PREPARING TO BUY YOUR HOME

Getting Prepared

Alright, imagine you're looking for a new place to live, but before you even step inside a single home, it’s super important to think about what you need vs. what you want. These are two different things, and figuring them out will help you stay on track while searching for your dream home.

Start by thinking about your needs. This is like the stuff that’s non-negotiable—things you have to have in order for the home to work for you. For example, do you need a certain number of bedrooms or bathrooms? Maybe you need a home office space for work or school? When you focus on your needs, it’ll help you know exactly what you're looking for so you don't get distracted by cool design or fancy furniture when you're touring homes.

Next, write down why you're even looking for a new place. Are you tired of renting and want to start owning? Maybe you’ve outgrown your current home or need to move because of a new job? Whatever the reason is, it will shape how you look for your new place.

Then, make two lists: one for the things you really want in a home, and another for the things you absolutely need. You might start with a dream list (like "I want a pool!" or "I want a home with a giant backyard"), but the “must-haves” list should have the things you can't live without, like the number of rooms or certain features like a garage.

As you search, you might mix these lists together because you’ll learn what’s out there and what’s realistic. This whole process will help you make smarter decisions and find a home that fits your needs, while still allowing for some of those cool features you want.

First Time Buyers

Buying a home might sound really overwhelming, especially since it’s a huge decision with a lot of steps and things to consider. You might wonder things like: How much can I afford? Where do I get the money for a down payment? What kind of loan should I get? How do I even start looking for a home, and what should I expect from a real estate agent? And, what kind of home is actually right for me?

These are all great questions, and honestly, they’re just the beginning. Buying a home is one of the biggest financial moves you'll ever make, but most people don't know a ton about the process. So here are two important things to keep in mind:

  1. You can and should understand everything that’s happening during the homebuying process. It might seem complicated, but you’ll get the hang of it!

  2. You’ll need to learn some new terms and concepts, and it’ll take time, but that’s okay. You’ll get there!

And here’s something to remember: You’re the most important person in this whole process. It might feel like everyone else—like real estate agents, lenders, or even family members—have more expertise, but ultimately, you’re the one who makes the final call. If you decide not to buy, the whole thing stops. So, knowing that you’re in control helps you feel more confident in every decision.

If you approach the homebuying journey smartly and confidently from the start, you’re way more likely to end up with the home you really want—and feel good about the decisions you made along the way.

Here’s a simple breakdown of the steps to buying a home:

  1. Decide whether you want to rent or buy.
  2. Figure out how much you can afford to spend.
  3. Find the right real estate agent who can help guide you (hopefully thats me!).
  4. Get pre-approved for a mortgage (basically, getting a heads-up on how much a bank will lend you).
  5. Figure out what kind of home you want (house, apartment, condo, etc.).
  6. Find the right neighborhood that fits your vibe.
  7. Start searching for homes that meet your needs.
  8. Visit homes you’re interested in.
  9. Make an offer on the home you like best.
  10. Secure the mortgage to help pay for the home.
  11. Have the home inspected to make sure everything’s in good condition.
  12. Close the deal, sign the paperwork, and make everything official.
  13. Move into your new home!

Take it one step at a time, and you’ll have a much better experience through the whole process.

Renting vs. Owning

Renting a Home:

When you rent a house or apartment, you pay a landlord (the person who owns the property) each month. It’s like paying for a place to stay, but you don’t actually own it. You’re just borrowing it for a while.

  • Renting = Paying to Stay, Not Own: You pay rent, but when you move out, you don’t get any of that money back. It’s just gone. So, you’re not building any ownership or “earning” the house.

  • Less Responsibility: If something breaks (like a dishwasher or a leaky roof), the landlord is supposed to fix it. You don’t have to worry about doing repairs or paying for them.

  • Easier to Move: Renting is easier if you want to move around a lot. You can usually just leave when your lease is up (like a 1-year contract) and find another place.

  • Upfront Costs: You’ll usually need to pay a security deposit (a lump sum of money upfront) and the first month’s rent. If the house is in good shape when you leave, you’ll get that deposit back.

In Missouri and Kansas, renting can be cheaper in smaller towns, but if you're in a city like Kansas City or St. Louis, rent can be more expensive because more people want to live there.

