Look Below the Surface

A good stager can minimize a multitude of flaws in a home, from awkward traffic patterns and dark bedrooms to dens without a wall long enough for a full-size sofa. As home sellers increasingly use staging to market their properties, however, buyers must learn to look beyond staging’s veneer of polish to see a home’s bones and blemishes.

“Buyers shouldn’t assume that a well-presented home is a well-maintained one,” says Jon Boyd, GRI, a broker-manager with Home Buyers Agent in Ann Arbor, Mich., and president of the National Association of Exclusive Buyer Agents.

NAEBA in 2006 surveyed its members and found that 82 percent of respondents said their buyers are likely to be distracted by staging.

The first time buyers walk through a house, they should concentrate on fundamental issues such as floor plan and a home’s location rather than on how furniture is arranged, Boyd says.

Here are some of Boyd’s tips for buyer’s reps:

• Don’t be dazzled by the light. Halogen lights can make a room seem larger, Boyd says. The same is true for torchiere-style lamps that reflect light up to ceilings.


• Don’t let shimmer hide realities. Mirrors and glass tabletops both make rooms appear larger. Measure each room to see how big it really is.


• Beware of tight spaces. Be sure that the furniture in a room is appropriate for the room’s use, Boyd says. A bedroom without night stands might prove cramped when you add in a full-size bedroom set.


• Also, look out for love seats. They’re an easy way to make a room seem larger. Encourage buyers to measure their furniture so that they’ll know how much room they need.

Staging puts a house’s best face forward, which is all well and good, but buyers need to look below the surface and think about what really will be important to them in a new home.

-- Realtor

Deciding How Much Home You Can Afford

Understanding how much you can afford is one of the most important rules of home buying. Depending on your individual situation, your budget can affect everything from the neighborhoods where you look, to the size of the house, and even what type of financing you choose.

Bear in mind, however, that lenders will look at more than just your income to determine the size of the loan. Likewise, you may find that there are some creative financing options that can help boost your purchasing power.

Loan prequalification vs. preapproval

One of the best ways to determine your budget is to have your real estate agent or lender prequalify you for a loan. Prequalification is different from preapproval, because it is only an estimate of what you'll be able to afford. On the other hand, preapproval is a more formal process where a lender examines your finances and agrees in advance to loan you money up to a specified amount.

What factors are important to lenders?

Banks and lending institutions will use several criteria to determine how much money they'll agree to lend. These include:

• Your gross monthly income
  
• Your credit history
  
• The amount of your outstanding debts
  
• Your savings--or the amount of money you have available for a down payment and closing costs
  
• Your choice of mortgage (i.e. 30-year, FHA, etc.)
  
• Current interest rates
  

Two important ratios

Lenders also use your financial information to figure out two, very important ratios: the debt-to-income ratio and the housing expense ratio.

• Debt-to-income ratio
  
  Many lenders use a rule of thumb that the amount of debt you are paying on each month (car payment, student loan, credit card, etc,) shouldn't exceed more than 36 percent of your gross monthly income. FHA loans are slightly more lenient.
  
  
• Housing expense ratio
  
  It is generally difficult to obtain a loan if the mortgage payment will be more than 28 to 33 percent of your gross monthly income.

Down payments make a difference

If you can make a large down payment, lenders may be more lenient with their qualifying ratios. For example, a person with a 20 percent down payment may be qualified with the 33 percent housing expense ratio, while someone with a 5 percent down payment is held to the stricter 28 percent ratio.

Other ways to improve your purchasing power

• Gifts
  
  If you're having trouble saving money, many lenders will allow you to use gift funds for the down payment and closing costs. However, most lenders require a "gift letter" stating the gift doesn't have to be repaid, and will also require you to pay at least a portion of the down payment with your own cash.
  
  
• Negotiating Closing Costs
  
  Through negotiation, some sellers may agree to pay all or most of your closing costs (for example, if you agree to meet their full asking price). If you choose to try this, make sure to ask your real estate agent for advice.
  
  
• Loan Programs
  
  Many local governments have special loan programs designed to help first-time homebuyers. Loans may be available at reduced interest rates, or with little or no down payments. Check with your local housing authority for more information.
  
  
• Loan Types
  
  Some homebuyers choose Adjustable Rate Mortgages (ARMs) because of low initial interest rates. Others opt for 30-year loans because they have lower monthly payments than 15-year loans. There are significant differences between different loans, so make sure to discuss the pros and cons of different loans with your agent or lender before making a decision.
  
  
  

Financial Records You May Need

A crucial step in starting your search for a new home is having a clear idea of your financial situation. By getting a handle on your income, expenses and debts, you'll have a much better idea of what you can afford and how much you'll need to borrow.

For lenders to verify this information, though, they're going to need to look at your financial records. It is also important to remember that you should include records for each person who will be an owner of the house. So before you even visit the bank, make sure you'll be able to provide copies of these important documents:

• Paycheck Stubs
  
  Remember that lenders are most interested in your average income. Not only will they want to see this month's paycheck, but also how much you've been making for the past two years. Steady employment is also more attractive to lenders, so if you've been hopping from job to job, be prepared to discuss the reasons why.
  
  
• Bank Statements
  
  In order to qualify you for a loan, most lenders will also ask you for copies of your bank statements. Ideally, they'd like to see a steady history of savings--or at the very least, that you're not bouncing checks every month.
  
  
• Tax Records
  
  It's always a good idea to save copies of your tax returns, especially if you're self-employed. If you own your own business, it's important to note that lenders generally consider your income as the amount you paid taxes on--not the gross income of the business.
  
  
• Dividends & Investments
  
  Lenders will usually consider long-term investment dividends, as well as your investment portfolio, when evaluating your income.
  
  
• Alimony/Child Support
  
  If you receive steady payments as part of a divorce settlement or for child support, you can also include this as part of your gross income. Just remember that lenders will want to see a copy of your divorce/court settlement verifying the amount of the payments.
  
  
• Credit Report
  
  Virtually every lender will want to see a copy of your credit report as part of the loan application process. The report lists all of your long-term debts, as well as your payment history. In general, they will require you to pay for the credit report (approximately $50), but if you have a recent copy, they may accept that instead.