should I get prequalified?

Once you are prequalified, you will know the answer to some of the biggest questions in the home buying process. The lender will be able to tell you:

- The required down payment
- The interest rate of your loan
- The monthly payment
- The house price that corresponds to that monthly payment

These answers will just be estimates, but the lender will make sure you know everything that needs to be estimated. If you use a simple online mortgage calculator, you are likely to miss something from closing costs to PMI to taxes to home owners insurance. The lender and your Realtor can walk you through each of these costs.

The other big reason to get prequalified is to help you find your dream home. The prequalification will make sure that you are looking at houses in a price point that you can afford. When I first started helping people buy houses, I didn't require buyers to get prequalified before we started looking at houses. I can't tell you how many times we looked at houses that my clients could not afford. They often made estimates on their own and missed key components. It's heartbreaking to find a house you love and then find out you can't pay the price.

At the end of the prequalification process, the lender will give you proof of prequalification in the form of what is commonly called a "prequal letter". We will need this letter when we submit an offer for your new house. Every seller wants to see that the buyer has the ability to get a loan that will allow the buyer to pay for the house. This letter serves as proof. Often, when we find a great deal, we have to submit an offer ASAP! If we don't have the prequalification in advance, it can delay our offer and hinder our chances in getting the house.

The bottom line is that a prequalification will answer many the financial questions about home buying and put the buyer in position to start searching for their dream home!

If you are at this stage in the process, call a lender you know or call Mark Daker, 770-649-4949, to get prequalified.

Justin Landis
Keller Williams Realty Peachtree Road
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series - Part 1: Personal Budget

Most conversations about buying your first home start with money.

Buyers ask "Can I afford to buy a house?" and if so, "How much house can I afford?" I always ask buyers to take one step back at this point. We can't answer the previous questions until you have a solid grasp on your current financial situation. You may have even spoken to a lender and found out that you are pre-qualified for a loan. However, just because you are pre-qualified, doesn't mean that buying a house is a wise decision. We may find that you can easily afford a certain price house, or we may find that it's better to keep saving for another year or two.

Here are some basic steps to assessing your current financial situation and then making a budget for moving forward.

1. Track Your Income and Spending

Until you know how much money you bring home and how much you are currently spending, it is impossible to make a budget. You will just be guessing! After a few months of tracking your spending you will see how much you really spend eating out, at the sporting goods store, or shopping online. You will also see how much you actually have to spend after Uncle Sam takes his cut.

You can track your spending the old fashioned way by saving your receipts and logging your expenses in a spreadsheet. However, there are lots of great FREE tools available now. One of my favorites is a website called Mint.com. Mint allows you to enter in all of your checking, savings, credit cards, and investment accounts into one very friendly interface. They have great tools for you to see where your money goes each month. Once we get to the budget step, you can even do this in Mint.

2. Establish Reserves

I'm no financial planner, but the first thing most financial gurus tell you to do is to establish reserve savings. I usually hear them say to have 2 to 6 months of reserves in savings. That is 2 to 6 times what you normally spend each month. This is your safety blanket in case you face unexpected expenses, a job loss, etc. In most cases, if you don't have this extra cash in the bank IN ADDITION TO your down payment, I would say to think long and hard about buying a house at the current time.

3. Make a Budget

I love the advice given in a financial study that my wife and I did called, Balanced. The study said to set your budget in this order:

- Give
- Save
- Live

Their advice was to first determine how much you want to give to charity, second determine how much you want to save, and lastly divide up your remaining income into living expenses. The great thing about this advice is that you are always helping others, and you are always saving for your future. No ifs, ands or buts about it.

As I mentioned earlier, Mint.com has a great budget tool that allows you to set and track your budget online. Most people like to break their budget into categories such as Gas, Grocery, Dining, Insurance, Travel, Shopping, etc. Take a look at your historical expenses in each category and see if you think those are realistic numbers moving forward. Once you have numbers in all of your categories, we are particularly interested in what you can comfortably spend each month on housing.

