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Homebuying Tips

From RBC Bank


RALEIGH, N.C. – March 10, 2010 – Buying a house can feel a little overwhelming – for experienced homeowners and for first-time homebuyers alike. For those considering taking the plunge into the housing market for the first time – or re-entering – the first thing to do is understand how much you can afford to pay on a monthly mortgage.

One rule of thumb is that you should be able to afford a mortgage of 2.5 times your annual take-home pay. So, if you make $100,000 a year before taxes, you might consider exploring houses that are priced around $250,000. But just having a sense of how much mortgage you can afford is not the same as understanding how much mortgage you might qualify for depending on your specific situation. To get a better sense of how much of a mortgage you might qualify for, it helps to look at your finances the way your mortgage banker would. Some helpful tips include:

  • Review your credit reports (annualcreditreport.com)
  • Stay current on existing loan payments
  • Minimize credit card balances
  • Prepare to explain past credit problems
  • Practice living on a realistic budget

"Buying a house is one of the most significant financial events for individuals and families," said Brent Bizyak, vice president of Financing Products for RBC Bank. "At RBC Bank, we’re focused on building relationships with our clients to ensure we are providing them with the best products, services and advice based on their individual needs so that their homeownership goals can become a reality."

Here’s some more helpful information to consider when buying a home:

Before you go to an open house

Consider going through the mortgage preapproval process before you seriously start exploring the real estate market.

A good first step is finding a mortgage provider. Ask friends and colleagues for recommendations, but know that you will want to shop around for a mortgage specialist who can provide you with the product and services that best fits you. When you’ve found the lender that can meet your needs and you feel that your credit history reflects you at your best, you can apply to be preapproved for a mortgage.

The preapproval process involves the lender’s underwriters looking at your personal financial records. For example, you will need to have tax documents for recent years, among other documentation, for them to evaluate your ability to repay the potential mortgage.

Once you are pre-approved, you can shop for your house knowing how large a mortgage you can consider and start looking for properties that meet your criteria and budget. It’s a buyer’s market this spring, and with a mortgage preapproval in your pocket, you are one step closer to making your offer when the right home comes along.

Some home-buying vocabulary

Equity- This is the amount of money you have put into your home. For first-time homebuyers equity is the down payment; for existing homeowners, the down payment is one aspect of equity, but a more relevant component is the appraised value of the house, (minus outstanding loans secured by the house as collateral). Some homebuyers prefer to make down payments of at least 20 percent to secure more favorable mortgage loan terms and to avoid paying Private Mortgage Insurance (PMI).

Mortgage - A mortgage is a loan on real property. Mortgages come in many categories: Conventional Loans, Interest-only Mortgages, Affordable Housing Programs, Government Loans, or Housing Finance Agency Programs. Mortgages can be fixed-rate, variable-rate, or in some cases interest only. The kind of mortgage that’s right for you depends on your circumstances and your home-buying needs.

Home Equity Line of Credit - This is a loan, secured by real estate, which you are approved for that consists of an open line of credit that may or may not be fully utilized. A home equity line is based on the amount of equity you have in your house and can be used for lots of purposes ranging from home renovation to vacations. You may choose to apply for a home equity line of credit at the same time you are applying for a mortgage or, you may choose to wait until later when you have more equity in your house and can qualify for a bigger line of credit.

Escrow - Some people prefer for the company that owns the mortgage to pay the property taxes and home insurance automatically. In these cases, mortgage companies hold part of your monthly mortgage payment in a special escrow account and make these payments on your behalf. The monthly payment is recalculated yearly to reflect recent changes in the tax value of the property or changes in insurance coverage.

This article is provided by RBC Bank. The information included in this article is not intended to be used as the primary basis for making financial decisions. RBC Bank does not provide tax or legal advice. Please consult your own financial, tax or legal advisor.

About RBC Bank
RBC Bank, headquartered in Raleigh, N.C., offers a wide range of financial services and advice to individuals, businesses and public institutions throughout the Southeast. RBC Bank’s network includes more than 430 full-service banking centers in six states (Alabama, Florida, Georgia, North Carolina, South Carolina and Virginia), an extensive ATM network and telephone and online banking. RBC Bank is the 38th largest U.S. bank by consolidated assets, according to SNL Financial’s List of the Nation’s 50 Largest Banks, September 2, 2009. RBC Bank is a wholly-owned subsidiary of Royal Bank of Canada (RBC) (RY on the TSX and NYSE), Canada's largest and most stable bank as measured by assets and market capitalization. In August 2009, Global Finance Magazine ranked RBC as the safest bank in the Western Hemisphere. RBC is also one of the world's financial, social and environmental corporate leaders, having appeared on the Dow Jones Sustainability World Index every year since its creation in 1999. Additional information about RBC Bank may be found at www.rbcbankusa.com.

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For more information:
Dorsey Landis
RBC Bank/(919) 788-6272
Dorsey.Landis@rbc.com