How Much House Can You Afford?     (Blog entry,  July 7, 2008)

 

 

This a common question, especially for first time homebuyers.  Remember that

part of the house hunting process is getting connected with a mortgage professional

who can advise you on how the banks go about determining the price of the home

that you can qualify for.  A mortgage professional can accurately advise you on ALL

aspects of getting pre-qualified.   While there is no exact method for determining what you

can afford, here is a good rule of thumb -

 

Banks prefer your Debt-to-Income ratio to be between 40% and 50%.  To determine

your "DTI", take your new house payment plus all the other monthly obligations that

appear on your credit report and divide it by your monthly GROSS income (before taxes).    

The bank figures your DTI based solely on the payments that appear on your credit report. 

So if John Doe makes $3000 / mo. and has a car payment for $200 / mo. plus 2 credit cards that have

a minimum payment of $50 per month total, his DTI calculation would look like this

 

 -      $200 (car)+ $50 (cc) + New home payment  /   $3000   ……    should be between 40% and 50%

 

Be sure when you estimate your new home payment that you include the monthly amount

for property taxes, insurance, and homeowners association dues (if any).

 

So if John's DTI is  50%,  then his house payment would be   $1,250   ($1,250 + $250 / $3000  = 50%)

 

Typically John is going to be pre-qualified by a bank to purchase a home with this DTI if his credit score is above average.  If his score is average or below average, then he'll likely need his DTI to be

closer to 40% rather than 50%.

 

** Don't forget that this is the method by which most banks will determine how much home

you can afford and you might choose to buy a smaller home if your personal budget determines

that you should.

 

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Blog Entry -  May 16,  2008

The Importance of Being Earnest (when you are getting pre-qualified)

  

     A mistake that some home buyers make is not taking the time to speak

with a mortgage lender before they begin searching for a new home.  It is vital

that anyone  interested in buying a home find out where they stand financially

and what price home they can qualify for.  Pre-qualifying can be as quick as

a ten minute phone call and can give buyers the peace of mind that they are

looking for homes in the right price range.  Pre-qualifying will also inform buyers

about what to expect in regards to current interest rates, payments, closing costs,

cash needed at closing, and other key aspects of the buying process.

 

      When home buyers speak with a mortgage professional, it is essential that they provide

all the details regarding their financial situation.  Some buyers are cautious about disclosing

all their financial details because they feel that they could be pressured into buying more

house then they want or they may be asked to put down more money then they would prefer.

Quite often, buyers who may have negative items on their credit report feel that if they avoid

discussing these issues that perhaps they won't be noticed.  In order for any mortgage

professional to do the very best job, all buyers should disclose every detail of their financial and

credit history.  This allows your mortgage consultant to give you the very best advice.  Imagine

if you went to the doctor for an ailment and you purposely withheld information regarding

medications you may be taking.  Without this information, the doctor may not be able to give

you the very best advice.

 

Blog Entry - April 22, 2008

ARM vs. Fixed Rate -  The Great Debate

 

With so much news about the great "mortgage mess" going on now, many consumers

have been lead to believe that an ARM (Adjustable Rate Mortgage) is the worst type

of mortgage ever created.  Well, like most things, it is not that simple.  Here's why -

 

     First, an ARM is fixed for a term of 3, 5, 7, or 10 years.  After this time has expired, then

the bank that holds the mortgage changes the rate based on certain parameters that were

disclosed when the customer chose the loan.  The new rate can go up or down based on market

conditions at the conclusion of the fixed rate period.  With this type of loan, the bank is able to offer

a loan that is lower than the going 30 year fixed rate because the rate can be adjusted

after 3,5,7,or 10 years to be in line with the market.  It can be a good choice to save

money on interest expenses.

 

     The 30 year Fixed Rate mortgage is the most popular type of loan offered.  It guarantees

that the interest rate will not change for 30 years unless the customer decides to change

the rate by refinancing to a new mortgage.  Some people choose this option because they

want the security of knowing that their rate is fixed and can't change.

 

     People looking at getting a new mortgage should ask themselves these questions -

 

1.  How long do I intend to live in the home that I'm purchasing? 

 

2.  Have I ever refinanced a loan in the past because a lower rate became available?

 

3.  Do I have a relationship with a mortgage professional who will contact me if

     a better loan option (usually lower rate) becomes available?

 

Depending on how you answer the above questions (and probably a few others),

your mortgage professional will be able to direct you to the best decision in regards to

choosing an ARM or a Fixed rate. As is the case when making any large financial decision,

it is important to seek out the advice of a professional.  Call Andy Holloman,

Mr. Mortgage if you need any advice or guidance with mortgage loan issues. 

All advice is FREE !! phone  -  919-341-4919  or    www.MrMortg.com

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Blog Entry  -  April 11, 2008

Rate Cuts by the Federal Reserve and How This Affects Mortgage Rates.

  

I frequently have customers call me and ask me to check on refinancing because

they saw in the news that the Federal Reserve has cut interest rates.  This has

been happening more lately because the Federal Reserve has been moving

aggressively to lower interest rates to assist the sagging economy.

 

The Federal Reserve sets the rate that banks charge each other to borrow

money.  This in turn reduces the interest rate that banks charge customers for

loan line Home Equity Lines of credit, credit cards, auto loans, and others.

It DOES NOT affect the rates that are available for first mortgages (well

not directly!).

 

First mortgage rates are not set by anyone and move up and down based

on a wide variety of market factors, much like the stock market (but not with

the wide swings that can happen in the stock market.)  I'm not an economist,

so I apologize for this overly simplistic explanation.  I would just like

to point out this common misconception.

 

As always, please call if you have any questions!!   Thanks

 

Andy Holloman,  Mr Mortgage,   www.MrMortg.com    919-341-4919

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Blog Entry - March 27, 2008

Don't close those old credit accounts!!!

If you have had a variety of credit accounts through the years, you will no doubt
notice on your credit report many accounts that you have not used for many years.
You may be tempted to take steps to close these accounts or, if they are already
closed, have them removed from your report. DON'T DO IT !!

Old, inactive accounts rarely affect your credit score and there's no reason to
address them. Even if they have reporting errors or never should have been
included on your report anyway, don't bother with them. The only time
that it makes sense to take action on an old credit account is if there
are late payments reporting within the last 12 months that are incorrect.
Even if the account is reporting late payments incorrectly, and these "lates"
are older than 1 year, it is unlikely that fixing the bad information will result
in much of an improvement in your credit score.    Call for more information - 919-341-4919

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Blog Entry -  March 21, 2008

The Myth of the "Great First Time Homebuyer Mortgage Loan"

 

I love working with first time buyers but I wish that this urban legend of the

"first time buyer" home loan were not so prevalent.  It seems that every other

first time home buyer (FTHB) brings up the subject and they indicate that they want one of

these super loans because they haven't purchased before.  While there certainly are loans

available for FTHB's ,  it is rare that they are the best choice.  Here's why -

 

Normal, conforming loans (conforming typically = lowest rate) are available from

a wide variety of sources and these loans do not distinguish between FTHB's and

non-FTHB's.  Qualifying for these loans is easy provided a borrower has

decent credit, a small down payment (usually 3-5%), and adequate income.

 

Where the "special" loan options come into play is for the person who may

have a challenge with credit, income, or assets (down pymt).  Special consideration

may be given to FTHB's who may have low-to-moderate credit scores, lower than

normal income, or no downpayment.  These loans also come with a higher interest

rate than conforming loans.  There may be good reasons for someone, or even a

FTHB, to choose a "special" loan, but just being a FTHB would not be the main

reason.  Call for more information - 919-341-4919