Owning a Home:

When you own a house, it’s yours. You buy it by getting a loan (called a mortgage) from a bank, and then you make payments to pay off the loan over time.

  • Owning = You’re the Boss: When you own the house, it’s yours. You can paint the walls any color you want, change things around, and make it your home. Plus, when the house goes up in value (gets worth more), that’s your money too!

  • More Responsibility: As the owner, you have to fix things when they break. If the roof leaks or the fridge dies, you have to pay to fix it. Plus, you have to pay property taxes (which is a tax for owning the home).

  • Harder to Move: If you buy a house, it’s harder to just pick up and leave since you’ve got a mortgage and are tied to that property. You’ll need to sell the house if you want to move somewhere else.

  • Building Wealth: One of the cool things about owning is that as you pay off the mortgage, you’re building equity (which means you own a bigger part of the house). If the house increases in value, you could sell it later for more than you bought it for!

In Missouri and Kansas, owning a home can be cheaper in the long run if you're planning to stay for a while. However, homes can cost more in big cities, but if you're in a smaller town, you might find something affordable!

How Much Do I Need

​In Missouri and Kansas, home loans are structured similarly to those across the United States, offering various options to accommodate different financial situations. Here's an overview of how they work:​

1. Conforming Loan Limits:

The Federal Housing Finance Agency (FHFA) sets limits on the size of loans that Fannie Mae and Freddie Mac can back, known as conforming loans. For 2025, the conforming loan limit for single-family homes is $806,500 in Missouri. These limits can vary based on property type and location.

2. Federal Housing Administration (FHA) Loans:

FHA loans are government-backed mortgages designed to help low- to moderate-income borrowers. In Missouri, the FHA loan limits for single-family homes range from $524,225 to $1,008,300, depending on the county. These loans typically require a lower down payment, sometimes as low as 3.5%, and have more flexible credit requirements. 

3. USDA Rural Development Loans in Missouri:

The USDA offers Single Family Housing Direct Home Loans to assist low- and very-low-income applicants in eligible rural areas. These loans often require no down payment and offer competitive interest rates. Eligibility is based on income and property location. 

4. Kansas Housing Resources Corporation (KHRC) Programs:

In Kansas, the KHRC administers programs like the Home Loan Guarantee (HLG) for Rural Kansas and the First Time Homebuyer Program. The HLG helps finance home loans in rural areas by covering the gap between the loan and the appraisal value. The First Time Homebuyer Program offers down payment and closing cost assistance to eligible buyers, with recent expansions making more individuals eligible. ​

5. Down Payments and Interest Rates:

While traditional loans often require a 20% down payment, many programs in Missouri and Kansas allow for smaller down payments. For instance, FHA loans may require as little as 3.5% down. Interest rates vary based on the loan type, the borrower's creditworthiness, and prevailing market conditions.

6. Loan Application Process:

Applying for a home loan typically involves:​

  • Pre-Approval: Assessing your creditworthiness and determining how much you can borrow.​

  • Choosing a Loan Program: Selecting the loan that best fits your financial situation and goals.​

  • Property Selection: Finding a home within your budget and in an eligible area (especially for programs like USDA loans).​

  • Application and Approval: Submitting necessary documentation and awaiting approval.​

  • Closing: Finalizing the purchase and signing all required documents.​

It's important to consult with local lenders or housing authorities in Missouri and Kansas to understand specific eligibility requirements, loan limits, and available assistance programs tailored to your needs.

What Can I Afford?

There is a rule of thumb that says that if you have the capacity to repay the mortgage, you can afford a single-family house that costs up to two and one-half times your annual gross income. (Annual gross income is the amount you make before taxes are deducted.) Like other rules of thumb, this is a general idea of how large a mortgage you can afford. But, because it is so simple, it doesn't take into account all the information that will help you feel comfortable with your mortgage payments.

If you are buying a house with someone else (spouse, parent, adult child, partner/companion, brother or sister or other relative), you should consider your co-purchaser's earnings and existing debts as well. Remember, if you apply for a loan with somebody else, you and your coborrower are both legally responsible for repayment of the mortgage.

