Starting your search

One of the first things you should do as a buyer in this fantastic buyers’-market is find out your buying power. I advise shopping around since different lenders have different products. On the one hand, there is a myth that several credit checks will ruin your credit score- not true if you are shopping for a car, student loan or home. However, this is typically done in a short period of time. Check the internet or with your lender to find out their opinion.

For example, if you estimate you will be ready to buy six months from now, you will likely want to get prequalified in 3-4 months. However, a rule of thumb is that you do not want your mortgage payment to exceed 28% of your gross (before taxes) monthly income. So, if your household income is $50,000 a year, your monthly gross income is $4,167. You don’t want your monthly payment to be more than $1,167.

A monthly payment is comprised of PITI. This is an acronym for Principal, Interest, Taxes and Insurance. In many cases, a monthly payment will also include a fifth component: PMI or Private Mortgage Insurance. PMI is insurance for the lender, not you (even though you pay for it). If you default on your mortgage, the lender gets paid. It is typically applied to mortgages where the principal you're financing is greater than 80% of the value of the home.

Conversely, that means you have saved up 20% or more down payment for the loan. For example, if you are purchasing a home that appraises for $100,000 and you’ve saved up 20% for the down payment (or $20,000) then your principal will only be $80,000 and you shouldn’t require PMI. Plus, depending on your loan product, your monthly payment will be about $520 per month.

Keep in mind, this payment depends on a lot of things. It assumes the tax value of the property is about $80,000 at a local (High Point) tax rate. It also assumes the interest rate on your loan is true to today’s interest rates: somewhere around 4%. Get shopping!