4. Determine your Desired Monthly Payment

Once you've tracked your spending and set your budget, you should be able to see what you can spend each month towards housing. If this number is lower than you hoped, you may be able to tweak it by paying off a car, paying off a student loan, or cutting back on some extra expenses.

This number is important because we will match it up with a housing purchase price to determine what housing price point is right for you. We will talk more about how this monthly payment correlates to how much house you can afford in the next part of the series - Loan Pre-qualification.

Additional Resources

There is no shortage of information to help you with your finances. Lots of financial superstars have written entire books on this topic. I just tried to hit the highlights. I have read a few books and completed a few studies on personal finances. I have a some favorites, and depending on your current situation, I'm happy to share my suggestions with you.

Justin Landis
Keller Williams Realty
404-803-0471
justin.landis@kw.com

First Time Homebuyer Series

The beginning of the year is the time when many potential home buyers start thinking about whether this year will be the year that they buy their first home. I've been fortunate enough to talk through this decision many times over the years, and through those conversations, I realized that most first time buyers have the same questions and concerns.

Over the next few weeks, I'll try to address some of those questions in a First Time Homebuyer Blog Series.

For those who love foreshadowing, the topics I'll cover are:

1. Personal Financial Budget
2. Loan Prequalification
3. House Hunting - Where to Start
4. House Hunting - What to Expect
5. Foreclosures and Short Sales
6. Making and Negotiating an Offer
7. Inspection Period
8. Closing Day
9. Enjoying your New Home

If you have any specific questions, send them my way and I will try to address them. Also, if you are looking for your first home, being a part of that process is one of my favorite parts of being a Realtor. Give me a call!

Justin Landis
Keller Williams Realty
404-803-0471
justin.landis@kw.com

Atlanta Snow - Enough Already!

Like most Atlanta residents, I was pumped about having actual snow in the city. On Monday, there were more people in Grant Park than any other time since the Summer Shade Festival and the Grant Park Criterium. Adults, children, and dogs were all enjoying the winter wonderland.

On Tuesday, quite a few folks were still sledding and building snowmen.

On Wednesday, the park was essentially empty and the snow turned into an ice. It was more of an ice skating rink than a snowy wonderland.

Today, everyone is ready for things to get back to normal. Where is our 50 degree weather?

A friend sent me this graphic, which I think perfectly describes what we are all thinking! Click on it for a larger picture.

East Atlanta 4/3 for only $229?!?!

The last few years I bet most of the people you know who purchased homes told you that they got a good deal. However, I know that when you are looking for yourself, it can feel like all the good deals are gone. Look no further! The price was just dropped on this completely renovated 4 bedroom / 3 bath home only one mile from the East Atlanta Village. The home has brand new systems, roof, kitchens, and baths. Not to mention a finished basement that makes the home's square footage over 2500 sq. ft.!

This is going to be the best price anyone has gotten on a 4/3 within a mile of East Atlanta in all of 2010 or 2011. Now, that's a deal!

For complete details and lots of pics of the home, click here - 2128 Cedarbrook Ct.

Justin Landis, Keller Williams Realty, justin.landis@kw.com

Property Tax Savings - Homestead Exemption Info

Welcome to 2011! With the start of the New Year, it’s never too early to begin thinking about taxes. As you know, buying a home can be a tax advantage for several reasons. One of those is a property tax discount known as the Homestead Exemption.

Georgia allows homeowners to claim a Homestead Exemption as a tax benefit that could amount to considerable annual savings. This exemption reduces the assessment from which the country calculates your property tax bill; therefore, reducing your property tax burden. To qualify for the property tax exemption the Homeowner must occupy the home on or before January 1 and file for Homestead Exemption with the tax office of the county where you reside. Filing deadlines and requirements vary by county. We've included links to the appropriate web sites for each county below. As always, contact us with any questions. Hope everyone has a Happy 2011!

Cobb

Dekalb

Forsyth

Fulton