Darcy Box

The first step in the home-buying process is to find out how much home you can afford. This will depend on the amount of cash you have available for a down payment, your credit, income, assets, and overall financial situation.

 Mortgage qualification is easier for buyers who work as employees whose income can be easily verified. Self-employed individuals or buyers with income from investments may find the qualification process more difficult due to the strict underwriting guidelines.

 As of Jan. 1, 2010, the Department of Housing and Urban Development (HUD) began requiring lenders and mortgages brokers to issue a binding Good Faith Estimate (GFE) within three days of receiving a loan application.

 Without a formal loan application, many lenders today will issue only a prequalification letter, which does not carry the weight of a preapproval letter. Find out from the loan representatives you talk with what kind of letter they can provide and what you have to do to get a preapproval letter. For your offer to be considered, a pre-approval letter is required.

 HOUSE HUNTING TIP: You are in a much stronger position negotiating with a seller if you have a preapproval letter stating that you are qualified for the mortgage you will need to close the sale. It could be essential if you are in a multiple-offer competition. A prequalification letter may suffice in an area where there is a surplus of inventory of unsold homes.

 My advice to buyers is to buy in the best neighborhood you can afford without overextending yourself financially. Don't buy a home that you will outgrow in the next couple of years. You don't want to be caught having to sell at a price lower than what you paid.

 Buy a home that has good resale potential. Many homes that aren't selling in today's market have incurable defects, such as a steep or shared driveway, a lot of stairs leading to the front door, or a location on a busy street, next to a freeway or too close to a commercial zone. An incurable defect is one you can't change. A curable defect includes such things as deferred maintenance or an outdated décor. These can be improved.

 When home prices are escalating, buyers are more willing to compromise. They'll buy a home with an incurable defect, just to have the opportunity to buy in their desired neighborhood. Sellers don't always have control over when they sell.

 It makes sense to buy a house that has broad-based appeal and will sell well in any market.