Your buying power depends on how much you have available for the down payment and how much a financial institution will agree to lend you.

Your down payment

If you're buying a home for the first time, the amount you can afford to pay for a house might depend on how much you can save for the down payment and closing costs. If you don't have a lot saved up yet, you might want to start setting aside money regularly from your paycheck. You can use money from your checking or savings accounts, mutual funds, stocks, bonds, the cash value of your life insurance, or even gifts from family members to help with the down payment.

Private Mortgage Insurance

Depending on the lender and loan type, you may be able to get a mortgage with as little as 3 percent or 5 percent down. However, putting less than 20 percent down often means you will be required to purchase private mortgage insurance. Private Mortgage Insurance (PMI) helps protect the lending institution in case you fail to make payments on your mortgage.

Avoiding PMI

To avoid paying PMI (Private Mortgage Insurance), here are some simple options:

  1. Put Down 20% or More: If you can make a down payment of 20% or higher, you won’t need PMI.

  2. Use a Piggyback Loan: You can take out a second loan to cover part of the down payment, like an 80-10-10 loan. This can help you avoid PMI.

  3. Look for Lender-Paid PMI: Some lenders will pay for PMI if you agree to a slightly higher interest rate, so you don’t pay it directly.

  4. Consider a VA or USDA Loan: If you qualify for these government-backed loans, you won’t have to pay PMI, even with a small or no down payment.

  5. Explore Special Loan Programs: Some lenders have programs that let you put down less than 20% and still avoid PMI.

These options can help you skip the extra cost of PMI!

Your closing costs

In addition to your down payment, you'll also need to plan for closing costs. The closing is the final step where the house officially becomes yours, and it ensures everything is in order for the transfer of ownership from the seller to you.

Closing costs usually range from 3% to 6% of your mortgage amount. For example, if you're buying a $100,000 house with a 5% ($5,000) down payment, you could expect to pay between $2,850 and $5,700 on your $95,000 mortgage. In some cases, you may be able to negotiate with the seller to cover some of your closing costs, which can lower the amount of money you need to bring to the closing.

How much a financial institution will lend you

Apart from having available funds for a down payment and closing costs, the other major factor limiting how expensive a house you can buy will be how much you can borrow.

When you apply for a mortgage, the lender will consider both your earnings and your existing debts in determining the size of your loan. Lenders generally use the following two qualifying guidelines to determine what size mortgage you are eligible for:

The amount of money you owe for mortgage payments, property taxes, insurance, and condominium or co-op fee, if applicable, should total no more than 28 percent of your monthly gross (before-tax) income. This is called the Housing Expense Ratio. The amount of money you owe for the above items plus other long-term debts should total no more than 36 percent of your monthly gross income. This is called the total Debt-to-Income Ratio.

Basically, lenders are saying that a household should spend no more than about one-fourth of its income (up to 28 percent) on housing and no more than about one-third of its income (up to 36 percent) on total indebtedness (housing plus other debts). Lenders feel that if they follow these guidelines, homeowners will be able to pay off their mortgages fairly comfortably.

These lender ratios are flexible guidelines. If you have a consistent record of paying rent that is very close in amount to your proposed monthly mortgage payments or if you make a large down payment,

you may be able to use somewhat higher ratios. Some lenders offer special loans for low- and moderate-income home buyers that allow them to use as much as 33 percent of their gross monthly income for housing expenses and 38 percent for total debt.

Don’t Despair, There is a Loan For You

When you go to apply for a mortgage, the lender will use all the relevant data -- your income, your existing debts, the purchase price of the house, your down payment, the interest rate on the loan, and the cost of property taxes and insurance -- and calculate whether you qualify to borrow the amount of money you need to buy the house.

Income vs. Debt Ratios

As you think about applying for a home loan, you need to consider your personal finances. How much you earn versus how much you owe will likely determine how much a lender will allow you to borrow.

First, determine your gross monthly income. This will include any regular and recurring income that you can document. It is the average income of a 2 year time period. Unfortunately, if you can't document the income or it doesn't show up on your tax return, then you can't use it to qualify for a loan. However, you can use unearned sources of income such as alimony or lottery payoffs. And if you own income-producing assets such as real estate or stocks, the income from those can be estimated and used in this calculation. If you have questions about your specific situation, any good loan officer can review your documents.

