First Time Home Buyers Wanted in Westchester

First Time Home Buyers Wanted

By Sol Skolnick

If you are a potential first-time home buyer you should be planning now. Sellers are especially eager to meet you in this market because you don't have to sell your home in order to buy theirs.

Existing inventory in Westchester has increased and prices have moderated. Although the decline of home prices became incontrovertible in our area later than in many other locales it did arrive in the second half of 2008. Have we hit the bottom of the market? No one knows. The paradox is that we won't actually know that prices were at their lowest point until they start to rise again. Don't try and time the market. Seek value based on your needs. Be smart. Don't wait until you are ready to go house hunting to put your financing in place.

Check with your accountant to determine that the potential equity growth and tax benefits of home ownership are better for you than renting. Here's how to estimate how much house you can comfortably afford. Most loans can carry (except for FHA insured loans whose ratios are lower) a front-end ratio to a maximum of 33-38% of your (and your co-borrower's combined) verifiable gross income. This front-end ratio, comprised of the total of Principle, Interest, Taxes and Insurance, is referred to by the acronym PITI. The back-end ratio, including the entire amount of PITI and your credit card, auto, student loans etc. can usually go to a maximum of 45-50% (again lower for FHA insured loans) of your gross income.

Here's an example using a front-end ratio of 33%: if your monthly gross income is $8333 your PITI cannot exceed $2777.50. If your projected property taxes are $10,000 per year ($833 per month) and homeowners insurance cost $960 annually ($80 per month) you have up to $1804 to spend on monthly Principle and Interest. With an interest rate of 5.25% applied to a 30-year fixed loan you could qualify for a mortgage of up to $326,691. This assumes, again, that the balance of your debt is within the 45-50% back-end ratio.

You also need to asses your assets to verify the amount of money that you have on-hand to be used for earnest money - the deposit you make on the home when you go to contract, which will later be applied to the down payment when you purchase (close-on) the house; the balance of the down payment and money for closing costs. You will also need to show that you will have several months' worth of PITI reserve funds after the closing.

Closing costs in Westchester average 3-4% of the purchase price. You are entitled by Federal Law to receive a Good Faith Estimate (GFE) enumerating these costs within three days of submitting your loan application through a mortgage broker or a direct lender. Closing costs include an appraisal, fees for the attorney who represents the lender; lender's loan origination fees, survey, recording and document preparation fees; interest from the date of closing to thirty days before the first monthly payment is due; property taxes; NYS mortgage tax of $1000 for every $100,000 of the loan, title insurance covering you and your lender, a paid receipt of up to one year of homeowner's (hazard) insurance; money to establish the escrow account that your lender will hold to pay future property taxes and hazard insurance premiums and mortgage insurance if your down payment is less than 20% of your purchase price. You will likely want to have an attorney represent you but that cost is not part of the GFE.

It's not time to contact a lender for pre-approval (not pre-qualification) letter just yet. Pull your credit reports from all 3 agencies to verify the accuracy of information; and get a clear understanding of your current debts and payment schedules, and your FICO scores. Next, gather the social security numbers for you and any co-borrowers; copies of your checking and savings account statements for the past 3 months; recent consecutive statements for other assets such bonds, stocks, investments accounts and 401Ks; two recent paycheck stubs; copies of bank checks given to you as gift money (if any) towards the purchase, W-2s, and signed Federal Income Tax returns for the two previous years.

Solicit referrals from people whom you trust, so that you can interview potential brokers or lenders for their rates, cost and terms. Once you have chosen a lender request a pre-approval letter. This letter will confirm that you have the financial wherewithal to fund your purchase as it granted by representative of the lender after assessing your eligibility for a mortgage based on the information described in the previous paragraph. Now you are prepared to meet a realtor and be greeted with open arms by sellers.