| One of the most important elements of the | | | | affordable loan P&I payment. |
| home buying process involves making the right | | | | 3. Calculate your typical loan term and interest |
| offer for your home. Experts encourage all | | | | rate. Write down the loan term in years and the |
| homebuyers to take the time to research prices | | | | interest rate. You will need to locate the |
| in the area and create their own reservation price, | | | | appropriate payment from the loan payment |
| or the highest price they are willing to pay for the | | | | tables that are applicable to this loan term and |
| home. A reservation price helps you to bid more | | | | interest rate. |
| effectively and stay within your budget, making it | | | | 4. Calculate your total loan amount. This will also |
| easier to negotiate with the seller or seller's agent | | | | be found in the loan payment table; you may also |
| when it comes to making the offer. | | | | obtain this from your mortgage lender. |
| Barron's 'Smart Consumer Guide to Home Buying' | | | | 5. Add your cash available for the down payment. |
| explains that it is customary for buyers to | | | | This will give you a final figure of the amount you |
| discount their offering price to create some | | | | can afford to pay for the home. |
| negotiating room when making the offer; there is | | | | After completing the calculation in Step 5, you can |
| no rule on how much this discount needs to be, | | | | compare it to Step 1 and see what the difference |
| but it will depend largely on market conditions and | | | | is. This will give you your negotiating range that |
| how much you really like the home. | | | | you can use when making your offer. If the |
| Here is a basic process for calculating your | | | | amount in Step 1 is higher than Step 5, you may |
| reservation price so you can negotiate the best | | | | be able to secure an offer by bidding a higher |
| price for your dream home: | | | | price than the seller is offering. If the amount in |
| 1. Write down the amount you can afford to pay | | | | Step 1 is lower than Step 5, you'll need to focus |
| each month. This may be close to what you are | | | | on bringing the final price down to a more |
| paying now, or what you are comfortably willing | | | | affordable range. |
| to spend per month on housing costs. | | | | Calculating your reservation price is an important |
| 2. Calculate tax and insurance costs. Barron's | | | | part of the homebuying process and can help you |
| 'Smart Consumer Guide to Home Buying' offers | | | | negotiate the best possible deal for your situation |
| the following suggestions for calculating tax and | | | | and get the home you want. Consider using the |
| insurance rates. Use a factor of.68 for areas with | | | | above calculations for each home you are |
| high tax and insurance costs;.85 if tax and | | | | considering so you have the confidence to overbid |
| insurance is relatively inexpensive; or use the | | | | or negotiate for a lower price with your budget in |
| standard.75 for a rough estimate. Multiplying this | | | | mind. |
| rate by the amount in Step 1 will give you your | | | | |