Next, calculate your monthly debt load. This includes all monthly debt obligations like credit cards, installment loans, car loans, personal debts or any other ongoing monthly obligation like alimony or child support. If it is revolving debt like a credit card, use the minimum monthly payment for this calculation. If it is installment debt, use the current monthly payment to calculate your debt load. And you don't have to consider a debt at all if it is scheduled to be paid off in less than ten months. Add all this up and it is a figure we'll call your monthly debt service.

In a nutshell, most lenders don't want you to take out a loan that will overload your ability to repay everybody you owe. Although every lender has slightly different formulas, here is a rough idea of how they look at the numbers. Typically, your monthly proposed housing expense, including monthly payments for taxes and insurance, should not exceed about 28% of your gross monthly income. If you don't know what your tax and insurance expense will be, you can estimate that about 15% of your payment will go toward this expense. The remainder can be used for principal and interest repayment.

In addition, your proposed monthly housing expense and your total monthly debt service combined cannot exceed about 36% of your gross monthly income. If it does, your application may exceed the lender's underwriting guidelines and your loan may not be approved.

There are a number of factors within your control that affect your monthly payment. For example, you might choose to apply for an adjustable rate loan that has a lower initial payment than a fixed rate program. Likewise, a larger down payment has the effect of lowering your projected monthly payment.

A lender takes into account many factors that reflect the financial condition of a homebuyer. With a variety of loan programs, buying a home is possible.

Getting Pre-Approved

Though you may be willing to spend a certain amount, the real determination of how much house you can afford is driven by how much a lender calculates you can afford. So before you begin to search for the perfect house, it is very important to begin the homebuying process by getting preapproved. Getting preapproved for a home mortgage loan will provide you with a preliminary statement on the size of loan for which you can qualify. Knowing this, you can then focus your home search.

In general, lenders allow your total monthly housing costs to go as high as but not more than 30 percent of your gross monthly income. The second requirement is that not more than 36 percent of your gross monthly income can be tied up in the total monthly house payment and payments on long-term debt.

Lenders use slightly different formulas for determining the "total monthly house payment.” These costs generally include the mortgage principal and interest payment, property taxes as a monthly sum, and hazard insurance as a monthly sum. These four items are referred to as PITI (principal, interest, taxes and insurance). Other costs may be included in this calculation if your down payment is less than 20 percent or if you are responsible for homeowner’s association dues. The calculations may vary from lender to lender, but will provide you with a gauge.

The Preapproval Letter

Your friends and family might already know you as reliable and responsible when it comes to paying bills, but in a real estate transaction, you’ll need to show that to everyone involved. That’s where preapproval comes in. A preapproval letter is more solid than a pre-qualification letter. During the preapproval process, a lender will review your finances and tell you how much of a loan you’re likely to qualify for.

Preapproval is a detailed process. The lender will gather all the information about your finances and conduct a thorough check on your current financial situation. In the end, you'll know exactly how much you can borrow (based on the type of loan you choose). Having a preapproval letter shows the seller that you’ve gone through a serious financial review, so they’ll know there won’t be any surprises when it comes time to buy the home. This makes your offer stronger.

Preapproval gives you a clear idea of:

  • How much down payment you’ll need

  • Your closing costs

  • Your monthly payment (including PITI: principal, interest, taxes, and insurance)

  • The type of loan that suits you best

  • Any special programs you might qualify for (like ones for veterans, first-time buyers, or teachers)

To get preapproved, you’ll need to provide a lender with:

  • Your employment and income history (including recent pay stubs)

  • Your monthly debts

  • The amount and source of cash available for your down payment and closing costs

Preapproval letters are not binding on the lender, they are subject to an appraisal of the home you want to purchase and are time sensitive. If your financial situation changes, interest rates rise or a pre-determined date passes, the lender will review your situation and recalculate your maximum mortgage amount accordingly. You can research lenders yourself and ask them to preapprove you.

I will help to provide you with additional information on areas that are attractive to you, as well as schedule times for you to preview any properties that may be of interest.

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